corpo case 3

8/9/2019 Corpo Case 3

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[G.R. No. 108905. October 23, 1997]

GRACE CHRISTIAN HIGH SCHOOL, petitioner, vs. THE CORT O! A""EALS, GRACE #ILLAGEASSOCIATION, INC., ALE$AN%RO G. &ELTRAN, '() ERNESTO L. GO, respondents.

% E C I S I O N

*EN%O+A, 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 fifteenyears from !"#$ until !"%" petitioner’s representative had been recogni&ed as a 'permanent

director( of the association. )ut on February !*, !""+, petitioner received notice from the association’scommittee on election that the latter as 'ree-amining( actually, reconsidering/ the right of petitioner’srepresentative to continue as an unelected member of the board. As the board denied petitioner’srequest to be alloed representation ithout election, petitioner brought an action for mandamus inthe 0ome Insurance and Guaranty 1orporation. Its action as dismissed by the hearing officer hosedecision as subsequently affirmed by the appeals board. 2etitioner appealed to the 1ourt of

Appeals, hich in turn upheld the decision of the 0IG1’s appeals board. 0ence this petition for reviebased on the folloing contentions3

!. The 2etitioner herein has already acquired a vested right to a permanent seat in the )oard of4irectors of Grace Village Association5

6. The amended )y7las of the Association drafted and promulgated by a 1ommittee on 4ecember

6+, !"#$ is valid and binding5 and*. The 2ractice of tolerating the automatic inclusion of petitioner as a permanent member of the )oardof 4irectors of the Association ithout the benefit of election is alloed under the la.8!9

)riefly stated, the facts are as follos3

2etitioner Grace 1hristian 0igh :chool is an educational institution offering preparatory,;indergarten and secondary courses at the Grace Village in <ue&on 1ity. 2rivate respondent GraceVillage Association, Inc., on the other hand, is an organi&ation of lot and=or building oners, lesseesand residents at Grace Village, hile private respondents Ale>andro G. )eltran and ?rnesto @. Goere its president and chairman of the committee on election, respectively, in !""+, hen this suit asbrought.

As adopted in !"%, the by7las of the association provided in Article IV, as follos3

The annual meeting of the members of the Association shall be held on the first :unday of Banuary ineach calendar year at the principal office of the Association at 63++ 2.C. here they shall elect byplurality vote and by secret balloting, the )oard of 4irectors, composed of eleven !!/ members toserve for one !/ year until their successors are duly elected and have qualified.869

It appears, that on 4ecember 6+, !"#$, a committee of the board of directors prepared a draft of an amendment to the by7las, reading as follos38*9

http://sc.judiciary.gov.ph/jurisprudence/1997/oct1997/108905.htm#_edn1








#I. ANNAL *EETING

The Annual Ceeting of the members of the Association shall be held on the second Thursday ofBanuary of each year. ?ach 1harter or Associate Cember of the Association is entitled to vote. 0eshall be entitled to as many votes as he has acquired thru his monthly membership feesonly computed on a ratio of T?D 2 !+.++/ 2?:E: for one vote.

The 1harter and Associate Cembers shall elect the 4irectors of the Association. The candidatesreceiving the first fourteen !/ highest number of votes shall be declared and proclaimed elected untiltheir successors are elected and qualified. GA1? 10I:TIAD 0IG0 :10EE@ representative is apermanent 4irector of the A::E1IATIED.

This draft as never presented to the general membership for approval. Devertheless, from!"#$, after it as presumably submitted to the board, up to !""+, petitioner as given a permanentseat in the board of directors of the association. En February !*, !""+, the association’s committeeon election in a letter informed Bames Tan, principal of the school, that 'it as the sentiment that alldirectors should be elected by members of the association( because 'to ma;e a person or entity apermanent 4irector ould deprive the right of voters to vote for fifteen !$/ members of the )oard,(and 'it is undemocratic for a person or entity to hold office in perpetuity.( 89 For this reason, Tan as

told that 'the proposal to ma;e the Grace 1hristian 0igh :chool representative as a permanentdirector of the association, although previously tolerated in the past elections should be ree-amined.(Folloing this advice, notices ere sent to the members of the association that the provision onelection of directors of the !"% by7las of the association ould be observed.

2etitioner requested the chairman of the election committee to change the notice of election byfolloing the procedure in previous elections, claiming that the notice issued for the !""+ elections ran'counter to the practice in previous years( and as 'in violation of the by7las of !"#$/( and'unlafully deprive8d9 Grace 1hristian 0igh :chool of its vested right 8to9 a permanent seat in theboard.(8$9

As the association denied its request, the school brought suit for mandamus in the 0ome

Insurance and Guaranty 1orporation to compel the board of directors of the association to recogni&eits right to a permanent seat in the board. 2etitioner based its claim on the folloing portion of theproposed amendment hich, it contended, had become part of the by7las of the association as

Article VI, paragraph 6, thereof3

The 1harter and Associate Cembers shall elect the 4irectors of the Association. The candidatesreceiving the first fourteen !/ highest number of votes shall be declared and proclaimed elected untiltheir successors are elected and qualified. GA1? 10I:TIAD 0IG0 :10EE@ representative is apermanent 4irector of the A::E1IATIED.

It appears that the opinion of the :ecurities and ?-change 1ommission on the validity of thisprovision as sought by the association and that in reply to the query, the :?1 rendered an opinion to

the effect that the practice of alloing unelected members in the board as contrary to the e-isting by7las of the association and to H"6 of the 1orporation 1ode ).2. )lg. %/.

2rivate respondent association cited the :?1 opinion in its anser. Additionally, the associationcontended that the basis of the petition for mandamus as merely 'a proposed by7las hich has notyet been approved by competent authority nor registered ith the :?1 or 0IG1.( It argued that 'theby7las hich as registered ith the :?1 on Banuary !, !"" should be the prevailing by7las of the association and not the proposed amended by7las.(89

In reply, petitioner maintained that the 'amended by7las is valid and binding( and that the









association as estopped from questioning the by7las.8#9

A preliminary conference as held on Carch 6", !""+ but nothing substantial as agreedupon. The parties merely agreed that the board of directors of the association should meet on April!#, !""+ and April 6, !""+ for the purpose of discussing the amendment of the by7las and apossible amicable settlement of the case. A meeting as held on April !#, !""+, but the parties failedto reach an agreement. Instead, the board adopted a resolution declaring the !"#$ provision null and

void for lac; of approval by members of the association and the !"% by7las to be effective.

En Bune 6+, !""+, the hearing officer of the 0IG1 rendered a decision dismissing petitioner’saction. The hearing officer held that the amended by7las, upon hich petitioner based its claim,'8as9 merely a proposed by7las hich, although implemented in the past, had not yet been ratifiedby the members of the association nor approved by competent authority(5 that, on the contrary, in themeeting held on April !#, !""+, the directors of the association declared 'the proposed by7la dated4ecember 6+, !"#$ prepared by the committee on by7las . . . null and void( and the by7las of 4ecember !#, !"% as the 'prevailing by7las under hich the association is to operate until suchtime that the proposed amendments to the by7las are approved and ratified by a ma>ority of themembers of the association and duly filed and approved by the pertinent government agency.( Thehearing officer re>ected petitioner’s contention that it had acquired a vested right to a permanent seat

in the board of directors. 0e held that past practice in election of directors could not give rise to avested right and that departure from such practice as >ustified because it deprived members of association of their right to elect or to be voted in office, not to say that 'alloing the automaticinclusion of a member representative of petitioner as permanent director 8as9 contrary to la and theregistered by7las of respondent association.(8%9

The appeals board of the 0IG1 affirmed the decision of the hearing officer in its resolution dated:eptember !*, !""+. It cited the opinion of the :?1 based on H"6 of the 1orporation 1ode hichreads3

H"6. Election and term of trustees. 7 nless otherise provided in the articles of incorporation or theby7las, the board of trustees of non7stoc; corporations, hich may be more than fifteen !$/ in

number as may be fi-ed in their articles of incorporation or by7las, shall, as soon as organi&ed, soclassify themselves that the term of office of one7third !=*/ of the number shall e-pire every year5 andsubsequent elections of trustees comprising one7third !=*/ of the board of trustees shall be heldannually and trustees so elected shall have a term of three */ years. Trustees thereafter elected to fillvacancies occurring before the e-piration of a particular term shall hold office only for the une-piredperiod.

The 0IG1 appeals board denied claims that the school '8as9 being deprived of its right to be amember of the )oard of 4irectors of respondent association,( because the fact as that 'it maynominate as many representatives to the Association’s )oard as it may deem appropriate.( It said that'hat is merely being upheld is the act of the incumbent directors of the )oard of correcting a longstanding practice hich is not anchored upon any legal basis.(8"9

2etitioner appealed to the 1ourt of Appeals but petitioner again lost as the appellate court onFebruary ", !""*, affirmed the decision of the 0IG1. The 1ourt of Appeals held that there as novalid amendment of the association’s by7las because of failure to comply ith the requirement of itse-isting by7las, prescribing the affirmative vote of the ma>ority of the members of the association at aregular or special meeting called for the adoption of amendment to the by7las. Article JIJ of the by7las provides38!+9

The members of the Association by an affirmative vote of the ma>ority at any regular or specialmeeting called for the purpose, may alter, amend, change or adopt any ne by7las.











This provision of the by7las actually implements H66 of the 1orporation @a Act Do. !$"/hich provides3

H66. The oners of a ma>ority of the subscribed capital stoc;, or a ma>ority of the members if there beno capital stoc;, may, at a regular or special meeting duly called for the purpose, amend or repeal anyby7la or adopt ne by7las. The oners of to7thirds of the subscribed capital stoc;, or to7thirds of the members if there be no capital stoc;, may delegate to the board of directors the poer to amendor repeal any by7la or to adopt ne by7las3 Provided, however , That any poer delegated to theboard of directors to amend or repeal any by7la or adopt ne by7las shall be considered as revo;edhenever a ma>ority of the stoc;holders or of the members of the corporation shall so vote at a regular or special meeting. And provided, further , That the 4irector of the )ureau of 1ommerce and Industryshall not hereafter file an amendment to the by7las of any ban;, ban;ing institution or building andloan association, unless accompanied by certificate of the )an; 1ommissioner to the effect that suchamendments are in accordance ith la.

The proposed amendment to the by7las as never approved by the ma>ority of the members of the association as required by these provisions of the la and by7las. )ut petitioner contends thatthe members of the committee hich prepared the proposed amendment ere duly authori&ed to doso and that because the members of the association thereafter implemented the provision for fifteenyears, the proposed amendment for all intents and purposes should be considered to have beenratified by them. 2etitioner contends38!!9

1onsidering, therefore, that the 'agents( or committee ere duly authori&ed to draft the amended by7las and the acts done by the 'agents( ere in accordance ith such authority, the acts of the'agents( from the very beginning ere laful and binding on the homeoners the principals/ perseithout need of any ratification or adoption. The more has the amended by7las become bindingon the homeoners hen the homeoners folloed and implemented the provisions of the amendedby7las. This is not merely tantamount to tacit ratification of the acts done by duly authori&ed 'agents(but e-press approval and confirmation of hat the 'agents( did pursuant to the authority granted tothem.

1orollarily, petitioner claims that it has acquired a vested right to a permanent seat in the board.

:ays petitioner3

The right of the petitioner to an automatic membership in the board of the Association as granted bythe members of the Association themselves and this grant has been implemented by members of theboard themselves all through the years. Eutside the present membership of the board, not a singlemember of the Association has registered any desire to remove the right of herein petitioner to anautomatic membership in the board. If there is anybody ho has the right to ta;e aay such right ofthe petitioner, it ould be the individual members of the Association through a referendum and not thepresent board some of the members of hich are motivated by personal interest.

2etitioner disputes the ruling that the provision in question, giving petitioner’s representative apermanent seat in the board of the association, is contrary to la. 2etitioner claims that that is not sobecause there is really no provision of la prohibiting unelected members of boards of directors of corporations. eferring to H"6 of the present 1orporation 1ode, petitioner says3

It is clear that the above provision of the 1orporation 1ode only provides for the manner of election ofthe members of the board of trustees of non7stoc; corporations hich may be more than fifteen innumber and hich manner of election is even sub>ect to hat is provided in the articles ofincorporation or by7las of the association thus shoing that the above provisions 8are9 not evenmandatory.

?ven a careful perusal of the above provision of the 1orporation 1ode ould not sho that it prohibitsa non7stoc; 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 alloable provided it is soprovided in the Articles of Incorporation or in the by7las as in the instant case.

. . . .

If fact, the truth is that this is alloed and is being practiced by some corporations duly organi&ed ande-isting under the las of the 2hilippines.

Ene e-ample is the 2ius JII 1atholic 1enter, Inc. nder the by7las of this corporation, that hoeveris the Archbishop of Canila is considered a member of the board of trustees ithout benefit ofelection. And not only that. 0e also automatically sits as the 1hairman of the )oard of Trustees, againithout need of any election.

Another concrete e-ample is the 1ardinal :antos Cemorial 0ospital, Inc. It is also provided in the by7las of this corporation that hoever is the Archbishop of Canila is considered a member of the boardof trustees year after year ithout benefit of any election and he also sits automatically as the1hairman of the )oard of Trustees.

It is actually HH6% and 6" of the 1orporation @a K not H"6 of the present la or H6" of theformer one K hich require members of the boards of directors of corporations to be elected. Theseprovisions read3

H6%. nless otherise provided in this Act, the corporate poers of all corporations formed under this Act shall be e-ercised, all business conducted and all property of such corporations controlled andheld by a board of not less than five nor more than eleven directors to be elected from among theholders of stoc; or, here there is no stoc;, from the members of the corporation3 Provided, however ,That in corporations, other than ban;s, in hich the nited :tates has or may have a vested interest,pursuant to the poers granted or delegated by the Trading ith the ?nemy Act, as amended, andsimilar Acts of 1ongress of the nited :tates relating to the same sub>ect, or by ?-ecutive Erder Do."+"$ of the 2resident of the nited :tates, as heretofore or hereafter amended, or both, the directorsneed not be elected from among the holders of the stoc;, or, here there is no stoc; from themembers of the corporation. emphasis added/

H6". At the meeting for the adoption of the original by7las, or at such subsequent meeting as may be

then determined, directors shall be elected to hold their offices for one year and until their successorsare elected and qualified. Thereafter the directors of the corporation shall be elected annually by thestoc;holders if it be a stoc; corporation or by the members if it be a nonstoc; corporation, and if noprovision is made in the by7las for the time of election the same shall be held on the first Tuesdayafter the first Conday in Banuary. nless otherise provided in the by7las, to ee;s’ notice of theelection of directors must be given by publication in some nespaper of general circulation devoted tothe publication of general nes at the place here the principal office of the corporation is establishedor located, and by ritten notice deposited in the post7office, postage pre7paid, addressed to eachstoc;holder, or, if there be no stoc;holders, then to each member, at his last ;non place of residence.If there be no nespaper published at the place here the principal office of the corporation isestablished or located, a notice of the election of directors shall be posted for a period of three ee;simmediately preceding the election in at least three public places, in the place here the principal

office of the corporation is established or located. ?mphasis added/

The present 1orporation 1ode ).2. )lg. %/, hich too; effect on Cay !, !"%+,8!69 similarlyprovides3

H6*. The Board of Directors or Trustees. 7 nless otherise provided in this 1ode, the corporatepoers of all corporations formed under this 1ode shall be e-ercised, all business conducted and allproperty of such corporations controlled and held by the board of directors or trustees to beelected from among the holders of stoc;s, or here there is no stoc;, from among the members of thecorporation, ho shall hold office for one !/ year and until their successors are elected and qualified.?mphasis added/





These provisions of the former and present corporation la leave no room for doubt as to their meaning3 the board of directors of corporations must be elected from among the stoc;holders or members. There may be corporations in hich there are unelected members in the board but it isclear that in the e-amples cited by petitioner the unelected members sit as ex officio members, i.e., byvirtue of and for as long as they hold a particular office. )ut in the case of petitioner, there is noreason at all for its representative to be given a seat in the board. Dor does petitioner claim a right tosuch seat by virtue of an office held. In fact it as not given such seat in the beginning. It as only in

!"#$ that a proposed amendment to the by7las sought to give it one.

:ince the provision in question is contrary to la, the fact that for fifteen years it has not beenquestioned 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. Deither can it attain validity throughacquiescence because, if it is contrary to la, it is beyond the poer of the members of the associationto aive its invalidity. For that matter the members of the association may have formally adopted theprovision in question, but their action ould be of no avail because no provision of the by7las can beadopted if it is contrary to la.8!*9

It is probable that, in alloing petitioner’s representative to sit on the board, the members of theassociation ere not aare that this as contrary to la. It should be noted that they did not actually

implement the provision in question e-cept perhaps insofar as it increased the number of directorsfrom !! to !$, but certainly not the alloance 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’srepresentative and tolerance cannot be considered ratification.

Dor can petitioner claim a vested right to sit in the board on the basis of 'practice.( 2ractice, nomatter ho long continued, cannot give rise to any vested right if it is contrary to la. ?ven lesstenable is petitioner’s claim that its right is 'coterminus ith the e-istence of the association.(8!9

Finally, petitioner questions the authority of the :?1 to render an opinion on the validity of theprovision in question. It contends that >urisdiction over this case is e-clusively vested in the 0IG1.

)ut this case as not decided by the :?1 but by the 0IG1. The 0IG1 merely cited as authorityfor its ruling the opinion of the :?1 chairman. The 0IG1 could have cited any other authority for thevie that under the la members of the board of directors of a corporation must be elected and itould be none the orse for doing so.

-HERE!ORE, the decision of the 1ourt of Appeals is AFFIC?4.

SO OR%ERE%.

G.R. No. L/5911 Ar 11, 1979

$OHN GOONG-EI, $R., petitioner,

vs.SECRITIES AN% E4CHANGE CO**ISSION, AN%RES *. SORIANO, $OSE *. SORIANO,ENRIE +O&EL, ANTONIO RO4AS, E*ETERIO &NAO, -ALTHRO%E &. CON%E, *IGELORTIGAS, ANTONIO "RIETO, SAN *IGEL COR"ORATION, E*IG%IO TAN$ATCO, SR., '()E%AR%O R. #ISA6A, respondents.

De Santos, Balgos & Pere for petitioner.

Angara, A!ello, "oncepcion, #egala, "ru $aw %ffices for respondents Sorianos

Siguion #ena, 'ontecillo & %ngsia(o for respondent San 'iguel "orporation.







#. T "apulong for respondent Eduardo #. )isaa.

ANTONIO, J.:

The instant petition for certiorari, mandamus and in>unction, ith prayer for issuance of rit of preliminary in>unction, arose out of to cases filed by petitioner ith the :ecurities and ?-change1ommission, as follos3

SE" "ASE *% +-

En Ectober 66, !"#, petitioner, as stoc;holder of respondent :an Ciguel 1orporation, filed ith the:ecurities and ?-change 1ommission :?1/ a petition for Ldeclaration of nullity of amended by7las,cancellation of certificate of filing of amended by7 las, in>unction and damages ith prayer for apreliminary in>unctionL against the ma>ority of the members of the )oard of 4irectors and :an Ciguel1orporation as an unilling petitioner. The petition, entitled LBohn Go;ongei Br. vs. Andres :oriano,Br., Bose C. :oriano, ?nrique Mobel, Antonio o-as, ?meterio )unao, Nalthrode ). 1onde, CiguelErtigas, Antonio 2rieto and :an Ciguel 1orporationL, as doc;eted as :?1 1ase Do. !*#$.

As a first cause of action, petitioner alleged that on :eptember !%, !"#, individual respondentsamended by bylas of the corporation, basing their authority to do so on a resolution of the

stoc;holders adopted on Carch !*, !"!, hen the outstanding capital stoc; of respondentcorporation as only 2#+,!*".#+.++, divided into $,$!*,"# common shares at 2!+.++ per share and!$+,+++ preferred shares at 2!++.++ per share. At the time of the amendment, the outstanding andpaid up shares totalled *+,!6#,+# ith a total par value of 2*+!,6#+,*+.++. It as contended thataccording to section 66 of the 1orporation @a and Article VIII of the by7las of the corporation, thepoer to amend, modify, repeal or adopt ne by7las may be delegated to the )oard of 4irectors onlyby the affirmative vote of stoc;holders representing not less than 6=* of the subscribed and paid upcapital stoc; of the corporation, hich 6=* should have been computed on the basis of thecapitali&ation at the time of the amendment. :ince the amendment as based on the !"!authori&ation, petitioner contended that the )oard acted ithout authority and in usurpation of thepoer of the stoc;holders.

As a second cause of action, it as alleged that the authority granted in !"! had already been

e-ercised in !"6 and !"*, after hich the authority of the )oard ceased to e-ist.

As a third cause of action, petitioner averred that the membership of the )oard of 4irectors hadchanged since the authority as given in !"!, there being si- / ne directors.

As a fourth cause of action, it as claimed that prior to the questioned amendment, petitioner had allthe qualifications to be a director of respondent corporation, being a :ubstantial stoc;holder thereof5that as a stoc;holder, petitioner had acquired rights inherent in stoc; onership, such as the rights tovote and to be voted upon in the election of directors5 and that in amending the by7las, respondentspurposely provided for petitionerOs disqualification and deprived him of his vested right as afore7mentioned hence the amended by7las are null and void. 1

As additional causes of action, it as alleged that corporations have no inherent poer to disqualify astoc;holder from being elected as a director and, therefore, the questioned act is ultra vires and void5that Andres C. :oriano, Br. and=or Bose C. :oriano, hile representing other corporations, entered intocontracts specifically a management contract/ ith respondent corporation, hich as alloedbecause the questioned amendment gave the )oard itself the prerogative of determining hether theyor other persons are engaged in competitive or antagonistic business5 that the portion of the amendedbylas hich states that in determining hether or not a person is engaged in competitive business,the )oard may consider such factors as business and family relationship, is unreasonable andoppressive and, therefore, void5 and that the portion of the amended by7las hich requires that Lallnominations for election of directors ... shall be submitted in riting to the )oard of 4irectors at leastfive $/ or;ing days before the date of the Annual CeetingL is li;eise unreasonable and oppressive.



It as, therefore, prayed that the amended by7las be declared null and void and the certificate of filing thereof be cancelled, and that individual respondents be made to pay damages, in specifiedamounts, to petitioner.

En Ectober 6%, !"#, in connection ith the same case, petitioner filed ith the :ecurities and?-change 1ommission an Lrgent Cotion for 2roduction and Inspection of 4ocumentsL, alleging thatthe :ecretary of respondent corporation refused to allo him to inspect its records despite requestmade by petitioner for production of certain documents enumerated in the request, and thatrespondent corporation had been attempting to suppress information from its stoc;holders despite anegative reply by the :?1 to its query regarding their authority to do so. Among the documentsrequested to be copied ere a/ minutes of the stoc;holderOs meeting field on Carch !*, !"!, b/copy of the management contract beteen :an Ciguel 1orporation and A. :oriano 1orporationAD:1E/5 c/ latest balance sheet of :an Ciguel International, Inc.5 d/ authority of the stoc;holdersto invest the funds of respondent corporation in :an Ciguel International, Inc.5 and e/ lists of salaries,alloances, bonuses, and other compensation, if any, received by Andres C. :oriano, Br. and=or itssuccessor7in7interest.

The Lrgent Cotion for 2roduction and Inspection of 4ocumentsL as opposed by respondents,alleging, among others that the motion has no legal basis5 that the demand is not based on good faith5that the motion is premature since the materiality or relevance of the evidence sought cannot be

determined until the issues are >oined, that it fails to sho good cause and constitutes continuedharrasment, and that some of the information sought are not part of the records of the corporation and,therefore, privileged.

4uring the pendency of the motion for production, respondents :an Ciguel 1orporation, ?nrique1onde, Ciguel Ertigas and Antonio 2rieto filed their anser to the petition, denying the substantialallegations therein and stating, by ay of affirmative defenses that Lthe action ta;en by the )oard of 4irectors on :eptember !%, !"# resulting in the ... amendments is valid and legal because the poer to Lamend, modify, repeal or adopt ne )y7lasL delegated to said )oard on Carch !*, !"! and longprior thereto has never been revo;ed of :C1L5 that contrary to petitionerOs claim, Lthe voterequirement for a valid delegation of the poer to amend, repeal or adopt ne by7las is determinedin relation to the total subscribed capital stoc; at the time the delegation of said poer is made, nothen the )oard opts to e-ercise said delegated poerL5 that petitioner has not availed of his intra7

corporate remedy for the nullification of the amendment, hich is to secure its repeal by vote of thestoc;holders representing a ma>ority of the subscribed capital stoc; at any regular or special meeting,as provided in Article VIII, section I of the by7las and section 66 of the 1orporation la, hence the,petition is premature5 that petitioner is estopped from questioning the amendments on the ground of lac; of authority of the )oard. since he failed, to ob>ect to other amendments made on the basis of thesame !"! authori&ation3 that the poer of the corporation to amend its by7las is broad, sub>ect onlyto the condition that the by7las adopted should not be respondent corporation inconsistent ith anye-isting la5 that respondent corporation should not be precluded from adopting protective measuresto minimi&e or eliminate situations here its directors might be tempted to put their personal interestsover t I hat of the corporation5 that the questioned amended by7las is a matter of internal policy andthe >udgment of the board should not be interfered ith3 That the by7las, as amended, are valid andbinding and are intended to prevent the possibility of violation of criminal and civil las prohibiting

combinations in restraint of trade5 and that the petition states no cause of action. It as, therefore,prayed that the petition be dismissed and that petitioner be ordered to pay damages and attorneyOsfees to respondents. The application for rit of preliminary in>unction as li;eise on various grounds.

espondents Andres C. :oriano, Br. and Bose C. :oriano filed their opposition to the petition, denyingthe material averments thereof and stating, as part of their affirmative defenses, that in August !"#6,the niversal obina 1orporation obina/, a corporation engaged in business competitive to that of respondent corporation, began acquiring shares therein. until :eptember !"# hen its total holdingamounted to 66,"%# shares3 that in Ectober !"#6, the 1onsolidated Foods 1orporation 1F1/li;eise began acquiring shares in respondent corporation. until its total holdings amounted to



2$*,"$".++ in :eptember !"#5 that on Banuary !6, !"#, petitioner, ho is president and controllingshareholder of obina and 1F1 both closed corporations/ purchased $,+++ shares of stoc; of respondent corporation, and thereafter, in behalf of himself, 1F1 and obina, Lconducted malevolentand malicious publicity campaign against :C1L to generate support from the stoc;holder Lin his effortto secure for himself and in representation of obina and 1F1 interests, a seat in the )oard of 4irectors of :C1L, that in the stoc;holdersO meeting of Carch !%, !"#, petitioner as re>ected by thestoc;holders in his bid to secure a seat in the )oard of 4irectors on the basic issue that petitioner as

engaged in a competitive business and his securing a seat ould have sub>ected respondentcorporation to grave disadvantages5 that Lpetitioner nevertheless voed to secure a seat in the )oardof 4irectors at the ne-t annual meeting5 that thereafter the )oard of 4irectors amended the by7las asafore7stated.

As counterclaims, actual damages, moral damages, e-emplary damages, e-penses of litigation andattorneyOs fees ere presented against petitioner.

:ubsequently, a Boint Emnibus Cotion for the stri;ing out of the motion for production and inspectionof documents as filed by all the respondents. This as duly opposed by petitioner. At this >uncture,respondents ?migdio Tan>uatco, :r. and ?duardo . Visaya ere alloed to intervene as oppositorsand they accordingly filed their oppositions7intervention to the petition.

En 4ecember 6", !"#, the :ecurities and ?-change 1ommission resolved the motion for production

and inspection of documents by issuing Erder Do. 6, :eries of !"##, stating, in part as follos3

1onsidering the evidence submitted before the 1ommission by the petitioner andrespondents in the above7entitled case, it is hereby ordered3

!. That respondents produce and permit the inspection, copying and photographing, byor on behalf of the petitioner7movant, Bohn Go;ongei, Br., of the minutes of thestoc;holdersO meeting of the respondent :an Ciguel 1orporation held on Carch !*,!"!, hich are in the possession, custody and control of the said corporation, itappearing that the same is material and relevant to the issues involved in the maincase. Accordingly, the respondents should allo petitioner7movant entry in the principaloffice of the respondent 1orporation, :an Ciguel 1orporation on Banuary !, !"##, at"3*+ oOcloc; in the morning for purposes of enforcing the rights herein granted5 it being

understood that the inspection, copying and photographing of the said documents shallbe underta;en under the direct and strict supervision of this 1ommission. 2rovided,hoever, that other documents and=or papers not heretofore included are not coveredby this Erder and any inspection thereof shall require the prior permission of this1ommission5

6. As to the )alance :heet of :an Ciguel International, Inc. as ell as the list of salaries, alloances, bonuses, compensation and=or remuneration received byrespondent Bose C. :oriano, Br. and Andres :oriano from :an Ciguel International, Inc.and=or its successors7in7 interest, the 2etition to produce and inspect the same ishereby 4?DI?4, as petitioner7movant is not a stoc;holder of :an Ciguel International,Inc. and has, therefore, no inherent right to inspect said documents5

*. In vie of the Canifestation of petitioner7movant dated Dovember 6", !"#,ithdraing his request to copy and inspect the management contract beteen :anCiguel 1orporation and A. :oriano 1orporation and the reneal and amendmentsthereof for the reason that he had already obtained the same, the 1ommission ta;esnote thereof5 and

. Finally, the 1ommission holds in abeyance the resolution on the matter of productionand inspection of the authority of the stoc;holders of :an Ciguel 1orporation to investthe funds of respondent corporation in :an Ciguel International, Inc., until after thehearing on the merits of the principal issues in the above7entitled case.



This Erder is immediately e-ecutory upon its approval. 2

4issatisfied ith the foregoing Erder, petitioner moved for its reconsideration.

Ceanhile, on 4ecember !+, !"#, hile the petition as yet to be heard, respondent corporationissued a notice of special stoc;holdersO meeting for the purpose of Lratification and confirmation of theamendment to the )y7lasL, setting such meeting for February !+, !"##. This prompted petitioner toas; respondent 1ommission for a summary >udgment insofar as the first cause of action is concerned,

for the alleged reason that by calling a special stoc;holdersO meeting for the aforesaid purpose, privaterespondents admitted the invalidity of the amendments of :eptember !%, !"#. The motion for summary >udgment as opposed by private respondents. 2ending action on the motion, petitioner filed an Lrgent Cotion for the Issuance of a Temporary estraining ErderL, praying that pending thedetermination of petitionerOs application for the issuance of a preliminary in>unction and=or petitionerOsmotion for summary >udgment, a temporary restraining order be issued, restraining respondents fromholding the special stoc;holderOs meeting as scheduled. This motion as duly opposed byrespondents.

En February !+, !"##, respondent 1ommission issued an order denying the motion for issuance of temporary restraining order. After receipt of the order of denial, respondents conducted the specialstoc;holdersO meeting herein the amendments to the by7las ere ratified. En February !, !"##,petitioner filed a consolidated motion for contempt and for nullification of the special stoc;holdersO

meeting.

A motion for reconsideration of the order denying petitionerOs motion for summary >udgment as filedby petitioner before respondent 1ommission on Carch !+, !"##. 2etitioner alleges that up to the timeof the filing of the instant petition, the said motion had not yet been scheduled for hearing. @i;eise,the motion for reconsideration of the order granting in part and denying in part petitionerOs motion for production of record had not yet been resolved.

In vie of the fact that the annul stoc;holdersO meeting of respondent corporation had been scheduledfor Cay !+, !"##, petitioner filed ith respondent 1ommission a Canifestation stating that he intendedto run for the position of director of respondent corporation. Thereafter, respondents filed aCanifestation ith respondent 1ommission, submitting a esolution of the )oard of 4irectors of respondent corporation disqualifying and precluding petitioner from being a candidate for director

unless he could submit evidence on Cay *, !"## that he does not come ithin the disqualificationsspecified in the amendment to the by7las, sub>ect matter of :?1 1ase Do. !*#$. )y reason thereof,petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a ritof in>unction, alleging that private respondents ere see;ing to nullify and render ineffectual thee-ercise of >urisdiction by the respondent 1ommission, to petitionerOs irreparable damage andpre>udice, Allegedly despite a subsequent Canifestation to prod respondent 1ommission to act,petitioner as not heard prior to the date of the stoc;holdersO meeting.

2etitioner alleges that there appears a deliberate and concerted inability on the part of the :?1 to acthence petitioner came to this 1ourt.

SE". "ASE *%. +/0

2etitioner li;eise alleges that, having discovered that respondent corporation has been investingcorporate funds in other corporations and businesses outside of the primary purpose clause of thecorporation, in violation of section !# !=6 of the 1orporation @a, he filed ith respondent1ommission, on Banuary 6+, !"##, a petition see;ing to have private respondents Andres C. :oriano,Br. and Bose C. :oriano, as ell as the respondent corporation declared guilty of such violation, andordered to account for such investments and to anser for damages.

En February , !"##, motions to dismiss ere filed by private respondents, to hich a consolidatedmotion to stri;e and to declare individual respondents in default and an opposition ad a!undantioremcautelam ere filed by petitioner. 4espite the fact that said motions ere filed as early as February ,!"##, the commission acted thereon only on April 6$, !"##, hen it denied respondentsO motion to



dismiss and gave them to 6/ days ithin hich to file their anser, and set the case for hearing on April 6" and Cay *, !"##.

espondents issued notices of the annual stoc;holdersO meeting, including in the Agenda thereof, thefolloing3

. e7affirmation of the authori&ation to the )oard of 4irectors by the stoc;holders atthe meeting on Carch 6+, !"#6 to invest corporate funds in other companies or

businesses or for purposes other than the main purpose for hich the 1orporation hasbeen organi&ed, and ratification of the investments thereafter made pursuant thereto.

)y reason of the foregoing, on April 6%, !"##, petitioner filed ith the :?1 an urgent motion for theissuance of a rit of preliminary in>unction to restrain private respondents from ta;ing up Item of the

Agenda at the annual stoc;holdersO meeting, requesting that the same be set for hearing on Cay *,!"##, the date set for the second hearing of the case on the merits. espondent 1ommission,hoever, cancelled the dates of hearing originally scheduled and reset the same to Cay ! and !#,!"##, or after the scheduled annual stoc;holdersO meeting. For the purpose of urging the 1ommissionto act, petitioner filed an urgent manifestation on Cay *, !"##, but this notithstanding, no action hasbeen ta;en up to the date of the filing of the instant petition.

Nith respect to the afore7mentioned :?1 cases, it is petitionerOs contention before this 1ourt that

respondent 1ommission gravely abused its discretion hen it failed to act ith deliberate dispatch onthe motions of petitioner see;ing to prevent illegal and=or arbitrary impositions or limitations upon hisrights as stoc;holder of respondent corporation, and that respondent are acting oppressively againstpetitioner, in gross derogation of petitionerOs rights to property and due process. 0e prayed that this1ourt direct respondent :?1 to act on collateral incidents pending before it.

En Cay , !"##, this 1ourt issued a temporary restraining order restraining private respondents fromdisqualifying or preventing petitioner from running or from being voted as director of respondentcorporation and from submitting for ratification or confirmation or from causing the ratification or confirmation of Item of the Agenda of the annual stoc;holdersO meeting on Cay !+, !"##, or fromCa;ing effective the amended by7las of respondent corporation, until further orders from this 1ourtor until the :ecurities and ?-7change 1ommission acts on the matters complained of in the instantpetition.

En Cay !, !"##, petitioner filed a :upplemental 2etition, alleging that after a restraining order hadbeen issued by this 1ourt, or on Cay ", !"##, the respondent 1ommission served upon petitioner copies of the folloing orders3

!/ Erder Do. ", :eries of !"## :?1 1ase Do. !*#$/5 denying petitionerOs motion for reconsideration, ith its supplement, of the order of the 1ommission denying in part petitionerOsmotion for production of documents, petitionerOs motion for reconsideration of the order denying theissuance of a temporary restraining order denying the issuance of a temporary restraining order, andpetitionerOs consolidated motion to declare respondents in contempt and to nullify the stoc;holdersOmeeting5

6/ Erder Do. $+, :eries of !"## :?1 1ase Do. !*#$/, alloing petitioner to run as a director of respondent corporation but stating that he should not sit as such if elected, until such time that the1ommission has decided the validity of the bylas in dispute, and denying deferment of Item of the

Agenda for the annual stoc;holdersO meeting5 and

*/ Erder Do. $!, :eries of !"## :?1 1ase Do. !*#$/, denying petitionerOs motion for reconsideration of the order of respondent 1ommission denying petitionerOs motion for summary

>udgment5

It is petitionerOs assertions, anent the foregoing orders, !/ that respondent 1ommission acted ithindecent haste and ithout circumspection in issuing the aforesaid orders to petitionerOs irreparabledamage and in>ury5 6/ that it acted ithout >urisdiction and in violation of petitionerOs right to due



process hen it decided en !anc an issue not raised before it and still pending before one of its1ommissioners, and ithout hearing petitioner thereon despite petitionerOs request to have the samecalendared for hearing , and */ that the respondents acted oppressively against the petitioner inviolation of his rights as a stoc;holder, arranting immediate >udicial intervention.

It is prayed in the supplemental petition that the :?1 orders complained of be declared null and voidand that respondent 1ommission be ordered to allo petitioner to underta;e discovery proceedingsrelative to :an Ciguel International. Inc. and thereafter to decide :?1 1ases Do. !*#$ and !6* onthe merits.

En Cay !#, !"##, respondent :?1, Andres C. :oriano, Br. and Bose C. :oriano filed their comment,alleging that the petition is ithout merit for the folloing reasons3

!/ that the petitioner the interest he represents are engaged in business competitive and antagonisticto that of respondent :an Ciguel 1orporation, it appearing that the ons and controls a greater portionof his :C1 stoc; thru the niversal obina 1orporation and the 1onsolidated Foods 1orporation,hich corporations are engaged in business directly and substantially competing ith the alliedbusinesses of respondent :C1 and of corporations in hich :C1 has substantial investments.Further, hen 1F1 and obina had accumulated investments. Further, hen 1F1 and obina hadaccumulated shares in :C1, the )oard of 4irectors of :C1 reali&ed the clear and present danger thatcompetitors or antagonistic parties may be elected directors and thereby have easy and direct access

to :C1Os business and trade secrets and plans5

6/ that the amended by la ere adopted to preserve and protect respondent :C1 from the clear and present danger that business competitors, if alloed to become directors, ill illegally and unfairlyutili&e their direct access to its business secrets and plans for their on private gain to the irreparablepre>udice of respondent :C1, and, ultimately, its stoc;holders. Further, it is asserted that membershipof a competitor in the )oard of 4irectors is a blatant disregard of no less that the 1onstitution andpertinent las against combinations in restraint of trade5

*/ that by las are valid and binding since a corporation has the inherent right and duty to preserveand protect itself by e-cluding competitors and antogonistic parties, under the la of self7preservation,and it should be alloed a ide latitude in the selection of means to preserve itself5

/ that the delay in the resolution and disposition of :?1 1ases Dos. !*#$ and !6* as due topetitionerOs on acts or omissions, since he failed to have the petition to suspend, pendente lite theamended by7las calendared for hearing. It as emphasi&ed that it as only on April 6", !"## thatpetitioner calendared the aforesaid petition for suspension preliminary in>unction/ for hearing on Cay*, !"##. The instant petition being dated Cay , !"##, it is apparent that respondent 1ommission asnot given a chance to act Lith deliberate dispatchL, and

$/ that, even assuming that the petition as meritorious as, it has become moot and academicbecause respondent 1ommission has acted on the pending incidents, complained of. It as,therefore, prayed that the petition be dismissed.

En Cay 6!, !"##, respondent ?migdio G, Tan>uatco, :r. filed his comment, alleging that the petitionhas become moot and academic for the reason, among others that the acts of private respondentsought to be en>oined have reference to the annual meeting of the stoc;holders of respondent :anCiguel 1orporation, hich as held on may !+, !"##5 that in said meeting, in compliance ith theorder of respondent 1ommission, petitioner as alloed to run and be voted for as director5 and thatin the same meeting, Item of the Agenda as discussed, voted upon, ratified and confirmed. Further it as averred that the questions and issues raised by petitioner are pending in the :ecurities and?-change 1ommission hich has acquired >urisdiction over the case, and no hearing on the meritshas been had5 hence the elevation of these issues before the :upreme 1ourt is premature.

2etitioner filed a reply to the aforesaid comments, stating that the petition presents >usticiablequestions for the determination of this 1ourt because !/ the respondent 1ommission acted ithoutcircumspection, unfairly and oppresively against petitioner, arranting the intervention of this 1ourt5



6/ a derivative suit, such as the instant case, is not rendered academic by the act of a ma>ority of stoc;holders, such that the discussion, ratification and confirmation of Item of the Agenda of theannual stoc;holdersO meeting of Cay !+, !"## did not render the case moot5 that the amendment tothe bylas hich specifically bars petitioner from being a director is void since it deprives him of hisvested rights.

espondent 1ommission, thru the :olicitor General, filed a separate comment, alleging that after receiving a copy of the restraining order issued by this 1ourt and noting that the restraining order didnot foreclose action by it, the 1ommission en !anc issued Erders Dos. ", $+ and $! in :?1 1aseDo. !*#$.

In anser to the allegation in the supplemental petition, it states that Erder Do. $+ hich denieddeferment of Item of the Agenda of the annual stoc;holdersO meeting of respondent corporation, too;into consideration an urgent manifestation filed ith the 1ommission by petitioner on Cay *, !"##hich prayed, among others, that the discussion of Item of the Agenda be deferred. The reasongiven for denial of deferment as that Lsuch action is ithin the authority of the corporation as ell asfalling ithin the sphere of stoc;holdersO right to ;no, deliberate upon and=or to e-press their ishesregarding disposition of corporate funds considering that their investments are the ones directlyaffected.L It as alleged that the main petition has, therefore, become moot and academic.

En :eptember 6",!"##, petitioner filed a second supplemental petition ith prayer for preliminary

in>unction, alleging that the actuations of respondent :?1 tended to deprive him of his right to dueprocess, and Lthat all possible questions on the facts no pending before the respondent 1ommissionare no before this 0onorable 1ourt hich has the authority and the competence to act on them as itmay see fit.L eno, pp. "6#7"6%./

2etitioner, in his memorandum, submits the folloing issues for resolution5

!/ hether or not the provisions of the amended by7las of respondent corporation, disqualifying acompetitor from nomination or election to the )oard of 4irectors are valid and reasonable5

6/ hether or not respondent :?1 gravely abused its discretion in denying petitionerOs request for ane-amination of the records of :an Ciguel International, Inc., a fully oned subsidiary of :an Ciguel1orporation5 and

*/ hether or not respondent :?1 committed grave abuse of discretion in alloing discussion of Item of the Agenda of the Annual :toc;holdersO Ceeting on Cay !+, !"##, and the ratification of theinvestment in a foreign corporation of the corporate funds, allegedly in violation of section !#7!=6 of the1orporation @a.

I

1hether or not amended !2laws are valid is purel a legal 3uestion which pu!lic interest re3uires to!e resolved 4

It is the position of the petitioner that Lit is not necessary to remand the case to respondent :?1 for anappropriate ruling on the intrinsic validity of the amended by7las in compliance ith the principle of e-haustion of administrative remediesL, considering that3 first3 Lhether or not the provisions of theamended by7las are intrinsically valid ... is purely a legal question. There is no factual dispute as tohat the provisions are and evidence is not necessary to determine hether such amended by7lasare valid as framed and approved ... L5 second3 Lit is for the interest and guidance of the public that animmediate and final ruling on the question be made ... L5 third3 Lpetitioner as denied due process by:?1L hen L1ommissioner de Gu&man had openly shon pre>udice against petitioner ... L, andL1ommissioner :ulit ... approved the amended by7las ex2parte and obviously found the sameintrinsically valid5 and finally3 Lto remand the case to :?1 ould only entail delay rather than serve theends of >ustice.L

espondents Andres C. :oriano, Br. and Bose C. :oriano similarly pray that this 1ourt resolve thelegal issues raised by the parties in ;eeping ith the Lcherished rules of procedureL that La court



should alays strive to settle the entire controversy in a single proceeding leaving no root or branch tobear the seeds of future ligiationL, citing5aong v. 5aos. 3 To the same effect is the prayer of :anCiguel 1orporation that this 1ourt resolve on the merits the validity of its amended by las and therights and obligations of the parties thereunder, otherise Lthe time spent and effort e-erted by theparties concerned and, more importantly, by this 0onorable 1ourt, ould have been for naughtbecause the main question ill come bac; to this 0onorable 1ourt for final resolution.L espondent?duardo . Visaya submits a similar appeal.

It is only the :olicitor General ho contends that the case should be remanded to the :?1 for hearingand decision of the issues involved, invo;ing the latterOs primary >urisdiction to hear and decide caseinvolving intra7corporate controversies.

It is an accepted rule of procedure that the :upreme 1ourt should alays strive to settle the entirecontroversy in a single proceeding, leaving nor root or branch to bear the seeds of futurelitigation. / Thus, in 6rancisco v. "it of Davao, 5 this 1ourt resolved to decide the case on the meritsinstead of remanding it to the trial court for further proceedings since the ends of >ustice ould not besubserved by the remand of the case. In #epu!lic v. Securit "redit and Acceptance "orporation, et al., this 1ourt, finding that the main issue is one of la, resolved to decide the case on the meritsLbecause public interest demands an early disposition of the caseL, and in #epu!lic v. "entral Suret and 7nsurance "ompan, 7 this 1ourt denied remand of the third7party complaint to the trial court for

further proceedings, citing precedent here this 1ourt, in similar situations resolved to decide thecases on the merits, instead of remanding them to the trial court here a/ the ends of >ustice ouldnot be subserved by the remand of the case5 or b/ here public interest demand an early dispositionof the case5 or c/ here the trial court had already received all the evidence presented by both partiesand the :upreme 1ourt is no in a position, based upon said evidence, to decide the case on itsmerits. 8 It is settled that the doctrine of primary >urisdiction has no application here only a questionof la is involved. 8' )ecause uniformity may be secured through revie by a single :upreme 1ourt,questions of la may appropriately be determined in the first instance by courts. 8b In the case at bar,there are facts hich cannot be denied, vi&.3 that the amended by7las ere adopted by the )oard of 4irectors of the :an Ciguel 1orporation in the e-ercise of the poer delegated by the stoc;holdersostensibly pursuant to section 66 of the 1orporation @a5 that in a special meeting on February !+,!"## held specially for that purpose, the amended by7las ere ratified by more than %+P of the

stoc;holders of record5 that the foreign investment in the 0ong;ong )reery and 4istellery, a beer manufacturing company in 0ong;ong, as made by the :an Ciguel 1orporation in !"%5 and that inthe stoc;holdersO annual meeting held in !"#6 and !"##, all foreign investments and operations of :an Ciguel 1orporation ere ratified by the stoc;holders.

II

1hether or not the amended !2laws of S'" of dis3ualifing a competitor from nomination or electionto the Board of Directors of S'" are valid and reasona!le 4

The validity or reasonableness of a by7la of a corporation in purely a question of la. 9 Nhether theby7la is in conflict ith the la of the land, or ith the charter of the corporation, or is in a legal senseunreasonable and therefore unlaful is a question of la. 10 This rule is sub>ect, hoever, to thelimitation that here the reasonableness of a by7la is a mere matter of >udgment, and one upon

hich reasonable minds must necessarily differ, a court ould not be arranted in substituting its >udgment instead of the >udgment of those ho are authori&ed to ma;e by7las and ho havee-ercised their authority. 11

2etitioner claims that the amended by7las are invalid and unreasonable because they ere tailoredto suppress the minority and prevent them from having representation in the )oardL, at the same timedepriving petitioner of his Lvested rightL to be voted for and to vote for a person of his choice asdirector.

pon the other hand, respondents Andres C. :oriano, Br., Bose C. :oriano and :an Ciguel1orporation content that e-. conclusion of a competitor from the )oard is legitimate corporate



purpose, considering that being a competitor, petitioner cannot devote an unselfish and undivided@oyalty to the corporation5 that it is essentially a preventive measure to assure stoc;holders of :anCiguel 1orporation of reasonable protective from the unrestrained self7interest of those charged iththe promotion of the corporate enterprise5 that access to confidential information by a competitor mayresult either in the promotion of the interest of the competitor at the e-pense of the :an Ciguel1orporation, or the promotion of both the interests of petitioner and respondent :an Ciguel1orporation, hich may, therefore, result in a combination or agreement in violation of Article !% of

the evised 2enal 1ode by destroying free competition to the detriment of the consuming public. It isfurther argued that there is not vested right of any stoc;holder under 2hilippine @a to be voted asdirector of a corporation. It is alleged that petitioner, as of Cay , !"#%, has e-ercised, personally or thru to corporations oned or controlled by him, control over the folloing shareholdings in :anCiguel 1orporation, vis.3 a/ Bohn Go;ongei, Br. Q ,*6$ shares5 b/ niversal obina 1orporationQ #*%,# shares5 c/ 1F1 1orporation Q $%,*!* shares, or a total of !,+*,6%$ shares. :ince theoutstanding capital stoc; of :an Ciguel 1orporation, as of the present date, is represented by**,!*",#" shares ith a par value of 2!+.++, the total shares oned or controlled by petitioner represents .6*P of the total outstanding capital stoc; of :an Ciguel 1orporation. It is alsocontended that petitioner is the president and substantial stoc;holder of niversal obina 1orporationand 1F1 1orporation, both of hich are allegedly controlled by petitioner and members of his family. Itis also claimed that both the niversal obina 1orporation and the 1F1 1orporation are engaged in

businesses directly and substantially competing ith the alleged businesses of :an Ciguel1orporation, and of corporations in hich :C1 has substantial investments.

A$$E5ED A#EAS %6 "%'PET7T7%* BET1EE* PET7T7%*E#8S "%#P%#AT7%*S A*D SA* '759E$ "%#P%#AT7%*

According to respondent :an Ciguel 1orporation, the areas of, competition are enumerated in its)oard the areas of competition are enumerated in its )oard esolution dated April 6%, !"#%, thus3

2roduct @ine ?stimated Car;et :hare Total!"## :C1 obina71F1

Table ?ggs +.P !+.+P !+.P@ayer 2ullets **.+P 6.+P $#.+P

4ressed 1hic;en *$.+P !.+P ".+P2oultry R 0og Feeds +.+P !6.+P $6.+PIce 1ream #+.+P !*.+P %*.+PInstant 1offee $.+P +.+P %$.+PNoven Fabrics !#.$P ".!P 6.P

Thus, according to respondent :C1, in !"#, the areas of competition affecting :C1 involved productsales of over 2++ million or more than 6+P of the 26 billion total product sales of :C1. :ignificantly,the combined mar;et shares of :C1 and 1F17obina in layer pullets dressed chic;en, poultry andhog feeds ice cream, instant coffee and oven fabrics ould result in a position of such dominance asto affect the prevailing mar;et factors.

It is further asserted that in !"##, the 1F17obina group as in direct competition on product lines

hich, for :C1, represented sales amounting to more than S#% million. In addition, 1F17obina asdirectly competing in the sale of coffee ith Filipro, a subsidiary of :C1, hich product linerepresented sales for :C1 amounting to more than 26#$ million. The 1F17obina group obite-,e-cluding @itton Cills recently acquired by petitioner/ is purportedly also in direct competition ithamie Te-tile, Inc., subsidiary of :C1, in product sales amounting to more than 2"$ million. Theareas of competition beteen :C1 and 1F17obina in !"## represented, therefore, for :C1, productsales of more than 2%" million.

According to private respondents, at the Annual :toc;holdersO Ceeting of Carch !%, !"#, ",%"stoc;holders, in person or by pro-y, oning 6*,*,#$ shares in :C1, or more than "+P of the totaloutstanding shares of :C1, re>ected petitionerOs candidacy for the )oard of 4irectors because they



Lreali&ed the grave dangers to the corporation in the event a competitor gets a board seat in :C1.L En:eptember !%, !"#%, the )oard of 4irectors of :C1, by Lvirtue of poers delegated to it by thestoc;holders,L approved the amendment to O he by7las in question. At the meeting of February !+,!"##, these amendments ere confirmed and ratified by $,#! shareholders oning 6,6%*,"$shares, or more than %+P of the total outstanding shares. Enly !6 shareholders, representing #,++$shares, opposed the confirmation and ratification. At the Annual :toc;holdersO Ceeting of Cay !+,!"##, !!,*" shareholders, oning 6#,6$#.+! shares, or more than "+P of the outstanding shares,

re>ected petitionerOs candidacy, hile " stoc;holders, representing !,%,%+! shares voted for him.En the Cay ", !"#% Annual :toc;holdersO Ceeting, !6,%+ shareholders, oning more than *+ millionshares, or more than "+P of the total outstanding shares. voted against petitioner.

A9T:%#7T; %6 "%#P%#AT7%* T% P#ES"#7BE <9A$767"AT7%*S %6 D7#E"T%#S E=P#ESS$; "%*6E##ED B; $A1

2rivate respondents contend that the disputed amended by las ere adopted by the )oard of 4irectors of :an Ciguel 1orporation a7, a measure of self7defense to protect the corporation from theclear and present danger that the election of a business competitor to the )oard may cause upon thecorporation and the other stoc;holders inseparable pre>udice. :ubmitted for resolution, therefore, isthe issue Q hether or not respondent :an Ciguel 1orporation could, as a measure of self7protection, disqualify a competitor from nomination and election to its )oard of 4irectors.

It is recogni&ed by an authorities that Oevery corporation has the inherent poer to adopt by7las Ofor its internal government, and to regulate the conduct and prescribe the rights and duties of its memberstoards itself and among themselves in reference to the management of its affairs. 12 At common la,the rule as Lthat the poer to ma;e and adopt by7las as inherent in every corporation as one of itsnecessary and inseparable legal incidents. And it is settled throughout the nited :tates that in theabsence of positive legislative provisions limiting it, every private corporation has this inherent poer as one of its necessary and inseparable legal incidents, independent of any specific enabling provisionin its charter or in general la, such poer of self7government being essential to enable thecorporation to accomplish the purposes of its creation. 13

In this >urisdiction, under section 6! of the 1orporation @a, a corporation may prescribe in its by7lasLthe qualifications, duties and compensation of directors, officers and employees ... L This must

necessarily refer to a qualification in addition to that specified by section *+ of the 1orporation @a,hich provides that Levery director must on in his right at least one share of the capital stoc; of thestoc; corporation of hich he is a director ... L In5overnment v. El :ogar, 1/ the 1ourt sustained thevalidity of a provision in the corporate by7la requiring that persons elected to the )oard of 4irectorsmust be holders of shares of the paid up value of 2$,+++.++, hich shall be held as security for their action, on the ground that section 6! of the 1orporation @a e-pressly gives the poer to thecorporation to provide in its by7las for the qualifications of directors and is Lhighly prudent and inconformity ith good practice. L

*% )ESTED #75:T %6 ST%">:%$DE# T% BE E$E"TED D7#E"T%#

Any person Lho buys stoc; in a corporation does so ith the ;noledge that its affairs are dominated ! a ma?orit of the stoc;holders and that he impliedl contracts that the will of the ma>ority shall

govern in all matters ithin the limits of the act of incorporation and lafully enacted by7las and notforbidden by la.L 15 To this e-tent, therefore, the stoc;holder may be considered to have Lparted ithhis personal right or privilege to regulate the disposition of his property hich he has invested in thecapital stoc; of the corporation, and surrendered it to the ill of the ma>ority of his fello incorporators.... It cannot therefore be >ustly said that the contract, e-press or implied, beteen the corporation andthe stoc;holders is infringed ... by any act of the former hich is authori&ed by a ma>ority ... .L 1

Pursuant to section +@ of the "orporation $aw, an corporation ma amend its articles of incorporation! a vote or written assent of the stoc(holders representing at least two2thirds of the su!scri!ed capital stoc( of the corporation 7f the amendment changes, diminishes or restricts the rights of theexisting shareholders then the disenting minorit has onl one right, vi. Lto ob>ect thereto in riting



and demand payment for his share.L nder section 66 of the same la, the oners of the ma>ority of the subscribed capital stoc; may amend or repeal any by7la or adopt ne by7las. It cannot be said,therefore, that petitioner has a vested right to be elected director, in the face of the fact that the la atthe time such right as stoc;holder as acquired contained the prescription that the corporate charter and the by7la shall be sub>ect to amendment, alteration and modification. 17

It being settled that the corporation has the poer to provide for the qualifications of its directors, thene-t question that must be considered is hether the disqualification of a competitor from beingelected to the )oard of 4irectors is a reasonable e-ercise of corporate authority.

A D7#E"T%# STA*DS 7* A 67D9"7A#; #E$AT7%* T% T:E "%#P%#AT7%* A*D 7TSS:A#E:%$DE#S

Although in the strict and technical sense, directors of a private corporation are not regarded astrustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporationand the stoc;holders as a body are concerned. As agents entrusted ith the management of thecorporation for the collective benefit of the stoc;holders, Lthey occupy a fiduciary relation, and in thissense the relation is one of trust.L 18 LThe ordinary trust relationship of directors of a corporation andstoc;holdersL, according to Ashaman v. 'iller, 19 Lis not a matter of statutory or technical la. Itsprings from the fact that directors have the control and guidance of corporate affairs and property andhence of the property interests of the stoc;holders. ?quity recogni&es that stoc;holders are the

proprietors of the corporate interests and are ultimately the only beneficiaries thereof .

Bustice 4ouglas, in Pepper v. $itton, 20 emphatically restated the standard of fiduciary obligation of thedirectors of corporations, thus3

A director is a fiduciary. ... Their poers are poers in trust. ... 0e ho is in suchfiduciary position cannot serve himself first and his cestuis second. ... 0e cannotmanipulate the affairs of his corporation to their detriment and in disregard of thestandards of common decency. 0e cannot by the intervention of a corporate entityviolate the ancient precept against serving to masters ... 0e cannot utili&e his insideinformation and strategic position for his on preferment. 0e cannot violate rules of fair play by doing indirectly through the corporation hat he could not do so directly. 0ecannot violate rules of fair play by doing indirectly though the corporation hat he could

not do so directly. 0e cannot use his poer for his personal advantage and to thedetriment of the stoc;holders and creditors no matter ho absolute in terms that poer may be and no matter ho meticulous he is to satisfy technical requirements. For thatpoer is at all times sub>ect to the equitable limitation that it may not be e-ercised for the aggrandi&ement, preference or advantage of the fiduciary to the e-clusion or detriment of the cestuis.

And in "ross v. 1est )irginia "ent, & P. #. #. "o., 21 it as said3

... A person cannot serve to hostile and adverse master, ithout detriment to one of them. A >udge cannot be impartial if personally interested in the cause. Do more can adirector. 0uman nature is too ea; 7for this. Ta;e hatever statute provision you pleasegiving poer to stoc;holders to choose directors, and in none ill you find any e-press

prohibition against a discretion to select directors having the companyOs interest atheart, and it ould simply be going far to deny by mere implication the e-istence of such a salutary poer

... If the by7la is to be held reasonable in disqualifying a stoc;holder in a competing company frombeing a director, the same reasoning ould apply to disqualify the ife and immediate member of thefamily of such stoc;holder, on account of the supposed interest of the ife in her husbandOs affairs,and his suppose influence over her. It is perhaps true that such stoc;holders ought not to becondemned as selfish and dangerous to the best interest of the corporation until tried and tested. :o itis also true that e cannot condemn as selfish and dangerous and unreasonable the action of the



board in passing the by7la. The strife over the matter of control in this corporation as in many othersis perhaps carried on not altogether in the spirit of brotherly love and affection. The only test that ecan apply is as to hether or not the action of the )oard is authori&ed and sanctioned by la. ... . 22

These principles have been applied by this 1ourt in previous cases. 23

A* A'E*D'E*T T% T:E "%#P%#AT7%* B;2$A1 1:7": #E*DE#S A ST%">:%$DE# 7*E$757B$E T% BE D7#E"T%#, 76 :E BE A$S% D7#E"T%# 7* A "%#P%#AT7%* 1:%SE

B9S7*ESS 7S 7* "%'PET7T7%* 17T: T:AT %6 T:E %T:E# "%#P%#AT7%*, :AS BEE* S9STA7*ED AS )A$7D

It is a settled state la in the nited :tates, according to Fletcher, that corporations have the poer toma;e by7las declaring a person employed in the service of a rival company to be ineligible for thecorporationOs )oard of 4irectors. ... A/n amendment hich renders ineligible, or if elected, sub>ects toremoval, a director if he be also a director in a corporation hose business is in competition ith or isantagonistic to the other corporation is valid.L2/ This is based upon the principle that here thedirector is so employed in the service of a rival company, he cannot serve both, but must betray one or the other. :uch an amendment Ladvances the benefit of the corporation and is good.L An e-ceptione-ists in De Bersey, here the :upreme 1ourt held that the 1orporation @a in De Berseyprescribed the only qualification, and therefore the corporation as not empoered to add additionalqualifications. 25 This is the e-act opposite of the situation in the 2hilippines because as stated

heretofore, section 6! of the 1orporation @a e-pressly provides that a corporation may ma;e by7lasfor the qualifications of directors. Thus, it has been held that an officer of a corporation cannot engagein a business in direct competition ith that of the corporation here he is a director by utili&inginformation he has received as such officer, under Lthe established la that a director or officer of acorporation may not enter into a competing enterprise hich cripples or in>ures the business of thecorporation of hich he is an officer or director. 2

It is also ell established that corporate officers Lare not permitted to use their position of trust andconfidence to further their private interests.L 27 In a case here directors of a corporation cancelled acontract of the corporation for e-clusive sale of a foreign firmOs products, and after establishing a rivalbusiness, the directors entered into a ne contract themselves ith the foreign firm for e-clusive saleof its products, the court held that equity ould regard the ne contract as an offshoot of the old

contract and, therefore, for the benefit of the corporation, as a Lfaultless fiduciary may not reap thefruits of his misconduct to the e-clusion of his principal. 28

The doctrine of Lcorporate opportunityL 29 is precisely a recognition by the courts that the fiduciarystandards could not be upheld here the fiduciary as acting for to entities ith competing interests.This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director ta;ing advantage of an opportunity for his on personal profit hen the interest of thecorporation >ustly calls for protection. 30

It is not denied that a member of the )oard of 4irectors of the :an Ciguel 1orporation has access tosensitive and highly confidential information, such as3 a/ mar;eting strategies and pricing structure5b/ budget for e-pansion and diversification5 c/ research and development5 and d/ sources of funding, availability of personnel, proposals of mergers or tie7ups ith other firms.

It is obviously to prevent the creation of an opportunity for an officer or director of :an Ciguel1orporation, ho is also the officer or oner of a competing corporation, from ta;ing advantage of theinformation hich he acquires as director to promote his individual or corporate interests to thepre>udice of :an Ciguel 1orporation and its stoc;holders, that the questioned amendment of the by7las as made. 1ertainly, here to corporations are competitive in a substantial sense, it ouldseem improbable, if not impossible, for the director, if he ere to discharge effectively his duty, tosatisfy his loyalty to both corporations and place the performance of his corporation duties above hispersonal concerns.

Thus, in 'c>ee & "o. v. 6irst *ational Ban( of San Diego , supra the court sustained as valid and



reasonable an amendment to the by7las of a ban;, requiring that its directors should not be directors,officers, employees, agents, nominees or attorneys of any other ban;ing corporation, affiliate or subsidiary thereof. 1hief Budge 2ar;er, in 'c>ee, e-plained the reasons of the court, thus3

... A ban; director has access to a great deal of information concerning the businessand plans of a ban; hich ould li;ely be in>urious to the ban; if ;non to another ban;, and it as reasonable and prudent to enlarge this minimum disqualification toinclude any director, officer, employee, agent, nominee, or attorney of any other ban; in1alifornia. The Ash(ins case, supra, specifically recogni&es protection against rivalsand others ho might acquire information hich might be used against the interests of the corporation as a legitimate ob>ect of by7la protection. Nith respect to attorneys or persons associated ith a firm hich is attorney for another ban;, in addition to thedirect conflict or potential conflict of interest, there is also the danger of inadvertentlea;age of confidential information through casual office discussions or accessibility of files. 4efendantOs directors determined that its elfare as best protected if thisopportunity for conflicting loyalties and potential misuse and lea;age of confidentialinformation as foreclosed.

In 'c>ee the 1ourt further listed qualificational by7las upheld by the courts, as follos3

!/ A director shall not be directly or indirectly interested as a stoc;holder in any other

firm, company, or association hich competes ith the sub>ect corporation.

6/ A director shall not be the immediate member of the family of any stoc;holder in anyother firm, company, or association hich competes ith the sub>ect corporation,

*/ A director shall not be an officer, agent, employee, attorney, or trustee in any other firm, company, or association hich compete ith the sub>ect corporation.

/ A director shall be of good moral character as an essential qualification to holdingoffice.

$/ Do person ho is an attorney against the corporation in a la suit is eligible for service on the board. At p. #./

These are not based on theorical abstractions but on human e-perience Q that a person cannot serveto hostile masters ithout detriment to one of them.

The offer and assurance of petitioner that to avoid any possibility of his ta;ing unfair advantage of hisposition as director of :an Ciguel 1orporation, he ould absent himself from meetings at hichconfidential matters ould be discussed, ould not detract from the validity and reasonableness of theby7las here involved. Apart from the impractical results that ould ensue from such arrangement, itould be inconsistent ith petitionerOs primary motive in running for board membership Q hich is toprotect his investments in :an Ciguel 1orporation. Core important, such a proposed norm of conductould be against all accepted principles underlying a directorOs duty of fidelity to the corporation, for the policy of the la is to encourage and enforce responsible corporate management. As e-plained byElec;3 31 LThe la in not tolerate the passive attitude of directors ... ithout active and conscientiousparticipation 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 andrules of guidance ith a vigilant eye toard seeing to it that these policies are carried out. It is onlythen that directors may be said to have fulfilled their duty of fealty to the corporation.L

:ound principles of corporate management counsel against sharing sensitive information ith adirector hose fiduciary duty of loyalty may ell require that he disclose this information to acompetitive arrival. These dangers are enhanced considerably here the common director such asthe petitioner is a controlling stoc;holder of to of the competing corporations. It ould seem manifestthat in such situations, the director has an economic incentive to appropriate for the benefit of his oncorporation the corporate plans and policies of the corporation here he sits as director.



Indeed, access by a competitor to confidential information regarding mar;eting strategies and pricingpolicies of :an Ciguel 1orporation ould sub>ect the latter to a competitive disadvantage and un>ustlyenrich the competitor, for advance ;noledge by the competitor of the strategies for the developmentof e-isting or ne mar;ets of e-isting or ne products could enable said competitor to utili&e such;noledge to his advantage. 32

There is another important consideration in determining hether or not the amended by7las arereasonable. The 1onstitution and the la prohibit combinations in restraint of trade or unfair competition. Thus, section 6 of Article JIV of the 1onstitution provides3 LThe :tate shall regulate or prohibit private monopolies hen the public interest so requires. Do combinations in restraint of tradeor unfair competition shall be snoed.L

Article !% of the evised 2enal 1ode also provides3

Art. !%. 'onopolies and com!inations in restraint of trade. QThe penalty of prisioncorreccional in its minimum period or a fine ranging from to hundred to si- thousandpesos, or both, shall be imposed upon3

!. Any person ho shall enter into any contract or agreement or shall ta;e part in anyconspiracy or combination in the form of a trust or otherise, in restraint of trade or commerce or to prevent by artificial means free competition in the mar;et.

6. Any person ho shag monopoli&e any merchandise or ob>ect of trade or commerce,or shall combine ith any other person or persons to monopoli&e said merchandise or ob>ect in order to alter the price thereof by spreading false rumors or ma;ing use of anyother artifice to restrain free competition in the mar;et.

*. Any person ho, being a manufacturer, producer, or processor of any merchandiseor ob>ect of commerce or an importer of any merchandise or ob>ect of commerce fromany foreign country, either as principal or agent, holesale or retailer, shall combine,conspire or agree in any manner ith any person li;eise engaged in the manufacture,production, processing, assembling or importation of such merchandise or ob>ect of commerce or ith any other persons not so similarly engaged for the purpose of ma;ingtransactions pre>udicial to laful commerce, or of increasing the mar;et price in any part

of the 2hilippines, or any such merchandise or ob>ect of commerce manufactured,produced, processed, assembled in or imported into the 2hilippines, or of any article inthe manufacture of hich such manufactured, produced, processed, or importedmerchandise or ob>ect of commerce is used.

There are other legislation in this >urisdiction, hich prohibit monopolies and combinations in restraintof trade. 33

)asically, these anti7trust las or las against monopolies or combinations in restraint of trade areaimed at raising levels of competition by improving the consumersO effectiveness as the final arbiter infree mar;ets. These las are designed to preserve free and unfettered competition as the rule of trade. LIt rests on the premise that the unrestrained interaction of competitive forces ill yield the bestallocation of our economic resources, the loest prices and the highest quality ... .L 3/ they operate toforestall concentration of economic poer. 35 The la against monopolies and combinations inrestraint of trade is aimed at contracts and combinations that, by reason of the inherent nature of thecontemplated acts, pre>udice the public interest by unduly restraining competition or unduly obstructingthe course of trade. 3

The terms LmonopolyL, Lcombination in restraint of tradeL and Lunfair competitionL appear to have aell defined meaning in other >urisdictions. A LmonopolyL embraces any combination the tendency of hich 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 fe. The materialconsideration in determining its e-istence is not that prices are raised and competition actuallye-cluded, but that power e-ists to raise prices or e-clude competition hen desired. 38Further, it must



be considered that the Idea of monopoly is no understood to include a condition produced by themere act of individuals. Its dominant thought is the notion of e-clusiveness or unity, or the suppressionof competition by the qualification of interest or management, or it may be thru agreement and concertof action. It is, in brief, unified tactics ith regard to prices. 39

From the foregoing definitions, it is apparent that the contentions of petitioner are not in accord ithreality. The election of petitioner to the )oard of respondent 1orporation can bring about an illegalsituation. This is because an e-press agreement is not necessary for the e-istence of a combinationor conspiracy in restraint of trade. /0 It is enough that a concert of action is contemplated and that thedefendants conformed to the arrangements, /1 and hat is to be considered is hat the partiesactually did and not the ords they used. For instance, the 1layton Act prohibits a person from servingat the same time as a director in any to or more corporations, if such corporations are, by virtue of their business and location of operation, competitors so that the elimination of competition beteenthem ould constitute violation of any provision of the anti7trust las. /2 There is here a statutoryrecognition of the anti7competitive dangers hich may arise hen an individual simultaneously acts asa director of to or more competing corporations. A common director of to or more competingcorporations ould have access to confidential sales, pricing and mar;eting information and ould bein a position to coordinate policies or to aid one corporation at the e-pense of another, thereby stiflingcompetition. This situation has been aptly e-plained by Travers, thus3

The argument for prohibiting competing corporations from sharing even one director isthat theinterloc( permits the coordination of policies !etween nominall independent firms to an extent that competition !etween them ma !e completel eliminated .Indeed, if a director, for e-ample, is to be faithful to both corporations, someaccommodation must result. :uppose J is a director of both 1orporation A and1orporation ). J could hardly vote for a policy by A that ould in>ure ) ithout violatinghis duty of loyalty to ) at the same time he could hardly abstain from voting ithoutdepriving A of his best >udgment. 7f the firms reall do compete Q in the sense of vyingfor economic advantage at the e-pense of the other Q there can hardl !e an reason for an interloc; beteen competitors other than the suppression of competition. /3 ?mphasis supplied./

According to the eport of the 0ouse Budiciary 1ommittee of the . :. 1ongress on section " of the

1layton Act, it as established that3 L)y means of the interloc;ing directorates one man or group of men have been able to dominate and control a great number of corporations ... to the detriment of thesmall ones dependent upon them and to the in>ury of the public. //

:hared information on cost accounting may lead to price fi-ing. 1ertainly, shared information onproduction, orders, shipments, capacity and inventories may lead to control of production for thepurpose of controlling prices.

Ebviously, if a competitor has access to the pricing policy and cost conditions of the products of :anCiguel 1orporation, the essence of competition in a free mar;et for the purpose of serving the loestpriced goods to the consuming public ould be frustrated, The competitor could so manipulate theprices of his products or vary its mar;eting strategies by region or by brand in order to get the most outof the consumers. Nhere the to competing firms control a substantial segment of the mar;et this

could lead to collusion and combination in restraint of trade. eason and e-perience point to theinevitable conclusion that the inherent tendency of interloc;ing directorates beteen companies thatare related to each other as competitors is to blunt the edge of rivalry beteen the corporations, tosee; out ays of compromising opposing interests, and thus eliminate competition. As respondent:C1 aptly observes, ;noledge by 1F17obina of :C1Os costs in various industries and regions inthe country in enable the former to practice price discrimination. 1F17obina can segment the entireconsuming population by geographical areas or income groups and change varying prices in order toma-imi&e profits from every mar;et segment. 1F17obina could determine the most profitable volumeat hich it could produce for every product line in hich it competes ith :C1. Access to :C1 pricingpolicy by 1F17obina ould in effect destroy free competition and deprive the consuming public of



opportunity to buy goods of the highest possible quality at the loest prices.

Finally, considering that both obina and :C1 are, to a certain e-tent, engaged in agriculture, thenthe election of petitioner to the )oard of :C1 may constitute a violation of the prohibition contained insection !*$/ of the 1orporation @a. :aid section provides in part that Lany stoc;holder of more thanone corporation organi&ed for the purpose of engaging in agriculture may hold his stoc; in suchcorporations solel for investment and not for the purpose of bringing about or attempting to bringabout a combination to e-ercise control of incorporations ... .L

Deither are Ne persuaded by the claim that the by7la as Intended to prevent the candidacy of petitioner for election to the )oard. If the by7la ere to be applied in the case of one stoc;holder butaived in the case of another, then it could be reasonably claimed that the by7la as being applied ina discriminatory manner. 0oever, the by la, by its terms, applies to all stoc;holders. The equalprotection clause of the 1onstitution requires only that the by7la operate equally upon all persons of a class. )esides, before petitioner can be declared ineligible to run for director, there must be hearingand evidence must be submitted to bring his case ithin the ambit of the disqualification. :oundprinciples of public policy and management, therefore, support the vie that a by7la hichdisqualifies a competition from election to the )oard of 4irectors of another corporation is valid andreasonable.

In the absence of any legal prohibition or overriding public policy, ide latitude may be accorded to the

corporation in adopting measures to protect legitimate corporation interests. Thus, Lhere thereasonableness of a by7la is a mere matter of >udgment, and upon hich reasonable minds mustnecessarily differ, a court ould not be arranted in substituting its >udgment instead of the >udgmentof those ho are authori&ed to ma;e by7las and ho have e-pressed their authority. /5

Although it is asserted that the amended by7las confer on the present )oard poers to perpetuathemselves in poer such fears appear to be misplaced. This poer, but is very nature, is sub>ect tocertain ell established limitations. Ene of these is inherent in the very convert and definition of theterms LcompetitionL and LcompetitorL. L1ompetitionL implies a struggle for advantage beteen to or more forces, each possessing, in substantially similar if not Identical degree, certain characteristicsessential to the business sought. It means an independent endeavor of to or more persons to obtainthe business patronage of a third by offering more advantageous terms as an inducement to secure

trade. / The test must be hether the business does in fact compete, not hether it is capable of anindirect and highly unsubstantial duplication of an isolated or non7characteristics activity. /7 It is,therefore, obvious that not every person or entity engaged in business of the same ;ind is acompetitor. :uch factors as quantum and place of business, Identity of products and area of competition should be ta;en into consideration. It is, therefore, necessary to sho that petitionerOsbusiness covers a substantial portion of the same mar;ets for similar products to the e-tent of not lessthan !+P of respondent corporationOs mar;et for competing products. Nhile Ne here sustain thevalidity of the amended by7las, it does not follo as a necessary consequence that petitioner is ipsofacto disqualified. 1onsonant ith the requirement of due process, there must be due hearing at hichthe petitioner must be given the fullest opportunity to sho that he is not covered by thedisqualification. As trustees of the corporation and of the stoc;holders, it is the responsibility of directors to act ith fairness to the stoc;holders. /8 2ursuant to this obligation and to remove any

suspicion that this poer may be utili&ed by the incumbent members of the )oard to perpetuatethemselves in poer, any decision of the )oard to disqualify a candidate for the )oard of 4irectorsshould be revieed by the :ecurities behind ?-change 1ommission en banc and its decision shall befinal unless reversed by this 1ourt on certiorari. /9 Indeed, it is a settled principle that here the actionof a )oard of 4irectors is an abuse of discretion, or forbidden by statute, or is against public policy, or is ultra vires, or is a fraud upon minority stoc;holders or creditors, or ill result in aste, dissipation or misapplication of the corporation assets, a court of equity has the poer to grant appropriate relief. 50

III

1hether or not respondent SE" gravel a!used its discretion in dening petitioner8s re3uest for an



examination of the records of San 'iguel 7nternational 7nc., a full owned su!sidiar of San 'iguel "orporation 4

espondent :an Ciguel 1orporation stated in its memorandum that petitionerOs claim that he asdenied inspection rights as stoc;holder of :C1 Las made in the teeth of undisputed facts that, over aspecific period, petitioner had been furnished numerous documents and information,L to it3 !/ acomplete list of stoc;holders and their stoc;holdings5 6/ a complete list of pro-ies given by thestoc;holders for use at the annual stoc;holdersO meeting of Cay !%, !"#$5 */ a copy of the minutes of the stoc;holdersO meeting of Carch !%,!"#5 / a brea;don of :C1Os 2!%. million investment inassociated companies and other companies as of 4ecember *!, !"#$5 $/ a listing of the salaries,alloances, bonuses and other compensation or remunerations received by the directors andcorporate officers of :C15 / a copy of the : U!++ million ?uro74ollar @oan Agreement of :C15 and#/ copies of the minutes of all meetings of the )oard of 4irectors from Banuary !"#$ to Cay !"#,ith deletions of sensitive data, hich deletions ere not ob>ected to by petitioner.

Further, it as averred that upon request, petitioner as informed in riting on :eptember !%, !"#5!/ that :C1Os foreign investments are handled by :an Ciguel International, Inc., incorporated in)ermuda and holly oned by :C15 this as :C1Os first venture abroad, having started in !"% ithan initial outlay of S$++,+++.++, augmented by a loan of 0ong;ong U million from a foreign ban;under the personal guaranty of :C1Os former 2resident, the late 1ol. Andres :oriano5 6/ that as of

4ecember *!, !"#$, the estimated value of :CI ould amount to almost 2++ million */ that the totalcash dividends received by :C1 from :CI since !"$* has amount to : U ". million5 and / thatfrom !"#67!"#$, :CI did not declare cash or stoc; dividends, all earnings having been used in lineith a program for the setting up of breeries by :CI

These averments are supported by the affidavit of the 1orporate :ecretary, enclosing photocopies of the afore7mentioned documents. 51

2ursuant to the second paragraph of section $! of the 1orporation @a, Lt/he record of all businesstransactions of the corporation and minutes of any meeting shall be open to the inspection of anydirector, member or stoc;holder of the corporation at reasonable hours.L

The stoc;holderOs right of inspection of the corporationOs boo;s and records is based upon their onership of the assets and property of the corporation. It is, therefore, an incident of onership of the

corporate property, hether this onership or interest be termed an equitable onership, a beneficialonership, or a onership. 52This right is predicated upon the necessity of self7protection. It isgenerally held by ma>ority of the courts that here the right is granted by statute to the stoc;holder, itis given to him as such and must be e-ercised by him ith respect to his interest as a stoc;holder andfor some purpose germane thereto or in the interest of the corporation. 53 In other ords, theinspection has to be germane to the petitionerOs interest as a stoc;holder, and has to be proper andlaful in character and not inimical to the interest of the corporation. 5/ In 5re v. 7nsular $um!er, 55 this 1ourt held that Lthe right to e-amine the boo;s of the corporation must be e-ercised ingood faith, for specific and honest purpose, and not to gratify curiosity, or for specific and honestpurpose, and not to gratify curiosity, or for speculative or ve-atious purposes. The eight of >udicialopinion appears to be, that on application for mandamus to enforce the right, it is proper for the courtto inquire into and consider the stoc;holderOs good faith and his purpose and motives in see;ing

inspection. 5 Thus, it as held that Lthe right given by statute is not absolute and may be refusedhen the information is not sought in good faith or is used to the detriment of the corporation.L 57 )utthe Limpropriety of purpose such as ill defeat enforcement must be set up the corporation defensivelyif the 1ourt is to ta;e cogni&ance of it as a qualification. In other ords, the specific provisions ta;efrom the stoc;holder the burden of shoing propriety of purpose and place upon the corporation theburden of shoing impropriety of purpose or motive. 58 It appears to be the general rule thatstoc;holders are entitled to full information as to the management of the corporation and the manner of e-penditure of its funds, and to inspection to obtain such information, especially here it appearsthat the company is being mismanaged or that it is being managed for the personal benefit of officersor directors or certain of the stoc;holders to the e-clusion of others.L 59



Nhile the right of a stoc;holder to e-amine the boo;s and records of a corporation for a laful purposeis a matter of la, the right of such stoc;holder to e-amine the boo;s and records of a holly7onedsubsidiary of the corporation in hich he is a stoc;holder is a different thing.

:ome state courts recogni&e the right under certain conditions, hile others do not. Thus, it has beenheld that here a corporation ons appro-imately no property e-cept the shares of stoc; of subsidiarycorporations hich are merely agents or instrumentalities of the holding company, the legal fiction of distinct corporate entities may be disregarded and the boo;s, papers and documents of all thecorporations may be required to be produced for e-amination, 0 and that a rit of mandamus, maybe granted, as the records of the subsidiary ere, to all incontents and purposes, the records of theparent even though subsidiary as not named as a party. 1 mandamus as li;eise held proper toinspect both the subsidiaryOs and the parent corporationOs boo;s upon proof of sufficient control or dominion by the parent shoing the relation of principal or agent or something similar thereto. 2

En the other hand, mandamus at the suit of a stoc;holder as refused here the subsidiarycorporation is a separate and distinct corporation domiciled and ith its boo;s and records in another

>urisdiction, and is not legally sub>ect to the control of the parent company, although it oned a vastma>ority of the stoc; of the subsidiary. 3 @i;eise, inspection of the boo;s of an allied corporation bystoc;holder of the parent company hich ons all the stoc; of the subsidiary has been refused on theground that the stoc;holder as not ithin the class of Lpersons having an interest.L /

In the *ash case, 5 The :upreme 1ourt of De or; held that the contractual right of former stoc;holders to inspect boo;s and records of the corporation included the right to inspect corporationOssubsidiariesO boo;s and records hich ere in corporationOs possession and control in its office in Deor;.L

In the Baile case, stoc;holders of a corporation ere held entitled to inspect the records of acontrolled subsidiary corporation hich used the same offices and had Identical officers and directors.

In his Lrgent Cotion for 2roduction and Inspection of 4ocumentsL before respondent :?1, petitioner contended that respondent corporation Lhad been attempting to suppress information for thestoc;holdersL and that petitioner, Las stoc;holder of respondent corporation, is entitled to copies of some documents hich for some reason or another, respondent corporation is very reluctant inrevealing to the petitioner notithstanding the fact that no harm ould be caused thereby to the

corporation.L 7 There is no question that stoc;holders are entitled to inspect the boo;s and records of a corporation in order to investigate the conduct of the management, determine the financial conditionof the corporation, and generally ta;e an account of the steardship of the officers and directors. 8

In the case at bar, considering that the foreign subsidiary is holly oned by respondent :an Ciguel1orporation and, therefore, under its control, it ould be more in accord ith equity, good faith and fair dealing to construe the statutory right of petitioner as stoc;holder to inspect the boo;s and records of the corporation as e-tending to boo;s and records of such holly subsidiary hich are in respondentcorporationOs possession and control.

IV

1hether or not respondent SE" gravel a!used its discretion in allowing the stoc(holders of respondent corporation to ratif the investment of corporate funds in a foreign corporation

2etitioner reiterates his contention in :?1 1ase Do. !6* that respondent corporation investedcorporate funds in :CI ithout prior authority of the stoc;holders, thus violating section !#7!=6 of the1orporation @a, and alleges that respondent :?1 should have investigated the charge, being astatutory offense, instead of alloing ratification of the investment by the stoc;holders.

espondent :?1Os position is that submission of the investment to the stoc;holders for ratification is asound corporate practice and should not be tharted but encouraged.

:ection !#7!=6 of the 1orporation @a allos a corporation to Linvest its funds in any other corporationor business or for any purpose other than the main purpose for hich it as organi&edL provided that



its )oard of 4irectors has been so authori&ed by the affirmative vote of stoc;holders holding sharesentitling them to e-ercise at least to7thirds of the voting poer. If the investment is made inpursuance of the corporate purpose, it does not need the approval of the stoc;holders. It is only henthe purchase of shares is done solely for investment and not to accomplish the purpose of itsincorporation that the vote of approval of the stoc;holders holding shares entitling them to e-ercise atleast to7thirds of the voting poer is necessary. 9

As stated by respondent corporation, the purchase of beer manufacturing facilities by :C1 as aninvestment in the same business stated as its main purpose in its Articles of Incorporation, hich is tomanufacture and mar;et beer. It appears that the original investment as made in !"#7!"%, hen:C1, then :an Ciguel )reery, Inc., purchased a beer breery in 0ong;ong 0ong;ong )reery R4istillery, @td./ for the manufacture and mar;eting of :an Ciguel beer thereat. estructuring of theinvestment as made in !"#+7!"#! thru the organi&ation of :CI in )ermuda as a ta- freereorgani&ation.

nder these circumstances, the ruling in De la #ama v. 'anao Sugar "entral "o., 7nc.,supra, appears relevant. In said case, one of the issues as the legality of an investment made byCanao :ugar 1entral 1o., Inc., ithout prior resolution approved by the affirmative vote of 6=* of thestoc;holdersO voting poer, in the 2hilippine Fiber 2rocessing 1o., Inc., a company engaged in themanufacture of sugar bags. The loer court said that Lthere is more logic in the stand that if the

investment is made in a corporation hose business is important to the investing corporation andould aid it in its purpose, to require authority of the stoc;holders ould be to unduly curtail the poer of the )oard of 4irectors.L This 1ourt affirmed the ruling of the court a 3uo on the matter and, quoting2rof. :ulpicio :. Guevara, said3

L>. Power to ac3uire or dispose of shares or securities. Q A private corporation, in order to accomplish is purpose as stated in its articles of incorporation, and sub>ect to thelimitations imposed by the 1orporation @a, has the poer 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 stoc(holders !ut when the purchase of sharesof another corporation is done solel for investment and not to accomplish the purposeof its incorporation, the vote of approval of the stoc(holders is necessar . In any case,

the purchase of such shares or securities must be sub>ect to the limitations establishedby the 1orporations la5 namely, a/ that no agricultural or mining corporation shall berestricted to on not more than !$P of the voting stoc; of nay agricultural or miningcorporation5 and c/ that such holdings shall be solely for investment and not for thepurpose of bringing about a monopoly in any line of commerce of combination inrestraint of trade.L The 2hilippine 1orporation @a by :ulpicio :. Guevara, !"# ?d., p.%"/ ?mphasis supplied./

+. Power to invest corporate funds. Q A private corporation has the poer to invest itscorporate funds Lin any other corporation or business, or for any purpose other than themain purpose for hich it as organi&ed, provide that Oits board of directors has been soauthori&ed in a resolution by the affirmative vote of stoc;holders holding shares in the

corporation entitling them to e-ercise at least to7thirds of the voting poer on such apropose at a stoc;holdersO meeting called for that purpose,O and provided further, thatno agricultural or mining corporation shall in anyise be interested in any other agricultural or mining corporation. 1hen the investment is necessar to accomplish its

purpose or purposes as stated in its articles of incorporation the approval of thestoc(holders is not necessar .LL 7d ., p. !+%/ ?mphasis ours./ pp. 6$%76$"/.

Assuming arguendo that the )oard of 4irectors of :C1 had no authority to ma;e the assailedinvestment, there is no question that a corporation, li;e an individual, may ratify and thereby render binding upon it the originally unauthori&ed acts of its officers or other agents. 70 This is true becausethe questioned investment is neither contrary to la, morals, public order or public policy. It is a



corporate transaction or contract hich is ithin the corporate poers, but hich is defective from asupported failure to observe in its e-ecution the. requirement of the la that the investment must beauthori&ed by the affirmative vote of the stoc;holders holding to7thirds of the voting poer. Thisrequirement is for the benefit of the stoc;holders. The stoc;holders for hose benefit the requirementas enacted may, therefore, ratify the investment and its ratification by said stoc;holders obliteratesany defect hich it may have had at the outset. LCere ultra vires actsL, said this 1ourt in2irovano, 71 Lor those hich are not illegal and void a! initio, but are not merely ithin the scope of

the articles of incorporation, are merely voidable and may become binding and enforceable henratified by the stoc;holders.

)esides, the investment as for the purchase of beer manufacturing and mar;eting facilities hich isapparently relevant to the corporate purpose. The mere fact that respondent corporation submitted theassailed investment to the stoc;holders for ratification at the annual meeting of Cay !+, !"## cannotbe 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 stoc;holders the acts of their directors, officers and managers.

N0??FE?, >udgment is hereby rendered as follos3

The 1ourt voted unanimously to grant the petition insofar as it prays that petitioner be alloed toe-amine the boo;s and records of :an Ciguel International, Inc., as specified by him.

En the matter of the validity of the amended by7las of respondent :an Ciguel 1orporation, si- /Bustices, namely, Bustices )arredo, Ca;asiar, Antonio, :antos, Abad :antos and 4e 1astro, voted tosustain the validity per se of the amended by7las in question and to dismiss the petition ithoutpre>udice to the question of the actual disqualification of petitioner Bohn Go;ongei, Br. to run and if elected to sit as director of respondent :an Ciguel 1orporation being decided, after a ne and proper hearing by the )oard of 4irectors of said corporation, hose decision shall be appealable to therespondent :ecurities and ?-change 1ommission deliberating and acting en !anc and ultimately tothis 1ourt. nless disqualified in the manner herein provided, the prohibition in the afore7mentionedamended by7las shall not apply to petitioner.

The afore7mentioned si- / Bustices, together ith Bustice Fernando, voted to declare the issue onthe validity of the foreign investment of respondent corporation as moot.

1hief Bustice Fred ui& 1astro reserved his vote on the validity of the amended by7las, pendinghearing by this 1ourt on the applicability of section !*$/ of the 1orporation @a to petitioner.

Bustice Fernando reserved his vote on the validity of sub>ect amendment to the by7las but otheriseconcurs in the result.

Four / Bustices, namely, Bustices Teehan;ee, 1oncepcion, Br., Fernande& and Guerrero filed aseparate opinion, herein they voted against the validity of the questioned amended bylas and thatthis question should properly be resolved first by the :?1 as the agency of primary >urisdiction. Theyconcur in the result that petitioner may be alloed to run for and sit as director of respondent :C1 inthe scheduled Cay , !"#" election and subsequent elections until disqualified after proper hearing bythe respondentOs )oard of 4irectors and petitionerOs disqualification shall have been sustained byrespondent :?1 en !anc and ultimately by final >udgment of this 1ourt.

In resume, sub>ect to the qualifications aforestated >udgment is hereby rendered GADTIDG thepetition by alloing petitioner to e-amine the boo;s and records of :an Ciguel International, Inc. asspecified in the petition. The petition, insofar as it assails the validity of the amended by7 las and theratification of the foreign investment of respondent corporation, for lac; of necessary votes, is hereby4I:CI::?4. Do costs.

'a(asiar, Santos A!ad Santos and De "astro, CC., concur.

A3uino, and 'elencio :errera CC., too( no part.



[G.R. No. 125778. $(e 10, 2003]

INTERASIA IN#EST*ENTS IN%STRIES, INC., petitioner, vs. CORT O! A""EALS '() ASIAIN%STRIES, INC., respondents.

% E C I S I O N

CAR"IO*ORALES, J .

The present petition for revie on certiorari assails the 1ourt of Appeals 4ecision8!9 of Banuary6$, !"" and esolution869 of Buly !!, !"".

The material facts of the case are as follos3

En :eptember !, !"#%, Inter7Asia Industries, Inc. petitioner/, by a :toc; 2urchase

Agreement8*9 the Agreement/, sold to Asia Industries, Inc. private respondent/ for and inconsideration of the sum of 2!",$++,+++.++ all its right, title and interest in and to all the outstandingshares of stoc; of FACA1E, ID1. FACA1E/.89 The Agreement as signed by @eonides 2.Gon&ales and Besus B. Vergara, presidents of petitioner and private respondent, respectively.8$9

nder paragraph # of the Agreement, petitioner as seller made arranties and representationsamong hich ere 'iv./ 8t9he audited financial statements of FACA1E at and for the year ended4ecember *!, !"##... and the audited financial statements of FACA1E as of :eptember *+, !"#%being prepared by :8ycip,9 G8orres,9 V8elayo and 1o.9... fairly present or ill present the financialposition of FACA1E and the results of its operations as of said respective dates5 said financialstatements sho or ill sho all liabilities and commitments of FACA1E, direct or contingent, as of said respective dates . . .(5 and 'v./ 8t9he Cinimum Guaranteed Det North of FACA1E as of

:eptember *+, !"#% shall be Telve Cillion 2esos 2!6,+++,+++.++/.(89

The Agreement as later amended ith respect to the '1losing 4ate,( originally set up at !+3++a.m. of :eptember *+, !"#%, hich as moved to Ectober *!, !"#%, and to the mode of payment of the purchase price.8#9

The Agreement, as amended, provided that pending submission by :GV of FACA1E’saudited financial statements as of Ectober *!, !"#%, private respondent may retain the sum of 2#,$++,+++.++ out of the stipulated purchase price of 2!",$++,+++.++5 that from this retained amountof 2#,$++,+++.++, private respondent may deduct any shortfall on the Cinimum Guaranteed Det Northof 2!6,+++,+++.++58%9 and that if the amount retained is not sufficient to ma;e up for the deficiency inthe Cinimum Guaranteed Det North, petitioner shall pay the difference ithin days from date of receipt of the audited financial statements.8"9

espondent paid petitioner a total amount of 2 !6,+++,+++.++3 2$,+++,+++.++ upon the signing of the Agreement, and 2#,+++,+++.++ on Dovember 6, !"#%.8!+9

From the :TAT?C?DT EF ID1EC? AD4 4?FI1IT attached to the financial report 8!!9 datedDovember 6%, !"#% submitted by :GV, it appears that FACA1E had, for the ten months endedEctober *!, !"#%, a deficit of 2!!,6,66$.++.8!69 :ince the stoc;holder’s equity amounted to2!+,+++,+++.++, FACA1E had a net orth deficiency of 2!,6,66$.++. The guaranteed net orth

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shortfall thus amounted to 2!*,6,66$.++ after adding the net orth deficiency of 2!,6,66$.++ tothe Cinimum Guaranteed Det North of 2!6,+++,+++.++.

The ad>usted contract price, therefore, amounted to 2,66$,##$.++ hich is the differencebeteen the contract price of 2!",$++,+++.++ and the shortfall in the guaranteed net orth of 2!*,66,66$.++. 2rivate respondent having already paid petitioner 2!6,+++,+++.++, it as entitled to arefund of 2$,#,66$.++.

2etitioner thereafter proposed, by letter 8!*9 of Banuary 6, !"%+, signed by its president, thatprivate respondent’s claim for refund be reduced to 2,+"*,""*.++, it promising to pay the cost of theDorthern 1otabato Industries, Inc. DE1E:II/ superstructures in the amount of 2#$",$#+.++. To theproposal respondent agreed. 2etitioner, hoever, eiched on its promise. 2etitioner’s total liabilitythus stood at 2,%$*,$+*.++ 2,+"*,""*.++ plus 2#$",$#+.++/8!9 e-clusive of interest.8!$9

En April $, !"%*, private respondent filed a complaint8!9 against petitioner ith the egional Trial1ourt of Ca;ati, one of to causes of action of hich as for the recovery of above7said amount of 2,%$*,$+*.++8!#9 plus interest.

4enying private respondent’s claim, petitioner countered that private respondent failed to pay thebalance of the purchase price and accordingly set up a counterclaim.

Finding for private respondent, the trial court rendered on Dovember 6#, !""! a 4ecision, 8!%9 thedispositive portion of hich reads3

N0??FE?, >udgment is rendered in favor of plaintiff and against defendant a/ ordering the latterto pay to the former the sum of 2,%$*,$+*.++8!"9plus interest thereon at the legal rate from the filingof the complaint until fully paid, the sum of 2*+,+++.++ as attorney’s fees and the costs of suit5 and b/dismissing the counterclaim.

:E E4??4.

En appeal to the 1ourt of Appeals, petitioner raised the folloing errors3T0? TIA@ 1ET ??4 ID 0E@4IDG T0? 4?F?D4ADT @IA)@? D4? T0? FI:T 1A:?EF A1TIED 2@?A4?4 ) T0? 2@AIDTIFF.

T0? TIA@ 1ET ??4 ID ANA4IDG ATTED?’: F??: AD4 ID 4I:CI::IDG T0?1EDT?1@AIC.

T0? TIA@ 1ET ??4 ID ?D4?IDG B4GC?DT ID FAVE EF T0? 2@AIDTIFF, T0? A@@?G?4 )?A10 EF NAADTI?: AD4 ?2?:?DTATIED DET 0AVIDG )??D :0END,C10 @?:: ?:TA)@I:0?4 ) T0? [email protected]+9

)y 4ecision of Banuary 0, !"", the 1ourt of Appeals affirmed the trial court’s decision.2etitioner’s motion for reconsideration of the decision having been denied by the 1ourt of Appeals by

esolution of Buly !!, !"", the present petition for revie on certiorari as filed, assigning thefolloing errors3

I

T0? ?:2ED4?DT 1ET ??4 ID DET 0E@4IDG T0AT T0? @?TT? EF T0? 2?:I4?DTEF T0? 2?TITIED? I: DET )ID4IDG ED T0? 2?TITIED? )?IDG @TA VI?:.

II



















T0? @?TT? 1AD DET )? AD A4CI::IED AD4 NAIV? EF T0? 2?TITIED? A: A1E2EATIED.

III

T0? ?:2ED4?DT 1ET ??4 ID DET 4?1@AIDG T0AT T0?? I: DE )?A10 EFNAADTI?: AD4 ?2?:?DTATIED A: A@@?G?4 ) T0? 2IVAT? ?:2ED4?DT.

I#

T0? ?:2ED4?DT 1ET ??4 ID E4?IDG T0? 2?TITIED? TE 2A ATTED?’:F??: AD4 ID ::TAIDIDG T0? 4I:CI::A@ EF T0? 1EDT?1@AIC.!% nderscoring in theoriginal/

2etitioner argues that the Banuary 6, !"%+ letter7proposal for the reduction of privaterespondent’s claim for refund upon petitioner’s promise to pay the cost of DE1E:II superstructures inthe amount of 2#$",$#+.++/ hich as signed by its president has no legal force and effect against itas it as not authori&ed by its board of directors, it citing the 1Erporation @a hich provides thatunless the act of the president is authori&ed by the board of directors, the same is not binding on it.

This 1ourt is not persuaded.

The Banuary 6, !"%+ letter signed by petitioner’s president is valid and binding. The caseof Peoples Aircargo and 1arehousing "o., 7nc. v. "ourt of Appeals+ instructs3

Te :e(er' re ; t't, ( te 'b;e(ce o< 'tort= <ro> te bo'r) o< )rector;, (o er;o(, (ote?e( t; o<<cer;, c'( ?')= b() ' coror'to(. A corporation is a >uridical person, separate anddistinct from its stoc;holders and members, 'having - - - poers, attributes and properties e-presslyauthori&ed by la or incident to its e-istence.(

)eing a >uridical entity, a corporation may act through its board of directors, hich e-ercises almost allcorporate poers, lays don all corporate business policies and is responsible for the efficiency ofmanagement, as provided in :ection 6* of the 1orporation 1ode of the 2hilippines3

:?1. 6*. The Board of Directors or Trustees. 7 nless otherise provided in this 1ode, the corporatepoers of all corporations formed under this 1ode shall be e-ercised, all business conducted and allproperty of such corporations controlled and held by the board of directors or trustees - - -.

nder this provision, the poer and responsibility to decide hether the corporation should enter intoa contract that ill bind the corporation is lodged in the board, sub>ect to the articles of incorporation,bylas, or relevant provisions of la. Ho@e?er, ;t '; ' ('tr' er;o( >'= 'torBe '(oter to)o cert'( 'ct; <or '() o( ; be'<, te bo'r) o< )rector; >'= ?')= )ee:'te ;o>e o< t;<(cto(; '() o@er; to o<<cer;, co>>ttee; or ':e(t;. Te 'tort= o< ;c ()?)'; tob() te coror'to( ; :e(er'= )er?e) <ro> '@, coror'te b='@; or 'torB'to( <ro> tebo'r), eter ere;;= or >e)= b= 'bt, c;to> or 'cDe;ce(ce ( te :e(er' cor;e o<b;(e;;, viz:

A corporate officer or agent may represent and bind the corporation in transactions ith third personsto the e-tent that 8the9 authority to do so has been conferred upon him, and this includes poers as, inthe usual course of the particular business, are incidental to, or may be implied from, the poersintentionally conferred, poers added by custom and usage, as usually pertaining to the particularofficer or agent, and such apparent poers as the corporation has caused person dealing ith theofficer or agent to believe that it has conferred.

- - -

[A]'re(t 'tort= ; )er?e) (ot >ere= <ro> r'ctce. It; e;te(ce >'= be ';cert'(e)


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tro: !/ the general manner in hich the corporation holds out an officer or agent as having thepoer to act or, in other ords the apparent authority to act in general, ith hich it clothes him5 or6/ te 'cDe;ce(ce ( ; 'ct; o< ' 'rtc'r ('tre, @t 'ct' or co(;trct?e (o@e):etereo<, @t( or be=o() te ;coe o< ; or)('r= o@er;.It reDre; re;e(t'to( o< e?)e(ce o< ;>'r 'ctF; eecte) eter ( t; <'?or or( <'?or o< oter 'rte;. It ; (ot te D'(tt= o< ;>'r 'ct;@c e;t'b;e;''re(t 'tort=, bt te ?e;t(: o< ' coror'te o<<cer @t o@er to b() te coror'to(.

- - - ?mphasis and underscoring supplied/

As correctly argued by private respondent, an officer of a corporation ho is authori&ed topurchase the stoc; of another corporation has the implied poer to perform all other obligationsarising therefrom, such as payment of the shares of stoc;. )y alloing its president to sign the

Agreement on its behalf, petitioner clothed him ith apparent capacity to perform all acts hich aree-pressly, impliedly and inherently stated therein.86!9

2etitioner further argues that hen the Agreement as e-ecuted on :eptember !, !"#%, itsfinancial statements ere e-tensively e-amined and accepted as correct by private respondent,hence, it cannot later be disproved 'by resorting to some scheme such as future financialauditing5(8669 and that it should not be bound by the :GV eport because it is self7serving and biased,:GV having been hired solely by private respondent, and the alleged shortfall of FACA1Eoccurred only after the e-ecution of the Agreement.

This 1ourt is not persuaded either.

The pertinent provisions of the Agreement read3

#. Narranties and epresentations 7 a/ SELLER @'rr'(t; '() rere;e(t; '; <oo@;

- - -

iv/ The audited financial statements of FACA1E as at and for the year ended 4ecember *!,

!"## andthe ')te) <('(c' ;t'te>e(t;o< !AR*ACOR '; 't Sete>ber 30, 1978 be(: re're) b= SG# r;'(t to 'r':r' Fb <'r= re;e(t or @ re;e(t te<('(c' o;to( o< !AR*ACOR'() te re;t; o< t; oer'to(; '; o< ;') re;ect?e )'te; ;') <('(c' ;t'te>e(t; ;o@ or@ ;o@ ' 'bte; '() co>>t>e(t; o< !AR*ACOR, )rect or co(t(:e(t, '; o< ;')re;ect?e )'te; and the receivables set forth in said financial statements are fully due andcollectible, free and clear of any set7offs, defenses, claims and other impediments to their collectibility.

v/ Te *(>> G'r'(tee) Net -ort o< !AR*ACOR '; o< Sete>ber 30, 1978 ;' beT@e?e *o( "e;o; F"12,000,000.00, "(e Crre(c=.

- - - nderscoring in the original5 emphasis supplied/86*9

True, private respondent accepted as correct the financial statements submitted to it hen the Agreement as e-ecuted on :eptember !, !"#%. )ut petitioner ere;;= arranted that the :GVeports 'fairly present or ill present the financial position of FACA1E.( )y such arranty,petitioner is estopped from claiming that the :GV eports are self7serving and biased.

As to the claim that the shortfall occurred after the e-ecution of the Agreement, the declaration of ?mmanuel de Asis, supervisor in the Accounting 4ivision of :GV and head of the team hichconducted the auditing of FACA1E, that the period covered by the audit as from Banuary toEctober !"#% shos that the period be<ore the Agreement as entered into on :eptember !, !"#%/as covered.869











As to petitioner’s assigned error on the aard of attorney’s fees hich, it argues, is bereft of factual, legal and equitable >ustification, this 1ourt finds the same ell7ta;en.

En the matter of attorney’s fees, it is an accepted doctrine that the aard thereof as an item ofdamages is the e-ception rather than the rule, and counsel’s fees are not to be aarded every time aparty ins a suit. Te o@er o< te cort to '@'r) 'ttor(e=; <ee; ()er Artce 2208 o<te C? Co)e)e>'(); <'ct', e:' '() eDt'be ;t<c'to(, @tot @c te '@'r) ;' co(c;o( @tot ' re>;e, t; b';; be(: >roer= e<t to;ec'to( '() co(ectre. I(' e?e(t;, te cort >;t ect= ;t'te ( te tet o< te )ec;o(, '() (ot o(= ( te )ecret'orto( tereo<, te e:' re';o( <or te '@'r) o< 'ttor(e=; <ee;.[25]

- - - ?mphasis and underscoring supplied5 citations omitted/

-HERE!ORE, the instant petition is 2AT@ GADT?4. The assailed decision of the 1ourt of Appeals affirming that of the trial court is modified in that the aard of attorney’s fees in favor of private respondent is deleted. The decision is affirmed in other respects.

SO OR%ERE%.

[G.R. No. 1//77. *'rc 21, 2002]

%IL6 %AN6 NAC"IL, petitioner , vs. INTERNATIONAL &ROA%CASTINGCOR"ORATION, respondent .

% E C I S I O N

A"NAN, J.

This is a petition for revie on certiorari under ule $, assailing the 4ecision of the 1ourt of Appeals dated Dovember 6*, !""" in 1A7G.. :2 Do. $6#$$8!9 and the esolution dated August *!,6+++ denying petitioner 4ily 4any DacpilOs motion for reconsideration. The 1ourt of Appeals reversedthe decisions promulgated by the @abor Arbiter and the Dational @abor elations 1ommission D@1/,hich consistently ruled in favor of petitioner.

2etitioner states that he as Assistant General Canager for Finance=Administration and1omptroller of private respondent Intercontinental )roadcasting 1orporation I)1/ from !"" until April!""#. According to petitioner, hen ?miliano Templo as appointed to replace I)1 2resident Tomas

Gome& III sometime in Carch !""#, the former told the )oard of 4irectors that as soon as he assumesthe I)1 presidency, he ould terminate the services of petitioner. Apparently, Templo blamedpetitioner, along ith a certain Cr. )asilio and Cr. Gome&, for the prior mismanagement of I)1. ponhis assumption of the I)1 presidency, Templo allegedly harassed, insulted, humiliated and pressuredpetitioner into resigning until the latter as forced to retire. 0oever, Templo refused to pay him hisretirement benefits, allegedly because he had not yet secured the clearances from the 2residential1ommission on Good Government and the 1ommission on Audit. Furthermore, Templo allegedlyrefused to recogni&e petitioner’s employment, claiming that petitioner as not the Assistant GeneralCanager=1omptroller of I)1 but merely usurped the poers of the 1omptroller. 0ence, in !""#,petitioner filed ith the @abor Arbiter a complaint for illegal dismissal and non7payment of benefits.


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T0? 1ECCED, 1ED:I:T?DT 2E:ITIED AD4 A4CI::IED EF )ET0 2ATI?:. FT0?,?:2ED4?DT’: )7@AN: 4E?: DET ID1@4? 1EC2TE@@? A: ED? EF IT: 1E2EAT?EFFI1?:.

II.

T0? 1ET EF A22?A@: N?DT )?ED4 T0? I::? EF T0? 1A:? N0?D IT :):TITT?4

T0? DATIEDA@ @A)E ?@ATIED: 1ECCI::IED’: 4?1I:IED TE A22@ T0? A22?A@ )ED4?<I?C?DT :TI1T@ ID T0? ID:TADT 1A:?. T0? ED@ I::? FE IT: 4?T?CIDATIEDI: N0?T0? D@1 1ECCITT?4 GAV? A):? EF 4I:1?TIED ID 4EIDG T0? :AC?.8#9

The issue to be resolved is hether the @abor Arbiter had >urisdiction over the case for illegaldismissal and non7payment of benefits filed by petitioner. The 1ourt finds that the @abor Arbiter hadno >urisdiction over the same.

nder 2residential 4ecree Do. "+67A the evised :ecurities Act/, the la in force hen thecomplaint for illegal dismissal as instituted by petitioner in !""#, the folloing cases fall under the e-clusive of the :?13

a/ 4evices or schemes employed by or any acts of the board of directors, business associates, its

officers or partners, amounting to fraud and misrepresentation hich may be detrimental to theinterest of the public and=or of the stoc;holders, partners, members of associations or organi&ationsregistered ith the 1ommission5

b/ 1ontroversies arising out of intra7corporate or partnership relations, beteen and amongstoc;holders, members or associates5 beteen any or all of them and the corporation, partnership orassociation of hich they are stoc;holders, members or associates, respectively5 and beteen suchcorporation, partnership or association and the :tate insofar as it concerns their individual franchise or right to e-ist as such entity5

c Co(tro?er;e; ( te eecto( or 'o(t>e(t o< )rector;, tr;tee;, o<<cer;, or >'(':er;o< ;c coror'to(;, 'rt(er;; or ';;oc'to(;

d/ 2etitions of corporations, partnerships, or associations to be declared in the state of suspensionof payments in cases here the corporation, partnership or association possesses property to coverall of its debts but foresees the impossibility of meeting them hen they respectively fall due or incases here the corporation, partnership or association has no sufficient assets to cover its liabilities,but is under the Canagement 1ommittee created pursuant to this decree. ?mphasis supplied./

The 1ourt has consistently held that there are to elements to be considered in determininghether the :?1 has >urisdiction over the controversy, to it3 !/ the status or relationship of theparties5 and 6/ the nature of the question that is the sub>ect of their controversy.8%9

2etitioner argues that he is not a corporate officer of the I)1 but an employee thereof since hehad not been elected nor appointed as 1omptroller and Assistant Canager by the I)1’s )oard of

4irectors. 0e points out that he had actually been appointed as such on Banuary !!, !""$ by theI)1’s General Canager, 1eferino )asilio. In support of his argument, petitioner underscores the factthat the I)1’s )y7@as does not even include the position of comptroller in its roster of corporateofficers.8"9 0e therefore contends that his dismissal is a controversy falling ithin the >urisdiction of thelabor courts.8!+9

2etitioner’s argument is untenable. ?ven assuming that he as in fact appointed by the GeneralCanager, such appointment as subsequently approved by the )oard of 4irectors of the I)1.8!!9 That the position of 1omptroller is not e-pressly mentioned among the officers of the I)1 in the)y7@as is of no moment, because the I)1’s )oard of 4irectors is empoered under :ection 6$ of













the 1orporation 1ode8!69 and under the corporation’s )y7@as to appoint such other officers as it maydeem necessary. The )y7@as of the I)1 categorically provides3

JII. EFFI1?:

The officers of the corporation shall consist of a 2resident, a Vice72resident, a :ecretary7Treasurer, aGeneral Canager, '() ;c oter o<<cer; '; te &o'r) o< %rector; >'= <ro> t>e to t>e )oe;<t to ro?)e <or. S') o<<cer; ;' be eecte) b= >'ort= ?ote o< te &o'r) o< %rector; and

shall have such poers and duties as shall hereinafter provide ?mphasis supplied/.8!*9

The 1ourt has held that in most cases the 'by7las may and usually do provide for such other officers,(8!9 and that here a corporate office is not specifically indicated in the roster of corporateoffices in the by7las of a corporation, the board of directors may also be empoered under the by7las to create additional officers as may be necessary.8!$9

An 'office( has been defined as a creation of the charter of a corporation, hile an 'officer( as aperson elected by the directors or stoc;holders. En the other hand, an 'employee( occupies no officeand is generally employed not by action of the directors and stoc;holders but by the managing officer of the corporation ho also determines the compensation to be paid to such employee.8!9

As petitioner’s appointment as comptroller required the approval and formal action of theI)1’s )oard of 4irectors to become valid,8!#9 it is clear therefore holds that petitioner is a corporateofficer hose dismissal may be the sub>ect of a controversy cogni&able by the :?1 under :ection $c/of 2.4. "+67A hich includes controversies involving both election and 'o(t>e(t of corporatedirectors, trustees, officers, and managers.8!%9 0ad petitioner been an ordinary employee, such boardaction ould not have been required.

Thus, the 1ourt of Appeals correctly held that3

:ince complainant’s appointment as approved unanimously by the )oard of 4irectors of thecorporation, he is therefore considered a corporate officer and his claim of illegal dismissal is acontroversy that falls under the >urisdiction of the :?1 as contemplated by :ection $ of 2.4. "+67A.

The rule is that dismissal or non7appointment of a corporate officer is clearly an intra7corporate matterand >urisdiction over the case properly belongs to the :?1, not to the [email protected]!"9

As to petitioner’s argument that the nature of his functions is recommendatory thereby ma;inghim a mere managerial officer, the 1ourt has previously held that the relationship of a person to acorporation, hether as officer or agent or employee is not determined by the nature of the servicesperformed, but instead by the incidents of the relationship as they actually e-ist.86+9

It is li;eise of no consequence that petitionerOs complaint for illegal dismissal includes moneyclaims, for such claims are actually part of the perquisites of his position in, and therefore lin;ed ithhis relations ith, the corporation. The inclusion of such money claims does not convert the issue intoa simple labor problem. 1learly, the issues raised by petitioner against the I)1 are matters that come

ithin the area of corporate affairs and management, and constitute a corporate controversy incontemplation of the 1orporation 1ode.86!9

2etitioner further argues that the I)1 failed to perfect its appeal from the @abor Arbiter’s 4ecisionfor its non7payment of the appeal bond as required under Article 66* of the @abor 1ode, sincecompliance ith the requirement of posting of a cash or surety bond in an amount equivalent to themonetary aard in the >udgment appealed from has been held to be both mandatory and >urisdictional.8669 0ence, the 4ecision of the @abor Arbiter had long become final and e-ecutory and thus, the 1ourtof Appeals acted ith grave abuse of discretion amounting to lac; or e-cess of >urisdiction in givingdue course to the I)1’s petition for certiorari, and in deciding the case on the merits.

























The I)1’s failure to post an appeal bond ithin the period mandated under Article 66* of the@abor 1ode has been rendered immaterial by the fact that the @abor Arbiter did not have >urisdictionover the case since as stated earlier, the same is in the nature of an intra7corporate controversy. The1ourt has consistently held that here there is a finding that any decision as rendered ithout

>urisdiction, the action shall be dismissed. :uch defense can be interposed at any time, during appealor even after final >udgment.86*9 It is a ell7settled rule that >urisdiction is conferred only by the1onstitution or by la. It cannot be fi-ed by the ill of the parties5 it cannot be acquired through,

enlarged or diminished by, any act or omission of the parties.869

1onsidering the foregoing, the 1ourt holds that no error as committed by the 1ourt of Appeals indismissing the case filed before the @abor Arbiter, ithout pre>udice to the filing of an appropriateaction in the proper court.

It must be noted that under :ection $.6 of the :ecurities egulation 1ode epublic Act Do.%#""/ hich as signed into la by then 2resident Boseph ?>ercito ?strada on Buly !", 6+++, the:?1’s >urisdiction over all cases enumerated in :ection $ of 2.4. "+67A has been transferred to theegional Trial 1ourts.86$9

-HERE!ORE, the petition is hereby 4I:CI::?4 and the 4ecision of the 1ourt of Appeals in 1A7

G.. :2 Do. $6#$$ is AFFIC?4.

SO OR%ERE%.







corpo case 3

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