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BY-LAWS

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

JOHN GOKONGWEI, JR., petitioner,


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

De Santos, Balgos & Perez for petitioner.

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

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

R. T Capulong for respondent Eduardo R. Visaya.

ANTONIO, J.:

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

SEC CASE NO 1375

On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filed with the Securities
and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of
certificate of filing of amended by- laws, injunction and damages with prayer for a preliminary injunction"
against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling
petitioner. The petition, entitled "John Gokongwei Jr. vs. Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel,
Antonio Roxas, Emeterio Bunao, Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San Miguel
Corporation", was docketed as SEC Case No. 1375.

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

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

As a third cause of action, petitioner averred that the membership of the Board of Directors had changed since
the authority was given in 1961, there being six (6) new directors.
As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all the
qualifications to be a director of respondent corporation, being a Substantial stockholder thereof; that as a
stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to vote and to be
voted upon in the election of directors; and that in amending the by-laws, respondents purposely provided for
petitioner's disqualification and deprived him of his vested right as afore-mentioned hence the amended by-
laws are null and void. 1

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

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

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

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

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

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

As counterclaims, actual damages, moral damages, exemplary damages, expenses of litigation and attorney's
fees were presented against petitioner.

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

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

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

1. That respondents produce and permit the inspection, copying and photographing, by or on behalf of
the petitioner-movant, John Gokongwei, Jr., of the minutes of the stockholders' meeting of the respondent San
Miguel Corporation held on March 13, 1961, which are in the possession, custody and control of the said
corporation, it appearing that the same is material and relevant to the issues involved in the main case.
Accordingly, the respondents should allow petitioner-movant entry in the principal office of the respondent
Corporation, San Miguel Corporation on January 14, 1977, at 9:30 o'clock in the morning for purposes of
enforcing the rights herein granted; it being understood that the inspection, copying and photographing of the
said documents shall be undertaken under the direct and strict supervision of this Commission. Provided,
however, that other documents and/or papers not heretofore included are not covered by this Order and any
inspection thereof shall require the prior permission of this Commission;
2. As to the Balance Sheet of San Miguel International, Inc. as well as the list of salaries, allowances,
bonuses, compensation and/or remuneration received by respondent Jose M. Soriano, Jr. and Andres Soriano
from San Miguel International, Inc. and/or its successors-in- interest, the Petition to produce and inspect the
same is hereby DENIED, as petitioner-movant is not a stockholder of San Miguel International, Inc. and has,
therefore, no inherent right to inspect said documents;

3. In view of the Manifestation of petitioner-movant dated November 29, 1976, withdrawing his request
to copy and inspect the management contract between San Miguel Corporation and A. Soriano Corporation
and the renewal and amendments thereof for the reason that he had already obtained the same, the
Commission takes note thereof; and

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

This Order is immediately executory upon its approval. 2

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

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

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

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

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

SEC. CASE NO. 1423

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

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

Respondents issued notices of the annual stockholders' meeting, including in the Agenda thereof, the
following:

6. Re-affirmation of the authorization to the Board of Directors by the stockholders at the meeting on
March 20, 1972 to invest corporate funds in other companies or businesses or for purposes other than the
main purpose for which the Corporation has been organized, and ratification of the investments thereafter
made pursuant thereto.

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

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

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

On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a restraining order had been
issued by this Court, or on May 9, 1977, the respondent Commission served upon petitioner copies of the
following orders:
(1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's motion for reconsideration,
with its supplement, of the order of the Commission denying in part petitioner's motion for production of
documents, petitioner's motion for reconsideration of the order denying the issuance of a temporary
restraining order denying the issuance of a temporary restraining order, and petitioner's consolidated motion
to declare respondents in contempt and to nullify the stockholders' meeting;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire
controversy in a single proceeding, leaving nor root or branch to bear the seeds of future litigation. 4 Thus, in
Francisco v. City of Davao, 5 this Court resolved to decide the case on the merits instead of remanding it to
the trial court for further proceedings since the ends of justice would not be subserved by the remand of the
case. In Republic v. Security Credit and Acceptance Corporation, et al., 6 this Court, finding that the main
issue is one of law, resolved to decide the case on the merits "because public interest demands an early
disposition of the case", and in Republic v. Central Surety and Insurance Company, 7 this Court denied remand
of the third-party complaint to the trial court for further proceedings, citing precedent where this Court, in
similar situations resolved to decide the cases on the merits, instead of remanding them to the trial court
where (a) the ends of justice would not be subserved by the remand of the case; or (b) where public interest
demand an early disposition of the case; or (c) where the trial court had already received all the evidence
presented by both parties and the Supreme Court is now in a position, based upon said evidence, to decide
the case on its merits. 8 It is settled that the doctrine of primary jurisdiction has no application where only a
question of law is involved. 8a Because uniformity may be secured through review by a single Supreme Court,
questions of law may appropriately be determined in the first instance by courts. 8b In the case at bar, there
are facts which cannot be denied, viz.: that the amended by-laws were adopted by the Board of Directors of
the San Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly pursuant to
section 22 of the Corporation Law; that in a special meeting on February 10, 1977 held specially for that
purpose, the amended by-laws were ratified by more than 80% of the stockholders of record; that the foreign
investment in the Hongkong Brewery and Distellery, a beer manufacturing company in Hongkong, was made
by the San Miguel Corporation in 1948; and that in the stockholders' annual meeting held in 1972 and 1977,
all foreign investments and operations of San Miguel Corporation were ratified by the stockholders.

II

Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election to the
Board of Directors of SMC are valid and reasonable

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

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

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

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


CORPORATION

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

Product Line Estimated Market Share Total


1977 SMC Robina-CFC

Table Eggs 0.6% 10.0% 10.6%


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

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

It is further asserted that in 1977, the CFC-Robina group was in direct competition on product lines which, for
SMC, represented sales amounting to more than ?478 million. In addition, CFC-Robina was directly competing
in the sale of coffee with Filipro, a subsidiary of SMC, which product line represented sales for SMC amounting
to more than P275 million. The CFC-Robina group (Robitex, excluding Litton Mills recently acquired by
petitioner) is purportedly also in direct competition with Ramie Textile, Inc., subsidiary of SMC, in product
sales amounting to more than P95 million. The areas of competition between SMC and CFC-Robina in 1977
represented, therefore, for SMC, product sales of more than P849 million.

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

AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED BY


LAW

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

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

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

NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR

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

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

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

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

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

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

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

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

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

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

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

AN AMENDMENT TO THE CORPORATION BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

There is another important consideration in determining whether or not the amended by-laws are reasonable.
The Constitution and the law prohibit combinations in restraint of trade or unfair competition. Thus, section 2
of Article XIV of the Constitution provides: "The State shall regulate or prohibit private monopolies when the
public interest so requires. No combinations in restraint of trade or unfair competition shall be snowed."

Article 186 of the Revised Penal Code also provides:

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

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

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

3. Any person who, being a manufacturer, producer, or processor of any merchandise or object of
commerce or an importer of any merchandise or object of commerce from any foreign country, either as
principal or agent, wholesale or retailer, shall combine, conspire or agree in any manner with any person
likewise engaged in the manufacture, production, processing, assembling or importation of such merchandise
or object of commerce or with any other persons not so similarly engaged for the purpose of making
transactions prejudicial to lawful commerce, or of increasing the market price in any part of the Philippines, or
any such merchandise or object of commerce manufactured, produced, processed, assembled in or imported
into the Philippines, or of any article in the manufacture of which such manufactured, produced, processed, or
imported merchandise or object of commerce is used.
There are other legislation in this jurisdiction, which prohibit monopolies and combinations in restraint of
trade. 33

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

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

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

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

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

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

Finally, considering that both Robina and SMC are, to a certain extent, engaged in agriculture, then the
election of petitioner to the Board of SMC may constitute a violation of the prohibition contained in section
13(5) of the Corporation Law. Said section provides in part that "any stockholder of more than one corporation
organized for the purpose of engaging in agriculture may hold his stock in such corporations solely for
investment and not for the purpose of bringing about or attempting to bring about a combination to exercise
control of incorporations ... ."

Neither are We persuaded by the claim that the by-law was Intended to prevent the candidacy of petitioner for
election to the Board. If the by-law were to be applied in the case of one stockholder but waived in the case of
another, then it could be reasonably claimed that the by-law was being applied in a discriminatory manner.
However, the by law, by its terms, applies to all stockholders. The equal protection clause of the Constitution
requires only that the by-law operate equally upon all persons of a class. Besides, before petitioner can be
declared ineligible to run for director, there must be hearing and evidence must be submitted to bring his case
within the ambit of the disqualification. Sound principles of public policy and management, therefore, support
the view that a by-law which disqualifies a competition from election to the Board of Directors of another
corporation is valid and reasonable.

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

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

III

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

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

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

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

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

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

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

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

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

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

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

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

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

IV

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

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

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

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

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

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

"j. Power to acquire or dispose of shares or securities. A private corporation, in order to accomplish is
purpose as stated in its articles of incorporation, and subject to the limitations imposed by the Corporation
Law, has the power to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other
evidence of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the
corporate purpose, does not need the approval of stockholders; but when the purchase of shares of another
corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of
approval of the stockholders is necessary. In any case, the purchase of such shares or securities must be
subject to the limitations established by the Corporations law; namely, (a) that no agricultural or mining
corporation shall be restricted to own not more than 15% of the voting stock of nay agricultural or mining
corporation; and (c) that such holdings shall be solely for investment and not for the purpose of bringing
about a monopoly in any line of commerce of combination in restraint of trade." The Philippine Corporation
Law by Sulpicio S. Guevara, 1967 Ed., p. 89) (Emphasis supplied.)
40. Power to invest corporate funds. A private corporation has the power to invest its corporate funds
"in any other corporation or business, or for any purpose other than the main purpose for which it was
organized, provide that 'its board of directors has been so authorized in a resolution by the affirmative vote of
stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting
power on such a propose at a stockholders' meeting called for that purpose,' and provided further, that no
agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation.
When the investment is necessary to accomplish its purpose or purposes as stated in its articles of
incorporation the approval of the stockholders is not necessary."" (Id., p. 108) (Emphasis ours.) (pp. 258-259).

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

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

WHEREFORE, judgment is hereby rendered as follows:

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

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

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

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

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

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

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

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

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

Separate Opinions

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

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

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

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

II

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

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

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

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

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

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

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

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

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

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

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

III

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

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

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

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

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

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

Guerrero, J., concurred.

TEEHANKEE, CONCEPCION JR.,

FERNANDEZ and GUERRERO, JJ., concurring:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4. A word on the separate opinion of Mr. Justice Pacifico de Castro attached to the advance separate
opinion of Mr. Justice Barredo. Mr. Justice De Castro advances his interpretation as to a restrictive construction
of section 13(5) of the Philippine Corporation Law, ignoring or disregarding the fact that during the Court's
deliberations it was brought out that this prohibitory provision was and is not raised in issue in this case
whether here or in the Securities and Exchange Commission below (outside of a passing argument by Messrs.
Angara, Abello, Concepcion, Regala & Cruz, as counsels for respondent Sorianos in their Memorandum of June
26, 1978 that "(T)he disputed By-Laws does not prohibit petitioner from holding onto, or even increasing his
SMC investment; it only restricts any shifting on the part of petitioner from passive investor to a director of the
company." 3
As a consequence, the Court abandoned the Idea of calling for another hearing wherein the parties could
properly raise and discuss this question as a new issue and instead rendered the decision in question, under
which the question of section 13(5) could be raised at a new and proper hearing before the SMC board and in
the Securities and Exchange Commission and in due course before this Court (but with the clear understanding
that since both corporations, the Robina and SMC are engaged in agriculture as submitted by the Sorianos'
counsel in their said memorandum, the issue could be raised likewise against SMC and its other shareholders,
directors, if not against SMC itself. As expressly stated in the Chief Justices reservation of his vote, the matter
of the question of the applicability of the said section 13(5) to petitioner would be heard by this Court at the
appropriate time after the proceedings below (and necessarily the question of the validity of the amended by-
laws would be taken up anew and the Court would at that time be able to reach a final and conclusive vote).

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

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

BARREDO, J., concurring:

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

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

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

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

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

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

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

Antonio and Santos, JJ., concur.

DE CASTRO, J., concurring:

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

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

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

Fernando and Makasiar, JJ., concurs.

Antonio and Santos, JJ., concur

DE CASTRO, J.: concurring:

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

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

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

Separate Opinions

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

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

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

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

II

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

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

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

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

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

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

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

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

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

The Court is unanimous, therefore, in its judgment that petitioner Gokongwei may run for the office of, and if
elected, sit as, member of the board of directors of respondent San Miguel Corporation as stated in the
dispositive portion of the main opinion of Mr. Justice Antonio, to wit: Until and after petitioner has been given
a "new and proper hearing by the board of directors of said corporation, whose decision shall be appealable Lo
the respondent Securities and Exchange Commission deliverating and acting en banc and ultimately to this
Court" and until ' disqualified in the manner herein provided, the prohibition in the aforementioned amended
by-laws shall not apply to petitioner," In other words, until and after petitioner shall have been given due
process and proper hearing by the respondent board of directors as to the question of his qualification or
disqualification under the questioned amended by-laws (assuming that the respondent Securities and
Exchange C commission ultimately upholds the validity of said by laws), and such disqualification shall have
been sustained by respondent Securities and Exchange Commission and ultimately by final judgment of this
Court, petitioner is deemed eligible for all legal purposes and effects to be nominated and voted and if elected
to sit as a member of the hoard of directors of respondent San Miguel Corporation.
In view of the Court's unanimous judgment on this point the portion of respondent commission's Order No.
450, Series of 977 which imposed "the condition that he [petitioner] cannot sit as board member if elected
until after the Commission shall have finally decided the validity of the disputed by-law provision" has been
likewise accordingly set aside.

III

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

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

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

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

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

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

Guerrero, J., concurred.

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

This supplemental opinion is issued with reference to the advance separate opinion of Mr. Justice Barredo
issued by him as to "certain misimpressions as to the import of the decision in this case" which might be
produced by our joint separate opinion of April 11, 1979 and "urgent(ly) to clarify (his) position in respect to
the rights of the parties resulting from the dismissal of the petition herein and the outline of the procedure by
which the disqualification of petitioner Gokongwei can be made effective."
1. Mr. Justice Barredo's advances separate opinion "that as between the parties herein, the issue of the
validity of the challenged by-laws is already settled" had, of course, no binding effect. The judgment of the
Court is found on pages 59-61 of the decision of April 11, 1979, penned by Mr. Justice Antonio, wherein on the
question of the validity of the amended by-laws the Court's inconclusive voting is set forth as follows:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BARREDO, J., concurring:

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

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

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

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

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

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

Antonio and Santos, JJ., concur.

DE CASTRO, J., concurring:

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

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

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

Fernando and Makasiar, JJ., concurs.

Antonio and Santos, JJ., concur

# Separate Opinions

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

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

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

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

II

On the other main issue of the Validity of respondent San Miguel Corporation's amendment of its by-laws 2
whereby respondent corporation's board of directors under its resolution dated April 29, 1977 declared
petitioner ineligible to be nominated or to be voted or to be elected as of the board of directors, the Court,
composed of 12 members (since Mme. Justice Ameurfina Melencio Herrera inhibited herself from taking part
herein, while Mr. Justice Ramon C. Aquino upon submittal of the main opinion of Mr. Justice Antonio decided
not to take part), failed to reach a conclusive vote or, the required majority of 8 votes to settle the issue one
way or the other.
Six members of the Court, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro,
considered the issue purely legal and voted to sustain the validity per se of the questioned amended by-laws
but nevertheless voted that the prohibition and disqualification therein provided shall not apply to petitioner
Gokongwei until and after he shall have been given a new and proper hearing" by the corporation's board of
directors and the board's decision of disqualification she'll have been sustained on appeal by respondent
Securities and Exchange Commission and ultimately by this Court.

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

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

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

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

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

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

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

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

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

III

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

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

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

3. The Court's voting on the validity of respondent corporation's amendment of the by-laws (sec. 2, Art.
111) is inconclusive without the required majority of eight votes to settle the issue one way or the other
having been reached. No judgment is rendered by the Court thereon and the statements of the six Justices
who have signed the main opinion on the legality thereof have no binding effect, much less doctrinal value.
The dismissal of the petition insofar as the question of the validity of the disputed by-laws amendment is
concerned is not by an judgment with the required eight votes but simply by force of Rule 56, section II of the
Rules of Court, the pertinent portion of which provides that "where the court en banc is equally divided in
opinion, or the necessary majority cannot be had, the case shall be reheard, and if on re-hearing no decision is
reached, the action shall be dismissed if originally commenced in the court ...." The end result is that the Court
has thereby dismissed the petition which prayed that the Court bypass the commission and directly resolved
the issue and therefore the respondent commission may now proceed, as announced in its Order No. 450,
Series of 1977, to hear the case before it and receive all relevant evidence bearing on the issue as
hereinabove indicated, and resolve the "unresolved and genuine issues of fact" (as per Order No. 451, Series
of 1977) and the issues of legality of the disputed by-laws amendment.

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

Guerrero, J., concurred.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BARREDO, J., concurring:

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

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

I reiterate, therefore, that as between the parties herein, the issue of validity of the challenged by-laws is
already settled. From which it follows that the same are already enforceable-insofar as they are concerned.
Petitioner Gokongwei may not hereafter act on the assumption that he can revive the issue of validity whether
in the Securities and Exchange Commission, in this Court or in any other forum, unless he proceeds on the
basis of a factual milieu different from the setting of this case. Not even the Securities and Exchange
Commission may pass on such question anymore at the instance of herein petitioner or anyone acting in his
stead or on his behalf. The vote of four justices to remand the case thereto cannot alter the situation.
It is very clear that under the decision herein, the issue of validity is a settled matter for the parties herein as
the law of the case, and it is only the actual implementation of the impugned amended by-laws in the
particular case of petitioner that remains to be passed upon by the Securities and Exchange Commission, and
on appeal therefrom to Us, assuming the board of directors of San Miguel Corporation should, after the proper
hearing, disqualify him.

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

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

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

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

Antonio and Santos, JJ., concur.

DE CASTRO, J., concurring:

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

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

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

G.R. No. 117188 August 7, 1997

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner,


vs.
HON. COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION and
HORATIO AYCARDO, respondents.

ROMERO, J.:

May the failure of a corporation to file its by-laws within one month from the date of its incorporation, as
mandated by Section 46 of the Corporation Code, result in its automatic dissolution?

This is the issue raised in this petition for review on certiorari of the Decision 1 of the Court of Appeals
affirming the decision of the Home Insurance and Guaranty Corporation (HIGC). This quasi-judicial body
recognized Loyola Grand Villas Homeowners Association (LGVHA) as the sole homeowners' association in
Loyola Grand Villas, a duly registered subdivision in Quezon City and Marikina City that was owned and
developed by Solid Homes, Inc. It revoked the certificates of registration issued to Loyola Grand Villas
homeowners (North) Association Incorporated (the North Association for brevity) and Loyola Grand Villas
Homeowners (South) Association Incorporated (the South Association).
LGVHAI was organized on February 8, 1983 as the association of homeowners and residents of the Loyola
Grand Villas. It was registered with the Home Financing Corporation, the predecessor of herein respondent
HIGC, as the sole homeowners' organization in the said subdivision under Certificate of Registration No. 04-
197. It was organized by the developer of the subdivision and its first president was Victorio V. Soliven,
himself the owner of the developer. For unknown reasons, however, LGVHAI did not file its corporate by-laws.

Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so. 2 To the
officers' consternation, they discovered that there were two other organizations within the subdivision the
North Association and the South Association. According to private respondents, a non-resident and Soliven
himself, respectively headed these associations. They also discovered that these associations had five (5)
registered homeowners each who were also the incorporators, directors and officers thereof. None of the
members of the LGVHAI was listed as member of the North Association while three (3) members of LGVHAI
were listed as members of the South Association. 3 The North Association was registered with the HIGC on
February 13, 1989 under Certificate of Registration No. 04-1160 covering Phases West II, East III, West III
and East IV. It submitted its by-laws on December 20, 1988.

In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista, the head of the
legal department of the HIGC, informed him that LGVHAI had been automatically dissolved for two reasons.
First, it did not submit its by-laws within the period required by the Corporation Code and, second, there was
non-user of corporate charter because HIGC had not received any report on the association's activities.
Apparently, this information resulted in the registration of the South Association with the HIGC on July 27,
1989 covering Phases West I, East I and East II. It filed its by-laws on July 26, 1989.

These developments prompted the officers of the LGVHAI to lodge a complaint with the HIGC. They
questioned the revocation of LGVHAI's certificate of registration without due notice and hearing and
concomitantly prayed for the cancellation of the certificates of registration of the North and South Associations
by reason of the earlier issuance of a certificate of registration in favor of LGVHAI.

On January 26, 1993, after due notice and hearing, private respondents obtained a favorable ruling from HIGC
Hearing Officer Danilo C. Javier who disposed of HIGC Case No. RRM-5-89 as follows:

WHEREFORE, judgment is hereby rendered recognizing the Loyola Grand Villas Homeowners Association, Inc.,
under Certificate of Registration No. 04-197 as the duly registered and existing homeowners association for
Loyola Grand Villas homeowners, and declaring the Certificates of Registration of Loyola Grand Villas
Homeowners (North) Association, Inc. and Loyola Grand Villas Homeowners (South) Association, Inc. as
hereby revoked or cancelled; that the receivership be terminated and the Receiver is hereby ordered to render
an accounting and turn-over to Loyola Grand Villas Homeowners Association, Inc., all assets and records of the
Association now under his custody and possession.

The South Association appealed to the Appeals Board of the HIGC. In its Resolution of September 8, 1993, the
Board 4 dismissed the appeal for lack of merit.

Rebuffed, the South Association in turn appealed to the Court of Appeals, raising two issues. First, whether or
not LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code
resulted in the automatic dissolution of LGVHAI. Second, whether or not two homeowners' associations may
be authorized by the HIGC in one "sprawling subdivision." However, in the Decision of August 23, 1994 being
assailed here, the Court of Appeals affirmed the Resolution of the HIGC Appeals Board.

In resolving the first issue, the Court of Appeals held that under the Corporation Code, a private corporation
commences to have corporate existence and juridical personality from the date the Securities and Exchange
Commission (SEC) issues a certificate of incorporation under its official seal. The requirement for the filing of
by-laws under Section 46 of the Corporation Code within one month from official notice of the issuance of the
certificate of incorporation presupposes that it is already incorporated, although it may file its by-laws with its
articles of incorporation. Elucidating on the effect of a delayed filing of by-laws, the Court of Appeals said:
We also find nothing in the provisions cited by the petitioner, i.e., Section 46 and 22, Corporation Code, or in
any other provision of the Code and other laws which provide or at least imply that failure to file the by-laws
results in an automatic dissolution of the corporation. While Section 46, in prescribing that by-laws must be
adopted within the period prescribed therein, may be interpreted as a mandatory provision, particularly
because of the use of the word "must," its meaning cannot be stretched to support the argument that
automatic dissolution results from non-compliance.

We realize that Section 46 or other provisions of the Corporation Code are silent on the result of the failure to
adopt and file the by-laws within the required period. Thus, Section 46 and other related provisions of the
Corporation Code are to be construed with Section 6 (1) of P.D. 902-A. This section empowers the SEC to
suspend or revoke certificates of registration on the grounds listed therein. Among the grounds stated is the
failure to file by-laws (see also II Campos: The Corporation Code, 1990 ed., pp. 124-125). Such suspension or
revocation, the same section provides, should be made upon proper notice and hearing. Although P.D. 902-A
refers to the SEC, the same principles and procedures apply to the public respondent HIGC as it exercises its
power to revoke or suspend the certificates of registration or homeowners association. (Section 2 [a], E.O.
535, series 1979, transferred the powers and authorities of the SEC over homeowners associations to the
HIGC.)

We also do not agree with the petitioner's interpretation that Section 46, Corporation Code prevails over
Section 6, P.D. 902-A and that the latter is invalid because it contravenes the former. There is no basis for
such interpretation considering that these two provisions are not inconsistent with each other. They are, in
fact, complementary to each other so that one cannot be considered as invalidating the other.

The Court of Appeals added that, as there was no showing that the registration of LGVHAI had been validly
revoked, it continued to be the duly registered homeowners' association in the Loyola Grand Villas. More
importantly, the South Association did not dispute the fact that LGVHAI had been organized and that,
thereafter, it transacted business within the period prescribed by law.

On the second issue, the Court of Appeals reiterated its previous ruling 5 that the HIGC has the authority to
order the holding of a referendum to determine which of two contending associations should represent the
entire community, village or subdivision.

Undaunted, the South Association filed the instant petition for review on certiorari. It elevates as sole issue for
resolution the first issue it had raised before the Court of Appeals, i.e., whether or not the LGVHAI's failure to
file its by-laws within the period prescribed by Section 46 of the Corporation Code had the effect of
automatically dissolving the said corporation.

Petitioner contends that, since Section 46 uses the word "must" with respect to the filing of by-laws,
noncompliance therewith would result in "self-extinction" either due to non-occurrence of a suspensive
condition or the occurrence of a resolutory condition "under the hypothesis that (by) the issuance of the
certificate of registration alone the corporate personality is deemed already formed." It asserts that the
Corporation Code provides for a "gradation of violations of requirements." Hence, Section 22 mandates that
the corporation must be formally organized and should commence transaction within two years from date of
incorporation. Otherwise, the corporation would be deemed dissolved. On the other hand, if the corporation
commences operations but becomes continuously inoperative for five years, then it may be suspended or its
corporate franchise revoked.

Petitioner concedes that Section 46 and the other provisions of the Corporation Code do not provide for
sanctions for non-filing of the by-laws. However, it insists that no sanction need be provided "because the
mandatory nature of the provision is so clear that there can be no doubt about its being an essential attribute
of corporate birth." To petitioner, its submission is buttressed by the facts that the period for compliance is
"spelled out distinctly;" that the certification of the SEC/HIGC must show that the by-laws are not inconsistent
with the Code, and that a copy of the by-laws "has to be attached to the articles of incorporation." Moreover,
no sanction is provided for because "in the first place, no corporate identity has been completed." Petitioner
asserts that "non-provision for remedy or sanction is itself the tacit proclamation that non-compliance is fatal
and no corporate existence had yet evolved," and therefore, there was "no need to proclaim its demise." 6 In
a bid to convince the Court of its arguments, petitioner stresses that:

. . . the word MUST is used in Sec. 46 in its universal literal meaning and corollary human implication its
compulsion is integrated in its very essence MUST is always enforceable by the inevitable consequence
that is, "OR ELSE". The use of the word MUST in Sec. 46 is no exception it means file the by-laws within
one month after notice of issuance of certificate of registration OR ELSE. The OR ELSE, though not specified, is
inextricably a part of MUST . Do this or if you do not you are "Kaput". The importance of the by-laws to
corporate existence compels such meaning for as decreed the by-laws is "the government" of the corporation.
Indeed, how can the corporation do any lawful act as such without by-laws. Surely, no law is indeed to create
chaos. 7

Petitioner asserts that P.D. No. 902-A cannot exceed the scope and power of the Corporation Code which itself
does not provide sanctions for non-filing of by-laws. For the petitioner, it is "not proper to assess the true
meaning of Sec. 46 . . . on an unauthorized provision on such matter contained in the said decree."

In their comment on the petition, private respondents counter that the requirement of adoption of by-laws is
not mandatory. They point to P.D. No. 902-A as having resolved the issue of whether said requirement is
mandatory or merely directory. Citing Chung Ka Bio v. Intermediate Appellate Court, 8 private respondents
contend that Section 6(I) of that decree provides that non-filing of by-laws is only a ground for suspension or
revocation of the certificate of registration of corporations and, therefore, it may not result in automatic
dissolution of the corporation. Moreover, the adoption and filing of by-laws is a condition subsequent which
does not affect the corporate personality of a corporation like the LGVHAI. This is so because Section 9 of the
Corporation Code provides that the corporate existence and juridical personality of a corporation begins from
the date the SEC issues a certificate of incorporation under its official seal. Consequently, even if the by-laws
have not yet been filed, a corporation may be considered a de facto corporation. To emphasize the fact the
LGVHAI was registered as the sole homeowners' association in the Loyola Grand Villas, private respondents
point out that membership in the LGVHAI was an "unconditional restriction in the deeds of sale signed by lot
buyers."

In its reply to private respondents' comment on the petition, petitioner reiterates its argument that the word "
must" in Section 46 of the Corporation Code is mandatory. It adds that, before the ruling in Chung Ka Bio v.
Intermediate Appellate Court could be applied to this case, this Court must first resolve the issue of whether or
not the provisions of P.D. No. 902-A prescribing the rules and regulations to implement the Corporation Code
can "rise above and change" the substantive provisions of the Code.

The pertinent provision of the Corporation Code that is the focal point of controversy in this case states:

Sec. 46. Adoption of by-laws. Every corporation formed under this Code, must within one (1) month
after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange
Commission, adopt a code of by-laws for its government not inconsistent with this Code. For the adoption of
by-laws by the corporation, the affirmative vote of the stockholders representing at least a majority of the
outstanding capital stock, or of at least a majority of the members, in the case of non-stock corporations, shall
be necessary. The by-laws shall be signed by the stockholders or members voting for them and shall be kept
in the principal office of the corporation, subject to the stockholders or members voting for them and shall be
kept in the principal office of the corporation, subject to inspection of the stockholders or members during
office hours; and a copy thereof, shall be filed with the Securities and Exchange Commission which shall be
attached to the original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to
incorporation; in such case, such by-laws shall be approved and signed by all the incorporators and submitted
to the Securities and Exchange Commission, together with the articles of incorporation.

In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a
certification that the by-laws are not inconsistent with this Code.

The Securities and Exchange Commission shall not accept for filing the by-laws or any amendment thereto of
any bank, banking institution, building and loan association, trust company, insurance company, public utility,
educational institution or other special corporations governed by special laws, unless accompanied by a
certificate of the appropriate government agency to the effect that such by-laws or amendments are in
accordance with law.

As correctly postulated by the petitioner, interpretation of this provision of law begins with the determination
of the meaning and import of the word "must" in this section Ordinarily, the word "must" connotes an
imperative act or operates to impose a duty which may be enforced. 9 It is synonymous with "ought" which
connotes compulsion or mandatoriness. 10 However, the word "must" in a statute, like "shall," is not always
imperative. It may be consistent with an exercise of discretion. In this jurisdiction, the tendency has been to
interpret "shall" as the context or a reasonable construction of the statute in which it is used demands or
requires. 11 This is equally true as regards the word "must." Thus, if the languages of a statute considered as
a whole and with due regard to its nature and object reveals that the legislature intended to use the words
"shall" and "must" to be directory, they should be given that meaning. 12

In this respect, the following portions of the deliberations of the Batasang Pambansa No. 68 are illuminating:

MR. FUENTEBELLA. Thank you, Mr. Speaker.

On page 34, referring to the adoption of by-laws, are we made to understand here, Mr. Speaker, that by-laws
must immediately be filed within one month after the issuance? In other words, would this be mandatory or
directory in character?

MR. MENDOZA. This is mandatory.

MR. FUENTEBELLA. It being mandatory, Mr. Speaker, what would be the effect of the failure of the
corporation to file these by-laws within one month?

MR. MENDOZA. There is a provision in the latter part of the Code which identifies and describes the
consequences of violations of any provision of this Code. One such consequences is the dissolution of the
corporation for its inability, or perhaps, incurring certain penalties.

MR. FUENTEBELLA. But it will not automatically amount to a dissolution of the corporation by merely failing
to file the by-laws within one month. Supposing the corporation was late, say, five days, what would be the
mandatory penalty?

MR. MENDOZA. I do not think it will necessarily result in the automatic or ipso facto dissolution of the
corporation. Perhaps, as in the case, as you suggested, in the case of El Hogar Filipino where a quo warranto
action is brought, one takes into account the gravity of the violation committed. If the by-laws were late the
filing of the by-laws were late by, perhaps, a day or two, I would suppose that might be a tolerable delay, but
if they are delayed over a period of months as is happening now because of the absence of a clear
requirement that by-laws must be completed within a specified period of time, the corporation must suffer
certain consequences. 13

This exchange of views demonstrates clearly that automatic corporate dissolution for failure to file the by-laws
on time was never the intention of the legislature. Moreover, even without resorting to the records of
deliberations of the Batasang Pambansa, the law itself provides the answer to the issue propounded by
petitioner.

Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima
statuli interpretatix est ipsum statutum), 14 Section 46 aforequoted reveals the legislative intent to attach a
directory, and not mandatory, meaning for the word "must" in the first sentence thereof. Note should be taken
of the second paragraph of the law which allows the filing of the by-laws even prior to incorporation. This
provision in the same section of the Code rules out mandatory compliance with the requirement of filing the
by-laws "within one (1) month after receipt of official notice of the issuance of its certificate of incorporation
by the Securities and Exchange Commission." It necessarily follows that failure to file the by-laws within that
period does not imply the "demise" of the corporation. By-laws may be necessary for the "government" of the
corporation but these are subordinate to the articles of incorporation as well as to the Corporation Code and
related statutes. 15 There are in fact cases where by-laws are unnecessary to corporate existence or to the
valid exercise of corporate powers, thus:

In the absence of charter or statutory provisions to the contrary, by-laws are not necessary either to the
existence of a corporation or to the valid exercise of the powers conferred upon it, certainly in all cases where
the charter sufficiently provides for the government of the body; and even where the governing statute in
express terms confers upon the corporation the power to adopt by-laws, the failure to exercise the power will
be ascribed to mere nonaction which will not render void any acts of the corporation which would otherwise be
valid. 16 (Emphasis supplied.)

As Fletcher aptly puts it:

It has been said that the by-laws of a corporation are the rule of its life, and that until by-laws have been
adopted the corporation may not be able to act for the purposes of its creation, and that the first and most
important duty of the members is to adopt them. This would seem to follow as a matter of principle from the
office and functions of by-laws. Viewed in this light, the adoption of by-laws is a matter of practical, if not one
of legal, necessity. Moreover, the peculiar circumstances attending the formation of a corporation may impose
the obligation to adopt certain by-laws, as in the case of a close corporation organized for specific purposes.
And the statute or general laws from which the corporation derives its corporate existence may expressly
require it to make and adopt by-laws and specify to some extent what they shall contain and the manner of
their adoption. The mere fact, however, of the existence of power in the corporation to adopt by-laws does
not ordinarily and of necessity make the exercise of such power essential to its corporate life, or to the validity
of any of its acts. 17

Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the
consequences of the non-filing of the same within the period provided for in Section 46. However, such
omission has been rectified by Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of the
SEC of which state:

Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

xxx xxx xxx

(1) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law, including the following:

xxx xxx xxx

5. Failure to file by-laws within the required period;

xxx xxx xxx


In the exercise of the foregoing authority and jurisdiction of the Commission or by a Commissioner or by such
other bodies, boards, committees and/or any officer as may be created or designated by the Commission for
the purpose. The decision, ruling or order of any such Commissioner, bodies, boards, committees and/or
officer may be appealed to the Commission sitting en banc within thirty (30) days after receipt by the
appellant of notice of such decision, ruling or order. The Commission shall promulgate rules of procedures to
govern the proceedings, hearings and appeals of cases falling with its jurisdiction.

The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the
Supreme Court by petition for review in accordance with the pertinent provisions of the Rules of Court.

Even under the foregoing express grant of power and authority, there can be no automatic corporate
dissolution simply because the incorporators failed to abide by the required filing of by-laws embodied in
Section 46 of the Corporation Code. There is no outright "demise" of corporate existence. Proper notice and
hearing are cardinal components of due process in any democratic institution, agency or society. In other
words, the incorporators must be given the chance to explain their neglect or omission and remedy the same.

That the failure to file by-laws is not provided for by the Corporation Code but in another law is of no moment.
P.D. No. 902-A, which took effect immediately after its promulgation on March 11, 1976, is very much apposite
to the Code. Accordingly, the provisions abovequoted supply the law governing the situation in the case at bar,
inasmuch as the Corporation Code and P.D. No. 902-A are statutes in pari materia. Interpretare et concordare
legibus est optimus interpretandi. Every statute must be so construed and harmonized with other statutes as
to form a uniform system of jurisprudence. 18

As the "rules and regulations or private laws enacted by the corporation to regulate, govern and control its
own actions, affairs and concerns and its stockholders or members and directors and officers with relation
thereto and among themselves in their relation to it," 19 by-laws are indispensable to corporations in this
jurisdiction. These may not be essential to corporate birth but certainly, these are required by law for an
orderly governance and management of corporations. Nonetheless, failure to file them within the period
required by law by no means tolls the automatic dissolution of a corporation.

In this regard, private respondents are correct in relying on the pronouncements of this Court in Chung Ka Bio
v. Intermediate Appellate Court, 20 as follows:

. . . . Moreover, failure to file the by-laws does not automatically operate to dissolve a corporation but is now
considered only a ground for such dissolution.

Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code, provided that the
powers of the corporation would cease if it did not formally organize and commence the transaction of its
business or the continuation of its works within two years from date of its incorporation. Section 20, which has
been reproduced with some modifications in Section 46 of the Corporation Code, expressly declared that
"every corporation formed under this Act, must within one month after the filing of the articles of incorporation
with the Securities and Exchange Commission, adopt a code of by-laws." Whether this provision should be
given mandatory or only directory effect remained a controversial question until it became academic with the
adoption of PD 902-A. Under this decree, it is now clear that the failure to file by-laws within the required
period is only a ground for suspension or revocation of the certificate of registration of corporations.

Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section 6(I) of PD
902-A, the SEC is empowered to "suspend or revoke, after proper notice and hearing, the franchise or
certificate of registration of a corporation" on the ground inter alia of "failure to file by-laws within the required
period." It is clear from this provision that there must first of all be a hearing to determine the existence of the
ground, and secondly, assuming such finding, the penalty is not necessarily revocation but may be only
suspension of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws on
time may be penalized merely with the imposition of an administrative fine without affecting the corporate
existence of the erring firm.
It should be stressed in this connection that substantial compliance with conditions subsequent will suffice to
perfect corporate personality. Organization and commencement of transaction of corporate business are but
conditions subsequent and not prerequisites for acquisition of corporate personality. The adoption and filing of
by-laws is also a condition subsequent. Under Section 19 of the Corporation Code, a Corporation commences
its corporate existence and juridical personality and is deemed incorporated from the date the Securities and
Exchange Commission issues certificate of incorporation under its official seal. This may be done even before
the filing of the by-laws, which under Section 46 of the Corporation Code, must be adopted "within one month
after receipt of official notice of the issuance of its certificate of incorporation." 21

That the corporation involved herein is under the supervision of the HIGC does not alter the result of this case.
The HIGC has taken over the specialized functions of the former Home Financing Corporation by virtue of
Executive Order No. 90 dated December 17, 1989. 22 With respect to homeowners associations, the HIGC
shall "exercise all the powers, authorities and responsibilities that are vested on the Securities and Exchange
Commission . . . , the provision of Act 1459, as amended by P.D. 902-A, to the contrary notwithstanding." 23

WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned Decision of the
Court of Appeals AFFIRMED. This Decision is immediately executory. Costs against petitioner.

SO ORDERED.

G.R. No. 117604 March 26, 1997

CHINA BANKING CORPORATION, petitioner,


vs.
COURT OF APPEALS, and VALLEY GOLF and COUNTRY CLUB, INC., respondents.

KAPUNAN, J.:

Through a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner China
Banking Corporation seeks the reversal of the decision of the Court of Appeals dated 15 August 1994 nullifying
the Securities and Exchange Commission's order and resolution dated 4 June 1993 and 7 December 1993,
respectively, for lack of jurisdiction. Similarly impugned is the Court of Appeals' resolution dated 4 September
1994 which denied petitioner's motion for reconsideration.

The case unfolds thus:

On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of private respondent Valley
Golf & Country Club, Inc. (VGCCI, for brevity), pledged his Stock Certificate No. 1219 to petitioner China
Banking Corporation (CBC, for brevity). 1

On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned pledge agreement be
recorded in its books. 2

In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed by Calapatia in
petitioner's favor was duly noted in its corporate books. 3

On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was secured by
the aforestated pledge agreement still existing between Calapatia and petitioner. 4
Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985, filed a petition for extrajudicial
foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public auction
sale of the pledged stock. 5

On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure proceedings and requested
that the pledged stock be transferred to its (petitioner's) name and the same be recorded in the corporate
books. However, on 15 July 1985, VGCCI wrote petitioner expressing its inability to accede to petitioner's
request in view of Calapatia's unsettled accounts with the club. 6

Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and petitioner
emerged as the highest bidder at P20,000.00 for the pledged stock. Consequently, petitioner was issued the
corresponding certificate of sale. 7

On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue account in the
amount of P18,783.24. 8 Said notice was followed by a demand letter dated 12 December 1985 for the same
amount 9 and another notice dated 22 November 1986 for P23,483.24. 10

On 4 December 1986, VGCCI caused to be published in the newspaper Daily Express a notice of auction sale
of a number of its stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was
Calapatia's own share of stock (Stock Certificate No. 1219).

Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination of his membership
due to the sale of his share of stock in the 10 December 1986 auction. 11

On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate No. 1219 by
virtue of being the highest bidder in the 17 September 1985 auction and requested that a new certificate of
stock be issued in its name. 12

On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public
auction held on 10 December 1986 for P25,000.00. 13

On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of stock and thereafter filed a
case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and for the
issuance of a new stock certificate in its name. 14

On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the
subject matter on the theory that it involves an intra-corporate dispute and on 27 August 1990 denied
petitioner's motion for reconsideration.

On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission (SEC) for
the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued
pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages, attorney's fees
and costs of litigation.

On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in the
main that "(c)onsidering that the said share is delinquent, (VGCCI) had valid reason not to transfer the share
in the name of the petitioner in the books of (VGCCI) until liquidation of
delinquency." 15 Consequently, the case was dismissed. 16

On 14 April 1992, Hearing Officer Perea denied petitioner's motion for reconsideration. 17

Petitioner appealed to the SEC en banc and on 4 June 1993, the Commission issued an order reversing the
decision of its hearing officer. It declared thus:
The Commission en banc believes that appellant-petitioner has a prior right over the pledged share and
because of pledgor's failure to pay the principal debt upon maturity, appellant-petitioner can proceed with the
foreclosure of the pledged share.

WHEREFORE, premises considered, the Orders of January 3, 1992 and April 14, 1992 are hereby SET ASIDE.
The auction sale conducted by appellee-respondent Club on December 10, 1986 is declared NULL and VOID.
Finally, appellee-respondent Club is ordered to issue another membership certificate in the name of appellant-
petitioner bank.

SO ORDERED. 18

VGCCI sought reconsideration of the abovecited order. However, the SEC denied the same in its resolution
dated 7 December 1993. 19

The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the
Court of Appeals rendered its decision nullifying and setting aside the orders of the SEC and its hearing officer
on ground of lack of jurisdiction over the subject matter and, consequently, dismissed petitioner's original
complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is not intra-corporate.
It ruled as follows:

In order that the respondent Commission can take cognizance of a case, the controversy must pertain to any
of the following relationships: (a) between the corporation, partnership or association and the public; (b)
between the corporation, partnership or association and its stockholders, partners, members, or officers; (c)
between the corporation, partnership or association and the state in so far as its franchise, permit or license to
operate is concerned, and (d) among the stockholders, partners or associates themselves (Union Glass and
Container Corporation vs. SEC, November 28, 1983, 126 SCRA 31). The establishment of any of the
relationship mentioned will not necessarily always confer jurisdiction over the dispute on the Securities and
Exchange Commission to the exclusion of the regular courts. The statement made in Philex Mining Corp. vs.
Reyes, 118 SCRA 602, that the rule admits of no exceptions or distinctions is not that absolute. The better
policy in determining which body has jurisdiction over a case would be to consider not only the status or
relationship of the parties but also the nature of the question that is the subject of their controversy (Viray vs.
Court of Appeals, November 9, 1990, 191 SCRA 308, 322-323).

Indeed, the controversy between petitioner and respondent bank which involves ownership of the stock that
used to belong to Calapatia, Jr. is not within the competence of respondent Commission to decide. It is not
any of those mentioned in the aforecited case.

WHEREFORE, the decision dated June 4, 1993, and order dated December 7, 1993 of respondent Securities
and Exchange Commission (Annexes Y and BB, petition) and of its hearing officer dated January 3, 1992 and
April 14, 1992 (Annexes S and W, petition) are all nullified and set aside for lack of jurisdiction over the
subject matter of the case. Accordingly, the complaint of respondent China Banking Corporation (Annex Q,
petition) is DISMISSED. No pronouncement as to costs in this instance.

SO ORDERED. 20

Petitioner moved for reconsideration but the same was denied by the Court of Appeals in its resolution dated 5
October 1994. 21

Hence, this petition wherein the following issues were raised:

II

ISSUES
WHETHER OR NOT RESPONDENT COURT OF APPEALS (Former Eighth Division) GRAVELY ERRED WHEN:

1. IT NULLIFIED AND SET ASIDE THE DECISION DATED JUNE 04, 1993 AND ORDER DATED DECEMBER
07, 1993 OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC, AND WHEN IT DISMISSED THE
COMPLAINT OF PETITIONER AGAINST RESPONDENT VALLEY GOLF ALL FOR LACK OF JURISDICTION OVER
THE SUBJECT MATTER OF THE CASE;

2. IT FAILED TO AFFIRM THE DECISION OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC
DATED JUNE 04, 1993 DESPITE PREPONDERANT EVIDENCE SHOWING THAT PETITIONER IS THE LAWFUL
OWNER OF MEMBERSHIP CERTIFICATE NO. 1219 FOR ONE SHARE OF RESPONDENT VALLEY GOLF.

The petition is granted.

The basic issue we must first hurdle is which body has jurisdiction over the controversy, the regular courts or
the SEC.

P. D. No. 902-A conferred upon the SEC the following pertinent powers:

Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations,
partnerships or associations, who are the grantees of primary franchises and/or a license or permit issued by
the government to operate in the Philippines, and in the exercise of its authority, it shall have the power to
enlist the aid and support of and to deputize any and all enforcement agencies of the government, civil or
military as well as any private institution, corporation, firm, association or person.

xxx xxx xxx

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

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

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

c) Controversies in the election or appointment of directors, trustees, officers, or managers of such


corporations, partnerships or associations.

d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of


payments in cases where the corporation, partnership or association possesses property to cover all of its
debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the
corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the
Management Committee created pursuant to this Decree.

The aforecited law was expounded upon in Viray v. CA 22 and in the recent cases of Mainland Construction
Co., Inc. v. Movilla 23 and Bernardo v. CA, 24 thus:
. . . .The better policy in determining which body has jurisdiction over a case would be to consider not only the
status or relationship of the parties but also the nature of the question that is the subject of their controversy.

Applying the foregoing principles in the case at bar, to ascertain which tribunal has jurisdiction we have to
determine therefore whether or not petitioner is a stockholder of VGCCI and whether or not the nature of the
controversy between petitioner and private respondent corporation is intra-corporate.

As to the first query, there is no question that the purchase of the subject share or membership certificate at
public auction by petitioner (and the issuance to it of the corresponding Certificate of Sale) transferred
ownership of the same to the latter and thus entitled petitioner to have the said share registered in its name
as a member of VGCCI. It is readily observed that VGCCI did not assail the transfer directly and has in fact, in
its letter of 27 September 1974, expressly recognized the pledge agreement executed by the original owner,
Calapatia, in favor of petitioner and has even noted said agreement in its corporate books. 25 In addition,
Calapatia, the original owner of the subject share, has not contested the said transfer.

By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and, therefore, the
conflict that arose between petitioner and VGCCI aptly exemplies an intra-corporate controversy between a
corporation and its stockholder under Sec. 5(b) of P.D. 902-A.

An important consideration, moreover, is the nature of the controversy between petitioner and private
respondent corporation. VGCCI claims a prior right over the subject share anchored mainly on Sec. 3, Art VIII
of its by-laws which provides that "after a member shall have been posted as delinquent, the Board may order
his/her/its share sold to satisfy the claims of the Club. . ." 26 It is pursuant to this provision that VGCCI also
sold the subject share at public auction, of which it was the highest bidder. VGCCI caps its argument by
asserting that its corporate by-laws should prevail. The bone of contention, thus, is the proper interpretation
and application of VGCCI's aforequoted by-laws, a subject which irrefutably calls for the special competence of
the SEC.

We reiterate herein the sound policy enunciated by the Court in Abejo v. De la Cruz 27:

6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative commissions
and boards the power to resolve specialized disputes in the field of labor (as in corporations, public
transportation and public utilities) ruled that Congress in requiring the Industrial Court's intervention in the
resolution of labor-management controversies likely to cause strikes or lockouts meant such jurisdiction to be
exclusive, although it did not so expressly state in the law. The Court held that under the "sense-making and
expeditious doctrine of primary jurisdiction . . . the courts cannot or will not determine a controversy involving
a question which is within the jurisdiction of an administrative tribunal, where the question demands the
exercise of sound administrative discretion requiring the special knowledge, experience, and services of the
administrative tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is
essential to comply with the purposes of the regulatory statute administered.

In this era of clogged court dockets, the need for specialized administrative boards or commissions with the
special knowledge, experience and capability to hear and determine promptly disputes on technical matters or
essentially factual matters, subject to judicial review in case of grave abuse of discretion, has become well
nigh indispensable. Thus, in 1984, the Court noted that "between the power lodged in an administrative body
and a court, the unmistakable trend has been to refer it to the former. 'Increasingly, this Court has been
committed to the view that unless the law speaks clearly and unequivocably, the choice should fall on [an
administrative agency.]'" The Court in the earlier case of Ebon v. De Guzman, noted that the lawmaking
authority, in restoring to the labor arbiters and the NLRC their jurisdiction to award all kinds of damages in
labor cases, as against the previous P.D. amendment splitting their jurisdiction with the regular courts,
"evidently, . . . had second thoughts about depriving the Labor Arbiters and the NLRC of the jurisdiction to
award damages in labor cases because that setup would mean duplicity of suits, splitting the cause of action
and possible conflicting findings and conclusions by two tribunals on one and the same claim."
In this case, the need for the SEC's technical expertise cannot be over-emphasized involving as it does the
meticulous analysis and correct interpretation of a corporation's by-laws as well as the applicable provisions of
the Corporation Code in order to determine the validity of VGCCI's claims. The SEC, therefore, took proper
cognizance of the instant case.

VGCCI further contends that petitioner is estopped from denying its earlier position, in the first complaint it
filed with the RTC of Makati (Civil Case No. 90-1112) that there is no intra-corporate relations between itself
and VGCCI.

VGCCI's contention lacks merit.

In Zamora v. Court of Appeals, 28 this Court, through Mr. Justice Isagani A. Cruz, declared that:

It follows that as a rule the filing of a complaint with one court which has no jurisdiction over it does not
prevent the plaintiff from filing the same complaint later with the competent court. The plaintiff is not
estopped from doing so simply because it made a mistake before in the choice of the proper forum. . . .

We remind VGCCI that in the same proceedings before the RTC of Makati, it categorically stated (in its motion
to dismiss) that the case between itself and petitioner is intra-corporate and insisted that it is the SEC and not
the regular courts which has jurisdiction. This is precisely the reason why the said court dismissed petitioner's
complaint and led to petitioner's recourse to the SEC.

Having resolved the issue on jurisdiction, instead of remanding the whole case to the Court of Appeals, this
Court likewise deems it procedurally sound to proceed and rule on its merits in the same proceedings.

It must be underscored that petitioner did not confine the instant petition for review on certiorari on the issue
of jurisdiction. In its assignment of errors, petitioner specifically raised questions on the merits of the case. In
turn, in its responsive pleadings, private respondent duly answered and countered all the issues raised by
petitioner.

Applicable to this case is the principle succinctly enunciated in the case of Heirs of Crisanta Y. Gabriel-
Almoradie v. Court of Appeals, 29 citing Escudero v. Dulay 30 and The Roman Catholic Archbishop of Manila v.
Court of Appeals. 31

In the interest of the public and for the expeditious administration of justice the issue on infringement shall be
resolved by the court considering that this case has dragged on for years and has gone from one forum to
another.

It is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a single proceeding
leaving no root or branch to bear the seeds of future litigation. No useful purpose will be served if a case or
the determination of an issue in a case is remanded to the trial court only to have its decision raised again to
the Court of Appeals and from there to the Supreme Court.

We have laid down the rule that the remand of the case or of an issue to the lower court for further reception
of evidence is not necessary where the Court is in position to resolve the dispute based on the records before
it and particularly where the ends of justice would not be subserved by the remand thereof. Moreover, the
Supreme Court is clothed with ample authority to review matters, even those not raised on appeal if it finds
that their consideration is necessary in arriving at a just disposition of the case.

In the recent case of China Banking Corp., et al. v. Court of Appeals, et al., 32 this Court, through Mr. Justice
Ricardo J. Francisco, ruled in this wise:

At the outset, the Court's attention is drawn to the fact that since the filing of this suit before the trial court,
none of the substantial issues have been resolved. To avoid and gloss over the issues raised by the parties, as
what the trial court and respondent Court of Appeals did, would unduly prolong this litigation involving a rather
simple case of foreclosure of mortgage. Undoubtedly, this will run counter to the avowed purpose of the rules,
i.e., to assist the parties in obtaining just, speedy and inexpensive determination of every action or
proceeding. The Court, therefore, feels that the central issues of the case, albeit unresolved by the courts
below, should now be settled specially as they involved pure questions of law. Furthermore, the pleadings of
the respective parties on file have amply ventilated their various positions and arguments on the matter
necessitating prompt adjudication.

In the case at bar, since we already have the records of the case (from the proceedings before the SEC)
sufficient to enable us to render a sound judgment and since only questions of law were raised (the proper
jurisdiction for Supreme Court review), we can, therefore, unerringly take cognizance of and rule on the merits
of the case.

The procedural niceties settled, we proceed to the merits.

VGCCI assails the validity of the pledge agreement executed by Calapatia in petitioner's favor. It contends that
the same was null and void for lack of consideration because the pledge agreement was entered into on 21
August
1974 33 but the loan or promissory note which it secured was obtained by Calapatia much later or only on 3
August 1983. 34

VGCCI's contention is unmeritorious.

A careful perusal of the pledge agreement will readily reveal that the contracting parties explicitly stipulated
therein that the said pledge will also stand as security for any future advancements (or renewals thereof) that
Calapatia (the pledgor) may procure from petitioner:

xxx xxx xxx

This pledge is given as security for the prompt payment when due of all loans, overdrafts, promissory notes,
drafts, bills or exchange, discounts, and all other obligations of every kind which have heretofore been
contracted, or which may hereafter be contracted, by the PLEDGOR(S) and/or DEBTOR(S) or any one of them,
in favor of the PLEDGEE, including discounts of Chinese drafts, bills of exchange, promissory notes, etc.,
without any further endorsement by the PLEDGOR(S) and/or Debtor(s) up to the sum of TWENTY THOUSAND
(P20,000.00) PESOS, together with the accrued interest thereon, as hereinafter provided, plus the costs,
losses, damages and expenses (including attorney's fees) which PLEDGEE may incur in connection with the
collection thereof. 35 (Emphasis ours.)

The validity of the pledge agreement between petitioner and Calapatia cannot thus be held suspect by VGCCI.
As candidly explained by petitioner, the promissory note of 3 August 1983 in the amount of P20,000.00 was
but a renewal of the first promissory note covered by the same pledge agreement.

VGCCI likewise insists that due to Calapatia's failure to settle his delinquent accounts, it had the right to sell
the share in question in accordance with the express provision found in its by-laws.

Private respondent's insistence comes to naught. It is significant to note that VGCCI began sending notices of
delinquency to Calapatia after it was informed by petitioner (through its letter dated 14 May 1985) of the
foreclosure proceedings initiated against Calapatia's pledged share, although Calapatia has been delinquent in
paying his monthly dues to the club since 1975. Stranger still, petitioner, whom VGCCI had officially
recognized as the pledgee of Calapatia's share, was neither informed nor furnished copies of these letters of
overdue accounts until VGCCI itself sold the pledged share at another public auction. By doing so, VGCCI
completely disregarded petitioner's rights as pledgee. It even failed to give petitioner notice of said auction
sale. Such actuations of VGCCI thus belie its claim of good faith.
In defending its actions, VGCCI likewise maintains that petitioner is bound by its by-laws. It argues in this
wise:

The general rule really is that third persons are not bound by the by-laws of a corporation since they are not
privy thereto (Fleischer v. Botica Nolasco, 47 Phil. 584). The exception to this is when third persons have
actual or constructive knowledge of the same. In the case at bar, petitioner had actual knowledge of the by-
laws of private respondent when petitioner foreclosed the pledge made by Calapatia and when petitioner
purchased the share foreclosed on September 17, 1985. This is proven by the fact that prior thereto, i.e., on
May 14, 1985 petitioner even quoted a portion of private respondent's by-laws which is material to the issue
herein in a letter it wrote to private respondent. Because of this actual knowledge of such by-laws then the
same bound the petitioner as of the time when petitioner purchased the share. Since the by-laws was already
binding upon petitioner when the latter purchased the share of Calapatia on September 17, 1985 then the
petitioner purchased the said share subject to the right of the private respondent to sell the said share for
reasons of delinquency and the right of private respondent to have a first lien on said shares as these rights
are provided for in the by-laws very very clearly. 36

VGCCI misunderstood the import of our ruling in Fleischer v. Botica Nolasco Co.: 37

And moreover, the by-law now in question cannot have any effect on the appellee. He had no knowledge of
such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable
consideration. He was not a privy to the contract created by said by-law between the shareholder Manuel
Gonzales and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser.

An unauthorized by-law forbidding a shareholder to sell his shares without first offering them to the
corporation for a period of thirty days is not binding upon an assignee of the stock as a personal contract,
although his assignor knew of the by-law and took part in its adoption. (10 Cyc., 579; Ireland vs. Globe Milling
Co., 21 R.I., 9.)

When no restriction is placed by public law on the transfer of corporate stock, a purchaser is not affected by
any contractual restriction of which he had no notice. (Brinkerhoff-Farris Trust & Savings Co. vs. Home Lumber
Co., 118 Mo., 447.)

The assignment of shares of stock in a corporation by one who has assented to an unauthorized by-law has
only the effect of a contract by, and enforceable against, the assignor; the assignee is not bound by such by-
law by virtue of the assignment alone. (Ireland vs. Globe Milling Co., 21 R.I., 9.)

A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the
board of directors, while it may be enforced as a reasonable regulation for the protection of the corporation
against worthless stockholders, cannot be made available to defeat the rights of third persons. (Farmers' and
Merchants' Bank of Lineville vs. Wasson, 48 Iowa, 336.) (Emphasis ours.)

In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the
transaction or agreement between said third party and the shareholder was entered into, in this case, at the
time the pledge agreement was executed. VGCCI could have easily informed petitioner of its by-laws when it
sent notice formally recognizing petitioner as pledgee of one of its shares registered in Calapatia's name.
Petitioner's belated notice of said by-laws at the time of foreclosure will not suffice. The ruling of the SEC en
banc is particularly instructive:

By-laws signifies the rules and regulations or private laws enacted by the corporation to regulate, govern and
control its own actions, affairs and concerns and its stockholders or members and directors and officers with
relation thereto and among themselves in their relation to it. In other words, by-laws are the relatively
permanent and continuing rules of action adopted by the corporation for its own government and that of the
individuals composing it and having the direction, management and control of its affairs, in whole or in part, in
the management and control of its affairs and activities. (9 Fletcher 4166, 1982 Ed.)
The purpose of a by-law is to regulate the conduct and define the duties of the members towards the
corporation and among themselves. They are self-imposed and, although adopted pursuant to statutory
authority, have no status as public law. (Ibid.)

Therefore, it is the generally accepted rule that third persons are not bound by by-laws, except when they
have knowledge of the provisions either actually or constructively. In the case of Fleisher v. Botica Nolasco, 47
Phil. 584, the Supreme Court held that the by-law restricting the transfer of shares cannot have any effect on
the transferee of the shares in question as he "had no knowledge of such by-law when the shares were
assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the
contract created by the by-law between the shareholder . . . and the Botica Nolasco, Inc. Said by-law cannot
operate to defeat his right as a purchaser. (Emphasis supplied.)

By analogy of the above-cited case, the Commission en banc is of the opinion that said case is applicable to
the present controversy. Appellant-petitioner bank as a third party can not be bound by appellee-respondent's
by-laws. It must be recalled that when appellee-respondent communicated to appellant-petitioner bank that
the pledge agreement was duly noted in the club's books there was no mention of the shareholder-pledgor's
unpaid accounts. The transcript of stenographic notes of the June 25, 1991 Hearing reveals that the pledgor
became delinquent only in 1975. Thus, appellant-petitioner was in good faith when the pledge agreement was
contracted.

The Commission en banc also believes that for the exception to the general accepted rule that third persons
are not bound by by-laws to be applicable and binding upon the pledgee, knowledge of the provisions of the
VGCI By-laws must be acquired at the time the pledge agreement was contracted. Knowledge of said
provisions, either actual or constructive, at the time of foreclosure will not affect pledgee's right over the
pledged share. Art. 2087 of the Civil Code provides that it is also of the essence of these contracts that when
the principal obligation becomes due, the things in which the pledge or mortgage consists maybe alienated for
the payment to the creditor.

In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc., the Commission issued an opinion to the
effect that:

According to the weight of authority, the pledgee's right is entitled to full protection without surrender of the
certificate, their cancellation, and the issuance to him of new ones, and when done, the pledgee will be fully
protected against a subsequent purchaser who would be charged with constructive notice that the certificate is
covered by the pledge. (12-A Fletcher 502)

The pledgee is entitled to retain possession of the stock until the pledgor pays or tenders to him the amount
due on the debt secured. In other words, the pledgee has the right to resort to its collateral for the payment
of the debts. (Ibid, 502)

To cancel the pledged certificate outright and the issuance of new certificate to a third person who purchased
the same certificate covered by the pledge, will certainly defeat the right of the pledgee to resort to its
collateral for the payment of the debt. The pledgor or his representative or registered stockholders has no
right to require a return of the pledged stock until the debt for which it was given as security is paid and
satisfied, regardless of the length of time which have elapsed since debt was created. (12-A Fletcher 409)

A bona fide pledgee takes free from any latent or secret equities or liens in favor either of the corporation or
of third persons, if he has no notice thereof, but not otherwise. He also takes it free of liens or claims that may
subsequently arise in favor of the corporation if it has notice of the pledge, although no demand for a transfer
of the stock to the pledgee on the corporate books has been made. (12-A Fletcher 5634, 1982 ed., citing
Snyder v. Eagle Fruit Co., 75 F2d739) 38
Similarly, VGCCI's contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of the Civil
Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good father
of a family, fails to convince. The case of Cruz & Serrano v. Chua A. H. Lee, 39 is clearly not applicable:

In applying this provision to the situation before us it must be borne in mind that the ordinary pawn ticket is a
document by virtue of which the property in the thing pledged passes from hand to hand by mere delivery of
the ticket; and the contract of the pledge is, therefore, absolvable to bearer. It results that one who takes a
pawn ticket in pledge acquires domination over the pledge; and it is the holder who must renew the pledge, if
it is to be kept alive.

It is quite obvious from the aforequoted case that a membership share is quite different in character from a
pawn ticket and to reiterate, petitioner was never informed of Calapatia's unpaid accounts and the restrictive
provisions in VGCCI's by-laws.

Finally, Sec. 63 of the Corporation Code which provides that "no shares of stock against which the corporation
holds any unpaid claim shall be transferable in the books of the corporation" cannot be utilized by VGCCI. The
term "unpaid claim" refers to "any unpaid claim arising from unpaid subscription, and not to any indebtedness
which a subscriber or stockholder may owe the corporation arising from any other transaction." 40 In the case
at bar, the subscription for the share in question has been fully paid as evidenced by the issuance of
Membership Certificate No. 1219. 41 What Calapatia owed the corporation were merely the monthly dues.
Hence, the aforequoted provision does not apply.

WHEREFORE, premises considered, the assailed decision of the Court of Appeals is REVERSED and the order
of the SEC en banc dated 4 June 1993 is hereby AFFIRMED.

SO ORDERED.

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

GRACE CHRISTIAN HIGH SCHOOL, petitioner, vs. THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION,
INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents.
DECISION
MENDOZA, J.:

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

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

2. The amended By-laws of the Association drafted and promulgated by a Committee on December 20, 1975 is
valid and binding; and

3. The Practice of tolerating the automatic inclusion of petitioner as a permanent member of the Board of
Directors of the Association without the benefit of election is allowed under the law.[1]
Briefly stated, the facts are as follows:

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

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

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

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

VI. ANNUAL MEETING

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

....

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

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

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

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

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

29. At the meeting for the adoption of the original by-laws, or at such subsequent meeting as may be then
determined, directors shall be elected to hold their offices for one year and until their successors are elected
and qualified. Thereafter the directors of the corporation shall be elected annually by the stockholders if it be a
stock corporation or by the members if it be a nonstock corporation, and if no provision is made in the by-laws
for the time of election the same shall be held on the first Tuesday after the first Monday in January. Unless
otherwise provided in the by-laws, two weeks notice of the election of directors must be given by publication
in some newspaper of general circulation devoted to the publication of general news at the place where the
principal office of the corporation is established or located, and by written notice deposited in the post-office,
postage pre-paid, addressed to each stockholder, or, if there be no stockholders, then to each member, at his
last known place of residence. If there be no newspaper published at the place where the principal office of
the corporation is established or located, a notice of the election of directors shall be posted for a period of
three weeks immediately preceding the election in at least three public places, in the place where the principal
office of the corporation is established or located. (Emphasis added)
The present Corporation Code (B.P. Blg. 68), which took effect on May 1, 1980,[12] similarly provides:

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

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

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

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

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

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

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

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

SO ORDERED.

G .R. No. 193857 MA. MERCEDES L. BARBA, Petitioner, - versus - LICEO DE CAGA Y AN UNIVERSITY,
Respondent. x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - DECISION

Before the Court is a petition for review on certiorari assailing the March 29, 2010 Amended Decision1 and
September 14, 2010 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 02508-MIN. The CA had
reconsidered its earlier Decision3 dated October 22, 2009 and set aside the September 25, 2007 and June 30,
2008 Resolutions4 of the National Labor Relations Commission (NLRC) as well as the September 29, 2006
Decision5 of the Labor Arbiter.

The CA held that the Labor Arbiter and NLRC had no jurisdiction over the illegal dismissal case filed by
petitioner against respondent because petitioners position as Dean of the College of Physical Therapy of
respondent is a corporate office.

The facts follow. Petitioner Dr. Ma. Mercedes L. Barba was the Dean of the College of Physical Therapy of
respondent Liceo de Cagayan University, Inc., a private educational institution with school campus located at
Carmen, Cagayan de Oro City. Petitioner started working for respondent on July 8, 1993 as medical
officer/school physician for a period of one school year or until March 31, 1994. In July 1994, she was chosen
by respondent to be the recipient of a scholarship grant to pursue a three-year residency training in
Rehabilitation Medicine at the Veterans Memorial Medical Center (VMMC). The Scholarship Contract6 provides:
5. That the SCHOLAR after the duration of her study and training shall serve the SCHOOL in whatever position
the SCHOOL desires related to the SCHOLARs studies for a period of not less than ten (10) years; After
completing her residency training with VMMC in June 1997, petitioner returned to continue working for
respondent. She was appointed as Acting Dean of the College of Physical Therapy and at the same time
designated as Doctor-In-Charge of the Rehabilitation Clinic of the Rodolfo N. Pelaez Hall, City Memorial
Hospital. On June 19, 2002, petitioners appointment as Doctor-In-Charge of the Rehabilitation Clinic was
renewed and she was appointed as Dean of the College of Physical Therapy by respondents President, Dr.
Jose Ma. R. Golez. The appointment letter7 reads:

x x x x Dear Dr. Barba: You are hereby re-appointed Dean of the College of Physical Therapy and Doctor-In-
Charge of the Rehabilitation Clinic at Rodolfo N. Pelaez Hall, City Memorial Hospital and other rehabilitation
clinics under the management of Liceo de Cagayan University for a period of three years effective July 1, 2002
unless sooner revoked for valid cause or causes. Your position is one of trust and confidence and the
appointment is subject to the pertinent provisions of the University Administrative Personnel and Faculty
Manuals, and Labor Code. x x x x Petitioner accepted her appointment and assumed the position of Dean of
the College of Physical Therapy. In the school year 2003 to 2004, the College of Physical Therapy suffered a
dramatic decline in the number of enrollees from a total of 1,121 students in the school year 1995 to 1996 to
only 29 students in the first semester of school year 2003 to 2004. This worsened in the next year or in school
year 2004 to 2005 where a total of only 20 students enrolled.8 Due to the low number of enrollees,
respondent decided to freeze the operation of the College of Physical Therapy indefinitely.

Respondents President Dr. Rafaelita Pelaez-Golez wrote petitioner a letter9 dated March 16, 2005 informing
her that her services as dean of the said college will end at the close of the school year. Thereafter, the
College of Physical Therapy ceased operations on March 31, 2005, and petitioner went on leave without pay
starting on April 9, 2005. Subsequently, respondents Executive Vice President, Dr. Mariano M. Lerin, through
Dr. Glory S. Magdale, respondents Vice President for Academic Affairs, sent petitioner a letter10 dated April
27, 2005 instructing petitioner to return to work on June 1, 2005 and report to Ma. Chona Palomares, the
Acting Dean of the College of Nursing, to receive her teaching load and assignment as a full-time faculty
member in that department for the school year 2005-2006. In reply, petitioner informed Dr. Lerin that she had
not committed to teach in the College of Nursing and that as far as she can recall, her employment is not
dependent on any teaching load. She then requested for the processing of her separation benefits in view of
the closure of the College of Physical Therapy.11

She did not report to Palomares on June 1, 2005. On June 8, 2005, petitioner followed up her request for
separation pay and other benefits but Dr. Lerin insisted that she report to Palomares; otherwise, sanctions will
be imposed on her. Thus, petitioner through counsel wrote Dr. Golez directly, asking for her separation pay
and other benefits. On June 21, 2005, Dr. Magdale wrote petitioner a letter12 directing her to report for work
and to teach her assigned subjects on or before June 23, 2005. Otherwise, she will be dismissed from
employment on the ground of abandonment. Petitioner, through counsel, replied that teaching in the College
of Nursing is in no way related to her scholarship and training in the field of rehabilitation medicine. Petitioner
added that coercing her to become a faculty member from her position as College Dean is a great demotion
which amounts to constructive dismissal.13 Dr. Magdale sent another letter14 to petitioner on June 24, 2005
ordering her to report for work as she was still bound by the Scholarship Contract to serve respondent for two
more years. But petitioner did not do so.

Hence, on June 28, 2005, Dr. Magdale sent petitioner a notice terminating her services on the ground of
abandonment. Meanwhile, on June 22, 2005, prior to the termination of her services, petitioner filed a
complaint before the Labor Arbiter for illegal dismissal, payment of separation pay and retirement benefits
against respondent, Dr. Magdale and Dr. Golez. She alleged that her transfer to the College of Nursing as a
faculty member is a demotion amounting to constructive dismissal. Respondent claimed that petitioner was not
terminated and that it was only petitioners appointment as College Dean in the College of Physical Therapy
that expired as a necessary consequence of the eventual closure of the said college. Respondent further
averred that petitioners transfer as fulltime professor in the College of Nursing does not amount to
constructive dismissal since the transfer was without loss of seniority rights and without diminution of pay.
Also, respondent added that pursuant to the Scholarship Contract, petitioner was still duty bound to serve
respondent until 2007 in whatever position related to her studies the school desires. Labor Arbiters Ruling In a
Decision15 dated September 29, 2006, the Labor Arbiter found that respondent did not constructively dismiss
petitioner; therefore, she was not entitled to separation pay. The Labor Arbiter held that petitioners
assignment as full-time professor in the College of Nursing was not a demotion tantamount to constructive
dismissal.

The dispositive portion of the Labor Arbiters decision reads: WHEREFORE, in view of the foregoing, judgment
is hereby rendered dismissing the complaint for illegal dismissal for utter lack of merit, but ordering the
respondent Liceo de Cagayan University to reinstate complainant to an equivalent position without loss of
seniority rights, but without back wages. However, if reinstatement is no longer feasible or if there is no
equivalent position to which complainant may be reinstated, respondent may opt to pay complainant her
separation pay equivalent to one-half (1/2) month pay for every year of service or in the sum of P195,000.00,
subject to deduction for advances or accountabilities which complainant may have had. Other claims are
ordered dismissed for lack of merit. SO ORDERED.

NLRCs Ruling Petitioner appealed the above decision to the NLRC. On September 25, 2007, the NLRC issued a
Resolution17 reversing the Labor Arbiters decision and holding that petitioner was constructively dismissed.
The NLRC held that petitioner was demoted when she was assigned as a professor in the College of Nursing
because there are functions and obligations and certain allowances and benefits given to a College Dean but
not to an ordinary professor.

The NLRC ruled: WHEREFORE, in view of the foregoing, the assailed decision is hereby MODIFIED in that
complainant is hereby considered as constructively dismissed and thus entitled to backwages and separation
pay of one (1) month salary for every year of service, plus attorneys fees, which shall be computed at the
execution stage before the Arbitration Branch of origin. SO ORDERED.18

The NLRC denied respondents motion for reconsideration in a Resolution19 dated June 30, 2008. Ruling of the
Court of Appeals Respondent went to the CA on a petition for certiorari alleging that the NLRC committed
grave abuse of discretion when it declared that petitioners transfer to the College of Nursing as full-time
professor but without diminution of salaries and without loss of seniority rights amounted to constructive
dismissal because there was a demotion involved in the transfer and because petitioner was compelled to
accept her new assignment. Respondent also filed a Supplemental Petition20 raising for the first time the issue
of lack of jurisdiction of the Labor Arbiter and the NLRC over the case. Respondent claimed that a College
Dean is a corporate officer under its by-laws and petitioner was a corporate officer of respondent since her
appointment was approved by the board of directors. Respondent posited that petitioner was a corporate
officer since her office was created by the by-laws and her appointment, compensation, duties and functions
were approved by the board of directors. Thus, respondent maintained that the jurisdiction over the case is
with the regular courts and not with the labor tribunals.
In its original Decision21 dated October 22, 2009, the CA reversed and set aside the NLRC resolutions and
reinstated the decision of the Labor Arbiter. The CA did not find merit in respondents assertion in its
Supplemental Petition that the position of petitioner as College Dean was a corporate office. Instead, the
appellate court held that petitioner was respondents employee, explaining thus: Corporate officers in the
context of PD 902-A are those officers of a corporation who are given that character either by the Corporation
Code or by the corporations By-Laws. Under Section 25 of the Corporation Code, the corporate officers are
the president, secretary, treasurer and such other officers as may be provided for in the By-Laws. True, the
By-Laws of LDCU provides that there shall be a College Director. This means a College Director is a corporate
officer. However, contrary to the allegation of petitioner, the position of Dean does not appear to be the same
as that of a College Director. Aside from the obvious disparity in name, the By-Laws of LDCU provides for only
one College Director. But as shown by LDCU itself, numerous persons have been appointed as Deans. They
could not be the College Director contemplated by the By-Laws inasmuch as the By-Laws authorize only the
appointment of one not many.

If it is indeed the intention of LDCU to give its many Deans the rank of College Director, then it exceeded the
authority given to it by its By-Laws because only one College Director is authorized to be appointed. It must
amend its By-Laws. Prior to such an amendment, the office of College Dean is not a corporate office. Another
telling sign that a College Director is not the same as a Dean is the manner of appointment. A College Director
is directly appointed by the Board of Directors. However, a College Dean is appointed by the President upon
the recommendation of the Vice President for Academic Affairs and the Executive Vice President and approval
of the Board of Directors. There is a clear distinction on the manner of appointment indicating that the offices
are not one and the same.

This shows that it was not the intention of LDCU to make Dr. Barba a corporate officer as it was stated in her
letter of appointment that the same shall be subject to the provisions of the Labor Code. Otherwise, the
appointment letter should have stated that her appointment is governed by the Corporation Code. Thus, We
find the arguments in the Supplemental Petition on the matter of lack of jurisdiction of the Labor Arbiter and
the NLRC to be without merit. Dr. Barba, being a College Dean, was not a corporate officer.22 (Emphasis not
ours) The CA further found that no constructive dismissal occurred nor has petitioner abandoned her work.
According to the CA, a transfer amounts to constructive dismissal when the transfer is unreasonable, unlikely,
inconvenient, impossible, or prejudicial to the employee or it involves a demotion in rank or a diminution of
salary and other benefits.

In the case of petitioner, the CA held that she was never demoted and her transfer, being a consequence of
the closure of the College of Physical Therapy, was valid. The CA also noted that petitioners appointment as
Dean of the College of Physical Therapy was for a term of three years. Hence, when her appointment as
College Dean was no longer renewed on June 1, 2005 or after her three-year term had expired, it cannot be
said that there was a demotion or that she was dismissed. Her term as Dean had expired and she can no
longer claim to be entitled to the benefits emanating from such office. On the issue of alleged lack of
jurisdiction, the CA observed that respondent never raised the issue of jurisdiction before the Labor Arbiter
and the NLRC and respondent even actively participated in the proceedings below.

Hence, respondent is estopped from questioning the jurisdiction of the labor tribunals. Unsatisfied, both
petitioner and respondent sought reconsideration of the CA decision. Petitioner prayed for the reversal of the
ruling that there was no constructive dismissal. Respondent meanwhile maintained that the labor tribunals
have no jurisdiction over the case, petitioner being a corporate officer.

On March 29, 2010, the CA issued the assailed Amended Decision23 setting aside its earlier ruling. This time
the CA held that the position of a College Dean is a corporate office and therefore the labor tribunals had no
jurisdiction over the complaint for constructive dismissal. The CA noted that petitioners appointment as Dean
of the College of Physical Therapy was approved by the respondents board of directors thereby concluding
that the position of a College Dean is a corporate office. Also, the CA held that the College Director mentioned
in respondents by-laws is the same as a College Dean and no one has ever been appointed as College
Director. The CA added that in the Administrative Manual the words college and department were used in
the same context in the section on the Duties and Responsibilities of the College Dean, and that there could
not have been any other head of department being alluded to in the by-laws but the college dean.

The dispositive portion of the Amended Decision reads: WHEREFORE, in view of the foregoing, We reconsider
Our Decision on October [22], 2009, and declare that the position of College Dean is a corporate office of
Petitioner [Liceo de Cagayan University], thereby divesting the Labor Arbiter and the National Labor Relations
Commission of jurisdiction over the instant case. Hence, the Resolutions of the Public Respondent dated
September 25, 2007 and June 30, 2008 as well as that of the Regional Labor Arbiter dated 29 September 2006
are VACATED and SET ASIDE as they were rendered by tribunals that had no jurisdiction over the case. SO
ORDERED. 24

Petitioner filed a motion for reconsideration from the above decision, but her motion was denied by the CA in
its Resolution25 dated September 14, 2010. Hence, petitioner filed the present petition. Petitioner argues that
the CA erred in ruling that she was a corporate officer and asserts that the CAs previous finding that she was
respondents employee is more in accord with law and jurisprudence. Petitioner adds that the appellate court
erred when it ruled that the labor tribunals had no jurisdiction over her complaint for illegal dismissal against
respondent.

She faults the CA for allowing respondent to raise the issue of jurisdiction in a Supplemental Petition after
respondent has actively participated in the proceedings before the labor tribunals. Petitioner also asserts that
the CA erred in denying her motion for reconsideration from its Amended Decision on the ground that it is a
second motion for reconsideration which is a prohibited pleading. Lastly, petitioner claims that respondent
violated the rule against forum shopping when it failed to inform the CA of the pendency of the complaint for
breach of contract which it filed against petitioner before the Regional Trial Court of Misamis Oriental, Branch
23.

Respondent, for its part, counters that the petition was filed out of time and petitioners motion for
reconsideration from the Amended Decision was a prohibited pleading since petitioner has already filed a
motion for reconsideration from the original decision of the CA. It is respondents posture that an Amended
Decision is not really a new decision but the appellate courts own modification of its prior decision. More
importantly, respondent points out that the arguments raised by petitioner do not justify a reversal of the
Amended Decision of the appellate court. Respondent insists on the correctness of the Amended Decision and
quotes the assailed decision in its entirety. Issue The decisive issue in the present petition is whether
petitioner was an employee or a corporate officer of respondent university. Resolution of this issue resolves
the question of whether the appellate court was correct in ruling that the Labor Arbiter and the NLRC had no
jurisdiction over petitioners complaint for constructive dismissal against respondent.

Our Ruling

We grant the petition.

Prefatorily, we first discuss the procedural matter raised by respondent that the present petition is filed out of
time. Respondent claims that Decision 11 G.R. No. 193857 petitioners motion for reconsideration from the
Amended Decision is a second motion for reconsideration which is a prohibited pleading. Respondents
assertion, however, is misplaced for it should be noted that the CAs Amended Decision totally reversed and
set aside its previous ruling.

Section 2, Rule 52 of the 1997 Rules of Civil Procedure, as amended, provides that no second motion for
reconsideration of a judgment or final resolution by the same party shall be entertained. This contemplates a
situation where a second motion for reconsideration is filed by the same party assailing the same judgment or
final resolution. Here, the motion for reconsideration of petitioner was filed after the appellate court rendered
an Amended Decision totally reversing and setting aside its previous ruling. Hence, petitioner is not precluded
from filing another motion for reconsideration from the Amended Decision which held that the labor tribunals
lacked jurisdiction over petitioners complaint for constructive dismissal. The period to file an appeal should be
reckoned not from the denial of her motion for reconsideration of the original decision, but from the date of
petitioners receipt of the notice of denial of her motion for reconsideration from the Amended Decision.

And as petitioner received notice of the denial of her motion for reconsideration from the Amended Decision
on September 23, 2010 and filed her petition on November 8, 2010, or within the extension period granted by
the Court to file the petition, her petition was filed on time.

Now on the main issue. As a general rule, only questions of law may be allowed in a petition for review on
certiorari. 26 Considering, however, that the CA reversed its earlier decision and made a complete turnaround
from its previous ruling, and consequently set aside both the findings of the Labor Arbiter and the NLRC for
allegedly having been issued without jurisdiction, it is necessary for the Court to reexamine the records and
resolve the conflicting rulings.

After a careful review and examination of the records, we find that the CAs previous ruling that petitioner was
respondents employee and not a corporate officer is supported by the totality of the evidence and more in
accord with law and prevailing jurisprudence. Corporate officers are elected or appointed by the directors or
stockholders, and are those who are given that character either by the Corporation Code or by the
corporations by-laws.27

Section 2528 of the Corporation Code enumerates corporate officers as the president, the secretary, the
treasurer and such other officers as may be provided for in the by-laws. In Matling Industrial and Commercial
Corporation v. Coros, 29 the phrase such other officers as may be provided for in the by-laws has been
clarified, thus: Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order
to be considered as a corporate office.

Thus, the creation of an office pursuant to or under a By-Law enabling provision is not enough to make a
position a corporate office. Guerrea v. Lezama, the first ruling on the matter, held that the only officers of a
corporation were those given that character either by the Corporation Code or by the By-Laws; the rest of the
corporate officers could be considered only as employees of subordinate officials.

Thus, it was held in Easycall Communications Phils., Inc. v. King: An office is created by the charter of the
corporation and the officer is elected by the directors or stockholders. On the other hand, an employee
occupies no office and generally is employed not by the 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.
(Emphasis supplied)

SEC. 25. Corporate officers, quorum. Immediately after their election, the directors of a corporation must
formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a
director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be
provided for in the by[-]laws. Any two (2) or more positions may be held concurrently by the same person,
except that no one shall act as president and secretary or as president and treasurer at the same time. The
directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by[-
]laws of the corporation. Unless the articles of incorporation or the by[-]laws provide for a greater majority, a
majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a
quorum for the transaction of corporate business, and every decision of at least a majority of the directors or
trustees present at a meeting at which there is a quorum shall be valid as a corporate act, except for the
election of officers which shall require the vote of a majority of all the members of the board. Directors or
trustees cannot attend or vote by proxy at board meetings.

In declaring petitioner a corporate officer, the CA considered respondents by-laws and gave weight to the
certifications of respondents secretary attesting to the resolutions of the board of directors appointing the
various academic deans for the School Years 1991-2002 and 2002-2005, including petitioner. However, an
assiduous perusal of these documents does not convince us that petitioner occupies a corporate office position
in respondent university. The relevant portions of respondents by-laws30 are hereby quoted as follows:
Article III The Board of Directors Sec. 3. The Board of Directors shall appoint a College Director, define his
powers and duties, and determine his compensation; approve or disapprove recommendations for
appointment or dismissal of teachers and employees submitted to it by the College Director; and exercise
other powers and perform such duties as may be required of it hereafter for the proper functioning of the
school.

x x x x Article IV Officers Sec. 1. The officers of the corporation shall consist of a President, a Vice President,
and a Secretary-Treasurer, who shall be chosen from the directors and by the directors themselves. They shall
be elected annually at the first meeting of the directors immediately after their election, and shall hold office
for one (1) year and until their successors are elected and qualified.

x x x x Article V Other Appointive Officials Sec. 1. The Liceo de Cagayan shall have a College Director and such
heads of departments as may exist in the said college whose appointments, compensations, powers and duties
shall be determined by the Board of Directors.31 (Emphasis supplied) On the other hand, the pertinent
portions of the two board resolutions appointing the various academic deans in the university including
petitioner, read as follows: x x x x RESOLVE, as it is hereby resolved, that pursuant to Section 3[,] Article III
and Section 1[,] Article V of the Corporations By-laws, the various academic deans for the school years 1999-
2002 of the University, as recommended by the President of the Corporation, are hereby appointed, whose
names are enumerated hereunder and their respective colleges and their honoraria are indicated opposite their
names, all of them having a three (3) year term, to wit: Name and College Honorarium Ma. Mercedes Vivares
2,660.00 Physical Therapy

x x x x RESOLVE, as it is hereby resolved, that pursuant to Section 3[,] Article III and Section 1[,] Article V of
the Corporations By-laws, the various academic deans for the school years 2002-2005 of the University, as
recommended by the President of the Corporation, are hereby appointed, whose names are enumerated
hereunder and their respective colleges and their honoraria are indicated opposite their names, all of them
having a three (3) year term, to wit: Name and College Honorarium Ma. Mercedes Vivares 2,450.00 Physical
Therapy

x x x x 32 In respondents by-laws, there are four officers specifically mentioned, namely, a president, a vice
president, a secretary and a treasurer. In addition, it is provided that there shall be other appointive officials, a
College Director and heads of departments whose appointments, compensations, powers and duties shall be
determined by the board of directors. It is worthy to note that a College Dean is not among the corporate
officers mentioned in respondents by-laws. Petitioner, being an academic dean, also held an administrative
post in the university but not a corporate office as contemplated by law. Petitioner was not directly elected nor
appointed by the board of directors to any corporate office but her appointment was merely approved by the
board together with the other academic deans of respondent university in accordance with the procedure
prescribed in respondents Administrative Manual.33

The act of the board of directors in approving the appointment of petitioner as Dean of the College of Therapy
did not make her a corporate officer of the corporation. Moreover, the CA, in its amended decision erroneously
equated the position of a College Director to that of a College Dean thereby concluding that petitioner is an
officer of respondent. It bears stressing that the appointive officials mentioned in Article V of respondents by-
laws are not corporate officers under the contemplation of the law. Though the board of directors may create
appointive positions other than the positions of corporate officers, the persons occupying such positions
cannot be deemed as corporate officers as contemplated by Section 25 of the Corporation Code.

On this point, the SEC Opinion dated November 25, 1993 quoted in the case of Matling Industrial and
Commercial Corporation v. Coros,34 is instructive: Thus, pursuant to the above provision (Section 25 of the
Corporation Code), whoever are the corporate officers enumerated in the by-laws are the exclusive Officers of
the corporation and the Board has no power to create other Offices without amending first the corporate
Bylaws.
However, the Board may create appointive positions other than the positions of corporate Officers, but the
persons occupying such positions are not considered as corporate officers within the meaning of Section 25 of
the Corporation Code and are not empowered to exercise the functions of the corporate Officers, except those
functions lawfully delegated to them. Their functions and duties are to be determined by the Board of
Directors/Trustees. But even assuming that a College Director may be considered a corporate officer of
respondent, a review of the records as well as the other documents submitted by the parties fails to persuade
that petitioner was the College Director mentioned in the by-laws of respondent. Nowhere in petitioners
appointment letter was it stated that petitioner was designated as the College Director or that petitioner was
to assume the functions and duties of a College Director. Neither can it be inferred in respondents bylaws that
a dean of a college is the same as a College Director of respondent. 4.2.2.1. Appointed by: The President upon
the recommendation of the VPAA and EVP and upon approval of the Board of Directors for a definite term not
to exceed three (3) years and subject to reappointment.

Respondents lone surviving incorporating director Yolanda Rollo even admitted that no College Director has
ever been appointed by respondent. In her affidavit, Yolanda also explained the reason for the creation of the
position of a College Director, to wit: 4. At the time we signed the By-Laws of the Corporation, we, as
directors, did envision to form only a college of law as that was the main thrust of our president, the late Atty.
Rodolfo N. Pelaez. The original plan then was to have a College Director as the head of the college of law
and below him within the college were heads of departments. The appointments, remuneration, duties and
functions of the College Director and the heads of departments were to be approved by the Board of
Directors. x x x35 Notably, the CA has sufficiently explained why petitioner could not be considered a College
Director in its previous decision. The appellate court explained:

True, the By-Laws of [Liceo de Cagayan University] provides that there shall be a College Director. This means
a College Director is a corporate officer. However, contrary to the allegation of petitioner, the position of Dean
does not appear to be the same as that of a College Director. Aside from the obvious disparity in name, the
By-Laws of [Liceo de Cagayan University] provides for only one College Director. But as shown by [Liceo de
Cagayan University] itself, numerous persons have been appointed as Deans. They could not be the College
Director contemplated by the By-Laws inasmuch as the By-Laws authorize only the appointment of one not
many. If it is indeed the intention of [Liceo de Cagayan University] to give its many Deans the rank of College
Director, then it exceeded the authority given to it by its By-Laws because only one College Director is
authorized to be appointed. It must amend its By-Laws. Prior to such amendment, the office of [the] College
Dean is not a corporate office. Another telling sign that a College Director is not the same as a Dean is the
manner of appointment. A College Director is directly appointed by the Board of Directors.

However, a College Dean is appointed by the President upon the recommendation of the Vice President for
Academic Affairs and the Executive Vice President and approval of the Board of Directors. There is a clear
distinction on the manner of appointment indicating that the offices are not one and the same.36 (Additional
emphasis supplied)

Undoubtedly, petitioner is not a College Director and she is not a corporate officer but an employee of
respondent. Applying the four-fold test (1) the selection and engagement of the employee; (2) the payment of
wages; (3) the power of dismissal; (4) the employers power to control the employee with respect to the
means and methods by which the work is to be accomplished, it is clear that there exists an employer-
employee relationship between petitioner and respondent. Records show that petitioner was appointed to her
position as Dean by Dr. Golez, the university president and was paid a salary of P32,500 plus transportation
allowance. It was evident that respondent had the power of control over petitioner as one of its deans. It was
also the university president who informed petitioner that her services as Dean of the College of Physical
Therapy was terminated effective March 31, 2005 and she was subsequently directed to report to the Acting
Dean of the College of Nursing for assignment of teaching load.

Thus, petitioner, being an employee of respondent, her complaint for illegal/constructive dismissal against
respondent was properly within the jurisdiction of the Labor Arbiter and the NLRC. Article 217 of the Labor
Code provides: ART. 217. Jurisdiction of Labor Arbiters and the Commission. (a) Except as otherwise
provided under this Code, the Arbiters shall have original and exclusive jurisdiction to hear and decide xxx the
following cases involving all workers, whether agricultural or nonagricultural: 1. Unfair labor practice cases; 2.
Termination disputes; 3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wage, rates of pay, hours of work and other terms and conditions of employment; 4. Claims for
actual, moral, exemplary and other forms of damages arising from the employer-employee relations; 5. Cases
arising from any violation of Article 264 of this Code, including questions involving the legality of strikes and
lockouts; and 6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits,
all other claims arising from employeremployee relations, including those of persons in domestic or household
service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied
with a claim for reinstatement. (b) The Commission shall have exclusive appellate jurisdiction over all cases
decided by Labor Arbiters.

Moreover, we agree with the CAs earlier pronouncement that since respondent actively participated in the
proceedings before the Labor Arbiter and the NLRC, it is already estopped from belatedly raising the issue of
lack of jurisdiction. In this case, respondent filed position papers and other supporting documents to bolster its
defense before the labor tribunals but in all these pleadings, the issue of lack of jurisdiction was never raised.
It was only in its Supplemental Petition filed before the CA that respondent first brought the issue of lack of
jurisdiction. We have consistently held that while jurisdiction may be assailed at any stage, a partys active
participation in the proceedings will estop such party from assailing its jurisdiction. It is an undesirable practice
of a party participating in the proceedings and submitting his case for decision and then accepting the
judgment, only if favorable, and attacking it for lack of jurisdiction, when adverse.37 Under Section 6, Rule 10
of the 1997 Rules of Civil Procedure, as amended, governing supplemental pleadings, the court may admit
supplemental pleadings, such as the supplemental petition filed by respondent before the appellate court, but
the admission of these pleadings remains in the sound discretion of the court.

Nevertheless, we have already found no credence in respondents claim that petitioner is a corporate officer,
consequently, the alleged lack of jurisdiction asserted by respondent in the supplemental petition is bereft of
merit. On the issue of constructive dismissal, we agree with the Labor Arbiter and the appellate courts earlier
ruling that petitioner was not constructively dismissed. Petitioners letter of appointment specifically appointed
her as Dean of the College of Physical Therapy and Doctor-inCharge of the Rehabilitation Clinic for a period of
three years effective July 1, 2002 unless sooner revoked for valid cause or causes.

Evidently, petitioners appointment as College Dean was for a fixed term, subject to reappointment and
revocation or termination for a valid cause. When respondent decided to close its College of Physical Therapy
due to decrease in enrollees, petitioners appointment as its College Dean was validly revoked and her
subsequent assignment to teach in the College of Nursing was justified as it is still related to her scholarship
studies in Physical Therapy. As we observed in Brent School, Inc. v. Zamora, 38 also cited by the CA, it is
common practice in educational institutions to have fixed-term contracts in administrative positions, thus:
Some familiar examples may be cited of employment contracts which may be neither for seasonal work nor for
specific projects, but to which a fixed term is an essential and natural appurtenance: overseas employment
contracts, for one, to which, whatever the nature of the engagement, the concept of regular employment with
all that it implies does not appear ever to have been applied, Article 280 of the Labor Code notwithstanding;
also appointments to the positions of dean, assistant dean, college secretary, principal, and other
administrative offices in educational institutions, which are by practice or tradition rotated among the faculty
members, and where fixed terms are a necessity without which no reasonable rotation would be possible. x x
x (Emphasis supplied) In constructive dismissal cases, the employer has the burden of proving that its conduct
and action or the transfer of an employee are for valid and legitimate grounds such as genuine business
necessity.39 Particularly, for a transfer not to be considered a constructive dismissal, the employer must be
able to show that such transfer is not unreasonable, inconvenient, or prejudicial to the employee. In this case,
petitioners transfer was not unreasonable, inconvenient or prejudicial to her.

On the contrary, the assignment of a teaching load in the College of Nursing was undertaken by respondent to
accommodate petitioner following the closure of the College of Physical Therapy. Respondent further
considered the fact that petitioner still has two years to serve the university under the Scholarship Contract.
Petitioners subsequent transfer to another department or college is not tantamount to demotion as it was a
valid transfer. There is therefore no constructive dismissal to speak of. That petitioner ceased to enjoy the
compensation, privileges and benefits as College Dean was but a logical consequence of the valid revocation
or termination of such fixed-term position. Indeed, it would be absurd and unjust for respondent to maintain a
deanship position in a college or department that has ceased to exist. Under the circumstances, giving
petitioner a teaching load in another College/Department that is related to Physical Therapy -- thus enabling
her to serve and complete her remaining two years under the Scholarship Contract -- is a valid exercise of
management prerogative on the part of respondent.

Lastly, as to whether respondent was guilty of forum shopping when it failed to inform the appellate court of
the pendency of Civil Case No. 2009- 320, a complaint for breach of contract filed by respondent against
petitioner, we rule in the negative. Forum shopping exists when the elements of litis pendentia are present or
where a final judgment in one case will amount to res judicata in another. Litis pendentia requires the
concurrence of the following requisites: (1) identity of parties, or at least such parties as those representing
the same interests in both actions; (2) identity of rights asserted and reliefs prayed for, the reliefs being
founded on the same facts; and (3) identity with respect to the two preceding particulars in the two cases,
such that any judgment that may be rendered in the pending case, regardless of which party is successful,
would amount to res judicata in the other case.40 While there is identity of parties in the two cases, the
causes of action and the reliefs sought are different. The issue raised in the present case is whether there was
constructive dismissal committed by respondent. On the other hand, the issue in the civil case pending before
the RTC is whether petitioner was guilty of breach of contract. Hence, respondent is not guilty of forum
shopping.

WHEREFORE, the petition for review on certiorari is GRANTED. The Amended Decision dated March 29, 2010
and Resolution dated September 14, 2010 of the Court of Appeals in CA-G.R. SP No. 02508-MIN are hereby
SET ASIDE. The earlier Decision dated October 22, 2009 of the Court of Appeals in said case is REINSTATED
and UPHELD. No pronouncement as to costs. SO ORDERED.
G.R. No. L-23241 March 14, 1925

HENRY FLEISCHER, plaintiff-appellee,


vs.
BOTICA NOLASCO CO., INC., defendant-appellant.

Antonio Gonzalez for appellant.


Emilio M. Javier for appellee.

JOHNSON, J.:

This action was commenced in the Court of First Instance of the Province of Oriental Negros on the 14th day
of August, 1923, against the board of directors of the Botica Nolasco, Inc., a corporation duly organized and
existing under the laws of the Philippine Islands. The plaintiff prayed that said board of directors be ordered to
register in the books of the corporation five shares of its stock in the name of Henry Fleischer, the plaintiff,
and to pay him the sum of P500 for damages sustained by him resulting from the refusal of said body to
register the shares of stock in question. The defendant filed a demurrer on the ground that the facts alleged in
the complaint did not constitute sufficient cause of action, and that the action was not brought against the
proper party, which was the Botica Nolasco, Inc. The demurrer was sustained, and the plaintiff was granted
five days to amend his complaint.

On November 15, 1923, the plaintiff filed an amended complaint against the Botica Nolasco, Inc., alleging that
he became the owner of five shares of stock of said corporation, by purchase from their original owner, one
Manuel Gonzalez; that the said shares were fully paid; and that the defendant refused to register said shares
in his name in the books of the corporation in spite of repeated demands to that effect made by him upon said
corporation, which refusal caused him damages amounting to P500. Plaintiff prayed for a judgment ordering
the Botica Nolasco, Inc. to register in his name in the books of the corporation the five shares of stock
recorded in said books in the name of Manuel Gonzalez, and to indemnify him in the sum of P500 as damages,
and to pay the costs. The defendant again filed a demurrer on the ground that the amended complaint did not
state facts sufficient to constitute a cause of action, and that said amended complaint was ambiguous,
unintelligible, uncertain, which demurrer was overruled by the court.

The defendant answered the amended complaint denying generally and specifically each and every one of the
material allegations thereof, and, as a special defense, alleged that the defendant, pursuant to article 12 of its
by-laws, had preferential right to buy from the plaintiff said shares at the par value of P100 a share, plus P90
as dividends corresponding to the year 1922, and that said offer was refused by the plaintiff. The defendant
prayed for a judgment absolving it from all liability under the complaint and directing the plaintiff to deliver to
the defendant the five shares of stock in question, and to pay damages in the sum of P500, and the costs.

Upon the issue presented by the pleadings above stated, the cause was brought on for trial, at the conclusion
of which, and on August 21, 1924, the Honorable N. Capistrano, judge, held that, in his opinion, article 12 of
the by-laws of the corporation which gives it preferential right to buy its shares from retiring stockholders, is in
conflict with Act No. 1459 (Corporation Law), especially with section 35 thereof; and rendered a judgment
ordering the defendant corporation, through its board of directors, to register in the books of said corporation
the said five shares of stock in the name of the plaintiff, Henry Fleischer, as the shareholder or owner thereof,
instead of the original owner, Manuel Gonzalez, with costs against the defendant.

The defendant appealed from said judgment, and now makes several assignment of error, all of which, in
substance, raise the question whether or not article 12 of the by-laws of the corporation is in conflict with the
provisions of the Corporation Law (Act No. 1459).

There is no controversy as to the facts of the present case. They are simple and may be stated as follows:

That Manuel Gonzalez was the original owner of the five shares of stock in question, Nos. 16, 17, 18, 19 and
20 of the Botica Nolasco, Inc.; that on March 11, 1923, he assigned and delivered said five shares to the
plaintiff, Henry Fleischer, by accomplishing the form of endorsement provided on the back thereof, together
with other credits, in consideration of a large sum of money owed by Gonzalez to Fleischer (Exhibits A, B, B-1,
B-2, B-3, B-4); that on March 13, 1923, Dr. Eduardo Miciano, who was the secretary-treasurer of said
corporation, offered to buy from Henry Fleischer, on behalf of the corporation, said shares of stock, at their
par value of P100 a share, for P500; that by virtue of article 12 of the by-laws of Botica Nolasco, Inc., said
corporation had the preferential right to buy from Manuel Gonzalez said shares (Exhibit 2); that the plaintiff
refused to sell them to the defendant; that the plaintiff requested Doctor Miciano to register said shares in his
name; that Doctor Miciano refused to do so, saying that it would be in contravention of the by-laws of the
corporation.

It also appears from the record that on the 13th day of March, 1923, two days after the assignment of the
shares to the plaintiff, Manuel Gonzales made a written statement to the Botica Nolasco, Inc., requesting that
the five shares of stock sold by him to Henry Fleischer be noted transferred to Fleischer's name. He also
acknowledged in said written statement the preferential right of the corporation to buy said five shares
(Exhibit 3). On June 14, 1923, Gonzalez wrote a letter to the Botica Nolasco, withdrawing and cancelling his
written statement of March 13, 1923 (Exhibit C), to which letter the Botica Nolasco on June 15, 1923, replied,
declaring that his written statement was in conformity with the by-laws of the corporation; that his letter of
June 14th was of no effect, and that the shares in question had been registered in the name of the Botica
Nolasco, Inc., (Exhibit X).

As indicated above, the important question raised in this appeal is whether or not article 12 of the by-laws of
the Botica Nolasco, Inc., is in conflict with the provisions of the Corporation Law (Act No. 1459). Appellant
invoked said article as its ground for denying the request of the plaintiff that the shares in question be
registered in his (plaintiff's) name, and for claiming that it (Botica Nolasco, Inc.) had the preferential right to
buy said shares from Gonzalez. Appellant now contends that article 12 of the said by-laws is in conformity with
the provisions of Act No. 1459. Said article is as follows:
ART. 12. Las acciones de la Corporacion pueden ser transferidas a otra persona, pero para que estas
transferencias tengan validez legal, deben constar en los registros de la Corporacion con el debido endoso del
accionista a cuyo nombre se ha expedido la accion o acciones que se transfieran, o un documento de
transferencia. Entendiendose que, ningun accionista transferira accion alguna a otra persona sin participar
antes por escrito al Secretario-Tesorero. En igualdad de condiciones, la sociedad tendra el derecho de adquirir
para si la accion o acciones que se traten de transferir. (Exhibit 2.)

The above-quoted article constitutes a by-law or regulation adopted by the Botica Nolasco, Inc., governing the
transfer of shares of stock of said corporation. The latter part of said article creates in favor of the Botica
Nolasco, Inc., a preferential right to buy, under the same conditions, the share or shares of stock of a retiring
shareholder. Has said corporation any power, under the Corporation Law (Act. No. 1459), to adopt such by-
law?

The particular provisions of the Corporation Law referring to transfer of shares of stock are as follows:

SEC. 13. Every corporation has the power:

xxx xxx xxx

(7) To make by-laws, not inconsistent with any existing law, for the fixing or changing of the number of its
officers and directors within the limits prescribed by law, and for the transferring of its stock, the
administration of its corporate affairs, etc.

xxx xxx xxx

SEC. 35. The capital stock of stock corporations shall de divided into shares for which certificates signed by the
president or the vice-president, countersigned by the secretary or clerk and sealed with the seal of the
corporation, shall be issued in accordance with the by-laws. Shares of stock so issued are personal property
and may be transferred by delivery of the certificate indorsed by the owner or his attorney in fact or other
person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the
parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of
the parties to the transaction, that date of the transfer, the number of the certificate, and the number of
shares transferred.

No share of stock against which the corporation holds any unpaid claim shall be transferable on the books of
the corporation.

Section 13, paragraph 7, above-quoted, empowers a corporation to make by-laws, not inconsistent with any
existing law, for the transferring of its stock. It follows from said provision, that a by-law adopted by a
corporation relating to transfer of stock should be in harmony with the law on the subject of transfer of stock.
The law on this subject is found in section 35 of Act No. 1459 above quoted. Said section specifically provides
that the shares of stock "are personal property and may be transferred by delivery of the certificate indorsed
by the owner, etc." Said section 35 defines the nature, character and transferability of shares of stock. Under
said section they are personal property and may be transferred as therein provided. Said section contemplates
no restriction as to whom they may be transferred or sold. It does not suggest that any discrimination may be
created by the corporation in favor or against a certain purchaser. The holder of shares, as owner of personal
property, is at liberty, under said section, to dispose of them in favor of whomsoever he pleases, without any
other limitation in this respect, than the general provisions of law. Therefore, a stock corporation in adopting a
by-law governing transfer of shares of stock should take into consideration the specific provisions of section 35
of Act No. 1459, and said by-law should be made to harmonize with said provisions. It should not be
inconsistent therewith.
The by-law now in question was adopted under the power conferred upon the corporation by section 13,
paragraph 7, above quoted; but in adopting said by-law the corporation has transcended the limits fixed by
law in the same section, and has not taken into consideration the provisions of section 35 of Act No. 1459.

As a general rule, the by-laws of a corporation are valid if they are reasonable and calculated to carry into
effect the objects of the corporation, and are not contradictory to the general policy of the laws of the land.
(Supreme Commandery of the Knights of the Golden Rule vs. Ainsworth, 71 Ala., 436; 46 Am. Rep., 332.)

On the other hand, it is equally well settled that by-laws of a corporation must be reasonable and for a
corporate purpose, and always within the charter limits. They must always be strictly subordinate to the
constitution and the general laws of the land. They must not infringe the policy of the state, nor be hostile to
public welfare. (46 Am. Rep., 332.) They must not disturb vested rights or impair the obligation of a contract,
take away or abridge the substantial rights of stockholder or member, affect rights of property or create
obligations unknown to the law. (People's Home Savings Bank vs. Superior Court, 104 Cal., 649; 43 Am. St.
Rep., 147; Ireland vs. Globe Milling Co., 79 Am. St. Rep., 769.)

The validity of the by-law of a corporation is purely a question of law. (South Florida Railroad Co. vs. Rhodes,
25 Fla., 40.)

The power to enact by-laws restraining the sale and transfer of stock must be found in the governing statute
or the charter. Restrictions upon the traffic in stock must have their source in legislative enactment, as the
corporation itself cannot create such impediments. By-law are intended merely for the protection of the
corporation, and prescribe regulation and not restriction; they are always subject to the charter of the
corporation. The corporation, in the absence of such a power, cannot ordinarily inquire into or pass upon the
legality of the transaction by which its stock passes from one person to another, nor can it question the
consideration upon which a sale is based. A by-law cannot take away or abridge the substantial rights of
stockholder. Under a statute authorizing by- laws for the transfer of stock, a corporation can do no more than
prescribe a general mode of transfer on the corporate books and cannot justify an unreasonable restriction
upon the right of sale. (4 Thompson on Corporations, sec. 4137, p. 674.

The right of unrestrained transfer of shares inheres in the very nature of a corporation, and courts will
carefully scrutinize any attempt to impose restrictions or limitations upon the right of stockholders to sell and
assign their stock. The right to impose any restraint in this respect must be conferred upon the corporation
either by the governing statute or by the articles of the corporation. It cannot be done by a by-law without
statutory or charter authority. (4 Thompson on Corporations, sec. 4334, pp. 818, 819.)

The jus disponendi, being an incident of the ownership of property, the general rule (subject to exceptions
hereafter pointed out and discussed) is that every owner of corporate shares has the same uncontrollable right
to alien them which attaches to the ownership of any other species of property. A shareholder is under no
obligation to refrain from selling his shares at the sacrifice of his personal interest, in order to secure the
welfare of the corporation, or to enable another shareholder to make gains and profits. (10 Cyc., p. 577.)

It follows from the foregoing that a corporation has no power to prevent or to restrain transfers of its shares,
unless such power is expressly conferred in its charter or governing statute. This conclusion follows from the
further consideration that by-laws or other regulations restraining such transfers, unless derived from authority
expressly granted by the legislature, would be regarded as impositions in restraint of trade. (10 Cyc., p. 578.)

The foregoing authorities go farther than the stand we are taking on this question. They hold that the power
of a corporation to enact by-laws restraining the sale and transfer of shares, should not only be in harmony
with the law or charter of the corporation, but such power should be expressly granted in said law or charter.

The only restraint imposed by the Corporation Law upon transfer of shares is found in section 35 of Act No.
1459, quoted above, as follows: "No transfer, however, shall be valid, except as between the parties, until the
transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the certificate, and the number of shares transferred."
This restriction is necessary in order that the officers of the corporation may know who are the stockholders,
which is essential in conducting elections of officers, in calling meeting of stockholders, and for other
purposes. but any restriction of the nature of that imposed in the by-law now in question, is ultra vires,
violative of the property rights of shareholders, and in restraint of trade.

And moreover, the by-laws now in question cannot have any effect on the appellee. He had no knowledge of
such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable
consideration. He was not a privy to the contract created by said by-law between the shareholder Manuel
Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser.

An unauthorized by-law forbidding a shareholder to sell his shares without first offering them to the
corporation for a period of thirty days is not binding upon an assignee of the stock as a personal contract,
although his assignor knew of the by-law and took part in its adoption. (10 Cyc., 579; Ireland vs. Globe Milling
Co., 21 R.I., 9.)

When no restriction is placed by public law on the transfer of corporate stock, a purchaser is not affected by
any contractual restriction of which he had no notice. (Brinkerhoff-Farris Trust and Savings Co. vs. Home
Lumber Co., 118 Mo., 447.)

The assignment of shares of stock in a corporation by one who has assented to an unauthorized by-law has
only the effect of a contract by, and enforceable against, the assignor; the assignee is not bound by such by-
law by virtue of the assignment alone. (Ireland vs. Globe Milling Co., 21 R.I., 9.)

A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the
board of directors, while it may be enforced as a reasonable regulation for the protection of the corporation
against worthless stockholders, cannot be made available to defeat the rights of third persons. (Farmers' and
Merchants' Bank of Lineville vs. Wasson, 48 Iowa, 336.)

Counsel for defendant incidentally argues in his brief, that the plaintiff does not have any right of action
against the defendant corporation, but against the president and secretary thereof, inasmuch as the signing
and registration of shares is incumbent upon said officers pursuant to section 35 of the Corporation Law. This
contention cannot be sustained now. The question should have been raised in the lower court. It is too late to
raise it now in this appeal. Besides, as stated above, the corporation was made defendant in this action upon
the demurrer of the attorney of the original defendant in the lower court, who contended that the Botica
Nolasco, Inc., should be made the party defendant in this action. Accordingly, upon order of the court, the
complaint was amended and the said corporation was made the party defendant.

Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will lie to
compel the officers of the corporation to transfer said stock upon the books of the corporation. (26 Cyc. 347;
Hager vs. Bryan, 19 Phil., 138.)

In view of all the foregoing, we are of the opinion, and so hold, that the decision of the lower court is in
accordance with law and should be and is hereby affirmed, with costs. So ordered.

G.R. No. 121466 August 15, 1997

PMI COLLEGES, petitioner,


vs.
THE NATIONAL LABOR RELATIONS COMMISSION and ALEJANDRO GA LVA N, respondents.

ROMERO, J.:
Subject of the instant petition for certiorari under Rule 65 of the Rules of Court is the resolution 1 of public
respondent National Labor Relations Commission 2 rendered on August 4, 1995, affirming in toto the
December 7, 1994 decision 3 of Labor Arbiter Pablo C. Espiritu declaring petitioner PMI Colleges liable to pay
private respondent Alejandro Galvan P405,000.00 in unpaid wages and P40,532.00 as attorney's fees.

A chronicle of the pertinent events on record leading to the filing of the instant petition is as follows:

On July 7, 1991, petitioner, an educational institution offering courses on basic seaman's training and other
marine-related courses, hired private respondent as contractual instructor with an agreement that the latter
shall be paid at an hourly rate of P30.00 to P50.00, depending on the description of load subjects and on the
schedule for teaching the same. Pursuant to this engagement, private respondent then organized classes in
marine engineering.

Initially, private respondent and other instructors were compensated for services rendered during the first
three periods of the abovementioned contract. However, for reasons unknown to private respondent, he
stopped receiving payment for the succeeding rendition of services. This claim of non-payment was embodied
in a letter dated March 3, 1992, written by petitioner's Acting Director, Casimiro A. Aguinaldo, addressed to its
President, Atty. Santiago Pastor, calling attention to and appealing for the early approval and release of the
salaries of its instructors including that of private respondent. It appeared further in said letter that the salary
of private respondent corresponding to the shipyard and plant visits and the ongoing on-the-job training of
Class 41 on board MV "Sweet Glory" of Sweet Lines, Inc. was not yet included. This request of the Acting
Director apparently went unheeded. Repeated demands having likewise failed, private respondent was soon
constrained to file a complaint 4 before the National Capital Region Arbitration Branch on September 14, 1993
seeking payment for salaries earned from the following: (1) basic seaman course Classes 41 and 42 for the
period covering October 1991 to September 1992; (2) shipyard and plant visits and on-the-job training of
Classes 41 and 42 for the period covering October 1991 to September 1992 on board M/V "Sweet Glory"
vessel; and (3) as Acting Director of Seaman Training Course for 3-1/2 months.

In support of the abovementioned claims, private respondent submitted documentary evidence which were
annexed to his complaint, such as the detailed load and schedule of classes with number of class hours and
rate per hour (Annex "A"); PMI Colleges Basic Seaman Training Course (Annex "B"); the aforementioned
letter-request for payment of salaries by the Acting Director of PMI Colleges (Annex "C"); unpaid load of
private respondent (Annex "D"); and vouchers prepared by the accounting department of petitioner but whose
amounts indicated therein were actually never paid to private respondent (Exhibit "E").

Private respondent's claims, as expected, were resisted by petitioner. It alleged that classes in the courses
offered which complainant claimed to have remained unpaid were not held or conducted in the school
premises of PMI Colleges. Only private respondent, it was argued, knew whether classes were indeed
conducted. In the same vein, petitioner maintained that it exercised no appropriate and proper supervision of
the said classes which activities allegedly violated certain rules and regulations of the Department of
Education, Culture and Sports (DECS). Furthermore, the claims, according to petitioner, were all exaggerated
and that, at any rate, private respondent abandoned his work at the time he should have commenced the
same.

In reply, private respondent belied petitioner's allegations contending, among others, that he conducted
lectures within the premises of petitioner's rented space located at 5th Floor, Manufacturers Bldg., Sta. Cruz,
Manila; that his students duly enrolled with the Registrar's Office of petitioner; that shipyard and plant visits
were conducted at Fort San Felipe, Cavite Naval Base; that petitioner was fully aware of said shipyard and
plant visits because it even wrote a letter for that purpose; and that basic seaman courses 41 and 42 were
sanctioned by the DECS as shown by the records of the Registrar's Office.

Later in the proceedings below, petitioner manifested that Mr. Tomas G. Cloma, Jr., a member of the
petitioner's Board of Trustees wrote a letter 5 to the Chairman of the Board on May 23, 1994, clarifying the
case of private respondent and stating therein, inter alia, that under petitioner's by-laws only the Chairman is
authorized to sign any contract and that private respondent, in any event, failed to submit documents on the
alleged shipyard and plant visits in Cavite Naval Base.

Attempts at amicable settlement having failed, the parties were required to submit their respective position
papers. Thereafter, on June 16, 1994, the Labor Arbiter issued an order declaring the case submitted for
decision on the basis of the position papers which the parties filed. Petitioner, however, vigorously opposed
this order insisting that there should be a formal trial on the merits in view of the important factual issues
raised. In another order dated July 22, 1994, the Labor Arbiter impliedly denied petitioner's opposition,
reiterating that the case was already submitted for decision. Hence, a decision was subsequently rendered by
the Labor Arbiter on December 7, 1994 finding for the private respondent. On appeal, the NLRC affirmed the
same in toto in its decision of August 4, 1995.

Aggrieved, petitioner now pleads for the Court to resolve the following issues in its favor, to wit:

I. Whether the money claims of private respondent representing salaries/wages as contractual instructor
for class instruction, on-the-job training and shipboard and plant visits have valid legal and factual bases;

II. Whether claims for salaries/wages for services relative to on-the-job training and shipboard and plant
visits by instructors, assuming the same were really conducted, have valid bases;

III. Whether the petitioner was denied its right to procedural due process; and

IV. Whether the NLRC findings in its questioned resolution have sound legal and factual support.

We see no compelling reason to grant petitioner's plea; the same must, therefore, be dismissed.

At once, a mere perusal of the issues raised by petitioner already invites dismissal for demonstrated ignorance
and disregard of settled rules on certiorari. Except perhaps for the third issue, the rest glaringly call for a re-
examination, evaluation and appreciation of the weight and sufficiency of factual evidence presented before
the Labor Arbiter. This, of course, the Court cannot do in the exercise of its certiorari jurisdiction without
transgressing the well-defined limits thereof. The corrective power of the Court in this regard is confined only
to jurisdictional issues and a determination of whether there is such grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of a tribunal or agency. So unyielding and consistent are the
decisional rules thereon that it is indeed surprising why petitioner's counsel failed to accord them the
observance they deserve.

Thus, in San Miguel Foods, Inc. Cebu B-Men Feed Plant v. Hon. Bienvenido Laguesma, 6 we were emphatic in
declaring that:

This Court is definitely not the proper venue to consider this matter for it is not a trier of facts. . . . Certiorari is
a remedy narrow in its scope and inflexible in character. It is not a general utility tool in the legal workshop.
Factual issues are not a proper subject for certiorari, as the power of the Supreme Court to review labor cases
is limited to the issue of jurisdiction and grave abuse of discretion. . . . (Emphasis supplied).

Of the same tenor was our disquisition in Ilocos Sur Electric Cooperative, Inc. v. NLRC 7 where we made plain
that:

In certiorari proceedings under Rule 65 of the Rules of Court, judicial review by this Court does not go so far
as to evaluate the sufficiency of evidence upon which the Labor Arbiter and the NLRC based their
determinations, the inquiry being limited essentially to whether or not said public respondents had acted
without or in excess of its jurisdiction or with grave abuse of discretion. (Emphasis supplied).
To be sure, this does not mean that the Court would disregard altogether the evidence presented. We merely
declare that the extent of review of evidence we ordinarily provide in other cases is different when it is a
special civil action of certiorari. The latter commands us to merely determine whether there is basis
established on record to support the findings of a tribunal and such findings meet the required quantum of
proof, which in this instance, is substantial evidence. Our deference to the expertise acquired by quasi-judicial
agencies and the limited scope granted to us in the exercise of certiorari jurisdiction restrain us from going so
far as to probe into the correctness of a tribunal's evaluation of evidence, unless there is palpable mistake and
complete disregard thereof in which case certiorari would be proper. In plain terms, in certiorari proceedings,
we are concerned with mere "errors of jurisdiction" and not "errors of judgment." Thus:

The rule is settled that the original and exclusive jurisdiction of this Court to review a decision of respondent
NLRC (or Executive Labor Arbiter as in this case) in a petition for certiorari under Rule 65 does not normally
include an inquiry into the correctness of its evaluation of the evidence. Errors of judgment, as distinguished
from errors of jurisdiction, are not within the province of a special civil action for certiorari, which is merely
confined to issues of jurisdiction or grave abuse of discretion. It is thus incumbent upon petitioner to
satisfactorily establish that respondent Commission or executive labor arbiter acted capriciously and
whimsically in total disregard of evidence material to or even decisive of the controversy, in order that the
extraordinary writ of certiorari will lie. By grave abuse of discretion is meant such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction, and it must be shown that the discretion was
exercised arbitrarily or despotically. For certiorari to lie there must be capricious, arbitrary and whimsical
exercise of power, the very antithesis of the judicial prerogative in accordance with centuries of both civil law
and common law traditions. 8

The Court entertains no doubt that the foregoing doctrines apply with equal force in the case at bar.

In any event, granting that we may have to delve into the facts and evidence of the parties, we still find no
puissant justification for us to adjudge both the Labor Arbiter's and NLRC's appreciation of such evidence as
indicative of any grave abuse of discretion.

First. Petitioner places so much emphasis on its argument that private respondent did not produce a copy of
the contract pursuant to which he rendered services. This argument is, of course, puerile. The absence of such
copy does not in any manner negate the existence of a contract of employment since "(C)ontracts shall be
obligatory, in whatever form they have
been entered into, provided all the essential requisites for their validity are present." 9 The only exception to
this rule is "when the law requires that a contract be in some form in order that it may be valid or enforceable,
or that a contract be proved in a certain way." However, there is no requirement under the law that the
contract of employment of the kind entered into by petitioner with private respondent should be in any
particular form. While it may have been desirable for private respondent to have produced a copy of his
contract if one really exists, but the absence thereof, in any case, does not militate against his claims
inasmuch as:

No particular form of evidence is required to prove the existence of an employer-employee relationship. Any
competent and relevant evidence to prove the relationship may be admitted. For, if only documentary
evidence would be required to show that relationship, no scheming employer would ever be brought before
the bar of justice, as no employer would wish to come out with any trace of the illegality he has authored
considering that it should take much weightier proof to invalidate a written instrument. . . . 10

At any rate, the vouchers prepared by petitioner's own accounting department and the letter-request of its
Acting Director asking for payment of private respondent's services suffice to support a reasonable conclusion
that private respondent was employed with petitioner. How else could one explain the fact that private
respondent was supposed to be paid the amounts mentioned in those documents if he were not employed?
Petitioner's evidence is wanting in this respect while private respondent affirmatively stated that the same
arose out of his employment with petitioner. As between the two, the latter is weightier inasmuch as we
accord affirmative testimony greater value than a negative one. For the foregoing reasons, we find it difficult
to agree with petitioner's assertion that the absence of a copy of the alleged contract should nullify private
respondent's claims.

Neither can we concede that such contract would be invalid just because the signatory thereon was not the
Chairman of the Board which allegedly violated petitioner's by-laws. Since by-laws operate merely as internal
rules among the stockholders, they cannot affect or prejudice third persons who deal with the corporation,
unless they have knowledge of the same." 11 No proof appears on record that private respondent ever knew
anything about the provisions of said by-laws. In fact, petitioner itself merely asserts the same without even
bothering to attach a copy or excerpt thereof to show that there is such a provision. How can it now expect
the Labor Arbiter and the NLRC to believe it? That this allegation has never been denied by private respondent
does not necessarily signify admission of its existence because technicalities of law and procedure and the
rules obtaining in the courts of law do not strictly apply to proceedings of this nature.

Second. Petitioner bewails the fact that both the Labor Arbiter and the NLRC accorded due weight to the
documents prepared by private respondent since they are said to be self-serving. "Self-serving evidence" is not
to be literally taken as evidence that serves one's selfish interest. 12 The fact alone that most of the
documents submitted in evidence by private respondent were prepared by him does not make them self-
serving since they have been offered in the proceedings before the Labor Arbiter and that ample opportunity
was given to petitioner to rebut their veracity and authenticity. Petitioner, however, opted to merely deny
them which denial, ironically, is actually what is considered self-serving evidence 13 and, therefore, deserves
scant consideration. In any event, any denial made by petitioner cannot stand against the affirmative and
fairly detailed manner by which private respondent supported his claims, such as the places where he
conducted his classes, on-the-job training and shipyard and plant visits; the rate he applied and the duration
of said rendition of services; the fact that he was indeed engaged as a contractual instructor by petitioner; and
that part of his services was not yet remunerated. These evidence, to reiterate, have never been effectively
refuted by petitioner.

Third. As regards the amounts demanded by private respondent, we can only rely upon the evidence
presented which, in this case, consists of the computation of private respondent, as well as the findings of
both the Labor Arbiter and the NLRC. Petitioner, it must be stressed, presented no satisfactory proof to the
contrary. Absent such proof, we are constrained to rely upon private respondent's otherwise straightforward
explanation of his claims.

Fourth. The absence of a formal hearing or trial before the Labor Arbiter is no cause for petitioner to impute
grave abuse of discretion. Whether to conduct one or not depends on the sole discretion of the Labor Arbiter,
taking into account the position papers and supporting documents submitted by the parties on every issue
presented. If the Labor Arbiter, in his judgment, is confident that he can rely on the documents before him, he
cannot be faulted for not conducting a formal trial anymore, unless it would appear that, in view of the
particular circumstances of a case, the documents, without more, are really insufficient.

As applied to the instant case, we can understand why the Labor Arbiter has opted not to proceed to trial,
considering that private respondent, through annexes to his position paper, has adequately established that,
first of all, he was an employee of petitioner; second, the nature and character of his services, and finally, the
amounts due him in consideration of his services. Petitioner, it should be reiterated, failed to controvert them.
Actually, it offered only four documents later in the course of the proceedings. It has only itself to blame if it
did not attach its supporting evidence with its position paper. It cannot now insist that there be a trial to give
it an opportunity to ventilate what it should have done earlier. Section 3, Rule V of the New Rules of Procedure
of the NLRC is very clear on the matter:

Sec. 3. . . .

These verified position papers . . . shall be accompanied by all supporting documents including the affidavits of
their respective witnesses which shall take the place of the latter's direct testimony. The parties shall
thereafter not be allowed to allege facts, or present evidence to prove facts, not referred to and any cause or
causes of action not included in the complaint or position papers, affidavits and other documents. . . .
(Emphasis supplied).

Thus, given the mandate of said rule, petitioner should have foreseen that the Labor Arbiter, in view of the
non-litigious nature of the proceedings before it, might not proceed at all to trial. Petitioner cannot now be
heard to complain of lack of due process. The following is apropos:

The petitioners should not have assumed that after they submitted their position papers, the Labor Arbiter
would call for a formal trial or hearing. The holding of a trial is discretionary on the Labor Arbiter, it is not a
matter of right of the parties, especially in this case, where the private respondents had already presented
their documentary evidence.

xxx xxx xxx

The petitioners did ask in their position paper for a hearing to thresh out some factual matters pertinent to
their case. However, they had no right or reason to assume that their request would be granted. The
petitioners should have attached to their position paper all the documents that would prove their claim in case
it was decided that no hearing should be conducted or was necessary. In fact, the rules require that position
papers shall be accompanied by all supporting documents, including affidavits of witnesses in lieu of their
direct testimony. 14

It must be noted that adequate opportunity was given to petitioner in the presentation of its evidence, such as
when the Labor Arbiter granted petitioner's Manifestation and Motion 15 dated July 22, 1994 allowing it to
submit four more documents. This opportunity notwithstanding, petitioner still failed to fully proffer all its
evidence which might help the Labor Arbiter in resolving the issues. What it desired instead, as stated in its
petition, 16 was to "require presentation of witnesses buttressed by relevant documents in support thereof."
But this is precisely the opportunity given to petitioner when the Labor Arbiter granted its Motion and
Manifestation. It should have presented the documents it was proposing to submit. The affidavits of its
witnesses would have sufficed in lieu of their direct testimony 17 to clarify what it perceives to be complex
factual issues. We rule that the Labor Arbiter and the NLRC were not remiss in their duty to afford petitioner
due process. The essence of due process is merely that a party be afforded a reasonable opportunity to be
heard and to submit any evidence he may have in support of his defense. 18

WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED for lack of merit while the
resolution of the National Labor Relations Commission dated August 4, 1995 is hereby AFFIRMED.

SO ORDERED.

G.R. No. 141735. June 8, 2005]

SAPPARI K. SAWADJAAN, petitioner, vs. THE HONORABLE COURT OF APPEALS, THE CIVIL SERVICE
COMMISSION and AL-AMANAH INVESTMENT BANK OF THE PHILIPPINES, respondents.
DECISION
CHICO-NAZARIO, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court of the Decision[1] of the Court of Appeals of
30 March 1999 affirming Resolutions No. 94-4483 and No. 95-2754 of the Civil Service Commission (CSC)
dated 11 August 1994 and 11 April 1995, respectively, which in turn affirmed Resolution No. 2309 of the Board
of Directors of the Al-Amanah Islamic Investment Bank of the Philippines (AIIBP) dated 13 December 1993,
finding petitioner guilty of Dishonesty in the Performance of Official Duties and/or Conduct Prejudicial to the
Best Interest of the Service and dismissing him from the service, and its Resolution[2] of 15 December 1999
dismissing petitioners Motion for Reconsideration.
The records show that petitioner Sappari K. Sawadjaan was among the first employees of the Philippine
Amanah Bank (PAB) when it was created by virtue of Presidential Decree No. 264 on 02 August 1973. He rose
through the ranks, working his way up from his initial designation as security guard, to settling clerk,
bookkeeper, credit investigator, project analyst, appraiser/ inspector, and eventually, loans analyst.[3]

In February 1988, while still designated as appraiser/investigator, Sawadjaan was assigned to inspect the
properties offered as collaterals by Compressed Air Machineries and Equipment Corporation (CAMEC) for a
credit line of Five Million Pesos (P5,000,000.00). The properties consisted of two parcels of land covered by
Transfer Certificates of Title (TCTs) No. N-130671 and No. C-52576. On the basis of his Inspection and
Appraisal Report,[4] the PAB granted the loan application. When the loan matured on 17 May 1989, CAMEC
requested an extension of 180 days, but was granted only 120 days to repay the loan.[5]

In the meantime, Sawadjaan was promoted to Loans Analyst I on 01 July 1989.[6]

In January 1990, Congress passed Republic Act 6848 creating the AIIBP and repealing P.D. No. 264 (which
created the PAB). All assets, liabilities and capital accounts of the PAB were transferred to the AIIBP,[7] and
the existing personnel of the PAB were to continue to discharge their functions unless discharged.[8] In the
ensuing reorganization, Sawadjaan was among the personnel retained by the AIIBP.

When CAMEC failed to pay despite the given extension, the bank, now referred to as the AIIBP, discovered
that TCT No. N-130671 was spurious, the property described therein non-existent, and that the property
covered by TCT No. C-52576 had a prior existing mortgage in favor of one Divina Pablico.

On 08 June 1993, the Board of Directors of the AIIBP created an Investigating Committee to look into the
CAMEC transaction, which had cost the bank Six Million Pesos (P6,000,000.00) in losses.[9] The subsequent
events, as found and decided upon by the Court of Appeals,[10] are as follows:

On 18 June 1993, petitioner received a memorandum from Islamic Bank [AIIBP] Chairman Roberto F. De
Ocampo charging him with Dishonesty in the Performance of Official Duties and/or Conduct Prejudicial to the
Best Interest of the Service and preventively suspending him.

In his memorandum dated 8 September 1993, petitioner informed the Investigating Committee that he could
not submit himself to the jurisdiction of the Committee because of its alleged partiality. For his failure to
appear before the hearing set on 17 September 1993, after the hearing of 13 September 1993 was postponed
due to the Manifestation of even date filed by petitioner, the Investigating Committee declared petitioner in
default and the prosecution was allowed to present its evidence ex parte.

On 08 December 1993, the Investigating Committee rendered a decision, the pertinent portions of which reads
as follows:

In view of respondent SAWADJAANS abject failure to perform his duties and assigned tasks as
appraiser/inspector, which resulted to the prejudice and substantial damage to the Bank, respondent should
be held liable therefore. At this juncture, however, the Investigating Committee is of the considered opinion
that he could not be held liable for the administrative offense of dishonesty considering the fact that no
evidence was adduced to show that he profited or benefited from being remiss in the performance of his
duties. The record is bereft of any evidence which would show that he received any amount in consideration
for his non-performance of his official duties.

This notwithstanding, respondent cannot escape liability. As adverted to earlier, his failure to perform his
official duties resulted to the prejudice and substantial damage to the Islamic Bank for which he should be
held liable for the administrative offense of CONDUCT PREJUDICIAL TO THE BEST INTEREST OF THE
SERVICE.
Premises considered, the Investigating Committee recommends that respondent SAPPARI SAWADJAAN be
meted the penalty of SIX (6) MONTHS and ONE (1) DAY SUSPENSION from office in accordance with the Civil
Service Commissions Memorandum Circular No. 30, Series of 1989.

On 13 December 1993, the Board of Directors of the Islamic Bank [AIIBP] adopted Resolution No. 2309 finding
petitioner guilty of Dishonesty in the Performance of Official Duties and/or Conduct Prejudicial to the Best
Interest of the Service and imposing the penalty of Dismissal from the Service.

On reconsideration, the Board of Directors of the Islamic Bank [AIIBP] adopted the Resolution No. 2332 on 20
February 1994 reducing the penalty imposed on petitioner from dismissal to suspension for a period of six (6)
months and one (1) day.

On 29 March 1994, petitioner filed a notice of appeal to the Merit System Protection Board (MSPB).

On 11 August 1994, the CSC adopted Resolution No. 94-4483 dismissing the appeal for lack of merit and
affirming Resolution No. 2309 dated 13 December 1993 of the Board of Directors of Islamic Bank.

On 11 April 1995, the CSC adopted Resolution No. 95-2574 denying petitioners Motion for Reconsideration.

On 16 June 1995, the instant petition was filed with the Honorable Supreme Court on the following assignment
of errors:

I. Public respondent Al-Amanah Islamic Investment Bank of the Philippines has committed a grave abuse of
discretion amounting to excess or lack of jurisdiction when it initiated and conducted administrative
investigation without a validly promulgated rules of procedure in the adjudication of administrative cases at
the Islamic Bank.

II. Public respondent Civil Service Commission has committed a grave abuse of discretion amounting to lack of
jurisdiction when it prematurely and falsely assumed jurisdiction of the case not appealed to it, but to the
Merit System Protection Board.

III. Both the Islamic Bank and the Civil Service Commission erred in finding petitioner Sawadjaan of having
deliberately reporting false information and therefore guilty of Dishonesty and Conduct Prejudicial to the Best
Interest of the Service and penalized with dismissal from the service.

On 04 July 1995, the Honorable Supreme Court En Banc referred this petition to this Honorable Court pursuant
to Revised Administrative Circular No. 1-95, which took effect on 01 June 1995.

We do not find merit [in] the petition.

Anent the first assignment of error, a reading of the records would reveal that petitioner raises for the first
time the alleged failure of the Islamic Bank [AIIBP] to promulgate rules of procedure governing the
adjudication and disposition of administrative cases involving its personnel. It is a rule that issues not properly
brought and ventilated below may not be raised for the first time on appeal, save in exceptional circumstances
(Casolita, Sr. v. Court of Appeals, 275 SCRA 257) none of which, however, obtain in this case. Granting
arguendo that the issue is of such exceptional character that the Court may take cognizance of the same, still,
it must fail. Section 26 of Republic Act No. 6848 (1990) provides:

Section 26. Powers of the Board. The Board of Directors shall have the broadest powers to manage the Islamic
Bank, x x x The Board shall adopt policy guidelines necessary to carry out effectively the provisions of this
Charter as well as internal rules and regulations necessary for the conduct of its Islamic banking business and
all matters related to personnel organization, office functions and salary administration. (Italics ours)
On the other hand, Item No. 2 of Executive Order No. 26 (1992) entitled Prescribing Procedure and Sanctions
to Ensure Speedy Disposition of Administrative Cases directs, all administrative agencies to adopt and include
in their respective Rules of Procedure provisions designed to abbreviate administrative proceedings.

The above two (2) provisions relied upon by petitioner does not require the Islamic Bank [AIIBP] to
promulgate rules of procedure before administrative discipline may be imposed upon its employees. The
internal rules of procedures ordained to be adopted by the Board refers to that necessary for the conduct of its
Islamic banking business and all matters related to personnel organization, office functions and salary
administration. On the contrary, Section 26 of RA 6848 gives the Board of Directors of the Islamic Bank the
broadest powers to manage the Islamic Bank. This grant of broad powers would be an idle ceremony if it
would be powerless to discipline its employees.

The second assignment of error must likewise fail. The issue is raised for the first time via this petition for
certiorari. Petitioner submitted himself to the jurisdiction of the CSC. Although he could have raised the alleged
lack of jurisdiction in his Motion for Reconsideration of Resolution No. 94-4483 of the CSC, he did not do so.
By filing the Motion for Reconsideration, he is estopped from denying the CSCs jurisdiction over him, as it is
settled rule that a party who asks for an affirmative relief cannot later on impugn the action of the tribunal as
without jurisdiction after an adverse result was meted to him. Although jurisdiction over the subject matter of
a case may be objected to at any stage of the proceedings even on appeal, this particular rule, however,
means that jurisdictional issues in a case can be raised only during the proceedings in said case and during the
appeal of said case (Aragon v. Court of Appeals, 270 SCRA 603). The case at bar is a petition [for] certiorari
and not an appeal.

But even on the merits the argument must falter. Item No. 1 of CSC Resolution No. 93-2387 dated 29 June
1993, provides:

Decisions in administrative cases involving officials and employees of the civil service appealable to the
Commission pursuant to Section 47 of Book V of the Code (i.e., Administrative Code of 1987) including
personnel actions such as contested appointments shall now be appealed directly to the Commission and not
to the MSPB.

In Rubenecia v. Civil Service Commission, 244 SCRA 640, 651, it was categorically held:

. . . The functions of the MSPB relating to the determination of administrative disciplinary cases were, in other
words, re-allocated to the Commission itself.

Be that as it may, (i)t is hornbook doctrine that in order `(t)o ascertain whether a court (in this case,
administrative agency) has jurisdiction or not, the provisions of the law should be inquired into. Furthermore,
`the jurisdiction of the court must appear clearly from the statute law or it will not be held to exist.(Azarcon v.
Sandiganbayan, 268 SCRA 747, 757) From the provision of law abovecited, the Civil Service Commission
clearly has jurisdiction over the Administrative Case against petitioner.

Anent the third assignment of error, we likewise do not find merit in petitioners proposition that he should not
be liable, as in the first place, he was not qualified to perform the functions of appraiser/investigator because
he lacked the necessary training and expertise, and therefore, should not have been found dishonest by the
Board of Directors of Islamic Bank [AIIBP] and the CSC. Petitioner himself admits that the position of
appraiser/inspector is one of the most serious [and] sensitive job in the banking operations. He should have
been aware that accepting such a designation, he is obliged to perform the task at hand by the exercise of
more than ordinary prudence. As appraiser/investigator, he is expected, among others, to check the
authenticity of the documents presented by the borrower by comparing them with the originals on file with the
proper government office. He should have made it sure that the technical descriptions in the location plan on
file with the Bureau of Lands of Marikina, jibe with that indicated in the TCT of the collateral offered by
CAMEC, and that the mortgage in favor of the Islamic Bank was duly annotated at the back of the copy of the
TCT kept by the Register of Deeds of Marikina. This, petitioner failed to do, for which he must be held liable.
That he did not profit from his false report is of no moment. Neither the fact that it was not deliberate or
willful, detracts from the nature of the act as dishonest. What is apparent is he stated something to be a fact,
when he really was not sure that it was so.

WHEREFORE, above premises considered, the instant Petition is DISMISSED, and the assailed Resolutions of
the Civil Service Commission are hereby AFFIRMED.

On 24 March 1999, Sawadjaans counsel notified the court a quo of his change of address,[11] but apparently
neglected to notify his client of this fact. Thus, on 23 July 1999, Sawadjaan, by himself, filed a Motion for New
Trial[12] in the Court of Appeals based on the following grounds: fraud, accident, mistake or excusable
negligence and newly discovered evidence. He claimed that he had recently discovered that at the time his
employment was terminated, the AIIBP had not yet adopted its corporate by-laws. He attached a
Certification[13] by the Securities and Exchange Commission (SEC) that it was only on 27 May 1992 that the
AIIBP submitted its draft by-laws to the SEC, and that its registration was being held in abeyance pending
certain corrections being made thereon. Sawadjaan argued that since the AIIBP failed to file its by-laws within
60 days from the passage of Rep. Act No. 6848, as required by Sec. 51 of the said law, the bank and its
stockholders had already forfeited its franchise or charter, including its license to exist and operate as a
corporation,[14] and thus no longer have the legal standing and personality to initiate an administrative case.

Sawadjaans counsel subsequently adopted his motion, but requested that it be treated as a motion for
reconsideration.[15] This motion was denied by the court a quo in its Resolution of 15 December 1999.[16]

Still disheartened, Sawadjaan filed the present petition for certiorari under Rule 65 of the Rules of Court
challenging the above Decision and Resolution of the Court of Appeals on the ground that the court a quo
erred: i) in ignoring the facts and evidences that the alleged Islamic Bank has no valid by-laws; ii) in ignoring
the facts and evidences that the Islamic Bank lost its juridical personality as a corporation on 16 April 1990; iii)
in ignoring the facts and evidences that the alleged Islamic Bank and its alleged Board of Directors have no
jurisdiction to act in the manner they did in the absence of a valid by-laws; iv) in not correcting the acts of the
Civil Service Commission who erroneously rendered the assailed Resolutions No. 94-4483 and No. 95-2754 as
a result of fraud, falsification and/or misrepresentations committed by Farouk A. Carpizo and his group,
including Roberto F. de Ocampo; v) in affirming an unconscionably harsh and/or excessive penalty; and vi) in
failing to consider newly discovered evidence and reverse its decision accordingly.

Subsequently, petitioner Sawadjaan filed an Ex-parte Urgent Motion for Additional Extension of Time to File a
Reply (to the Comments of Respondent Al-Amanah Investment Bank of the Philippines),[17] Reply (to
Respondents Consolidated Comment,)[18] and Reply (to the Alleged Comments of Respondent Al-Amanah
Islamic Bank of the Philippines).[19] On 13 October 2000, he informed this Court that he had terminated his
lawyers services, and, by himself, prepared and filed the following: 1) Motion for New Trial;[20] 2) Motion to
Declare Respondents in Default and/or Having Waived their Rights to Interpose Objection to Petitioners Motion
for New Trial;[21] 3) Ex-Parte Urgent Motions to Punish Attorneys Amado D. Valdez, Elpidio J. Vega, Alda G.
Reyes, Dominador R. Isidoro, Jr., and Odilon A. Diaz for Being in Contempt of Court & to Inhibit them from
Appearing in this Case Until they Can Present Valid Evidence of Legal Authority;[22] 4) Opposition/Reply (to
Respondent AIIBPs Alleged Comment);[23] 5) Ex-Parte Urgent Motion to Punish Atty. Reynaldo A. Pineda for
Contempt of Court and the Issuance of a Commitment Order/Warrant for His Arrest;[24] 6) Reply/Opposition
(To the Formal Notice of Withdrawal of Undersigned Counsel as Legal Counsel for the Respondent Islamic
Bank with Opposition to Petitioners Motion to Punish Undersigned Counsel for Contempt of Court for the
Issuance of a Warrant of Arrest);[25] 7) Memorandum for Petitioner;[26] 8) Opposition to SolGens Motion for
Clarification with Motion for Default and/or Waiver of Respondents to File their Memorandum;[27] 9) Motion
for Contempt of Court and Inhibition/Disqualification with Opposition to OGCCs Motion for Extension of Time
to File Memorandum;[28] 10) Motion for Enforcement (In Defense of the Rule of Law);[29] 11) Motion and
Opposition (Motion to Punish OGCCs Attorneys Amado D. Valdez, Efren B. Gonzales, Alda G. Reyes, Odilon A.
Diaz and Dominador R. Isidoro, Jr., for Contempt of Court and the Issuance of a Warrant for their Arrest; and
Opposition to their Alleged Manifestation and Motion Dated February 5, 2002);[30] 12) Motion for
Reconsideration of Item (a) of Resolution dated 5 February 2002 with Supplemental Motion for Contempt of
Court;[31] 13) Motion for Reconsideration of Portion of Resolution Dated 12 March 2002;[32] 14) Ex-Parte
Urgent Motion for Extension of Time to File Reply Memorandum (To: CSC and AIIBPs Memorandum);[33] 15)
Reply Memorandum (To: CSCs Memorandum) With Ex-Parte Urgent Motion for Additional Extension of time to
File Reply Memorandum (To: AIIBPs Memorandum);[34] and 16) Reply Memorandum (To: OGCCs
Memorandum for Respondent AIIBP).[35]

Petitioners efforts are unavailing, and we deny his petition for its procedural and substantive flaws.

The general rule is that the remedy to obtain reversal or modification of the judgment on the merits is appeal.
This is true even if the error, or one of the errors, ascribed to the court rendering the judgment is its lack of
jurisdiction over the subject matter, or the exercise of power in excess thereof, or grave abuse of discretion in
the findings of fact or of law set out in the decision.[36]

The records show that petitioners counsel received the Resolution of the Court of Appeals denying his motion
for reconsideration on 27 December 1999. The fifteen day reglamentary period to appeal under Rule 45 of the
Rules of Court therefore lapsed on 11 January 2000. On 23 February 2000, over a month after receipt of the
resolution denying his motion for reconsideration, the petitioner filed his petition for certiorari under Rule 65.

It is settled that a special civil action for certiorari will not lie as a substitute for the lost remedy of appeal,[37]
and though there are instances[38] where the extraordinary remedy of certiorari may be resorted to despite
the availability of an appeal,[39] we find no special reasons for making out an exception in this case.

Even if we were to overlook this fact in the broader interests of justice and treat this as a special civil action
for certiorari under Rule 65,[40] the petition would nevertheless be dismissed for failure of the petitioner to
show grave abuse of discretion. Petitioners recurrent argument, tenuous at its very best, is premised on the
fact that since respondent AIIBP failed to file its by-laws within the designated 60 days from the effectivity of
Rep. Act No. 6848, all proceedings initiated by AIIBP and all actions resulting therefrom are a patent nullity.
Or, in his words, the AIIBP and its officers and Board of Directors,

. . . [H]ave no legal authority nor jurisdiction to manage much less operate the Islamic Bank, file
administrative charges and investigate petitioner in the manner they did and allegedly passed Board
Resolution No. 2309 on December 13, 1993 which is null and void for lack of an (sic) authorized and valid by-
laws. The CIVIL SERVICE COMMISSION was therefore affirming, erroneously, a null and void Resolution No.
2309 dated December 13, 1993 of the Board of Directors of Al-Amanah Islamic Investment Bank of the
Philippines in CSC Resolution No. 94-4483 dated August 11, 1994. A motion for reconsideration thereof was
denied by the CSC in its Resolution No. 95-2754 dated April 11, 1995. Both acts/resolutions of the CSC are
erroneous, resulting from fraud, falsifications and misrepresentations of the alleged Chairman and CEO
Roberto F. de Ocampo and the alleged Director Farouk A. Carpizo and his group at the alleged Islamic
Bank.[41]

Nowhere in petitioners voluminous pleadings is there a showing that the court a quo committed grave abuse
of discretion amounting to lack or excess of jurisdiction reversible by a petition for certiorari. Petitioner already
raised the question of AIIBPs corporate existence and lack of jurisdiction in his Motion for New Trial/Motion for
Reconsideration of 27 May 1997 and was denied by the Court of Appeals. Despite the volume of pleadings he
has submitted thus far, he has added nothing substantial to his arguments.

The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business, has
shareholders, corporate officers, a board of directors, assets, and personnel. It is, in fact, here represented by
the Office of the Government Corporate Counsel, the principal law office of government-owned corporations,
one of which is respondent bank.[42] At the very least, by its failure to submit its by-laws on time, the AIIBP
may be considered a de facto corporation[43] whose right to exercise corporate powers may not be inquired
into collaterally in any private suit to which such corporations may be a party.[44]
Moreover, a corporation which has failed to file its by-laws within the prescribed period does not ipso facto
lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of Registration of
Corporations,[45] details the procedures and remedies that may be availed of before an order of revocation
can be issued. There is no showing that such a procedure has been initiated in this case.

In any case, petitioners argument is irrelevant because this case is not a corporate controversy, but a labor
dispute; and it is an employers basic right to freely select or discharge its employees, if only as a measure of
self-protection against acts inimical to its interest.[46] Regardless of whether AIIBP is a corporation, a
partnership, a sole proprietorship, or a sari-sari store, it is an undisputed fact that AIIBP is the petitioners
employer. AIIBP chose to retain his services during its reorganization, controlled the means and methods by
which his work was to be performed, paid his wages, and, eventually, terminated his services.[47]

And though he has had ample opportunity to do so, the petitioner has not alleged that he is anything other
than an employee of AIIBP. He has neither claimed, nor shown, that he is a stockholder or an officer of the
corporation. Having accepted employment from AIIBP, and rendered his services to the said bank, received his
salary, and accepted the promotion given him, it is now too late in the day for petitioner to question its
existence and its power to terminate his services. One who assumes an obligation to an ostensible corporation
as such, cannot resist performance thereof on the ground that there was in fact no corporation.[48]

Even if we were to consider the facts behind petitioner Sawadjaans dismissal from service, we would be hard
pressed to find error in the decision of the AIIBP.

As appraiser/investigator, the petitioner was expected to conduct an ocular inspection of the properties offered
by CAMEC as collaterals and check the copies of the certificates of title against those on file with the Registry
of Deeds. Not only did he fail to conduct these routine checks, but he also deliberately misrepresented in his
appraisal report that after reviewing the documents and conducting a site inspection, he found the CAMEC
loan application to be in order. Despite the number of pleadings he has filed, he has failed to offer an
alternative explanation for his actions.

When he was informed of the charges against him and directed to appear and present his side on the matter,
the petitioner sent instead a memorandum questioning the fairness and impartiality of the members of the
investigating committee and refusing to recognize their jurisdiction over him. Nevertheless, the investigating
committee rescheduled the hearing to give the petitioner another chance, but he still refused to appear before
it.

Thereafter, witnesses were presented, and a decision was rendered finding him guilty of dishonesty and
dismissing him from service. He sought a reconsideration of this decision and the same committee whose
impartiality he questioned reduced their recommended penalty to suspension for six months and one day. The
board of directors, however, opted to dismiss him from service.

On appeal to the CSC, the Commission found that Sawadjaans failure to perform his official duties greatly
prejudiced the AIIBP, for which he should be held accountable. It held that:

. . . (I)t is crystal clear that respondent SAPPARI SAWADJAAN was remiss in the performance of his duties as
appraiser/inspector. Had respondent performed his duties as appraiser/inspector, he could have easily noticed
that the property located at Balintawak, Caloocan City covered by TCT No. C-52576 and which is one of the
properties offered as collateral by CAMEC is encumbered to Divina Pablico. Had respondent reflected such fact
in his appraisal/inspection report on said property the ISLAMIC BANK would not have approved CAMECs loan
of P500,000.00 in 1987 and CAMECs P5 Million loan in 1988, respondent knowing fully well the Banks policy of
not accepting encumbered properties as collateral.

Respondent SAWADJAANs reprehensible act is further aggravated when he failed to check and verify from the
Registry of Deeds of Marikina the authenticity of the property located at Mayamot, Antipolo, Rizal covered by
TCT No. N-130671 and which is one of the properties offered as collateral by CAMEC for its P5 Million loan in
1988. If he only visited and verified with the Register of Deeds of Marikina the authenticity of TCT No. N-
130671 he could have easily discovered that TCT No. N-130671 is fake and the property described therein
non-existent.

...

This notwithstanding, respondent cannot escape liability. As adverted to earlier, his failure to perform his
official duties resulted to the prejudice and substantial damage to the ISLAMIC BANK for which he should be
held liable for the administrative offense of CONDUCT PREJUDICIAL TO THE BEST INTEREST OF THE
SERVICE.[49]

From the foregoing, we find that the CSC and the court a quo committed no grave abuse of discretion when
they sustained Sawadjaans dismissal from service. Grave abuse of discretion implies such capricious and
whimsical exercise of judgment as equivalent to lack of jurisdiction, or, in other words, where the power is
exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so
patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty
enjoined or to act at all in contemplation of law.[50] The records show that the respondents did none of
these; they acted in accordance with the law.

WHEREFORE, the petition is DISMISSED. The Decision of the Court of Appeals of 30 March 1999 affirming
Resolutions No. 94-4483 and No. 95-2754 of the Civil Service Commission, and its Resolution of 15 December
1999 are hereby AFFIRMED. Costs against the petitioner.

SO ORDERED.