G.R. No.

151969 September 4, 2009

VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA, RAY GAMBOA,

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

DECISION

BRION, J.:

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

THE FACTUAL ANTECEDENTS

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

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

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

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

In his nullification complaint3 before the RTC, Africa alleged that the election of Roxas
was contrary to Section 29, in relation to Section 23, of the Corporation Code of the
Philippines (Corporation Code). These provisions read:
Sec. 23. The board of directors or trustees. - Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled and
held by the board of directors or trustees to be elected from among the holders of
stocks, or where there is no stock, from among the members of the corporation, who
shall hold office for one (1) year until their successors are elected and qualified.

xxxx

Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in
the board of directors or trustees other than by removal by the stockholders or
members or by expiration of term, may be filled by the vote of at least a majority of the
remaining directors or trustees, if still constituting a quorum; otherwise, said
vacancies must be filled by the stockholders in a regular or special meeting called for
that purpose. A director or trustee so elected to fill a vacancy shall be elected only for
the unexpired term of his predecessor in office. xxx. [Emphasis supplied.]

Africa claimed that a year after Makalintal’s election as member of the VVCC Board in
1996, his [Makalintal’s] term – as well as those of the other members of the VVCC
Board – should be considered to have already expired. Thus, according to Africa, the
resulting vacancy should have been filled by the stockholders in a regular or special
meeting called for that purpose, and not by the remaining members of the VVCC
Board, as was done in this case.

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

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

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

THE PETITION

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

As framed by VVCC, the issue for resolution is whether the remaining directors of the
corporation’s Board, still constituting a quorum, can elect another director to fill in a
vacancy caused by the resignation of a hold-over director.
Citing law and jurisprudence, VVCC posits that the power to fill in a vacancy created
by the resignation of a hold-over director is expressly granted to the remaining
members of the corporation’s board of directors.

Under the above-quoted Section 29 of the Corporation Code, a vacancy occurring in

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

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

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

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

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

xxxx

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

It results that the practice of the directorate of filling vacancies by the action of
the directors themselves is valid. Nor can any exception be taken to the personality
of the individuals chosen by the directors to fill vacancies in the body. [Emphasis
supplied.]

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

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

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

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

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

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

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

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

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

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

VVCC’s construction of Section 29 of the Corporation Code on the authority to fill up

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

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

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

While the Court in El Hogar approved of the practice of the directors to fill vacancies in
the directorate, we point out that this ruling was made before the present Corporation
Code was enacted14 and before its Section 29 limited the instances when the
remaining directors can fill in vacancies in the board, i.e., when the remaining
directors still constitute a quorum and when the vacancy is caused for reasons other
than by removal by the stockholders or by expiration of the term.1avvphi1

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

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

WHEREFORE, we DENY the petitioners’ petition for review on certiorari, and

AFFIRM the partial decision of the Regional Trial Court, Branch 152, Manila,
promulgated on January 23, 2002, in Civil Case No. 68726. Costs against the
petitioners.

SO ORDERED.
G.R. No. 201298 February 5, 2014

RAUL C. COSARE, Petitioner,

vs.
BROADCOM ASIA, INC. and DANTE AREVALO, Respondents.

DECISION

REYES, J.:

Before the Court is a petition for review on certiorari1 under Rule 45 of the Rules of
Court, which assails the Decision2 dated November 24, 2011 and Resolution3 dated
March 26, 2012 of the Court of Appeals (CA) in CA-G.R. SP. No. 117356, wherein the
CA ruled that the Regional Trial Court (RTC), and not the Labor Arbiter (LA), had the
jurisdiction over petitioner Raul C. Cosare's (Cosare) complaint for illegal dismissal
against Broadcom Asia, Inc. (Broadcom) and Dante Arevalo (Arevalo), the President
of Broadcom (respondents).

The Antecedents

The case stems from a complaint4 for constructive dismissal, illegal suspension and
monetary claims filed with the National Capital Region Arbitration Branch of the
National Labor Relations Commission (NLRC) by Cosare against the respondents.

Cosare claimed that sometime in April 1993, he was employed as a salesman by

Arevalo, who was then in the business of selling broadcast equipment needed by
television networks and production houses. In December 2000, Arevalo set up the
company Broadcom, still to continue the business of trading communication and
broadcast equipment. Cosare was named an incorporator of Broadcom, having been
assigned 100 shares of stock with par value of ₱1.00 per share.5 In October 2001,
Cosare was promoted to the position of Assistant Vice President for Sales (AVP for
Sales) and Head of the Technical Coordination, having a monthly basic net salary and
average commissions of ₱18,000.00 and ₱37,000.00, respectively.6

Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcom’s Vice

President for Sales and thus, became Cosare’s immediate superior. On March 23,
2009, Cosare sent a confidential memo7 to Arevalo to inform him of the following
anomalies which were allegedly being committed by Abiog against the company: (a)
he failed to report to work on time, and would immediately leave the office on the
pretext of client visits; (b) he advised the clients of Broadcom to purchase camera
units from its competitors, and received commissions therefor; (c) he shared in the
"under the-table dealings" or "confidential commissions" which Broadcom extended to
its clients’ personnel and engineers; and (d) he expressed his complaints and disgust
over Broadcom’s uncompetitive salaries and wages and delay in the payment of other
benefits, even in the presence of office staff. Cosare ended his memo by clarifying
that he was not interested in Abiog’s position, but only wanted Arevalo to know of the
irregularities for the corporation’s sake.
Apparently, Arevalo failed to act on Cosare’s accusations. Cosare claimed that he
was instead called for a meeting by Arevalo on March 25, 2009, wherein he was
asked to tender his resignation in exchange for "financial assistance" in the amount of
₱300,000.00.8 Cosare refused to comply with the directive, as signified in a
letter9dated March 26, 2009 which he sent to Arevalo.

On March 30, 2009, Cosare received from Roselyn Villareal (Villareal), Broadcom’s
Manager for Finance and Administration, a memo10 signed by Arevalo, charging him
of serious misconduct and willful breach of trust, and providing in part:

1. A confidential memo was received from the VP for Sales informing me that you had
directed, or at the very least tried to persuade, a customer to purchase a camera from
another supplier. Clearly, this action is a gross and willful violation of the trust and
confidence this company has given to you being its AVP for Sales and is an attempt to
deprive the company of income from which you, along with the other employees of
this company, derive your salaries and other benefits. x x x.

2. A company vehicle assigned to you with plate no. UNV 402 was found abandoned
in another place outside of the office without proper turnover from you to this office
which had assigned said vehicle to you. The vehicle was found to be inoperable and
in very bad condition, which required that the vehicle be towed to a nearby auto repair
shop for extensive repairs.

3. You have repeatedly failed to submit regular sales reports informing the company
of your activities within and outside of company premises despite repeated reminders.
However, it has been observed that you have been both frequently absent and/or
tardy without proper information to this office or your direct supervisor, the VP for
Sales Mr. Alex Abiog, of your whereabouts.

4. You have been remiss in the performance of your duties as a Sales officer as
evidenced by the fact that you have not recorded any sales for the past immediate
twelve (12) months. This was inspite of the fact that my office decided to relieve you of
your duties as technical coordinator between Engineering and Sales since June last
year so that you could focus and concentrate [on] your activities in sales.11

Cosare was given forty-eight (48) hours from the date of the memo within which to
present his explanation on the charges. He was also "suspended from having access
to any and all company files/records and use of company assets effective
immediately."12 Thus, Cosare claimed that he was precluded from reporting for work
on March 31, 2009, and was instead instructed to wait at the office’s receiving section.
Upon the specific instructions of Arevalo, he was also prevented by Villareal from
retrieving even his personal belongings from the office.

On April 1, 2009, Cosare was totally barred from entering the company premises, and
was told to merely wait outside the office building for further instructions. When no
such instructions were given by 8:00 p.m., Cosare was impelled to seek the
assistance of the officials of Barangay San Antonio, Pasig City, and had the incident
reported in the barangay blotter.13
On April 2, 2009, Cosare attempted to furnish the company with a Memo14 by which
he addressed and denied the accusations cited in Arevalo’s memo dated March 30,
2009. The respondents refused to receive the memo on the ground of late filing,
prompting Cosare to serve a copy thereof by registered mail. The following day, April
3, 2009, Cosare filed the subject labor complaint, claiming that he was constructively
dismissed from employment by the respondents. He further argued that he was
illegally suspended, as he placed no serious and imminent threat to the life or property
of his employer and co-employees.15

In refuting Cosare’s complaint, the respondents argued that Cosare was neither
illegally suspended nor dismissed from employment. They also contended that
Cosare committed the following acts inimical to the interests of Broadcom: (a) he
failed to sell any broadcast equipment since the year 2007; (b) he attempted to sell a
Panasonic HMC 150 Camera which was to be sourced from a competitor; and (c) he
made an unauthorized request in Broadcom’s name for its principal, Panasonic USA,
to issue an invitation for Cosare’s friend, one Alex Paredes, to attend the National
Association of Broadcasters’ Conference in Las Vegas, USA.16 Furthermore, they
contended that Cosare abandoned his job17 by continually failing to report for work
beginning April 1, 2009, prompting them to issue on April 14, 2009 a
memorandum18 accusing Cosare of absence without leave beginning April 1, 2009.

The Ruling of the LA

On January 6, 2010, LA Napoleon M. Menese (LA Menese) rendered his

Decision19 dismissing the complaint on the ground of Cosare’s failure to establish that
he was dismissed, constructively or otherwise, from his employment. For the LA, what
transpired on March 30, 2009 was merely the respondents’ issuance to Cosare of a
show-cause memo, giving him a chance to present his side on the charges against
him. He explained:

It is obvious that [Cosare] DID NOT wait for respondents’ action regarding the
charges leveled against him in the show-cause memo. What he did was to pre-empt
that action by filing this complaint just a day after he submitted his written explanation.
Moreover, by specifically seeking payment of "Separation Pay" instead of
reinstatement, [Cosare’s] motive for filing this case becomes more evident. 20

It was also held that Cosare failed to substantiate by documentary evidence his
allegations of illegal suspension and non-payment of allowances and commissions.

Unyielding, Cosare appealed the LA decision to the NLRC.

The Ruling of the NLRC

On August 24, 2010, the NLRC rendered its Decision21 reversing the Decision of LA
Menese. The dispositive portion of the NLRC Decision reads:

WHEREFORE, premises considered, the DECISION is REVERSED and the

Respondents are found guilty of Illegal Constructive Dismissal. Respondents
BROADCOM ASIA, INC. and Dante Arevalo are ordered to pay [Cosare’s]
backwages, and separation pay, as well as damages, in the total amount of
₱1,915,458.33, per attached Computation.

SO ORDERED.22

In ruling in favor of Cosare, the NLRC explained that "due weight and credence is
accorded to [Cosare’s] contention that he was constructively dismissed by
Respondent Arevalo when he was asked to resign from his employment."23The fact
that Cosare was suspended from using the assets of Broadcom was also inconsistent
with the respondents’ claim that Cosare opted to abandon his employment.

Exemplary damages in the amount of ₱100,000.00 was awarded, given the NLRC’s
finding that the termination of Cosare’s employment was effected by the respondents
in bad faith and in a wanton, oppressive and malevolent manner. The claim for unpaid
commissions was denied on the ground of the failure to include it in the prayer of
pleadings filed with the LA and in the appeal.

The respondents’ motion for reconsideration was denied.24 Dissatisfied, they filed a
petition for certiorari with the CA founded on the following arguments: (1) the
respondents did not have to prove just cause for terminating the employment of
Cosare because the latter’s complaint was based on an alleged constructive
dismissal; (2) Cosare resigned and was thus not dismissed from employment; (3) the
respondents should not be declared liable for the payment of Cosare’s monetary
claims; and (4) Arevalo should not be held solidarily liable for the judgment award.

In a manifestation filed by the respondents during the pendency of the CA appeal,

they raised a new argument, i.e., the case involved an intra-corporate controversy
which was within the jurisdiction of the RTC, instead of the LA.25They argued that the
case involved a complaint against a corporation filed by a stockholder, who, at the
same time, was a corporate officer.

The Ruling of the CA

On November 24, 2011, the CA rendered the assailed Decision26 granting the
respondents’ petition. It agreed with the respondents’ contention that the case
involved an intra-corporate controversy which, pursuant to Presidential Decree No.
902-A, as amended, was within the exclusive jurisdiction of the RTC. It reasoned:

Record shows that [Cosare] was indeed a stockholder of [Broadcom], and that he was
listed as one of its directors. Moreover, he held the position of [AVP] for Sales which is
listed as a corporate office. Generally, the president, vice-president, secretary or
treasurer are commonly regarded as the principal or executive officers of a
corporation, and modern corporation statutes usually designate them as the officers
of the corporation. However, it bears mentioning that under Section 25 of the
Corporation Code, the Board of Directors of [Broadcom] is allowed to appoint such
other officers as it may deem necessary. Indeed, [Broadcom’s] By-Laws provides:

Article IV
Officer
 Section 1. Election / Appointment – Immediately after their election, the
Board of Directors shall formally organize by electing the President, the
Vice-President, the Treasurer, and the Secretary at said meeting.

The Board, may, from time to time, appoint such other officers as it
may determine to be necessary or proper. x x x

We hold that [the respondents] were able to present substantial evidence that [Cosare]
indeed held a corporate office, as evidenced by the General Information Sheet which
was submitted to the Securities and Exchange Commission (SEC) on October 22,
2009.27 (Citations omitted and emphasis supplied)

Thus, the CA reversed the NLRC decision and resolution, and then entered a new
one dismissing the labor complaint on the ground of lack of jurisdiction, finding it
unnecessary to resolve the main issues that were raised in the petition. Cosare filed a
motion for reconsideration, but this was denied by the CA via the Resolution28 dated
March 26, 2012. Hence, this petition.

The Present Petition

The pivotal issues for the petition’s full resolution are as follows: (1) whether or not the
case instituted by Cosare was an intra-corporate dispute that was within the original
jurisdiction of the RTC, and not of the LAs; and (2) whether or not Cosare was
constructively and illegally dismissed from employment by the respondents.

The Court’s Ruling

The petition is impressed with merit.

Jurisdiction over the controversy

As regards the issue of jurisdiction, the Court has determined that contrary to the
ruling of the CA, it is the LA, and not the regular courts, which has the original
jurisdiction over the subject controversy. An intra-corporate controversy, which falls
within the jurisdiction of regular courts, has been regarded in its broad sense to
pertain to disputes that involve any of the following relationships: (1) between the
corporation, partnership or association and the public; (2) between the corporation,
partnership or association and the state in so far as its franchise, permit or license to
operate is concerned; (3) between the corporation, partnership or association and its
stockholders, partners, members or officers; and (4) among the stockholders,
partners or associates, themselves.29 Settled jurisprudence, however, qualifies that
when the dispute involves a charge of illegal dismissal, the action may fall under the
jurisdiction of the LAs upon whose jurisdiction, as a rule, falls termination disputes and
claims for damages arising from employer-employee relations as provided in Article
217 of the Labor Code. Consistent with this jurisprudence, the mere fact that Cosare
was a stockholder and an officer of Broadcom at the time the subject controversy
developed failed to necessarily make the case an intra-corporate dispute.

In Matling Industrial and Commercial Corporation v. Coros,30 the Court distinguished

between a "regular employee" and a "corporate officer" for purposes of establishing
the true nature of a dispute or complaint for illegal dismissal and determining which
body has jurisdiction over it. Succinctly, it was explained that "[t]he determination of
whether the dismissed officer was a regular employee or corporate officer unravels
the conundrum" of whether a complaint for illegal dismissal is cognizable by the LA or
by the RTC. "In case of the regular employee, the LA has jurisdiction; otherwise, the
RTC exercises the legal authority to adjudicate.31

Applying the foregoing to the present case, the LA had the original jurisdiction over
the complaint for illegal dismissal because Cosare, although an officer of Broadcom
for being its AVP for Sales, was not a "corporate officer" as the term is defined by law.
We emphasized in Real v. Sangu Philippines, Inc.32 the definition of corporate officers
for the purpose of identifying an intra-corporate controversy. Citing Garcia v. Eastern
Telecommunications Philippines, Inc.,33 we held:

" ‘Corporate officers’ in the context of Presidential Decree No. 902-A are those officers
of the corporation who are given that character by the Corporation Code or by the
corporation’s by-laws. There are three specific officers whom a corporation must have
under Section 25 of the Corporation Code. These are the president, secretary and the
treasurer. The number of officers is not limited to these three. A corporation may have
such other officers as may be provided for by its by-laws like, but not limited to, the
vice-president, cashier, auditor or general manager. The number of corporate officers
is thus limited by law and by the corporation’s by-laws."34 (Emphasis ours)

In Tabang v. NLRC,35 the Court also made the following pronouncement on the nature
of corporate offices:

It has been held that an "office" is created by the charter of the corporation and the
officer is elected by the directors and stockholders. On the other hand, an "employee"
usually occupies no office and generally is employed not by action of the directors or
stockholders but by the managing officer of the corporation who also determines the
compensation to be paid to such employee.36 (Citations omitted)

As may be deduced from the foregoing, there are two circumstances which must
concur in order for an individual to be considered a corporate officer, as against an
ordinary employee or officer, namely: (1) the creation of the position is under the
corporation’s charter or by-laws; and (2) the election of the officer is by the directors or
stockholders. It is only when the officer claiming to have been illegally dismissed is
classified as such corporate officer that the issue is deemed an intra-corporate
dispute which falls within the jurisdiction of the trial courts.

To support their argument that Cosare was a corporate officer, the respondents
referred to Section 1, Article IV of Broadcom’s by-laws, which reads:

ARTICLE IV
OFFICER

Section 1. Election / Appointment – Immediately after their election, the

Board of Directors shall formally organize by electing the President, the
Vice-President, the Treasurer, and the Secretary at said meeting.
The Board may, from time to time, appoint such other officers as it may determine to
be necessary or proper. Any two (2) or more compatible positions may be held
concurrently by the same person, except that no one shall act as President and
Treasurer or Secretary at the same time.37 (Emphasis ours)

This was also the CA’s main basis in ruling that the matter was an intra-corporate
dispute that was within the trial courts’ jurisdiction.

The Court disagrees with the respondents and the CA. As may be gleaned from the
aforequoted provision, the only officers who are specifically listed, and thus with
offices that are created under Broadcom’s by-laws are the following: the President,
Vice-President, Treasurer and Secretary. Although a blanket authority provides for the
Board’s appointment of such other officers as it may deem necessary and proper, the
respondents failed to sufficiently establish that the position of AVP for Sales was
created by virtue of an act of Broadcom’s board, and that Cosare was specifically
elected or appointed to such position by the directors. No board resolutions to
establish such facts form part of the case records. Further, it was held in Marc II
Marketing, Inc. v. Joson38 that an enabling clause in a corporation’s by-laws
empowering its board of directors to create additional officers, even with the
subsequent passage of a board resolution to that effect, cannot make such position a
corporate office. The board of directors has no power to create other corporate offices
without first amending the corporate by-laws so as to include therein the newly
created corporate office.39 "To allow the creation of a corporate officer position by a
simple inclusion in the corporate by-laws of an enabling clause empowering the board
of directors to do so can result in the circumvention of that constitutionally
well-protected right [of every employee to security of tenure]."40

The CA’s heavy reliance on the contents of the General Information Sheets 41, which
were submitted by the respondents during the appeal proceedings and which plainly
provided that Cosare was an "officer" of Broadcom, was clearly misplaced. The said
documents could neither govern nor establish the nature of the office held by Cosare
and his appointment thereto. Furthermore, although Cosare could indeed be
classified as an officer as provided in the General Information Sheets, his position
could only be deemed a regular office, and not a corporate office as it is defined under
the Corporation Code. Incidentally, the Court noticed that although the Corporate
Secretary of Broadcom, Atty. Efren L. Cordero, declared under oath the truth of the
matters set forth in the General Information Sheets, the respondents failed to explain
why the General Information Sheet officially filed with the Securities and Exchange
Commission in 2011 and submitted to the CA by the respondents still indicated
Cosare as an AVP for Sales, when among their defenses in the charge of illegal
dismissal, they asserted that Cosare had severed his relationship with the corporation
since the year 2009.

Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the
case’s filing did not necessarily make the action an intra- corporate controversy. "Not
all conflicts between the stockholders and the corporation are classified as
intra-corporate. There are other facts to consider in determining whether the dispute
involves corporate matters as to consider them as intra-corporate
controversies."42 Time and again, the Court has ruled that in determining the
existence of an intra-corporate dispute, the status or relationship of the parties and
the nature of the question that is the subject of the controversy must be taken into
account.43 Considering that the pending dispute particularly relates to Cosare’s rights
and obligations as a regular officer of Broadcom, instead of as a stockholder of the
corporation, the controversy cannot be deemed intra-corporate. This is consistent with
the "controversy test" explained by the Court in Reyes v. Hon. RTC, Br. 142,44 to wit:

Under the nature of the controversy test, the incidents of that relationship must also
be considered for the purpose of ascertaining whether the controversy itself is
intra-corporate. The controversy must not only be rooted in the existence of an
intra-corporate relationship, but must as well pertain to the enforcement of the parties’
correlative rights and obligations under the Corporation Code and the internal and
intra-corporate regulatory rules of the corporation. If the relationship and its incidents
are merely incidental to the controversy or if there will still be conflict even if the
relationship does not exist, then no intra-corporate controversy exists.45 (Citation
omitted)

It bears mentioning that even the CA’s finding46 that Cosare was a director of
Broadcom when the dispute commenced was unsupported by the case records, as
even the General Information Sheet of 2009 referred to in the CA decision to support
such finding failed to provide such detail.

All told, it is then evident that the CA erred in reversing the NLRC’s ruling that favored
Cosare solely on the ground that the dispute was an intra-corporate controversy
within the jurisdiction of the regular courts.

The charge of constructive dismissal

Towards a full resolution of the instant case, the Court finds it appropriate to rule on
the correctness of the NLRC’s ruling finding Cosare to have been illegally dismissed
from employment.

In filing his labor complaint, Cosare maintained that he was constructively dismissed,
citing among other circumstances the charges that were hurled and the suspension
that was imposed against him via Arevalo’s memo dated March 30, 2009. Even prior
to such charge, he claimed to have been subjected to mental torture, having been
locked out of his files and records and disallowed use of his office computer and
access to personal belongings.47While Cosare attempted to furnish the respondents
with his reply to the charges, the latter refused to accept the same on the ground that
it was filed beyond the 48-hour period which they provided in the memo.

Cosare further referred to the circumstances that allegedly transpired subsequent to

the service of the memo, particularly the continued refusal of the respondents to allow
Cosare’s entry into the company’s premises. These incidents were cited in the CA
decision as follows:

On March 31, 2009, [Cosare] reported back to work again. He asked Villareal if he
could retrieve his personal belongings, but the latter said that x x x Arevalo directed
her to deny his request, so [Cosare] again waited at the receiving section of the office.
On April 1, 2009, [Cosare] was not allowed to enter the office premises. He was asked
to just wait outside of the Tektite (PSE) Towers, where [Broadcom] had its offices, for
further instructions on how and when he could get his personal belongings. [Cosare]
waited until 8 p.m. for instructions but none were given. Thus, [Cosare] sought the
assistance of the officials of Barangay San Antonio, Pasig who advised him to file a
labor or replevin case to recover his personal belongings. x x x.48 (Citation omitted)

It is also worth mentioning that a few days before the issuance of the memo dated
March 30, 2009, Cosare was allegedly summoned to Arevalo’s office and was asked
to tender his immediate resignation from the company, in exchange for a financial
assistance of ₱300,000.00.49 The directive was said to be founded on Arevalo’s
choice to retain Abiog’s employment with the company.50 The respondents failed to
refute these claims.

Given the circumstances, the Court agrees with Cosare’s claim of constructive and
illegal dismissal. "[C]onstructive dismissal occurs when there is cessation of work
because continued employment is rendered impossible, unreasonable, or unlikely as
when there is a demotion in rank or diminution in pay or when a clear discrimination,
insensibility, or disdain by an employer becomes unbearable to the employee leaving
the latter with no other option but to quit."51 In Dimagan v. Dacworks United,
Incorporated,52 it was explained:

The test of constructive dismissal is whether a reasonable person in the employee’s

position would have felt compelled to give up his position under the circumstances. It
is an act amounting to dismissal but is made to appear as if it were not. Constructive
dismissal is therefore a dismissal in disguise. The law recognizes and resolves this
situation in favor of employees in order to protect their rights and interests from the
coercive acts of the employer.53(Citation omitted)

It is clear from the cited circumstances that the respondents already rejected Cosare’s
continued involvement with the company. Even their refusal to accept the explanation
which Cosare tried to tender on April 2, 2009 further evidenced the resolve to deny
Cosare of the opportunity to be heard prior to any decision on the termination of his
employment. The respondents allegedly refused acceptance of the explanation as it
was filed beyond the mere 48-hour period which they granted to Cosare under the
memo dated March 30, 2009. However, even this limitation was a flaw in the memo or
notice to explain which only further signified the respondents’ discrimination, disdain
and insensibility towards Cosare, apparently resorted to by the respondents in order
to deny their employee of the opportunity to fully explain his defenses and ultimately,
retain his employment. The Court emphasized in King of Kings Transport, Inc. v.
Mamac54 the standards to be observed by employers in complying with the service of
notices prior to termination:

[T]he first written notice to be served on the employees should contain the specific
causes or grounds for termination against them, and a directive that the employees
are given the opportunity to submit their written explanation within a reasonable
period. "Reasonable opportunity" under the Omnibus Rules means every kind of
assistance that management must accord to the employees to enable them to
prepare adequately for their defense. This should be construed as a period of at least
five (5) calendar days from receipt of the notice to give the employees an opportunity
to study the accusation against them, consult a union official or lawyer, gather data
and evidence, and decide on the defenses they will raise against the complaint.
Moreover, in order to enable the employees to intelligently prepare their explanation
and defenses, the notice should contain a detailed narration of the facts and
circumstances that will serve as basis for the charge against the employees. A
general description of the charge will not suffice. Lastly, the notice should specifically
mention which company rules, if any, are violated and/or which among the grounds
under Art. 282 is being charged against the employees.55 (Citation omitted,
underscoring ours, and emphasis supplied)

In sum, the respondents were already resolute on a severance of their working

relationship with Cosare, notwithstanding the facts which could have been established
by his explanations and the respondents’ full investigation on the matter. In addition to
this, the fact that no further investigation and final disposition appeared to have been
made by the respondents on Cosare’s case only negated the claim that they actually
intended to first look into the matter before making a final determination as to the guilt
or innocence of their employee. This also manifested from the fact that even before
Cosare was required to present his side on the charges of serious misconduct and
willful breach of trust, he was summoned to Arevalo’s office and was asked to tender
his immediate resignation in exchange for financial assistance.

The clear intent of the respondents to find fault in Cosare was also manifested by their
persistent accusation that Cosare abandoned his post, allegedly signified by his
failure to report to work or file a leave of absence beginning April 1, 2009. This was
even the subject of a memo56 issued by Arevalo to Cosare on April 14, 2009, asking
him to explain his absence within 48 hours from the date of the memo. As the records
clearly indicated, however, Arevalo placed Cosare under suspension beginning
March 30, 2009. The suspension covered access to any and all company files/records
and the use of the assets of the company, with warning that his failure to comply with
the memo would be dealt with drastic management action. The charge of
abandonment was inconsistent with this imposed suspension. "Abandonment is the
deliberate and unjustified refusal of an employee to resume his employment. To
constitute abandonment of work, two elements must concur: ‘(1) the employee must
have failed to report for work or must have been absent without valid or justifiable
reason; and (2) there must have been a clear intention on the part of the employee to
sever the employer- employee relationship manifested by some overt act.’"57Cosare’s
failure to report to work beginning April 1, 2009 was neither voluntary nor indicative of
an intention to sever his employment with Broadcom. It was illogical to be requiring
him to report for work, and imputing fault when he failed to do so after he was
specifically denied access to all of the company’s assets. As correctly observed by the
NLRC:

[T]he Respondent[s] had charged [Cosare] of abandoning his employment beginning

on April 1, 2009. However[,] the show-cause letter dated March 3[0], 2009 (Annex "F",
ibid) suspended [Cosare] from using not only the equipment but the "assets" of
Respondent [Broadcom]. This insults rational thinking because the Respondents tried
to mislead us and make [it appear] that [Cosare] failed to report for work when they
had in fact had [sic] placed him on suspension. x x x.58

Following a finding of constructive dismissal, the Court finds no cogent reason to

modify the NLRC's monetary awards in Cosare's favor. In Robinsons
Galleria/Robinsons Supermarket Corporation v. Ranchez,59 the Court reiterated that
an illegally or constructively dismissed employee is entitled to: (1) either reinstatement,
if viable, or separation pay, if reinstatement is no longer viable; and (2)
backwages.60 The award of exemplary damages was also justified given the NLRC's
finding that the respondents acted in bad faith and in a wanton, oppressive and
malevolent manner when they dismissed Cosare. It is also by reason of such bad faith
that Arevalo was correctly declared solidarily liable for the monetary awards.

WHEREFORE, the petition is GRANTED. The Decision dated November 24, 2011
and Resolution dated March 26, 2012 of the Court of Appeals in CA-G.R. SP. No.
117356 are SET ASIDE. The Decision dated August 24, 2010 of the National Labor
Relations Commission in favor of petitioner Raul C. Cosare is AFFIRMED.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

G.R. No. 191154, April 07, 2014

SPI TECHNOLOGIES, INC. AND LEA VILLANUEVA, Petitioners, v. VICTORIA K.

MAPUA, Respondent.

DECISION

REYES, J.:

The Court remains steadfast on its stand that the determination of the continuing
necessity of a particular officer or position in a business corporation is a management
prerogative, and the courts will not interfere unless arbitrary or malicious action on the
part of management is shown. Indeed, an employer has no legal obligation to keep
more employees than are necessary for the operation of its business.1 In the instant
case however, we find our intrusion indispensable, to look into matters which we
would otherwise consider as an exercise of management prerogative. “Management
prerogative” are not magic words uttered by an employer to bring him to a realm
where our labor laws cannot reach.

This is a petition for review on certiorari2 under Rule 45 of the Rules of Court of the
Decision3 dated October 28, 2009 and Resolution4 dated January 18, 2010 of the
Court of Appeals (CA) in CA–G.R. SP. No. 107879.
The Facts

Victoria K. Mapua (Mapua) alleged that she was hired in 2003 by SPI Technologies,
Inc. (SPI) and was the Corporate Development’s Research/Business Intelligence Unit
Head and Manager of the company. Subsequently in August 2006, the then Vice
President and Corporate Development Head, Peter Maquera (Maquera) hired
Elizabeth Nolan (Nolan) as Mapua’s supervisor.5

Sometime in October 2006, the hard disk on Mapua’s laptop crashed, causing her to
lose files and data. Mapua informed Nolan and her colleagues that she was working
on recovering the lost data and asked for their patience for any possible delay on her
part in meeting deadlines.6

On November 13, 2006, Mapua retrieved the lost data with the assistance of National
Bureau of Investigation Anti–Fraud and Computer Crimes Division. Yet, Nolan
informed Mapua that she was realigning Mapua’s position to become a subordinate of
co–manager Sameer Raina (Raina) due to her missing a work deadline. Nolan also
disclosed that Mapua’s colleagues were “demotivated” [sic] because she was “taking
things easy while they were working very hard,” and that she was “frequently absent,
under timing, and coming in late every time [Maquera] goes on leave or on vacation.”7

On November 16, 2006, Mapua obtained a summary of her attendance for the last six
months to prove that she did not have frequent absences or under time when
Maquera would be on leave or vacation. When shown to Nolan, she was merely told
not to give the matter any more importance and to just move on.8

In December 2006, Mapua noticed that her colleagues began to ostracize and avoid
her. Nolan and Raina started giving out majority of her research work and other
duties under Healthcare and Legal Division to the rank–and–file staff. Mapua lost
about 95% of her work projects and job responsibilities.9

Mapua consulted these work problems with SPI’s Human Resource Director, Lea
Villanueva (Villanueva), and asked if she can be transferred to another department
within SPI. Subsequently, Villanueva informed Mapua that there is an intra–office
opening and that she would schedule an exploratory interview for her. However, due
to postponements not made by Mapua, the interview did not materialize.

On February 28, 2007, Mapua allegedly saw the new table of organization of the
Corporate Development Division which would be renamed as the Marketing
Division. The new structure showed that Mapua’s level will be again downgraded
because a new manager will be hired and positioned between her rank and Raina’s.10

On March 21, 2007, Raina informed Mapua over the phone that her position was
considered redundant and that she is terminated from employment effective
immediately. Villanueva notified Mapua that she should cease reporting for work the
next day. Her laptop computer and company mobile phone were taken right away
and her office phone ceased to function.11

Mapua was shocked and told Raina and Villanueva that she would sue them. Mapua
subsequently called her lawyer to narrate the contents of the termination
letter,12 which reads:chanRoblesvirtualLawlibrary

March 21, 2007

xxxx

Dear Ms. MAPUA,

xxxx

This notice of separation, effective March 21, 2007 should be

 regarded as redundancy. Your separation pay will be computed as one
month’s salary for every year of service, a fraction of at least six
months will be considered as one year.

Your separation pay will be released on April 20, 2007 subject to your
clearance of accountabilities and as per Company policy.

x x x x13

Mapua’s lawyer, in a phone call, advised Villanueva that SPI violated Mapua’s right to
a 30–day notice.

On March 27, 2007, Mapua filed with the Labor Arbiter (LA) a complaint for illegal
dismissal, claiming reinstatement or if deemed impossible, for separation
pay. Afterwards, she went to a meeting with SPI, where she was given a second
termination letter,14 the contents of which were similar to the first one.15

On April 25, 2007, Mapua received through mail, a third Notice of Termination16 dated
March 21, 2007 but the date of effectivity of the termination was changed from March
21 to April 21, 2007. It further stated that her separation pay will be released on May
20, 2007 and a notation was inscribed, “refused to sign and acknowledge” with
unintelligible signatures of witnesses.

On May 13, 2007, a recruitment advertisement17 of SPI was published in

the Philippine Daily Inquirer(Inquirer advertisement, for brevity). It listed all
vacancies in SPI, including a position for Marketing Communications Manager under
Corporate Support – the same group where Mapua previously belonged.

SPI also sent a demand letter18 dated May 15, 2007 to Mapua, asking her to pay for
the remaining net book value of the company car assigned to her under SPI’s car plan
policy. Under the said plan, Mapua should pay the remaining net book value of her
car if she resigns within five years from start of her employment date.

In her Reply19 and Rejoinder,20 Mapua submitted an affidavit21 and alleged that on
July 16, 2007, Prime Manpower Resources Development (Prime Manpower) posted
an advertisement on the website of Jobstreet Philippines for the employment of a
Corporate Development Manager in an unnamed Business Process Outsourcing
(BPO) company located in Parañaque City. Mapua suspected that this
advertisement was for SPI because the writing style used was similar to
Raina’s. She also claimed that SPI is the only BPO office in Parañaque City at that
time. Thereafter, she applied for the position under the pseudonym of “Jeanne
Tesoro”. On the day of her interview with Prime Manpower’s consultant, Ms. Portia
Dimatulac (Dimatulac), the latter allegedly revealed to Mapua that SPI contracted
Prime Manpower’s services to search for applicants for the Corporate Development
Manager position.

Because of these developments, Mapua was convinced that her former position is not
redundant. According to her, she underwent psychiatric counseling and incurred
medical expenses as a result of emotional anguish, sleepless nights, humiliation and
shame from being jobless. She also averred that the manner of her dismissal was
unprofessional and incongruous with her rank and stature as a manager as other
employees have witnessed how she was forced to vacate the premises on the same
day of her termination.

On the other hand, SPI stated that the company regularly makes an evaluation and
assessment of its corporate/organizational structure due to the unexpected growth of
its business along with its partnership with ePLDT and the acquisition of
CyMed.22 As a result, SPI underwent a reorganization of its structure with the
objective of streamlining its operations. This was embodied in an Inter–Office
Memorandum23 dated August 28, 2006 issued by the company’s Chief Executive
Officer.24 It was then discovered after assessment and evaluation that the duties of a
Corporate Development Manager could be performed/were actually being performed
by other officers/managers/departments of the company. As proof that the duties of
Mapua are being/could be performed by other SPI officers and employees, Villanueva
executed an affidavit25 attesting that Mapua’s functions are being performed by other
SPI managers and employees.

On March 21, 2007, the company, through Villanueva, served a written notice to
Mapua, informing her of her termination effective April 21, 2007. Mapua refused to
receive the notice, thus, Villanueva made a notation “refused to sign and
acknowledge” on the letter. On that same day, SPI filed an Establishment
Termination Report with the Office of the Regional Director of the Department of
Labor and Employment–National Capital Region (DOLE–NCR) informing the latter of
Mapua’s termination. Mapua was offered her separation and final pay, which she
refused to receive. Before the effective date of her termination, she no longer
reported for work. SPI has not hired a Corporate Development Manager since then.

SPI denied contracting the services of Prime Manpower for the hiring of a Corporate
Development Manager and emphasized that Prime Manpower did not even state the
name of its client in the Jobstreet website. SPI also countered that Dimatulac’s
alleged revelation to Mapua that its client is SPI must be struck down as mere
hearsay because only Mapua executed an affidavit to prove that such disclosure was
made. While SPI admitted the Inquirer advertisement, the company stated that
Mapua was a Corporate Development Manager and not a Marketing Communications
Manager, and that from the designations of these positions, it is obvious that the
functions of one are entirely different from that of the other.26

LA Decision

On June 30, 2008, the LA rendered a Decision,27 with the following dispositive
portion:chanRoblesvirtualLawlibrary

WHEREFORE, prescinding from the foregoing, the redundancy of

[Mapua’s] position being in want of factual basis, her termination is
therefore hereby declared illegal. Accordingly, she should be paid her
backwages, separation pay in lieu of reinstatement, moral and
exemplary damages and attorney’s fees as
follows:chanRoblesvirtualLawlibrary

a) Backwages:
 03/21/07–06/30/08

P67,996 x 15.30 mos. = P 1,040,338.80

13th Month Pay:

P1,040,338.80/12= P520,169.40 P1,560,508.20

b) Separation Pay: (1 mo. per year of service)

12/01/03–06/30/08 = 5.7 or 6 yrs.

P67,996.00 x 6 = 407,976.00

c) Moral Damages: P500,000.00

d) Exemplary Damages: 250,000.00

e) Attorney’s Fees: 196,848.42

Total Award P2,915,332.62

or a grand total of TWO MILLION NINE HUNDRED FIFTEEN

THOUSAND THREE HUNDRED THIRTY–TWO and 62/100
(P2,915,332.62) Pesos only.

Respondents are further ordered to award herein complainant the car

assigned to her.

SO ORDERED.28

Unrelenting, SPI appealed the LA decision to the National Labor Relations

Commission (NLRC).

NLRC Ruling

On October 24, 2008, the NLRC rendered its Decision,29 with the fallo, as
follows:chanRoblesvirtualLawlibrary

WHEREFORE, the foregoing premises considered, the instant appeal

is hereby GRANTED. The Decision appealed from is REVERSED and
SET ASIDE, and a new one is issued finding the appellants not guilty
of illegal dismissal.

However, appellants are ordered to pay the sum of Three Hundred

Thirty[–]Four Thousand Five Hundred Thirty[–]Eight Pesos and
 Thirty[–]Four Centavos ([P]334,538.34) representing her separation
benefits and final pay in the amount of [P]203,988.00 and
[P]130,550.34, respectively.

SO ORDERED.30

In ruling so, the NLRC held that “[t]he determination of whether [Mapua’s] position as
Corporate Development Manager is redundant is not for her to decide. It essentially
and necessarily lies within the sound business management.”31 As early as August
28, 2006, Ernest Cu, SPI’s Chief Executive Officer, announced the corporate changes
in the company. A month earlier, the officers held their Senior Management Strategic
Planning Session with the theme, “Transformation” or re–invention of SPI purposely
to create an organizational structure that is streamlined, clear and efficient.32 In fact,
Nolan and Raina, Mapua’s superiors were actually doing her functions with the
assistance of the pool of analysts, as attested to by Villanueva.

At odds with the NLRC decision, Mapua elevated the case to the CA by way of
petition for certiorari, arguing that based on evidence, the LA decision should be
reinstated.

CA Ruling

Mapua’s petition was initially dismissed by the CA in its Resolution33 dated March 25,
2009 for lack of counsel’s MCLE Compliance number, outdated IBP and PTR
numbers of counsel, and lack of affidavit of service attached to the petition.

Mapua filed a motion for reconsideration which was granted by the CA, reinstating the
petition in its Resolution34 dated May 26, 2009.

On October 28, 2009, the CA promulgated its Decision,35 reinstating the LA’s
decree, viz:chanRoblesvirtualLawlibrary

WHEREFORE, in view of the foregoing, the assailed decision dated

October 24, 2008, as well as the resolution dated December 23,
2008 of the National Labor Relations Commission in NLRC
LAC No. 09–003262–08 (8) NLRC NCR CN. 00–03–02761–07 are
hereby REVERSED and SET ASIDE. The decision of the Labor
Arbiter dated June 30, 2008 in NLRC–NCR Case No. 00–03–02761–
07 is hereby REINSTATED with MODIFICATION in that the amount of
13th month pay of [P]520,169.40 is hereby reduced to [P]86,694.90.

SO ORDERED.36

SPI’s motion for reconsideration was denied on January 18, 2010. Thus, through a
petition for review on certiorari, SPI submitted the following grounds for the
consideration of this Court:chanRoblesvirtualLawlibrary

I
 THE CA DECLARED AS ILLEGAL [MAPUA’S]
SEPARATION FROM SERVICE SOLELY ON THE
BASIS OF HER SELF–SERVING AND UNFOUNDED
ALLEGATION OF A SUPPOSED JOB
ADVERTISEMENT

II

THE CA COMPLETELY DISREGARDED THE FACT THAT [MAPUA]

WAS VALIDLY SEPARATED FROM SERVICE ON THE GROUND OF
REDUNDANCY WHICH IS AN AUTHORIZED CAUSE FOR
TERMINATION OF EMPLOYMENT UNDER ARTICLE 283 OF THE
LABOR CODE AND PREVAILING JURISPRUDENCE

III

THE CA FOUND THAT [MAPUA] WAS NOT ACCORDED HER

RIGHT TO DUE PROCESS IN UTTER DEROGATION OF THE
APPLICABLE PROVISIONS OF THE LABOR CODE AND THE
PERTINENT JURISPRUDENCE

IV

THE CA COMPLETELY AFFIRMED THE AWARDS OF SEPARATION

PAY, BACKWAGES, DAMAGES AND ATTORNEY’S FEES IN THE
[LA’S] DECISION IN TOTAL DISREGARD OF THE APPLICABLE
LAW AND JURISPRUDENCE

THE CA UPHELD THE [LA’S] DECISION HOLDING INDIVIDUAL

PETITIONER SOLIDARILY AND PERSONALLY LIABLE TO [MAPUA]
WITHOUT SHOWING ANY BASIS THEREFOR37

Our Ruling

The Court sustains the CA’s ruling.

Mapua was dismissed from employment supposedly due to redundancy. However,

she contended that her position as Corporate Development Manager is not
redundant. She cited that SPI was in fact actively looking for her replacement after
she was terminated. Furthermore, SPI violated her right to procedural due process
when her termination was made effective on the same day she was notified of it.

Article 283 of the Labor Code provides for the following:chanRoblesvirtualLawlibrary

 ART. 283. Closure of establishment and reduction of personnel. – The
employer may also terminate the employment of any employee due to
installation of labor–saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of
circumventing the provisions of this Title, by serving a written notice
on the worker and the Department of Labor and Employment at
least one (1) month before the intended date thereof. In case of
termination due to installation of labor–saving devices or
redundancy, the worker affected thereby shall be entitled to a
separation pay equivalent to at least one (1) month pay or to at least
one (1) month pay for every year of service, whichever is higher. In
case of retrenchment to prevent losses and in cases of closures or
cessation of operations of establishment or undertaking not due to
serious business losses and financial reverses, the separation pay
shall be equivalent to one (1) month pay or at least one–half (½) month
pay for every year of service, whichever is higher. A fraction of at least
six (6) months shall be considered as one (1) whole year. (Emphasis
ours)

Expounding on the above requirements of written notice and separation pay, this
Court in Asian Alcohol Corporation v. NLRC38 pronounced that for a valid
implementation of a redundancy program, the employer must comply with the
following requisites: (1) written notice served on both the employee and the DOLE at
least one month prior to the intended date of termination; (2) payment of separation
pay equivalent to at least one month pay or at least one month pay for every year of
service, whichever is higher; (3) good faith in abolishing the redundant position; and
(4) fair and reasonable criteria in ascertaining what positions are to be declared
redundant.39

Anent the first requirement which is written notice served on both the employee and
the DOLE at least one month prior to the intended date of termination, SPI had
discharged the burden of proving that it submitted a notice to the DOLE on March 21,
2007, stating therein that the effective date of termination is on April 21, 2007. It is,
however, quite peculiar that two kinds of notices were served to Mapua. One
termination letter stated that its date of effectivity is on the same day, March 21,
2007. The other termination letter sent through mail to Mapua’s residence stated that
the effective date of her termination is on April 21, 2007.

Explaining the discrepancy, SPI alleged that the company served a notice to Mapua
on March 21, 2007, which stated that the effective date of termination is on April 21,
2007. However she refused to acknowledge or accept the letter. Later on, Mapua
requested for a copy of the said letter but due to inadvertence and oversight, a draft of
the termination letter bearing a wrong effectivity date was given to her. To correct the
oversight, a copy of the original letter was sent to her through mail.40

Our question is, after Mapua initially refused to accept the letter, why did SPI make a
new letter instead of just giving her the first one – which the Court notes was already
signed and witnessed by other employees? Curiously, there was neither allegation
nor proof that the original letter was misplaced or lost which would necessitate the
drafting of a new one. SPI did not even explain in the second letter that the same
was being sent in lieu of the one given to her. Hence, SPI must shoulder the
consequence of causing the confusion brought by the variations of termination letters
given to Mapua.

Also, crucial to the determination of the effective date of termination was that Mapua
was very specific as regards what happened immediately after: “Ms. Villanueva had
Ms. Mapua’s assigned laptop computer and cellphone immediately taken by Human
Resources supervisor, Ms. Dhang Rondael. Within about an hour, Ms. Mapua’s
landline phone ceased to function after Ms. Villanueva’s and Mr. Raina’s
announcement.” Her company I.D. was taken away from her that very same
day.41 To counter these statements, SPI merely stated that before the effective date
of Mapua’s termination on April 21, 2007, she no longer reported for work. To this
Court, this is insufficient rebuttal to the precise narrative of Mapua.

On the matter of separation pay, there is no question that SPI indeed offered
separation pay to Mapua, but the offer must be accompanied with good faith in the
abolishment of the redundant position and fair and reasonable criteria in ascertaining
the redundant position. It is insignificant that the amount offered to Mapua is higher
than what the law requires because the Court has previously noted that “a job is more
than the salary that it carries. There is a psychological effect or a stigma in
immediately finding one’s self laid off from work.”42

Moving on to the issue of the validity of redundancy program, SPI asserted that an
employer has the unbridled right to conduct its own business in order to achieve the
results it desires. To prove that Villanueva’s functions are redundant, SPI submitted
an Inter–Office Memorandum43 and affidavit executed by its Human Resources
Director, Villanueva. The pertinent portions of the memorandum
read:chanRoblesvirtualLawlibrary

ORGANIZATION STRUCTURE

One of the most important elements of successfully

effecting change is to create an organization structure
that is streamlined, clear and efficient. We think we
have done that and the new format is illustrated in
Attachment A. The upper part shows my direct reports
who are heads of the various shared services
departments and the lower part shows the set up of the
business units. The important features of the structure
are discussed in the following sections. For brevity, I
have purposely not summarized the roles that will
remain the same.

xxxx

Corporate Development

Peter Maquera will continue to head Corporate

Development but the group’s scope will be expanded to
 include Marketing across the whole company.
Essentially, Marketing will be taken out of the business
units and centralized under Corporate Development.
Elizabeth Nolan will move from her role as Publishing’s
VP of Sales and Marketing to become the head of
Global Marketing. The unit will continue to focus on
strengthening the SPI brand, while at the same time
maximizing the effectiveness of our spending. Josie
Gonzales, head of Corporate Relations, will also be
transitioned to Corporate Development. 44

The memorandum made no mention that the position of the Corporate Development
Manager or any other position would be abolished or deemed redundant. In this
regard, may the affidavit of Villanueva which enumerated the various functions of a
Corporate Development Manager being performed by other SPI employees be
considered as sufficient proof to uphold SPI’s redundancy program?

In AMA Computer College, Inc. v. Garcia, et al.,45 the Court held that the presentation
of the new table of the organization and the certification of the Human Resources
Supervisor that the positions occupied by the retrenched employees are redundant
are inadequate as evidence to support the college’s redundancy program. The Court
quotes the related portion of its ruling:chanRoblesvirtualLawlibrary

In the case at bar, ACC attempted to establish its streamlining program

by presenting its new table of organization. ACC also submitted
a certification by its Human Resources Supervisor, Ma. Jazmin
Reginaldo, that the functions and duties of many rank and file
employees, including the positions of Garcia and Balla as Library Aide
and Guidance Assistant, respectively, are now being performed by the
supervisory employees. These, however, do not satisfy the
requirement of substantial evidence that a reasonable mind might
accept as adequate to support a conclusion. As they are, they are
grossly inadequate and mainly self–serving. More compelling
evidence would have been a comparison of the old and new
staffing patterns, a description of the abolished and newly
created positions, and proof of the set business targets and
failure to attain the same which necessitated the reorganization
or streamlining.46 (Citations omitted and emphasis ours)

Also connected with the evidence negating redundancy was SPI’s publication of job
vacancies after Mapua was terminated from employment. SPI maintained that the CA
erred when it considered Mapua’s self–serving affidavit as regards the Prime
Manpower advertisement because the allegations therein were based on Mapua’s
unfounded suspicions. Also, the failure of Mapua to present a sworn statement of
Dimatulac renders the former’s statements hearsay.

Even if we disregard Mapua’s affidavit as regards the Prime Manpower advertisement,

SPI admitted that it caused the Inquirer advertisement for a Marketing
Communications Manager position.47 Mapua alleged that this advertisement belied
the claim of SPI that her position is redundant because the Corporate Development
division was only renamed to Marketing division.

Instead of explaining how the functions of a Marketing Communications Manager

differ from a Corporate Development Manager, SPI hardly disputed Mapua when it
stated that, “[j]udging from the titles or designation of the positions, it is obvious that
the functions of one are entirely different from that of the other.”48 SPI, being the
employer, has possession of valuable information concerning the functions of the
offices within its organization. Nevertheless, it did not even bother to differentiate the
two positions.

Furthermore, on the assumption that the functions of a Marketing Communications

Manager are different from that of a Corporate Development Manager, it was not even
discussed why Mapua was not considered for the position. While SPI had no legal
duty to hire Mapua as a Marketing Communications Manager, it could have clarified
why she is not qualified for that position. In fact, Mapua brought up the subject of
transfer to Villanueva and Raina several times prior to her termination but to no
avail. There was even no showing that Mapua could not perform the duties of a
Marketing Communications Manager.

Therefore, even though the CA based its ruling only on the Prime Manpower
advertisement coupled with the purported disclosure to Mapua, the Court holds that
the confluence of other factors supports the said ruling.

The Court does not agree with the rationalization of the NLRC that “[i]f it were true that
her position was not redundant and indispensable, then the company must have
already hired a new one to replace her in order not to jeopardize its business
operations. The fact that there is none only proves that her position was not
necessary and therefore superfluous.”49

What the above reasoning of the NLRC failed to perceive is that “[o]f primordial
consideration is not the nomenclature or title given to the employee, but the nature of
his functions.”50 “It is not the job title but the actual work that the employee
performs.”51 Also, change in the job title is not synonymous to a change in the
functions. A position cannot be abolished by a mere change of job title. In cases of
redundancy, the management should adduce evidence and prove that a position
which was created in place of a previous one should pertain to functions which are
dissimilar and incongruous to the abolished office.

Thus, in Caltex (Phils.), Inc. (now Chevron Phils., Inc.) v. NLRC,52 the Court
dismissed the employer’s claim of redundancy because it was shown that after
declaring the employee’s position of Senior Accounting Analyst as redundant, the
company opened other accounting positions (Terminal Accountant and Internal
Auditor) for hiring. There was no showing that the private respondent therein could
not perform the functions demanded of the vacant positions, to which he could be
transferred to instead of being dismissed.

On the issue of the solidary obligation of the corporate officers impleaded vis–à–
vis the corporation for Mapua’s illegal dismissal, “[i]t is hornbook principle that
personal liability of corporate directors, trustees or officers attaches only when: (a)
they assent to a patently unlawful act of the corporation, or when they are guilty of bad
faith or gross negligence in directing its affairs, or when there is a conflict of interest
resulting in damages to the corporation, its stockholders or other persons; (b) they
consent to the issuance of watered down stocks or when, having knowledge of such
issuance, do not forthwith file with the corporate secretary their written objection; (c)
they agree to hold themselves personally and solidarily liable with the corporation; or
(d) they are made by specific provision of law personally answerable for their
corporate action.”53

While the Court finds Mapua’s averments against Villanueva, Nolan, Maquera and
Raina as detailed and exhaustive, the Court takes notice that these are mostly
suppositions on her part. Thus, the Court cannot apply the above–enumerated
exceptions when a corporate officer becomes personally liable for the obligation of a
corporation to this case.

With respect to the vehicle under the company car plan which the LA awarded to
Mapua, the Court rules that the subject matter is not within the jurisdiction of the LA
but with the regular courts, the remedy being civil in nature arising from a contractual
obligation, following this Court’s ruling in several cases.54

The Court sustains the CA’s award of moral and exemplary damages. Award of moral
and exemplary damages for an illegally dismissed employee is proper where the
employee had been harassed and arbitrarily terminated by the employer. Moral
damages may be awarded to compensate one for diverse injuries such as mental
anguish, besmirched reputation, wounded feelings, and social humiliation occasioned
by the employer’s unreasonable dismissal of the employee. The Court has
consistently accorded the working class a right to recover damages for unjust
dismissals tainted with bad faith; where the motive of the employer in dismissing the
employee is far from noble. The award of such damages is based not on the Labor
Code but on Article 220 of the Civil Code.55 However, the Court observes that the CA
decision affirming the LA’s award of P500,000.00 and P250,000.00 as moral and
exemplary damages, respectively, is evidently excessive because the purpose for
awarding damages is not to enrich the illegally dismissed employee. Consequently,
the Court hereby reduces the amount of P50,000.00 each as moral and exemplary
damages.56

Mapua is also entitled to attorney’s fees but the Court is modifying the amount of
P196,848.42 awarded by the LA and fix such attorney’s fees in the amount of ten
percent (10%) of the total monetary award, pursuant to Article 11157 of the Labor
Code.

WHEREFORE, the Decision dated October 28, 2009 and Resolution dated January
18, 2010 of the Court of Appeals in CA–G.R. SP. No. 107879 are
hereby AFFIRMED with the following MODIFICATIONS:chanRoblesvirtualLawlibrary

1. Moral and exemplary damages is hereby reduced to P50,000.00 each; and

2. Attorney’s fees shall be computed at ten percent (10%) of the aggregate

monetary award.

The monetary awards shall earn interest at the rate of six percent (6%) per
annum from the time of respondent Victoria K. Mapua’s illegal dismissal until finality of
this Decision, and twelve percent (12%) legal interest thereafter until fully paid.

Petitioner SPI Technologies, Inc. shall be liable for the foregoing awards.

SO ORDERED.

Sereno, C.J., (Chairperson), Leonardo–De Castro, Bersamin, and Villarama, Jr., JJ.,
concur.
G.R. No. 183860 January 15, 2014

RODOLFO LABORTE and PHILIPPINE TOURISM AUTHORITY, Petitioners,

vs.
PAGSANJAN TOURISM CONSUMERS COOPERATIVE and LELIZA S. FABRICIO,
WILLIAM BASCO, FELICIANO BASCO, FREDIE BASCO, ROGER MORAL NIDA
ABARQUEZ, FLORANTE MUNAR, MARY JAVIER, MARIANO PELAGIO ALEX EQUIZ,
ALEX PELAGIO ARNOLD OBIEN, EDELMIRO ABAQUIN, ARCEDO MUNAR,
LIBRADO MALIWANAG, OSCAR LIWAG, OSCAR ABARQUEZ, JOEL BALAGUER,
LIZARDO MUNAR, ARMANDO PANCHACOLA, MANUEL SAYCO, EDWIN MATIBAG,
ARNEL VILLAGRACIA, RODOLFO LERON, ALFONSO ABANILLA, SONNY LAVA,
AND DENNIS BASCO,Respondents.

DECISION

REYES, J.:

This Petition for Review on Certiorari1 under Rule 45 of the 1997 Revised Rules on Civil
Procedure seeks to nullify and set aside:

(a) the Court of Appeals (CA) Decision2 dated May 29, 2008, affirming the
Decision3 dated May 29, 2002 of the Regional Trial Court (RTC), Branch 28, Santa
Cruz, Laguna in Civil Case No. SC-3150; and

(b) the CA Resolution4 dated July 23, 2008, denying the subsequent Motion for
Reconsideration5 thereof.

The antecedent facts are as follows:

Petitioner Philippine Tourism Authority (PTA) is a government-owned and controlled

corporation that administers tourism zones as mandated by Presidential Decree (P.D.) No.
564 and later amended by P.D. No. 1400. PTA used to operate the Philippine Gorge
Tourist Zone (PGTZ) Administration Complex (PTA Complex), a declared tourist zone in
Pagsanjan, Laguna.

Respondent Pagsanjan Tourism Consumers’ Cooperative (PTCC) is a cooperative

organized since 1988 under Republic Act No. 6938, or the "Cooperative Code of the
Philippines." The other individual respondents are PTCC employees, consisting of
restaurant staff and boatmen at the PTA Complex.

In 1989, in order to help the PTCC as a cooperative, the PTA allowed it to operate a
restaurant business located at the main building of the PTA Complex and the boat ride
services to ferry guests and tourists to and from the Pagsanjan Falls, paying a certain
percentage of its earnings to the PTA.6

In 1993, the PTA implemented a reorganization and reshuffling in its top level
management. Herein petitioner Rodolfo Laborte (Laborte) was designated as Area
Manager, CALABARZON area with direct supervision over the PTA Complex and other
entities at the Southern Luzon.

On October 22, 1993, Laborte served a written notice upon the respondents to cease the
operations of the latter’s restaurant business and boat ride services in view of the
rehabilitation, facelifting and upgrading project of the PTA Complex. Consequently, on
November 9, 1993, the PTCC filed with the RTC, Branch 28, Santa Cruz, Laguna a
Complaint for Prohibition, Injunction and Damages with Temporary Restraining Order
(TRO) and Preliminary Injunction7 against Laborte, docketed as Civil Case No. 3150. The
PTCC also sought from the court the award of moral and exemplary damages, attorney’s
fees and costs of suit. It also prayed for the issuance of a TRO or writ of preliminary
injunction to prohibit Laborte from causing the PTCC to cease the operations of the
restaurant and boat ride services and from evicting the PTCC’s restaurant from the main
building of the PTA Complex.8

In an Order dated November 11, 1993, the trial court issued the TRO prayed for,
prohibiting Laborte from (a) causing the PTCC to cease operations; (b) doing the
threatened act of closing the operation of the PTCC’s restaurant and other activities; (c)
evicting the PTCC’s restaurant from the main building of the PTA Complex; and (d)
demolishing the said building. In the same Order, the trial court set the hearing on the Writ
of Preliminary Injunction on November 25, 1993.9

Opposing the issuance of the TRO, Laborte averred that the PTCC does not own the
restaurant facility as it was only tolerated to operate the same by the PTA as a matter of
lending support and assistance to the cooperative in its formative years. It has neither
been granted any franchise nor concession to operate the restaurant nor any exclusive
franchise to handle the boating operations in the complex. Since the PTCC had no
contract, concession, or exclusive franchise to operate the restaurant business and the
boating services in the PTA Complex, no existing right has been allegedly violated by the
petitioners. The respondents, therefore, had no right for the injunctive relief prayed for.10

On December 7, 1993, the PTCC filed with the trial court a Petition for Contempt with
Motion for Early Resolution. It alleged that Laborte and his lawyers defied the TRO and
proceeded to close the restaurant on December 2, 1993. The PTCC also alleged that
Laborte prohibited its own boatmen from ferrying tourists and allowed another association
of boatmen to operate.11

On December 13, 1993, Laborte filed his Answer with Counter-Claim.12 He denied the
PTCC’s allegations of harassment, threat and retaliation. He claimed (a) that his actions
were upon the mandate of his superiors and the PTA’s rehabilitation programs in the
area;13 (b) that the PTA only tolerated the PTCC’s operations;14 and (c) that the issuance of
a permanent injunction will violate the PTA’s constitutional freedom to operate a legitimate
business enterprise and the legal requirement of a public bidding for the operation of
revenue-generating projects of government entities involving private third parties.15

On March 14, 1994, the individual respondents, Fabricio et al., who are employees and
boatmen of the PTCC, filed a Complaint-in-Intervention against Laborte.16 They stated that
they were rendered jobless and were deprived of their livelihood because Laborte failed to
heed the trial court’s TRO. Thus, they prayed that the trial court order Laborte to pay their
unearned salaries, among others.17 Laborte opposed but the trial court in an Order dated
March 25, 1994 admitted the Complaint-in-Intervention, finding the same to be
well-founded.18

On April 4, 1994, the PTCC filed an Amended Complaint to include petitioner PTA as
defendant and the additional prayer for payment of Thirty Thousand Pesos (₱30,000.00) a
month, representing the PTCC’s unrealized profits from November 1993 up to the actual
resumption of its restaurant and boat ride businesses.19 In return, the PTA filed its Answer
with Counterclaim,20 alleging, among others, that (1) the PTCC has no cause of action
against it since the PTA owned the restaurant and the boat ride facilities within the
Complex and that it never formally entered into a contract with the PTCC to operate the
same; (2) the PTA did not violate the trial court’s TRO and Writ of Preliminary Injunction
since the PTA was not yet impleaded as defendant at that time; (3) the physical
rehabilitation of the PTA Complex, including the restaurant and boat facilities therein, was
part of its new marketing strategy; and (4) the action had become moot and academic in
view of the actual closure of the PTCC’s restaurant and boat service businesses.21

On May 29, 2002, the RTC rendered a decision finding for the respondents, the
dispositive portion of which provides:

WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS,

Judgment is hereby rendered in favor of the plaintiff and intervenors and against the
defendants by ordering the defendants jointly and severally to pay the plaintiff and
intervenors the following sums:

FOR THE PLAINTIFF

1. The sum of ₱1,475,760 representing the income which the plaintiff failed to
receive from December 1993 up to the present, computed at ₱16,417.00 per
month;

2. The sum of ₱230,000.00 as costs of restaurants (sic) facilities unlawfully

confiscated by the defendant from the plaintiff when the restaurant was closed;
and

3. The sum of ₱25,000.00 as attorney's fees.

FOR THE INTERVENORS:

The total sum of ₱3,971,760.00 representing the monthly salaries of the 8 intervenors who
are employees of the restaurant business and take home pay of 20 boatmen-intervenors
for a period of seven (7) years up to the present; and

Attorney’s fees in the amount of ₱992,940.00 or 25% of the total claim of the intervenors.

SO ORDERED.22

Dissatisfied, Laborte and the PTA appealed to the CA.23 On May 29, 2008, the CA
promulgated its Decision, affirming the RTC Decision24 dated May 29, 2002. The
petitioners seasonably filed a Motion for Reconsideration,25 but the said motion was also
denied for lack of merit.26

Hence, the petitioners filed the present petition, raising the following:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT GIVING DUE

COURSE [TO] THE PETITIONERS’ APPEAL AND IN NOT SETTING ASIDE AND
REVERSING THE DECISION OF THE TRIAL COURT.

II
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE
CLOSURE OF PTCC'S RESTAURANT AND BOAT RIDE BUSINESS WAS NOT A
VALID AND LAWFUL EXERCISE OF PTA'S MANAGEMENT PREROGATIVE.

III

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING PETITIONER

LABORTE LIABLE BOTH IN HIS PERSONAL AND OFFICIAL CAPACITY
NOTWITHSTANDING THE EXISTENCE OF PECULIAR AND UNUSUAL
CIRCUMSTANCES WHICH WOULD RENDER THE DECISION UNJUST AND
INEQUITABLE, IN THAT:

A) PETITIONER LABORTE, IN HIS CAPACITY AS ACTING RESIDENT

MANAGER OF PGTZ, MERELY COMPLIED IN GOOD FAITH, WITH THE VALID
AND LAWFUL ORDERS OF THE TOP MANAGEMENT OF PTA TO NOTIFY
RESPONDENT PTCC TO CEASE BUSINESS OPERATIONS AT THE
COMPLEX IN VIEW OF THE INTENDED RENOVATION AND REPAIR OF THE
RESTAURANT FACILITY AT THE COMPLEX.

B) THE FAILURE OF ATTY. HERNANDO CABRERA, FORMER COUNSEL OF

PETITIONERS TO FILE THEIR FORMAL OFFER OF EVIDENCE AND TO MAKE
A MANIFESTATION BEFORE THE TRIAL COURT THAT THEY WERE
ADOPTING IN THE TRIAL PROPER THE EVIDENCE THEY PRESENTED
DURING THE HEARING ON THE APPLICATION FOR WRIT OF PRELIMINARY
INJUNCTION IN CIVIL CASE NO. SC-3150 IS SO GROSS, PALPABLE AND
INEXCUSABLE, THEREBY RESULTING IN THE VIOLATION OF THE
SUBSTANTIVE RIGHTS OF [THE] PETITIONERS.27

There is merit in the petition.

Anent the procedural issue raised, both the trial court and the CA faulted the petitioners
for their failure to formally offer their evidence inspite of the ample opportunity granted to
do so.28 Thus, such lapse allegedly militated against the petitioners whose assertions were
otherwise supported by sufficient evidence on record.

Section 34, Rule 132 of the Revised Rules on Evidence provides the general rule, to wit:

Sec. 34. Offer of Evidence. – The Court shall consider no evidence which has not been
formally offered. The purpose for which the evidence is offered must be specified.

From the above provision, it is clear that the court considers the evidence only when it is
formally offered. The offer of evidence is necessary because it is the duty of the trial court
to base its findings of fact and its judgment only and strictly on the evidence offered by the
parties. A piece of document will remain a scrap of paper without probative value unless
and until admitted by the court in evidence for the purpose or purposes for which it is
offered.29The formal offer of evidence allows the parties the chance to object to the
presentation of an evidence which may not be admissible for the purpose it is being
offered.30

However, there are instances when the Court relaxed the foregoing rule and allowed
evidence not formally offered to be admitted. Citing People v. Napat-a31 and People. v.
Mate,32 the Court in Heirs of Romana Saves, et al., v. Heirs of Escolastico Saves, et
al.,33 enumerated the requirements for the evidence to be considered despite failure to
formally offer it, namely: "first, the same must have been duly identified by testimony duly
recorded and, second, the same must have been incorporated in the records of the
case."34 In People v. Vivencio De Roxas et al.,35 the Court also considered exhibits which
were not formally offered by the prosecution but were repeatedly referred to in the course
of the trial by the counsel of the accused.36

In the instant case, the Court finds that the above requisites are attendant to warrant the
relaxation of the rule and admit the evidence of the petitioners not formally offered. As can
be seen in the records of the case, the petitioners were able to present evidence that have
been duly identified by testimony duly recorded. To identify is to prove the identity of a
person or a thing.37 Identification means proof of identity; the proving that a person, subject
or article before the court is the very same that he or it is alleged, charged or reputed to
be.38

In support of his position, Laborte in his testimony presented and identified the following:
(a) the letter informing the Chairman of PTCC about the decision of PTA main office
regarding the repair works to be conducted;39 (b) Office Order No. 1018-93 from a person
named Mr. Anota, relative to the suspension of the boat ride services at the Complex;40 (c)
a copy of the memorandum from the Technical Evaluation Committee (TEC), referring to
the conduct of the repair works at the Complex;41 (d) the letter to PTCC informing it of the
repair at the Complex;42(e) the certificates of availability of funds for the guesthouse of the
PTC Complex and for the repainting, repair works at the Pagsanjan Administration
Complex respectively;43 (f) the program of works dated July 22, 1993 for the renovation of
the Pagsanjan Complex and of the swimming pool at the guesthouse respectively;44(g) the
program of works referring to the repainting and repair works at the Complex dated
August 6, 1993;45 (h) a set of plans and specification of the projects conducted at the
Complex, particularly for the repairs and repainting of the guesthouse shower room, the
repair of the Pagsanjan Administration Complex;46 (i) the office order relative to the
directive to Mr. Francisco Abalos of the PTA main office to close the restaurant
facilities;47 (j) a memorandum from Mr. Oscar Anota, Deputy General Manager for
Operation of the PTA, dated December 8, 1993 addressed to the security office of the
Pagsanjan Administration Complex, instructing the same not to allow the entry of anything
without the clearance from the main office in Manila into the Pagsanjan Complex;48and (k)
the office order signed by Eduardo Joaquin, General Manager of the PTA, relative to the
posting of bond in favor of herein petitioner Laborte by the PTA main office in the amount
of ₱10,000.00 to be deposited with the RTC, Branch 28, Sta. Cruz, Laguna.49

Undeniably, these pertinent evidence were also found in the records of the RTC, i.e. : (a)
the letter informing the Chairman of PTCC about the decision of PTA main office
regarding the repair works to be conducted;50 (b) Office Order No. 1018-93 from a person
named Mr. Anota, relative to the suspension of the boat ride services at the Complex;51 (c)
the letter to PTCC informing it of the repair at the Complex;52 (d) the certificates of
availability of funds for the guesthouse of the PTC Complex and for the repainting, repair
works at the Pagsanjan Administration Complex respectively;53 (e) the program of works
dated July 22, 1993 for the renovation of the Pagsanjan Complex and of the swimming
pool at the guesthouse respectively;54(f) the program of works referring to the repainting
and repair works at the Complex dated August 6, 1993;55 and (g) a memorandum from Mr.
Oscar Anota, Deputy General Manager for Operation of the PTA, dated December 8,
1993 addressed to the security office of the Pagsanjan Administration Complex,
instructing the same not to allow the entry of anything without clearance from the main
office in Manila into the Pagsanjan Complex.56 In all these, the respondents had all the
chance to object to the documents which Laborte properly identified and marked and
which are found in the records of the trial court. Considering that no objections were made
by the respondents to the foregoing documents, the Court sees no reason why these
documents should not be admitted.

The Court notes the CA’s ruling that the closure of the business is a factual matter which
need not be reviewed by the Court under Rule 45. The Court has consistently held that as
a general rule, a petition for review under Rule 45 of the Rules of Court covers questions
of law only. The rule, however, admits of exceptions, subject to the following exceptions,
to wit: (1) when the findings are grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible;
(3) when there is a grave abuse of discretion; (4) when the judgment is based on
misappreciation of facts; (5) when the findings of fact are conflicting; (6) when in making
its findings, the same are contrary to the admissions of both appellant and appellee; (7)
when the findings are contrary to those of the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based; (9) when the
facts set forth in the petition as well as in the petitioner’s main and reply briefs are not
disputed by the respondent; and (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on record.57 After a
careful review and based on the evidence on record, the Court finds cogent reason to
deviate from the general rule, warranting a reversal of the decision of the CA.

In their petition, the petitioners assert that:

(1) the PTA is mandated to administer tourism zones and it has adopted a
comprehensive program and project to rehabilitate and upgrade the facilities of
the PTA Complex. To prove this, the petitioners attached Annexes "H-2" to
"H-4,"58 namely: (a) Program Work/Scope of works of the repairs and rehabilitation
project for the PGTZ dated July 22, 1993;59 (b) Certificate of Availability of Funds
for the repairs and rehabilitation project for PGTZ;60 and (c) Program of
Work/Scope of Works for the repairs and rehabilitation of the restaurant facility
dated August 6, 1993;61

(2) The petitioners also claimed that bidding out to private parties of the business
operations in the PTA Complex is a legal requirement and a mandate given to
every revenue-generating government entity like the PTA. Thus, since it is only
exercising its mandate and has acted in good faith, petitioner PTA believes that it
has not incurred any liability against respondents.62Citing Mendoza v. Rural Bank
of Lucban,63 the petitioners argued that: "[L]abor laws discourage interference in
employers’ judgments concerning the conduct of their business. The law must
protect not only the welfare of employees, but also the right of [the]
employers."64 In other words, the petitioners likened the relationship between PTA
and the respondents to that of an employer and employee;

(3) The petitioners also reiterated that the PTCC is without contract, concession or
exclusive franchise to operate the restaurant and boat ride service at the PTA
Complex. They insisted that the PTA temporarily authorized the PTCC to operate
the same in order to extend financial assistance to its PTA employee-members
who are members of the then fledging PTCC. Thus, for the petitioners, the PTCC
has no vested right to continue operating the restaurant and boat ride services,
and therefore, not entitled to damages;65 and

(4) The petitioners also claimed to have informed the PTCC as early as October
22, 1993 of the intention to rehabilitate and upgrade the facilities of the PTA
 Complex and for the PTCC to vacate the area by November 15, 1993. In fact, the
deadline was even extended for another twenty-one (21) days or until December 6,
1993, to allow the PTCC sufficient time to pack its goods, merchandise and
appliances.66

The Court is persuaded.

The PTA is a government owned and controlled corporation which was mandated to
administer tourism zones. Based on this mandate, it was the PTA’s obligation to adopt a
comprehensive program and project to rehabilitate and upgrade the facilities of the PTA
Complex as shown in Annexes "H-2" to "H-4" of the petition. The Court finds that there
was indeed a renovation of the Pagsanjan Administration Complex which was sanctioned
by the PTA main office; and such renovation was done in good faith in performance of its
mandated duties as tourism administrator. In the exercise of its management prerogative
to determine what is best for the said agency, the PTA had the right to terminate at any
moment the PTCC’s operations of the restaurant and the boat ride services since the
PTCC has no contract, concession or franchise from the PTA to operate the
above-mentioned businesses. As shown by the records, the operation of the restaurant
and the boat ride services was merely tolerated, in order to extend financial assistance to
its PTA employee-members who are members of the then fledging PTCC.

Except for receipts for rents paid by the PTCC to the PTA, the respondents failed to show
any contract, concession agreement or franchise to operate the restaurant and boat ride
services. In fact, the PTCC initially did not implead the PTA in its Complaint since it was
1âwphi1

well aware that there was no contract executed between the PTCC and the PTA. While
the PTCC has been operating the restaurant and boat ride services for almost ten (10)
years until its closure, the same was by mere tolerance of the PTA.67 In the consolidated
case of Phil. Ports Authority v. Pier 8 Arrastre & Stevedoring Services, Inc.,68 the Court
upheld the authority of government agencies to terminate at any time hold-over
permits.69 Thus, considering that the PTCC’s operation of the restaurant and the boat ride
services was by mere tolerance, the PTA can, at any time, terminate such operation.

The CA ruled that "the closure of the restaurant and boat ride business within the PTA
Complex was tainted with bad faith on the part of [the] defendants-appellants."70 It referred
to the Sheriff’s Report dated January 19, 1994, which stated that no such repairs and
rehabilitation were actually undertaken. Further, the petitioners engaged the services of a
new restaurant operator (the New Selecta Restaurant) after the closure of the restaurant
per official receipts showing that the new operator of the restaurant paid PTA
commissions for its catering services from March 1994 to April 1994.71

The Court disagrees. The records disclose that sufficient notice was given by the PTA for
the respondents to vacate the area. The Sheriff’s Report dated January 19, 1994, alleging
that there were, in fact, no repairs and rehabilitation undertaken in the area at the time of
inspection cannot be given weight. It must be noted that the RTC had issued on
November 11, 1993 a TRO enjoining the petitioners from pursuing its actions. Thus, the
absence of any business activity in the premises is even proof of the petitioner’s
compliance to the order of the trial court. Furthermore, the Sheriff’s Report was executed
only about a month after the announced construction or development; thus, it cannot be
expected that the petitioners would immediately go full-blast in the implementation of the
repair and renovation.

As to the alleged engagement of the services of a new restaurant operator, the Court
agrees with the petitioners that the engagement of New Selecta Restaurant was
temporary and due only to the requests of the guests who needed catering services for
the duration of their stay. The evidence offered by the respondents which were receipts
issued to New Selecta Restaurant on different dates even emphasize this point.72From the
foregoing, the Court concludes that the engagement of New Selecta Restaurant is not
continuous but on contingency basis only.

With respect to Laborte's liability in his official and personal capacity, the Court finds that
Laborte was simply implementing the lawful order of the PTA Management. As a general
rule the officer cannot be held personally liable with the corporation, whether civilly or
otherwise, for the consequences of his acts, if acted for and in behalf of the corporation,
within the scope of his authority and in good faith.73 Furthermore, the Court also notes that
the charges against petitioners Laborte and the PTA for grave coercion and for the
violation of R.A. 671374have all been dismissed.75 Thus, the Court finds no basis to hold
petitioner Laborte liable.

Likewise, the award of damages to the respondents and respondents-intervenors is

without basis. Absent a contract between the PTCC and the PTA, and considering further
that the respondents were adequately notified to properly vacate the PTA Complex, the
Court finds no justifiable reason to award any damages. Neither may the
respondents-intervenors claim damages since the act directed against the PTCC was a
lawful exercise of the PTA's management prerogative. While it is true that the exercise of
management prerogative is a recognized right of a corporate entity, it can not be gainsaid
that the exercise of such right must be tempered with justice, honesty, good faith76 and a
careful regard of other party's rights. In the instant case, there is ample evidence to show
that the petitioners were able to observe the same.

WHEREFORE, the petit10n is GRANTED. The Decision dated May 29, 2008 and the
Resolution dated July 23, 2008 of the Court of Appeals are VACATED. The Amended
Complaint and the Complaint-in-Intervention filed by the Respondents in the Regional
Trial Court, Branch 28, Sta. Cruz, Laguna in Civil Case No. SC-3150 are DISMISSED.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice
Chairperson

TERESITA J. LEONARDO-DE
LUCAS P. BERSAMIN
CASTRO
Associate Justice
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes

1
Rollo, pp. 12-37.

2
Penned by Associate Justice Fernanda Lampas Peralta, with Associate Justices
Edgardo P. Cruz and Marlene G. Sison, concurring; id. at 42-61.

3
Id. at 178-184.

4
Id. at 86.

5
Id. at 63-85.

6
Id. at 43-44, 14-15, 91; TSN, November 25, 1993, pp. 24-26, TSN, June 6, 1996,
pp. 12-14, and TSN, October 4, 1996, p. 17.

7
Id. at 91-96.

8
Id. at 94-95.

9
Id. at 97.

10
Id. at 107-110.

11
Id. at 45, 114.

12
Id. at 118-125.

13
Id. at 120-121.

14
Id. at 118-119, 122-123.

15
Id. at 123.

16
Id. at 128-133.

17
Id. at 128-131.

18
Id. at 146.

19
Id. at 147-152.
20
Id. at 154-163.

21
Id. at 157-158.

22
Id. at pp. 184.

23
Id. at 186-210.

24
Id. at 42-61.

25
Id. at 63-85.

26
Id. at 86.

27
Id. at 21-22.

28
Id. at 54.

Westmont Investment Corporation v. Amos P. Francia, Jr., et al., G.R. No.

29

194128, December 7, 2011, 661 SCRA 787, 800.

Ahag v. Cabiling, 18 Phil. 415 (1911); Chua v. Court of Appeals, G.R. No. 88383,
30

February 19, 1992, 206 SCRA 339, 346.

31
258-A Phil. 994 (1989).

32
191 Phil. 72 (1981).

33
G.R. No. 152866, October 6, 2010, 632 SCRA 236.

34
Id. at 246.

35
116 Phil. 977 (1962).

36
Id. at 980-981.

37
BLACK’S LAW DICTIONARY, 8th Edition, p. 761.

38
People v. Maximo Ramos y San Diego, 417 Phil. 807, 815 (2001).

TSN, August 28, 1998, pp. 45-47; records, pp. 402, 432; Folder of Exhibits,
39

Exhibit "C," p. 13.

40
TSN, August 28, 1998, p. 49; records, pp. 198, 429.

41
TSN, August 28, 1998, p. 54.

42
TSN, November 23, 1998, p. 2; records, pp. 38, 42.

43
TSN, November 23, 1998, pp. 3-4; records, pp. 47, 50.
44
TSN, November 23, 1998, p. 4; records, pp. 44-46.

45
TSN, November 23, 1998, pp. 4-5; records, pp. 48-49.

46
TSN, November 23, 1998, pp. 5-6.

47
TSN, November 23, 1998, pp. 7-8.

48
TSN, November 23, 1998, pp. 8-9; records, pp. 196, 431.

49
TSN, November 23, 1998, pp. 9-10.

TSN, August 28, 1998, pp. 45-47; records, pp. 402, 432; Folder of Exhibits,
50

Exhibit "C," p. 13.

51
TSN, August 28, 1998, p. 49; records, pp. 198, 429.

52
TSN, November 23, 1998, p. 2; records, pp. 38, 42.

53
TSN, November 23, 1998, pp. 3-4; records, pp. 47, 50.

54
TSN, November 23, 1998, p. 4; records, pp. 44-46.

55
TSN, November 23, 1998, pp. 4-5; records, pp. 48-49.

56
TSN, November 23, 1998, pp. 8-9; records, pp. 196, 431.

Vitarich Corporation v. Losin, G.R. No. 181560, November 15, 2010, 634 SCRA
57

671, 682.

58
Rollo, pp. 99-106.

59
Id. at 99-102.

60
Id. at 103-104.

61
Id. at 105-106.

62
Id. at 25-26.

Mendoza v. Rural Bank of Lucban, G.R. No. 155421, July 7, 2004, 433 SCRA
63

756.

64
Rollo, p. 26.

65
Id. at 26-28.

66
Id. at 25.

67
Id. at 52-53, 178.
 68
512 Phil. 74 (2005).

69
Id. at 85-88.

70
Rollo, p. 53.

71
Id.

72
Folder of Exhibits, Exhibits P, P-1 to P-3 , pp. 47-50.

73
Francisco v. Mejia, 415 Phil. 153, 166 (2001).

An Act Establishing a Code of Conduct and Ethical Standards for Public Officials
74

and Employees.

75
Rollo, pp. 31-32; 213-220.

76
CIVIL CODE, Article 19.

The Lawphil Project - Arellano Law Foundation

 JOHN GOKONGWEI, JR., Petitioner, v. SECURITIES AND EXCHANGE
COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL,
ANTONIO ROXAS, EMETERIO BUÑAO, WALTHRODE B. CONDE, MIGUEL
ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO
TANJUATCO, SR., and EDUARDO R. VISAYA, Respondents.

De Santos, Balgos & Perez for Petitioner.

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

Sorianos.

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

R. T. Capulong for respondent Eduardo R. Visaya.

SYNOPSIS

Petitioner (a) seeks to declare null and void the amended by-laws of respondent
corporation which disqualifies any stockholder engaged in any business that competes
with or is antagonistic to that of the corporation from being nominated or elected to the
Board of Directors; (b) assails the order of the Securities and Exchange Commission
denying his right to inspect the books of a wholly-owned subsidiary of respondent
corporation; (c) assails the act of the Securities and Exchange Commission in allowing
the stockholders of respondent corporation to ratify the investment of corporate funds
in a foreign corporation.

The Court voted unanimously to grant the petition insofar as it prays that petitioner be
allowed to examine the books and records of the wholly-owned subsidiary of
respondent corporation.

For lack of necessary votes the Court denied the petition insofar as it assails the
validity of the by-laws and ratification of the foreign investment of respondent
corporation.

On the validity of the amended By-laws, six justices (Barredo, Makasiar, Antonio,
Santos, Abad Santos and De Castro, JJ.,) voted to sustain the validity per se of the
amended by-laws and to dismiss the petition without prejudice to the question of
petitioner’s actual disqualification from running if elected from sitting as director of
respondent corporation being decided, after a new and proper hearing by the Board of
Directors of said corporation, whose decision shall be appealable to the respondent
Securities and Exchange Commission and ultimately to the Supreme Court.

The aforementioned six justices, together with Fernando, J., voted to declare the issue
on the validity of the foreign investment of respondent corporation as moot.

Fred Ruiz Castro, C.J., reserved his vote on the validity of the amended by-laws
pending hearing by this Court on the applicability of section 13(5) of the Corporation
law to petitioner.
Fernando, J., reserved his vote on the validity of subject amendment to the by-laws but
otherwise concurs in the result.

Four Justices (Teehankee, Conception Jr., Fernandez and Guerrero, JJ.,) in a

separate opinion voted against the validity of the questioned amended by-laws and
held that this question should properly be resolved first by the SEC as the agency of
primary jurisdiction. They concur in the result that petitioner may be allowed to run for
and sit as director in the scheduled election and subsequent elections until disqualified
after proper hearing by the respondent’s Board of Directors and petitioner’s
disqualification shall have been sustained by respondent SEC en banc and ultimately
by final judgment of this Court.

SYLLABUS

1. APPEAL; SUPREME COURT MAY RESOLVED CASE ON THE MERITS,

INSTEAD OF REMANDING IT TO LOWER COURT. — The Supreme Court always
strives to settle the entire controversy in a single proceeding, "leaving no root or branch
to bear the seeds of future litigation," and to decide a case on the merits instead of
remanding it to the trial court for further proceedings (a) where the ends of justice
would not be subserved by the remand of the case, or (b) where public interest
demands an early disposition of the case; or (c) while the trial court had already
received all the evidence presented by both parties and the Supreme Court is in a
position, based upon said evidence, to decide the case on its merits.

2. ID.; ID.; QUESTION OF PRIMARY JURISDICTION HAS NO APPLICATION

WHERE ONLY QUESTION OF LAW IS INVOLVED. — The doctrine of primary
jurisdiction has no application where only a question of law is involved. Because
uniformity may be secured through review by a single Supreme Court questions of law
may appropriately de determined in the first instance by courts.

3. ID.; VALIDITY OF BY-LAW OF CORPORATION IS A QUESTION OF LAW. — The

validity of reasonableness of a by-laws of a corporation, whether the by-law is in
conflict with the law of the land, or with the charter of the corporation, or is in a legal
sense unreasonable and therefore unlawful is purely a question of law. This rule is
subject, however, to the limitation that where the reasonableness of a by-law is a mere
matter of judgment, and one upon which reasonable minds must necessarily differ, a
court would not be warranted in substituting its judgment instead of the judgment of
those who are authorized to make by-laws and who have exercised their authority.

4. CORPORATIONS; POWER TO ADOPT BY-LAWS. — Every corporation has the

inherent power to adopt by-laws for its internal government, and to regulate the
conduct and prescribe the rights and duties of its members towards itself and among
themselves in reference to the management of it affairs. In the absence of positive
legislative provisions limiting it, every private corporation has this inherent power as
one of its necessary and inseparable legal incidents, independent of any specific
enabling provision in its character or in general law, such power of self-government
being essential to enable the corporation to accomplish the purposes of its creation.

5. ID.; ID.; QUALIFICATIONS OF OFFICERS AND EMPLOYEES. — The term

"qualifications" under section 21 of the Corporation Law which expressly empowers a
corporation to prescribed in its by-laws the qualifications of directors must necessarily
refer to qualifications in addition to that specified by section 30 of the Corporation law,
which provides that "every director must own in his own right at least one share of the
capital stock of the stock corporation of which he is a director."cralaw virtua1aw library

6. ID.; STOCKHOLDERS MUST ABIDE BY RULE OF THE MAJORITY. — Any person

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

7. ID.; ID.; AMENDMENT OF BY-LAWS; RIGHT OF DISSENTING MINORITY

STOCKHOLDER. — Where the articles of the incorporation or the by-laws of a
corporation has been amended by the required number of votes as provided for in the
Corporation Law, and the amendment changes, diminishes or restricts the rights of the
existing stockholders, the dissenting minority has only one right, viz.; to object thereto
in writing and demand payment of his share.

8. ID.; STOCKHOLDER HAS NO VESTED RIGHT TO BE ELECTED DIRECTOR. —

A stockholder has no vested right to be elected director, where the law at the time such
right as stockholder was acquired contained the prescription that the corporate charter
and the by-law will be subject to amendment, alteration and modification.

9. ID.; DIRECTOR STANDS IN A FIDUCIARY RELATION TO CORPORATION AND

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

10. ID.; BY-LAWS; QUALIFICATION OF DIRECTORS. — Corporations have the

power to make by-laws declaring a person employed in the service of a rival company
to be ineligible for the corporation’s Board of Directors.

11. ID.; ID.; ID.; CONFLICT OF INTERESTS. — An amendment which renders

ineligible, or if elected, subjects to removal, a director if he be also a director if he be
also a director in a corporation whose business is in competition with or is antagonistic
to the other corporation is valid. This is based upon the principle that were the director
also employed in the service of a rival company, he cannot serve both, but must betray
one or the other. Thus, an officer of a corporation cannot engage in a business in direct
competition with that of the corporation where he is a director by utilizing information
he has received as such officer, under "the established law that a director or officer of a
corporation may not enter into a competing enterprise which cripples or injuries the
business of the corporation of which he is an officer or director."cralaw virtua1aw
library

12. ID.; ID.; DOCTRINE OF "CORPORATE OPPORTUNITY." — Corporate officers

are not permitted to the use their position of trust and confidence to further their
interests. The doctrine of "corporate opportunity" is precisely a recognition by the
courts that the fiduciary standards could not be upheld where the fiduciary was acting
for two entities with competing interests. This doctrine rests fundamentally of the
unfairness, in particular circumstances, of an officer or director taking advantage of an
opportunity for his own personal profit when the interest of the corporation justly calls
for protection.

13. ID.; MONOPOLIES. — The Constitution and the law prohibit combinations in
restraint of trade and unfair competition. Thus, section 2 of article XIV of the
Constitution provides: "The State shall regulate or prohibit private monopolies when
the public interest so requires. No combination in restraint of trade or unfair
competition shall be allowed." These anti-trust laws or laws against monopolies or
combinations in restraint of trade are aimed at raising levels of competition by
improving the consumers’ effectiveness as the final arbiter in free markets. They are
designed to preserve free and unfettered competition as the rule of trade, and operate
to forestall concentration of economic power.

14. ID.; ID.; NATURE AND DEFINITION OF MONOPOLY. — A "monopoly" embraces

any combination, the tendency of which is to prevent competition in the broad and
general sense, or to control prices to the detriment of the public. It is the concentration
of business in the hands of a few. The material consideration in determining its
existence is not that prices are raised and competition actually excluded, but that
power exists to raise prices or exclude competition when desired. It includes a
condition produced by the mere act of individuals. Its dominant thought is the notion of
exclusiveness or unity, or the suppression of competition by the unification of interest
or management, or thru agreement and concert of action. An express agreement is not
necessary for the existence of a combination or conspiracy in restraint of trade.

15. ID.; ID.; STOCK OWNERSHIP IN AGRICULTURAL CORPORATIONS,

LIMITATIONS. — The election of the president and controlling shareholder of a
corporation engaged in agriculture, to the board of another corporation, also engaged
in agriculture, may constitute a violation of the prohibition contained in section 13 (5) of
the Corporation Law which provides in part that "any stockholder of more than one
corporation organized for the purpose of engaging in agriculture may hold his stock in
such corporations solely for investment and not for the purpose of bringing about or
attempting to bring about a combination to exercise control of such
corporations."cralaw virtua1aw library

16. ID.; BY-LAW; QUALIFICATION IF MEMBERS OF THE BOARD; EQUAL

PROTECTION. — If the by-law were to be applied in the case of one stockholder but
waived in the case of another, then it could be reasonably claimed that the by-law was
being applied in a discriminatory manner, but not if the by-law, by its terms, applies to
all stockholders. The equal protection clause of the Constitution requires only that the
by-law operate equally upon all persons of a class. Sound principles of public policy
and management support the view that a by-law which disqualifies a competitor from
election to the Board of Directors of another corporation is valid and reasonable.

17. ID.; ID.; PROTECTION OF LEGITIMATE CORPORATE INTERESTS. — In the

absence of any legal prohibition or overriding public policy, wide latitude may be
accorded to the corporation in adopting measures to protect legitimate corporate
interests.

18. ID.; COMPETITION DEFINED. — "Competition" implies a struggle for advantage

between two or more forces, each possessing, in substantially similar if not identical
degree, certain characteristics essential to the business sought. It means an
independent endeavor of two or more persons to obtain the business patronage of a
third by offering more advantageous terms as an inducement to secure trade. The test
must be whether the business does in fact compete, not whether it is capable of an
indirect and highly unsubstantial duplication of an isolated or non characteristic activity.

19. ID.; ID.; EXERCISE OF POWER TO DISQUALIFY A STOCKHOLDER FROM

BEING MEMBER OF THE BOARD. — The amended by-laws which grants the Board
the power by 3/4 votes to bar a stockholder from his right to be elected as director
where such stockholder is found to be engaged in a "competitive or antagonistic
business" is valid. However, consonant with the requirement of due process, there
must be due hearing at which the stockholder must be given the fullest opportunity to
show that he is not covered by the disqualification. As trustees of the corporation and
of the stockholders, it is the responsibility of directors to act with fairness to the
stockholders. Pursuant to this obligation and to remove any suspicion that this power
may be utilized by the incumbent members of the Board to perpetuate themselves in
power, any decision of the Board to disqualify a candidate for the Board of Directors
should be reviewed by the Securities and Exchange Commission en banc and its
decision shall be final unless reversed by the Supreme Court on certiorari.

20. ID.; REVIEW OF ACTION OF THE BOARD OF DIRECTORS. — Where the action
of a Board of Directors is an abuse of discretion, or forbidden by statute, or is against
public policy, or is ultra vires, or is a fraud upon minority stockholders or creditors, or
will result in waste, dissipation or misapplication of the corporate assets, a court of
equity has the power to grant appropriate relief.

21. ID.; STOCKHOLDER’S RIGHT; INSPECTION OF BOOKS. — The stockholders’

right of inspection of the corporation’s books and records is based upon their
ownership of the assets and property of the corporation. It is an incident of ownership
of the corporate property, whether this ownership or interest be termed an equitable
ownership, a beneficial ownership, or quasi-ownership. It is predicated upon the
necessity of self-protection.

22. ID.; ID.; RIGHT MUST BE EXERCISED IN GOOD FAITH. — Where a right is
granted by statute to the stockholder, it is given to him as such and must be exercised
by him with respect to his interest as stockholder and for some purpose germane
thereto or in the interest of the corporation. In other words, the inspection has to be
germane to the petitioner’s interest as a stockholder, and has to be proper and lawful in
character and not inimical to the interest of the corporation. It must be exercised in
 good faith, for specific and honest purpose, and not to gratify curiosity, or for
speculative or vexatious purposes.

23. ID.; ID.; COURT MAY INQUIRE INTO MOTIVE OF STOCKHOLDER. — On

application for mandamus to enforce the right to examine the books of a corporation, it
is proper for the court to inquire into and consider the stockholder’s good faith and his
purpose and motives in seeking inspection. The right given by the statute is not
absolute and may be refused when the information is not sought in good faith or is
used to the detriment of the corporation.

24. ID.; ID.; RIGHT TO EXAMINE BOOKS OF A WHOLLY OWNED SUBSIDIARY. —

While the right of a stockholder to examine the books and records of a corporation for a
lawful purpose is a matter of law, the right of such stockholder to examine the books
and records of a wholly-owned subsidiary of the corporation in which he is a
stockholder is a different thing. Where a foreign subsidiary is wholly owned by
respondent corporation and, therefore, under its control, it would be in accord with
equity, good faith and fair dealing to construe the statutory right of a stockholder to
inspect the books and records of the corporation as extending to books and records of
such wholly owned subsidiary which are in respondent corporation’s possession and
control.

25. ID.; BOARD DIRECTORS; POWER TO INVEST FUNDS. — Section 17-1/2 of the
Corporation Law allows a corporation to "invest its fund in any corporation or business
or for any purpose other than the main purpose for which it was organized" provided
that its Board of Directors has been so authorized by the affirmative vote of
stockholders holding shares entitling them to exercise at least two-thirds of the voting
power. If the investment is made in pursuance of the corporate purpose, it does not
need the approval of the stockholders. It is only when the purchase of shares is done
solely for investment and not to accomplish the purpose of its incorporation that the
vote of approval of the stockholders holding shares entitling them to exercise at least
two-thirds of the voting power is necessary.

26. ID.; ID.; RATIFICATION OF ACT OF BOARD OF DIRECTORS. — Where the

Board of Directors had no authority to make an investment, the corporation, like an
individual, may ratify and thereby render binding upon it the originally unauthorized
acts of its officers or other agents. Mere ultra vires acts or those which are not illegal
and void ab initio, but are not merely within the scope of the articles of incorporation,
are merely voidable and may become binding and enforceable when ratified by the
stockholders.

27. ID.; ID.; INVESTMENT IN AID OF CORPORATE PURPOSE. — The purchase of

beer manufacturing facilities by San Miguel Corporation was an investment in the
same business as its main purpose in its Articles of Incorporation and is relevant to the
corporate purpose.

28. ID.; ID.; SUBMISSION OF ASSAILED INVESTMENT FOR RATIFICATION BY

STOCKHOLDERS. — The mere fact that a corporation submits the assailed
investment to the stockholders for its ratification at the annual meeting cannot be
construed as an admission that the corporation had committed an ultra vires act,
considering the common practices of corporations of periodically submitting for
ratification of their stockholders the acts of their directors, officers and managers.
 BARREDO, J., concurring:chanrob1es virtual 1aw library

1. JUDGMENTS; DISMISSAL FOR LACK OF NECESSARY VOTES; LAW OF THE

CASE. — Where petitioner and respondents placed the issue of the validity of
amended by-laws squarely before the Court for resolution and six justices voted in
favor, while four justices voted against, its validity, thereby resulting in the dismissal, of
the petition "insofar as it assails the validity of the amended by-laws . . . for lack of
necessary votes," such dismissal is the law of the case as far as the parties are
concerned albeit the majority of six against four justices is not doctrinal in the sense
that it cannot be cited as necessarily a precedent for subsequent cases. This means
that the petitioner and respondents are bound by the foregoing result, namely that the
Court en banc has not found merit in the claim that the amended by-laws in question
are invalid. In other words, the issue of the challenged amended by-laws is already a
settled matter for the parties as the law of the case, and said amended by-law already
enforceable in so far as the parties are concerned. Petitioner may not thereafter act on
the assumption that he can revive the issue of validity whether in the Securities and
Exchange Commission, the Supreme Court or in any other forum, unless, he proceeds
on the basis of a different factual milieu from the setting of the case. Only the actual
implementation of the impugned amended by-laws remained to be passed upon by the
Securities and Exchange Commission.

2. ID.; ID.; DECISION ON THE MERITS. — It is somewhat of a misreading and

misconstruction of Section 11 of Rule 56, contrary to the well-known established norm
observed by the Supreme Court, to state that the dismissal of a petition for lack of
necessary votes does not amount to a decision on the merits. The Supreme Court is
deemed to find no merit in a petition in two ways, namely, (1) when eight or more
members vote expressly in that sense and (2) when the required number of justices
needed to sustain the same cannot be had.

DE CASTRO, J., concurring:chanrob1es virtual 1aw library

1. CORPORATION; STOCKHOLDERS; DISQUALIFICATION TO BE ELECTED

DIRECTOR. — If a person became a stockholder of a corporation and gets himself
elected as a director, and while he is such a director, he forms his own corporation
competitive or antagonistic to the corporation of which he is a director, and becomes
Chairman of the Board and President of his own corporation, he may be removed from
his position as director, admittedly one of trust and confidence. If this is so, a person
controlling, and also the Chairman of the Board and President of, a corporation, may
be barred form becoming a member of the Board of Directors of a competitive
corporation.

2. ID.; AGRICULTURE, CORPORATION ENGAGED IN. — The scope of the provision

of Section 13(5) of the Philippine Corporation Law should be limited to corporations
engaged in agriculture, only as the word "agriculture" refers to its more limited meaning
as distinguished from its general and broad connotation. The term would then mean
"farming" or raising the natural products of the soil, such as by cultivation, in the
manner as is required by the Public Land Act in the acquisition of agricultural land,
such as by homestead, before the patent may be issued, but does not extend to poultry
raising or piggery which may be included in the term "agriculture" in its broad sense.
3. JUDGMENTS; LAW OF THE CASE. — Although only six votes are for upholding the
validity of the by-laws, their validity is deemed upheld as constituting the "law of the
case." It could not be otherwise, after the petition is dismissed with the relief sought do
declare null and void the said by-laws being denied in effect. A vicious circle would be
created should petitioner come against to the Court, raising the same question he
raised in the present petition, unless the principle of the "law of the case" is applied.

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

to separate opinion.

1. JUDGMENTS; LAW OF THE CASE. — The doctrine of the law of the case may be
invoked only where there has been a final and conclusive determination of an issue in
the first case later invoked as the law of the case. It has no application where the
judgment in the first case is inconclusive, as where no final and conclusive
determination could be reached on account of lack of necessary votes and the case
was simply dismissed pursuant to Rule 56, Section 11. It cannot be contended that the
Supreme Court in dismissing the petition for lack of necessary votes had directly ruled
on the issue presented when it itself could not reach a final conclusive vote thereon.

DECISION

ANTONIO, J.:

The instant petition for certiorari, mandamus and injunction, with prayer for issuance of
writ of preliminary injunction, arose out of two cases filed by petitioner with the
Securities and Exchange Commission, as follows:chanrob1es virtual 1aw library

SEC CASE NO. 1375

On October 22, 1976, Petitioner, as stockholder of respondent San Miguel Corporation,

filed with the Securities and Exchange Commission (SEC) a petition for "declaration of
nullity of amended by-laws, cancellation of certificate of filing of amended by-laws,
injunction and damages with prayer for a preliminary injunction" against the majority of
the members of the Board of Directors and San Miguel Corporation as an unwilling
petitioner. The petition, entitled "John Gokongwei, Jr., v. Andres Soriano, Jr., Jose M.
Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buñao, Walthrode B. Conde, Miguel
Ortigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC Case No.
1375.

As a first cause of action, petitioner alleged that on September 18, 1976, individual
respondents amended by bylaws of the corporation, basing their authority to do so on
a resolution of the stockholders adopted on March 13, 1961, when the outstanding
capital stock of respondent corporation was only P70,139.740.00, divided into
5,513,974 common shares at P10.00 per share and 150,000 preferred shares at
P100.00 per share. At the time of the amendment, the outstanding and paid up shares
totalled 30,127,043, with a total par value of P301,270,430.00. It was contended that
according to section 22 of the Corporation Law and Article VIII of the by-laws of the
corporation, the power to amend, modify, repeal or adopt new by-laws may be
delegated to the Board of Directors only by the affirmative vote of stockholders
representing not less than 2/3 of the subscribed and paid up capital stock of the
corporation, which 2/3 should have been computed on the basis of the capitalization at
the time of the amendment. Since the amendment was based on the 1961
authorization, petitioner contended that the Board acted without authority and in
usurpation of the power of the stockholders.

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

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

As a fourth cause of action, it was claimed that prior to the questioned amendment,
petitioner had all the qualifications to be a director of respondent corporation, being a
substantial stockholder thereof; that as a stockholder, petitioner had acquired rights
inherent in stock ownership, such as the rights to vote and to be voted upon in the
election of directors; and that in amending the by-laws, respondents purposely
provided for petitioner’s disqualification and deprived him of his vested right as
afore-mentioned, hence the amended by-laws are null and void. 1

As additional causes of action, it was alleged that corporations have no inherent power
to disqualify a stockholder from being elected as a director and, therefore, the
questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M.
Soriano, while representing other corporations, entered into contracts (specifically a
management contract) with respondent corporation, which was avowed because the
questioned amendment gave the Board itself the prerogative of determining whether
they or other persons are engaged in competitive or antagonistic business; that the
portion of the amended by-laws which states that in determining whether or not a
person is engaged in competitive business, the Board may consider such factors as
business and family relationship, is unreasonable and oppressive and, therefore, void;
and that the portion of the amended by-laws which requires that "all nominations for
election of directors . . . shall be submitted in writing to the Board of Directors at least
five (5) working days before the date of the Annual Meeting" is likewise unreasonable
and oppressive.

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

On October 28, 1976, in connection with the same case, petitioner filed with the
Securities and Exchange Commission an "Urgent Motion for Production and
Inspection of Documents", alleging that the Secretary of respondent corporation
refused to allow him to inspect its records despite request made by petitioner for
production of certain documents enumerated in the request, and that respondent
corporation had been attempting to suppress information from its stockholders despite
a negative reply by the SEC to its query regarding their authority to do so. Among the
documents requested to be copied were (a) minutes of the stockholder’s meeting held
on March 13, 1961; (b) copy of the management contract between San Miguel
Corporation and A. Soriano Corporation (ANSCOR); (c) latest balance sheet of San
Miguel International, Inc.; (d) authority of the stockholders to invest the funds of
respondent corporation in San Miguel International, Inc.; and (e) lists of salaries,
allowances, bonuses, and other compensation, if any, received by Andres M. Soriano,
Jr. and/or its successor-in-interest.

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

During the pendency of the motion for production, respondents San Miguel
Corporation, Enrique Conde, Miguel Ortigas and Antonio Prieto filed their answer to
the petition, denying the substantial allegations therein and stating, by way of
affirmative defenses that "the action taken by the Board of Directors on September 18,
1976 resulting in the . . . amendments is valid and legal because the power to ‘amend,
modify, repeal or adopt new By-laws’ delegated to said Board on March 13, 1961 and
long prior thereto has never been revoked, withdrawn or otherwise nullified by the
stockholders of SMC" ; that contrary to petitioner’s claim, "the vote requirement for a
valid delegation of the power to amend, repeal or adopt new by-laws is determined in
relation to the total subscribed capital stock at the time the delegation of said power is
made, not when the Board opts to exercise said delegated power" ; that petitioner has
not availed of his intra-corporate remedy for the nullification of the amendment, which
is to secure its repeal by vote of the stockholders representing a majority of the
subscribed capital stock at any regular or special meeting, as provided in Article VIII,
section 1 of the by-laws and section 22 of the Corporation Law, hence the petition is
premature; that petitioner is estopped from questioning the amendments on the
ground of lack of authority of the Board, since he failed to object to other amendments
made on the basis of the same 1961 authorization; that the power of the corporation to
amend its by-laws is broad, subject only to the condition that the by-laws adopted
should not be inconsistent with any existing law; that respondent corporation should
not be precluded from adopting protective measures to minimize or eliminate
situations where its directors might be tempted to put their personal interests over that
of the corporation; that the questioned amended by-laws is a matter of internal policy
and the judgment of the board should not be interfered with; that the by-laws, as
amended, are valid and binding and are intended to prevent the possibility of violation
of criminal and civil laws prohibiting combinations in restraint of trade; and that the
petition states no cause of action. It was, therefore, prayed that the petition be
dismissed and that petitioner be ordered to pay damages and attorney’s fees to
respondents. The application for writ of preliminary injunction was likewise on various
grounds.

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

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

obligation and attorney’s fees were presented against petitioner.

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

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

"Considering the evidence submitted before the Commission by the petitioner and
respondents in the above-entitled case, it is hereby ordered:chanrob1es virtual 1aw
library

1. That respondents produce and permit the inspection, copying and photographing,
by or on behalf of the petitioner-movant, John Gokongwei, Jr., of the minutes of the
stockholders’ meeting of the respondent San Miguel Corporation held on March 13,
1961, which are in the possession, custody and control of the said corporation, it
appearing that the same is material and relevant to the issues involved in the main
case. Accordingly, the respondents should allow petition-movant entry in the principal
office of the respondent Corporation, San Miguel Corporation on January 14, 1977, at
9:30 o’clock in the morning for purposes of enforcing the rights herein granted; it being
understood that the inspection, copying and photographing of the said documents
shall be undertaken under the direct and strict supervision of this Commission.
Provided, however, that other documents and/or papers not heretofore included are
not covered by this Order and any inspection thereof shall require the prior permission
of this Commission;

2. As to the Balance Sheet of San Miguel International, Inc. as well as the list of
salaries, allowances, bonuses, compensation and/or remuneration received by
respondent Jose M. Soriano, Jr. and Andres Soriano from San Miguel International,
Inc. and/or its successors-in-interest, the Petition to produce and inspect the same is
hereby DENIED, as petitioner-movant is not a stockholder of San Miguel International,
Inc. and has, therefore, no inherent right to inspect said documents;

3. In view of the Manifestation of petitioner-movant dated November 29, 1976,

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

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

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

This Order is immediately executory upon its approval." 2

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

Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondent
corporation issued a notice of special stockholders’ meeting for the purpose of
"ratification and confirmation of the amendment to the By-laws", setting such meeting
for February 10, 1977. This prompted petitioner to ask respondent Commission for a
summary judgment insofar as the first cause of action is concerned, for the alleged
reason that by calling a special stockholders’ meeting for the aforesaid purpose,
private respondents admitted the invalidity of the amendments of September 18, 1976.
The motion for summary judgment was opposed by private respondents. Pending
action on the motion, petitioner filed an "Urgent Motion for the Issuance of a Temporary
Restraining Order", praying that pending the determination of petitioner’s application
for the issuance of a preliminary injunction and or petitioner’s motion for summary
judgment, a temporary restraining order be issued, restraining respondents from
holding the special stockholders’ meeting as scheduled. This motion was duly
opposed by respondents.

On February 10, 1977, respondent Cremation issued an order denying the motion for
issuance of temporary restraining order. After receipt of the order of denial,
respondents conducted the special stockholders’ meeting wherein the amendments to
the by-laws were ratified. On February 14, 1977, petitioner filed a consolidated motion
for contempt and for nullification of the special stockholders’ meeting.

A motion for reconsideration of the order denying petitioner’s motion for summary
judgment was filed by petitioner before respondent Commission on March 10, 1977.
Petitioner alleges that up to the time of the filing of the instant petition, the said motion
had not yet been scheduled for hearing. Likewise, the motion for reconsideration of the
order granting in part and denying in part petitioner’s motion for production of records
had not yet been resolved.

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

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

SEC CASE NO. 1423

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

On February 4, 1977, motions to dismiss were filed by private respondents, to which a

consolidated motion to strike and to declare individual respondents in default and an
opposition ad abundantiorem cautelam were filed by petitioner. Despite the fact that
said motions were filed as early as February 4, 1977, the Commission acted thereon
only on April 25, 1977, when it denied respondents’ motions to dismiss and gave them
two (2) days within which to file their answer, and set the case for hearing on April 29
and May 3, 1977.

Respondents issued notices of the annual stockholders’ meeting, including in the

Agenda thereof, the following:jgc:chanrobles.com.ph

"6. Reaffirmation of the authorization to the Board of Directors by the stockholders at

the meeting on March 20, 1972 to invest corporate funds in other companies or
businesses or for purposes other than the main purpose for which the Corporation has
been organized, and ratification of the investments thereafter made pursuant
thereto."cralaw virtua1aw library

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

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

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

On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a
restraining order had been issued by this Court, or on May 9, 1977, the respondent
Commission served upon petitioner copies of the following orders:chanrob1es virtual
1aw library

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

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

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

It is petitioner’s assertions, anent the foregoing orders, (1) that respondent

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

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

On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano filed
their comment, alleging that the petition is without merit for the following
reasons:chanrob1es virtual 1aw library

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

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

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

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

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

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

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

Respondent Commission, thru the Solicitor General, filed a separate comment,

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

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

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

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

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

(2) whether or not respondent SEC gravely abused its discretion in denying petitioner’s
request for an examination of the records of San Miguel International, Inc., a fully
owned subsidiary of San Miguel Corporation; and
(3) whether or not respondent SEC committed grave abuse of discretion in allowing
discussion of Item 6 of the Agenda of the Annual Stockholders’ Meeting on May 10,
1977, and the ratification of the investment in a foreign corporation of the corporate
funds, allegedly in violation of section 17-1/2 of the Corporation Law.

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

It is the position of the petitioner that "it is not necessary to remand the case to
respondent SEC for an appropriate ruling on the intrinsic validity of the amended
by-laws in compliance with the principle of exhaustion of administrative remedies",
considering that: first: "whether or not the provisions of the amended by-laws are
intrinsically valid . . . is purely a legal question. There is no factual dispute as to what
the provisions are and evidence is not necessary to determine whether such amended
by-laws are valid as framed and approved . . ." ; second: "it is for the interest and
guidance of the public that an immediate and final ruling on the question be made . . ." ;
third: "petitioner was denied due process by SEC" when "Commissioner de Guzman
had openly shown prejudice against petitioner . . .", and "Commissioner Sulit . . .
approved the amended by-laws ex-parte and obviously found the same intrinsically
valid" ; and finally: "to remand the case to SEC would only entail delay rather than
serve the ends of justice."cralaw virtua1aw library

Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Court
resolve the legal issues raised by the parties in keeping with the "cherished rules of
procedure" that "a court should always strive to settle the entire controversy in a single
proceeding leaving no root or branch to bear the seeds of future ligiation", citing Gayos
v. Gayos. 3 To the same effect is the prayer of San Miguel Corporation that this Court
resolve on the merits the validity of its amended by-laws and the rights and obligations
of the parties thereunder, otherwise "the time spent and effort exerted by the parties
concerned and, more importantly, by this Honorable Court, would have been for
naught because the main question will come back to this Honorable Court for final
resolution." Respondent Eduardo R. Visaya submits a similar appeal.

It is only the Solicitor General who contends that the case should be remanded to the
SEC for hearing and decision of the issues involved, invoking the latter’s primary
jurisdiction to hear and decide cases involving intra-corporate controversies.

It is an accepted rule of procedure that the Supreme Court should always strive to
settle the entire controversy in a single proceeding, leaving no root or branch to bear
the seeds of future litigation. 4 Thus, in Francisco v. City of Davao, 5 this Court
resolved to decide the case on the merits instead of remanding it to the trial court for
further proceedings since the ends of justice would not be subserved by the remand of
the case. In Republic v. Security Credit and Acceptance Corporation, Et Al., 6 this
Court, finding that the main issue is one of law, resolved to decide the case on the
merits "because public interest demands an early disposition of the case", and in
Republic v. Central Surety and Insurance Company, 7 this Court denied remand of the
third-party complaint to the trial court for further proceedings, citing precedents where
this Court, in similar situations, resolved to decide the cases on the merits, instead of
remanding them to the trial court where (a) the ends of justice would not be subserved
by the remand of the case; or (b) where public interest demands an early disposition of
the case; or (c) where the trial court had already received all the evidence presented by
both parties and the Supreme Court is now in a position, based upon said evidence, to
decide the case on its merits. 8 It is settled that the doctrine of primary jurisdiction has
no application where only a question of law is involved. 8 Because uniformity may be
secured through review by a single Supreme Court, questions of law may
appropriately be determined in the first instance by courts. 8 In the case at bar, there
are facts which cannot be denied, viz: that the amended by-laws were adopted by the
Board of Directors of the San Miguel Corporation in the exercise of the power
delegated by the stockholders ostensibly pursuant to section 22 of the Corporation
Law; that in a special meeting on February 10, 1977 held specially for that purpose, the
amended by-laws were ratified by more than 80% of the stockholders of record; that
the foreign investment in the Hongkong Brewery and Distillery, a beer manufacturing
company in Hongkong, was made by the San Miguel Corporation in 1948; and that in
the stockholders’ annual meeting held in 1972 and 1977, all foreign investments and
operations of San Miguel Corporation were ratified by the stockholders.

II

Whether or not the amended by-laws of SMC disqualifying a competitor from

nomination or election to the Board of Directors of SMC are valid and reasonable —

The validity or reasonableness of a by-law of a corporation is purely a question of law.

9 Whether the by-law is in conflict with the law of the land, or with the charter of the
corporation, or is in a legal sense unreasonable and therefore unlawful is a question of
law. 10 This rule is subject, however, to the limitation that where the reasonableness of
a by-law is a mere matter of judgment, and one upon which reasonable minds must
necessarily differ, a court would not be warranted in substituting its judgment instead of
the judgment of those who are authorized to make by-laws and who have exercised
their authority. 11

Petitioner claims that the amended by-laws are invalid and unreasonable because
they were tailored to suppress the minority and prevent them from having
representation in the Board", at the same time depriving petitioner of his "vested right"
to be voted for and to vote for a person of his choice as director.

Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San
Miguel Corporation content that exclusion of a competitor from the Board is legitimate
corporate purpose, considering that being a competitor, petitioner cannot devote an
unselfish and undivided loyalty to the corporation; that it is essentially a preventive
measure to assure stockholders of San Miguel Corporation of reasonable protection
from the unrestrained self-interest of those charged with the promotion of the corporate
enterprise; that access to confidential information by a competitor may result either in
the promotion of the interest of the competitor at the expense of the San Miguel
Corporation, or the promotion of both the interests of petitioner and respondent San
Miguel Corporation, which may, therefore, result in a combination or agreement in
violation of Article 186 of the Revised Penal Code by destroying free competition to the
detriment of the consuming public. It is further argued that there is not vested right of
any stockholder under Philippine Law to be voted as director of a corporation. It is
alleged that petitioner, as of May 6,1978, has exercised, personally or thru two
corporations owned or controlled by him, control over the following shareholdings in
San Miguel Corporation, vis.: (a) John Gokongwei, Jr. — 6,325 shares; (b) Universal
Robina Corporation — 738,647 shares; (c) CFC Corporation — 658,313 shares, or a
total of 1,403,285 shares. Since the outstanding capital stock of San Miguel
Corporation, as of the present date, is represented by 33,139,749 shares with a par
value of P10.00, the total shares owned or controlled by petitioner represents 4.2344%
of the total outstanding capital stock of San Miguel Corporation. It is also contended
that petitioner is the president and substantial stockholder of Universal Robina
Corporation and CFC Corporation, both of which are allegedly controlled by petitioner
and members of his family. It is also claimed that both the Universal Robina
Corporation and the CFC Corporation are engaged in businesses directly and
substantially competing with the allied businesses of San Miguel Corporation, and of
corporations in which SMC has substantial investments.

ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER’S CORPORATIONS

AND SAN MIGUEL CORPORATION

According to respondent San Miguel Corporation, the areas of, competition are
enumerated in its Board the areas of competition are enumerated in its Board
Resolution dated April 28, 1978, thus:chanrob1es virtual 1aw library

Product Line Estimated Market Share Total

1977 SMC Robina-CFC

Table Eggs 0.6% 10.0% 10.6%

Layer Pullets 33.0% 24.0% 57.0%

Dressed Chicken 35.0% 14.0% 49.0%

Poultry & Hog Feeds 40.0% 12.0% 52.0%

Ice Cream 70.0% 13.0% 83.0%

Instant Coffee 45.0% 40.0% 85.0%

Woven Fabrics 17.5% 9.1% 26.6%

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

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

According to private respondents, at the Annual Stockholders’ Meeting of March 18,

1976, 9,894 stockholders, in person or by proxy, owning 23,436,754 shares in SMC, or
more than 90% of the total outstanding shares of SMC, rejected petitioner’s candidacy
for the Board of Directors because they "realized the grave dangers to the corporation
in the event a competitor gets a board seat in SMC." On September 18, 1978, the
Board of Directors of SMC, by "virtue of powers delegated to it by the stockholders,"
approved the amendment to the by-laws in question. At the meeting of February 10,
1977, these amendments were confirmed and ratified by 5,716 shareholders owning
24,283,945 shares, or more than 80% of the total outstanding shares. Only 12
shareholders, representing 7,005 shares, opposed the confirmation and ratification. At
the Annual Stockholders’ Meeting of May 10, 1977, 11,349 shareholders, owning
27,257.014 shares, or more than 90% of the outstanding shares, rejected petitioner’s
candidacy, while 946 stockholders, representing 1,648,801 shares voted for him. On
the May 9, 1978 Annual Stockholders’ Meeting, 12,480 shareholders, owning more
than 30 million shares, or more than 90% of the total outstanding shares, voted against
petitioner.

AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF

DIRECTORS EXPRESSLY CONFERRED BY LAW

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

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

In this jurisdiction under section 21 of the Corporation Law, a corporation may

prescribe in its by-laws "the qualifications, duties and compensation of directors,
officers and employees . . ." This must necessarily refer to a qualification in addition to
that specified by section 30 of the Corporation Law, which provides that "every director
must own in his right at least one share of the capital stock of the stock corporation of
which he is a director . . ." In Government v. El Hogar, 14 the Court sustained the
validity of a provision in the corporate by-law requiring that persons elected to the
Board of Directors must be holders of shares of the paid up value of P5,000.00, which
shall be held as security for their action, on the ground that section 21 of the
Corporation Law expressly gives the power to the corporation to provide in its by-laws
for the qualifications of directors and is "highly prudent and in conformity with good
practice."cralaw virtua1aw library

NO VESTED RIGHT OF STOCKHOLDER TO BE

ELECTED DIRECTOR

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

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

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

A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND

ITS SHAREHOLDERS

Although in the strict and technical sense, directors of a private corporation are not
regarded as trustees, there cannot be any doubt that their character is that of a
fiduciary insofar as the corporation and the stockholders as a body are concerned. As
agents entrusted with the management of the corporation for the collective benefit of
the stockholders, "they occupy a fiduciary relation, and in this sense the relation is one
of trust." 18 "The ordinary trust relationship of directors of a corporation and
stockholders", according to Ashaman v. Miller, 19 "is not a matter of statutory or
technical law. It springs from the fact that directors have the control and guidance of
corporate affairs and property and hence of the property interests of the stockholders.
Equity recognizes that stockholders are the proprietors of the corporate interests and
are ultimately the only beneficiaries thereof . . ."cralaw virtua1aw library

Justice Douglas, in Pepper v. Litton, 20 emphatically restated the standard of fiduciary

obligation of the directors of corporations, thus:jgc:chanrobles.com.ph

"A director is a fiduciary. . . . Their powers are powers in trust. . . . He who is in such
fiduciary position cannot serve himself first and his cestuis second. . . . He cannot
manipulate the affairs of his corporation to their detriment and in disregard of the
standards of common decency. He cannot by the intervention of a corporate entity
violate the ancient precept against serving two masters. . . . He cannot utilize his inside
information and strategic position for his own preferment. He cannot violate rules of fair
play by doing indirectly through the corporation what he could not do so directly. He
cannot violate rules of fair play by doing indirectly through the corporation what he
could not do so directly. He cannot use his power for his personal advantage and to the
detriment of the stockholders and creditors no matter how absolute in terms that power
may be and no matter how meticulous he is to satisfy technical requirements. For that
power is at all times subject to the equitable limitation that it may not be exercised for
the aggrandizement, preference, or advantage of the fiduciary to the exclusion or
detriment of the cestuis."cralaw virtua1aw library

And in Cross v. West Virginia Cent, & P. R. R. Co., 21 it was

said:jgc:chanrobles.com.ph

". . . A person cannot serve two hostile and adverse masters without detriment to one
of them. A judge cannot be impartial if personally interested in the cause. No more can
a director. Human nature is too weak for this. Take whatever statute provision you
please giving power to stockholders to choose directors, and in none will you find any
express prohibition against a discretion to select directors having the company’s
interest at heart, and it would simply be going far to deny by mere implication the
existence of such a salutary power.

". . . If the by-law is to be held reasonable in disqualifying a stockholder in a competing

company from being a director, the same reasoning would apply to disqualify the wife
and immediate member of the family of such stockholder, on account of the supposed
interest of the wife in her husband’s affairs, and his supposed influence over her. It is
perhaps true that such stockholders ought not to be condemned as selfish and
dangerous to the best interest of the corporation until tried and tested. So it is also true
that we cannot condemn as selfish and dangerous and unreasonable the action of the
board in passing the by-law. The strife over the matter of control in this corporation as
in many others is perhaps carried on not altogether in the spirit of brotherly love and
affection. The only test that we can apply is as to whether or not the action of the Board
is authorized and sanctioned by law. . . ." 22

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

AN AMENDMENT TO THE CORPORATE BY-LAW WHICH RENDERS A

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

It is also well established that corporate officers "are not permitted to use their position
of trust and confidence to further their private interests." 27 In a case where directors of
a corporation cancelled a contract of the corporation for exclusive sale of a foreign
firm’s products, and after establishing a rival business, the directors entered into a new
contract themselves with the foreign firm for exclusive sale of its products, the court
held that equity would regard the new contract as an offshoot of the old contract and,
therefore, for the benefit of the corporation, as a "faultless fiduciary may not reap the
fruits of his misconduct to the exclusion of his principal. 28

The doctrine of "corporate opportunity" 29 is precisely a recognition by the courts that

the fiduciary standards could not be upheld where the fiduciary was acting for two
entities with competing interests. This doctrine rests fundamentally on the unfairness,
in particular circumstances, of an officer or director taking advantage of an opportunity
for his own personal profit when the interest of the corporation justly calls for protection.
30

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

It is obviously to prevent the creation of an opportunity for an officer or director of San

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

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

". . . A bank director has access to a great deal of information concerning the business
and plans of a bank which would likely be injurious to the bank if known to another
bank, and it was reasonable and prudent to enlarge this minimum disqualification to
include any director, officer, employee, agent, nominee, or attorney of any other bank
in California. The Ashkins case, supra, specifically recognizes protection against rivals
and others who might acquire information which might be used against the interests of
the corporation as a legitimate object of by-law protection. With respect to attorneys or
persons associated with a firm which is attorney for another bank, in addition to the
direct conflict or potential conflict of interest, there is also the danger of inadvertent
leakage of confidential information through casual office discussions or accessibility of
files. Defendant’s directors determined that its welfare was best protected if this
opportunity for conflicting loyalties and potential misuse and leakage of confidential
information was foreclosed."cralaw virtua1aw library

In McKee, the Court further listed qualificational by-laws upheld by the courts, as
follows:jgc:chanrobles.com.ph

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

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

(3) A director shall not be an officer, agent, employee, attorney, or trustee in any other
firm, company, or association which compete with the subject corporation.

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

office.

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

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

The offer and assurance of petitioner that to avoid any possibility of his taking unfair
advantage of his position as director of San Miguel Corporation, he would absent
himself from meetings at which confidential matters would be discussed, would not
detract from the validity and reasonableness of the by-laws here involved. Apart from
the impractical results that would ensue from such arrangement, it would be
inconsistent with petitioner’s primary motive in running for board membership — which
is to protect his investments in San Miguel Corporation. More important, such a
proposed norm of conduct would be against all accepted principles underlying a
director’s duty of fidelity to the corporation, for the policy of the law is to encourage and
enforce responsible corporate management. As explained by Oleck: 31 "The law will
not tolerate the passive attitude of directors . . . without active and conscientious
participation in the managerial functions of the company. As directors, it is their duty to
control and supervise the day to day business activities of the company or to
promulgate definite policies and rules of guidance with a vigilant eye toward seeing to it
that these policies are carried out. It is only then that directors may be said to have
fulfilled their duty of fealty to the corporation."cralaw virtua1aw library

Sound principles of corporate management counsel against sharing sensitive

information with a director whose fiduciary duty of loyalty may well require that he
disclose this information to a competitive rival. These dangers are enhanced
considerably where the common director such as the petitioner is a controlling
stockholder of two of the competing corporations. It would seem manifest that in such
situations, the director has an economic incentive to appropriate for the benefit of his
own corporation the corporate plans and policies of the corporation where he sits as
director.

Indeed, access by a competitor to confidential information regarding marketing

strategies and pricing policies of San Miguel Corporation would subject the latter to a
competitive disadvantage and unjustly enrich the competitor, for advance knowledge
by the competitor of the strategies for the development of existing or new markets of
existing or new products could enable said competitor to utilize such knowledge to his
advantage. 32

There is another important consideration in determining whether or not the amended

by-laws are reasonable. The Constitution and the law prohibit combinations in restraint
of trade or unfair competition. Thus, section 2 of Article XIV of the Constitution provides:
"The State shall regulate or prohibit private monopolies when the public interest so
requires. No combinations in restraint of trade or unfair competition shall be
allowed."cralaw virtua1aw library

Article 186 of the Revised Penal Code also provides:jgc:chanrobles.com.ph

"Art. 186. Monopolies and combinations in restraint of trade. — The penalty of prision
correccional in its minimum period or a fine ranging from two hundred to six thousand
pesos, or both, shall be imposed upon:chanrob1es virtual 1aw library

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

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

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

or object of commerce or an importer of any merchandise or object of commerce from
any foreign country, either as principal or agent, wholesale or retailer, shall combine,
conspire or agree in any manner with any person likewise engaged in the manufacture,
production, processing, assembling or importation of such merchandise or object of
commerce or with any other persons not so similarly engaged for the purpose of
making transactions prejudicial to lawful commerce, or of increasing the market price
in any part of the Philippines, or any such merchandise or object of commerce
manufactured, produced, processed, assembled in or imported into the Philippines, or
of any article in the manufacture of which such manufactured, produced, processed, or
imported merchandise or object of commerce is used."cralaw virtua1aw library

There are other legislation in this jurisdiction, which prohibit monopolies and
combinations in restraint of trade. 33 Basically, these anti-trust laws or laws against
monopolies or combinations in restraint of trade are aimed at raising levels of
competition by improving the consumers’ effectiveness as the final arbiter in free
markets. These laws are designed to preserve free and unfettered competition as the
rule of trade. "It rests on the premise that the unrestrained interaction of competitive
forces will yield the best allocation of our economic resources, the lowest prices and
the highest quality . . ." 34 they operate to forestall concentration of economic power.
35 The law against monopolies and combinations in restraint of trade is aimed at
contracts and combinations that, by reason of the inherent nature of the contemplated
acts, prejudice the public interest by unduly restraining competition or unduly
obstructing the course of trade. 36

The terms "monopoly", "combination in restraint of trade" and "unfair competition"

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

From the foregoing definitions, it is apparent that the contentions of petitioner are not in
accord with reality. The election of petitioner to the Board of respondent Corporation
can bring about an illegal situation. This is because an express agreement is not
necessary for the existence of a combination or conspiracy in restraint of trade. 40 It is
enough that a concert of action is contemplated and that the defendants conformed to
the arrangements, 41 and what is to be considered is what the parties actually did and
not the words they used. For instance, the Clayton Act prohibits a person from serving
at the same time as a director in any two or more corporations, if such corporations are,
by virtue of their business and location of operation, competitors so that the elimination
of competition between them would constitute violation of any provision of the anti-trust
laws. 42 There is here a statutory recognition of the anti-competitive dangers which
may arise when an individual simultaneously acts as a director of two or more
competing corporations. A common director of two or more competing corporations
would have access to confidential sales, pricing and marketing information and would
be in a position to coordinate policies or to aid one corporation at the expense of
another, thereby stifling competition. This situation has been aptly explained by
Travers, thus:jgc:chanrobles.com.ph
"The argument for prohibiting competing corporations from sharing even one director
is that the interlock permits the coordination of policies between nominally independent
firms to an extent that competition between them may be completely eliminated.
Indeed, if a director, for example, is to be faithful to both corporations, some
accommodation must result. Suppose X is a director of both Corporation A and
Corporation B. X could hardly vote for a policy by A that would injure B without violating
his duty of loyalty to B; at the same time he could hardly abstain from voting without
depriving A of his best judgment. If the firms really do compete — in the sense of vying
for economic advantage at the expense of the other — there can hardly be any reason
for an interlock between competitors other than the suppression of competition." 43
(Emphasis supplied.)

According to the Report of the House Judiciary Committee of the U. S. Congress on

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

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

Obviously, if a competitor has access to the pricing policy and cost conditions of the
products of San Miguel Corporation, the essence of competition in a free market for the
purpose of serving the lowest priced goods to the consuming public would be
frustrated. The competitor could so manipulate the prices of his products or vary its
marketing strategies by region or by brand in order to get the most out of the
consumers. Where the two competing firms control a substantial segment of the
market this could lead to collusion and combination in restraint of trade. Reason and
experience point to the inevitable conclusion that the inherent tendency of interlocking
directorates between companies that are related to each other as competitors is to
blunt the edge of rivalry between the corporations, to seek out ways of compromising
opposing interests, and thus eliminate competition. As respondent SMC aptly
observes, knowledge by CFC-Robina of SMC’s costs in various industries and regions
in the country will enable the former to practice price discrimination. CFC-Robina can
segment the entire consuming population by geographical areas or income groups and
change varying prices in order to maximize profits from every market segment.
CFC-Robina could determine the most profitable volume at which it could produce for
every product line in which it competes with SMC. Access to SMC pricing policy by
CFC-Robina would in effect destroy free competition and deprive the consuming public
of opportunity to buy goods of the highest possible quality at the lowest prices.

Finally, considering that both Robina and SMC are, to a certain extent, engaged in
agriculture, then the election of petitioner to the Board of SMC may constitute a
violation of the prohibition contained in section 13(5) of the Corporation Law. Said
section provides in part that "any stockholder of more than one corporation organized
for the purpose of engaging in agriculture may hold his stock in such corporations
solely for investment and not for the purpose of bringing about or attempting to bring
about a combination to exercise control of such corporations . . .)."cralaw virtua1aw
library
Neither are We persuaded by the claim that the by-law was intended to prevent the
candidacy of petitioner for election to the Board. If the by-law were to be applied in the
case of one stockholder but waived in the case of another, then it could be reasonably
claimed that the by-law was being applied in a discriminatory manner. However, the
by-law, by its terms, applies to all stockholders. The equal protection clause of the
Constitution requires only that the by-law operate equally upon all persons of a class.
Besides, before petitioner can be declared ineligible to run for director, there must be
hearing and evidence must be submitted to bring his case within the ambit of the
disqualification. Sound principles of public policy and management, therefore, support
the view that a by-law which disqualifies a competition from election to the Board of
Directors of another corporation is valid and reasonable.

In the absence of any legal prohibition or overriding public policy, wide latitude may be
accorded to the corporation in adopting measures to protect legitimate corporate
interests. Thus, "where the reasonableness of a by-law is a mere matter of judgment,
and upon which reasonable minds must necessarily differ, a court would not be
warranted in substituting its judgment instead of the judgment of those who are
authorized to make by-laws and who have expressed their authority." 45

Although it is asserted that the amended by-laws confer on the present Board powers
to perpetuate themselves in power, such fears appear to be misplaced. This power, by
its very nature, is subject to certain well established limitations. One of these is
inherent in the very concept and definition of the terms "competition" and "competitor."
"Competition" implies a struggle for advantage between two or more forces, each
possessing, in substantially similar if not identical degree, certain characteristics
essential to the business sought. It means an independent endeavor of two or more
persons to obtain the business patronage of a third by offering more advantageous
terms as an inducement to secure trade. 46 The test must be whether the business
does in fact compete, not whether it is capable of an indirect and highly unsubstantial
duplication of an isolated or non-characteristic activity. 47 It is, therefore, obvious that
not every person or entity engaged in business of the same kind is a competitor. Such
factors as quantum and place of business, identity of products and area of competition
should be taken into consideration. It is, therefore, necessary to show that petitioner’s
business covers a substantial portion of the same markets for similar products to the
extent of not less than 10% of respondent corporation’s market for competing products.
While We here sustain the validity of the amended by-laws, it does not follow as a
necessary consequence that petitioner is ipso facto disqualified. Consonant with the
requirement of due process, there must be due hearing at which the petitioner must be
given the fullest opportunity to show that he is not covered by the disqualification. As
trustees of the corporation and of the stockholders, it is the responsibility of directors to
act with fairness to the stockholders. 48 Pursuant to this obligation and to remove any
suspicion that this power may be utilized by the incumbent members of the Board to
perpetuate themselves in power, any decision of the Board to disqualify a candidate for
the Board of Directors should be reviewed by the Securities and Exchange
Commission en banc and its decision shall be final unless reversed by this Court
on certiorari. 49 Indeed, it is a settled principle that where the action of a Board of
Directors is an abuse of discretion, or forbidden by statute, or is against public policy,
or is ultra vires, or is a fraud upon minority stockholders or creditors, or will result in
waste, dissipation or misapplication of the corporation assets, a court of equity has the
power to grant appropriate relief. 50
 III

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

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

Further, it was averred that upon request, petitioner was informed in writing on
September 18, 1976; (1) that SMC’s foreign investments are handled by San Miguel
International, Inc., incorporated in Bermuda and wholly owned by SMC; this was
SMC’s first venture abroad, having started in 1948 with an initial outlay of P500,000.00,
augmented by a loan of Hongkong $6 million from a foreign bank under the personal
guaranty of SMC’s former President, the late Col. Andres Soriano; (2) that as of
December 31, 1975, the estimated value of SMI would amount to almost P400 million;
(3) that the total cash dividends received by SMC from SMI since 1953 has amount to
US$9.4 million; and (4) that from 1972-1975, SMI did not declare cash or stock
dividends, all earnings having been used in line with a program for the setting up of
breweries by SMI.

These averments are supported by the affidavit of the Corporate Secretary, enclosing
photocopies of the afore-mentioned documents. 51

Pursuant to the second paragraph of section 51 of the Corporation Law," (t)he record
of all business transactions of the corporation and minutes of any meeting shall be
open to the inspection of any director, member or stockholder of the corporation at
reasonable hours."cralaw virtua1aw library

The stockholder’s right of inspection of the corporation’s books and records is based
upon their ownership of the assets and property of the corporation. It is, therefore, an
incident of ownership of the corporate property, whether this ownership or interest be
termed an equitable ownership, a beneficial ownership, or a quasi-ownership. 52 This
right is predicated upon the necessity of self-protection. It is generally held by majority
of the courts that where the right is granted by statute to the stockholder, it is given to
him as such and must be exercised by him with respect to his interest as a stockholder
and for some purpose germane thereto or in the interest of the corporation. 53 In other
words, the inspection has to be germane to the petitioner’s interest as a stockholder,
and has to be proper and lawful in character and not inimical to the interest of the
corporation. 54 In Grey v. Insular Lumber, 55 this Court held that "the right to examine
the books of the corporation must be exercised in good faith, for specific and honest
purpose, and not to gratify curiosity, or for speculative or vexatious purposes." The
weight of judicial opinion appears to be, that on application for mandamus to enforce
the right, it is proper for the court to inquire into and consider the stockholder’s good
faith and his purpose and motives in seeking inspection. 56 Thus, it was held that "the
right given by statute is not absolute and may be refused when the information is not
sought in good faith or is used to the detriment of the corporation." 57 But the
"impropriety of purpose such as will defeat enforcement must be set up the corporation
defensively if the Court is to take cognizance of it as a qualification. In other words, the
specific provisions take from the stockholder the burden of showing propriety of
purpose and place upon the corporation the burden of showing impropriety of purpose
or motive." 58 It appears to be the "general rule that stockholders are entitled to full
information as to the management of the corporation and the manner of expenditure of
its funds, and to inspection to obtain such information, especially where it appears that
the company is being mismanaged or that it is being managed for the personal benefit
of officers or directors or certain of the stockholders to the exclusion of others." 59

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

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

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

In the Nash case, 65 The Supreme Court of New York held that the contractual right of
former stockholders to inspect books and records of the corporation "included the right
to inspect corporation’s subsidiaries’ books and records which were in corporation’s
possession and control in its office in New York."cralaw virtua1aw library

In the Bailey case, 66 stockholders of a corporation were held entitled to inspect the
records of a controlled subsidiary corporation which used the same offices and had
identical officers and directors.
In his "Urgent Motion for Production and Inspection of Documents" before respondent
SEC, petitioner contended that respondent corporation "had been attempting to
suppress information from the stockholders" and that petitioner, "as stockholder of
respondent corporation, is entitled to copies of some documents which for some
reason or another, respondent corporation is very reluctant in revealing to the
petitioner notwithstanding the fact that no harm would be caused thereby to the
corporation." 67 There is no question that stockholders are entitled to inspect the
books and records of a corporation in order to investigate the conduct of the
management, determine the financial condition of the corporation, and generally take
an account of the stewardship of the officers and directors. 68

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

IV

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

Petitioner reiterates his contention in SEC Case No. 1423 that respondent corporation
invested corporate funds in SMI without prior authority of the stockholders, thus
violating section 17-112 of the Corporation Law, and alleges that respondent SEC
should have investigated the charge, being a statutory offense, instead of allowing
ratification of the investment by the stockholders.

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

Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any
other corporation or business or for any purpose other than the main purpose for which
it was organized" provided that its Board of Directors has been so authorized by the
affirmative vote of stockholders holding shares entitling them to exercise at least
two-thirds of the voting power. If the investment is made in pursuance of the corporate
purpose, it does not need the approval of the stockholders. It is only when the
purchase of shares is done solely for investment and not to accomplish the purpose of
its incorporation that the vote of approval of the stockholders holding shares entitling
them to exercise at least two-thirds of the voting power is necessary. 69

As stated by respondent corporation, the purchase of beer manufacturing facilities by

SMC was an investment in the same business stated as its main purpose in its Articles
of Incorporation, which is to manufacture and market beer. It appears that the original
investment was made in 1947-1948, when SMC, then San Miguel Brewery, Inc.,
purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the
manufacture and marketing of San Miguel beer thereat. Restructuring of the
investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax
free reorganization.

Under these circumstances, the ruling in De la Rama v. Ma-ao Sugar Central Co., Inc.,
supra, appears relevant. In said case, one of the issues was the legality of an
investment made by Ma-ao Sugar Central Co., Inc., without prior resolution approved
by the affirmative vote of 2/3 of the stockholders’ voting power, in the Philippine Fiber
Processing Co., Inc., a company engaged in the manufacture of sugar bags. The lower
court said that "there is more logic in the stand that if the investment is made in a
corporation whose business is important to the investing corporation and would aid it in
its purpose, to require authority of the stockholders would be to unduly curtail the
power of the Board of Directors." This Court affirmed the ruling of the court a quo on
the matter and, quoting Prof. Sulpicio S. Guevara, said:jgc:chanrobles.com.ph

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

order to accomplish is purpose as stated in its articles of incorporation, and subject to
the limitations imposed by the Corporation Law, has the power to acquire, hold,
mortgage, pledge or dispose of shares, bonds, securities, and other evidences of
indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance
of the corporate purpose, does not need the approval of stockholders; but when the
purchase of shares of another corporation is done solely for investment and not to
accomplish the purpose of its incorporation, the vote of approval of the stockholders is
necessary. In any case, the purchase of such shares or securities must be subject to
the limitations established by the Corporation law; namely, (a) that no agricultural or
mining corporation shall in anywise be interested in any other agricultural or mining
corporation; or (b) that a non-agricultural or non-mining corporation shall be restricted
to own not more than 15% of the voting stock of any agricultural or mining corporation;
and (c) that such holdings shall be solely for investment and not for the purpose of
bringing about a monopoly in any line of commerce or combination in restraint of
trade.’ (The Philippine Corporation Law by Sulpicio S. Guevara, 1967 Ed., p. 89)
(Emphasis ours.)

"‘40. Power to invest corporate funds. — A private corporation has the power to invest
its corporate funds "in any other corporation or business, or for any purpose other than
the main purpose for which it was organized, provided that ‘its board of directors has
been so authorized in a resolution by the affirmative vote of stockholders holding
shares in the corporation entitling them to exercise at least two-thirds of the voting
power on such a proposal at a stockholders’ meeting called for that purpose,’ and
provided further, that no agricultural or mining corporation shall in anywise be
interested in any other agricultural or mining corporation. When the investment is
necessary to accomplish its purpose or purposes as stated in its articles of
incorporation, the approval of the stockholders is not necessary." " (Id., p. 108.)
(Emphasis ours.)" (pp. 258-259.)

Assuming arguendo that the Board of Directors of SMC had no authority to make the
assailed investment, there is no question that a corporation, like an individual, may
ratify and thereby render binding upon it the originally unauthorized acts of its officers
or other agents. 70 This is true because the questioned investment is neither contrary
to law, morals, public order or public policy. It is a corporate transaction or contract
which is within the corporate powers, but which is defective from a purported failure to
observe in its execution the requirement of the law that the investment must be
authorized by the affirmative vote of the stockholders holding two-thirds of the voting
power. This requirement is for the benefit of the stockholders. The stockholders for
whose benefit the requirement was enacted may, therefore, ratify the investment and
its ratification by said stockholders obliterates any defect which it may have had at the
outset. "Mere ultra vires acts", said this Court in Pirovano, 71 "or those which are not
illegal and void ab initio, but are not merely within the scope of the articles of
incorporation, are merely voidable and may become binding and enforceable when
ratified by the stockholders."cralaw virtua1aw library

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

WHEREFORE, judgment is hereby rendered as follows:chanrob1es virtual 1aw library

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

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

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

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

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

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

In resume, subject to the qualifications afore-stated, judgment is hereby rendered

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

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

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

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

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

CERTIFICATION

The undersigned hereby certifies that Justice VICENTE ABAD SANTOS concurred in
the opinion of Justice FELIX Q. ANTONIO.