JERWIN C.

TIAMSON
CORPORATION LAW
Sunday (2:30 – 4:30 5:00 – 7:00)

Valle Verde Country Club, Inc. v. Africa

G.R. No.151969, September 4, 2009.

FACTS:

On February 27, 1996, during the Annual Stockholders’ Meeting of petitioner Valle Verde
Country Club, Inc. (VVCC), the VVCC Board of Directors were elected including Eduardo
Makalintal (Makalintal) among others. In the years 1997, 1998, 1999, 2000, and 2001, however,
the requisite quorum for the holding of the stockholders’ meeting could not be
obtained. Consequently, the directors continued to serve in the VVCC Board in a hold-over
capacity. Later, Makalintal resigned as member of the VVCC Board. He was replaced by Jose
Ramirez (Ramirez), who was elected by the remaining members of the VVCC Board on March
6, 2001. Respondent Africa (Africa), a member of VVCC, questioned the election of Ramirez as
members of the VVCC Board with the Regional Trial Court (RTC), respectively. Africa claimed
that a year after Makalintal’s election as member of the VVCC Board in 1996, his [Makalintal’s]
term – as well as those of the other members of the VVCC Board – should be considered to have
already expired. Thus, according to Africa, the resulting vacancy should have been filled by the
stockholders in a regular or special meeting called for that purpose, and not by the remaining
members of the VVCC Board, as was done in this case. The RTC sustained Africa’s complaint.

ISSUE:

Whether the remaining directors of the corporation’s Board, still constituting a quorum, can elect
another director to fill in a vacancy caused by the resignation of a hold-over director.

RULING:

NO.

When Section 23 of the Corporation Code declares that “the board of directors…shall hold office
for one (1) year until their successors are elected and qualified,” we construe the provision to
mean that the term of the members of the board of directors shall be only for one year; their
term expires one year after election to the office. The holdover period – that time from the lapse
of one year from a member’s election to the Board and until his successor’s election and
qualification – is not part of the director’s original term of office, nor is it a new term; the
holdover period, however, constitutes part of his tenure. Corollary, when an incumbent member
of the board of directors continues to serve in a holdover capacity, it implies that the office has a
fixed term, which has expired, and the incumbent is holding the succeeding term.

Here, when remaining members of the VVCC Board elected Ramirez to replace Makalintal,
there was no more unexpired term to speak of, as Makalintal’s one-year term had already
expired. Pursuant to law, the authority to fill in the vacancy caused by Makalintal’s leaving lies
with the VVCC’s stockholders, not the remaining members of its board of directors. To assume –
as VVCC does – that the vacancy is caused by Makalintal’s resignation in 1998, not by the
expiration of his term in 1997, is both illogical and unreasonable. His resignation as a holdover
director did not change the nature of the vacancy; the vacancy due to the expiration of
Makalintal’s term had been created long before his resignation.
Raul C. Cosare vs. Broadcom Asia, Inc. and Dante Arevalo
G.R. No. 201298, February 5, 2014

FACTS:

Cosare was employed as a salesman by Arevalo, who was then in the business of selling
broadcast equipment needed by television networks and production houses. In December 2000,
Arevalo set up the company Broadcom, still to continue the business of trading communication
and broadcast equipment. Cosare was named an incorporator of Broadcom, having been assigned
100 shares of stock with par value of P1.00 per share. In October 2001, Cosare was promoted to
the position of Assistant Vice President for Sales (AVP for Sales) and Head of the Technical
Coordination.

Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcom’s Vice President for
Sales and thus, became Cosare’s immediate superior. On March 23, 2009, Cosare sent a
confidential memo to Arevalo to inform him of the anomalies which were allegedly being
committed by Abiog against the company.

Arevalo failed to act on Cosare’s accusations and instead called Cosare for a meeting and was
asked to tender his resignation in exchange for "financial assistance" in the amount
of P300,000.00. Cosare refused to comply with the directive.

On March 30, 2009, Cosare received a memo charging him of serious misconduct and willful
breach of trust.

Thus, Cosare was precluded from reporting for work on March 31, 2009, and was instead
instructed to wait at the office’s receiving section. On April 1, 2009, Cosare was totally barred
from entering the company premises, and was told to merely wait outside the office building for
further instructions.

On April 3, 2009, Cosare filed the subject labor complaint, claiming that he was constructively
dismissed from employment by the respondents. He further argued that he was illegally
suspended, as he placed no serious and imminent threat to the life or property of his employer
and co-employees.

In refuting Cosare’s complaint, the respondents argued that Cosare was neither illegally
suspended nor dismissed from employment.

The Labor Arbiter rendered his Decision dismissing the complaint on the ground of Cosare’s
failure to establish that he was dismissed, constructively or otherwise, from his employment.
Unyielding, Cosare appealed the LA decision to the NLRC. The NLRC rendered its
Decision reversing the Decision of the Labor Arbiter, and found that the Respondents are found
guilty of Illegal Constructive Dismissal. Thereafter, the CA rendered the assailed
Decision granting the respondents’ petition. It agreed with the respondents’ contention that the
case involved an intra-corporate controversy which, pursuant to Presidential Decree No. 902-A,
as amended, was within the exclusive jurisdiction of the RTC.

ISSUE:

Whether or not the instant suit is an intra-corporate controversy, where as such is within
the jurisdiction of the RTC.
RULING:

It is not an intra-corporate controversy.

An intra-corporate controversy, which falls within the jurisdiction of regular courts, has been
regarded in its broad sense to pertain to disputes that involve any of the following relationships:
(1) between the corporation, partnership or association and the public; (2) between the
corporation, partnership or association and the state in so far as its franchise, permit or license to
operate is concerned; (3) between the corporation, partnership or association and its
stockholders, partners, members or officers; and (4) among the stockholders, partners or
associates, themselves. Settled jurisprudence, however, qualifies that when the dispute involves a
charge of illegal dismissal, the action may fall under the jurisdiction of the LAs upon whose
jurisdiction, as a rule, falls termination disputes and claims for damages arising from employer-
employee relations as provided in Article 217 of the Labor Code. Consistent with this
jurisprudence, the mere fact that Cosare was a stockholder and an officer of Broadcom at the
time the subject controversy developed failed to necessarily make the case an intra-corporate
dispute.

The LA has the original jurisdiction over the complaint for illegal dismissal because Cosare,
although an officer of Broadcom for being its AVP for Sales, was not a "corporate officer" as the
term is defined by law. We held in Real v. Sangu Philippines, Inc., citing Garcia v. Eastern
Telecommunications Philippines, Inc.:

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

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

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

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

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

SPI TechnologiesInc.v.Mapua
G.R. No. 191154, April 7, 2014

FACTS:

Victoria K. Mapua (Mapua) was the Corporate Development’s Research/Business Intelligence

Unit Head and Manager InSPITechnologies,Ic. (SPI).Sometime in October 2006, the hard disk
on Mapua’s laptop crashed, causing her to lose files and data. Mapua informed Nolan,her
supervisor and her colleagues that she was working on recovering the lost data and asked for
their patience for any possible delay on her part in meeting deadlines. On November 13, 2006
Mapuaretrieved the lost data with the assistance of National Bureau of Investigation Anti-Fraud
and Computer Crimes Division. Yet, Nolan informed Mapua that she was realigning Mapua’s
position to become a subordinate of co-manager Sameer Raina (Raina) due to her missing a work
deadline.

On February 28, 2007, Mapua allegedly saw the new table of organization of the Corporate
Development Division which would be renamed as the Marketing Division. The new structure
showed that Mapua’s level will be again downgraded because a new manager will be hired and
positioned between her rank and Raina’s.On March 21, 2007, Raina informed Mapua over the
phone that her position was considered redundant and that she is terminated from employment
effective immediately. Villanueva notified Mapua that she should cease reporting for work the
next day. Her laptop computer and company mobile phone were taken right away and her office
phone ceased to function.

In her Reply and Rejoinder, Mapua submitted an affidavit and alleged that on July 16, 2007,
Prime Manpower Resources Development (Prime Manpower) posted an advertisement on the
website of Jobstreet Philippines for the employment of a Corporate Development Manager in an
unnamed Business Process Outsourcing (BPO) company located in Parañaque City. Mapua
suspected that this advertisement was for SPI because the writing style used was similar to
Raina’s. She also claimed that SPI is the only BPO office in Parañaque City at that time.
Thereafter, she applied for the position under the pseudonym of "Jeanne Tesoro". On the day of
her interview with Prime Manpower’s consultant, Ms. Portia Dimatulac (Dimatulac), the latter
allegedly revealed to Mapua that SPI contracted Prime Manpower’s services to search for
applicants for the Corporate Development Manager position.Because of these developments,
Mapua was convinced that her former position is not redundant.

The Labor arbiter rendered a decision stating that there was illegal dismissal. But the NLRC
reversed the said decision. While the CA on the other hand, reinstated LA’s decision and set
aside the NLRC’s decision and held the individual petitioner solidarily liable and personally
liable to Mapua. Thus, SPI filed a petition for certiorari regarding the said decision.

ISSUE:

Whether or not the corporate officers of SPI Technologies can be impleaded for Mapua’s illegal
dismissal.
RULING:

No.

It is hornbook principle that personal liability of corporate directors, trustees or officers attaches
only when: (a) they assent to a patently unlawful act of the corporation, or when they are guilty
of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest
resulting in damages to the corporation, its stockholders or other persons; (b) they consent to the
issuance of watered down stocks or when, having knowledge of such issuance, do not forthwith
file with the corporate secretary their written objection; (c) they agree to hold themselves
personally and solidarily liable with the corporation; or (d) they are made by specific provision
of law personally answerable for their corporate action.

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

Rodolfo Laborte and Philippine Tourism Authority vs. Pagsanjan Tourism Consumers
Cooperative
G.R. No. 183860, January 15, 2014

FACTS:

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

corporation that administers tourism zones. It used to operate the Philippine Gorge Tourist Zone
(PGTZ) Administration Complex (PTA Complex) in Pagsanjan, Laguna. Respondents are the
Pagsanjan Tourism Consumers’ Cooperative (PTCC) and its employees, consisting of restaurant
staff and boatmen at the PTA Complex.

In order to help the PTCC as a cooperative, the PTA allowed it to operate a restaurant business
located at the main building of the PTA Complex and the boat ride services to ferry guests and
tourists to and from the Pagsanjan Falls, paying a certain percentage of its earnings to the PTA.
The PTA implemented a reorganization and reshuffling in its top level management. Petitioner
Rodolfo Laborte was designated as Area Manager of CALABARZON area with direct
supervision over the PTA Complex.

Laborte served a written notice upon the respondents to cease the operations of the latter’s
restaurant business and boat ride services in view of the rehabilitation, facelifting and upgrading
project of the PTA Complex. Consequently, the PTCC filed with the RTC a Complaint for
Prohibition, Injunction and Damages with Temporary Restraining Order (TRO) and Preliminary
Injunction against Laborte.
The trial court issued the TRO prayed for, prohibiting Laborte from causing the PTCC to cease
operations.

Opposing the TRO, Laborte averred that the PTCC does not own the restaurant facility as it was
only tolerated to operate the same by the PTA as a matter of lending support and assistance to the
cooperative in its formative years. It has neither been granted any franchise nor concession to
operate the restaurant or handle the boating operations.

The RTC ruled in favor of respondent PTCC. The CA affirmed the RTC Decision. Both the trial
court and the CA faulted the petitioners for their failure to formally offer their evidence in spite
of the ample opportunity granted to do so hence, this appeal.

ISSUE:

Whether or not Laborte is liable.

RULING:

NO.

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

Gokongwei vs. Securities and Exchange Commission

97 SCRA 78

FACTS:

On 22 October 1976, John Gokongwei Jr., as stockholder of 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. As a first cause of action,
Gokongwei alleged that on 18 September 1976, Andres Soriano, Jr., Jose M. Soriano, Enrique
Zobel, Antonio Roxas, Emeterio Buñao, Walthrode B. Conde, Miguel Ortigas, and Antonio
Prieto amended by bylaws of the corporation, basing their authority to do so on a resolution of
the stockholders adopted on 13 March 1961, when the outstanding capital stock of the
corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share
and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the
outstanding and paid up shares totalled 30,127,043, with a total par value of P301,270,430.00.

It was contended that according to section 22 of the Corporation Law and Article VIII of the by-
laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be
delegated to the Board of Directors only by the affirmative vote of stockholders representing not
less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should
have been computed on the basis of the capitalization at the time of the amendment. Since the
amendment was based on the 1961 authorization, Gokongwei 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,
Gokongwei averred that the membership of the Board of Directors had changed since the
authority was given in 1961, there being 6 new directors. As a fourth cause of action, it was
claimed that prior to the questioned amendment, Gokogwei had all the qualifications to be a
director of the corporation, being a substantial stockholder thereof; that as a stockholder,
Gokongwei 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, Soriano, et. al.
purposely provided for Gokongwei's disqualification and deprived him of his vested right as
afore-mentioned, hence the amended by-laws are null and void. 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 the corporation, which was avowed because the
questioned amendment gave the Board itself the prerogative of determining whether they or
other persons are engaged in competitive or antagonistic business; that the portion of the
amended by-laws which states that in determining whether or not a person is engaged in
competitive business, the Board may consider such factors as business and family relationship, is
unreasonable and oppressive and, therefore, void; and that the portion of the amended by-laws
which requires that "all nominations for election of directors shall be submitted in writing to the
Board of Directors at least five (5) working days before the date of the Annual Meeting" is
likewise unreasonable and oppressive. It was, therefore, prayed that the amended by-laws be
declared null and void and the certificate of filing thereof be cancelled, and that Soriano, et. al.
be made to pay damages, in specified amounts, to Gokongwei. On 28 October 1976, in
connection with the same case, Gokongwei filed with the Securities and Exchange Commission
an "Urgent Motion for Production and Inspection of Documents", alleging that the Secretary of
the corporation refused to allow him to inspect its records despite request made by Gokongwei
for production of certain documents enumerated in the request, and that the 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.

The motion was opposed by Soriano, et. al. The Corporation, Soriano, et. al. filed their answer,
and their opposition to the petition, respectively. Meanwhile, on 10 December 1976, while the
petition was yet to be heard, the 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 10 February 1977. This prompted Gokongwei to ask the SEC 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, Soriano, et. al. admitted the invalidity of
the amendments of 18 September 1976. The motion for summary judgment was opposed by
Soriano, et. al. Pending action on the motion, Gokongwei filed an "Urgent Motion for the
Issuance of a Temporary Restraining Order", praying that pending the determination of
Gokongwei's application for the issuance of a preliminary injunction and or Gokongwei's motion
for summary judgment, a temporary restraining order be issued, restraining Soriano, et. al. from
holding the special stockholders' meeting as scheduled. This motion was duly opposed by
Soriano, et. al. On 10 February 1977, Cremation issued an order denying the motion for issuance
of temporary restraining order. After receipt of the order of denial, Soriano, et. al. conducted the
special stockholders' meeting wherein the amendments to the by-laws were ratified. On 14
February 1977, Gokongwei filed a consolidated motion for contempt and for nullification of the
special stockholders' meeting. A motion for reconsideration of the order denying Gokongwei's
motion for summary judgment was filed by Gokongwei before the SEC on 10 March 1977.

Gokongwei alleged that, having discovered that the 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 SEC, on 20
January 1977, a petition seeking to have Andres M. Soriano, Jr. and Jose M. Soriano, as well as
the corporation declared guilty of such violation, and ordered to account for such investments
and to answer for damages. On 4 February 1977, motions to dismiss were filed by Soriano, et.
al., to which a consolidated motion to strike and to declare Soriano, et. al. in default and an
opposition ad abundantiorem cautelam were filed by Gokongwei. Despite the fact that said
motions were filed as early as 4 February 1977, the Commission acted thereon only on 25 April
1977, when it denied Soriano, et. al.'s motions to dismiss and gave them two (2) days within
which to file their answer, and set the case for hearing on April 29 and May 3, 1977. Soriano, et.
al. issued notices of the annual stockholders' meeting, including in the Agenda thereof, the
"reaffirmation of the authorization to the Board of Directors by the stockholders at the meeting
on 20 March 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 28 April 1977,
Gokongwei filed with the SEC an urgent motion for the issuance of a writ of preliminary
injunction to restrain Soriano, et. al. from taking up Item 6 of the Agenda at the annual
stockholders' meeting, requesting that the same be set for hearing on 3 May 1977, the date set for
the second hearing of the case on the merits. The SEC, 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, Gokongwei filed an
urgent manifestation on 3 May 1977, but this notwithstanding, no action has been taken up to the
date of the filing of the instant petition.

Gokongwei filed a petition for petition for certiorari, mandamus and injunction, with prayer for
issuance of writ of preliminary injunction, with the Supreme Court, alleging that there appears a
deliberate and concerted inability on the part of the SEC to act.
ISSUES:

1. Whether the corporation has the power to provide for the (additional) qualifications of its
directors.
2. Whether the disqualification of a competitor from being elected to the Board of Directors
is a reasonable exercise of corporate authority.
3. Whether the SEC gravely abused its discretion in denying Gokongwei's request for an
examination of the records of San Miguel International, Inc., a fully owned subsidiary of
San Miguel Corporation.
4. Whether the SEC gravely abused its discretion in allowing the stockholders of San
Miguel Corporation to ratify the investment of corporate funds in a foreign corporation.

RULING:

1. It is recognized by all authorities that "every corporation has the inherent power to adopt
by-laws 'for its internal government, and to regulate the conduct and prescribe the rights
and duties of its members towards itself and among themselves in reference to the
management of its affairs.'" 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." Any person "who buys stock in a corporation does
so with the knowledge that its affairs are dominated by a majority of the stockholders and
that he impliedly contracts that the will of the majority shall govern in all matters within
the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by
law." To this extent, therefore, the stockholder may be considered to have "parted with
his personal right or privilege to regulate the disposition of his property which he has
invested in the capital stock of the corporation, and surrendered it to the will of the
majority of his fellow incorporators. It can not therefore be justly said that the contract,
express or implied, between the corporation and the stockholders is infringed by any act
of the former which is authorized by a majority." Pursuant to section 18 of the
Corporation Law, any corporation may amend its articles of incorporation by a vote or
written assent of the stockholders representing at least two-thirds of the subscribed capital
stock of the corporation. If the amendment changes, diminishes or restricts the rights of
the existing shareholders, then the dissenting minority has only one right, viz.: "to object
thereto in writing and demand payment for his share." Under section 22 of the same law,
the owners of the majority of the subscribed capital stock may amend or repeal any by-
law or adopt new by-laws. It cannot be said, therefore, that Gokongwei 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.

2. Although in the strict and technical sense, directors of a private corporation are not
regarded as trustees, there cannot be any doubt that their character is that of a fiduciary
insofar as the corporation and the stockholders as a body are concerned. As agents
entrusted with the management of the corporation for the collective benefit of the
stockholders, "they occupy a fiduciary relation, and in this sense the relation is one of
trust." "The ordinary trust relationship of directors of a corporation and stockholders is
not a matter of statutory or technical law. It springs from the fact that directors have the
control and guidance of corporate affairs and property and hence of the property interests
of the stockholders. Equity recognizes that stockholders are the proprietors of the
corporate interests and are ultimately the only beneficiaries thereof." A director is a
fiduciary. Their powers are powers in trust. He who is in such fiduciary position cannot
serve himself first and his cestuis second. He cannot manipulate the affairs of his
corporation to their detriment and in disregard of the standards of common decency. He
cannot by the intervention of a corporate entity violate the ancient precept against serving
two masters. He cannot utilize his inside information and strategic position for his own
preferment. He cannot violate rules of fair play by doing indirectly through the
corporation what he could not do so directly. He cannot violate rules of fair play by doing
indirectly through the corporation what he could not do so directly. He cannot use his
power for his personal advantage and to the detriment of the stockholders and creditors
 no matter how absolute in terms that power may be and no matter how meticulous he is
to satisfy technical requirements. For that power is at all times subject to the equitable
limitation that it may not be exercised for the aggrandizement, preference, or advantage
of the fiduciary to the exclusion or detriment of the cestuis. The doctrine of "corporate
opportunity" is precisely a recognition by the courts that the fiduciary standards could not
be upheld where the fiduciary was acting for two entities with competing interests. This
doctrine rests fundamentally 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. 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. The offer and assurance of Gokongwei 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 involved. Apart
from the impractical results that would ensue from such arrangement, it would be
inconsistent with Gokongwei'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.

3. 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 quasi-ownership. 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. 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. 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." 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. 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. herein, considering that the
foreign subsidiary is wholly owned by San Miguel Corporation and, therefore, under Its
control, it would be more in accord with equity, good faith and fair dealing to construe
the statutory right of petitioner as stockholder to inspect the books and records of the
corporation as extending to books and records of such wholly owned subsidiary which
are in the corporation's possession and control.
4. 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. As stated by the
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. 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. This is true because
the questioned investment is neither contrary to law, morals, public order or public
policy. It is a corporate transaction or contract which is within the corporate powers, but
which is defective from a purported failure to observe in its execution the requirement of
the law that the investment must be authorized by the affirmative vote of the stockholders
holding two-thirds of the voting power. This requirement is for the benefit of the
stockholders. The stockholders for whose benefit the requirement was enacted may,
therefore, ratify the investment and its ratification by said stockholders obliterates any
defect which it may have had at the outset. 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 the corporation submitted the assailed investment
to the stockholders for ratification at the annual meeting of 10 May 1977 cannot be
construed as an admission that the corporation had committed an ultra vires act,
considering the common practice of corporations of periodically submitting for the
ratification of their stockholders the acts of their directors, officers and managers.