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G.R. No. 131214 July 27, 2000

BA SAVINGS BANK, petitioner,

vs.ROGER T. SIA, TACIANA U. SIA and JOHN DOE, respondents.

D E C I S I O N

PANGANIBAN, J .:

The certificate of non-forum shopping required by Supreme Court Circular 28-91 may besigned, for and on behalf of a corporation, by a specifically authorized lawyer who has personalknowledge of the facts required to be disclosed in such document. Unlike natural persons,corporations may perform physical actions only through properly delegated individuals; namely,its officers and/or agents.

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailingthe August 6, 1997 Resolution

1of the Court of Appeals (CA) in CA-GR SP No. 43209.

2

Also challenged by petitioner is the October 24, 1997 CA Resolution3denying its Motion for

Reconsideration.

The Facts

On August 6, 1997, the Court of Appeals issued a Resolution denying due course to a Petitionfor Certiorari filed by BA Savings Bank, on the ground that "the Certification on anti-forumshopping incorporated in the petition was signed not by the duly authorized representative ofthe petitioner, as required under Supreme Court Circular No. 28-91, but by its counsel, incontravention of said circular x x x."

A Motion for Reconsideration was subsequently filed by the petitioner, attached to which was aBA Savings Bank Corporate Secretarys Certificate,

4dated August 14, 1997. The Certificate

showed that the petitioners Board of Directors approved a Resolution on May 21, 1996,authorizing the petitioners lawyers to represent it in any action or proceeding before any court,

tribunal or agency; and to sign, execute and deliver the Certificate of Non-forum Shopping,among others.

On October 24, 1997, the Motion for Reconsideration was denied by the Court of Appeals onthe ground that Supreme Court Revised Circular No. 28-91 "requires that it is the petitioner, notthe counsel, who must certify under oath to all of the facts and undertakings required therein."

Hence, this appeal.5

Issue

In its Memorandum, petitioner submits the following issues for the consideration of the C

"I Whether or not petitioner-corporations lawyers are authorized to execute and the certificate of non-forum shopping. x x x

"II Whether or not the certification of petitioners authorized lawyers will bind thecorporation.

"III Whether or not the certification by petitioner corporations lawyers is in compwith the requirements on non-forum shopping."

6

Simply stated, the main issue is whether Supreme Court Revised Circular No. 28 -91 allocorporation to authorize its counsel to execute a certificate of non-forum shopping for anits behalf.

The Courts Ruling

The Petition is meritorious.

Main Issue:

Authority of Counsel

A corporation, such as the petitioner, has no powers except those expressly conferred onthe Corporation Code and those that are implied by or are incidental to its existence. In tcorporation exercises said powers through its board of directors and/or its duly authorizeofficers and agents. Physical acts, like the signing of documents, can be performed only natural persons duly authorized for the purpose by corporate bylaws or by a specific act board of directors. "All acts within the powers of a corporation may be performed by agenits selection; and, except so far as limitations or restrictions which may be imposed by spcharter, by-law, or statutory provisions, the same general principles of law which govern relation of agency for a natural person govern the officer or agent of a corporation, of wha

status or rank, in respect to his power to act for the corporation; and agents once appoinmembers acting in their stead, are subject to the same rules, liabilities and incapacities aagents of individuals and private persons."

7

In the present case, the corporations board of directors issued a Resolution specificallyauthorizing its lawyers "to act as their agents in any action or proceeding before the Supr
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Court, the Court of Appeals, or any other tribunal or agency[;] and to sign, execute and deliverin connection therewith the necessary pleadings, motions, verification, affidavit of merit,certificate of non-forum shopping and other instruments necessary for such action andproceeding." The Resolution was sufficient to vest such persons with the authority to bind thecorporation and was specific enough as to the acts they were empowered to do.

In the case of natural persons, Circular 28-91 requires the parties themselves to sign thecertificate of non-forum shopping. However, such requirement cannot be imposed on artificialpersons, like corporations, for the simple reason that they cannot personally do the task

themselves. As already stated, corporations act only through their officers and duly authorizedagents. In fact, physical actions, like the signing and the delivery of documents, may beperformed, on behalf of the corporate entity, only by specifically authorized individuals.

It is noteworthy that the Circular does not require corporate officers to sign thecertificate.1wphi1 More important, there is no prohibition against authorizing agents to do so.

In fact, not only was BA Savings Bank authorized to name an agent to sign the certificate; italso exercised its appointing authority reasonably well. For who else knows of thecircumstances required in the Certificate but its own retained counsel. Its regular officers, likeits board chairman and president, may not even know the details required therein.

Consistent with this rationale, the Court en banc in Robern Development Corporation v. JudgeJesus Quitain

8has allowed even an acting regional counsel of the National Power Corporation

to sign, among others, the certificate of non-forum shopping required by Circular 28-91. TheCourt held that the counsel was "in the best position to verify the truthfulness and thecorrectness of the allegations in the Complaint" and "to know and to certify if an action x x xhad already been filed and pending with the courts."

9

Circular 28-91 was prescribed by the Supreme Court to prohibit and penalize the evils of forumshopping. We see no circumvention of this rationale if the certificate was signed by thecorporations specifically authorized counsel, who had personal knowledge of the mattersrequired in the Circular. In Bernardo v. NLRC,

10we explained that a literal interpretation of the

Circular should be avoided if doing so would subvert its very rationale. Said the Court:

"x x x. Indeed, while the requirement as to certificate of non-forum shopping is mandatory,nonetheless the requirements must not be interpreted too literally and thus defeat the objectiveof preventing the undesirable practice of forum-shopping."

Finally, we stress that technical rules of procedure should be used to promote, not frustrate,justice.

11While the swift unclogging of court dockets is a laudable objective, the granting of

substantial justice is an even more urgent ideal.

WHEREFORE, the Petition is GRANTED and the appealed Resolution is REVERSED anSET ASIDE. The case is REMANDED to the Court of Appeals, which is directed to continthe proceedings in CA-GR SP No. 43209 with all deliberate speed. No costs.

SO ORDERED.

G.R. No. L-25400 January 14, 1927

THE PHILIPPINE NATIONAL BANK, plaintiff-appellee,vs.THE PHILIPPINE VEGETABLE OIL CO., INC., defendant-appellee.PHIL. C. WHITAKER, intevenor-appellant.

Jose Abad Santos for plaintiff-appellee.No appearance for defendant-appellee.Ross, Lawrence & Selph, Thomas Cary Welch and Paredes, Buencamino & Yulo for app

MALCOLM, J .:

This appeal involves the legal right of the Philippine National Bank to obtain a judgment a

the Philippine Vegetable Oil Co., Inc., for P15,812,454, and to foreclose a mortgage on tproperty of the Philippine Vegetable Oil Co., Inc., for P17,000,000, and the legal right of C. Whitaker as intervenor to obtain a judgment declaring the mortgage which the PhilippiNational Bank seeks to foreclose to be without force and effect, requiring an accounting fthe Philippine National Bank of the sales of the property and assets of the Philippine VegOil Co., Inc., and ordering the Philippine Vegetable Oil Co., Inc., and the Philippine NatioBank to pay him the sum of P4,424,418.37.

In 1920, the Philippine Vegetable Oil Co., Inc., which will hereafter be called the VegetabCompany, found itself in financial straits. It was in debt to the extent of approximatelyP30,000,000. The Philippine National Bank was the largest creditor. The Vegetable OilCompany owed the bank P17,000,000. Over P13,000,000 were due the other creditors. TPhilippine National Bank was secured principally by a real and chattel mortgage forP3,500,000. On January 10, 1921, the Vegetable Oil Company executed another chattel

mortgage in favor of the bank on its vessels Tankerville and H. S. Everettto guarantee thpayment of sums not to exceed P4,000,000.

This was the precarious situation which in the latter part of 1920 and the early part of 192confronted the Vegetable Oil Company, its General Manager Phil. C. Whitaker, the PhilipNational Bank, and the various creditors of the Vegetable Oil Company. Bankruptcy was
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imminent. On January 1, 1921, Mr. Whitaker made his first offer to pledge certain privateproperties to secure the creditors of the Oil Company (Intervenor's Exhibit 1). In February ofthe same year, a creditors' meeting was held. At the instance of Mr. Whitaker but inspired tosuch action by the bank, a receiver for the Vegetable Oil Company was appointed by the Courtof First Instance of Manila on March 11, 1921. (Case No. 19644, Court of First Instance ofManila.)

During the period when a receiver was in control of the property of the Vegetable Oil Company,a number of events occurred. The first was the agreement perfected by the Vegetable Oil

Company, Mr. Whitaker, and some of the creditors of the Oil Company on June 27, 1921, thecreditors transferred to Mr. Whitaker a part of their claims against the Vegetable Oil Companyin consideration of the execution by Mr. Whitaker of a trust deed of his property. The PhilippineNational Bank was not a direct party to the agreement although the officials of the bank had fullknowledge of its accomplishment and the general manager of the bank placed his O. K. at theend of the final draft. (Intervenor's Exhibit 10.) The next move of the bank was to obtain a newmortgage from the Vegetable Oil Company on February 20, 1922. Shortly thereafter, onFebruary 28, 1922, the receivership for the Vegetable Oil Company was terminated. The banksuspended the operation of the Vegetable Oil Company in May, 1922, and definitely closed theOil Company's plant on August 14, 1922.

Out of the foregoing facts which are not in dispute and others which are in dispute, arose theaction of the Philippine National Bank of May 7, 1924, to foreclose its mortgage on the propertyof the Vegetable Oil Company. The Vegetable Oil Company on its part countered with certain

special defenses which need not be described and with the interposition of a counterclaim forP6,000,000. Phil. C. Whitaker presented a complaint in intervention. The judgment renderedwas in favor of the plaintiff and against the defendant which was ordered to pay the sum ofP15,787,454.54, representing the liquidation between the plaintiff and the defendant, with legalinterest beginning with May 8, 1923, together with P25,000 attorney's fees, and costs, with theaddition of the usual order to foreclose the mortgage. The counterclaim of the defendant andthe complaint in intervention were dismissed.

The trial judge in his decision announced and answered three questions, viz: (1) Whether theexecution of the mortgage, Exhibit A of the plaintiff, was the free act of the defendant; (2)whether this mortgage was null and without force because at the time of its execution all theproperty of the defendant was under the control of a receiver appointed by the court andneither the approval of the receiver nor of the court had been obtained; and (3) whether theplaintiff had failed to comply with the contract, that it was alleged to have celebrated with thedefendant and the intervenor, that it would furnish funds to the defendant so that it couldcontinue operating its factory. Much the same analysis of the issues is made by the intervenoras appellant. The first error, in relation with the sixth error of the assignment of errors, concernsthe holding that the mortgage, Exhibit A, has been legally and validly executed by thePhilippine Vegetable Oil Co., Inc. The second, third, fourth, and fifth errors, in relation with thesixth error of the assignment of errors, concern the holding that the Philippine National Bankhad not bound itself to finance the operation of the Philippine Vegetable Oil Co., Inc. In this

later connection, the main point at issue between the Philippine National Bank and Phil. CWhitaker as disclosed by the amended answer of the Philippine National Bank to the comin intervention, and the opening sentence of the memorandum for intervenor-appellant filthis court, is whether the Philippine National Bank ever made any contract binding the baprovide the necessary operating capital to the Philippine Vegetable Oil Co., Inc., and wheMr. Whitaker has established his right to recover damages from the bank by reason of thlatter's alleged refusal to finance the operation of the Philippine Vegetable Oil Co., Inc. Itresults, therefore, in the appeal dividing into two main subjects, the first, the validity of thePhilippine National Bank-Philippine Vegetable Oil Co., Inc., mortgage of February 20, 19and second, the alleged agreement of the Philippine Vegetable Oil Co., Inc. These two towe propose to discuss separately and in order. Parenthetically, it may be said that our mapproach will be to sweep aside technicalities and to resolve in a broad and liberal mannvarious perplexing questions which are before the court.

I. Validity of the Philippine National Bank Philippine Vegetable Oil Co., Inc.,mortgage of February 10, 1922.

At the outset, the appellee challenges the right of Phil. C. Whitaker as intervenor to ask tmortgage contract executed by the Vegetable Oil Company be declared null and void. Apis right as to the premises. The Vegetable Oil Company is the defendant. The corporationot appealed. At the same time, it is evident that Phil. C. Whitaker was one of the largestindividual stockholders of the Vegetable Oil Company, and was until the inauguration of treceivership, exercising control over and dictating the policy of that company. Out of twe

eight thousand shares of the Vegetable Oil Company, Mr. Whitaker was the owner of 5,8fully paid shares of the par value of P100 each. He it was who asked for the appointmentreceiver. He it was who was the leading figure in the negotiations between the Veg etableCompany, the Philippine National Bank, and the other creditors. He it was who pledged hown property to the extent of over P4,000,000 in an endeavor to assist in the rehabilitatiothe Vegetable Oil Company. He is in juriously affected by the mortgage. In truth, Mr. Whiis more vitally interested in the outcome of this case than is the Vegetable Oil Company.Conceivably if the mortgage had been the f ree act of the Vegetable Oil Company, it couldbe heard to allege its own fraud, and only a creditor could take advantage of the fraud tointervene to avoid the conveyance.

We find no merit in appellee's objection and pass on to consider the main question on itsmerits.

The mortgage, Exhibit A, was executed on February 20, 1922, by "Philippine Vegetable OCo., Inc., By E. G. Abry, Secretary-Treasurer" "Philippine National Bank By E. W. WilsonGeneral Manager." E. G. Abry, according to his testimony, was employed as secretary-treasurer of the Vegetable Oil Company after a conference with Mr. W ilson and continuethis position during the period when the Vegetable Oil Company was under the control ei


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a receiver or of the bank. The other signature to the instrument was that of E. W. Wilson,General Manager of the Philippine National Bank.

At this time, E. W. Wilson and Miguel Cuaderno, a Director of the Philippine National Bank,were serving as Directors of the Vegetable Oil Company. Messrs. Wilson had on July 26, 1921,in a letter to Mr. Whitaker relative to the reorganization of the Vegetable Oil Company,suggested the resignation of two members of the Board of Directors so that the bank might"have rather a close working relationship with the Philippine Vegetable Oil Co." (Intervenor'sExhibit 4). The resolution of the Board of Directors of September 2, 1921, naming Messrs.

Wilson and Cuaderno "to represent the Philippine National Bank in the Board of Directors ofthe Philippine Vegetable Oil Co. as members thereof" did so with the understanding "thatneither one of them has any interest other than that of the bank's in the Philippine VegetableOil Co., and that in accepting these directorships they are doing it solely for the bank."According to the testimony of Major Randall, Mr. Wilson became President of the Vegetable OilCompany on September 12, 1921.

It has been said that the mortgage was executed on February 20, 1922. That is undeniable.The allegation of the plaintiff's complaint is "That the defendant, on the 20th day of February,1922, duly executed to the plaintiff a mortgage." The mortgage in question recites: "Thismortgage, executed at the City of Manila, Philippine Islands, this twentieth day of February,nineteen hundred and twenty-two." However, the mortgage was not ratified before a notarypublic until March 8, 1922, and was not recorded in the registry of property until March 21,1922.

To add one more date, it will be recalled that the receivership ended on February 28, 1922. Inother words, as partially interpretative of the situation, the mortgage was executed by thePhilippine National Bank, through its General Manager, and another corporation before thetermination of the receivership of the said corporation, but was not acknowledged or recordeduntil after the termination of the receivership.

In the complaint of Phil. C. Whitaker filed in the Court of First Instance of Manila in which it wasprayed that a receiver be appointed to take charge of the Philippine Vegetable Oil Co., Inc., itwas alleged "that the largest individual creditor of said corporation is the Philippine NationalBank, the indebtedness to which amounts to approximately P16,000,000, a portion of whichindebtedness is secured by mortgage on the major part of the assets of the corporation." Theorder of the court appointing a receiver contained a similar recital. The Philippine NationalBank held the mortgage mentioned, and possibly two others not mentioned, when the

receivership proceedings were initiated.

It must be evident to all that the Philippine National Bank could legally secure no new mortgageby the accomplishment of documents between its officials and the officials of the Vegetable OilCompany while the property of the latter company was in custodia legis. The Vegetable OilCompany was then inhibited absolutely from giving a mortgage on its property. The receiver

was not a party to the mortgage. The court had not authorized the receiver to consent to execution of a new mortgage. Whether the court could have done so is doubtful, but thatwould have thus consented is hardly debatable, considering that it would desire to protecrights of all the creditors and not the rights of one particular creditor. The legal conclusionaxiomatic. (Code of Civil Procedure, secs. 173 et seq., Compaia General deTabaccos vs. Gauzon and Pomar [1911], 20 Phil., 261.)

To all this the appellee as well as the trial court have answered that while it is true that thdocument was executed on February 20, 1922, at a time when the properties of the mort

were under receivership, the mortgage was not acknowledged before a notary public untMarch 8, 1922, after the court had determined that the necessity for a receiver no longerexisted. But the additional fact remains that while the mortgage could not have been exewithout the dissolution of the receivership, such dissolution was apparently secured throurepresentations made to the court by counsel for the bank that the bank would continue tfinance the operations of the Vegetable Oil Company (See testimony of Judge Simplicio Rosario). Instead of so doing, the bank within less than two months after the mortgage wrecorded, withdrew its support from the Vegetable Oil Company, and in effect closed itsestablishment. Also it must not be forgotten that the hands of other creditors were tied puto the creditors' agreement of June 27, 1921.

To place emphasis on the outstanding facts, it must be repeated that the mortgage wasexecuted while a receiver was in charge of the Vegetable Oil Company. A mortgageaccomplished at such a time by the corporation under receivership and a creditor would bnullity. The mortgage was definitely perfected subsequent to the lifting of the receivershippursuant to implied promises that the bank would continue to operate the Vegetable OilCompany. It was then accomplished when the Philippine National Bank was a dominatininfluence in the affairs of the Vegetable Oil Company. On the one hand was the PhilippinNational Bank in person. On the other hand was the Philippine National Bank by proxy. Usuch circumstances, it would be unconscionable to allow the bank, after the hands of thecreditors were tied, virtually to appropriate to itself all the property of the Vegetable OilCompany.

Whether we consider the action taken as not expressing the free will of the Vegetable OiCompany, or as disclosing undue influence on the part of the Philippine National Bank inprocuring the mortgage, or as constituting deceit under the civil law, or whether we go stfurther and classify the facts as constructive fraud, the result is the same. The mortgage clearly voidable.

The setting aside of the mortgage of February 20, 1922, will not necessarily result in thePhilippine National Bank being left without security. It is our understanding that before thereceivership was thought of, the bank was the holder of three mortgages on the propertyVegetable Oil Company, the first dated April 11, 1919, for an uncertain amount; the seco


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dated November 18, 1920, for P3,500,000; and the third, dated January 10, 1921, forP4,000,000. These mortgages remain in effect and may be foreclosed.

Addressing ourselves directly to the first two questions discussed in the decision of the trialcourt and to the first and sixth errors assigned by the intervenor as appellant, we rule that thePhilippine National Bank-Philippine Vegetable Co., Inc., mortgage of February 20, 1922, hasnot been legally executed by the Philippine Vegetable Oil Co., Inc.

II.Alleged agreement of the Philippine National Bank to finance the Philippine

Vegetable Oil Co., Inc.

Before it need be decided if the intervenor has a right to recover damages from either theplaintiff or the defendant because of the plaintiff's refusal to finance the operations of thedefendant, it must be determined if the Philippine National Bank ever entered into any validagreement by which it bound itself to provide the necessary operating capital of the PhilippineVegetable Oil Co., Inc. The question presents both legal and factual aspects. The legal inquiryrelates to the applicability or non-applicability of the Statute of Frauds as found in section 335of our Code of Civil Procedure. The question of fact goes on the assumption that the oralevidence can be received without violating the Statute of Frauds and then, of course, comesdown to the weighing of the evidence.

The broad view is that the Statute of Frauds applies only to agreements not to be performed oneither side within a year from the making thereof. Agreements to be fully performed on one

side within the year are taken out of the operation of the statute. As intervenor's theoryproceeds on the assumption that Mr. Whitaker has entirely performed his part of theagreement, equity would argue that all evidence be admitted to prove the alleged agreement.Surely since the Statute of Frauds was enacted for the purpose of preventing frauds, it shouldnot be made the instrument to further them.

As preliminary to a presentation of the evidence, it is well to have an understanding of theapplicable law. The Charter of the Philippine National Bank, Act No. 2612, section 20, asamended by Act No. 2938, provides that "The General Manager of the Bank, shall, amongothers, have the following powers and duties: . . . (b) To make, with advice and consent of theboard of directors, all contracts on beheld of the said bank and to enter into all necessaryobligations by this Act required or permitted." Predicated on our general liberal point of view,we feel free to take into consideration the applicable law although no special defense to thiseffect was interposed by the Philippine National Bank to intervenor's complaint.

Let us now look into the evidence in detail. We may properly begin with the applicableresolutions of the Board of Directors of the Philippine National Bank.

In the minutes of the Board of Directors of the Philippine National Bank of October 4, 1921, isfound the following:

Philippine Vegetable Oil Co. On motion of Director Westerhouse, duly secondthe following resolution was adopted by the Board: Be it resolved, that the GeneManager be, and he is, hereby authorized to finance the operation of the PhilippVegetable Oil Co. under the Receivership to the extent of P500,000 to be securecopra and oil and to be further secured by P500,000 pledged by Phil. C. Whitakehis creditor's agreement.

Under date of October 28, 1921, is found the following:

The following additional loans with which to buy more copra were approved by thBoard, at the recommendation of the Oil Factory Committee. Philippine VegetabCo. F. W. Carpenter, Receiver, P. V. O., P200,000.

Under date of December 5, 1921, is found the following:

After a long discussion and careful deliberation, and on motion of DirectorWesterhouse, duly seconded by Director Seaver, the following was unanimouslyapproved by the Board: To protect the large investments of the Bank, it is the sethe Board of Directors to continue financing the operation under receivership of tPhilippine Vegetable Oil Co., the Philippine Manufacturing Co., the Cristobal Oil and the Santa Ana Oil Mills, in as modest and economical way as is consistent wconditions, the General Manager to report and secure the approval of the Board necessary credits from time to time, and that the Board also recommends that th

Committee continue studying the advisability of f inancing the operation of other oindebted to the Bank.

Other portions of the minutes of the Board of Directors disclose that the Board authorizedadvances to the Vegetable Oil Company to the extent of more than P1,000,000.

Logically, our review of the evidence should stop here. No contract entered into by the GManager of the Bank would be valid unless made with the advice and consent of its BoaDirectors. What the Board of Directors had decreed was that the Vegetable Oil Companyfinanced under the receivership to the extent of P500,000, a sum which was later increasThe Board not alone specified the amounts of the loans but cautiously added that the GeManager "report and secure the approval of the Board for necessary credits from time toThere was no indication in any action taken by the Board of Directors that it had everconsented to an agreement for practically unlimited backing of the Vegetable Oil Compan

that it had ratified any such promise made by its General Manager.

Out of consideration for the parties, however, we will go further and will examine the remevidence.


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Passing in review intervenor's exhibits, we first notice Mr. Whitaker's letter to the Hongkongand Shanghai Banking Corporation of January 1, 1921. He there confirms his undertaking toassume an obligation to pledge and mortgage specified personal holdings. The offer is made"contingent upon its acceptance by the other unsecured creditors . . . . A further condition tothe foregoing offer is that the banks parties to the proposed arrangement supply, subject to theapproval of their representatives on the Board of Directors of the P. V. O. Co., funds sufficientto enable the P. V. O. Co., to continue its operations during the full term for which my personalsecured undertaking remains in effect." The condition named related to all the banks and notthe Philippine National Bank. (Intervenor's Exhibit 1.) The trust deed by Mr. W hitaker in favor ofH. C. Stanford makes the purposes and uses among others "To secure the Philippine National

Bank against such losses as it may sustain, not exceeding a total of P500,000, on such sumsas it shall, from time to time and within three years from July 1, 1921, advance to the PhilippineVegetable Oil Company to enable the latter to resume business and continue the manufactureof vegetable oil." This recital is specific as to P500,000 and is general as to further advances,and is made in a document to which the Philippine National Bank was not a party. (Intervenor'sExhibit 2.) The creditors' agreement is of similar tenor. (Intervenor's 3.) One of the paragraphsin the preamble of the power of attorney from the Roman Catholic Archbishop of Manila to Phil.C. Whitaker mentioned that Mr. Whitaker "has also arranged with the Philippine National Bankfor the funds necessary to enable said Oil Company to resume its business and continue in themanufacture of vegetable oil." Although this proxy may have been procured at the instance ofthe Philippine National Bank, yet obviously it did not bind the officials of the bank. (Intervenor'sExhibit 5.) The letter of Mr. Wilson as General Manager of the Philippine National Bank of June8, 1921, addressed to Mr. Whitaker stated: "I see no good reason why you should use yourproperty to secure unsecured obligations, and not provide for the operation of the plant."

Merely a friendly warning. (Intervenor's Exhibit 8.) Mr. Wilson's letter to Mr. Whitaker to enabledthe Bank to put its securities in first-class shape. In order to do this, however, it was necessaryfor it to furnish certain money for operating the plant, and an additional mortgage wasexecuted. . . . It is my judgment that it was good business for the Philippine National Bank tooperate the plant as long as it had the P500,000 guarantee. However, the bank put into theundertaking a great deal more money than it originally intended. Then, too, the guarantee wasnot as good as we thought, because the first lien on the property was not being paid off asrapidly as we thought it would be." Here was merely an expression of gratification regarding theadditional mortgage and emphasis on the P500,000 guarantee. (Intervenor's Exhibit 7.) Wediscover nothing further of interest in the exhibits.

The only oral testimony in point is that given by A. D. Gibbs and Phil. C. Whitaker. Mr. Gibbs,testifying as to a meeting of the creditors of the Vegetable Oil Company, said: "Mr. Wilsonstated in substance that if the negotiations which were then pending between Mr. Whitaker and

the other creditors, whereby the other creditors were to refrain from throwing the P. V. O. Co.into insolvency or from bringing action against it, could be carried out, that his bank wouldfinance the P. V. O. Co., and keep it in operation." Mr. Whitaker, testifying as to the samemeeting, said: Mr. Wilson stated that he had looked into the affairs of the P. V. O. as far as theshort time he had permitted, and that the P. V. O. had evidently made good money in the pastand if allowed to resume would make good again in the future, that the P. N. B., as the largest

creditor, contemplated financing a resumption of the company's operations if the compancould be kept out of insolvency." Giving to this testimony its broadest effect, we still discodefinite agreement binding on the bank but only a general intimation proffered by the GeManager of the Bank in conference that his bank contemplated financing the operations oVegetable Oil Company.

That is all the evidence, documentary and oral, at all pertinent to the issue. We are clear taking it entirely into consideration it discloses no binding promise, tacit or express, madethe Philippine National Bank to continue indefinitely its backing of the Vegetable Oil Com

Mr. Whitaker was in no way personally responsible for any part of the obligations of theVegetable Oil Company. Nevertheless, he signed the creditors' agreement. That was apraiseworthy act. We sympathize with him in the situation in which he finds himself. Thevarious creditors have a large amount of his property. The Philippine National Bank has tover the assets of the Vegetable Oil Company. The latter company has ceased operationWhitaker has not made himself the successor in interest of the Vegetable Oil Company acannot recover from it in these proceedings. But sympathy cannot be transmuted into legauthoritativeness. If Mr. Whitaker has any other remedy, that is for him to determine. Hercannot give him redress for he has not made out his case except insofar as he has beensuccessful in overturning the last mortgage of the Philippine National Bank on the properthe Vegetable Oil Company.

III. Result

We announce the following conclusions:

(1) Plaintiff is entitled to a money judgment against the defendant for P14,183,67with legal interest thereon beginning with May 8, 1924. Exhibit C 1 shows thatMay 6, 1924, when Exhibit B 1 was formulated, two further payments were mathe promissory note for P16,869,975.59, which further reduced the principal fromP15,760,312.85 as totaled in Exhibit B 1 to P14,183,679.37 as evidenced by C 1. As interest has already been charged up to May 7, 1924, legal interest shbegin to run from that date instead of from May 8, 1923, as fixed by the trial cour

(2) The Philippine National Bank-Philippine Vegetable Oil Co., mortgage of Febr20, 1922, has not been legally executed by the Philippine Vegetable Oil Co., Inc.consequently cannot be given effect. But the prior mortgages held by the Philipp

National Bank of April 11, 1919, November 18, 1920, and January 10, 1921, remforce and may be foreclosed.

(3) The Philippine National Bank will obviously have a preferred claim when the tmortgages above mentioned shall be foreclosed. The remainder of the assets ofPhilippine Vegetable Oil Co., Inc., if any, should then be applied to the payment


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rata of the unsecured claims, among them that of Mr. Whitaker and the unsecured partof the debt to the Philippine National Bank. Intervenor Whitaker is entitled to anaccounting of the proceeds of the Vegetable Oil Company's properties caused to besold by the Philippine National Bank and of the business operations of the VegetableOil Company since March 11, 1921.

(4) Intervenor Whitaker has failed to establish an agreement binding the PhilippineNational Bank to provide the necessary operating capital to the Vegetable OilCompany, and so is not entitled to recover damages from the Philippine National Bank.Nor can intervenor Whitaker recover P4,424,418.37 from the Vegetable Oil Companysince he is not the legatee of the assets of that company. The trial judge accordinglycommitted no error in dismissing intervenor's complaint.

(5) No pronouncement is made with reference to intervenor Whitaker's possible rightsin connection with the creditors' agreement since that agreement is not here inquestion and the parties thereto are not before the court.

The case will be remanded to the lower court for the ent ry of judgment and further proceedingsas herein indicated. Judgment affirmed in part and reversed in part, without special finding asto costs in either instance.

G.R. No. L-23608 March 17, 1925

SALMON, DEXTER & CO., plaintiff-appellee,vs.TIMOTEO UNSON, defendant-appellant.

Felipe Ysmael for appellant.J.W. Ferrier for appellee.

MALCOLM, J .:

The plaintiff seeks to recover of the defendant the sum of P1,000 with legal interest on asubscription for capital stock contract. The defense is that the defendant is released from his

obligation on the subscription agreement by virtue of the increase of the capital stock of theplaintiff from P250,000, the amount mentioned in the agreement, to P500,000, the amountagreed upon the stockholders prior to the defendant's signing the agreement. On this issue,judgment in the lower court was with the plaintiff.

The plaintiff is Salmon, Dexter and Company, a domestic corporation. It was organized uthe name of C.S. Salmon and Company on May 28, 1918, with a capital stock of P250,00Thereafter, pursuant to a resolution of the board of directors of the corporation of June 241920, a meeting of the stockholders was had on July 14, 1920, at which the capital stockC.S. Salmon and Company was increased to P500,000. The certificate of increase of castock from P250,000 to P500,000, and articles of incorporation, as amended, of Salmon,Dexter and Company were filed with the Mercantile Registry of the Bureau of CommerceIndustry on September 16, 1920.

On July 28, 1920, Timoteo Unson, the defendant, to follow the allegation in the third paraof the complaint, "became a subscriber of C.S. Salmon and Company, by signing anagreement in writing and delivering the same to C.S. Salmon and Company, ... the namewhich company was later changed to Salmon, Dexter and Company." Said agreement, EA, is in words and figures the following:

SUBSCRIPTION FOR CAPITAL STOCKOF

C.S. SALMON AND COMPANY

Authorized Capital P250,000 Shares P100 each

I hereby subscribe for 10 shares of the capital stock ofC.S. Salmon and Compathe par value thereof and agree to pay for the same on or before Dec. 15, 1920.

It is understood and agreed that dividends will be prorated and payable, only, frodate of actual payment of the subscription.

(Sgd.) TIMOTEO U

Iloilo, July 28, 1920P. O. Address:Timoteo Unson,Pontevedra,Capiz.

Even a casual reading of the admitted facts brings prominently to notice that the agreemaccomplished by Timoteo Unson on July 28, 1920, was for ten shares of the capital stocC.S. Salmon and Company, "authorized capital P250,000," and that two weeks before, o14, 1920, the stockholders of C.S. Salmon and company, without the acquiescence orparticipation of Unson, had authorized an increase of the capital stock of the corporation P500,000. Three questions arise: Is the contract of Unson a contract of subscription to thcapital stock of C.S. Salmon and Company, or is it a contract to purchase stock in thecorporation? Whether one or the other, is Unson released from his obligation on the


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subscription agreement on account of the increase of the capital stock of C.S. Salmon andCompany from P250,000 to P500,000? Was there present such fraud or misrepresentation aswould permit the defendant to avoid the contract?

The parties disagree as to the nature of the transaction. The appellant considers Exhibit A as asubscription, and relies on the case of Newport Cotton Mill Co. vs. Mims ( [1899], 103 Tenn.,465). (See also Katama Land Companyvs. Jernegan [1879], 126 Mass., 155.) Appellee, on theother hand, alleges that the appellant has failed to take into account the legal distinctionbetween a subscription to a corporation and a purchase from it of its shares, and reaches theconclusion on this premise that the contract in the present case one of purchase and sale only.

After incorporation, one may become a shareholder by subscription, or by purchasing stockdirectly from the corporation, or from individual owners thereof. A distinction is drawn by theauthorities between a subscription to the capital stock of the corporation after its organizationand a sale of shares by it. Whether a particular contract is a subscription or a sale of stock is amatter of construction, and depends upon its terms and the intention of the parties. It has beenheld that a subscription to stock in an existing corporation is, as between the subscriber andthe corporation, simply a contract of purchase and sale. (Bole vs. Fulton [1912], 233 Pa., 609;2 Fletcher, Cyclopedia of Corporations, pp. 1120 et seq.)

The allegation of the complaint is that defendant is a "subscriber." Exhibit A, on its face,purports to be a "subscription for capital stock." The intention of the parties as gleaned fromthis contract was undoubtedly to consider it as such.

Admitting, however, that the terminology of the agreement is not conclusive, and admitting thatit is a contract between a subscriber and the corporation, and thus simply a contract ofpurchase and sale, then under the last hypothesis we have to determine if the contract isavoided by misrepresentation.

Plaintiff's right of recovery rests exclusively upon the written agreement. The promise of Unsonin this agreement was to subscribe for ten shares of the capital stock, authorized capitalP250,000, of C.S. Salmon and Company. One of the essential conditions of this subscription orcontract of sale was that the authorized capital stock of the company was P250,000. As far aswe are informed, Unson would have never have put his name to the agreement if he hadknown that two weeks before, the capital had been increased to P500,000. I f knowledge of thisincrease had been brought home to Unson before he signed, that would be a differentquestion. But the record is silent on this point. So should the contract be enforced. Unson

would be required to take and pay for a 1/500 part of the capital stock of Salmon, Dexter andCompany, whereas his obligation was to take and pay for a 1/250 part of the capital stock.Paraphrasing the United States Supreme Court in the case of Chicago City RailwayCompany vs. Allerton ( [1874], 18 Wall., 233), a change in the capital stock without the consentof the stockholder would make him a member of an association in which he never consented tobecome such. "It would change the relative influence, control and profit of each member."

In our opinion, a contract different from that which was entered into cannot be made for tparties and imposed upon Unson. Unson has the right to stand upon the contract he hasIn our opinion also, there was such a non-disclosure of a material fact as was equivalentfalse representation. This representation was of a character that the party to whom it wasmade had a right to rely upon it.

For all the foregoing, the judgment must be reversed and another entered absolving thedefendant from the complaint. Without special pronouncement as to costs in either instanis so ordered.

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, WALTHRODECONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMITANJUATCO, 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 wpreliminary injunction, arose out of two cases f iled by petitioner with the Securities andExchange Commission, as follows:

SEC CASE NO 1375


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On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filedwith the Securities and Exchange Commission (SEC) a petition for "declaration of nullity ofamended by-laws, cancellation of certificate of f iling of amended by- laws, injunction anddamages with prayer for a preliminary injunction" against the majority of the members of theBoard 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 MiguelCorporation", was docketed as SEC Case No. 1375.

As a first cause of action, petitioner alleged that on September 18, 1976, individualrespondents amended by bylaws of the corporation, basing their authority to do so on aresolution of the stockholders adopted on March 13, 1961, when the outstanding capital stockof respondent corporation was only P70,139.740.00, divided into 5,513,974 common shares atP10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of theamendment, the outstanding and paid up shares totalled 30,127,047 with a total par value ofP301,270,430.00. It was contended that according to section 22 of the Corporation Law andArticle VIII of the by-laws of the corporation, the power to amend, modify, repeal or adopt newby-laws may be delegated to the Board of Directors only by the affirmative vote of stockholdersrepresenting 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 theamendment. Since the amendment was based on the 1961 authorization, petitioner contendedthat 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 beenexercised 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 hadchanged 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, petitionerhad all the qualifications to be a director of respondent corporation, being a Substantialstockholder thereof; that as a stockholder, petitioner had acquired rights inherent in stockownership, such as the rights to vote and to be voted upon in the election of directors; and thatin amending the by-laws, respondents purposely provided for petitioner's disqualification anddeprived him of his vested right as afore-mentioned hence the amended by-laws are null andvoid.

1

As additional causes of action, it was alleged that corporations have no inherent power todisqualify a stockholder from being elected as a director and, therefore, the questioned actis ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representingother corporations, entered into contracts (specifically a management contract) withrespondent corporation, which was allowed because the questioned amendment gave theBoard 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 statein determining whether or not a person is engaged in competitive business, the Board mconsider such factors as business and family relationship, is unreasonable and oppressivand, therefore, void; and that the portion of the amended by-laws which requires that "allnominations for election of directors ... shall be submitted in writing to the Board of Directleast five (5) working days before the date of the Annual Meeting" is likewise unreasonaboppressive.

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

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

The "Urgent Motion for Production and Inspection of Documents" was opposed byrespondents, alleging, among others that the motion has no legal basis; that the demandbased on good faith; that the motion is premature since the materiality or relevance of theevidence sought cannot be determined until the issues are joined, that it fails to show gocause and constitutes continued harrasment, and that some of the information sought arpart 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, denysubstantial allegations therein and stating, by way of affirmative defenses that "the actionby the Board of Directors on September 18, 1976 resulting in the . .. amendments is validlegal because the power to "amend, modify, repeal or adopt new By-laws" delegated to sBoard on March 13, 1961 and long prior thereto has never been revoked of SMC"; thatcontrary to petitioner's claim, "the vote requirement for a valid delegation of the power toamend, repeal or adopt new by-laws is determined in relation to the total subscribed capstock at the time the delegation of said power is made, not when the Board opts to exercsaid delegated power"; that petitioner has not availed of his intra-corporate remedy for thnullification of the amendment, which is to secure its repeal by vote of the stockholders


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representing a majority of the subscribed capital stock at any regular or special meeting, asprovided in Article VIII, section I of the by-laws and section 22 of the Corporation law, hencethe, petition is premature; that petitioner is estopped from questioning the amendments on theground of lack of authority of the Board. since he failed, to object to other amendments madeon 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 respondentcorporation inconsistent with any existing law; that respondent corporation should not beprecluded from adopting protective measures to minimize or eliminate situations where itsdirectors might be tempted to put their personal interests over t I hat of the corporation; that thequestioned 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 areintended to prevent the possibility of violation of criminal and civil laws prohibiting combinationsin restraint of trade; and that the petition states no cause of action. It was, therefore, prayedthat the petition be dismissed and that petitioner be ordered to pay damages and attorney'sfees to respondents. The application for writ of preliminary injunction was likewise on variousgrounds.

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 inAugust 1972, the Universal Robina Corporation (Robina), a corporation engaged in businesscompetitive to that of respondent corporation, began acquiring shares therein. until September1976 when its total holding amounted to 622,987 shares: that in October 1972, theConsolidated 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, andthereafter, in behalf of himself, CFC and Robina, "conducted malevolent and malicious publicitycampaign against SMC" to generate support from the stockholder "in his effort to secure forhimself and in representation of Robina and CFC interests, a seat in the Board of Directors ofSMC", that in the stockholders' meeting of March 18, 1976, petitioner was rejected by thestockholders in his bid to secure a seat in the Board of Directors on the basic issue thatpetitioner was engaged in a competitive business and his securing a seat would havesubjected respondent corporation to grave disadvantages; that "petitioner nevertheless vowedto secure a seat in the Board of Directors at the next annual meeting; that thereafter the Boardof Directors amended the by-laws as afore-stated.

As counterclaims, actual damages, moral damages, exemplary damages, expenses oflitigation and attorney's fees were presented against petit ioner.

Subsequently, a Joint Omnibus Motion for the striking out of the motion for production andinspection 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 tointervene as oppositors and they accordingly filed their oppositions-intervention to the petition.

On December 29, 1976, the Securities and Exchange Commission resolved the motion fproduction and inspection of documents by issuing Order No. 26, Series of 1977, statingpart as follows:

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

1. That respondents produce and permit the inspection, copying andphotographing, by or on behalf of the petitioner-movant, John Gokongwe

of the minutes of the stockholders' meeting of the respondent San MigueCorporation held on March 13, 1961, which are in the possession, custocontrol of the said corporation, it appearing that the same is material andrelevant to the issues involved in the main case. Accordingly, the responshould allow petitioner-movant entry in the principal office of the respondCorporation, San Miguel Corporation on January 14, 1977, at 9:30 o'clocthe morning for purposes of enforcing the rights herein granted; it beingunderstood that the inspection, copying and photographing of the saiddocuments shall be undertaken under the direct and s trict supervision ofCommission. Provided, however, that other documents and/or papers noheretofore included are not covered by this Order and any inspection theshall require the prior permission of this Commission;

2. As to the Balance Sheet of San Miguel International, Inc. as well as thof salaries, allowances, bonuses, compensation and/or remuneration recby respondent Jose M. Soriano, Jr. and Andres Soriano from San MigueInternational, Inc. and/or its successors-in- interest, the Petition to produinspect the same is hereby DENIED, as petitioner-movant is not a stockhof San Miguel International, Inc. and has, therefore, no inherent right to isaid documents;

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

4. Finally, the Commission holds in abeyance the resolution on the matte

production and inspection of the authority of the stockholders of San MigCorporation to invest the funds of respondent corporation in San MiguelInternational, Inc., until after the hearing on the merits of the principal issthe above-entitled case.

This Order is immediately executory upon its approval.2


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

Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondentcorporation issued a notice of special stockholders' meeting for the purpose of "ratification andconfirmation 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 asthe first cause of action is concerned, for the alleged reason that by calling a specialstockholders' meeting for the aforesaid purpose, private respondents admitted the invalidity ofthe amendments of September 18, 1976. The motion for summary judgment was opposed byprivate respondents. Pending action on the motion, petitioner f iled an "Urgent Motion for theIssuance of a Temporary Restraining Order", praying that pending the determination ofpetitioner's application for the issuance of a preliminary injunction and/or petitioner's motion forsummary judgment, a temporary restraining order be issued, restraining respondents fromholding the special stockholder's meeting as scheduled. This motion was duly opposed byrespondents.

On February 10, 1977, respondent Commission issued an order denying the motion forissuance of temporary restraining order. After receipt of the order of denial, respondentsconducted the special stockholders' meeting wherein the amendments to the by-laws wereratified. On February 14, 1977, petitioner filed a consolidated motion for contempt and fornullification of the special stockholders' meeting.

A motion for reconsideration of the order denying petitioner's motion for summary judgmentwas filed by petitioner before respondent Commission on March 10, 1977. Petitioner allegesthat up to the time of the filing of the instant petition, the said motion had not yet beenscheduled for hearing. Likewise, the motion for reconsideration of the order granting in part anddenying 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 beenscheduled for May 10, 1977, petitioner f iled with respondent Commission a Manifestationstating 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 theBoard of Directors of respondent corporation disqualifying and precluding petitioner f rom beinga candidate for director unless he could submit evidence on May 3, 1977 that he does notcome within the disqualifications specified in the amendment to the by-laws, subject matter ofSEC Case No. 1375. By reason thereof, petitioner filed a manifestation and motion to resolvepending incidents in the case and to issue a writ of injunction, alleging that private respondentswere seeking to nullify and render ineffectual the exercise of jurisdiction by the respondentCommission, to petitioner's irreparable damage and prejudice, Allegedly despite a subsequentManifestation to prod respondent Commission to act, petitioner was not heard prior to the dateof the stockholders' meeting.

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

SEC. CASE NO. 1423

Petitioner likewise alleges that, having discovered that respondent corporation has beeninvesting corporate funds in other corporations and businesses outside of the primary puclause of the corporation, in violation of section 17 1/2 of the Corporation Law, he filed wrespondent Commission, on January 20, 1977, a petition seeking to have private respond

Andres M. Soriano, Jr. and Jose M. Soriano, as well as the respondent corporation declaguilty of such violation, and ordered to account for such investments and to answer fordamages.

On February 4, 1977, motions to dismiss were filed by private respondents, to which aconsolidated motion to strike and to declare individual respondents in default and anopposition ad abundantiorem cautelam were filed by petitioner. Despite the fact that saidmotions were filed as early as February 4, 1977, the commission acted thereon only on A25, 1977, when it denied respondents' motion to dismiss and gave them two (2) days witwhich 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 Agendathereof, the following:

6. Re-affirmation of the authorization to the Board of Directors by thestockholders at the meeting on March 20, 1972 to invest corporate fundsother companies or businesses or for purposes other than the main purpfor which the Corporation has been organized, and rat ification of theinvestments thereafter made pursuant thereto.

By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgent motthe issuance of a writ of preliminary injunction to restrain private respondents from takingItem 6 of the Agenda at the annual stockholders' meeting, requesting that the same be shearing 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 areset the same to May 16 and 17, 1977, or after the scheduled annual stockholders' meeFor the purpose of urging the Commission to act, petitioner filed an urgent manifestation May 3, 1977, but this notwithstanding, no action has been taken up to the date of the filin

the instant petition.

With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Cthat respondent Commission gravely abused its discretion when it failed to act with delibedispatch on the motions of petitioner seeking to prevent illegal and/or arbitrary impositionlimitations upon his rights as stockholder of respondent corporation, and that respondent


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acting oppressively against petitioner, in gross derogation of petitioner's rights to property anddue process. He prayed that this Court direct respondent SEC to act on collateral incidentspending before it.

On May 6, 1977, this Court issued a temporary restraining order restraining privaterespondents from disqualifying or preventing petitioner from running or f rom being voted asdirector of respondent corporation and from submitting for ratification or confirmation or fromcausing 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 respondentcorporation, 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 orderhad been issued by this Court, or on May 9, 1977, the respondent Commission served uponpetitioner copies of the following orders:

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

(2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing petitioner to run as a directorof respondent corporation but stating that he should not sit as such if elected, until such timethat the Commission has decided the validity of the bylaws in dispute, and denying defermentof 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 forreconsideration of the order of respondent Commission denying petitioner's motion forsummary judgment;

It is petitioner's assertions, anent the foregoing orders, (1) that respondent Commission actedwith indecent haste and without circumspection in issuing the aforesaid orders to petitioner'sirreparable damage and injury; (2) that it acted without jurisdiction and in violation of petitioner'sright to due process when it decided en bancan issue not raised before it and still pendingbefore 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 actedoppressively against the petitioner in violation of his rights as a stockholder, warrantingimmediate judicial intervention.

It is prayed in the supplemental petition that the SEC orders complained of be declared nulland void and that respondent Commission be ordered to allow petitioner to undertake

discovery proceedings relative to San Miguel International. Inc. and thereafter to decide SCases No. 1375 and 1423 on the merits.

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

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

(2) that the amended by law were adopted to preserve and protect respondent SMC fromclear and present danger that business competitors, if allowed to become directors, will iand unfairly utilize their direct access to its business secrets and plans for their own privagain to the irreparable prejudice of respondent SMC, and, ultimately, its stockholders. Fuit is asserted that membership of a competitor in the Board of Directors is a blatant disregno 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 preserve and protect itself by excluding competitors and antogonistic parties, under the laself-preservation, and it should be allowed a wide latitude in the selection of means to preitself;

(4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and 1423 wato petitioner's own acts or omissions, since he failed to have the petition to suspend,penlite the amended by-laws calendared for hearing. It was emphasized that it was only on A29, 1977 that petitioner calendared the aforesaid petition for suspension (preliminaryinjunction) for hearing on May 3, 1977. The instant petition being dated May 4, 1977, it isapparent that respondent Commission was not given a chance to act "with deliberatedispatch", and

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

On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his comment, alleging thatpetition has become moot and academic for the reason, among others that the acts of pr


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respondent sought to be enjoined have reference to the annual meeting of the stockholders ofrespondent San Miguel Corporation, which was held on may 10, 1977; that in said meeting, incompliance with the order of respondent Commission, petitioner was allowed to run and bevoted for as director; and that in the same meeting, Item 6 of the Agenda was discussed, votedupon, ratified and confirmed. Further it was averred that the questions and issues raised bypetitioner are pending in the Securities and Exchange Commission which has acquiredjurisdiction over the case, and no hearing on the merits has been had; hence the elevation ofthese 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 actedwithout circumspection, unfairly and oppresively against petitioner, warranting the interventionof this Court; (2) a derivative suit, such as the instant case, is not rendered academic by the actof a majority of stockholders, such that the discussion, ratification and confirmation of Item 6 ofthe 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 isvoid since it deprives him of his vested rights.

Respondent Commission, thru the Solicitor General, filed a separate comment, alleging thatafter receiving a copy of the restraining order issued by this Court and noting that therestraining order did not foreclose action by it, the Commission en bancissued 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 whichdenied deferment of Item 6 of the Agenda of the annual stockholders' meeting of respondentcorporation, took into consideration an urgent manifestation f iled with the Commission bypetitioner on May 3, 1977 which prayed, among others, that the discussion of Item 6 of theAgenda be deferred. The reason given for denial of deferment was that "such action is withinthe authority of the corporation as well as falling within the sphere of stockholders' right toknow, deliberate upon and/or to express their wishes regarding disposition of corporate fundsconsidering that their investments are the ones directly affected." It was alleged that the mainpetition has, therefore, become moot and academic.

On September 29,1977, petitioner filed a second supplemental petition with prayer forpreliminary injunction, alleging that the actuations of respondent SEC tended to deprive him ofhis right to due process, and "that all possible questions on the facts now pending before therespondent Commission are now before this Honorable Court which has the authority and thecompetence 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 reasonable;

(2) whether or not respondent SEC gravely abused its discretion in denying petitioner's refor an examination of the records of San Miguel International, Inc., a fully owned subsidiaSan Miguel Corporation; and

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

I

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

It is the position of the petitioner that "it is not necessary to remand the case to respondeSEC for an appropriate ruling on the intrinsic validity of the amended by- laws in complianwith the principle of exhaustion of administrative remedies", considering that: first: "whethnot the provisions of the amended by-laws are intrinsically valid ... is purely a legal questThere is no factual dispute as to what the provisions are and evidence is not necessary t

determine whether such amended by-laws are valid as framed and approved ... "; seconfor the interest and guidance of the public that an immediate and final ruling on the questmade ... "; third: "petitioner was denied due process by SEC" when "Commissioner de Ghad openly shown prejudice against petitioner ... ", and "Commissioner Sulit ... approvedamended by-laws ex-parte and obviously found the same intrinsically valid; and f inally: "tremand 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 rethe legal issues raised by the parties in keeping with the "cherished rules of procedure" tcourt should always strive to settle the entire controversy in a single proceeding leaving nor branch to bear the seeds of future ligiation", citingGayong v. Gayos.

3To the same eff

the prayer of San Miguel Corporation that this Court resolve on the merits the validity of iamended by laws and the rights and obligations of the parties thereunder, otherwise "thespent and effort exerted by the parties concerned and, more importantly, by this Honorab

Court, would have been for naught because the main question will come back to thisHonorable Court for final resolution." Respondent Eduardo R. V isaya submits a similar a

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


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It is an accepted rule of procedure that the Supreme Court should always strive to settle theentire controversy in a single proceeding, leaving nor root or branch to bear the seeds of futurelitigation.

4Thus, in Francisco v. City of Davao,

5this Court resolved to decide the case on the

merits instead of remanding it to the trial court for further proceedings since the ends of justicewould 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, resolvedto decide the case on the merits "because public interest demands an early disposition of thecase", and in Republic v. Central Surety and Insurance Company,

7this Court denied remand

of the third-party complaint to the trial court for further proceedings, citing precedent where thisCourt, 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 ofthe case; or (b) where public interest demand an early disposition of the case; or (c) where thetrial court had already received all the evidence presented by both parties and the SupremeCourt is now in a position, based upon said evidence, to decide the case on its merits.

8It is

settled that the doctrine of primary jurisdiction has no application where only a question of lawis 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 bythe Board of Directors of the San Miguel Corporation in the exercise of the power delegated bythe stockholders ostensibly pursuant to section 22 of the Corporation Law; that in a specialmeeting on February 10, 1977 held specially for that purpose, the amended by-laws wereratified by more than 80% of the stockholders of record; that the foreign investment in theHongkong Brewery and Distellery, a beer manufacturing company in Hongkong, was made bythe 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 bythe stockholders.

II

Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination orelection 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 oflaw.

9Whether 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 oflaw.

10This 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, acourt 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 weretailored 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 peof his choice as director.

Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San MigCorporation content that ex. conclusion of a competitor from the Board is legitimate corpopurpose, considering that being a competitor, petitioner cannot devote an unselfish andundivided Loyalty to the corporation; that it is essentially a preventive measure to assurestockholders of San Miguel Corporation of reasonable protective f rom the unrestrained sinterest of those charged with the promotion of the corporate enterprise; that access toconfidential information by a competitor may result either in the promotion of the interest

competitor at the expense of the San Miguel Corporation, or the promotion of both the inof petitioner and respondent San Miguel Corporation, which may, therefore, result in acombination or agreement in violation of Article 186 of the Revised Penal Code by destrofree competition to the detriment of the consuming public. It is further argued that there isvested right of any stockholder under Philippine Law to be voted as director of a corporatis alleged that petitioner, as of May 6, 1978, has exercised, personally or thru two corporowned or controlled by him, control over the following shareholdings in San MiguelCorporation, vis.: (a) John Gokongwei, Jr. 6,325 shares; (b) Universal Robina Corpora 738,647 shares; (c) CFC Corporation 658,313 shares, or a total of 1,403,285 shareSince the outstanding capital stock of San Miguel Corporation, as of the present date, isrepresented by 33,139,749 shares with a par value of P10.00, the total shares owned orcontrolled by petitioner represents 4.2344% of the total outstanding capital stock of San Corporation. It is also contended that petitioner is the president and substantial stockholdUniversal Robina Corporation and CFC Corporation, both of which are allegedly controlle

petitioner and members of his family. I t is also claimed that both the Universal RobinaCorporation and the CFC Corporation are engaged in businesses directly and substantiacompeting with the alleged businesses of San Miguel Corporation, and of corporations inSMC has substantial investments.

ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS ASAN MIGUEL CORPORATION

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

Product Line Estimated Market Share Total1977 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%


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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 involvedproduct sales of over P400 million or more than 20% of the P2 billion total product sales ofSMC. Significantly, the combined market shares of SMC and CFC-Robina in layer pulletsdressed chicken, poultry and hog feeds ice cream, instant coffee and woven fabrics wouldresult 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 productlines which, for SMC, represented sales amounting to more than ?478 million. In addition,CFC-Robina was directly competing in the sale of cof fee 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 purportedlyalso in direct competition with Ramie Textile, Inc. , subsidiary of SMC, in product salesamounting to more than P95 million. The areas of competition between SMC and CFC-Robinain 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 than90% of the total outstanding shares of SMC, rejected petitioner's candidacy for the Board ofDirectors because they "realized the grave dangers to the corporation in the event a competitorgets a board seat in SMC." On September 18, 1978, the Board of Directors of SMC, by "virtueof powers delegated to it by the stockholders," approved the amendment to ' he by-laws inquestion. At the meeting of February 10, 1977, these amendments were confirmed and ratifiedby 5,716 shareholders owning 24,283,945 shares, or more than 80% of the total outstandingshares. Only 12 shareholders, representing 7,005 shares, opposed the conf irmation andratification. At the Annual Stockholders' Meeting of May 10, 1977, 11,349 shareholders, owning27,257.014 shares, or more than 90% of the outstanding shares, rejected petitioner'scandidacy, while 946 stockholders, representing 1,648,801 shares voted for him. On the May9, 1978 Annual Stockholders' Meeting, 12,480 shareholders, owning more than 30 millionshares, or more than 90% of the total outstanding shares. voted against petitioner.

AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORSEXPRESSLY CONFERRED BY LAW

Private respondents contend that the disputed amended by laws were adopted by the Board ofDirectors of San Miguel Corporation a-, a measure of self-defense to protect the corporationfrom the clear and present danger that the election of a business competitor to the Board maycause upon the corporation and the other stockholders inseparable prejudice. Submitted forresolution, 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 Board of Directors.

It is recognized by an authorities that 'every corporation has the inherent power to adopt laws 'for its internal government, and to regulate the conduct and prescribe the rights andduties of its members towards itself and among themselves in reference to the managemits affairs.

12At common law, the rule was "that the power to make and adopt by-laws

was inherentin every corporation as one of its necessary and inseparable legal incidentsit is settled throughout the United States that in the absence of positive legislative provisilimiting 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 ogeneral law, such power of self-government being essential to enable the corporation toaccomplish the purposes of its creation.

13

In this jurisdiction, under section 21 of the Corporation Law, a corporation may prescribeby-laws "the qualifications, duties and compensation of directors, officers and employeesThis must necessarily refer to a qualification in addition to that specified by section 30 of Corporation Law, which provides that "every director must own in his right at least one shthe capital stock of the stock corporation of which he is a director ... " InGovernment v. EHogar,

14the Court sustained the validity of a provision in the corporate by- law requiring

persons elected to the Board of Directors must be holders of shares of the paid up valueP5,000.00, which shall be held as security for their action, on the ground that section 21 Corporation Law expressly gives the power to the corporation to provide in its by-laws foqualifications of