SECOND DIVISION

G.R. No. 122174 October 3, 2002

INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and REFRACTORIES
CORPORATION OF THE PHILIPPINES, respondents.

AUSTRIA-MARTINEZ, J.:

Filed before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
Decision of the Court of Appeals in CA-G.R. SP No. 35056, denying due course and dismissing the
petition filed by Industrial Refractories Corp. of the Philippines (IRCP).

Respondent Refractories Corporation of the Philippines (RCP) is a corporation duly organized on

October 13, 1976 for the purpose of engaging in the business of manufacturing, producing, selling,
exporting and otherwise dealing in any and all refractory bricks, its by-products and derivatives. On
June 22, 1977, it registered its corporate and business name with the Bureau of Domestic Trade.

Petitioner IRCP on the other hand, was incorporated on August 23, 1979 originally under the name
"Synclaire Manufacturing Corporation". It amended its Articles of Incorporation on August 23, 1985 to
change its corporate name to "Industrial Refractories Corp. of the Philippines". It is engaged in the
business of manufacturing all kinds of ceramics and other products, except paints and zincs.

Both companies are the only local suppliers of monolithic gunning mix.1

Discovering that petitioner was using such corporate name, respondent RCP filed on April 14, 1988
with the Securities and Exchange Commission (SEC) a petition to compel petitioner to change its
corporate name on the ground that its corporate name is confusingly similar with that of petitioner’s
such that the public may be confused or deceived into believing that they are one and the same
corporation.2

The SEC decided in favor of respondent RCP and rendered judgment on July 23, 1993 with the
following dispositive portion:

"WHEREFORE, judgment is hereby rendered in favor of the petitioner and against the respondent
declaring the latter’s corporate name ‘Industrial Refractories Corporation of the Philippines’ as
deceptively and confusingly similar to that of petitioner’s corporate name ‘Refractories Corporation of
the Philippines’. Accordingly, respondent is hereby directed to amend its Articles of Incorporation by
deleting the name ‘Refractories Corporation of the Philippines’ in its corporate name within thirty (30)
days from finality of this Decision. Likewise, respondent is hereby ordered to pay the petitioner the
sum of P50,000.00 as attorney’s fees."3

Petitioner appealed to the SEC En Banc, arguing that it does not have any jurisdiction over the case,
and that respondent RCP has no right to the exclusive use of its corporate name as it is composed of
generic or common words.4

In its Decision dated July 23, 1993, the SEC En Banc modified the appealed decision in that petitioner
was ordered to delete or drop from its corporate name only the word "Refractories". 5

Petitioner IRCP elevated the decision of the SEC En Banc through a petition for review on certiorari to
the Court of Appeals which then rendered the herein assailed decision. The appellate court upheld the
jurisdiction of the SEC over the case and ruled that the corporate names of petitioner IRCP and
respondent RCP are confusingly or deceptively similar, and that respondent RCP has established its
prior right to use the word "Refractories" as its corporate name. 6 The appellate court also found that
the petition was filed beyond the reglementary period.7
Hence, herein petition which we must deny.

Petitioner contends that the petition before the Court of Appeals was timely filed. It must be noted
that at the time the SEC En Banc rendered its decision on May 10, 1994, the governing rule on
appeals from quasi-judicial agencies like the SEC was Supreme Court Circular No. 1-91. As
provided therein, the remedy should have been a petition for review filed before the Court of Appeals
within fifteen (15) days from notice, raising questions of fact, of law, or mixed questions of fact and
law.8 A motion for reconsideration suspends the running of the period.9

In the case at bench, there is a discrepancy between the dates provided by petitioner and respondent.
Petitioner alleges the following dates of receipt and filing:10

June 10, 1994 Receipt of SEC’s Decision dated May 10, 1994

June 20, 1994 Filing of Motion for Reconsideration

September 1, 1994 Receipt of SEC’s Order dated August 3, 1994 denying petitioner’s motion
for reconsideration

September 2, 1994 Filing of Motion for extension of time

September 6, 1994 Filing of Petition

Respondent RCP, however, asserts that the foregoing dates are incorrect as the certifications issued
by the SEC show that petitioner received the SEC’s Decision dated May 10, 1994 on June 9, 1994,
filed the motion for reconsideration via registered mail on June 25, 1994, and received the Order
dated August 3, 1994 on August 15, 1994.11 Thus, the petition was filed twenty-one (21) days beyond
the reglementary period provided in Supreme Court Circular No. 1-91.12

If reckoned from the dates supplied by petitioner, then the petition was timely filed. On the other
hand, if reckoned from the dates provided by respondent RCP, then it was filed way beyond the
reglementary period. On this score, we agree with the appellate court’s finding that petitioner failed to
rebut respondent RCP’s allegations of material dates of receipt and filing. 13 In addition, the
certifications were executed by the SEC officials based on their official records 14 which enjoy the
presumption of regularity.15 As such, these are prima facie evidence of the facts stated therein.16 And
based on such dates, there is no question that the petition was filed with the Court of Appeals beyond
the fifteen (15) day period. On this ground alone, the instant petition should be denied as the SEC En
Banc’s decision had already attained finality and the SEC’s findings of fact, when supported by
substantial evidence, is final.17

Nevertheless, to set the matters at rest, we shall delve into the other issues posed by petitioner.

Petitioner’s arguments, substantially, are as follows: (1) jurisdiction is vested with the regular courts
as the present case is not one of the instances provided in P.D. 902-A; (2) respondent RCP is not
entitled to use the generic name "refractories"; (3) there is no confusing similarity between their
corporate names; and (4) there is no basis for the award of attorney’s fees.18

Petitioner’s argument on the SEC’s jurisdiction over the case is utterly myopic. The jurisdiction of the
SEC is not merely confined to the adjudicative functions provided in Section 5 of P.D. 902-A, as
amended.19 By express mandate, it has absolute jurisdiction, supervision and control over all
corporations.20 It also exercises regulatory and administrative powers to implement and enforce the
Corporation Code,21 one of which is Section 18, which provides:

"SEC. 18. Corporate name. -- No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law or is patently deceptive, confusing
or contrary to existing laws. When a change in the corporate name is approved, the Commission shall
issue an amended certificate of incorporation under the amended name."

It is the SEC’s duty to prevent confusion in the use of corporate names not only for the protection of
the corporations involved but more so for the protection of the public, and it has authority to de-
register at all times and under all circumstances corporate names which in its estimation are likely to
generate confusion.22 Clearly therefore, the present case falls within the ambit of the SEC’s regulatory
powers.23

Likewise untenable is petitioner’s argument that there is no confusing or deceptive similarity between
petitioner and respondent RCP’s corporate names. Section 18 of the Corporation Code expressly
prohibits the use of a corporate name which is "identical or deceptively or confusingly similar to that of
any existing corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing laws". The policy behind the foregoing prohibition is to avoid fraud
upon the public that will have occasion to deal with the entity concerned, the evasion of legal
obligations and duties, and the reduction of difficulties of administration and supervision over
corporation.24

Pursuant thereto, the Revised Guidelines in the Approval of Corporate and Partnership Names 25
specifically requires that: (1) a corporate name shall not be identical, misleading or confusingly similar
to one already registered by another corporation with the Commission; 26 and (2) if the proposed name
is similar to the name of a registered firm, the proposed name must contain at least one distinctive
word different from the name of the company already registered.27

As held in Philips Export B.V. vs. Court of Appeals,28 to fall within the prohibition of the law, two
requisites must be proven, to wit:

(1) that the complainant corporation acquired a prior right over the use of such corporate name;

and

(2) the proposed name is either: (a) identical, or (b) deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law; or (c) patently deceptive,
confusing or contrary to existing law.

As regards the first requisite, it has been held that the right to the exclusive use of a corporate name
with freedom from infringement by similarity is determined by priority of adoption.29 In this case,
respondent RCP was incorporated on October 13, 1976 and since then has been using the corporate
name "Refractories Corp. of the Philippines". Meanwhile, petitioner was incorporated on August 23,
1979 originally under the name "Synclaire Manufacturing Corporation". It only started using the name
"Industrial Refractories Corp. of the Philippines" when it amended its Articles of Incorporation on
August 23, 1985, or nine (9) years after respondent RCP started using its name. Thus, being the prior
registrant, respondent RCP has acquired the right to use the word "Refractories" as part of its
corporate name.

Anent the second requisite, in determining the existence of confusing similarity in corporate names,
the test is whether the similarity is such as to mislead a person using ordinary care and discrimination
and the Court must look to the record as well as the names themselves. 30 Petitioner’s corporate name
is "Industrial Refractories Corp. of the Phils.", while respondent’s is "Refractories Corp. of the Phils."
Obviously, both names contain the identical words "Refractories", "Corporation" and "Philippines". The
only word that distinguishes petitioner from respondent RCP is the word "Industrial" which merely
identifies a corporation’s general field of activities or operations. We need not linger on these two
corporate names to conclude that they are patently similar that even with reasonable care and
observation, confusion might arise.31 It must be noted that both cater to the same clientele, i.e.¸ the
steel industry. In fact, the SEC found that there were instances when different steel companies were
actually confused between the two, especially since they also have similar product packaging. 32 Such
findings are accorded not only great respect but even finality, and are binding upon this Court, unless
it is shown that it had arbitrarily disregarded or misapprehended evidence before it to such an extent
as to compel a contrary conclusion had such evidence been properly appreciated. 33 And even without
such proof of actual confusion between the two corporate names, it suffices that confusion is probable
or likely to occur.34

Refractory materials are described as follows:

"Refractories are structural materials used at high temperatures to [sic] industrial furnaces. They are
supplied mainly in the form of brick of standard sizes and of special shapes. Refractories also include
refractory cements, bonding mortars, plastic firebrick, castables, ramming mixtures, and other bulk
materials such as dead-burned grain magneside, chrome or ground ganister and special clay."35

While the word "refractories" is a generic term, its usage is not widespread and is limited merely to
the industry/trade in which it is used, and its continuous use by respondent RCP for a considerable
period has made the term so closely identified with it. 36 Moreover, as held in the case of Ang Kaanib
sa Iglesia ng Dios kay Kristo Hesus, H.S.K. sa Bansang Pilipinas, Inc. vs. Iglesia ng Dios kay
Cristo Jesus, Haligi at Suhay ng Katotohanan, petitioner’s appropriation of respondent's corporate
name cannot find justification under the generic word rule. 37 A contrary ruling would encourage other
corporations to adopt verbatim and register an existing and protected corporate name, to the
detriment of the public.38

Finally, we find the award of P50,000.00 as attorney's fees to be fair and reasonable. Article 2208 of
the Civil Code allows the award of such fees when its claimant is compelled to litigate with third
persons or to incur expenses to protect its just and valid claim. In this case, despite its undertaking to
change its corporate name in case another firm has acquired a prior right to use such name, 39 it
refused to do so, thus compelling respondent to undergo litigation and incur expenses to protect its
corporate name.

WHEREFORE, the instant petition for review on certiorari is hereby DENIED for lack of merit.

Costs against petitioner.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

JOHN GOKONGWEI, JR., petitioner,

vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO,
ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL
ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and
EDUARDO R. VISAYA, respondents.

De Santos, Balgos & Perez for petitioner.

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

Siguion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation.

R. T Capulong for respondent Eduardo R. Visaya.

ANTONIO, J.:

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

SEC CASE NO 1375

On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filed with the
Securities and Exchange Commission (SEC) a petition for "declaration of nullity 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 Bunao, Walthrode B. Conde, Miguel
Ortigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC Case No. 1375.

As a first cause of action, petitioner alleged that on September 18, 1976, individual respondents
amended by bylaws of the corporation, basing their authority to do so on a resolution of the
stockholders adopted on March 13, 1961, when the outstanding capital stock of respondent
corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and
150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and
paid up shares totalled 30,127,047 with a total par value of P301,270,430.00. It was contended that
according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the
power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors
only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid
up capital stock of the corporation, which 2/3 should have been computed on the basis of the
capitalization at the time of the amendment. Since the amendment was based on the 1961
authorization, petitioner contended that the Board acted without authority and in usurpation of the
power of the stockholders.

As a second cause of action, it was alleged that the authority granted in 1961 had already been
exercised in 1962 and 1963, after which the authority of the Board ceased to exist.

As a third cause of action, petitioner averred that the membership of the Board of Directors had
changed since the authority was given in 1961, there being six (6) new directors.

As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all
the qualifications to be a director of respondent corporation, being a Substantial stockholder thereof;
that as a stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to
vote and to be voted upon in the election of directors; and that in amending the by-laws, respondents
purposely provided for petitioner's disqualification and deprived him of his vested right as afore-
mentioned hence the amended by-laws are null and void. 1
As additional causes of action, it was alleged that corporations have no inherent power to disqualify a
stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void;
that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into
contracts (specifically a management contract) with respondent corporation, which was allowed
because the questioned amendment gave the Board itself the prerogative of determining whether they
or other persons are engaged in competitive or antagonistic business; that the portion of the amended
bylaws which states that in determining whether or not a person is engaged in competitive business,
the Board may consider such factors as business and family relationship, is unreasonable and
oppressive and, therefore, void; and that the portion of the amended by-laws which requires that "all
nominations for election of directors ... shall be submitted in writing to the Board of Directors at least
five (5) working days before the date of the Annual Meeting" is likewise unreasonable and oppressive.

It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of
filing thereof be cancelled, and that individual respondents be made to pay damages, in specified
amounts, to petitioner.

On October 28, 1976, in connection with the same case, petitioner filed with the Securities and
Exchange Commission an "Urgent Motion for Production and Inspection of Documents", alleging that
the Secretary of respondent 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 field on March 13, 1961, (b)
copy of the management contract between San Miguel Corporation and A. Soriano Corporation
(ANSCOR); (c) latest balance sheet of San Miguel International, Inc.; (d) authority of the stockholders
to invest the funds of respondent corporation in San Miguel International, Inc.; and (e) lists of
salaries, allowances, bonuses, and other compensation, if any, received by Andres M. Soriano, Jr.
and/or its successor-in-interest.

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

During the pendency of the motion for production, respondents San Miguel Corporation, Enrique
Conde, Miguel Ortigas and Antonio Prieto filed their answer to the petition, denying the substantial
allegations therein and stating, by way of affirmative defenses that "the action taken by the Board of
Directors on September 18, 1976 resulting in the ... amendments is valid and legal because the power
to "amend, modify, repeal or adopt new By-laws" delegated to said Board on March 13, 1961 and long
prior thereto has never been revoked 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 I 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 respondent corporation 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 t I hat of the corporation; that the questioned amended by-laws is a matter of
internal policy and the judgment of the board should not be interfered with: That the by-laws, as
amended, are valid and binding and are intended to prevent the possibility of violation of criminal and
civil laws prohibiting combinations in restraint of trade; and that the petition states no cause of action.
It was, therefore, prayed that the petition be dismissed and that petitioner be ordered to pay damages
and attorney's fees to respondents. The application for writ of preliminary injunction was likewise on
various grounds.

Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their opposition to the petition, denying
the material averments thereof and stating, as part of their affirmative defenses, that in August 1972,
the Universal Robina Corporation (Robina), a corporation engaged in business competitive to that of
respondent corporation, began acquiring shares therein. until September 1976 when its total holding
amounted to 622,987 shares: that in October 1972, the Consolidated Foods Corporation (CFC)
likewise began acquiring shares in respondent (corporation. until its total holdings amounted to
P543,959.00 in September 1976; that on January 12, 1976, petitioner, who is president and
controlling shareholder of Robina and CFC (both closed corporations) purchased 5,000 shares of stock
of respondent corporation, and thereafter, in behalf of himself, CFC and Robina, "conducted
malevolent and malicious publicity campaign against SMC" to generate support from the stockholder
"in his effort to secure for himself and in representation of Robina and CFC interests, a seat in the
Board of Directors of SMC", that in the stockholders' meeting of March 18, 1976, petitioner was
rejected by the stockholders in his bid to secure a seat in the Board of Directors on the basic issue
that petitioner was engaged in a competitive business and his securing a seat would have subjected
respondent corporation to grave disadvantages; that "petitioner nevertheless vowed to secure a seat
in the Board of Directors at the next annual meeting; that thereafter the Board of Directors amended
the by-laws as afore-stated.

As counterclaims, actual damages, moral damages, exemplary damages, expenses of 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-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,

withdrawing his request to copy and inspect the management contract between San
Miguel Corporation and A. Soriano Corporation and the renewal and amendments
thereof for the reason that he had already obtained the same, the Commission takes
note thereof; and

4. Finally, the Commission holds in abeyance the resolution on the matter of

production and inspection of the authority of the stockholders of San Miguel
Corporation to invest the funds of respondent corporation in San Miguel International,
Inc., until after the hearing on the merits of the principal issues in the above-entitled
case.

This Order is immediately executory upon its approval. 2

Dissatisfied with the foregoing Order, petitioner moved for its reconsideration.

Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondent corporation
issued a notice of special stockholders' meeting for the purpose of "ratification and confirmation of the
amendment to the By-laws", setting such meeting for February 10, 1977. This prompted petitioner to
ask respondent Commission for a summary judgment insofar as the first cause of action is concerned,
for the alleged reason that by calling a special stockholders' meeting for the aforesaid purpose, private
respondents admitted the invalidity of the amendments of September 18, 1976. The motion for
summary judgment was opposed by private respondents. Pending action on the motion, petitioner
filed an "Urgent Motion for the Issuance of a Temporary Restraining Order", praying that pending the
determination of petitioner's application for the issuance of a preliminary injunction and/or petitioner's
motion for summary judgment, a temporary restraining order be issued, restraining respondents from
holding the special stockholder's 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 record had not yet been resolved.

In view of the fact that the annul stockholders' meeting of respondent corporation had been scheduled
for May 10, 1977, petitioner filed with respondent Commission a Manifestation stating that he
intended to run for the position of director of respondent corporation. Thereafter, respondents filed a
Manifestation with respondent Commission, submitting a Resolution of the Board of Directors of
respondent corporation disqualifying and precluding petitioner from being a candidate for director
unless he could submit evidence on May 3, 1977 that he does not come within the disqualifications
specified in the amendment to the by-laws, subject matter of SEC Case No. 1375. By reason thereof,
petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ
of injunction, alleging that private respondents were seeking to nullify and render ineffectual the
exercise of jurisdiction by the respondent Commission, to petitioner's irreparable damage and
prejudice, Allegedly despite a subsequent Manifestation to prod respondent Commission to act,
petitioner was not heard prior to the date of the stockholders' meeting.

Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act
hence petitioner came to this Court.

SEC. CASE NO. 1423

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

On February 4, 1977, motions to dismiss were filed by private respondents, to which a consolidated
motion to strike and to declare individual respondents in default and an opposition ad abundantiorem
cautelam were filed by petitioner. Despite the fact that said motions were filed as early as February 4,
1977, the commission acted thereon only on April 25, 1977, when it denied respondents' motion 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. Re-affirmation of the authorization to the Board of Directors by the stockholders at

the meeting on March 20, 1972 to invest corporate funds in other companies or
businesses or for purposes other than the main purpose for which the Corporation has
been organized, and ratification of the investments thereafter made pursuant thereto.

By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgent motion for the
issuance of a writ of preliminary injunction to restrain private respondents from taking up Item 6 of
the Agenda at the annual stockholders' meeting, requesting that the same be set for hearing on May
3, 1977, the date set for the second hearing of the case on the merits. Respondent Commission,
however, cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17,
1977, or after the scheduled annual stockholders' meeting. For the purpose of urging the Commission
to act, petitioner filed an urgent manifestation on May 3, 1977, but this notwithstanding, no action has
been taken up to the date of the filing of the instant petition.

With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Court that
respondent Commission gravely abused its discretion when it failed to act with deliberate dispatch on
the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or limitations upon his
rights as stockholder of respondent corporation, and that respondent are acting oppressively against
petitioner, in gross derogation of petitioner's rights to property and due process. He prayed that this
Court direct respondent SEC to act on collateral incidents pending before it.

On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from
disqualifying or preventing petitioner from running or from being voted as director of respondent
corporation and from submitting for ratification or confirmation or from causing the ratification or
confirmation of Item 6 of the Agenda of the annual stockholders' meeting on May 10, 1977, or from
Making effective the amended by-laws of respondent corporation, until further orders from this Court
or until the Securities and Ex-change Commission acts on the matters complained of in the instant
petition.

On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a restraining order had
been issued by this Court, or on May 9, 1977, the respondent Commission served upon petitioner
copies of the following orders:

(1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's motion for
reconsideration, with its supplement, of the order of the Commission denying in part petitioner's
motion for production of documents, petitioner's motion for reconsideration of the order denying the
issuance of a temporary restraining order denying the issuance of a temporary restraining order, and
petitioner's consolidated motion to declare respondents in contempt and to nullify the stockholders'
meeting;

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

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

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

It is prayed in the supplemental petition that the SEC orders complained of be declared null and void
and that respondent Commission be ordered to allow petitioner to undertake discovery proceedings
relative to San Miguel International. Inc. and thereafter to decide SEC Cases No. 1375 and 1423 on
the merits.

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

(1) that the petitioner the interest he represents are engaged in business competitive and antagonistic
to that of respondent San Miguel Corporation, it appearing that the 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 business 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 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 law 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 that the Constitution and
pertinent laws against combinations in restraint of trade;

(3) that by laws are valid and binding since a corporation has the inherent right and duty to preserve
and protect itself by excluding competitors and antogonistic 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 was, 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 respondent
sought to be enjoined have reference to the annual meeting of the stockholders of respondent San
Miguel Corporation, which was held on may 10, 1977; that in said meeting, in compliance with the
order of respondent Commission, petitioner was allowed to run and be voted for as director; and that
in the same meeting, Item 6 of the Agenda was discussed, voted upon, ratified and confirmed. Further
it was averred that the questions and issues raised by petitioner are pending in the Securities and
Exchange Commission which has acquired jurisdiction over the case, and no hearing on the merits has
been had; hence the elevation of these issues before the Supreme Court is premature.

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

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

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

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

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

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

Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Court resolve the legal
issues raised by the parties in keeping with the "cherished rules of procedure" that "a court should
always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear
the seeds of future ligiation", citing Gayong 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 case
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 nor 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 precedent 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 demand 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 Distellery, 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 of 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 in 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 ex. conclusion of a competitor from the Board is legitimate corporate purpose,
considering that being a competitor, petitioner cannot devote an unselfish and undivided Loyalty to
the corporation; that it is essentially a preventive measure to assure stockholders of San Miguel
Corporation of reasonable protective from the unrestrained self-interest of those charged with the
promotion of the corporate enterprise; that access to confidential information by a competitor may
result either in the promotion of the interest of the competitor at the expense of the San Miguel
Corporation, or the promotion of both the interests of petitioner and respondent San Miguel
Corporation, which may, therefore, result in a combination or agreement in violation of Article 186 of
the Revised Penal Code by destroying free competition to the detriment of the consuming public. It is
further argued that there is not vested right of any stockholder under Philippine Law to be voted as
director of a corporation. It is alleged that petitioner, as of May 6, 1978, has exercised, personally or
thru two corporations owned or controlled by him, control over the following shareholdings in San
Miguel Corporation, vis.: (a) John Gokongwei, Jr. — 6,325 shares; (b) Universal Robina Corporation —
738,647 shares; (c) CFC Corporation — 658,313 shares, or a total of 1,403,285 shares. Since the
outstanding capital stock of San Miguel Corporation, as of the present date, is represented by
33,139,749 shares with a par value of P10.00, the total shares owned or controlled by petitioner
represents 4.2344% of the total outstanding capital stock of San Miguel Corporation. It is also
contended that petitioner is the president and substantial stockholder of Universal Robina Corporation
and CFC Corporation, both of which are allegedly controlled by petitioner and members of his family.
It is also claimed that both the Universal Robina Corporation and the CFC Corporation are engaged in
businesses directly and substantially competing with the alleged businesses of San Miguel Corporation,
and of corporations in which SMC has substantial investments.

ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN MIGUEL

CORPORATION

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

Product Line Estimated Market Share Total

1977 SMC Robina-CFC

Table Eggs 0.6% 10.0% 10.6%

Layer Pullets 33.0% 24.0% 57.0%
Dressed Chicken 35.0% 14.0% 49.0%
Poultry & Hog Feeds 40.0% 12.0% 52.0%
Ice Cream 70.0% 13.0% 83.0%
Instant Coffee 45.0% 40.0% 85.0%
Woven Fabrics 17.5% 9.1% 26.6%

Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC involved product
sales of over P400 million or more than 20% of the P2 billion total product sales of SMC. Significantly,
the combined market shares of SMC and CFC-Robina in layer pullets dressed chicken, poultry and hog
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 ?478 million. In addition, CFC-Robina was
directly competing in the sale of coffee with Filipro, a subsidiary of SMC, which product line
represented sales for SMC amounting to more than P275 million. The CFC-Robina group (Robitex,
excluding Litton Mills recently acquired by petitioner) is purportedly also in direct competition with
Ramie Textile, Inc., subsidiary of SMC, in product sales amounting to more than P95 million. The
areas of competition between SMC and CFC-Robina in 1977 represented, therefore, for SMC, product
sales of more than P849 million.

According to private respondents, at the Annual Stockholders' Meeting of March 18, 1976, 9,894
stockholders, in person or by proxy, owning 23,436,754 shares in SMC, or more than 90% of the total
outstanding shares of SMC, rejected petitioner's candidacy for the Board of Directors because they
"realized the grave dangers to the corporation in the event a competitor gets a board seat in SMC." On
September 18, 1978, the Board of Directors of SMC, by "virtue of powers delegated to it by the
stockholders," approved the amendment to ' he by-laws in question. At the meeting of February 10,
1977, these amendments were confirmed and ratified by 5,716 shareholders owning 24,283,945
shares, or more than 80% of the total outstanding shares. Only 12 shareholders, representing 7,005
shares, opposed the confirmation and ratification. At the Annual Stockholders' Meeting of May 10,
1977, 11,349 shareholders, owning 27,257.014 shares, or more than 90% of the outstanding shares,
rejected petitioner's candidacy, while 946 stockholders, representing 1,648,801 shares voted for him.
On the May 9, 1978 Annual Stockholders' Meeting, 12,480 shareholders, owning more than 30 million
shares, or more than 90% of the total outstanding shares. voted against petitioner.
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 a-, 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 inseparable 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 an 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 cannot therefore be justly said that the contract, express or implied, between the
corporation and the stockholders is infringed ... by any act of the former which is authorized by a
majority ... ." 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 disenting 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 Ashaman v. Miller, 19 "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 violate rules of fair play by doing indirectly though 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 master, 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 suppose 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 CORPORATION BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO

BE DIRECTOR, IF HE BE ALSO DIRECTOR IN A CORPORATION WHOSE BUSINESS IS IN COMPETITION
WITH THAT OF THE OTHER CORPORATION, HAS BEEN SUSTAINED AS VALID

It is a settled state law in the United States, according to Fletcher, that corporations have the power
to make by-laws declaring a person employed in the service of a rival company to be ineligible for the
corporation's Board of Directors. ... (A)n amendment which renders ineligible, or if elected, subjects to
removal, a director if he be also a director in a corporation whose business is in competition with or is
antagonistic to the other corporation is valid." 24 This is based upon the principle that where the
director is so employed in the service of a rival company, he cannot serve both, but must betray one
or the other. Such an amendment "advances the benefit of the corporation and is good." An exception
exists in New Jersey, where the Supreme Court held that the Corporation Law in New Jersey
prescribed the only qualification, and therefore the corporation was not empowered to add additional
qualifications. 25 This is the exact opposite of the situation in the Philippines because as stated
heretofore, section 21 of the Corporation Law expressly provides that a corporation may make by-laws
for the qualifications of directors. Thus, it has been held that an officer of a corporation cannot engage
in a business in direct competition with that of the corporation where he is a director by utilizing
information he has received as such officer, under "the established law that a director or officer of a
corporation may not enter into a competing enterprise which cripples or injures the business of the
corporation of which he is an officer or director. 26

It is also well established that corporate officers "are not permitted to use their position of trust and
confidence to further their private interests." 27 In a case where directors of a corporation cancelled a
contract of the corporation for exclusive sale of a foreign firm's products, and after establishing a rival
business, the directors entered into a new contract themselves with the foreign firm for exclusive sale
of its products, the court held that equity would regard the new contract as an offshoot of the old
contract and, therefore, for the benefit of the corporation, as a "faultless fiduciary may not reap the
fruits of his misconduct to the exclusion of his principal. 28
The doctrine of "corporate opportunity" 29 is precisely a recognition by the courts that the fiduciary
standards could not be upheld where the fiduciary was acting for two entities with competing
interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer
or director taking advantage of an opportunity for his own personal profit when the interest of the
corporation justly calls for protection. 30

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

It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel
Corporation, who is also the officer or owner of a competing corporation, from taking advantage of the
information which he acquires as director to promote his individual or corporate interests to the
prejudice of San Miguel Corporation and its stockholders, that the questioned amendment of the by-
laws was made. Certainly, where two corporations are competitive in a substantial sense, it would
seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to
satisfy his loyalty to both corporations and place the performance of his corporation duties above his
personal concerns.

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

... A bank director has access to a great deal of information concerning the business
and plans of a bank which would likely be injurious to the bank if known to another
bank, and it was reasonable and prudent to enlarge this minimum disqualification to
include any director, officer, employee, agent, nominee, or attorney of any other bank
in California. The Ashkins case, supra, specifically recognizes protection against rivals
and others who 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 compete with the subject corporation.

(4) A director shall be of good moral character as an essential qualification to holding

office.

(5) No person who is an attorney against the corporation in a law suit is eligible for
service on the board. (At p. 7.)

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

The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his
position as director of San Miguel Corporation, he would absent himself from meetings at which
confidential matters would be discussed, would not detract from the validity and reasonableness of the
by-laws here involved. Apart from the impractical results that would ensue from such arrangement, it
would be inconsistent with petitioner's primary motive in running for board membership — which is to
protect his investments in San Miguel Corporation. More important, such a proposed norm of conduct
would be against all accepted principles underlying a director's duty of fidelity to the corporation, for
the policy of the law is to encourage and enforce responsible corporate management. As explained by
Oleck: 31 "The law win 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 arrival. 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 snowed."

Article 186 of the Revised Penal Code also provides:

Art. 186. Monopolies and combinations in restraint of trade. —The penalty of prision
correccional in its minimum period or a fine ranging from two hundred to six thousand
pesos, or both, shall be imposed upon:

1. Any person who shall enter into any contract or agreement or shall take part in any
conspiracy or combination in the form of a trust or otherwise, in restraint of trade or
commerce or to prevent by artificial means free competition in the market.

2. Any person who shag monopolize any merchandise or object of trade or commerce,
or shall combine with any other person or persons to monopolize said merchandise or
object in order to alter the price thereof by spreading false rumors or making use of
any other artifice to restrain free competition in the market.

3. Any person who, being a manufacturer, producer, or processor of any merchandise

or object of commerce or an importer of any merchandise or object of commerce from
any foreign country, either as principal or agent, wholesale or retailer, shall combine,
conspire or agree in any manner with any person likewise engaged in the
manufacture, production, processing, assembling or importation of such merchandise
or object of commerce or with any other persons not so similarly engaged for the
purpose of making transactions prejudicial to lawful commerce, or of increasing the
market price in any part of the Philippines, or any such merchandise or object of
commerce manufactured, produced, processed, assembled in or imported into the
Philippines, or of any article in the manufacture of which such manufactured,
produced, processed, or imported merchandise or object of commerce is used.

There are other legislation in this jurisdiction, which prohibit monopolies and combinations in restraint
of trade. 33

Basically, these anti-trust laws or laws against monopolies or combinations in restraint of trade are
aimed at raising levels of competition by improving the consumers' effectiveness as the final arbiter in
free markets. These laws are designed to preserve free and unfettered competition as the rule of
trade. "It rests on the premise that the unrestrained interaction of competitive forces will yield the
best allocation of our economic resources, the lowest prices and the highest quality ... ." 34 they
operate to forestall concentration of economic power. 35 The law against monopolies and
combinations in restraint of trade is aimed at contracts and combinations that, by reason of the
inherent nature of the contemplated acts, prejudice the public interest by unduly restraining
competition or unduly obstructing the course of trade. 36

The terms "monopoly", "combination in restraint of trade" and "unfair competition" appear to have a
well defined meaning in other jurisdictions. A "monopoly" embraces any combination the tendency of
which is to prevent competition in the broad and general sense, or to control prices to the detriment of
the public. 37 In short, it is the concentration of business in the hands of a few. The material
consideration in determining its existence is not that prices are raised and competition actually
excluded, but that power exists to raise prices or exclude competition when desired. 38 Further, it
must be considered that the Idea of monopoly is now understood to include a condition produced by
the mere act of individuals. Its dominant thought is the notion of exclusiveness or unity, or the
suppression of competition by the qualification of interest or management, or it may be thru
agreement and concert of action. It is, in brief, unified tactics with regard to prices. 39

From the foregoing definitions, it is apparent that the contentions of petitioner are not in accord with
reality. The election of petitioner to the Board of respondent Corporation can bring about an illegal
situation. This is because an express agreement is not necessary for the existence of a combination or
conspiracy in restraint of trade. 40 It is enough that a concert of action is contemplated and that the
defendants conformed to the arrangements, 41 and what is to be considered is what the parties
actually did and not the words they used. For instance, the Clayton Act prohibits a person from
serving at the same time as a director in any two or more corporations, if such corporations are, by
virtue of their business and location of operation, competitors so that the elimination of competition
between them would constitute violation of any provision of the anti-trust laws. 42 There is here a
statutory recognition of the anti-competitive dangers which may arise when an individual
simultaneously acts as a director of two or more competing corporations. A common director of two or
more competing corporations would have access to confidential sales, pricing and marketing
information and would be in a position to coordinate policies or to aid one corporation at the expense
of another, thereby stifling competition. This situation has been aptly explained by Travers, thus:

The argument for prohibiting competing corporations from sharing even one director is
that the interlock permits the coordination of policies between nominally independent
firms to an extent that competition between them may be completely eliminated.
Indeed, if a director, for example, is to be faithful to both corporations, some
accommodation must result. Suppose X is a director of both Corporation A and
Corporation B. X could hardly vote for a policy by A that would injure B without
violating his duty of loyalty to B at the same time he could hardly abstain from voting
without depriving A of his best judgment. If the firms really do compete — in the
sense of vying for economic advantage at the expense of the other — there can hardly
be any reason for an interlock between competitors other than the suppression of
competition. 43 (Emphasis supplied.)

According to the Report of the House Judiciary Committee of the U. S. Congress on section 9 of the
Clayton Act, it was established that: "By means of the interlocking directorates one man or group of
men have been able to dominate and control a great number of corporations ... to the detriment of
the small ones dependent upon them and to the injury of the public. 44

Shared information on cost accounting may lead to price fixing. Certainly, shared information on
production, orders, shipments, capacity and inventories may lead to control of production for the
purpose of controlling prices.

Obviously, if a competitor has access to the pricing policy and cost conditions of the products of San
Miguel Corporation, the essence of competition in a free market for the purpose of serving the lowest
priced goods to the consuming public would be frustrated, The competitor could so manipulate the
prices of his products or vary its marketing strategies by region or by brand in order to get the most
out of the consumers. Where the two competing firms control a substantial segment of the market this
could lead to collusion and combination in restraint of trade. Reason and experience point to the
inevitable conclusion that the inherent tendency of interlocking directorates between companies that
are related to each other as competitors is to blunt the edge of rivalry between the corporations, to
seek out ways of compromising opposing interests, and thus eliminate competition. As respondent
SMC aptly observes, knowledge by CFC-Robina of SMC's costs in various industries and regions in the
country win 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 incorporations ... ."

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 corporation 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 perpetua
themselves in power such fears appear to be misplaced. This power, but is very nature, is subject to
certain well established limitations. One of these is inherent in the very convert 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-characteristics 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 behind Exchange Commission en banc and its decision shall be
final unless reversed by this Court on certiorari. 49 Indeed, it is a settled principle that where the
action of a Board of Directors is an abuse of discretion, or forbidden by statute, or is against public
policy, or is ultra vires, or is a fraud upon minority stockholders or creditors, or will result in waste,
dissipation or misapplication of the corporation assets, a court of equity has the power to grant
appropriate relief. 50

III

Whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an
examination of the records of San Miguel International Inc., a fully owned subsidiary of San Miguel
Corporation —

Respondent San Miguel Corporation stated in its memorandum that petitioner's claim that he was
denied inspection rights as stockholder of SMC "was made in the teeth of undisputed facts that, over a
specific period, petitioner had been furnished numerous documents and information," to wit: (1) a
complete list of stockholders and their stockholdings; (2) a complete list of proxies given by the
stockholders for use at the annual stockholders' meeting of May 18, 1975; (3) a copy of the minutes
of the stockholders' meeting of March 18,1976; (4) a breakdown of SMC's P186.6 million investment
in associated companies and other companies as of December 31, 1975; (5) a listing of the salaries,
allowances, bonuses and other compensation or remunerations received by the directors and
corporate officers of SMC; (6) a copy of the US $100 million Euro-Dollar Loan Agreement of SMC; and
(7) copies of the minutes of all meetings of the Board of Directors from January 1975 to May 1976,
with deletions of sensitive data, which deletions were not objected to by petitioner.

Further, it was averred that upon request, petitioner was informed in writing on September 18, 1976;
(1) that SMC's foreign investments are handled by San Miguel International, Inc., incorporated in
Bermuda and wholly owned by SMC; this was SMC's first venture abroad, having started in 1948 with
an initial outlay of ?500,000.00, augmented by a loan of Hongkong $6 million from a foreign bank
under the personal guaranty of SMC's former President, the late Col. Andres Soriano; (2) that as of
December 31, 1975, the estimated value of SMI would amount to almost P400 million (3) that the
total cash dividends received by SMC from SMI since 1953 has amount to US $ 9.4 million; and (4)
that from 1972-1975, SMI did not declare cash or stock dividends, all earnings having been used in
line with a program for the setting up of breweries by SMI

These averments are supported by the affidavit of the Corporate Secretary, enclosing photocopies of
the afore-mentioned documents. 51
Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business
transactions of the corporation and minutes of any meeting shall be open to the inspection of any
director, member or stockholder of the corporation at reasonable hours."

The stockholder's right of inspection of the corporation's books and records is based upon their
ownership of the assets and property of the corporation. It is, therefore, an incident of ownership of
the corporate property, whether this ownership or interest be termed an equitable ownership, a
beneficial ownership, or a 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 specific and honest
purpose, and not to gratify curiosity, or for speculative or vexatious purposes. The weight of judicial
opinion appears to be, that on application for mandamus to enforce the right, it is proper for the court
to inquire into and consider the stockholder's good faith and his purpose and motives in seeking
inspection. 56 Thus, it was held that "the right given by statute is not absolute and may be refused
when the information is not sought in good faith or is used to the detriment of the corporation." 57
But the "impropriety of purpose such as will defeat enforcement must be set up the corporation
defensively if the Court is to take cognizance of it as a qualification. In other words, the specific
provisions take from the stockholder the burden of showing propriety of purpose and place upon the
corporation the burden of showing impropriety of purpose or motive. 58 It appears to be the general
rule that stockholders are entitled to full information as to the management of the corporation and the
manner of expenditure of its funds, and to inspection to obtain such information, especially where it
appears that the company is being mismanaged or that it is being managed for the personal benefit of
officers or directors or certain of the stockholders to the exclusion of others." 59

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

Some state courts recognize the right under certain conditions, while others do not. Thus, it has been
held that where a corporation owns approximately no property except the shares of stock of subsidiary
corporations which are merely agents or instrumentalities of the holding company, the legal fiction of
distinct corporate entities may be disregarded and the books, papers and documents of all the
corporations may be required to be produced for examination, 60 and that a writ of mandamus, may
be granted, as the records of the subsidiary were, to all incontents and purposes, the records of the
parent even though 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
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 for 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 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. Manao Sugar Central Co., Inc., supra, appears
relevant. In said case, one of the issues was the legality of an investment made by Manao Sugar
Central Co., Inc., without prior resolution approved by the affirmative vote of 2/3 of the stockholders'
voting power, in the Philippine Fiber Processing Co., Inc., a company engaged in the manufacture of
sugar bags. The lower court said that "there is more logic in the stand that if the investment is made
in a corporation whose business is important to the investing corporation and would aid it in its
purpose, to require authority of the stockholders would be to unduly curtail the power of the Board of
Directors." This Court affirmed the ruling of the court a quo on the matter and, quoting Prof. Sulpicio
S. Guevara, said:

"j. Power to acquire or dispose of shares or securities. — A private corporation, in

order to accomplish is purpose as stated in its articles of incorporation, and subject to
the limitations imposed by the Corporation Law, has the power to acquire, hold,
mortgage, pledge or dispose of shares, bonds, securities, and other evidence 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 Corporations law; namely, (a) that no agricultural or
mining corporation shall be restricted to own not more than 15% of the voting stock of
nay 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 of combination in restraint of trade." The Philippine Corporation Law by
Sulpicio S. Guevara, 1967 Ed., p. 89) (Emphasis supplied.)

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, provide 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 propose at a stockholders' meeting called for that purpose,' and
provided further, that no agricultural or mining corporation shall in anywise be
interested in any other agricultural or mining corporation. When the investment is
necessary to accomplish its purpose or purposes as stated in its articles of
 incorporation the approval of the stockholders is not necessary."" (Id., p. 108)
(Emphasis ours.) (pp. 258-259).

Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed
investment, there is no question that a corporation, like an individual, may ratify and thereby render
binding upon it the originally unauthorized acts of its officers or other agents. 70 This is true because
the questioned investment is neither contrary to law, morals, public order or public policy. It is a
corporate transaction or contract which is within the corporate powers, but which is defective from a
supported 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 gratification 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 bylaws and that
this question should properly be resolved first by the SEC as the agency of primary jurisdiction. They
concur in the result that petitioner may be allowed to run for and sit as director of respondent SMC in
the scheduled May 6, 1979 election and subsequent elections until disqualified after proper hearing by
the respondent's Board of Directors and petitioner's disqualification shall have been sustained by
respondent SEC en banc and ultimately by final judgment of this Court.

In resume, subject to the qualifications aforestated 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.

Aquino, and Melencio Herrera JJ., took no part.

Separate Opinions

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

As correctly stated in the main opinion of Mr. Justice Antonio, the Court is unanimous in its judgment
granting the petitioner as stockholder of respondent San Miguel Corporation the right to inspect,
examine and secure copies of the records of San Miguel International, inc. (SMI), a wholly owned
foreign subsidiary corporation of respondent San Miguel Corporation. Respondent commissions en
banc Order No. 449, Series of 19 7 7, denying petitioner's right of inspection for "not being a
stockholder of San Miguel International, Inc." has been accordingly set aside. It need be only pointed
out that:

a) The commission's reasoning grossly disregards the fact that the stockholders of San
Miguel Corporation are likewise the owners of San Miguel International, Inc. as the
corporation's wholly owned foreign subsidiary and therefore have every right to have
access to its books and records. otherwise, the directors and management of any
Philippine corporation by the simple device of organizing with the corporation's funds
foreign subsidiaries would be granted complete immunity from the stockholders'
scrutiny of its foreign operations and would have a conduit for dissipating, if not
misappropriating, the corporation funds and assets by merely channeling them into
foreign subsidiaries' operations; and

b) Petitioner's right of examination herein recognized refers to all books and records of
the foreign subsidiary SMI which are which are " in respondent corporation's
possession and control" 1, meaning to say regardless of whether or not such books
and records are physically within the Philippines. all such books and records of SMI are
legally within respondent corporation's "possession and control" and if nay books or
records are kept abroad, (e.g. in the foreign subsidiary's state of domicile, as is to be
expected), then the respondent corporation's board and management are obliged
under the Court's judgment to bring and make them (or true copies thereof available
within the Philippines for petitioner's examination and inspection.

II

On the other main issue of the Validity of respondent San Miguel Corporation's amendment of its by-
laws 2 whereby respondent corporation's board of directors under its resolution dated April 29, 1977
declared petitioner ineligible to be nominated or to be voted or to be elected as of the board of
directors, the Court, composed of 12 members (since Mme. Justice Ameurfina Melencio Herrera
inhibited herself from taking part herein, while Mr. Justice Ramon C. Aquino upon submittal of the
main opinion of Mr. Justice Antonio decided not to take part), failed to reach a conclusive vote or, the
required majority of 8 votes to settle the issue one way or the other.

Six members of the Court, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De
Castro, considered the issue purely legal and voted to sustain the validity per se of the questioned
amended by-laws but nevertheless voted that the prohibition and disqualification therein provided
shall not apply to petitioner Gokongwei until and after he shall have been given a new and proper
hearing" by the corporation's board of directors and the board's decision of disqualification she'll have
been sustained on appeal by respondent Securities and Exchange Commission and ultimately by this
Court.

The undersigned Justices do not consider the issue as purely legal in the light of respondent
commission's Order No. 451, Series of 1977, denying petitioner's "Motion for Summary Judgment" on
the ground that "the Commission en banc finds that there (are) unresolved and genuine issues of fact"
3 as well as its position in this case to the Solicitor General that the case at bar is "premature" and
that the administrative remedies before the commission should first be availed of and exhausted. 4

We are of the opinion that the questioned amended by-laws, as they are, (adopted after almost a
century of respondent corporation's existence as a public corporation with its shares freely purchased
and traded in the open market without restriction and disqualification) which would bar petitioner from
qualification, nomination and election as director and worse, grant the board by 3/4 vote the arbitrary
power to bar any stockholder from his right to be elected as director by the simple expedient of
declaring him to be engaged in a "competitive or antagonistic business" or declaring him as a
"nominee" of the competitive or antagonistic" stockholder are illegal, oppressive, arbitrary and
unreasonable.

We consider the questioned amended by-laws as being specifically tailored to discriminate against
petitioner and depriving him in violation of substantive due process of his vested substantial rights as
stockholder of respondent corporation. We further consider said amended by-laws as violating specific
provisions of the Corporation Law which grant and recognize the right of a minority stockholder like
petitioner to be elected director by the process of cumulative voting ordained by the Law (secs 21 and
30) and the right of a minority director once elected not to be removed from office of director except
for cause by vote of the stockholders holding 2/3 of the subscribed capital stock (sec. 31). If a
minority stockholder could be disqualified by such a by-laws amendment under the guise of providing
for "qualifications," these mandates of the Corporation Law would have no meaning or purpose.

These vested and substantial rights granted stockholders under the Corporation Law may not be
diluted or defeated by the general authority granted by the Corporation Law itself to corporations to
adopt their by-laws (in section 21) which deal principally with the procedures governing their internal
business. The by-laws of any corporation must, be always within the character limits. What the
Corporation Law has granted stockholders may not be taken away by the corporation's by-laws. The
amendment is further an instrument of oppressiveness and arbitrariness in that the incumbent
directors are thereby enabled to perpetuate themselves in office by the simple expedient of
disqualifying any unwelcome candidate, no matter how many votes he may have.

However, in view of the inconclusiveness of the vote, we sustain respondent commission's stand as
expressed in its Orders Nos. 450 and 451, Series of 1977 that there are unresolved and genuine
issues of fact" and that it has yet to rule on and finally decide the validity of the disputed by-law
provision", subject to appeal by either party to this Court.

In view of prematurity of the proceedings here (as likewise expressed by Mr. Justice Fernando), the
case should as a consequence be remanded to the Securities and Exchange Commission as the agency
of primary jurisdiction for a full hearing and reception of evidence of all relevant facts (which should
property be submitted to the commission instead of the piecemeal documents submitted as annexes
to this Court which is not a trier of facts) concerning not only the petitioner but the members of the
board of directors of respondent corporation as well, so that it may determine on the basis thereof the
issue of the legality of the questioned amended by-laws, and assuming Chat it holds the same to be
valid whether the same are arbitrarily and unreasonably applied to petitioner vis a vis other directors,
who, petitioner claims, should in such event be likewise disqualified from sitting in the board of
directors by virtue of conflict of interests or their being likewise engaged in competitive or antagonistic
business" with the corporation such as investment and finance, coconut oil mills cement, milk and
hotels. 5

It should be noted that while the petition may be dismissed in view of the inconclusiveness of the vote
and the Court's failure to affair, the required 8-vote majority to resolve the issue, such as dismissal
(for lack of necessary votes) is of no doctrine value and does not in any manner resolve the issue of
the validity of the questioned amended by-laws nor foreclose the same. The same should properly be
determined in a proper case in the first instance by the Securities and Exchange Commission as the
agency of primary jurisdiction, as above indicated.

The Court is unanimous, therefore, in its judgment that petitioner Gokongwei may run for the office
of, and if elected, sit as, member of the board of directors of respondent San Miguel Corporation as
stated in the dispositive portion of the main opinion of Mr. Justice Antonio, to wit: Until and after
petitioner has been given a "new and proper hearing by the board of directors of said corporation,
whose decision shall be appealable Lo the respondent Securities and Exchange Commission
deliverating and acting en banc and ultimately to this Court" and until ' disqualified in the manner
herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner,"
In other words, until and after petitioner shall have been given due process and proper hearing by the
respondent board of directors as to the question of his qualification or disqualification under the
questioned amended by-laws (assuming that the respondent Securities and Exchange C commission
ultimately upholds the validity of said by laws), and such disqualification shall have been sustained by
respondent Securities and Exchange Commission and ultimately by final judgment of this Court,
petitioner is deemed eligible for all legal purposes and effects to be nominated and voted and if
elected to sit as a member of the hoard of directors of respondent San Miguel Corporation.

In view of the Court's unanimous judgment on this point the portion of respondent commission's
Order No. 450, Series of 977 which imposed "the condition that he [petitioner] cannot sit as board
member if elected until after the Commission shall have finally decided the validity of the disputed by-
law provision" has been likewise accordingly set aside.

III
By way of recapitulation, so that the Court's decision and judgment may be clear and not subject to
ambiguity, we state the following.

1. With the votes of the six Justices concurring unqualifiedly in the main opinion added to our four
votes, plus the Chief Justice's vote and that of Mr. Justice Fernando, the Court has by twelve (12)
votes unanimously rendered judgment granting petitioner's right to examine and secure copies of the
books and records of San Miguel International, Inc. as a foreign subsidiary of respondent corporation
and respondent commission's Order No. 449, Series of 1977, to the contrary is set aside:

2. With the same twelve (12) votes, the Court has also unanimously rendered judgment declaring that
until and after petitioner shall have been given due process and proper hearing by the respondent
board of directors as to the question of his disqualification under the questioned amended by- laws
(assuming that the respondent Securities and Exchange Commission ultimately upholds the validity of
said by laws), and such disqualification shall have been sustained by respondent Securities and
Exchange Commission and ultimately by final judgment of this Court petitioner is deemed eligible for
all legal purposes and effect to be nominated and voted and if elected to sit as a member of the board
of directors of respondent San Miguel Corporation. Accordingly, respondent commission's Order No.
450, Series of 1977 to the contrary has likewise been set aside; and

3. The Court's voting on the validity of respondent corporation's amendment of the by-laws (sec. 2,
Art. 111) is inconclusive without the required majority of eight votes to settle the issue one way or the
other having been reached. No judgment is rendered by the Court thereon and the statements of the
six Justices who have signed the main opinion on the legality thereof have no binding effect, much
less doctrinal value.

The dismissal of the petition insofar as the question of the validity of the disputed by-laws amendment
is concerned is not by an judgment with the required eight votes but simply by force of Rule 56,
section II of the Rules of Court, the pertinent portion of which provides that "where the court en banc
is equally divided in opinion, or the necessary majority cannot be had, the case shall be reheard, and
if on re-hearing no decision is reached, the action shall be dismissed if originally commenced in the
court ...." The end result is that the Court has thereby dismissed the petition which prayed that the
Court bypass the commission and directly resolved the issue and therefore the respondent commission
may now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and
receive all relevant evidence bearing on the issue as hereinabove indicated, and resolve the
"unresolved and genuine issues of fact" (as per Order No. 451, Series of 1977) and the issues of
legality of the disputed by-laws amendment.

Teehankee, Concepcion, Jr., and Fernandez, JJ., concur.

Guerrero, J., concurred.

TEEHANKEE, CONCEPCION JR.,

FERNANDEZ and GUERRERO, JJ., concurring:

This supplemental opinion is issued with reference to the advance separate opinion of Mr. Justice
Barredo issued by him as to "certain misimpressions as to the import of the decision in this case"
which might be produced by our joint separate opinion of April 11, 1979 and "urgent(ly) to clarify (his)
position in respect to the rights of the parties resulting from the dismissal of the petition herein and
the outline of the procedure by which the disqualification of petitioner Gokongwei can be made
effective."

1. Mr. Justice Barredo's advances separate opinion "that as between the parties herein, the issue of
the validity of the challenged by-laws is already settled" had, of course, no binding effect. The
judgment of the Court is found on pages 59-61 of the decision of April 11, 1979, penned by Mr.
Justice Antonio, wherein on the question of the validity of the amended by-laws the Court's
inconclusive voting is set forth as follows:

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

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

Four (4) Justices, namely, Justices Teehankee, Concepcion Jr., Fernandez and
Guerrero filed a separate opinion, wherein they voted against the validity of the
 questioned amended by-laws and that this question should properly be resolved first
by the SEC as the agency of primary jurisdiction ... 1

As stated in said judgment itself, for lack of the necessary votes, the petition, insofar as it assails the
validity of the questioned by-laws, was dismissed.

2. Mr. Justice Barredo now contends contrary to the undersigned's understanding, as stated on pages
8 and 9 of our joint separate opinion of April 11, 1979 that the legal effect of the dismissal of the
petition on the question of validity of the amended by-laws for lack of the necessary votes simply
means that "the Court has thereby dismissed the petition which prayed that the Court by-pass the
commission and directly resolve the issue and therefore the respondent commission may now
proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive all
relevant evidence bearing on the issue as hereinabove indicated, and resolve the 'unresolved and
genuine issues of fact' (as per Order No. 451, Series of 1977) and the issue of legality of the disputed
by-laws amendment," that such dismissal "has no other legal consequence than that it is the law of
the case as far as the parties are concerned, albeit the majority of the opinion of six against four
Justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent
cases."

We hold on our part that the doctrine of the law of the case invoked by Mr. Justice Barredo has no
applicability for the following reasons:

a) Our jurisprudence is quite clear that this doctrine may be invoked only where there has been a final
and conclusive determination of an issue in the first case later invoked as the law of the case.

Thus, in People vs. Olarte, 2 we held that

"Law of the case" has been defined as the opinion delivered on a former appeal More
specifically, it means that whatever is once irrevocably established as the controlling
legal rule of decision between the same parties in the same case continues to he the
law of the case, whether correct on general principles or not, so long as the facts on
which such decision was predicated continue to be the facts of the case before the
court. ...

It need not be stated that the Supreme Court, being the court of last resort, is the
final arbiter of all legal questions properly brought before it and that its decision in any
given case constitutes the law of that particular case. Once its judgment becomes final
it is binding on all inferior courts, and hence beyond their power and authority to alter
or modify Kabigting vs. Acting Director of Prisons, G. R. No. L-15548, October 30,
1962).

The decision of this Court on that appeal by the government from the order of
dismissal, holding that said appeal did not place the appellants, including Absalon
Bignay, in double jeopardy, signed and concurred in by six Justices as against three
dissenters headed by the Chief Justice, promulgated way back in the year 1952, has
long become the law of the case. It may be erroneous, judged by the law on double
jeopardy as recently interpreted by this same Tribunal Even so, it may not be
disturbed and modified. Our recent interpretation of the law may be applied to new
cases, but certainly not to an old one finally and conclusively determined. As already
stated, the majority opinion in that appeal is now the law of the case. (People vs.
Pinuila)

The doctrine of the law of the case, therefore, has no applicability whatsoever herein insofar as the
question of the validity or invalidity of the amended by-laws is concerned. The Court's judgment of
April 11, 1979 clearly shows that the voting on this question was inconclusive with six against four
Justices and two other Justices (the Chief Justice and Mr. Justice Fernando) expressly reserving their
votes thereon, and Mr. Justice Aquino while taking no part in effect likewise expressly reserved his
vote thereon. No final and conclusive determination could be reached on the issue and pursuant to the
provisions of Rule 56, section 11, since this special civil action originally commenced in this Court, the
action was simply dismissed with the result that no law of the case was laid down insofar as the issue
of the validity or invalidity of the questioned by-laws is concerned, and the relief sought herein by
petitioner that this Court by-pass the SEC which has yet to hear and determine the same issue
pending before it below and that this Court itself directly resolve the said issue stands denied.

b) The contention of Mr. Justice Barredo that the result of the dismiss of the case was that "petitioner
Gokongwei may not hereafter act on the assumption that he can revive the issue of the validity
whether in the Securities and Exchange Commission, in this Court or in any other forum, unless he
proceeds on the basis of a factual milieu different from the setting of this case Not even the Securities
and Exchange Commission may pass on such question anymore at the instance of herein petitioner or
anyone acting in his stead or on his behalf, " appears to us to be untenable.

The Court through the decision of April 11, 1979, by the unanimous votes of the twelve participating
Justices headed by the Chief Justice, ruled that petitioner Gokongwei was entitled to a "new and
proper hearing" by the SMC board of directors on the matter of his disqualification under the
questioned by-laws and that the board's "decision shall be appealable to the respondent Securities and
Exchange Commission deliberating and acting en banc and ultimately to this Court (and) unless
disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws
shall not apply to petitioner."

The entire Court, therefore, recognized that petitioner had not been given procedural due process by
the SMC board on the matter of his disqualification and that he was entitled to a "new and proper
hearing". It stands to reason that in such hearing, petitioner could raise not only questions of fact but
questions of law, particularly questions of law affecting the investing public and their right to
representation on the board as provided by law — not to mention that as borne out by the fact that no
restriction whatsoever appears in the court's decision, it was never contemplated that petitioner was
to be limited to questions of fact and could not raise the fundamental questions of law bearing on the
invalidity of the questioned amended by-laws at such hearing before the SMC board. Furthermore, it
was expressly provided unanimously in the Court's decision that the SMC board's decision on the
disqualification of petitioner ("assuming the board of directors of San Miguel Corporation should, after
the proper hearing, disqualify him" as qualified in Mr. Justice Barredo's own separate opinion, at page
2) shall be appealable to respondent Securities and Exchange Commission "deliberating and acting en
banc and "untimately to this Court." Again, the Court's judgment as set forth in its decision of April
11, 1979 contains nothing that would warrant the opinion now expressed that respondent Securities
and Exchange Commission may not pass anymore on the question of the invalidity of the amended
by-laws. Certainly, it cannot be contended that the Court in dismissing the petition for lack of
necessary votes actually by-passed the Securities and Exchange Commission and directly ruled itself
on the invalidity of the questioned by-laws when it itself could not reach a final and conclusive vote (a
minimum of eight votes) on the issue and three other Justices (the Chief Justice and Messrs. Justices
Fernando and Aquino) had expressly reserved their vote until after further hearings (first before the
Securities and Exchange Commission and ultimately in this Court).

Such a view espoused by Mr. Justice Barredo could conceivably result in an incongruous situation
where supposedly under the law of this case the questioned by-laws would be held valid as against
petitioner Gokongwei and yet the same may be stricken off as invalid as to all other SMC shareholders
in a proper case.

3. It need only be pointed out that Mr. Justice Barredo's advance separate opinion can in no way
affect or modify the judgment of this Court as set forth in the decision of April 11, 1979 and discussed
hereinabove. The same bears the unqualified concurrence of only three Justices out of the six Justices
who originally voted for the validity per se of the questioned by-laws, namely, Messrs. Justices
Antonio, Santos and De Castro. Messrs. Justices Fernando and Makasiar did not concur therein but
they instead concurred with the limited concurrence of the Chief Justice touching on the law of the
case which guardedly held that the Court has not found merit in the claim that the amended bylaws in
question are invalid but without in any manner foreclosing the issue and as a matter of fact and law,
without in any manner changing or modifying the above-quoted vote of the Chief Justice as officially
rendered in the decision of April 11, 1979, wherein he precisely "reserved (his) vote on the validity of
the amended by-laws."

4. A word on the separate opinion of Mr. Justice Pacifico de Castro attached to the advance separate
opinion of Mr. Justice Barredo. Mr. Justice De Castro advances his interpretation as to a restrictive
construction of section 13(5) of the Philippine Corporation Law, ignoring or disregarding the fact that
during the Court's deliberations it was brought out that this prohibitory provision was and is not raised
in issue in this case whether here or in the Securities and Exchange Commission below (outside of a
passing argument by Messrs. Angara, Abello, Concepcion, Regala & Cruz, as counsels for respondent
Sorianos in their Memorandum of June 26, 1978 that "(T)he disputed By-Laws does not prohibit
petitioner from holding onto, or even increasing his SMC investment; it only restricts any shifting on
the part of petitioner from passive investor to a director of the company." 3

As a consequence, the Court abandoned the Idea of calling for another hearing wherein the parties
could properly raise and discuss this question as a new issue and instead rendered the decision in
question, under which the question of section 13(5) could be raised at a new and proper hearing
before the SMC board and in the Securities and Exchange Commission and in due course before this
Court (but with the clear understanding that since both corporations, the Robina and SMC are engaged
in agriculture as submitted by the Sorianos' counsel in their said memorandum, the issue could be
raised likewise against SMC and its other shareholders, directors, if not against SMC itself. As
expressly stated in the Chief Justices reservation of his vote, the matter of the question of the
applicability of the said section 13(5) to petitioner would be heard by this Court at the appropriate
time after the proceedings below (and necessarily the question of the validity of the amended by-laws
would be taken up anew and the Court would at that time be able to reach a final and conclusive
vote).

Mr. Justice De Castro's personal interpretation of the decision of April 11, 1979 that petitioner may be
allowed to run for election despite adverse decision of both the SMC board and the Securities and
Exchange Commission "only if he comes to this Court and obtains an injunction against the
enforcement of the decision disqualifying him" is patently contradictory of his vote on the matter as
expressly given in the judgment in the Court's decision of April 11, 1979 (at page 59) that petitioner
could run and if elected, sit as director of the respondent SMC and could be disqualified only after a
"new and proper hearing by the board of directors of said corporation, whose decision shall be
appealable to the respondent Securities and Exchange Commission deliberating and acting en banc
and ultimately to this Court. Unless-disqualified in the manner herein provided, the prohibition in the
aforementioned amended by-laws shall not apply to petitioner."

Teehankee, Concepcion Jr., Fernandez and Guerrero, JJ., concur.

BARREDO, J., concurring:

I reserved the filing of a separate opinion in order to state my own reasons for voting in favor of the
validity of the amended by-laws in question. Regrettably, I have not yet finished preparing the same.
In view, however, of the joint separate opinion of Justices Teehankee, Concepcion Jr., Fernandez and
Guerrero, the full text of which has just come to my attention, and which I am afraid might produce
certain misimpressions as to the import of the decision in this case, I consider it urgent to clarify my
position in respect to the rights of the parties resulting from the dismissal of the petition herein and
the outlining of the procedure by which the disqualification of petitioner Gokongwei can be made
effective, hence this advance separate opinion.

To start with, inasmuch as petitioner Gokongwei himself placed the issue of the validity of said
amended by-laws squarely before the Court for resolution, because he feels, rightly or wrongly, he can
no longer have due process or justice from the Securities and Exchange Commission, and the private
respondents have joined with him in that respect, the six votes cast by Justices Makasiar, Antonio,
Santos, Abad Santos, de Castro and this writer in favor of validity of the amended by-laws in question,
with only four members of this Court, namely, Justices Teehankee, Concepcion Jr., Fernandez and
Guerrero opining otherwise, and with Chief Justice Castro and Justice Fernando reserving their votes
thereon, and Justices Aquino and Melencio Herrera not voting, thereby resulting in the dismissal of the
petition "insofar as it assails the validity of the amended by- laws ... for lack of necessary votes", has
no other legal consequence than that it is the law of the case as far as the parties herein are
concerned, albeit the majority opinion of six against four Justices is not doctrinal in the sense that it
cannot be cited as necessarily a precedent for subsequent cases. This means that petitioner
Gokongwei and the respondents, including the Securities and Exchange Commission, are bound by the
foregoing result, namely, that the Court en banc has not found merit in the claim that the amended
by-laws in question are invalid. Indeed, it is one thing to say that dismissal of the case is not doctrinal
and entirely another thing to maintain that such dismissal leaves the issue unsettled. It is somewhat
of a misreading and misconstruction of Section 11 of Rule 56, contrary to the well-known established
norm observed by this Court, to state that the dismissal of a petition for lack of the necessary votes
does not amount to a decision on the merits. Unquestionably, the Court is deemed to find no merit in
a petition in two ways, namely, (1) when eight or more members vote expressly in that sense and (2)
when the required number of justices needed to sustain the same cannot be had.

I reiterate, therefore, that as between the parties herein, the issue of validity of the challenged by-
laws is already settled. From which it follows that the same are already enforceable-insofar as they
are concerned. Petitioner Gokongwei may not hereafter act on the assumption that he can revive the
issue of validity whether in the Securities and Exchange Commission, in this Court or in any other
forum, unless he proceeds on the basis of a factual milieu different from the setting of this case. Not
even the Securities and Exchange Commission may pass on such question anymore at the instance of
herein petitioner or anyone acting in his stead or on his behalf. The vote of four justices to remand the
case thereto cannot alter the situation.

It is very clear that under the decision herein, the issue of validity is a settled matter for the parties
herein as the law of the case, and it is only the actual implementation of the impugned amended by-
laws in the particular case of petitioner that remains to be passed upon by the Securities and
Exchange Commission, and on appeal therefrom to Us, assuming the board of directors of San Miguel
Corporation should, after the proper hearing, disqualify him.

To be sure, the record is replete with substantial indications, nay admissions of petitioner himself, that
he is a controlling stockholder of corporations which are competitors of San Miguel Corporation. The
very substantial areas of such competition involving hundreds of millions of pesos worth of businesses
stand uncontroverted in the records hereof. In fact, petitioner has even offered, if he should be
elected, as director, not to take part when the board takes up matters affecting the corresponding
areas of competition between his corporation and San Miguel. Nonetheless, perhaps, it is best that
such evidence be formally offered at the hearing contemplated in Our decision.

As to whether or not petitioner may sit in the board if he wins, definitely, under the decision in this
case, even if petitioner should win, he will have to immediately leave his position or should be ousted
the moment this Court settles the issue of his actual disqualification, either in a full blown decision or
by denying the petition for review of corresponding decision of the Securities and Exchange
Commission unfavorable to him. And, of course, as a matter of principle, it is to be expected that the
matter of his disqualification should be resolved expeditiously and within the shortest possible time, so
as to avoid as much juridical injury as possible, considering that the matter of the validity of the
prohibition against competitors embodied in the amended by-laws is already unquestionable among
the parties herein and to allow him to be in the board for sometime would create an obviously
anomalous and legally incongruous situation that should not be tolerated. Thus, all the parties
concerned must act promptly and expeditiously.

Additionally, my reservation to explain my vote on the validity of the amended by-laws still stands.

Castro, C.J., concurs in Justice Barredo's statement that the dismissal (for lack of necessary votes) of
the petition to the extent that "it assails the validity of the amended by laws," is the law of the case at
bar, which means in effect that as far and only in so far as the parties and the Securities and
Exchange Commission are concerned, the Court has not found merit in the claim that the amended
by-laws in question are invalid.

Antonio and Santos, JJ., concur.

DE CASTRO, J., concurring:

As stated in the decision penned by Justice Antonio, I voted to uphold the validity of the amendment
to the by-laws in question. What induced me to this view is the practical consideration easily perceived
in the following illustration: If a person becomes a stockholder of a corporation and gets himself
elected as a director, and while he is such a director, he forms his own corporation competitive or
antagonistic to the corporation of which he is a director, and becomes Chairman of the Board and
President of his own corporation, he may be removed from his position as director, admittedly one of
trust and confidence. If this is so, as seems undisputably to be the case, a person already controlling,
and also the Chairman of the Board and President of, a corporation, may be barred from becoming a
member of the board of directors of a competitive corporation. This is my view, even as I am for a
restrictive interpretation of Section 13(5) of the Philippine Corporation Law, under which I would limit
the scope of the provision to corporations engaged in agriculture, but only as the word agriculture"
refers to its more stated meaning as distinguished from its general and broad connotation. The term
would then mean "farming" or raising the natural products of the soil, such as by cultivation, in the
manner as is required by the Public Land Act in the acquisition of agricultural land, such as by
homestead, before the patent may be issued. It is my opinion that under the public land statute, the
development of a certain portion of the land applied for as specified in the law as a condition
precedent before the applicant may obtain a patent, is cultivation, not let us say, poultry raising or
piggery, which may be included in the term Is agriculture" in its broad sense. For under Section 13(5)
of the Philippine Corporation Law, construed not in the strict way as I believe it should, because the
provision is in derogation of property rights, the petitioner in this case would be disqualified from
becoming an officer of either the San Miguel Corporation or his own supposedly agricultural
corporations. It is thus beyond my comprehension why, feeling as though I am the only member of
the Court for a restricted interpretation of Section 13(5) of Act 1459, doubt still seems to be in the
minds of other members giving the cited provision an unrestricted interpretation, as to the validity of
the amended by-laws in question, or even holding them null and void.

I concur with the observation of Justice Barredo that despite that less than six votes are for upholding
the validity of the by-laws, their validity is deemed upheld, as constituting the "law of the case." It
could not be otherwise, after the present petition is dismissed with the relief sought to declare null and
void the said by-laws being denied in effect. A vicious circle would be created if, should petitioner
Gokongwei be barred or disqualified from running by the Board of Directors of San Miguel Corporation
and the Securities and Exchange Commission sustain the Board, petitioner could come again to Us,
raising the same question he has raised in the present petition, unless the principle of the "law of the
case" is applied.

Clarifying therefore, my position, I am of the opinion that with the validity of the by-laws in question
standing unimpaired it is now for petitioner to show that he does not come within the disqualification
as therein provided, both to the Board and later to the Securities and Exchange Commission, it being
a foregone conclusion that, unless petitioner disposes of his stockholdings in the so-called competitive
corporations, San Miguel Corporation would apply the by-laws against him, His right, therefore, to run
depends on what, on election day, May 8, 1979, the ruling of the Board and/or the Securities and
Exchange Commission on his qualification to run would be, certainly, not the final ruling of this Court
in the event recourse thereto is made by the party feeling aggrieved, as intimated in the "Joint
Separate Opinion" of Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero, that only after
petitioner's "disqualification" has ultimately been passed upon by this Court should petitioner, not be
allowed to run. Petitioner may be allowed to run, despite an adverse decision of both the Board and
the Securities and Exchange Commission, only if he comes to this Court and obtain an injunction
against the enforcement of the decision disqualifying him. Without such injunction being required, all
that petitioner has to do is to take his time in coming to this Court, and in so doing, he would in the
meantime, be allowed to run, and if he wins, to sit. This would, however, be contrary to the doctrine
that gives binding, if not conclusive, effect of findings of facts of administrative bodies exercising
quasi-judicial functions upon appellate courts, which should, accordingly, be enforced until reversed by
this Tribunal.

Fernando and Makasiar, JJ., concurs.

Antonio and Santos, JJ., concur

DE CASTRO, J.: concurring:

As stated in the decision penned by Justice Antonio, I voted to uphold the validity of the amendment
to the by-laws in question. What induced me to this view is the practical consideration easily perceived
in the following illustration: If a person becomes a stockholder of a corporation and gets himself
elected as a director, and while he is such a director, he forms his own corporation competitive or
antagonistic to the corporation of which he is a director, and becomes Chairman of the Board and
President of his own corporation, he may be removed from his position as director, admittedly one of
trust case, a person already controlling, and also the Chairman of the Board and President of, a
corporation, may be barred from becoming a member of the board of directors of a competitive
corporation. This is my view, even as I am for restrictive interpretation of Section 13(5) of the
Philippine Corporation Law, under which I would limit the scope of the provision to corporations
engaged in agriculture, but only as the word "agriculture" refers to its more limited meaning as
distinguished from its general and broad connotation. The term would then mean "farming" or raising
the natural products of the soil, such as by cultivation, in the manner as in required by the Public Land
Act in the acquisition of agricultural land, such as by homestead, before the patent may be issued. It
is my opinion that under the public land statute, the development of a certain portion of the land
applied for as specified in the law as a condition precedent before the applicant may obtain a patent,
is cultivation, not let us say, poultry raising or peggery, whch may be included in the term
"agriculture" in its broad sense. For under Section 13(5) of the Philippine Corporation Law, construed
not in the strict way as I believe it should, because the provision is in derogation of property rights,
the petitioner in this case would be disqualified from becoming an officer of either the San Miguel
Corporation or his own supposedly agricultural corporations. It is thus beyond my comprehension why,
feeling as though I am the only members of the Court for a restricted interpretation of Section 13(5)
of Act 1459, doubt still seems to be in the minds of other members giving the cited provision an
unrestricted interpretation, as to the validity of the amended by-laws in question, or even holding
them null and void.

I concur with the observation of Justice Barredo that despite that less than six votes are for upholding
the validity of the by-laws, their validity is deemed upheld, as constituting the "law of the case." It
could not be otherwise, after the present petition is dimissed with the relief sought to declare null and
void the said by-laws being denied in effect. A vicious circle would be created if, should petitioner
Gokongwei be barred or disqualified from running by the Board, petitioner could come again to Us,
raising the same question he has raised in the present petition, unless the principle of the "law of the
case" is applied.

Clarifying therefore, my position, I am of the opinion that with the validity of the by-laws in question
standing unimpaired, it is nowfor petitioner to show that he does not come paired, it is now for
petitioner to show that he does not come within the disqualification as therein provided, both to the
Board and later to the Securities and Exhange Commission, it being a foregone conclusion that, unless
petitioner disposes of his stockholdings in the so-called competitive corporations, San Miguel
Corporation would apply the by-laws against him. His right, therefore, to run depends on what, on
election day, May 8, 1979, the ruling of the Board and/or the Securities and Exchange Commission on
his qualification to run would be, certainly, not the final ruling of this Court in the event recourse
thereto is made by the party feeling aggrieved, as intimated in the "Joint Separate Opinion" of Justices
Teehankee, Concepcion, Jr., Fernandez and Guerrero, that only after petitioner's "disqualification" has
ultimately been passed upon by this Court should petitioner not be allowed to run. Petitioner may be
allowed to run, despite anadverse decision of both the Board and the Securities and Exchange
Commission, only if he comes to this Court and obtain an injunction against the enforcement of the
decision disqualifying him. Without such injunction being required, all that petitioner has to do is to
take his time in coming to this Court, and in so doing, he would in the meantime, be allowed to run,
and if he wins, to sit. This would, however, be contrary to the doctrine that gives binding, if not
conclusive, effect of findings of facts of administrative bodies exercising quasi-judicial functions upon
appellate courts, which should, accordingly, be enforced until reversed by this Tribunal.
Separate Opinions

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

As correctly stated in the main opinion of Mr. Justice Antonio, the Court is unanimous in its judgment
granting the petitioner as stockholder of respondent San Miguel Corporation the right to inspect,
examine and secure copies of the records of San Miguel International, inc. (SMI), a wholly owned
foreign subsidiary corporation of respondent San Miguel Corporation. Respondent commissions en
banc Order No. 449, Series of 19 7 7, denying petitioner's right of inspection for "not being a
stockholder of San Miguel International, Inc." has been accordingly set aside. It need be only pointed
out that:

a) The commission's reasoning grossly disregards the fact that the stockholders of San
Miguel Corporation are likewise the owners of San Miguel International, Inc. as the
corporation's wholly owned foreign subsidiary and therefore have every right to have
access to its books and records. otherwise, the directors and management of any
Philippine corporation by the simple device of organizing with the corporation's funds
foreign subsidiaries would be granted complete immunity from the stockholders'
scrutiny of its foreign operations and would have a conduit for dissipating, if not
misappropriating, the corporation funds and assets by merely channeling them into
foreign subsidiaries' operations; and

b) Petitioner's right of examination herein recognized refers to all books and records of
the foreign subsidiary SMI which are which are " in respondent corporation's
possession and control" 1, meaning to say regardless of whether or not such books
and records are physically within the Philippines. all such books and records of SMI are
legally within respondent corporation's "possession and control" and if nay books or
records are kept abroad, (e.g. in the foreign subsidiary's state of domicile, as is to be
expected), then the respondent corporation's board and management are obliged
under the Court's judgment to bring and make them (or true copies thereof available
within the Philippines for petitioner's examination and inspection.

II

On the other main issue of the Validity of respondent San Miguel Corporation's amendment of its by-
laws 2 whereby respondent corporation's board of directors under its resolution dated April 29, 1977
declared petitioner ineligible to be nominated or to be voted or to be elected as of the board of
directors, the Court, composed of 12 members (since Mme. Justice Ameurfina Melencio Herrera
inhibited herself from taking part herein, while Mr. Justice Ramon C. Aquino upon submittal of the
main opinion of Mr. Justice Antonio decided not to take part), failed to reach a conclusive vote or, the
required majority of 8 votes to settle the issue one way or the other.

Six members of the Court, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De
Castro, considered the issue purely legal and voted to sustain the validity per se of the questioned
amended by-laws but nevertheless voted that the prohibition and disqualification therein provided
shall not apply to petitioner Gokongwei until and after he shall have been given a new and proper
hearing" by the corporation's board of directors and the board's decision of disqualification she'll have
been sustained on appeal by respondent Securities and Exchange Commission and ultimately by this
Court.

The undersigned Justices do not consider the issue as purely legal in the light of respondent
commission's Order No. 451, Series of 1977, denying petitioner's "Motion for Summary Judgment" on
the ground that "the Commission en banc finds that there (are) unresolved and genuine issues of fact"
3 as well as its position in this case to the Solicitor General that the case at bar is "premature" and
that the administrative remedies before the commission should first be availed of and exhausted. 4

We are of the opinion that the questioned amended by-laws, as they are, (adopted after almost a
century of respondent corporation's existence as a public corporation with its shares freely purchased
and traded in the open market without restriction and disqualification) which would bar petitioner from
qualification, nomination and election as director and worse, grant the board by 3/4 vote the arbitrary
power to bar any stockholder from his right to be elected as director by the simple expedient of
declaring him to be engaged in a "competitive or antagonistic business" or declaring him as a
"nominee" of the competitive or antagonistic" stockholder are illegal, oppressive, arbitrary and
unreasonable.

We consider the questioned amended by-laws as being specifically tailored to discriminate against
petitioner and depriving him in violation of substantive due process of his vested substantial rights as
stockholder of respondent corporation. We further consider said amended by-laws as violating specific
provisions of the Corporation Law which grant and recognize the right of a minority stockholder like
petitioner to be elected director by the process of cumulative voting ordained by the Law (secs 21 and
30) and the right of a minority director once elected not to be removed from office of director except
for cause by vote of the stockholders holding 2/3 of the subscribed capital stock (sec. 31). If a
minority stockholder could be disqualified by such a by-laws amendment under the guise of providing
for "qualifications," these mandates of the Corporation Law would have no meaning or purpose.

These vested and substantial rights granted stockholders under the Corporation Law may not be
diluted or defeated by the general authority granted by the Corporation Law itself to corporations to
adopt their by-laws (in section 21) which deal principally with the procedures governing their internal
business. The by-laws of any corporation must, be always within the character limits. What the
Corporation Law has granted stockholders may not be taken away by the corporation's by-laws. The
amendment is further an instrument of oppressiveness and arbitrariness in that the incumbent
directors are thereby enabled to perpetuate themselves in office by the simple expedient of
disqualifying any unwelcome candidate, no matter how many votes he may have.

However, in view of the inconclusiveness of the vote, we sustain respondent commission's stand as
expressed in its Orders Nos. 450 and 451, Series of 1977 that there are unresolved and genuine
issues of fact" and that it has yet to rule on and finally decide the validity of the disputed by-law
provision", subject to appeal by either party to this Court.

In view of prematurity of the proceedings here (as likewise expressed by Mr. Justice Fernando), the
case should as a consequence be remanded to the Securities and Exchange Commission as the agency
of primary jurisdiction for a full hearing and reception of evidence of all relevant facts (which should
property be submitted to the commission instead of the piecemeal documents submitted as annexes
to this Court which is not a trier of facts) concerning not only the petitioner but the members of the
board of directors of respondent corporation as well, so that it may determine on the basis thereof the
issue of the legality of the questioned amended by-laws, and assuming Chat it holds the same to be
valid whether the same are arbitrarily and unreasonably applied to petitioner vis a vis other directors,
who, petitioner claims, should in such event be likewise disqualified from sitting in the board of
directors by virtue of conflict of interests or their being likewise engaged in competitive or antagonistic
business" with the corporation such as investment and finance, coconut oil mills cement, milk and
hotels. 5

It should be noted that while the petition may be dismissed in view of the inconclusiveness of the vote
and the Court's failure to affair, the required 8-vote majority to resolve the issue, such as dismissal
(for lack of necessary votes) is of no doctrine value and does not in any manner resolve the issue of
the validity of the questioned amended by-laws nor foreclose the same. The same should properly be
determined in a proper case in the first instance by the Securities and Exchange Commission as the
agency of primary jurisdiction, as above indicated.

The Court is unanimous, therefore, in its judgment that petitioner Gokongwei may run for the office
of, and if elected, sit as, member of the board of directors of respondent San Miguel Corporation as
stated in the dispositive portion of the main opinion of Mr. Justice Antonio, to wit: Until and after
petitioner has been given a "new and proper hearing by the board of directors of said corporation,
whose decision shall be appealable Lo the respondent Securities and Exchange Commission
deliverating and acting en banc and ultimately to this Court" and until ' disqualified in the manner
herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner,"
In other words, until and after petitioner shall have been given due process and proper hearing by the
respondent board of directors as to the question of his qualification or disqualification under the
questioned amended by-laws (assuming that the respondent Securities and Exchange C commission
ultimately upholds the validity of said by laws), and such disqualification shall have been sustained by
respondent Securities and Exchange Commission and ultimately by final judgment of this Court,
petitioner is deemed eligible for all legal purposes and effects to be nominated and voted and if
elected to sit as a member of the hoard of directors of respondent San Miguel Corporation.

In view of the Court's unanimous judgment on this point the portion of respondent commission's
Order No. 450, Series of 977 which imposed "the condition that he [petitioner] cannot sit as board
member if elected until after the Commission shall have finally decided the validity of the disputed by-
law provision" has been likewise accordingly set aside.

III
By way of recapitulation, so that the Court's decision and judgment may be clear and not subject to
ambiguity, we state the following.

1. With the votes of the six Justices concurring unqualifiedly in the main opinion added to our four
votes, plus the Chief Justice's vote and that of Mr. Justice Fernando, the Court has by twelve (12)
votes unanimously rendered judgment granting petitioner's right to examine and secure copies of the
books and records of San Miguel International, Inc. as a foreign subsidiary of respondent corporation
and respondent commission's Order No. 449, Series of 1977, to the contrary is set aside:

2. With the same twelve (12) votes, the Court has also unanimously rendered judgment declaring that
until and after petitioner shall have been given due process and proper hearing by the respondent
board of directors as to the question of his disqualification under the questioned amended by- laws
(assuming that the respondent Securities and Exchange Commission ultimately upholds the validity of
said by laws), and such disqualification shall have been sustained by respondent Securities and
Exchange Commission and ultimately by final judgment of this Court petitioner is deemed eligible for
all legal purposes and effect to be nominated and voted and if elected to sit as a member of the board
of directors of respondent San Miguel Corporation. Accordingly, respondent commission's Order No.
450, Series of 1977 to the contrary has likewise been set aside; and

3. The Court's voting on the validity of respondent corporation's amendment of the by-laws (sec. 2,
Art. 111) is inconclusive without the required majority of eight votes to settle the issue one way or the
other having been reached. No judgment is rendered by the Court thereon and the statements of the
six Justices who have signed the main opinion on the legality thereof have no binding effect, much
less doctrinal value.

The dismissal of the petition insofar as the question of the validity of the disputed by-laws amendment
is concerned is not by an judgment with the required eight votes but simply by force of Rule 56,
section II of the Rules of Court, the pertinent portion of which provides that "where the court en banc
is equally divided in opinion, or the necessary majority cannot be had, the case shall be reheard, and
if on re-hearing no decision is reached, the action shall be dismissed if originally commenced in the
court ...." The end result is that the Court has thereby dismissed the petition which prayed that the
Court bypass the commission and directly resolved the issue and therefore the respondent commission
may now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and
receive all relevant evidence bearing on the issue as hereinabove indicated, and resolve the
"unresolved and genuine issues of fact" (as per Order No. 451, Series of 1977) and the issues of
legality of the disputed by-laws amendment.

Teehankee, Concepcion, Jr., and Fernandez, JJ., concur.

Guerrero, J., concurred.

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

This supplemental opinion is issued with reference to the advance separate opinion of Mr. Justice
Barredo issued by him as to "certain misimpressions as to the import of the decision in this case"
which might be produced by our joint separate opinion of April 11, 1979 and "urgent(ly) to clarify (his)
position in respect to the rights of the parties resulting from the dismissal of the petition herein and
the outline of the procedure by which the disqualification of petitioner Gokongwei can be made
effective."

1. Mr. Justice Barredo's advances separate opinion "that as between the parties herein, the issue of
the validity of the challenged by-laws is already settled" had, of course, no binding effect. The
judgment of the Court is found on pages 59-61 of the decision of April 11, 1979, penned by Mr.
Justice Antonio, wherein on the question of the validity of the amended by-laws the Court's
inconclusive voting is set forth as follows:

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

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

Four (4) Justices, namely, Justices Teehankee, Concepcion Jr., Fernandez and
Guerrero filed a separate opinion, wherein they voted against the validity of the
questioned amended by-laws and that this question should properly be resolved first
by the SEC as the agency of primary jurisdiction ... 1
As stated in said judgment itself, for lack of the necessary votes, the petition, insofar as it assails the
validity of the questioned by-laws, was dismissed.

2. Mr. Justice Barredo now contends contrary to the undersigned's understanding, as stated on pages
8 and 9 of our joint separate opinion of April 11, 1979 that the legal effect of the dismissal of the
petition on the question of validity of the amended by-laws for lack of the necessary votes simply
means that "the Court has thereby dismissed the petition which prayed that the Court by-pass the
commission and directly resolve the issue and therefore the respondent commission may now
proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive all
relevant evidence bearing on the issue as hereinabove indicated, and resolve the 'unresolved and
genuine issues of fact' (as per Order No. 451, Series of 1977) and the issue of legality of the disputed
by-laws amendment," that such dismissal "has no other legal consequence than that it is the law of
the case as far as the parties are concerned, albeit the majority of the opinion of six against four
Justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent
cases."

We hold on our part that the doctrine of the law of the case invoked by Mr. Justice Barredo has no
applicability for the following reasons:

a) Our jurisprudence is quite clear that this doctrine may be invoked only where there has been a final
and conclusive determination of an issue in the first case later invoked as the law of the case.

Thus, in People vs. Olarte, 2 we held that

"Law of the case" has been defined as the opinion delivered on a former appeal More
specifically, it means that whatever is once irrevocably established as the controlling
legal rule of decision between the same parties in the same case continues to he the
law of the case, whether correct on general principles or not, so long as the facts on
which such decision was predicated continue to be the facts of the case before the
court. ...

It need not be stated that the Supreme Court, being the court of last resort, is the
final arbiter of all legal questions properly brought before it and that its decision in any
given case constitutes the law of that particular case. Once its judgment becomes final
it is binding on all inferior courts, and hence beyond their power and authority to alter
or modify Kabigting vs. Acting Director of Prisons, G. R. No. L-15548, October 30,
1962).

"The decision of this Court on that appeal by the government from the order of
dismissal, holding that said appeal did not place the appellants, including Absalon
Bignay, in double jeopardy, signed and concurred in by six Justices as against three
dissenters headed by the Chief Justice, promulgated way back in the year 1952, has
long become the law of the case. It may be erroneous, judged by the law on double
jeopardy as recently interpreted by this same Tribunal Even so, it may not be
disturbed and modified. Our recent interpretation of the law may be applied to new
cases, but certainly not to an old one finally and conclusively determined. As already
stated, the majority opinion in that appeal is now the law of the case." (People vs.
Pinuila)

The doctrine of the law of the case, therefore, has no applicability whatsoever herein insofar as the
question of the validity or invalidity of the amended by-laws is concerned. The Court's judgment of
April 11, 1979 clearly shows that the voting on this question was inconclusive with six against four
Justices and two other Justices (the Chief Justice and Mr. Justice Fernando) expressly reserving their
votes thereon, and Mr. Justice Aquino while taking no part in effect likewise expressly reserved his
vote thereon. No final and conclusive determination could be reached on the issue and pursuant to the
provisions of Rule 56, section 11, since this special civil action originally commenced in this Court, the
action was simply dismissed with the result that no law of the case was laid down insofar as the issue
of the validity or invalidity of the questioned by-laws is concerned, and the relief sought herein by
petitioner that this Court by-pass the SEC which has yet to hear and determine the same issue
pending before it below and that this Court itself directly resolve the said issue stands denied.

b) The contention of Mr. Justice Barredo that the result of the dismiss of the case was that "petitioner
Gokongwei may not hereafter act on the assumption that he can revive the issue of the validity
whether in the Securities and Exchange Commission, in this Court or in any other forum, unless he
proceeds on the basis of a factual milieu different from the setting of this case Not even the Securities
and Exchange Commission may pass on such question anymore at the instance of herein petitioner or
anyone acting in his stead or on his behalf, " appears to us to be untenable.
The Court through the decision of April 11, 1979, by the unanimous votes of the twelve participating
Justices headed by the Chief Justice, ruled that petitioner Gokongwei was entitled to a "new and
proper hearing" by the SMC board of directors on the matter of his disqualification under the
questioned by-laws and that the board's "decision shall be appealable to the respondent Securities and
Exchange Commission deliberating and acting en banc and ultimately to this Court (and) unless
disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws
shall not apply to petitioner."

The entire Court, therefore, recognized that petitioner had not been given procedural due process by
the SMC board on the matter of his disqualification and that he was entitled to a "new and proper
hearing". It stands to reason that in such hearing, petitioner could raise not only questions of fact but
questions of law, particularly questions of law affecting the investing public and their right to
representation on the board as provided by law — not to mention that as borne out by the fact that no
restriction whatsoever appears in the court's decision, it was never contemplated that petitioner was
to be limited to questions of fact and could not raise the fundamental questions of law bearing on the
invalidity of the questioned amended by-laws at such hearing before the SMC board. Furthermore, it
was expressly provided unanimously in the Court's decision that the SMC board's decision on the
disqualification of petitioner ("assuming the board of directors of San Miguel Corporation should, after
the proper hearing, disqualify him" as qualified in Mr. Justice Barredo's own separate opinion, at page
2) shall be appealable to respondent Securities and Exchange Commission "deliberating and acting en
banc and "untimately to this Court." Again, the Court's judgment as set forth in its decision of April
11, 1979 contains nothing that would warrant the opinion now expressed that respondent Securities
and Exchange Commission may not pass anymore on the question of the invalidity of the amended
by-laws. Certainly, it cannot be contended that the Court in dismissing the petition for lack of
necessary votes actually by-passed the Securities and Exchange Commission and directly ruled itself
on the invalidity of the questioned by-laws when it itself could not reach a final and conclusive vote (a
minimum of eight votes) on the issue and three other Justices (the Chief Justice and Messrs. Justices
Fernando and Aquino) had expressly reserved their vote until after further hearings (first before the
Securities and Exchange Commission and ultimately in this Court).

Such a view espoused by Mr. Justice Barredo could conceivably result in an incongruous situation
where supposedly under the law of this case the questioned by-laws would be held valid as against
petitioner Gokongwei and yet the same may be stricken off as invalid as to all other SMC shareholders
in a proper case.

3. It need only be pointed out that Mr. Justice Barredo's advance separate opinion can in no way
affect or modify the judgment of this Court as set forth in the decision of April 11, 1979 and discussed
hereinabove. The same bears the unqualified concurrence of only three Justices out of the six Justices
who originally voted for the validity per se of the questioned by-laws, namely, Messrs. Justices
Antonio, Santos and De Castro. Messrs. Justices Fernando and Makasiar did not concur therein but
they instead concurred with the limited concurrence of the Chief Justice touching on the law of the
case which guardedly held that the Court has not found merit in the claim that the amended bylaws in
question are invalid but without in any manner foreclosing the issue and as a matter of fact and law,
without in any manner changing or modifying the above-quoted vote of the Chief Justice as officially
rendered in the decision of April 11, 1979, wherein he precisely "reserved (his) vote on the validity of
the amended by-laws."

4. A word on the separate opinion of Mr. Justice Pacifico de Castro attached to the advance separate
opinion of Mr. Justice Barredo. Mr. Justice De Castro advances his interpretation as to a restrictive
construction of section 13(5) of the Philippine Corporation Law, ignoring or disregarding the fact that
during the Court's deliberations it was brought out that this prohibitory provision was and is not raised
in issue in this case whether here or in the Securities and Exchange Commission below (outside of a
passing argument by Messrs. Angara, Abello, Concepcion, Regala & Cruz, as counsels for respondent
Sorianos in their Memorandum of June 26, 1978 that "(T)he disputed By-Laws does not prohibit
petitioner from holding onto, or even increasing his SMC investment; it only restricts any shifting on
the part of petitioner from passive investor to a director of the company." 3

As a consequence, the Court abandoned the Idea of calling for another hearing wherein the parties
could properly raise and discuss this question as a new issue and instead rendered the decision in
question, under which the question of section 13(5) could be raised at a new and proper hearing
before the SMC board and in the Securities and Exchange Commission and in due course before this
Court (but with the clear understanding that since both corporations, the Robina and SMC are engaged
in agriculture as submitted by the Sorianos' counsel in their said memorandum, the issue could be
raised likewise against SMC and its other shareholders, directors, if not against SMC itself. As
expressly stated in the Chief Justices reservation of his vote, the matter of the question of the
applicability of the said section 13(5) to petitioner would be heard by this Court at the appropriate
time after the proceedings below (and necessarily the question of the validity of the amended by-laws
would be taken up anew and the Court would at that time be able to reach a final and conclusive
vote).
Mr. Justice De Castro's personal interpretation of the decision of April 11, 1979 that petitioner may be
allowed to run for election despite adverse decision of both the SMC board and the Securities and
Exchange Commission "only if he comes to this Court and obtains an injunction against the
enforcement of the decision disqualifying him" is patently contradictory of his vote on the matter as
expressly given in the judgment in the Court's decision of April 11, 1979 (at page 59) that petitioner
could run and if elected, sit as director of the respondent SMC and could be disqualified only after a
"new and proper hearing by the board of directors of said corporation, whose decision shall be
appealable to the respondent Securities and Exchange Commission deliberating and acting en banc
and ultimately to this Court. Unless-disqualified in the manner herein provided, the prohibition in the
aforementioned amended by-laws shall not apply to petitioner."

Teehankee, Concepcion Jr., Fernandez and Guerrero, JJ., concur.

BARREDO, J., concurring:

I reserved the filing of a separate opinion in order to state my own reasons for voting in favor of the
validity of the amended by-laws in question. Regrettably, I have not yet finished preparing the same.
In view, however, of the joint separate opinion of Justices Teehankee, Concepcion Jr., Fernandez and
Guerrero, the full text of which has just come to my attention, and which I am afraid might produce
certain misimpressions as to the import of the decision in this case, I consider it urgent to clarify my
position in respect to the rights of the parties resulting from the dismissal of the petition herein and
the outlining of the procedure by which the disqualification of petitioner Gokongwei can be made
effective, hence this advance separate opinion.

To start with, inasmuch as petitioner Gokongwei himself placed the issue of the validity of said
amended by-laws squarely before the Court for resolution, because he feels, rightly or wrongly, he can
no longer have due process or justice from the Securities and Exchange Commission, and the private
respondents have joined with him in that respect, the six votes cast by Justices Makasiar, Antonio,
Santos, Abad Santos, de Castro and this writer in favor of validity of the amended by-laws in question,
with only four members of this Court, namely, Justices Teehankee, Concepcion Jr., Fernandez and
Guerrero opining otherwise, and with Chief Justice Castro and Justice Fernando reserving their votes
thereon, and Justices Aquino and Melencio Herrera not voting, thereby resulting in the dismissal of the
petition "insofar as it assails the validity of the amended by- laws ... for lack of necessary votes", has
no other legal consequence than that it is the law of the case as far as the parties herein are
concerned, albeit the majority opinion of six against four Justices is not doctrinal in the sense that it
cannot be cited as necessarily a precedent for subsequent cases. This means that petitioner
Gokongwei and the respondents, including the Securities and Exchange Commission, are bound by the
foregoing result, namely, that the Court en banc has not found merit in the claim that the amended
by-laws in question are invalid. Indeed, it is one thing to say that dismissal of the case is not doctrinal
and entirely another thing to maintain that such dismissal leaves the issue unsettled. It is somewhat
of a misreading and misconstruction of Section 11 of Rule 56, contrary to the well-known established
norm observed by this Court, to state that the dismissal of a petition for lack of the necessary votes
does not amount to a decision on the merits. Unquestionably, the Court is deemed to find no merit in
a petition in two ways, namely, (1) when eight or more members vote expressly in that sense and (2)
when the required number of justices needed to sustain the same cannot be had.

I reiterate, therefore, that as between the parties herein, the issue of validity of the challenged by-
laws is already settled. From which it follows that the same are already enforceable-insofar as they
are concerned. Petitioner Gokongwei may not hereafter act on the assumption that he can revive the
issue of validity whether in the Securities and Exchange Commission, in this Court or in any other
forum, unless he proceeds on the basis of a factual milieu different from the setting of this case. Not
even the Securities and Exchange Commission may pass on such question anymore at the instance of
herein petitioner or anyone acting in his stead or on his behalf. The vote of four justices to remand the
case thereto cannot alter the situation.

It is very clear that under the decision herein, the issue of validity is a settled matter for the parties
herein as the law of the case, and it is only the actual implementation of the impugned amended by-
laws in the particular case of petitioner that remains to be passed upon by the Securities and
Exchange Commission, and on appeal therefrom to Us, assuming the board of directors of San Miguel
Corporation should, after the proper hearing, disqualify him.

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

Additionally, my reservation to explain my vote on the validity of the amended by-laws still stands.

Castro, C.J., concurs in Justice Barredo's statement that the dismissal (for lack of necessary votes) of
the petition to the extent that "it assails the validity of the amended by laws," is the law of the case at
bar, which means in effect that as far and only in so far as the parties and the Securities and
Exchange Commission are concerned, the Court has not found merit in the claim that the amended
by-laws in question are invalid.

Antonio and Santos, JJ., concur.

DE CASTRO, J., concurring:

As stated in the decision penned by Justice Antonio, I voted to uphold the validity of the amendment
to the by-laws in question. What induced me to this view is the practical consideration easily perceived
in the following illustration: If a person becomes a stockholder of a corporation and gets himself
elected as a director, and while he is such a director, he forms his own corporation competitive or
antagonistic to the corporation of which he is a director, and becomes Chairman of the Board and
President of his own corporation, he may be removed from his position as director, admittedly one of
trust and confidence. If this is so, as seems undisputably to be the case, a person already controlling,
and also the Chairman of the Board and President of, a corporation, may be barred from becoming a
member of the board of directors of a competitive corporation. This is my view, even as I am for a
restrictive interpretation of Section 13(5) of the Philippine Corporation Law, under which I would limit
the scope of the provision to corporations engaged in agriculture, but only as the word agriculture"
refers to its more stated meaning as distinguished from its general and broad connotation. The term
would then mean "farming" or raising the natural products of the soil, such as by cultivation, in the
manner as is required by the Public Land Act in the acquisition of agricultural land, such as by
homestead, before the patent may be issued. It is my opinion that under the public land statute, the
development of a certain portion of the land applied for as specified in the law as a condition
precedent before the applicant may obtain a patent, is cultivation, not let us say, poultry raising or
piggery, which may be included in the term Is agriculture" in its broad sense. For under Section 13(5)
of the Philippine Corporation Law, construed not in the strict way as I believe it should, because the
provision is in derogation of property rights, the petitioner in this case would be disqualified from
becoming an officer of either the San Miguel Corporation or his own supposedly agricultural
corporations. It is thus beyond my comprehension why, feeling as though I am the only member of
the Court for a restricted interpretation of Section 13(5) of Act 1459, doubt still seems to be in the
minds of other members giving the cited provision an unrestricted interpretation, as to the validity of
the amended by-laws in question, or even holding them null and void.

I concur with the observation of Justice Barredo that despite that less than six votes are for upholding
the validity of the by-laws, their validity is deemed upheld, as constituting the "law of the case." It
could not be otherwise, after the present petition is dismissed with the relief sought to declare null and
void the said by-laws being denied in effect. A vicious circle would be created if, should petitioner
Gokongwei be barred or disqualified from running by the Board of Directors of San Miguel Corporation
and the Securities and Exchange Commission sustain the Board, petitioner could come again to Us,
raising the same question he has raised in the present petition, unless the principle of the "law of the
case" is applied.

Clarifying therefore, my position, I am of the opinion that with the validity of the by-laws in question
standing unimpaired it is now for petitioner to show that he does not come within the disqualification
as therein provided, both to the Board and later to the Securities and Exchange Commission, it being
a foregone conclusion that, unless petitioner disposes of his stockholdings in the so-called competitive
corporations, San Miguel Corporation would apply the by-laws against him, His right, therefore, to run
depends on what, on election day, May 8, 1979, the ruling of the Board and/or the Securities and
Exchange Commission on his qualification to run would be, certainly, not the final ruling of this Court
in the event recourse thereto is made by the party feeling aggrieved, as intimated in the "Joint
Separate Opinion" of Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero, that only after
petitioner's "disqualification" has ultimately been passed upon by this Court should petitioner, not be
allowed to run. Petitioner may be allowed to run, despite an adverse decision of both the Board and
the Securities and Exchange Commission, only if he comes to this Court and obtain an injunction
against the enforcement of the decision disqualifying him. Without such injunction being required, all
that petitioner has to do is to take his time in coming to this Court, and in so doing, he would in the
meantime, be allowed to run, and if he wins, to sit. This would, however, be contrary to the doctrine
that gives binding, if not conclusive, effect of findings of facts of administrative bodies exercising
quasi-judicial functions upon appellate courts, which should, accordingly, be enforced until reversed by
this Tribunal.

Fernando and Makasiar, JJ., concurs.

Antonio and Santos, JJ., concur

# Separate Opinions

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

As correctly stated in the main opinion of Mr. Justice Antonio, the Court is unanimous in its judgment
granting the petitioner as stockholder of respondent San Miguel Corporation the right to inspect,
examine and secure copies of the records of San Miguel International, inc. (SMI), a wholly owned
foreign subsidiary corporation of respondent San Miguel Corporation. Respondent commissions en
banc Order No. 449, Series of 19 7 7, denying petitioner's right of inspection for "not being a
stockholder of San Miguel International, Inc." has been accordingly set aside. It need be only pointed
out that:

a) The commission's reasoning grossly disregards the fact that the stockholders of San
Miguel Corporation are likewise the owners of San Miguel International, Inc. as the
corporation's wholly owned foreign subsidiary and therefore have every right to have
access to its books and records. otherwise, the directors and management of any
Philippine corporation by the simple device of organizing with the corporation's funds
foreign subsidiaries would be granted complete immunity from the stockholders'
scrutiny of its foreign operations and would have a conduit for dissipating, if not
misappropriating, the corporation funds and assets by merely channeling them into
foreign subsidiaries' operations; and

b) Petitioner's right of examination herein recognized refers to all books and records of
the foreign subsidiary SMI which are which are " in respondent corporation's
possession and control" 1, meaning to say regardless of whether or not such books
and records are physically within the Philippines. all such books and records of SMI are
legally within respondent corporation's "possession and control" and if nay books or
records are kept abroad, (e.g. in the foreign subsidiary's state of domicile, as is to be
expected), then the respondent corporation's board and management are obliged
under the Court's judgment to bring and make them (or true copies thereof available
within the Philippines for petitioner's examination and inspection.

II

On the other main issue of the Validity of respondent San Miguel Corporation's amendment of its by-
laws 2 whereby respondent corporation's board of directors under its resolution dated April 29, 1977
declared petitioner ineligible to be nominated or to be voted or to be elected as of the board of
directors, the Court, composed of 12 members (since Mme. Justice Ameurfina Melencio Herrera
inhibited herself from taking part herein, while Mr. Justice Ramon C. Aquino upon submittal of the
main opinion of Mr. Justice Antonio decided not to take part), failed to reach a conclusive vote or, the
required majority of 8 votes to settle the issue one way or the other.

Six members of the Court, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De
Castro, considered the issue purely legal and voted to sustain the validity per se of the questioned
amended by-laws but nevertheless voted that the prohibition and disqualification therein provided
shall not apply to petitioner Gokongwei until and after he shall have been given a new and proper
hearing" by the corporation's board of directors and the board's decision of disqualification she'll have
been sustained on appeal by respondent Securities and Exchange Commission and ultimately by this
Court.
The undersigned Justices do not consider the issue as purely legal in the light of respondent
commission's Order No. 451, Series of 1977, denying petitioner's "Motion for Summary Judgment" on
the ground that "the Commission en banc finds that there (are) unresolved and genuine issues of fact"
3 as well as its position in this case to the Solicitor General that the case at bar is "premature" and
that the administrative remedies before the commission should first be availed of and exhausted. 4

We are of the opinion that the questioned amended by-laws, as they are, (adopted after almost a
century of respondent corporation's existence as a public corporation with its shares freely purchased
and traded in the open market without restriction and disqualification) which would bar petitioner from
qualification, nomination and election as director and worse, grant the board by 3/4 vote the arbitrary
power to bar any stockholder from his right to be elected as director by the simple expedient of
declaring him to be engaged in a "competitive or antagonistic business" or declaring him as a
"nominee" of the competitive or antagonistic" stockholder are illegal, oppressive, arbitrary and
unreasonable.

We consider the questioned amended by-laws as being specifically tailored to discriminate against
petitioner and depriving him in violation of substantive due process of his vested substantial rights as
stockholder of respondent corporation. We further consider said amended by-laws as violating specific
provisions of the Corporation Law which grant and recognize the right of a minority stockholder like
petitioner to be elected director by the process of cumulative voting ordained by the Law (secs 21 and
30) and the right of a minority director once elected not to be removed from office of director except
for cause by vote of the stockholders holding 2/3 of the subscribed capital stock (sec. 31). If a
minority stockholder could be disqualified by such a by-laws amendment under the guise of providing
for "qualifications," these mandates of the Corporation Law would have no meaning or purpose.

These vested and substantial rights granted stockholders under the Corporation Law may not be
diluted or defeated by the general authority granted by the Corporation Law itself to corporations to
adopt their by-laws (in section 21) which deal principally with the procedures governing their internal
business. The by-laws of any corporation must, be always within the character limits. What the
Corporation Law has granted stockholders may not be taken away by the corporation's by-laws. The
amendment is further an instrument of oppressiveness and arbitrariness in that the incumbent
directors are thereby enabled to perpetuate themselves in office by the simple expedient of
disqualifying any unwelcome candidate, no matter how many votes he may have.

However, in view of the inconclusiveness of the vote, we sustain respondent commission's stand as
expressed in its Orders Nos. 450 and 451, Series of 1977 that there are unresolved and genuine
issues of fact" and that it has yet to rule on and finally decide the validity of the disputed by-law
provision", subject to appeal by either party to this Court.

In view of prematurity of the proceedings here (as likewise expressed by Mr. Justice Fernando), the
case should as a consequence be remanded to the Securities and Exchange Commission as the agency
of primary jurisdiction for a full hearing and reception of evidence of all relevant facts (which should
property be submitted to the commission instead of the piecemeal documents submitted as annexes
to this Court which is not a trier of facts) concerning not only the petitioner but the members of the
board of directors of respondent corporation as well, so that it may determine on the basis thereof the
issue of the legality of the questioned amended by-laws, and assuming Chat it holds the same to be
valid whether the same are arbitrarily and unreasonably applied to petitioner vis a vis other directors,
who, petitioner claims, should in such event be likewise disqualified from sitting in the board of
directors by virtue of conflict of interests or their being likewise engaged in competitive or antagonistic
business" with the corporation such as investment and finance, coconut oil mills cement, milk and
hotels. 5

It should be noted that while the petition may be dismissed in view of the inconclusiveness of the vote
and the Court's failure to affair, the required 8-vote majority to resolve the issue, such as dismissal
(for lack of necessary votes) is of no doctrine value and does not in any manner resolve the issue of
the validity of the questioned amended by-laws nor foreclose the same. The same should properly be
determined in a proper case in the first instance by the Securities and Exchange Commission as the
agency of primary jurisdiction, as above indicated.

The Court is unanimous, therefore, in its judgment that petitioner Gokongwei may run for the office
of, and if elected, sit as, member of the board of directors of respondent San Miguel Corporation as
stated in the dispositive portion of the main opinion of Mr. Justice Antonio, to wit: Until and after
petitioner has been given a "new and proper hearing by the board of directors of said corporation,
whose decision shall be appealable Lo the respondent Securities and Exchange Commission
deliverating and acting en banc and ultimately to this Court" and until ' disqualified in the manner
herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner,"
In other words, until and after petitioner shall have been given due process and proper hearing by the
respondent board of directors as to the question of his qualification or disqualification under the
questioned amended by-laws (assuming that the respondent Securities and Exchange C commission
ultimately upholds the validity of said by laws), and such disqualification shall have been sustained by
respondent Securities and Exchange Commission and ultimately by final judgment of this Court,
petitioner is deemed eligible for all legal purposes and effects to be nominated and voted and if
elected to sit as a member of the hoard of directors of respondent San Miguel Corporation.

In view of the Court's unanimous judgment on this point the portion of respondent commission's
Order No. 450, Series of 977 which imposed "the condition that he [petitioner] cannot sit as board
member if elected until after the Commission shall have finally decided the validity of the disputed by-
law provision" has been likewise accordingly set aside.

III

By way of recapitulation, so that the Court's decision and judgment may be clear and not subject to
ambiguity, we state the following.

1. With the votes of the six Justices concurring unqualifiedly in the main opinion added to our four
votes, plus the Chief Justice's vote and that of Mr. Justice Fernando, the Court has by twelve (12)
votes unanimously rendered judgment granting petitioner's right to examine and secure copies of the
books and records of San Miguel International, Inc. as a foreign subsidiary of respondent corporation
and respondent commission's Order No. 449, Series of 1977, to the contrary is set aside:

2. With the same twelve (12) votes, the Court has also unanimously rendered judgment declaring that
until and after petitioner shall have been given due process and proper hearing by the respondent
board of directors as to the question of his disqualification under the questioned amended by- laws
(assuming that the respondent Securities and Exchange Commission ultimately upholds the validity of
said by laws), and such disqualification shall have been sustained by respondent Securities and
Exchange Commission and ultimately by final judgment of this Court petitioner is deemed eligible for
all legal purposes and effect to be nominated and voted and if elected to sit as a member of the board
of directors of respondent San Miguel Corporation. Accordingly, respondent commission's Order No.
450, Series of 1977 to the contrary has likewise been set aside; and

3. The Court's voting on the validity of respondent corporation's amendment of the by-laws (sec. 2,
Art. 111) is inconclusive without the required majority of eight votes to settle the issue one way or the
other having been reached. No judgment is rendered by the Court thereon and the statements of the
six Justices who have signed the main opinion on the legality thereof have no binding effect, much
less doctrinal value.

The dismissal of the petition insofar as the question of the validity of the disputed by-laws amendment
is concerned is not by an judgment with the required eight votes but simply by force of Rule 56,
section II of the Rules of Court, the pertinent portion of which provides that "where the court en banc
is equally divided in opinion, or the necessary majority cannot be had, the case shall be reheard, and
if on re-hearing no decision is reached, the action shall be dismissed if originally commenced in the
court ...." The end result is that the Court has thereby dismissed the petition which prayed that the
Court bypass the commission and directly resolved the issue and therefore the respondent commission
may now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and
receive all relevant evidence bearing on the issue as hereinabove indicated, and resolve the
"unresolved and genuine issues of fact" (as per Order No. 451, Series of 1977) and the issues of
legality of the disputed by-laws amendment.

Teehankee, Concepcion, Jr., and Fernandez, JJ., concur.

Guerrero, J., concurred.

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

This supplemental opinion is issued with reference to the advance separate opinion of Mr. Justice
Barredo issued by him as to "certain misimpressions as to the import of the decision in this case"
which might be produced by our joint separate opinion of April 11, 1979 and "urgent(ly) to clarify (his)
position in respect to the rights of the parties resulting from the dismissal of the petition herein and
the outline of the procedure by which the disqualification of petitioner Gokongwei can be made
effective."

1. Mr. Justice Barredo's advances separate opinion "that as between the parties herein, the issue of
the validity of the challenged by-laws is already settled" had, of course, no binding effect. The
judgment of the Court is found on pages 59-61 of the decision of April 11, 1979, penned by Mr.
Justice Antonio, wherein on the question of the validity of the amended by-laws the Court's
inconclusive voting is set forth as follows:
 Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-
laws, pending hearing by this Court on the applicability of section 13(5) of the
Corporation Law to petitioner.

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

Four (4) Justices, namely, Justices Teehankee, Concepcion Jr., Fernandez and
Guerrero filed a separate opinion, wherein they voted against the validity of the
questioned amended by-laws and that this question should properly be resolved first
by the SEC as the agency of primary jurisdiction ... 1

As stated in said judgment itself, for lack of the necessary votes, the petition, insofar as it assails the
validity of the questioned by-laws, was dismissed.

2. Mr. Justice Barredo now contends contrary to the undersigned's understanding, as stated on pages
8 and 9 of our joint separate opinion of April 11, 1979 that the legal effect of the dismissal of the
petition on the question of validity of the amended by-laws for lack of the necessary votes simply
means that "the Court has thereby dismissed the petition which prayed that the Court by-pass the
commission and directly resolve the issue and therefore the respondent commission may now
proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive all
relevant evidence bearing on the issue as hereinabove indicated, and resolve the 'unresolved and
genuine issues of fact' (as per Order No. 451, Series of 1977) and the issue of legality of the disputed
by-laws amendment," that such dismissal "has no other legal consequence than that it is the law of
the case as far as the parties are concerned, albeit the majority of the opinion of six against four
Justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent
cases."

We hold on our part that the doctrine of the law of the case invoked by Mr. Justice Barredo has no
applicability for the following reasons:

a) Our jurisprudence is quite clear that this doctrine may be invoked only where there has been a final
and conclusive determination of an issue in the first case later invoked as the law of the case.

Thus, in People vs. Olarte, 2 we held that

"Law of the case" has been defined as the opinion delivered on a former appeal More
specifically, it means that whatever is once irrevocably established as the controlling
legal rule of decision between the same parties in the same case continues to he the
law of the case, whether correct on general principles or not, so long as the facts on
which such decision was predicated continue to be the facts of the case before the
court. ...

It need not be stated that the Supreme Court, being the court of last resort, is the
final arbiter of all legal questions properly brought before it and that its decision in any
given case constitutes the law of that particular case. Once its judgment becomes final
it is binding on all inferior courts, and hence beyond their power and authority to alter
or modify Kabigting vs. Acting Director of Prisons, G. R. No. L-15548, October 30,
1962).

"The decision of this Court on that appeal by the government from the order of
dismissal, holding that said appeal did not place the appellants, including Absalon
Bignay, in double jeopardy, signed and concurred in by six Justices as against three
dissenters headed by the Chief Justice, promulgated way back in the year 1952, has
long become the law of the case. It may be erroneous, judged by the law on double
jeopardy as recently interpreted by this same Tribunal Even so, it may not be
disturbed and modified. Our recent interpretation of the law may be applied to new
cases, but certainly not to an old one finally and conclusively determined. As already
stated, the majority opinion in that appeal is now the law of the case." (People vs.
Pinuila)

The doctrine of the law of the case, therefore, has no applicability whatsoever herein insofar as the
question of the validity or invalidity of the amended by-laws is concerned. The Court's judgment of
April 11, 1979 clearly shows that the voting on this question was inconclusive with six against four
Justices and two other Justices (the Chief Justice and Mr. Justice Fernando) expressly reserving their
votes thereon, and Mr. Justice Aquino while taking no part in effect likewise expressly reserved his
vote thereon. No final and conclusive determination could be reached on the issue and pursuant to the
provisions of Rule 56, section 11, since this special civil action originally commenced in this Court, the
action was simply dismissed with the result that no law of the case was laid down insofar as the issue
of the validity or invalidity of the questioned by-laws is concerned, and the relief sought herein by
petitioner that this Court by-pass the SEC which has yet to hear and determine the same issue
pending before it below and that this Court itself directly resolve the said issue stands denied.

b) The contention of Mr. Justice Barredo that the result of the dismiss of the case was that "petitioner
Gokongwei may not hereafter act on the assumption that he can revive the issue of the validity
whether in the Securities and Exchange Commission, in this Court or in any other forum, unless he
proceeds on the basis of a factual milieu different from the setting of this case Not even the Securities
and Exchange Commission may pass on such question anymore at the instance of herein petitioner or
anyone acting in his stead or on his behalf, " appears to us to be untenable.

The Court through the decision of April 11, 1979, by the unanimous votes of the twelve participating
Justices headed by the Chief Justice, ruled that petitioner Gokongwei was entitled to a "new and
proper hearing" by the SMC board of directors on the matter of his disqualification under the
questioned by-laws and that the board's "decision shall be appealable to the respondent Securities and
Exchange Commission deliberating and acting en banc and ultimately to this Court (and) unless
disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws
shall not apply to petitioner."

The entire Court, therefore, recognized that petitioner had not been given procedural due process by
the SMC board on the matter of his disqualification and that he was entitled to a "new and proper
hearing". It stands to reason that in such hearing, petitioner could raise not only questions of fact but
questions of law, particularly questions of law affecting the investing public and their right to
representation on the board as provided by law — not to mention that as borne out by the fact that no
restriction whatsoever appears in the court's decision, it was never contemplated that petitioner was
to be limited to questions of fact and could not raise the fundamental questions of law bearing on the
invalidity of the questioned amended by-laws at such hearing before the SMC board. Furthermore, it
was expressly provided unanimously in the Court's decision that the SMC board's decision on the
disqualification of petitioner ("assuming the board of directors of San Miguel Corporation should, after
the proper hearing, disqualify him" as qualified in Mr. Justice Barredo's own separate opinion, at page
2) shall be appealable to respondent Securities and Exchange Commission "deliberating and acting en
banc and "untimately to this Court." Again, the Court's judgment as set forth in its decision of April
11, 1979 contains nothing that would warrant the opinion now expressed that respondent Securities
and Exchange Commission may not pass anymore on the question of the invalidity of the amended
by-laws. Certainly, it cannot be contended that the Court in dismissing the petition for lack of
necessary votes actually by-passed the Securities and Exchange Commission and directly ruled itself
on the invalidity of the questioned by-laws when it itself could not reach a final and conclusive vote (a
minimum of eight votes) on the issue and three other Justices (the Chief Justice and Messrs. Justices
Fernando and Aquino) had expressly reserved their vote until after further hearings (first before the
Securities and Exchange Commission and ultimately in this Court).

Such a view espoused by Mr. Justice Barredo could conceivably result in an incongruous situation
where supposedly under the law of this case the questioned by-laws would be held valid as against
petitioner Gokongwei and yet the same may be stricken off as invalid as to all other SMC shareholders
in a proper case.

3. It need only be pointed out that Mr. Justice Barredo's advance separate opinion can in no way
affect or modify the judgment of this Court as set forth in the decision of April 11, 1979 and discussed
hereinabove. The same bears the unqualified concurrence of only three Justices out of the six Justices
who originally voted for the validity per se of the questioned by-laws, namely, Messrs. Justices
Antonio, Santos and De Castro. Messrs. Justices Fernando and Makasiar did not concur therein but
they instead concurred with the limited concurrence of the Chief Justice touching on the law of the
case which guardedly held that the Court has not found merit in the claim that the amended bylaws in
question are invalid but without in any manner foreclosing the issue and as a matter of fact and law,
without in any manner changing or modifying the above-quoted vote of the Chief Justice as officially
rendered in the decision of April 11, 1979, wherein he precisely "reserved (his) vote on the validity of
the amended by-laws."

4. A word on the separate opinion of Mr. Justice Pacifico de Castro attached to the advance separate
opinion of Mr. Justice Barredo. Mr. Justice De Castro advances his interpretation as to a restrictive
construction of section 13(5) of the Philippine Corporation Law, ignoring or disregarding the fact that
during the Court's deliberations it was brought out that this prohibitory provision was and is not raised
in issue in this case whether here or in the Securities and Exchange Commission below (outside of a
passing argument by Messrs. Angara, Abello, Concepcion, Regala & Cruz, as counsels for respondent
Sorianos in their Memorandum of June 26, 1978 that "(T)he disputed By-Laws does not prohibit
petitioner from holding onto, or even increasing his SMC investment; it only restricts any shifting on
the part of petitioner from passive investor to a director of the company." 3

As a consequence, the Court abandoned the Idea of calling for another hearing wherein the parties
could properly raise and discuss this question as a new issue and instead rendered the decision in
question, under which the question of section 13(5) could be raised at a new and proper hearing
before the SMC board and in the Securities and Exchange Commission and in due course before this
Court (but with the clear understanding that since both corporations, the Robina and SMC are engaged
in agriculture as submitted by the Sorianos' counsel in their said memorandum, the issue could be
raised likewise against SMC and its other shareholders, directors, if not against SMC itself. As
expressly stated in the Chief Justices reservation of his vote, the matter of the question of the
applicability of the said section 13(5) to petitioner would be heard by this Court at the appropriate
time after the proceedings below (and necessarily the question of the validity of the amended by-laws
would be taken up anew and the Court would at that time be able to reach a final and conclusive
vote).

Mr. Justice De Castro's personal interpretation of the decision of April 11, 1979 that petitioner may be
allowed to run for election despite adverse decision of both the SMC board and the Securities and
Exchange Commission "only if he comes to this Court and obtains an injunction against the
enforcement of the decision disqualifying him" is patently contradictory of his vote on the matter as
expressly given in the judgment in the Court's decision of April 11, 1979 (at page 59) that petitioner
could run and if elected, sit as director of the respondent SMC and could be disqualified only after a
"new and proper hearing by the board of directors of said corporation, whose decision shall be
appealable to the respondent Securities and Exchange Commission deliberating and acting en banc
and ultimately to this Court. Unless-disqualified in the manner herein provided, the prohibition in the
aforementioned amended by-laws shall not apply to petitioner."

Teehankee, Concepcion Jr., Fernandez and Guerrero, JJ., concur.

BARREDO, J., concurring:

I reserved the filing of a separate opinion in order to state my own reasons for voting in favor of the
validity of the amended by-laws in question. Regrettably, I have not yet finished preparing the same.
In view, however, of the joint separate opinion of Justices Teehankee, Concepcion Jr., Fernandez and
Guerrero, the full text of which has just come to my attention, and which I am afraid might produce
certain misimpressions as to the import of the decision in this case, I consider it urgent to clarify my
position in respect to the rights of the parties resulting from the dismissal of the petition herein and
the outlining of the procedure by which the disqualification of petitioner Gokongwei can be made
effective, hence this advance separate opinion.

To start with, inasmuch as petitioner Gokongwei himself placed the issue of the validity of said
amended by-laws squarely before the Court for resolution, because he feels, rightly or wrongly, he can
no longer have due process or justice from the Securities and Exchange Commission, and the private
respondents have joined with him in that respect, the six votes cast by Justices Makasiar, Antonio,
Santos, Abad Santos, de Castro and this writer in favor of validity of the amended by-laws in question,
with only four members of this Court, namely, Justices Teehankee, Concepcion Jr., Fernandez and
Guerrero opining otherwise, and with Chief Justice Castro and Justice Fernando reserving their votes
thereon, and Justices Aquino and Melencio Herrera not voting, thereby resulting in the dismissal of the
petition "insofar as it assails the validity of the amended by- laws ... for lack of necessary votes", has
no other legal consequence than that it is the law of the case as far as the parties herein are
concerned, albeit the majority opinion of six against four Justices is not doctrinal in the sense that it
cannot be cited as necessarily a precedent for subsequent cases. This means that petitioner
Gokongwei and the respondents, including the Securities and Exchange Commission, are bound by the
foregoing result, namely, that the Court en banc has not found merit in the claim that the amended
by-laws in question are invalid. Indeed, it is one thing to say that dismissal of the case is not doctrinal
and entirely another thing to maintain that such dismissal leaves the issue unsettled. It is somewhat
of a misreading and misconstruction of Section 11 of Rule 56, contrary to the well-known established
norm observed by this Court, to state that the dismissal of a petition for lack of the necessary votes
does not amount to a decision on the merits. Unquestionably, the Court is deemed to find no merit in
a petition in two ways, namely, (1) when eight or more members vote expressly in that sense and (2)
when the required number of justices needed to sustain the same cannot be had.

I reiterate, therefore, that as between the parties herein, the issue of validity of the challenged by-
laws is already settled. From which it follows that the same are already enforceable-insofar as they
are concerned. Petitioner Gokongwei may not hereafter act on the assumption that he can revive the
issue of validity whether in the Securities and Exchange Commission, in this Court or in any other
forum, unless he proceeds on the basis of a factual milieu different from the setting of this case. Not
even the Securities and Exchange Commission may pass on such question anymore at the instance of
herein petitioner or anyone acting in his stead or on his behalf. The vote of four justices to remand the
case thereto cannot alter the situation.

It is very clear that under the decision herein, the issue of validity is a settled matter for the parties
herein as the law of the case, and it is only the actual implementation of the impugned amended by-
laws in the particular case of petitioner that remains to be passed upon by the Securities and
Exchange Commission, and on appeal therefrom to Us, assuming the board of directors of San Miguel
Corporation should, after the proper hearing, disqualify him.

To be sure, the record is replete with substantial indications, nay admissions of petitioner himself, that
he is a controlling stockholder of corporations which are competitors of San Miguel Corporation. The
very substantial areas of such competition involving hundreds of millions of pesos worth of businesses
stand uncontroverted in the records hereof. In fact, petitioner has even offered, if he should be
elected, as director, not to take part when the board takes up matters affecting the corresponding
areas of competition between his corporation and San Miguel. Nonetheless, perhaps, it is best that
such evidence be formally offered at the hearing contemplated in Our decision.

As to whether or not petitioner may sit in the board if he wins, definitely, under the decision in this
case, even if petitioner should win, he will have to immediately leave his position or should be ousted
the moment this Court settles the issue of his actual disqualification, either in a full blown decision or
by denying the petition for review of corresponding decision of the Securities and Exchange
Commission unfavorable to him. And, of course, as a matter of principle, it is to be expected that the
matter of his disqualification should be resolved expeditiously and within the shortest possible time, so
as to avoid as much juridical injury as possible, considering that the matter of the validity of the
prohibition against competitors embodied in the amended by-laws is already unquestionable among
the parties herein and to allow him to be in the board for sometime would create an obviously
anomalous and legally incongruous situation that should not be tolerated. Thus, all the parties
concerned must act promptly and expeditiously.

Additionally, my reservation to explain my vote on the validity of the amended by-laws still stands.

Castro, C.J., concurs in Justice Barredo's statement that the dismissal (for lack of necessary votes) of
the petition to the extent that "it assails the validity of the amended by laws," is the law of the case at
bar, which means in effect that as far and only in so far as the parties and the Securities and
Exchange Commission are concerned, the Court has not found merit in the claim that the amended
by-laws in question are invalid.

Antonio and Santos, JJ., concur.

DE CASTRO, J., concurring:

As stated in the decision penned by Justice Antonio, I voted to uphold the validity of the amendment
to the by-laws in question. What induced me to this view is the practical consideration easily perceived
in the following illustration: If a person becomes a stockholder of a corporation and gets himself
elected as a director, and while he is such a director, he forms his own corporation competitive or
antagonistic to the corporation of which he is a director, and becomes Chairman of the Board and
President of his own corporation, he may be removed from his position as director, admittedly one of
trust and confidence. If this is so, as seems undisputably to be the case, a person already controlling,
and also the Chairman of the Board and President of, a corporation, may be barred from becoming a
member of the board of directors of a competitive corporation. This is my view, even as I am for a
restrictive interpretation of Section 13(5) of the Philippine Corporation Law, under which I would limit
the scope of the provision to corporations engaged in agriculture, but only as the word agriculture"
refers to its more stated meaning as distinguished from its general and broad connotation. The term
would then mean "farming" or raising the natural products of the soil, such as by cultivation, in the
manner as is required by the Public Land Act in the acquisition of agricultural land, such as by
homestead, before the patent may be issued. It is my opinion that under the public land statute, the
development of a certain portion of the land applied for as specified in the law as a condition
precedent before the applicant may obtain a patent, is cultivation, not let us say, poultry raising or
piggery, which may be included in the term Is agriculture" in its broad sense. For under Section 13(5)
of the Philippine Corporation Law, construed not in the strict way as I believe it should, because the
provision is in derogation of property rights, the petitioner in this case would be disqualified from
becoming an officer of either the San Miguel Corporation or his own supposedly agricultural
corporations. It is thus beyond my comprehension why, feeling as though I am the only member of
the Court for a restricted interpretation of Section 13(5) of Act 1459, doubt still seems to be in the
minds of other members giving the cited provision an unrestricted interpretation, as to the validity of
the amended by-laws in question, or even holding them null and void.

I concur with the observation of Justice Barredo that despite that less than six votes are for upholding
the validity of the by-laws, their validity is deemed upheld, as constituting the "law of the case." It
could not be otherwise, after the present petition is dismissed with the relief sought to declare null and
void the said by-laws being denied in effect. A vicious circle would be created if, should petitioner
Gokongwei be barred or disqualified from running by the Board of Directors of San Miguel Corporation
and the Securities and Exchange Commission sustain the Board, petitioner could come again to Us,
raising the same question he has raised in the present petition, unless the principle of the "law of the
case" is applied.
Clarifying therefore, my position, I am of the opinion that with the validity of the by-laws in question
standing unimpaired it is now for petitioner to show that he does not come within the disqualification
as therein provided, both to the Board and later to the Securities and Exchange Commission, it being
a foregone conclusion that, unless petitioner disposes of his stockholdings in the so-called competitive
corporations, San Miguel Corporation would apply the by-laws against him, His right, therefore, to run
depends on what, on election day, May 8, 1979, the ruling of the Board and/or the Securities and
Exchange Commission on his qualification to run would be, certainly, not the final ruling of this Court
in the event recourse thereto is made by the party feeling aggrieved, as intimated in the "Joint
Separate Opinion" of Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero, that only after
petitioner's "disqualification" has ultimately been passed upon by this Court should petitioner, not be
allowed to run. Petitioner may be allowed to run, despite an adverse decision of both the Board and
the Securities and Exchange Commission, only if he comes to this Court and obtain an injunction
against the enforcement of the decision disqualifying him. Without such injunction being required, all
that petitioner has to do is to take his time in coming to this Court, and in so doing, he would in the
meantime, be allowed to run, and if he wins, to sit. This would, however, be contrary to the doctrine
that gives binding, if not conclusive, effect of findings of facts of administrative bodies exercising
quasi-judicial functions upon appellate courts, which should, accordingly, be enforced until reversed by
this Tribunal.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 151969 September 4, 2009

VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA, RAY GAMBOA, AMADO M.
SANTIAGO, JR., FORTUNATO DEE, AUGUSTO SUNICO, VICTOR SALTA, FRANCISCO ORTIGAS
III, ERIC ROXAS, in their capacities as members of the Board of Directors of Valle Verde
Country Club, Inc., and JOSE RAMIREZ, Petitioners,
vs.
VICTOR AFRICA, Respondent.

DECISION

BRION, J.:

In this petition for review on certiorari,1 the parties raise a legal question on corporate governance:
Can the members of a corporation’s board of directors elect another director to fill in a vacancy caused
by the resignation of a hold-over director?

THE FACTUAL ANTECEDENTS

On February 27, 1996, during the Annual Stockholders’ Meeting of petitioner Valle Verde Country
Club, Inc. (VVCC), the following were elected as members of the VVCC Board of Directors: Ernesto
Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal (Makalintal), Francisco Ortigas III,
Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa.2 In the years
1997, 1998, 1999, 2000, and 2001, however, the requisite quorum for the holding of the stockholders’
meeting could not be obtained. Consequently, the above-named directors continued to serve in the
VVCC Board in a hold-over capacity.

On September 1, 1998, Dinglasan resigned from his position as member of the VVCC Board. In a
meeting held on October 6, 1998, the remaining directors, still constituting a quorum of VVCC’s nine-
member board, elected Eric Roxas (Roxas) to fill in the vacancy created by the resignation of
Dinglasan.

A year later, or on November 10, 1998, Makalintal also resigned as member of the VVCC Board. He
was replaced by Jose Ramirez (Ramirez), who was elected by the remaining members of the VVCC
Board on March 6, 2001.

Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez as
members of the VVCC Board with the Securities and Exchange Commission (SEC) and the Regional
Trial Court (RTC), respectively. The SEC case questioning the validity of Roxas’ appointment was
docketed as SEC Case No. 01-99-6177. The RTC case questioning the validity of Ramirez’ appointment
was docketed as Civil Case No. 68726.

In his nullification complaint3 before the RTC, Africa alleged that the election of Roxas was contrary to
Section 29, in relation to Section 23, of the Corporation Code of the Philippines (Corporation Code).
These provisions read:

Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the board of directors or trustees to be
elected from among the holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year until their successors are elected and qualified.

xxxx

Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of
directors or trustees other than by removal by the stockholders or members or by expiration of term,
may be filled by the vote of at least a majority of the remaining directors or trustees, if still
constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or
special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be
elected only for the unexpired term of his predecessor in office. xxx. [Emphasis supplied.]
Africa claimed that a year after Makalintal’s election as member of the VVCC Board in 1996, his
[Makalintal’s] term – as well as those of the other members of the VVCC Board – should be considered
to have already expired. Thus, according to Africa, the resulting vacancy should have been filled by
the stockholders in a regular or special meeting called for that purpose, and not by the remaining
members of the VVCC Board, as was done in this case.

Africa additionally contends that for the members to exercise the authority to fill in vacancies in the
board of directors, Section 29 requires, among others, that there should be an unexpired term during
which the successor-member shall serve. Since Makalintal’s term had already expired with the lapse of
the one-year term provided in Section 23, there is no more "unexpired term" during which Ramirez
could serve.

Through a partial decision4 promulgated on January 23, 2002, the RTC ruled in favor of Africa and
declared the election of Ramirez, as Makalintal’s replacement, to the VVCC Board as null and void.

Incidentally, the SEC issued a similar ruling on June 3, 2003, nullifying the election of Roxas as
member of the VVCC Board, vice hold-over director Dinglasan. While VVCC manifested its intent to
appeal from the SEC’s ruling, no petition was actually filed with the Court of Appeals; thus, the
appellate court considered the case closed and terminated and the SEC’s ruling final and executory. 5

THE PETITION

VVCC now appeals to the Court to assail the RTC’s January 23, 2002 partial decision for being contrary
to law and jurisprudence. VVCC made a direct resort to the Court via a petition for review on
certiorari, claiming that the sole issue in the present case involves a purely legal question.

As framed by VVCC, the issue for resolution is whether the remaining directors of the corporation’s
Board, still constituting a quorum, can elect another director to fill in a vacancy caused by the
resignation of a hold-over director.

Citing law and jurisprudence, VVCC posits that the power to fill in a vacancy created by the resignation
of a hold-over director is expressly granted to the remaining members of the corporation’s board of
directors.

Under the above-quoted Section 29 of the Corporation Code, a vacancy occurring in the board of
directors caused by the expiration of a member’s term shall be filled by the corporation’s stockholders.
Correlating Section 29 with Section 23 of the same law, VVCC alleges that a member’s term shall
be for one year and until his successor is elected and qualified; otherwise stated, a member’s
term expires only when his successor to the Board is elected and qualified. Thus, "until such time as
[a successor is] elected or qualified in an annual election where a quorum is present," VVCC contends
that "the term of [a member] of the board of directors has yet not expired."

As the vacancy in this case was caused by Makalintal’s resignation, not by the expiration of his term,
VVCC insists that the board rightfully appointed Ramirez to fill in the vacancy.

In support of its arguments, VVCC cites the Court’s ruling in the 1927 El Hogar6 case which states:

Owing to the failure of a quorum at most of the general meetings since the respondent has been in
existence, it has been the practice of the directors to fill in vacancies in the directorate by choosing
suitable persons from among the stockholders. This custom finds its sanction in Article 71 of the By-
Laws, which reads as follows:

Art. 71. The directors shall elect from among the shareholders members to fill the vacancies that may
occur in the board of directors until the election at the general meeting.

xxxx

Upon failure of a quorum at any annual meeting the directorate naturally holds over and continues to
function until another directorate is chosen and qualified. Unless the law or the charter of a
corporation expressly provides that an office shall become vacant at the expiration of the term of
office for which the officer was elected, the general rule is to allow the officer to hold over until his
successor is duly qualified. Mere failure of a corporation to elect officers does not terminate the terms
of existing officers nor dissolve the corporation. The doctrine above stated finds expression in article
66 of the by-laws of the respondent which declares in so many words that directors shall hold office
"for the term of one year or until their successors shall have been elected and taken possession of
their offices." xxx.
It results that the practice of the directorate of filling vacancies by the action of the directors
themselves is valid. Nor can any exception be taken to the personality of the individuals chosen by
the directors to fill vacancies in the body. [Emphasis supplied.]

Africa, in opposing VVCC’s contentions, raises the same arguments that he did before the trial court.

THE COURT’S RULING

We are not persuaded by VVCC’s arguments and, thus, find its petition unmeritorious.

To repeat, the issue for the Court to resolve is whether the remaining directors of a corporation’s
Board, still constituting a quorum, can elect another director to fill in a vacancy caused by the
resignation of a hold-over director. The resolution of this legal issue is significantly hinged on the
determination of what constitutes a director’s term of office.

The holdover period is not part of the term of office of a member of the board of directors

The word "term" has acquired a definite meaning in jurisprudence. In several cases, we have defined
"term" as the time during which the officer may claim to hold the office as of right, and fixes the
interval after which the several incumbents shall succeed one another.7 The term of office is not
affected by the holdover.8 The term is fixed by statute and it does not change simply because the
office may have become vacant, nor because the incumbent holds over in office beyond the end of the
term due to the fact that a successor has not been elected and has failed to qualify.

Term is distinguished from tenure in that an officer’s "tenure" represents the term during which the
incumbent actually holds office. The tenure may be shorter (or, in case of holdover, longer) than the
term for reasons within or beyond the power of the incumbent.

Based on the above discussion, when Section 239 of the Corporation Code declares that "the board of
directors…shall hold office for one (1) year until their successors are elected and qualified," we
construe the provision to mean that the term of the members of the board of directors shall be only
for one year; their term expires one year after election to the office. The holdover period – that time
from the lapse of one year from a member’s election to the Board and until his successor’s election
and qualification – is not part of the director’s original term of office, nor is it a new term; the
holdover period, however, constitutes part of his tenure. Corollary, when an incumbent member of the
board of directors continues to serve in a holdover capacity, it implies that the office has a fixed term,
which has expired, and the incumbent is holding the succeeding term.10

After the lapse of one year from his election as member of the VVCC Board in 1996, Makalintal’s term
of office is deemed to have already expired. That he continued to serve in the VVCC Board in a
holdover capacity cannot be considered as extending his term. To be precise, Makalintal’s term of
office began in 1996 and expired in 1997, but, by virtue of the holdover doctrine in Section 23 of the
Corporation Code, he continued to hold office until his resignation on November 10, 1998. This
holdover period, however, is not to be considered as part of his term, which, as declared, had already
expired.

With the expiration of Makalintal’s term of office, a vacancy resulted which, by the terms of Section
2911 of the Corporation Code, must be filled by the stockholders of VVCC in a regular or special
meeting called for the purpose. To assume – as VVCC does – that the vacancy is caused by
Makalintal’s resignation in 1998, not by the expiration of his term in 1997, is both illogical and
unreasonable. His resignation as a holdover director did not change the nature of the vacancy; the
vacancy due to the expiration of Makalintal’s term had been created long before his resignation.

The powers of the corporation’s board of directors emanate from its stockholders

VVCC’s construction of Section 29 of the Corporation Code on the authority to fill up vacancies in the
board of directors, in relation to Section 23 thereof, effectively weakens the stockholders’ power to
participate in the corporate governance by electing their representatives to the board of directors. The
board of directors is the directing and controlling body of the corporation. It is a creation of the
stockholders and derives its power to control and direct the affairs of the corporation from them. The
board of directors, in drawing to themselves the powers of the corporation, occupies a position of
trusteeship in relation to the stockholders, in the sense that the board should exercise not only care
and diligence, but utmost good faith in the management of corporate affairs.12

The underlying policy of the Corporation Code is that the business and affairs of a corporation must be
governed by a board of directors whose members have stood for election, and who have actually been
elected by the stockholders, on an annual basis. Only in that way can the directors' continued
accountability to shareholders, and the legitimacy of their decisions that bind the corporation's
stockholders, be assured. The shareholder vote is critical to the theory that legitimizes the exercise of
power by the directors or officers over properties that they do not own.13

This theory of delegated power of the board of directors similarly explains why, under Section 29 of
the Corporation Code, in cases where the vacancy in the corporation’s board of directors is caused not
by the expiration of a member’s term, the successor "so elected to fill in a vacancy shall be elected
only for the unexpired term of the his predecessor in office." The law has authorized the remaining
members of the board to fill in a vacancy only in specified instances, so as not to retard or impair the
corporation’s operations; yet, in recognition of the stockholders’ right to elect the members of the
board, it limited the period during which the successor shall serve only to the "unexpired term of his
predecessor in office."

While the Court in El Hogar approved of the practice of the directors to fill vacancies in the directorate,
we point out that this ruling was made before the present Corporation Code was enacted 14 and before
its Section 29 limited the instances when the remaining directors can fill in vacancies in the board,
i.e., when the remaining directors still constitute a quorum and when the vacancy is caused for
reasons other than by removal by the stockholders or by expiration of the term.1avvphi1

It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy occurring
within the director’s term of office. When a vacancy is created by the expiration of a term, logically,
there is no more unexpired term to speak of. Hence, Section 29 declares that it shall be the
corporation’s stockholders who shall possess the authority to fill in a vacancy caused by the expiration
of a member’s term.

As correctly pointed out by the RTC, when remaining members of the VVCC Board elected Ramirez to
replace Makalintal, there was no more unexpired term to speak of, as Makalintal’s one-year term had
already expired. Pursuant to law, the authority to fill in the vacancy caused by Makalintal’s leaving lies
with the VVCC’s stockholders, not the remaining members of its board of directors.

WHEREFORE, we DENY the petitioners’ petition for review on certiorari, and AFFIRM the partial
decision of the Regional Trial Court, Branch 152, Manila, promulgated on January 23, 2002, in Civil
Case No. 68726. Costs against the petitioners.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 153413 March 1, 2007

NECTARINA S. RANIEL and MA. VICTORIA R. PAG-ONG, Petitioners,

vs.
PAUL JOCHICO, JOHN STEFFENS and SURYA VIRIYA, Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Assailed in the present Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA)
dated April 30, 2002, affirming with modification the Decision dated October 27, 2000 rendered by the
Securities and Exchange Commission (SEC) which held as valid the removal of petitioners Ma. Victoria
R. Pag-ong (Pag-ong) as director and Nectarina S. Raniel (Raniel) as director and corporate officer of
Nephro Systems Dialysis Center (Nephro).

Petitioners first questioned their removal in SEC Case No. 02-98-5902 for Declaration of Nullity of the
Illegal Acts of Respondents, Damages and Injunction. Petitioners, together with respondents Paul
Jochico (Jochico), John Steffens and Surya Viriya, were incorporators and directors of Nephro, with
Raniel acting as Corporate Secretary and Administrator. The conflict started when petitioners
questioned respondents' plan to enter into a joint venture with the Butuan Doctors' Hospital and
College, Inc. sometime in December 1997. Because of this, petitioners claim that respondents tried to
compel them to waive and assign their shares with Nephro but they refused. Thereafter, Raniel sought
an indefinite leave of absence due to stress, but this was denied by Jochico, as Nephro President.
Raniel, nevertheless, did not report for work, causing Jochico to demand an explanation from her why
she should not be removed as Administrator and Corporate Secretary. Raniel replied, expressing her
sentiments over the disapproval of her request for leave and respondents' decision with regard to the
Butuan venture.

On January 30, 1998, Jochico issued a Notice of Special Board Meeting on February 2, 1998. Despite
receipt of the notice, petitioners did not attend the board meeting. In said meeting, the Board passed
several resolutions ratifying the disapproval of Raniel's request for leave, dismissing her as
Administrator of Nephro, declaring the position of Corporate Secretary vacant, appointing Otelio
Jochico as the new Corporate Secretary and authorizing the call of a Special Stockholders' Meeting on
February 16, 1998 for the purpose of the removal of petitioners as directors of Nephro.

Otelio Jochico issued the corresponding notices for the Special Stockholders' Meeting to be held on
February 16, 1998 which were received by petitioners on February 2, 1998. Again, they did not attend
the meeting. The stockholders who were present removed the petitioners as directors of Nephro.
Thus, petitioners filed SEC Case No. 02-98-5902.

On October 27, 2000, the SEC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, the Commission so holds that complainants cannot be awarded the reliefs prayed for in
reinstating Nectarina S. Raniel as secretary and administrator.

The corporation acting thru its Board of Directors can validly remove its corporate officers, particularly
complainant Nectarina S. Raniel as corporate secretary, treasurer and administrator of the Dialysis
Clinic.

Also, the Commission cannot grant the relief prayed for by complainants in restraining the
respondents from interfering in the administration of the Dialysis Clinic owned by the corporation and
the use of corporate funds.

The administration of the Dialysis Clinic of the corporation and the use of corporate funds, rightfully
belong to the officers of the corporation, which in this case are the respondents.

The counterclaim of respondents to return or assign back the complainants' shares in favor of
respondent Paul Jochico or his nominee is hereby denied for lack of merit.
The respondents failed to show any clear and convincing evidence to rebut the presumption of the
validity and truthfulness of documents submitted to the Commission in the grant of corporate license.

The claim for attorney's fees and damages of both parties are likewise denied for lack of merit, as
neither party should be punished for vindicating a right, which he/she believes should be protected or
enforced.

SO ORDERED.2

Dissatisfied, petitioners filed a petition for review with the CA.

On April 30, 2002, the CA rendered the assailed Decision, with the following dispositive portion:

WHEREFORE, in light of the foregoing discussions, the appealed decision of the Securities and
Exchange Commission is hereby AFFIRMED with the MODIFICATION that the renewal of petitioners as
directors of Nephro is declared valid.

SO ORDERED.3

Respondents filed a Manifestation and Motion to Correct Typographical Error, stating that the term
"renewal" as provided in the CA Decision should be "removal."4 Petitioners, on the other hand, filed
the present petition for review on certiorari.

On November 20, 2002, the CA issued a Resolution resolving to refrain from acting on all pending
incidents before it in view of the filing of the petition with the Court.5

In the present petition, petitioners raised basically the same argument they had before the SEC and
the CA, i.e., their removal from Nephro was not valid.

Both the SEC and the CA held that Pag-ong's removal as director and Raniel's removal as director and
officer of Nephro were valid. For its part, the SEC ruled that the Board of Directors had sufficient
ground to remove Raniel as officer due to loss of trust and confidence, as her abrupt and unauthorized
leave of absence exhibited her disregard of her responsibilities as an officer of the corporation and
disrupted the operations of Nephro. The SEC also held that the Special Board Meeting held on
February 2, 1998 was valid and the resolutions adopted therein are binding on petitioners. 6

The CA upheld the SEC's conclusions, adding further that the special stockholders' meeting on
February 16, 1998 was likewise validly held. The CA also ruled that Pag-ong's removal as director of
Nephro was justified as it was due to her "undenied delay in the release of Nephro's medical supplies
from the warehouse of the Fly-High Brokerage where she was an officer, on top of her and her co-
petitioner Raniel's absence from the aforementioned directors' and stockholders' meetings of Nephro
despite due notice."7

It is well to stress the settled rule that the findings of fact of administrative bodies, such as the SEC,
will not be interfered with by the courts in the absence of grave abuse of discretion on the part of said
agencies, or unless the aforementioned findings are not supported by substantial evidence. They carry
even more weight when affirmed by the CA.8 Such findings are accorded not only great respect but
even finality, and are binding upon this Court, unless it is shown that it had arbitrarily disregarded or
misapprehended evidence before it to such an extent as to compel a contrary conclusion had such
evidence been properly appreciated.9 This rule is rooted in the doctrine that this Court is not a trier of
facts, as well as in the respect to be accorded the determinations made by administrative bodies in
general on matters falling within their respective fields of specialization or expertise. 10

A review of the petition failed to demonstrate any reversible error committed by the two tribunals,
hence, the petition must be denied. It does not present any argument which convinces the Court that
the SEC and the CA made any misappreciation of the facts and the applicable laws such that their
decisions should be overturned.

A corporation exercises its powers through its board of directors and/or its duly authorized officers and
agents, except in instances where the Corporation Code requires stockholders’ approval for certain
specific acts.11

Based on Section 23 of the Corporation Code which provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees x x x.
a corporation’s board of directors is understood to be that body which (1) exercises all powers
provided for under the Corporation Code; (2) conducts all business of the corporation; and (3)
controls and holds all property of the corporation. Its members have been characterized as trustees or
directors clothed with a fiduciary character. 12 Moreover, the directors may appoint officers and agents
and as incident to this power of appointment, they may discharge those appointed.13

In this case, petitioner Raniel was removed as a corporate officer through the resolution of Nephro's
Board of Directors adopted in a special meeting on February 2, 1998. As correctly ruled by the SEC,
petitioners' removal was a valid exercise of the powers of Nephro's Board of Directors, viz.:

In the instant complaint, do respondents have sufficient grounds to cause the removal of Raniel from
her positions as Corporate Secretary, Treasurer and Administrator of the Dialysis Clinic? Based on the
facts proven during the hearing of this case, the answer is in the affirmative.

Raniel's letter of January 26, 1998 speaks for itself. Her request for an indefinite leave, immediately
effective yet without prior notice, reveals a disregard of the critical responsibilities pertaining to the
sensitive positions she held in the corporation. Prior to her hasty departure, Raniel did not make a
proper turn-over of her duties and had to be expressly requested to hand over documents and
records, including keys to the office and the cabinets (Exh. 15).

xxxx

Since Raniel occupied all three positions in Nephro, it is not difficult to foresee the disruption that her
immediate and indefinite absence can inflict on the operations of the company. By leaving abruptly,
Raniel abandoned the positions she is now trying to reclaim. Raniel's actuation has been sufficiently
proven to warrant loss of the Board's confidence.14

The SEC also correctly concluded that petitioner Raniel was removed as an officer of Nephro in
compliance with established procedure, thus:

The resolutions of the Board dismissing complainant Raniel from her various positions in Nephro are
valid. Notwithstanding the absence of complainants from the meeting, a quorum was validly
constituted. x x x.

xxxx

Based on its articles of incorporation, Nephro has five directors – two of the positions were occupied
by complainants and the remaining three are held by respondents. This being the case, the presence
of all three respondents in the Special Meeting of the Board on February 2, 1998 established a quorum
for the conduct of business. The unanimous resolutions carried by the Board during such meeting are
therefore valid and binding against complainants.

It bears emphasis that Raniel was given sufficient opportunity to be heard. Jochico's letters of January
26, 1998 and January 27, 1998, albeit adversarial, recognized her right to explain herself and gave
her the chance to do so. In fact, Raniel did respond to Jochico's letter on January 28, 1998 and took
the occasion to voice her opinions about Jochico's alleged "practice of using others for your own
benefit, without cost." (Exh. 14). Moreover, the Special Meeting of the Board could have been the
appropriate venue for Raniel to air her side. Had Raniel decided to grace the meeting with her
presence, she could have explained herself before the board and tried to convince them to allow her to
keep her posts.15

Petitioners Raniel and Pag-ong's removal as members of Nephro's Board of Directors was likewise
valid.

Only stockholders or members have the power to remove the directors or trustees elected by them, as
laid down in Section 28 of the Corporation Code,16 which provides in part:

SEC. 28. Removal of directors or trustees. -- Any director or trustee of a corporation may be
removed from office by a vote of the stockholders holding or representing at least two-
thirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock corporation, by
a vote of at least two-thirds (2/3) of the members entitled to vote: Provided, that such removal shall
take place either at a regular meeting of the corporation or at a special meeting called for the
purpose, and in either case, after previous notice to stockholders or members of the corporation of the
intention to propose such removal at the meeting. A special meeting of the stockholders or members
of a corporation for the purpose of removal of directors or trustees or any of them, must be called by
the secretary on order of the president or on the written demand of the stockholders representing or
holding at least a majority of the outstanding capital stock, or if it be a non-stock corporation, on the
written demand of a majority of the members entitled to vote. x x x Notice of the time and place of
such meeting, as well as of the intention to propose such removal, must be given by publication or by
written notice as prescribed in this Code. x x x Removal may be with or without cause: Provided,
That removal without cause may not be used to deprive minority stockholders or members of the right
of representation to which they may be entitled under Section 24 of this Code. (Emphasis supplied)

Petitioners do not dispute that the stockholders' meeting was held in accordance with Nephro's By-
Laws. The ownership of Nephro's outstanding capital stock is distributed as follows: Jochico - 200
shares; Steffens - 100 shares; Viriya - 100 shares; Raniel - 75 shares; and Pag-ong - 25 shares,17 or
a total of 500 shares. A two-thirds vote of Nephro's outstanding capital stock would be 333.33 shares,
and during the Stockholders' Special Meeting held on February 16, 1998, 400 shares voted for
petitioners' removal. Said number of votes is more than enough to oust petitioners from their
respective positions as members of the board, with or without cause.

Verily therefore, there is no cogent reason to grant the present petition.

WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.
SECOND DIVISION

G.R. No. 152392 May 26, 2005

EXPERTRAVEL & TOURS, INC., petitioner,

vs.
COURT OF APPEALS and KOREAN AIRLINES, respondent.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R.
SP No. 61000 dismissing the petition for certiorari and mandamus filed by Expertravel and Tours, Inc.
(ETI).

The Antecedents

Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and
licensed to do business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim,
while its appointed counsel was Atty. Mario Aguinaldo and his law firm.

On September 6, 1999, KAL, through Atty. Aguinaldo, filed a Complaint 2 against ETI with the Regional
Trial Court (RTC) of Manila, for the collection of the principal amount of P260,150.00, plus attorney’s
fees and exemplary damages. The verification and certification against forum shopping was signed by
Atty. Aguinaldo, who indicated therein that he was the resident agent and legal counsel of KAL and
had caused the preparation of the complaint.

ETI filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was not authorized to
execute the verification and certificate of non-forum shopping as required by Section 5, Rule 7 of the
Rules of Court. KAL opposed the motion, contending that Atty. Aguinaldo was its resident agent and
was registered as such with the Securities and Exchange Commission (SEC) as required by the
Corporation Code of the Philippines. It was further alleged that Atty. Aguinaldo was also the corporate
secretary of KAL. Appended to the said opposition was the identification card of Atty. Aguinaldo,
showing that he was the lawyer of KAL.

During the hearing of January 28, 2000, Atty. Aguinaldo claimed that he had been authorized to file
the complaint through a resolution of the KAL Board of Directors approved during a special meeting
held on June 25, 1999. Upon his motion, KAL was given a period of 10 days within which to submit a
copy of the said resolution. The trial court granted the motion. Atty. Aguinaldo subsequently filed
other similar motions, which the trial court granted.

Finally, KAL submitted on March 6, 2000 an Affidavit 3 of even date, executed by its general manager
Suk Kyoo Kim, alleging that the board of directors conducted a special teleconference on June 25,
1999, which he and Atty. Aguinaldo attended. It was also averred that in that same teleconference,
the board of directors approved a resolution authorizing Atty. Aguinaldo to execute the certificate of
non-forum shopping and to file the complaint. Suk Kyoo Kim also alleged, however, that the
corporation had no written copy of the aforesaid resolution.

On April 12, 2000, the trial court issued an Order 4 denying the motion to dismiss, giving credence to
the claims of Atty. Aguinaldo and Suk Kyoo Kim that the KAL Board of Directors indeed conducted a
teleconference on June 25, 1999, during which it approved a resolution as quoted in the submitted
affidavit.

ETI filed a motion for the reconsideration of the Order, contending that it was inappropriate for the
court to take judicial notice of the said teleconference without any prior hearing. The trial court denied
the motion in its Order5 dated August 8, 2000.
ETI then filed a petition for certiorari and mandamus, assailing the orders of the RTC. In its comment
on the petition, KAL appended a certificate signed by Atty. Aguinaldo dated January 10, 2000, worded
as follows:

SECRETARY’S/RESIDENT AGENT’S CERTIFICATE

KNOW ALL MEN BY THESE PRESENTS:

I, Mario A. Aguinaldo, of legal age, Filipino, and duly elected and appointed Corporate
Secretary and Resident Agent of KOREAN AIRLINES, a foreign corporation duly organized and
existing under and by virtue of the laws of the Republic of Korea and also duly registered and
authorized to do business in the Philippines, with office address at Ground Floor, LPL Plaza
Building, 124 Alfaro St., Salcedo Village, Makati City, HEREBY CERTIFY that during a special
meeting of the Board of Directors of the Corporation held on June 25, 1999 at which a quorum
was present, the said Board unanimously passed, voted upon and approved the following
resolution which is now in full force and effect, to wit:

RESOLVED, that Mario A. Aguinaldo and his law firm M.A. Aguinaldo & Associates or
any of its lawyers are hereby appointed and authorized to take with whatever legal
action necessary to effect the collection of the unpaid account of Expert Travel &
Tours. They are hereby specifically authorized to prosecute, litigate, defend, sign and
execute any document or paper necessary to the filing and prosecution of said claim in
Court, attend the Pre-Trial Proceedings and enter into a compromise agreement
relative to the above-mentioned claim.

IN WITNESS WHEREOF, I have hereunto affixed my signature this 10th day of January, 1999,
in the City of Manila, Philippines.

(Sgd.)

MARIO A. AGUINALDO
Resident Agent

SUBSCRIBED AND SWORN to before me this 10 th day of January, 1999, Atty. Mario A.
Aguinaldo exhibiting to me his Community Tax Certificate No. 14914545, issued on January 7,
2000 at Manila, Philippines.

Doc. No. 119; (Sgd.)

Page No. 25; ATTY. HENRY D. ADASA
Book No. XXIV Notary Public
Series of 2000. Until December 31, 2000
PTR #889583/MLA 1/3/20006

On December 18, 2001, the CA rendered judgment dismissing the petition, ruling that the verification
and certificate of non-forum shopping executed by Atty. Aguinaldo was sufficient compliance with the
Rules of Court. According to the appellate court, Atty. Aguinaldo had been duly authorized by the
board resolution approved on June 25, 1999, and was the resident agent of KAL. As such, the RTC
could not be faulted for taking judicial notice of the said teleconference of the KAL Board of Directors.

ETI filed a motion for reconsideration of the said decision, which the CA denied. Thus, ETI, now the
petitioner, comes to the Court by way of petition for review on certiorari and raises the following
issue:

DID PUBLIC RESPONDENT COURT OF APPEALS DEPART FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS WHEN IT RENDERED ITS QUESTIONED DECISION AND
WHEN IT ISSUED ITS QUESTIONED RESOLUTION, ANNEXES A AND B OF THE INSTANT
PETITION?7

The petitioner asserts that compliance with Section 5, Rule 7, of the Rules of Court can be determined
only from the contents of the complaint and not by documents or pleadings outside thereof. Hence,
the trial court committed grave abuse of discretion amounting to excess of jurisdiction, and the CA
erred in considering the affidavit of the respondent’s general manager, as well as the
Secretary’s/Resident Agent’s Certification and the resolution of the board of directors contained
therein, as proof of compliance with the requirements of Section 5, Rule 7 of the Rules of Court. The
petitioner also maintains that the RTC cannot take judicial notice of the said teleconference without
prior hearing, nor any motion therefor. The petitioner reiterates its submission that the teleconference
and the resolution adverted to by the respondent was a mere fabrication.
The respondent, for its part, avers that the issue of whether modern technology is used in the field of
business is a factual issue; hence, cannot be raised in a petition for review on certiorari under Rule 45
of the Rules of Court. On the merits of the petition, it insists that Atty. Aguinaldo, as the resident
agent and corporate secretary, is authorized to sign and execute the certificate of non-forum shopping
required by Section 5, Rule 7 of the Rules of Court, on top of the board resolution approved during the
teleconference of June 25, 1999. The respondent insists that "technological advances in this time and
age are as commonplace as daybreak." Hence, the courts may take judicial notice that the Philippine
Long Distance Telephone Company, Inc. had provided a record of corporate conferences and meetings
through FiberNet using fiber-optic transmission technology, and that such technology facilitates voice
and image transmission with ease; this makes constant communication between a foreign-based office
and its Philippine-based branches faster and easier, allowing for cost-cutting in terms of travel
concerns. It points out that even the E-Commerce Law has recognized this modern technology. The
respondent posits that the courts are aware of this development in technology; hence, may take
judicial notice thereof without need of hearings. Even if such hearing is required, the requirement is
nevertheless satisfied if a party is allowed to file pleadings by way of comment or opposition thereto.

In its reply, the petitioner pointed out that there are no rulings on the matter of teleconferencing as a
means of conducting meetings of board of directors for purposes of passing a resolution; until and
after teleconferencing is recognized as a legitimate means of gathering a quorum of board of directors,
such cannot be taken judicial notice of by the court. It asserts that safeguards must first be set up to
prevent any mischief on the public or to protect the general public from any possible fraud. It further
proposes possible amendments to the Corporation Code to give recognition to such manner of board
meetings to transact business for the corporation, or other related corporate matters; until then, the
petitioner asserts, teleconferencing cannot be the subject of judicial notice.

The petitioner further avers that the supposed holding of a special meeting on June 25, 1999 through
teleconferencing where Atty. Aguinaldo was supposedly given such an authority is a farce, considering
that there was no mention of where it was held, whether in this country or elsewhere. It insists that
the Corporation Code requires board resolutions of corporations to be submitted to the SEC. Even
assuming that there was such a teleconference, it would be against the provisions of the Corporation
Code not to have any record thereof.

The petitioner insists that the teleconference and resolution adverted to by the respondent in its
pleadings were mere fabrications foisted by the respondent and its counsel on the RTC, the CA and
this Court.

The petition is meritorious.

Section 5, Rule 7 of the Rules of Court provides:

SEC. 5. Certification against forum shopping.— The plaintiff or principal party shall certify
under oath in the complaint or other initiatory pleading asserting a claim for relief, or in a
sworn certification annexed thereto and simultaneously filed therewith: (a) that he has not
theretofore commenced any action or filed any claim involving the same issues in any court,
tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or
claim is pending therein; (b) if there is such other pending action or claim, a complete
statement of the present status thereof; and (c) if he should thereafter learn that the same or
similar action or claim has been filed or is pending, he shall report that fact within five (5)
days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been
filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of
the complaint or other initiatory pleading but shall be cause for the dismissal of the case
without prejudice, unless otherwise provided, upon motion and after hearing. The submission
of a false certification or non-compliance with any of the undertakings therein shall constitute
indirect contempt of court, without prejudice to the corresponding administrative and criminal
actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum
shopping, the same shall be ground for summary dismissal with prejudice and shall constitute
direct contempt, as well as a cause for administrative sanctions.

It is settled that the requirement to file a certificate of non-forum shopping is mandatory8 and that the
failure to comply with this requirement cannot be excused. The certification is a peculiar and personal
responsibility of the party, an assurance given to the court or other tribunal that there are no other
pending cases involving basically the same parties, issues and causes of action. Hence, the
certification must be accomplished by the party himself because he has actual knowledge of whether
or not he has initiated similar actions or proceedings in different courts or tribunals. Even his counsel
may be unaware of such facts.9 Hence, the requisite certification executed by the plaintiff’s counsel
will not suffice.10
In a case where the plaintiff is a private corporation, the certification may be signed, for and on behalf
of the said corporation, by a specifically authorized person, including its retained counsel, who has
personal knowledge of the facts required to be established by the documents. The reason was
explained by the Court in National Steel Corporation v. Court of Appeals,11 as follows:

Unlike natural persons, corporations may perform physical actions only through properly
delegated individuals; namely, its officers and/or agents.

The corporation, such as the petitioner, has no powers except those expressly conferred on it
by the Corporation Code and those that are implied by or are incidental to its existence. In
turn, a corporation exercises said powers through its board of directors and/or its duly-
authorized officers and agents. Physical acts, like the signing of documents, can be performed
only by natural persons duly-authorized for the purpose by corporate by-laws or by specific
act of the board of directors. "All acts within the powers of a corporation may be performed by
agents of its selection; and except so far as limitations or restrictions which may be imposed
by special charter, by-law, or statutory provisions, the same general principles of law which
govern the relation of agency for a natural person govern the officer or agent of a corporation,
of whatever status or rank, in respect to his power to act for the corporation; and agents once
appointed, or members acting in their stead, are subject to the same rules, liabilities and
incapacities as are agents of individuals and private persons."

… For who else knows of the circumstances required in the Certificate but its own retained
counsel. Its regular officers, like its board chairman and president, may not even know the
details required therein.

Indeed, the certificate of non-forum shopping may be incorporated in the complaint or appended
thereto as an integral part of the complaint. The rule is that compliance with the rule after the filing of
the complaint, or the dismissal of a complaint based on its non-compliance with the rule, is
impermissible. However, in exceptional circumstances, the court may allow subsequent compliance
with the rule.12 If the authority of a party’s counsel to execute a certificate of non-forum shopping is
disputed by the adverse party, the former is required to show proof of such authority or
representation.

In this case, the petitioner, as the defendant in the RTC, assailed the authority of Atty. Aguinaldo to
execute the requisite verification and certificate of non-forum shopping as the resident agent and
counsel of the respondent. It was, thus, incumbent upon the respondent, as the plaintiff, to allege and
establish that Atty. Aguinaldo had such authority to execute the requisite verification and certification
for and in its behalf. The respondent, however, failed to do so.

The verification and certificate of non-forum shopping which was incorporated in the complaint and
signed by Atty. Aguinaldo reads:

I, Mario A. Aguinaldo of legal age, Filipino, with office address at Suite 210 Gedisco Centre,
1564 A. Mabini cor. P. Gil Sts., Ermita, Manila, after having sworn to in accordance with law
hereby deposes and say: THAT -

1. I am the Resident Agent and Legal Counsel of the plaintiff in the above entitled case and
have caused the preparation of the above complaint;

2. I have read the complaint and that all the allegations contained therein are true and correct
based on the records on files;

3. I hereby further certify that I have not commenced any other action or proceeding involving
the same issues in the Supreme Court, the Court of Appeals, or different divisions thereof, or
any other tribunal or agency. If I subsequently learned that a similar action or proceeding has
been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions
thereof, or any tribunal or agency, I will notify the court, tribunal or agency within five (5)
days from such notice/knowledge.

(Sgd.)

MARIO A. AGUINALDO
Affiant
CITY OF MANILA
 SUBSCRIBED AND SWORN TO before me this 30th day of August, 1999, affiant exhibiting to
me his Community Tax Certificate No. 00671047 issued on January 7, 1999 at Manila,
Philippines.

Doc. No. 1005; (Sgd.)

Page No. 198;
Book No. XXI ATTY. HENRY D. ADASA
Series of 1999. Notary Public
Until December 31, 2000
PTR No. 320501 Mla. 1/4/9913

As gleaned from the aforequoted certification, there was no allegation that Atty. Aguinaldo had been
authorized to execute the certificate of non-forum shopping by the respondent’s Board of Directors;
moreover, no such board resolution was appended thereto or incorporated therein.

While Atty. Aguinaldo is the resident agent of the respondent in the Philippines, this does not mean
that he is authorized to execute the requisite certification against forum shopping. Under Section 127,
in relation to Section 128 of the Corporation Code, the authority of the resident agent of a foreign
corporation with license to do business in the Philippines is to receive, for and in behalf of the foreign
corporation, services and other legal processes in all actions and other legal proceedings against such
corporation, thus:

SEC. 127. Who may be a resident agent. – A resident agent may either be an individual
residing in the Philippines or a domestic corporation lawfully transacting business in the
Philippines: Provided, That in the case of an individual, he must be of good moral character
and of sound financial standing.

SEC. 128. Resident agent; service of process. – The Securities and Exchange Commission shall
require as a condition precedent to the issuance of the license to transact business in the
Philippines by any foreign corporation that such corporation file with the Securities and
Exchange Commission a written power of attorney designating some persons who must be a
resident of the Philippines, on whom any summons and other legal processes may be served
in all actions or other legal proceedings against such corporation, and consenting that service
upon such resident agent shall be admitted and held as valid as if served upon the duly-
authorized officers of the foreign corporation as its home office.14

Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate of non-forum
shopping as required by Section 5, Rule 7 of the Rules of Court. This is because while a resident agent
may be aware of actions filed against his principal (a foreign corporation doing business in the
Philippines), such resident may not be aware of actions initiated by its principal, whether in the
Philippines against a domestic corporation or private individual, or in the country where such
corporation was organized and registered, against a Philippine registered corporation or a Filipino
citizen.

The respondent knew that its counsel, Atty. Aguinaldo, as its resident agent, was not specifically
authorized to execute the said certification. It attempted to show its compliance with the rule
subsequent to the filing of its complaint by submitting, on March 6, 2000, a resolution purporting to
have been approved by its Board of Directors during a teleconference held on June 25, 1999, allegedly
with Atty. Aguinaldo and Suk Kyoo Kim in attendance. However, such attempt of the respondent casts
veritable doubt not only on its claim that such a teleconference was held, but also on the approval by
the Board of Directors of the resolution authorizing Atty. Aguinaldo to execute the certificate of non-
forum shopping.

In its April 12, 2000 Order, the RTC took judicial notice that because of the onset of modern
technology, persons in one location may confer with other persons in other places, and, based on the
said premise, concluded that Suk Kyoo Kim and Atty. Aguinaldo had a teleconference with the
respondent’s Board of Directors in South Korea on June 25, 1999. The CA, likewise, gave credence to
the respondent’s claim that such a teleconference took place, as contained in the affidavit of Suk Kyoo
Kim, as well as Atty. Aguinaldo’s certification.

Generally speaking, matters of judicial notice have three material requisites: (1) the matter must be
one of common and general knowledge; (2) it must be well and authoritatively settled and not
doubtful or uncertain; and (3) it must be known to be within the limits of the jurisdiction of the court.
The principal guide in determining what facts may be assumed to be judicially known is that of
notoriety. Hence, it can be said that judicial notice is limited to facts evidenced by public records and
facts of general notoriety.[15] Moreover, a judicially noticed fact must be one not subject to a
reasonable dispute in that it is either: (1) generally known within the territorial jurisdiction of the trial
court; or (2) capable of accurate and ready determination by resorting to sources whose accuracy
cannot reasonably be questionable.16

Things of "common knowledge," of which courts take judicial matters coming to the knowledge of men
generally in the course of the ordinary experiences of life, or they may be matters which are generally
accepted by mankind as true and are capable of ready and unquestioned demonstration. Thus, facts
which are universally known, and which may be found in encyclopedias, dictionaries or other
publications, are judicially noticed, provided, they are of such universal notoriety and so generally
understood that they may be regarded as forming part of the common knowledge of every person. As
the common knowledge of man ranges far and wide, a wide variety of particular facts have been
judicially noticed as being matters of common knowledge. But a court cannot take judicial notice of
any fact which, in part, is dependent on the existence or non-existence of a fact of which the court has
no constructive knowledge.17

In this age of modern technology, the courts may take judicial notice that business transactions may
be made by individuals through teleconferencing. Teleconferencing is interactive group communication
(three or more people in two or more locations) through an electronic medium. In general terms,
teleconferencing can bring people together under one roof even though they are separated by
hundreds of miles.18 This type of group communication may be used in a number of ways, and have
three basic types: (1) video conferencing - television-like communication augmented with sound; (2)
computer conferencing - printed communication through keyboard terminals, and (3) audio-
conferencing-verbal communication via the telephone with optional capacity for telewriting or
telecopying.19

A teleconference represents a unique alternative to face-to-face (FTF) meetings. It was first

introduced in the 1960’s with American Telephone and Telegraph’s Picturephone. At that time,
however, no demand existed for the new technology. Travel costs were reasonable and consumers
were unwilling to pay the monthly service charge for using the picturephone, which was regarded as
more of a novelty than as an actual means for everyday communication. 20 In time, people found it
advantageous to hold teleconferencing in the course of business and corporate governance, because
of the money saved, among other advantages include:

1. People (including outside guest speakers) who wouldn’t normally attend a distant FTF
meeting can participate.

2. Follow-up to earlier meetings can be done with relative ease and little expense.

3. Socializing is minimal compared to an FTF meeting; therefore, meetings are shorter and
more oriented to the primary purpose of the meeting.

4. Some routine meetings are more effective since one can audio-conference from any location
equipped with a telephone.

5. Communication between the home office and field staffs is maximized.

6. Severe climate and/or unreliable transportation may necessitate teleconferencing.

7. Participants are generally better prepared than for FTF meetings.

8. It is particularly satisfactory for simple problem-solving, information exchange, and

procedural tasks.

9. Group members participate more equally in well-moderated teleconferences than an FTF

meeting.21

On the other hand, other private corporations opt not to hold teleconferences because of the following
disadvantages:

1. Technical failures with equipment, including connections that aren’t made.

2. Unsatisfactory for complex interpersonal communication, such as negotiation or bargaining.

3. Impersonal, less easy to create an atmosphere of group rapport.

4. Lack of participant familiarity with the equipment, the medium itself, and meeting skills.

5. Acoustical problems within the teleconferencing rooms.

 6. Difficulty in determining participant speaking order; frequently one person monopolizes the
meeting.

7. Greater participant preparation time needed.

8. Informal, one-to-one, social interaction not possible.22

Indeed, teleconferencing can only facilitate the linking of people; it does not alter the complexity of
group communication. Although it may be easier to communicate via teleconferencing, it may also be
easier to miscommunicate. Teleconferencing cannot satisfy the individual needs of every type of
meeting.23

In the Philippines, teleconferencing and videoconferencing of members of board of directors of private

corporations is a reality, in light of Republic Act No. 8792. The Securities and Exchange Commission
issued SEC Memorandum Circular No. 15, on November 30, 2001, providing the guidelines to be
complied with related to such conferences.24 Thus, the Court agrees with the RTC that persons in the
Philippines may have a teleconference with a group of persons in South Korea relating to business
transactions or corporate governance.

Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a teleconference
along with the respondent’s Board of Directors, the Court is not convinced that one was conducted;
even if there had been one, the Court is not inclined to believe that a board resolution was duly
passed specifically authorizing Atty. Aguinaldo to file the complaint and execute the required
certification against forum shopping.

The records show that the petitioner filed a motion to dismiss the complaint on the ground that the
respondent failed to comply with Section 5, Rule 7 of the Rules of Court. The respondent opposed the
motion on December 1, 1999, on its contention that Atty. Aguinaldo, its resident agent, was duly
authorized to sue in its behalf. The respondent, however, failed to establish its claim that Atty.
Aguinaldo was its resident agent in the Philippines. Even the identification card 25 of Atty. Aguinaldo
which the respondent appended to its pleading merely showed that he is the company lawyer of the
respondent’s Manila Regional Office.

The respondent, through Atty. Aguinaldo, announced the holding of the teleconference only during the
hearing of January 28, 2000; Atty. Aguinaldo then prayed for ten days, or until February 8, 2000,
within which to submit the board resolution purportedly authorizing him to file the complaint and
execute the required certification against forum shopping. The court granted the motion. 26 The
respondent, however, failed to comply, and instead prayed for 15 more days to submit the said
resolution, contending that it was with its main office in Korea. The court granted the motion per its
Order27 dated February 11, 2000. The respondent again prayed for an extension within which to
submit the said resolution, until March 6, 2000.28 It was on the said date that the respondent
submitted an affidavit of its general manager Suk Kyoo Kim, stating, inter alia, that he and Atty.
Aguinaldo attended the said teleconference on June 25, 1999, where the Board of Directors
supposedly approved the following resolution:

RESOLVED, that Mario A. Aguinaldo and his law firm M.A. Aguinaldo & Associates or any of its
lawyers are hereby appointed and authorized to take with whatever legal action necessary to
effect the collection of the unpaid account of Expert Travel & Tours. They are hereby
specifically authorized to prosecute, litigate, defend, sign and execute any document or paper
necessary to the filing and prosecution of said claim in Court, attend the Pre-trial Proceedings
and enter into a compromise agreement relative to the above-mentioned claim.29

But then, in the same affidavit, Suk Kyoo Kim declared that the respondent "do[es] not keep a written
copy of the aforesaid Resolution" because no records of board resolutions approved during
teleconferences were kept. This belied the respondent’s earlier allegation in its February 10, 2000
motion for extension of time to submit the questioned resolution that it was in the custody of its main
office in Korea. The respondent gave the trial court the impression that it needed time to secure a
copy of the resolution kept in Korea, only to allege later (via the affidavit of Suk Kyoo Kim) that it had
no such written copy. Moreover, Suk Kyoo Kim stated in his affidavit that the resolution was embodied
in the Secretary’s/Resident Agent’s Certificate signed by Atty. Aguinaldo. However, no such resolution
was appended to the said certificate.

The respondent’s allegation that its board of directors conducted a teleconference on June 25, 1999
and approved the said resolution (with Atty. Aguinaldo in attendance) is incredible, given the
additional fact that no such allegation was made in the complaint. If the resolution had indeed been
approved on June 25, 1999, long before the complaint was filed, the respondent should have
incorporated it in its complaint, or at least appended a copy thereof. The respondent failed to do so. It
was only on January 28, 2000 that the respondent claimed, for the first time, that there was such a
meeting of the Board of Directors held on June 25, 1999; it even represented to the Court that a copy
of its resolution was with its main office in Korea, only to allege later that no written copy existed. It
was only on March 6, 2000 that the respondent alleged, for the first time, that the meeting of the
Board of Directors where the resolution was approved was held via teleconference.

Worse still, it appears that as early as January 10, 1999, Atty. Aguinaldo had signed a
Secretary’s/Resident Agent’s Certificate alleging that the board of directors held a teleconference on
June 25, 1999. No such certificate was appended to the complaint, which was filed on September 6,
1999. More importantly, the respondent did not explain why the said certificate was signed by Atty.
Aguinaldo as early as January 9, 1999, and yet was notarized one year later (on January 10, 2000); it
also did not explain its failure to append the said certificate to the complaint, as well as to its
Compliance dated March 6, 2000. It was only on January 26, 2001 when the respondent filed its
comment in the CA that it submitted the Secretary’s/Resident Agent’s Certificate30 dated January 10,
2000.

The Court is, thus, more inclined to believe that the alleged teleconference on June 25, 1999 never
took place, and that the resolution allegedly approved by the respondent’s Board of Directors during
the said teleconference was a mere concoction purposefully foisted on the RTC, the CA and this Court,
to avert the dismissal of its complaint against the petitioner.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals
in CA-G.R. SP No. 61000 is REVERSED and SET ASIDE. The Regional Trial Court of Manila is hereby
ORDERED to dismiss, without prejudice, the complaint of the respondent.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 161886 March 16, 2007

FILIPINAS PORT SERVICES, INC., represented by stockholders, ELIODORO C. CRUZ and

MINDANAO TERMINAL AND BROKERAGE SERVICES, INC., Petitioners,
vs.
VICTORIANO S. GO, ARSENIO LOPEZ CHUA, EDGAR C. TRINIDAD, HERMENEGILDO M.
TRINIDAD, JESUS SYBICO, MARY JEAN D. CO, HENRY CHUA, JOSELITO S. JAYME, ERNESTO
S. JAYME, and ELIEZER B. DE JESUS, Respondents.

DECISION

GARCIA, J.:

Assailed and sought to be set aside in this petition for review on certiorari is the Decision 1 dated 19
January 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 73827, reversing an earlier decision of
the Regional Trial Court (RTC) of Davao City and accordingly dismissing the derivative suit instituted
by petitioner Eliodoro C. Cruz for and in behalf of the stockholders of co-petitioner Filipinas Port
Services, Inc. (Filport, hereafter).

The case is actually an intra-corporate dispute involving Filport, a domestic corporation engaged in
stevedoring services with principal office in Davao City. It was initially instituted with the Securities
and Exchange Commission (SEC) where the case hibernated and remained unresolved for several
years until it was overtaken by the enactment into law, on 19 July 2000, of Republic Act (R.A.) No.
8799, otherwise known as the Securities Regulation Code. From the SEC and consistent with R.A. No.
8799, the case was transferred to the RTC of Manila, Branch 14, sitting as a corporate court.
Subsequently, upon respondents’ motion, the case eventually landed at the RTC of Davao City where
it was docketed as Civil Case No. 28,552-2001. RTC-Davao City, Branch 10, ruled in favor of the
petitioners prompting respondents to go to the CA in CA-G.R. CV No. 73827. This time, the
respondents prevailed, hence, this petition for review by the petitioners.

The relevant facts:

On 4 September 1992, petitioner Eliodoro C. Cruz, Filport’s president from 1968 until he lost his bid
for reelection as Filport’s president during the general stockholders’ meeting in 1991, wrote a letter2 to
the corporation’s Board of Directors questioning the board’s creation of the following positions with a
monthly remuneration of ₱13,050.00 each, and the election thereto of certain members of the board,
to wit:

Asst. Vice-President for Corporate Planning - Edgar C. Trinidad (Director)

Asst. Vice-President for Operations - Eliezer B. de Jesus (Director)

Asst. Vice-President for Finance - Mary Jean D. Co (Director)

Asst. Vice-President for Administration - Henry Chua (Director)

Special Asst. to the Chairman - Arsenio Lopez Chua (Director)

Special Asst. to the President - Fortunato V. de Castro

In his aforesaid letter, Cruz requested the board to take necessary action/actions to recover from
those elected to the aforementioned positions the salaries they have received.

On 15 September 1992, the board met and took up Cruz’s letter. The records do not show what
specific action/actions the board had taken on the letter. Evidently, whatever action/actions the board
took did not sit well with Cruz.

On 14 June 1993, Cruz, purportedly in representation of Filport and its stockholders, among which is
herein co-petitioner Mindanao Terminal and Brokerage Services, Inc. (Minterbro), filed with the SEC a
petition3 which he describes as a derivative suit against the herein respondents who were then the
incumbent members of Filport’s Board of Directors, for alleged acts of mismanagement detrimental to
the interest of the corporation and its shareholders at large, namely:

1. creation of an executive committee in 1991 composed of seven (7) members of the board
with compensation of ₱500.00 for each member per meeting, an office which, to Cruz, is not
provided for in the by-laws of the corporation and whose function merely duplicates those of
the President and General Manager;

2. increase in the emoluments of the Chairman, Vice-President, Treasurer and Assistant

General Manager which increases are greatly disproportionate to the volume and character of
the work of the directors holding said positions;

3. re-creation of the positions of Assistant Vice-Presidents (AVPs) for Corporate Planning,

Operations, Finance and Administration, and the election thereto of board members Edgar C.
Trinidad, Eliezer de Jesus, Mary Jean D. Co and Henry Chua, respectively; and

4. creation of the additional positions of Special Assistants to the President and the Board
Chairman, with Fortunato V. de Castro and Arsenio Lopez Chua elected to the same, the
directors elected/appointed thereto not doing any work to deserve the monthly remuneration
of ₱13,050.00 each.

In the same petition, docketed as SEC Case No. 06-93-4491, Cruz alleged that despite demands made
upon the respondent members of the board of directors to desist from creating the positions in
question and to account for the amounts incurred in creating the same, the demands were unheeded.
Cruz thus prayed that the respondent members of the board of directors be made to pay Filport,
jointly and severally, the sums of money variedly representing the damages incurred as a result of the
creation of the offices/positions complained of and the aggregate amount of the questioned increased
salaries.

In their common Answer with Counterclaim,4 the respondents denied the allegations of
mismanagement and materially averred as follows:

1. the creation of the executive committee and the grant of per diems for the attendance of
each member are allowed under the by-laws of the corporation;

2. the increases in the salaries/emoluments of the Chairman, Vice-President, Treasurer and

Assistant General Manager were well within the financial capacity of the corporation and well-
deserved by the officers elected thereto; and

3. the positions of AVPs for Corporate Planning, Operations, Finance and Administration were
already in existence during the tenure of Cruz as president of the corporation, and were
merely recreated by the Board, adding that all those appointed to said positions of Assistant
Vice Presidents, as well as the additional position of Special Assistants to the Chairman and
the President, rendered services to deserve their compensation.

In the same Answer, respondents further averred that Cruz and his co-petitioner Minterbro, while
admittedly stockholders of Filport, have no authority nor standing to bring the so-called "derivative
suit" for and in behalf of the corporation; that respondent Mary Jean D. Co has already ceased to be a
corporate director and so with Fortunato V. de Castro, one of those holding an assailed position; and
that no demand to cease and desist from further committing the acts complained of was made upon
the board. By way of affirmative defenses, respondents asserted that (1) the petition is not duly
verified by petitioner Filport which is the real party-in-interest; (2) Filport, as represented by Cruz and
Minterbro, failed to exhaust remedies for redress within the corporation before bringing the suit; and
(3) the petition does not show that the stockholders bringing the suit are joined as nominal parties. In
support of their counterclaim, respondents averred that Cruz filed the alleged derivative suit in bad
faith and purely for harassment purposes on account of his non-reelection to the board in the 1991
general stockholders’ meeting.

As earlier narrated, the derivative suit (SEC Case No. 06-93-4491) hibernated with the SEC for a long
period of time. With the enactment of R.A. No. 8799, the case was first turned over to the RTC of
Manila, Branch 14, sitting as a corporate court. Thereafter, on respondents’ motion, it was eventually
transferred to the RTC of Davao City whereat it was docketed as Civil Case No. 28,552-2001 and
raffled to Branch 10 thereof.

On 10 December 2001, RTC-Davao City rendered its decision5 in the case. Even as it found that (1)
Filport’s Board of Directors has the power to create positions not provided for in the by-laws of the
corporation since the board is the governing body; and (2) the increases in the salaries of the board
chairman, vice-president, treasurer and assistant general manager are reasonable, the trial court
nonetheless rendered judgment against the respondents by ordering the directors holding the
positions of Assistant Vice President for Corporate Planning, Special Assistant to the President and
Special Assistant to the Board Chairman to refund to the corporation the salaries they have received
as such officers "considering that Filipinas Port Services is not a big corporation requiring multiple
executive positions" and that said positions "were just created for accommodation." We quote the fallo
of the trial court’s decision.

WHEREFORE, judgment is rendered ordering:

Edgar C. Trinidad under the third and fourth causes of action to restore to the corporation the total
amount of salaries he received as assistant vice president for corporate planning; and likewise
ordering Fortunato V. de Castro and Arsenio Lopez Chua under the fourth cause of action to restore to
the corporation the salaries they each received as special assistants respectively to the president and
board chairman. In case of insolvency of any or all of them, the members of the board who created
their positions are subsidiarily liable.

The counter claim is dismissed.

From the adverse decision of the trial court, herein respondents went on appeal to the CA in CA-G.R.
CV No. 73827.

In its decision6 of 19 January 2004, the CA, taking exceptions to the findings of the trial court that the
creation of the positions of Assistant Vice President for Corporate Planning, Special Assistant to the
President and Special Assistant to the Board Chairman was merely for accommodation purposes,
granted the respondents’ appeal, reversed and set aside the appealed decision of the trial court and
accordingly dismissed the so-called derivative suit filed by Cruz, et al., thus:

IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged decision is
REVERSED and SET ASIDE, and a new one entered DISMISSING Civil Case No. 28,552-2001 with no
pronouncement as to costs.

SO ORDERED.

Intrigued, and quite understandably, by the fact that, in its decision, the CA, before proceeding to
address the merits of the appeal, prefaced its disposition with the statement reading "[T]he appeal is
bereft of merit,"7 thereby contradicting the very fallo of its own decision and the discussions made in
the body thereof, respondents filed with the appellate court a Motion For Nunc Pro Tunc Order, 8
thereunder praying that the phrase "[T]he appeal is bereft of merit," be corrected to read "[T]he
appeal is impressed with merit." In its resolution9 of 23 April 2004, the CA granted the respondents’
motion and accordingly effected the desired correction.

Hence, petitioners’ present recourse.

Petitioners assigned four (4) errors allegedly committed by the CA. For clarity, we shall formulate the
issues as follows:

1. Whether the CA erred in holding that Filport’s Board of Directors acted within its powers in
creating the executive committee and the positions of AVPs for Corporate Planning,
Operations, Finance and Administration, and those of the Special Assistants to the President
and the Board Chairman, each with corresponding remuneration, and in increasing the salaries
of the positions of Board Chairman, Vice-President, Treasurer and Assistant General Manager;
and

2. Whether the CA erred in finding that no evidence exists to prove that (a) the positions of
AVP for Corporate Planning, Special Assistant to the President and Special Assistant to the
Board Chairman were created merely for accommodation, and (b) the salaries/emoluments
corresponding to said positions were actually paid to and received by the directors appointed
thereto.

For their part, respondents, aside from questioning the propriety of the instant petition as the same
allegedly raises only questions of fact and not of law, also put in issue the purported derivative nature
of the main suit initiated by petitioner Eliodoro C. Cruz allegedly in representation of and in behalf of
Filport and its stockholders.

The petition is bereft of merit.

It is axiomatic that in petitions for review on certiorari under Rule 45 of the Rules of Court, only
questions of law may be raised and passed upon by the Court. Factual findings of the CA are binding
and conclusive and will not be reviewed or disturbed on appeal. 10 Of course, the rule is not cast in
stone; it admits of certain exceptions, such as when the findings of fact of the appellate court are at
variance with those of the trial court,11 as here. For this reason, and for a proper and complete
resolution of the case, we shall delve into the records and reexamine the same.

The governing body of a corporation is its board of directors. Section 23 of the Corporation Code 12
explicitly provides that unless otherwise provided therein, the corporate powers of all corporations
formed under the Code shall be exercised, all business conducted and all property of the corporation
shall be controlled and held by a board of directors. Thus, with the exception only of some powers
expressly granted by law to stockholders (or members, in case of non-stock corporations), the board
of directors (or trustees, in case of non-stock corporations) has the sole authority to determine
policies, enter into contracts, and conduct the ordinary business of the corporation within the scope of
its charter, i.e., its articles of incorporation, by-laws and relevant provisions of law. Verily, the
authority of the board of directors is restricted to the management of the regular business affairs of
the corporation, unless more extensive power is expressly conferred.

The raison d’etre behind the conferment of corporate powers on the board of directors is not lost on
the Court. Indeed, the concentration in the board of the powers of control of corporate business and of
appointment of corporate officers and managers is necessary for efficiency in any large organization.
Stockholders are too numerous, scattered and unfamiliar with the business of a corporation to conduct
its business directly. And so the plan of corporate organization is for the stockholders to choose the
directors who shall control and supervise the conduct of corporate business.13

In the present case, the board’s creation of the positions of Assistant Vice Presidents for Corporate
Planning, Operations, Finance and Administration, and those of the Special Assistants to the President
and the Board Chairman, was in accordance with the regular business operations of Filport as it is
authorized to do so by the corporation’s by-laws, pursuant to the Corporation Code.

The election of officers of a corporation is provided for under Section 25 of the Code which reads:

Sec. 25. Corporate officers, quorum. – Immediately after their election, the directors of a corporation
must formally organize by the election of a president, who shall be a director, a treasurer who may or
may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such
other officers as may be provided for in the by-laws. (Emphasis supplied.)

In turn, the amended Bylaws of Filport14 provides the following:

Officers of the corporation, as provided for by the by-laws, shall be elected by the board of directors at
their first meeting after the election of Directors. xxx

The officers of the corporation shall be a Chairman of the Board, President, a Vice-President, a
Secretary, a Treasurer, a General Manager and such other officers as the Board of Directors may from
time to time provide, and these officers shall be elected to hold office until their successors are elected
and qualified. (Emphasis supplied.)

Likewise, the fixing of the corresponding remuneration for the positions in question is provided for in
the same by-laws of the corporation, viz:

xxx The Board of Directors shall fix the compensation of the officers and agents of the corporation.
(Emphasis supplied.)

Unfortunately, the bylaws of the corporation are silent as to the creation by its board of directors of an
executive committee. Under Section 3515 of the Corporation Code, the creation of an executive
committee must be provided for in the bylaws of the corporation.

Notwithstanding the silence of Filport’s bylaws on the matter, we cannot rule that the creation of the
executive committee by the board of directors is illegal or unlawful. One reason is the absence of a
showing as to the true nature and functions of said executive committee considering that the
"executive committee," referred to in Section 35 of the Corporation Code which is as powerful as the
board of directors and in effect acting for the board itself, should be distinguished from other
committees which are within the competency of the board to create at anytime and whose actions
require ratification and confirmation by the board.16 Another reason is that, ratiocinated by both the
two (2) courts below, the Board of Directors has the power to create positions not provided for in
Filport’s bylaws since the board is the corporation’s governing body, clearly upholding the power of its
board to exercise its prerogatives in managing the business affairs of the corporation.

As well, it may not be amiss to point out that, as testified to and admitted by petitioner Cruz himself,
it was during his incumbency as Filport president that the executive committee in question was
created, and that he was even the one who moved for the creation of the positions of the AVPs for
Operations, Finance and Administration. By his acquiescence and/or ratification of the creation of the
aforesaid offices, Cruz is virtually precluded from suing to declare such acts of the board as invalid or
illegal. And it makes no difference that he sues in behalf of himself and of the other stockholders.
Indeed, as his voice was not heard in protest when he was still Filport’s president, raising a hue and
cry only now leads to the inevitable conclusion that he did so out of spite and resentment for his non-
reelection as president of the corporation.

With regard to the increased emoluments of the Board Chairman, Vice-President, Treasurer and
Assistant General Manager which are supposedly disproportionate to the volume and nature of their
work, the Court, after a judicious scrutiny of the increase vis-à-vis the value of the services rendered
to the corporation by the officers concerned, agrees with the findings of both the trial and appellate
courts as to the reasonableness and fairness thereof.

Continuing, petitioners contend that the CA did not appreciate their evidence as to the alleged acts of
mismanagement by the then incumbent board. A perusal of the records, however, reveals that
petitioners merely relied on the testimony of Cruz in support of their bold claim of mismanagement.
To the mind of the Court, Cruz’ testimony on the matter of mismanagement is bereft of any
foundation. As it were, his testimony consists merely of insinuations of alleged wrongdoings on the
part of the board. Without more, petitioners’ posture of mismanagement must fall and with it goes
their prayer to hold the respondents liable therefor.

But even assuming, in gratia argumenti, that there was mismanagement resulting to corporate
damages and/or business losses, still the respondents may not be held liable in the absence, as here,
of a showing of bad faith in doing the acts complained of.

If the cause of the losses is merely error in business judgment, not amounting to bad faith or
negligence, directors and/or officers are not liable.17 For them to be held accountable, the
mismanagement and the resulting losses on account thereof are not the only matters to be proven; it
is likewise necessary to show that the directors and/or officers acted in bad faith and with malice in
doing the assailed acts. Bad faith does not simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty
through some motive or interest or ill-will partaking of the nature of fraud.18 We have searched the
records and nowhere do we find a "dishonest purpose" or "some moral obliquity," or "conscious doing
of a wrong" on the part of the respondents that "partakes of the nature of fraud."

We thus extend concurrence to the following findings of the CA, affirmatory of those of the trial court:

xxx As a matter of fact, it was during the term of appellee Cruz, as president and director, that the
executive committee was created. What is more, it was appellee himself who moved for the creation
of the positions of assistant vice presidents for operations, for finance, and for administration. He
should not be heard to complain thereafter for similar corporate acts.

The increase in the salaries of the board chairman, president, treasurer, and assistant general
manager are indeed reasonable enough in view of the responsibilities assigned to them, and the
special knowledge required, to be able to effectively discharge their respective functions and duties.

Surely, factual findings of trial courts, especially when affirmed by the CA, are binding and conclusive
on this Court.

There is, however, a factual matter over which the CA and the trial court parted ways. We refer to the
accommodation angle.

The trial court was with petitioner Cruz in saying that the creation of the positions of the three (3)
AVPs for Corporate Planning, Special Assistant to the President and Special Assistant to the Board
Chairman, each with a salary of ₱13,050.00 a month, was merely for accommodation purposes
considering that Filport is not a big corporation requiring multiple executive positions. Hence, the trial
court’s order for said officers to return the amounts they received as compensation.

On the other hand, the CA took issue with the trial court and ruled that Cruz’s accommodation theory
is not based on facts and without any evidentiary substantiation.

We concur with the line of the appellate court. For truly, aside from Cruz’s bare and self-serving
testimony, no other evidence was presented to show the fact of "accommodation." By itself, the
testimony of Cruz is not enough to support his claim that accommodation was the underlying factor
behind the creation of the aforementioned three (3) positions.

It is elementary in procedural law that bare allegations do not constitute evidence adequate to support
a conclusion. It is basic in the rule of evidence that he who alleges a fact bears the burden of proving
it by the quantum of proof required. Bare allegations, unsubstantiated by evidence, are not equivalent
to proof under the Rules of Court.19 The party having the burden of proof must establish his case by a
preponderance of evidence.20

Besides, the determination of the necessity for additional offices and/or positions in a corporation is a
management prerogative which courts are not wont to review in the absence of any proof that such
prerogative was exercised in bad faith or with malice.1awphi1.nét

Indeed, it would be an improper judicial intrusion into the internal affairs of Filport were the Court to
determine the propriety or impropriety of the creation of offices therein and the grant of salary
increases to officers thereof. Such are corporate and/or business decisions which only the
corporation’s Board of Directors can determine.

So it is that in Philippine Stock Exchange, Inc. v. CA,21 the Court unequivocally held:

Questions of policy or of management are left solely to the honest decision of the board as the
business manager of the corporation, and the court is without authority to substitute its judgment for
that of the board, and as long as it acts in good faith and in the exercise of honest judgment in the
interest of the corporation, its orders are not reviewable by the courts.

In a last-ditch attempt to salvage their cause, petitioners assert that the CA went beyond the issues
raised in the court of origin when it ruled on the absence of receipt of actual payment of the
salaries/emoluments pertaining to the positions of Assistant Vice-President for Corporate Planning,
Special Assistant to the Board Chairman and Special Assistant to the President. Petitioners insist that
the issue of nonpayment was never raised by the respondents before the trial court, as in fact, the
latter allegedly admitted the same in their Answer With Counterclaim.

We are not persuaded.

By claiming that Filport suffered damages because the directors appointed to the assailed positions are
not doing anything to deserve their compensation, petitioners are saddled with the burden of proving
that salaries were actually paid. Since the trial court, in effect, found that the petitioners successfully
proved payment of the salaries when it directed the reimbursements of the same, respondents
necessarily have to raise the issue on appeal. And the CA rightly resolved the issue when it found that
no evidence of actual payment of the salaries in question was actually adduced. Respondents’ alleged
admission of the fact of payment cannot be inferred from a reading of the pertinent portions of the
parties’ respective initiatory pleadings. Respondents’ allegations in their Answer With Counterclaim
that the officers corresponding to the positions created "performed the work called for in their
positions" or "deserve their compensation," cannot be interpreted to mean that they were "actually
paid" such compensation. Directly put, the averment that "one deserves one’s compensation" does not
necessarily carry the implication that "such compensation was actually remitted or received." And
because payment was not duly proven, there is no evidentiary or factual basis for the trial court to
direct respondents to make reimbursements thereof to the corporation.

This brings us to the respondents’ claim that the case filed by the petitioners before the SEC, which
eventually landed in RTC-Davao City as Civil Case No. 28,552-2001, is not a derivative suit, as
maintained by the petitioners.

We sustain the petitioners.

Under the Corporation Code, where a corporation is an injured party, its power to sue is lodged with
its board of directors or trustees. But an individual stockholder may be permitted to institute a
derivative suit in behalf of the corporation in order to protect or vindicate corporate rights whenever
the officials of the corporation refuse to sue, or when a demand upon them to file the necessary action
would be futile because they are the ones to be sued, or because they hold control of the
corporation.22 In such actions, the corporation is the real party-in-interest while the suing stockholder,
in behalf of the corporation, is only a nominal party.23

Here, the action below is principally for damages resulting from alleged mismanagement of the affairs
of Filport by its directors/officers, it being alleged that the acts of mismanagement are detrimental to
the interests of Filport. Thus, the injury complained of primarily pertains to the corporation so that the
suit for relief should be by the corporation. However, since the ones to be sued are the
directors/officers of the corporation itself, a stockholder, like petitioner Cruz, may validly institute a
"derivative suit" to vindicate the alleged corporate injury, in which case Cruz is only a nominal party
while Filport is the real party-in-interest. For sure, in the prayer portion of petitioners’ petition before
the SEC, the reliefs prayed were asked to be made in favor of Filport.

Besides, the requisites before a derivative suit can be filed by a stockholder are present in this case,
to wit:
 a) the party bringing suit should be a shareholder as of the time of the act or transaction
complained of, the number of his shares not being material;

b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of
directors for the appropriate relief but the latter has failed or refused to heed his plea; and

c) the cause of action actually devolves on the corporation, the wrongdoing or harm having
been, or being caused to the corporation and not to the particular stockholder bringing the
suit.24

Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he sought without success to have its
board of directors remedy what he perceived as wrong when he wrote a letter requesting the board to
do the necessary action in his complaint; and (3) the alleged wrong was in truth a wrong against the
stockholders of the corporation generally, and not against Cruz or Minterbro, in particular. In the end,
it is Filport, not Cruz which directly stands to benefit from the suit. And while it is true that the
complaining stockholder must show to the satisfaction of the court that he has exhausted all the
means within his reach to attain within the corporation itself the redress for his grievances, or actions
in conformity to his wishes, nonetheless, where the corporation is under the complete control of the
principal defendants, as here, there is no necessity of making a demand upon the directors. The
reason is obvious: a demand upon the board to institute an action and prosecute the same effectively
would have been useless and an exercise in futility. In fine, we rule and so hold that the petition filed
with the SEC at the instance of Cruz, which ultimately found its way to the RTC of Davao City as Civil
Case No. 28,552-2001, is a derivative suit of which Cruz has the necessary legal standing to institute.

WHEREFORE, the petition is DENIED and the challenged decision of the CA is AFFIRMED in all
respects.

No pronouncement as to costs.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 108905 October 23, 1997

GRACE CHRISTIAN HIGH SCHOOL, petitioner,

vs.
THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN,
and ERNESTO L. GO, respondents.

MENDOZA, J.:

The question for decision in this case is the right of petitioner's representative to sit in the board of
directors of respondent Grace Village Association, Inc. as a permanent member thereof. For fifteen
years — from 1975 until 1989 — petitioner's representative had been recognized as a "permanent
director" of the association. But on February 13, 1990, petitioner received notice from the
association's committee on election that the latter was "reexamining" (actually, reconsidering) the
right of petitioner's representative to continue as an unelected member of the board. As the board
denied petitioner's request to be allowed representation without election, petitioner brought an action
for mandamus in the Home Insurance and Guaranty Corporation. Its action was dismissed by the
hearing officer whose decision was subsequently affirmed by the appeals board. Petitioner appealed to
the Court of Appeals, which in turn upheld the decision of the HIGC's appeals board. Hence this
petition for review based on the following contentions:

1. The Petitioner herein has already acquired a vested right to a permanent seat in the
Board of Directors of Grace Village Association;

2. The amended By-laws of the Association drafted and promulgated by a Committee

on December 20, 1975 is valid and binding; and

3. The Practice of tolerating the automatic inclusion of petitioner as a permanent

member of the Board of Directors of the Association without the benefit of election is
allowed under the law.1

Briefly stated, the facts are as follows:

Petitioner Grace Christian High School is an educational institution offering preparatory, kindergarten
and secondary courses at the Grace Village in Quezon City. Private respondent Grace Village
Association, Inc., on the other hand, is an organization of lot and/or building owners, lessees and
residents at Grace Village, while private respondents Alejandro G. Beltran and Ernesto L. Go were its
president and chairman of the committee on election, respectively, in 1990, when this suit was
brought.

As adopted in 1968, the by-laws of the association provided in Article IV, as follows:

The annual meeting of the members of the Association shall be held on the first
Sunday of January in each calendar year at the principal office of the Association at
2:00 P.M. where they shall elect by plurality vote and by secret balloting, the Board of
Directors, composed of eleven (11) members to serve for one (1) year until their
successors are duly elected and have qualified.2

It appears, that on December 20, 1975, a committee of the board of directors prepared a draft of an
amendment to the by-laws, reading as follows:3

VI. ANNUAL MEETING

The Annual Meeting of the members of the Association shall be held on the second
Thursday of January of each year. Each Charter or Associate Member of the
Association is entitled to vote. He shall be entitled to as many votes as he has
 acquired thru his monthly membership fees only computed on a ratio of TEN (P10.00)
PESOS for one vote.

The Charter and Associate Members shall elect the Directors of the Association. The
candidates receiving the first fourteen (14) highest number of votes shall be declared
and proclaimed elected until their successors are elected and qualified. GRACE
CHRISTIAN HIGH SCHOOL representative is a permanent Director of the
ASSOCIATION.

This draft was never presented to the general membership for approval. Nevertheless, from 1975,
after it was presumably submitted to the board, up to 1990, petitioner was given a permanent seat in
the board of directors of the association. On February 13, 1990, the association's committee on
election in a letter informed James Tan, principal of the school, that "it was the sentiment that all
directors should be elected by members of the association" because "to make a person or entity a
permanent Director would deprive the right of voters to vote for fifteen (15) members of the Board,"
and "it is undemocratic for a person or entity to hold office in perpetuity." 4 For this reason, Tan was
told that "the proposal to make the Grace Christian High School representative as a permanent
director of the association, although previously tolerated in the past elections should be reexamined."
Following this advice, notices were sent to the members of the association that the provision on
election of directors of the 1968 by-laws of the association would be observed.

Petitioner requested the chairman of the election committee to change the notice of election by
following the procedure in previous elections, claiming that the notice issued for the 1990 elections
ran "counter to the practice in previous years" and was "in violation of the by-laws (of 1975)" and
"unlawfully deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the
board." 5

As the association denied its request, the school brought suit for mandamus in the Home Insurance
and Guaranty Corporation to compel the board of directors of the association to recognize its right to a
permanent seat in the board. Petitioner based its claim on the following portion of the proposed
amendment which, it contended, had become part of the by-laws of the association as Article VI,
paragraph 2, thereof:

The Charter and Associate Members shall elect the Directors of the Association. The
candidates receiving the first fourteen (14) highest number of votes shall be declared
and proclaimed elected until their successors are elected and qualified. GRACE
CHRISTIAN HIGH SCHOOL representative is a permanent Director of the
ASSOCIATION.

It appears that the opinion of the Securities and Exchange Commission on the validity of this provision
was sought by the association and that in reply to the query, the SEC rendered an opinion to the
effect that the practice of allowing unelected members in the board was contrary to the existing by-
laws of the association and to §92 of the Corporation Code (B.P. Blg. 68).

Private respondent association cited the SEC opinion in its answer. Additionally, the association
contended that the basis of the petition for mandamus was merely "a proposed by-laws which has not
yet been approved by competent authority nor registered with the SEC or HIGC." It argued that "the
by-laws which was registered with the SEC on January 16, 1969 should be the prevailing by-laws of
the association and not the proposed amended by-laws."6

In reply, petitioner maintained that the "amended by-laws is valid and binding" and that the
association was estopped from questioning the by-laws. 7

A preliminary conference was held on March 29, 1990 but nothing substantial was agreed upon. The
parties merely agreed that the board of directors of the association should meet on April 17, 1990 and
April 24, 1990 for the purpose of discussing the amendment of the by-laws and a possible amicable
settlement of the case. A meeting was held on April 17, 1990, but the parties failed to reach an
agreement. Instead, the board adopted a resolution declaring the 1975 provision null and void for lack
of approval by members of the association and the 1968 by-laws to be effective.

On June 20, 1990, the hearing officer of the HIGC rendered a decision dismissing petitioner's action.
The hearing officer held that the amended by-laws, upon which petitioner based its claim, "[was]
merely a proposed by-laws which, although implemented in the past, had not yet been ratified by the
members of the association nor approved by competent authority"; that, on the contrary, in the
meeting held on April 17, 1990, the directors of the association declared "the proposed by-law dated
December 20, 1975 prepared by the committee on by-laws . . . null and void" and the by-laws of
December 17, 1968 as the "prevailing by-laws under which the association is to operate until such
time that the proposed amendments to the by-laws are approved and ratified by a majority of the
members of the association and duly filed and approved by the pertinent government agency." The
hearing officer rejected petitioner's contention that it had acquired a vested right to a permanent seat
in the board of directors. He held that past practice in election of directors could not give rise to a
vested right and that departure from such practice was justified because it deprived members of
association of their right to elect or to be voted in office, not to say that "allowing the automatic
inclusion of a member representative of petitioner as permanent director [was] contrary to law and
the registered by-laws of respondent association." 8

The appeals board of the HIGC affirmed the decision of the hearing officer in its resolution dated
September 13, 1990. It cited the opinion of the SEC based on §92 of the Corporation Code which
reads:

§92. Election and term of trustees. — Unless otherwise provided in the articles of
incorporation or the by-laws, the board of trustees of non-stock corporations, which
may be more than fifteen (15) in number as may be fixed in their articles of
incorporation or by-laws, shall, as soon as organized, so classify themselves that the
term of office of one-third (1/3) of the number shall expire every year; and
subsequent elections of trustees comprising one-third (1/3) of the board of trustees
shall be held annually and trustees so elected shall have a term of three (3) years.
Trustees thereafter elected to fill vacancies occurring before the expiration of a
particular term shall hold office only for the unexpired period.

The HIGC appeals board denied claims that the school "[was] being deprived of its right to be
a member of the Board of Directors of respondent association," because the fact was that "it
may nominate as many representatives to the Association's Board as it may deem
appropriate." It said that "what is merely being upheld is the act of the incumbent directors of
the Board of correcting a long standing practice which is not anchored upon any legal basis." 9

Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court on February
9, 1993, affirmed the decision of the HIGC. The Court of Appeals held that there was no valid
amendment of the association's by-laws because of failure to comply with the requirement of its
existing by-laws, prescribing the affirmative vote of the majority of the members of the association at
a regular or special meeting called for the adoption of amendment to the by-laws. Article XIX of the
by-laws provides: 10

The members of the Association by an affirmative vote of the majority at any regular
or special meeting called for the purpose, may alter, amend, change or adopt any new
by-laws.

This provision of the by-laws actually implements §22 of the Corporation Law (Act No. 1459) which
provides:

§22. The owners of a majority of the subscribed capital stock, or a majority of the
members if there be no capital stock, may, at a regular or special meeting duly called
for the purpose, amend or repeal any by-law or adopt new by-laws. The owners of
two-thirds of the subscribed capital stock, or two-thirds of the members if there be no
capital stock, may delegate to the board of directors the power to amend or repeal any
by-law or to adopt new by-laws: Provided, however, That any power delegated to the
board of directors to amend or repeal any by-law or adopt new by-laws shall be
considered as revoked whenever a majority of the stockholders or of the members of
the corporation shall so vote at a regular or special meeting. And provided, further,
That the Director of the Bureau of Commerce and Industry shall not hereafter file an
amendment to the by-laws of any bank, banking institution or building and loan
association, unless accompanied by certificate of the Bank Commissioner to the effect
that such amendments are in accordance with law.

The proposed amendment to the by-laws was never approved by the majority of the members of the
association as required by these provisions of the law and by-laws. But petitioner contends that the
members of the committee which prepared the proposed amendment were duly authorized to do so
and that because the members of the association thereafter implemented the provision for fifteen
years, the proposed amendment for all intents and purposes should be considered to have been
ratified by them. Petitioner contends: 11

Considering, therefore, that the "agents" or committee were duly authorized to draft
the amended by-laws and the acts done by the "agents" were in accordance with such
authority, the acts of the "agents" from the very beginning were lawful and binding on
the homeowners (the principals) per se without need of any ratification or adoption.
The more has the amended by-laws become binding on the homeowners when the
homeowners followed and implemented the provisions of the amended by-laws. This is
not merely tantamount to tacit ratification of the acts done by duly authorized
 "agents" but express approval and confirmation of what the "agents" did pursuant to
the authority granted to them.

Corollarily, petitioner claims that it has acquired a vested right to a permanent seat in the board. Says
petitioner:

The right of the petitioner to an automatic membership in the board of the Association
was granted by the members of the Association themselves and this grant has been
implemented by members of the board themselves all through the years. Outside the
present membership of the board, not a single member of the Association has
registered any desire to remove the right of herein petitioner to an automatic
membership in the board. If there is anybody who has the right to take away such
right of the petitioner, it would be the individual members of the Association through a
referendum and not the present board some of the members of which are motivated
by personal interest.

Petitioner disputes the ruling that the provision in question, giving petitioner's representative a
permanent seat in the board of the association, is contrary to law. Petitioner claims that that is
not so because there is really no provision of law prohibiting unelected members of boards of
directors of corporations. Referring to §92 of the present Corporation Code, petitioner says:

It is clear that the above provision of the Corporation Code only provides for the
manner of election of the members of the board of trustees of non-stock corporations
which may be more than fifteen in number and which manner of election is even
subject to what is provided in the articles of incorporation or by-laws of the association
thus showing that the above provisions [are] not even mandatory.

Even a careful perusal of the above provision of the Corporation Code would not show
that it prohibits a non-stock corporation or association from granting one of its
members a permanent seat in its board of directors or trustees. If there is no such
legal prohibition then it is allowable provided it is so provided in the Articles of
Incorporation or in the by-laws as in the instant case.

xxx xxx xxx

If fact, the truth is that this is allowed and is being practiced by some corporations
duly organized and existing under the laws of the Philippines.

One example is the Plus XII Catholic Center, Inc. Under the by-laws of this
corporation, that whoever is the Archbishop of Manila is considered a member of the
board of trustees without benefit of election. And not only that. He also automatically
sits as the Chairman of the Board of Trustees, again without need of any election.

Another concrete example is the Cardinal Santos Memorial Hospital, Inc. It is also
provided in the by-laws of this corporation that whoever is the Archbishop of Manila is
considered a member of the board of trustees year after year without benefit of any
election and he also sits automatically as the Chairman of the Board of Trustees.

It is actually §§28 and 29 of the Corporation Law — not §92 of the present law or §29 of the former
one — which require members of the boards of directors of corporations to be elected. These
provisions read:

§28. Unless otherwise provided in this Act, the corporate powers of all corporations
formed under this Act shall be exercised, all business conducted and all property of
such corporations controlled and held by a board of not less than five nor more than
eleven directors to be elected from among the holders of stock or, where there is no
stock, from the members of the corporation: Provided, however, That in corporations,
other than banks, in which the United States has or may have a vested interest,
pursuant to the powers granted or delegated by the Trading with the Enemy Act, as
amended, and similar Acts of Congress of the United States relating to the same
subject, or by Executive Order No. 9095 of the President of the United States, as
heretofore or hereafter amended, or both, the directors need not be elected from
among the holders of the stock, or, where there is no stock from the members of the
corporation. (emphasis added)

§29. At the meeting for the adoption of the original by-laws, or at such subsequent
meeting as may be then determined, directors shall be elected to hold their offices for
one year and until their successors are elected and qualified. Thereafter the directors
of the corporation shall be elected annually by the stockholders if it be a stock
 corporation or by the members if it be a nonstock corporation, and if no provision is
made in the by-laws for the time of election the same shall be held on the first
Tuesday after the first Monday in January. Unless otherwise provided in the by-laws,
two weeks' notice of the election of directors must be given by publication in some
newspaper of general circulation devoted to the publication of general news at the
place where the principal office of the corporation is established or located, and by
written notice deposited in the post-office, postage pre-paid, addressed to each
stockholder, or, if there be no stockholders, then to each member, at his last known
place of residence. If there be no newspaper published at the place where the principal
office of the corporation is established or located, a notice of the election of directors
shall be posted for a period of three weeks immediately preceding the election in at
least three public places, in the place where the principal office of the corporation is
established or located. (Emphasis added)

The present Corporation Code (B.P. Blg. 68), which took effect on May 1, 1980, 12 similarly provides:

§23. The Board of Directors or Trustees. — Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the holders of stocks, or
where there is no stock, from among the members of the corporation, who shall hold
office for one (1) year and until their successors are elected and qualified. (Emphasis
added)

These provisions of the former and present corporation law leave no room for doubt as to their
meaning: the board of directors of corporations must be elected from among the stockholders or
members. There may be corporations in which there are unelected members in the board but it is
clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e.,
by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no
reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to
such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in
1975 that a proposed amendment to the by-laws sought to give it one.

Since the provision in question is contrary to law, the fact that for fifteen years it has not been
questioned or challenged but, on the contrary, appears to have been implemented by the members of
the association cannot forestall a later challenge to its validity. Neither can it attain validity through
acquiescence because, if it is contrary to law, it is beyond the power of the members of the
association to waive its invalidity. For that matter the members of the association may have formally
adopted the provision in question, but their action would be of no avail because no provision of the by-
laws can be adopted if it is contrary to law. 13

It is probable that, in allowing petitioner's representative to sit on the board, the members of the
association were not aware that this was contrary to law. It should be noted that they did not actually
implement the provision in question except perhaps insofar as it increased the number of directors
from 11 to 15, but certainly not the allowance of petitioner's representative as an unelected member
of the board of directors. It is more accurate to say that the members merely tolerated petitioner's
representative and tolerance cannot be considered ratification.

Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no
matter how long continued, cannot give rise to any vested right if it is contrary to law. Even less
tenable is petitioner's claim that its right is "coterminus with the existence of the association." 14

Finally, petitioner questions the authority of the SEC to render an opinion on the validity of the
provision in question. It contends that jurisdiction over this case is exclusively vested in the HIGC.

But this case was not decided by the SEC but by the HIGC. The HIGC merely cited as authority for its
ruling the opinion of the SEC chairman. The HIGC could have cited any other authority for the view
that under the law members of the board of directors of a corporation must be elected and it would be
none the worse for doing so.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 117847 October 7, 1998

PEOPLE'S AIRCARGO AND WAREHOUSING CO. INC., petitioner,

vs.
COURT OF APPEALS and STEFANI SAÑO, respondents.

PANGANIBAN, J.:

Contracts entered into by a corporate president without express prior board approval bind the
corporation, when such officer's apparent authority is estabished and when these contracts are ratified
by the corporation.

The Case

This principle is stressed by the Court in rejecting the Petition for Review of the February 28, 1994
Decision and the October 28, 1994 Resolution of the Court of Appeals in CA-GR CV No. 30670.

In a collection case1 filed by Stefani Saño against People's Aircargo and Warehousing Co.,
Inc., the Regional Trial Court (RTC) of Pasay City, Branch 110, rendered a Decision2 dated
October 26, 1990, the dispositive portion of which reads: 3

WHEREFORE, in light of all the foregoing, Judgment is hereby rendered,

ordering [petitioner] to pay [private respondent] the amount of sixty
thousand (P60,000.00) pesos representing payment of [private respondents]
services in preparing the manual of operations and in the conduct of a
seminar for [petitioner]. The Counterclaim is hereby dismissed.

Aggrieved by what he considered a minuscule award of P60,000, private respondent

appealed to the Court of Appeals4 (CA) which, in its Decision promulgated February 28,
1994, granted his prayer for P400,000, as follows: 5

WHEREFORE, PREMISES CONSIDERED, the appealed judgment is hereby

MODIFIED in that [petitioner] is ordered to pay [private respondent] the
amount of four hundred thousand pesos (P400,000.00) representing payment
of [private respondent's] services in preparing the manual of operations and
in the conduct of a seminar for [petitioner].

As no new ground was raised by petitioner, reconsideration of the above-mentioned

Decision was denied in the Resolution promulgated on October 28, 1994.

The Facts

Petitioner is a domestic corporation, which was organized in the middle of 1986 to operate
a customs bonded warehouse at the old Manila International Airport in Pasay City.6

To obtain a license for the corporation from the Bureau of Customs, Antonio Punsalan Jr.,
the corporation president, solicited a proposal from private respondent for the preparation
of a feasibility study.7 Private respondent submitted a letter-proposal dated October 17,
1986 ("First Contract" hereafter) to Punsalan, which is reproduced hereunder: 8

Dear Mr. Punsalan:

With reference to your request for professional engineering consultancy

services for your proposed MIA Warehousing Project may we offer the
following outputs and the corresponding rate and terms of agreement:
 =======================================

Project Feasibility Study consisting of

Market Study

Technical Study

Financial Feasibility Study

Preparation of pertinent documentation requirements for the

application

_____________________________________________

The above services will be provided for a fee of [p]esos 350,000.00 payable
according to the following schedule:

==================================================
===

Fifty percent (50%) upon confirmation of the agreement

Twenty-five percent (25%) 15 days after the confirmation of the agreement

Twenty-five percent (25%) upon submission of the specified outputs

The outputs will be completed and submitted within 30 days upon

confirmation of the agreement and receipt by us of the first fifty percent
payment.

---------------------------------------------------------------------------------

Thank you.

Yours truly, CONFORME:

(S)STEFANI C. SAÑO (S)ANTONIO C. PUNSALAN, JR.

(T)STEFANI C. SAÑO (T)ANTONIO C. PUNSALAN, JR.

Consultant for President, PAIRCARGO

Industrial Engineering

Initially, Cheng Yong, the majority stockholder of petitioner, objected to private

respondent's offer, as another company priced a similar proposal at only P15,000.9
However, Punsalan preferred private respondent's service because of the latter's
membership in the task force, which was supervising the transition of the Bureau of
Customs from the Marcos government to the Aquino administration. 10

On October 17, 1986, pertitioner, through Punsalan, sent private respondent a letter,
confirming their agreement as follows:

Dear Mr. Saño:

With regard to the services offered by your company in your letter dated 13
October 1986, for the preparation of the necessary study and documentations
to support our Application for Authority to Operate a public Customs Bonded
Warehouse located at the old MIA Compound in Pasay City, please be
informed that our company is willing to hire your services and will pay the
amount of THREE HUNDRED FIFTY THOUSAND PESOS (P350,000.00) as
follows:

P100,000.00 — uppon signing of the agreement;

 150,000.00 — on or before October 31, 1986, with the favorable
Recommendation of the CBW on our application.

100,000.00 — upon receipt of the study in final form.

Very
truly
yours,

(S)AN
TONIO
C.
PUNSA
LAN

(T)AN
TONIO
C.
PUNSA
LAN

CONFORME & RECEIVED from PAIRCARGO, the

amount of ONE HUNDRED THOUSAND PESOS

(P100,000.00), this 17th day of October, 1986

as 1st Installment payment of the service agreement

dated October 13, 1986.

(S)STEFANI C. SAÑO

(T)STEFANI C. SAÑO

Accordingly, private respondent prepared a feasibility study for petitioner which eventually
paid him the balance of the contract price, although not according to the schedule agreed
upon. 11

On December 4, 1986, upon Punsalan's request, private respondent sent petitioner another
letter-proposal ("Second Contract" hereafter), which reads:

People's Air Cargo & Warehousing Co., Inc.

Old MIA Compound, Metro Manila

Attention: Mr. ANTONIO PUN[S]ALAN, JR.

President

Dear Mr. Pun[s]alan:

This is to formalize our proposal for consultancy services to your company

the scope of which is defined in the attached service description.
 The total service you have decided to avail . . . would be available upon
signing of the conforme below and would come [in] the amount of FOUR
HUNDRED THOUSAND PESOS (P400,000.00) payable at the schedule defined
as follows (with the balance covered by post-dated cheques):

Downpayment upon signing conforme P80,000.00

15 January 1987 53,333.00

30 January 1987 53,333.00

15 February 1987 53,333.00

28 February 1987 53,333.00

15 March1987 53,333.00

30 March 1987 53,333.00

With is package, you are assured of the highest service quality as our
performance record shows we always deliver no less.

Thank you very much.

Yours truly,

(S)STEFANI C. SAÑO

(T)STEFANI C. SAÑO

Industrial Engineering Consultant

CONFORME:

(S)ANTONIO C. PUNSALAN JR.

(T)PAIRCARGO CO. INC.

During the trial, the lower court observed that the Second Contract bore, at the lower right
portion of the letter, the following notations in pencil:

1. Operations Manual

2. Seminar/workshop for your employees

P400,000 — package deal

50% upon completion of seminar/workshop

50% upon approval by the Commissioner

The Manual has already been approved by the Commissioner but payment has
not yet been made.

The lower left corner of the letter also contained the following notations:

1st letter — 4 Dec. 1986

2nd letter — 15 June 1987 with

"Hinanakit".

On January 10, 1987, Andy Villaceren, vice president of petitioner, received the operations
manual prepared by private respondent. 12 Petitioner submitted said operations manual to
the Bureau of Customs is connection with the former's application to operate a bonded
warehouse; thereafter, in May 1987, the Bureau issued to it a license to operate, enabling it
to become one of the three public bonded warehouses at the international airport. 13
Private respondent also conducted, in the third week of January 1987 in the warehouse of
petitioner, a three-day training seminar for the latter's employees. 14

On March 25, 1987, private respondent joined the Bureau of Customs as special assistant to
then Commissioner Alex Padilla, a position he held until he became technical assitant to
then Commissioner Miriam Defensor-Santiago on March 7, 1988. 15 Meanwhile, Punsalan
sold his shares in petitioner-corporation and resigned as its president in 1987. 16

On February 9, 1988, private respondent filed a collection suit against petitioner. He allege
that he had prepared an operations manual for petitioner, conducted a seminar-workshop
for its employees and delivered to it a computer program; but that, despite demand,
petitioner refused to pay him for his services.

Petitioner, in its answer, denied that private respondent had prepared an operations
manual and a computer program or conducted a seminar-workshop for its employees. It
further alleged that the letter-agreement was signed by Punsalan without authority, "in
collusion with [private respondent] in order to unlawfully get some money from
[petitioner]," and despite his knowledge that a group of employees of the company had
been commissioned by the board of directors to prepare an operations manual. 17

The trial court declared the Second Contract unenforceable or simulated. However, since
private respondent had actually prepared the operations manual and conducted a training
seminar for petitioner and its employees, the trial court awarded P60,000 to the former, on
the ground that no one should be unjustly enriched at the expense of another (Article 2142,
Civil Code). The trial court determined the amount "in light of the evidence presented by
defendant on the usual charges made by a leading consultancy firm on similar services." 18

The Ruling of the Court of Appeals

To Respondent Court, the pivotal issue of private respondent's appeal was the
enforceability of the Second Contract. It noted that petitioner did not appeal the Decision of
the trial court, implying that it had agreed to pay the P60,000 award. If the contract was
valid and enforceable, then petitioner should be held liable for the full amount stated
therein, not P60,000 as held by the lower court.

Rejecting the finding of the trial court that the December 4, 1986 contract was simulated or
unenforceable, the CA ruled in favor of its validity and enforceability. According to the Court
of Appeals, the evidence on record shows that the president of petititoner-corporation had
entered into the First Contract, which was similar to the Second Contract. Thus, petitioner
had clothed its president with apparent authority to enter into the disputed agreement. As
it had also become the practice of the petitioner-corporation to allow its president to
negotiate and execute contracts necessary to secure its license as a customs bonded
warehouse without prior board approval, the board itself, by its acts and through
acquiescence, practically laid aside the normal requirement of prior express approval. The
Second Contract was declared valid and binding on the petitioner, which was held liable to
private respondent in the full amount of P400,000.

Disagreeing with the CA, petitioner lodged this petition before us. 19

The Issues

Instead of alleging reversible errors, petitioner imputes "grave abuse of discretion" to the
Court of Appeals, viz.: 20

I. . . . [I]n ruling that the subject letter-agreement for services was binding
on the corporation simply because it was entered into by its president[;]

II. . . . [I]n ruling that the subject letter-agreement for services was binding
on the corporation notwithstanding the lack of any board authority since it
was the purported "practice" to allow the president to enter into contracts of
said nature (citing one previous instance of a similar contract)[;] and

III. . . . [I]n ruling that the subject letter-agreement for services was a valid
contract and not merely simulated.
The Court will overlook the lapse of petitioner in alleging grave abuse of discretion as its
ground for seeking reversal of the assailed Decision. Although the Rules of Court specify
"reversible errors" as grounds for a petition for review under Rule 45, the Court will lay
aside for the nonce this procedural lapse and consider the allegations of "grave abuse" as
statements of reversible errors of law.

Petitioner does not contest its liability; it merely disputes the amount of such
accountability. Hence, the resolution of this petition rests on the sole issue of the
enforceability and validity of the Second Contract, more specifically: (1) whether the
president of the petitioner-corporation had apparent authority to bind petitioner to the
Second Contract; and (2) whether the said contract was valid and not merely simulated.

The Court's Ruling

The petition is not meritorious.

First Issue:

Apparent Authority of a Corporate President

Petitioner argues that the disputed contract is unenforceable, because Punsalan, its
president, was not authorized by its board of directors to enter into said contract.

The general rule is that, in the absence of authority from the board of directors, no person,
not even its officers, can validly bind a corporation. 21 A corporation is a juridical person,
separate and distinct from its stockholders and members, "having . . . powers, attributes
and properties expressly authorized by law or incident to its existence." 22

Being a juridical entity, a corporation may board of directors, which exercises almost all
corporate powers, lays down all corporate business policies and is responsible for the
efficiency of management, 23 as provided in Section 23 of the Corporation Code of the
Philippines:

Sec. 23. The Board of Directors or Trustees. — Unless otherwise provided in

this Code, the corporate powers of all corporations formed under this Code
shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees . . . .

Under this provision, the power and the responsibility to decide whether the corporation
should enter into a contract that will bind the corporation is lodged in the board, subject to
the articles of incorporaration, bylaws, or relevant provisions of law. 24 Howeever, just as a
natural person may authorize another to do certain acts for and on his behalf, the board of
directors may validly delegate some of its functions and powers to officers, committees or
agents. The authority of such individuals to bind the corporation is generally derived from
law, corporate bylaws or authorization from the board, either expressly or impliedly by
habit, custom or acquiescence in the general course of business, viz.: 25

A corporate officer or agent may represent and bind the corporation in

transactions with third persons to the extent that [the] authority to do so has
been conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual course of the
particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually
pertaining to the particular officer or agent, and such apparent powers as the
corporation has caused persons dealing with the officer or agent to believe
that it has conferred.

Accordingly, the appellate court ruled in this case that the authority to act for and to bind a
corporation may be presumed from acts of recognition in other instances, wherein the
power was in fact exercised without any objection from its board or shareholders.
Petitioner had previously allowed its president to enter into the First Contract with private
respondent without a board resolution expressly authorizing him; thus, it had clothed its
president with apparent authority to execute the subject contract.

Petitioner rebuts, arguing that a single isolated agreement prior to the subject contract
does not constitute corporate practice, which Webster defines as "frequent or custmary
action." It cites Board of Liquidators v. Kalaw, 26 in which the practice of NACOCO allowing
its general manager to negotiate and execute contract in its copra trading activities for and
on its behalf, without prior board approval, was inferred from sixty contract — not one, as
in present case — previously entered into by the corporation without such board resolution.

Petitioner's argument is not persuasive. Apparent authority is derived not merely from
practice. Its existence may be ascertained through (1) the general manner in which the
corporation holds out an officer or agent as having the power to act or, in other words, the
apparent authority to act in general, with which it clothes him; or (2) the acquiescence in
his acts of a particular nature, with actual or constructive knowledge thereof, whether
within or beyond the scope of his ordinary powers.27 It requires presentation of evidence
of similar act(s) executed either in its favor or in favor of other parties. 28 It is not the
quantity of similar acts which establishes apparent authority, but the vesting of a corporale
officer with the power to bind the corporation.

In the case at bar, petitioner, through its president Antonio Punsalan Jr., entered into the
First Contract without first securing board approval. Despite such lack of board approval,
petitioner did not object to or repudiate said contract, thus "clothing" its president with the
power to bind the corporation. The grant of apparent authority to Punsalan is evident in the
testimony of Yong — senior vice president, treasurer and major stockholder of petitioner.
Testifying on the First Contract, he said: 29

A: Mr. [Punsalan] told me that he prefer[s] Mr. Saño because

Mr. Saño is very influential with the Collector of Customs[s].
Because the Collector of Custom[s] will be the one to approve
our project study and I objected to that, sir. And I said it [was
an exorbitant] price. And Mr. Punsalan he is the [p]resident, so
he [gets] his way.

Q: And so did the company eventually pay this P350,000.00 to

Mr. Saño?

A: Yes, sir.

The First Contract was consummated, implemented and paid without a hitch.

Hence, private respondent should not be faulted for believing that Punsalan's conformity to
the contract in dispute was also binding on petitioner. It is familiar doctrine that if a
corporation knowingly permits one of its officers, or any other agent, to act within the
scope of an apparent authority, it holds him out to the public as possessing the power to do
those acts; and thus, the corporation will, as against anyone who has in good faith dealt
with it through such agent, be estopped from denying the agent's authority. 30

Furthermore, private respondent prepared an operations manual and conducted a seminar

for the employees of petitioner in accordance with their contract. Petitioner accepted the
operations manual, submitted it to the Bureau of Customs and allowed the seminar for its
employees. As a result of its aforementioned actions, petitioner was given by the Bureau of
Customs a license to operate a bonded warehouse. Granting arguendo then that the Second
Contract was outside the usual powers of the president, petitioner's ratification of said
contract and acceptance of benefits have made it binding, nonetheless. The enforceability
of contracts under Article 1403(2) is ratified "by the acceptance of benefits under them"
under Article 1405.

Inasmuch as a corporate president is often given general supervision and control over
corporate operations, the strict rule that said officer has no inherent power to act for the
corporation is slowly giving way to the realization that such officer has certain limited
powers in the transaction of the usual and ordinary business of the corporation. 31 In the
absence of a charter or bylaw provision to the contrary, the president is presumed to have
the authority to act within the domain of the general objectives of its business and within
the scope of his or her usual duties. 32

Hence, it has been held in other jurisdictions that the president of a corporation possesses
the power to enter into a contract for the corporation, when the "conduct on the part of
both the president and the corporation [shows] that he had been in the habit of acting in
similar matters on behalf of the company and that the company had authorized him so to
act and had recognized, approved and ratified his former and similar actions." 33
Furthermore, a party dealing with the president of a corporation is entitled to assume that
he has the authority to enter, on behalf of the corporation, into contracts that are within the
scope of the powers of said corporation and that do not violate any statute or rule on public
policy. 34
 Second Issue:
Alleged Simulation of the First Contract

As an alternative position, petitioner seeks to pare down its liabilities by limiting its
exposure from P400,000 to only P60,000, the amount awarded by the RTC. Petitioner
capitalizes on the "badges of fraud" cited by the trial court in declaring said contract either
simulated or unenforceable, viz.:

. . . The October 1986 transaction with [private respondent] involved

P350,000. The same was embodied in a letter which bore therein not only the
conformity of [petitioner's] then President Punsalan but also drew a letter-
confirmation from the latter for, indeed, he was clothed with authority to
enter into the contract after the same was brought to the attention and
consideration of [petitioner]. Not only that, a [down payment] was made. In
the alleged agreement of December 4, 1986 subject of the present case, the
amount is even bigger - P400,000.00. Yet, the alleged letter-agreement drew
no letter of confirmation. And no [down payment] and postdated checks were
given. Until the filing of the present case in February 1988, no written
demand for payment was sent to [petitioner]. [Private respondent's] claim
that he sent one in writing, and one was sent by his counsel who manifested
that "[h]e was looking for a copy in [his] files" fails in light of his failure to
present any such copy. These and the following considerations, to wit:

1) Despite the fact that no [down payment] and/or postdated checks [partial
payments] (as purportedly stipulated in the alleged contract) [was given,
private respondent] went ahead with the services[;]

2) [There was a delay in the filing of the present suit, more than a year after
[private respondent] allegedly completed his services or eight months after
the alleged last verbal demand for payment made on Punsalan in June 1987;

3) Does not Punsalan's writing allegedly in June 1987 on the alleged letter-
agreement of "your employees[,]" when it should have been "our
employees", as he was then still connected with [petitioner], indicate that
the letter-agreement was signed by Punsalan when he was no longer
connected with [petitioner] or, as claimed by [petitioner], that Punsalan
signed it without [petitioner's] authority and must have been done "in
collusion with plaintiff in order to unlawfully get some money from
[petitioner]?

4) If, as [private respondent] claims, the letter was returned by Punsalan

after affixing thereon his conformity, how come . . . when Punsalan allegedly
visited [private respondent] in his office at the Bureau of Customs, in June
1987, Punsalan "brought" (again?) the letter (with the pencil [notation] at
the left bottom portion allegedly already written)?

5) How come . . . [private respondent] did not even keep a copy of the
alleged service contract allegedly attached to the letter-agreement?

6) Was not the letter-agreement a mere draft, it bearing the corrections

made by Punsalan of his name (the letter "n" is inserted before the last letter
"o" in Antonio) and of the spelling of his family name (Punsalan, not
Punzalan)?

7) Why was not Punsalan impleaded in the case?

The issue of whether the contract is simulated or real is factual in nature, and the Court
eschews factual examinanon in a petition for review under Rule 45 of the Rules of Court. 35
This rule, however, admits of exceptions, one of which is a conflict between the factual
findings of the lower and of the appellate courts 36 as in the case at bar.

After judicious deliberation, the Court agrees with the appellate court that the alleged
"badges of fraud" mentioned earlier have not affected in any manner the perfection thereof.
First, the lack of payment (whether down, partial or full payment), even after completion of
private respondent's obligations, imports only a defect in the performance of the contract
on the part of petitioner. Second, the delay in the filing of action was not fatal to private
respondent's cause. Despite the lapse of one year after private respondent completed his
services or eight months after the alleged last demand for payment in June 1987, the action
was still filed within the allowable period, considering that an action based on a written
contract prescribes only after ten years from the time the right of action accrues. 37 Third,
a misspelling in the contract does not establish vitiation of consent, cause or object of the
contract. Fourth, a confirmation letter is not an essential element of a contract, neither is it
necessary to perfect one. Fifth, private respondent's failure to implead the corporate
president does not establish collusion between them. Petitioner could have easily filed a
third-party claim against Punsalan if it believed that it had recourse against the latter.
Lastly, the mere fact that the contract price was six times the alleged going rate does not
invalidate it. 38 In short, these "badges" do not establish simulation of said contract.

A fictitious and simulated agreement lacks consent which is essential to a valid and
enforceable contract. 39 A contract is simulated if the parties do not intend to be bound at
all (absolutely simulated), 40 or if the parties conceal their true agreement (relatively
simulated).41 In the case at bar, petitioner received from private respondent a letter-offer
containing the terms of the former, including a stipulation of the consideration for the
latter's services. Punsalan's conformity, as well as the receipt and use of the operations
manual, shows petitioner's consent to or, at the very least, ratification of the contract. To
repeat, petitioner even submitted the manual to the Bureau of Customs and allowed private
respondent to conduct the seminar for its employees. Private respondent heard no
objection from the petitioner, until he claimed payment for the services he had rendered.

Contemporaneous and subsequent acts are also principal factors in the determination of the
will of the contracting parties. 42 The circumstances outlined above do not establish any
intention to simulate the contract in dispute. On the contrary, the legal presumption is
always on the validity of contracts. A corporation, by accepting benefits of a transaction
entered into without authority, has ratified the agreement and is, therefore, bound by it. 43

WHEREFORE, the petition is hereby DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.

SO ORDERED.