Title Gokongwei Jr vs SEC et al.

Later on, Gokongwei filed with the SEC – "Urgent Motion

GR L-45911 for Production and Inspection of Documents", alleging
Date Apr 11, 1979 that the Secretary of SMC refused to allow him to inspect
its records despite request made by petitioner for
production of certain documents. This was opposed by
KEYWORDS respondents – no legal basis; that the demand is not
based on good faith; and that some of the information
sought are not part of the records of the corporation and,
therefore, privileged.

During the pendency of the motion for production,

respondents San Miguel Corporation, Enrique Conde,
DOCTRINE Miguel Ortigas and Antonio Prieto filed their answer to
the petition, denying the substantial allegations therein
and stating, by way of affirmative defenses that "the
action taken by the Board of Directors on September 18,
1976 resulting in the ... amendments is valid and legal
because the power to "amend, modify, repeal or adopt
new By-laws" delegated to said Board on March 13,
1961 and long prior thereto has never been revoked of
SMC"; that contrary to petitioner's claim, "the vote
requirement for a valid delegation of the power to
CASE: amend, repeal or adopt new by-laws is determined in
relation to the total subscribed capital stock at the time
Gokongwei (gusto niya maging Director ng SMC!) seeks the delegation of said power is made, not when the
to declare null and void the amended by-laws of San Mig Board opts to exercise said delegated power"; that
Corp (SMC) which disqualifies any stockholder engaged petitioner has not availed of his intra-corporate remedy
in any business that competes with or is antagonistic to for the nullification of the amendment, which is to secure
that of the corporation from being nominated or elected its repeal by vote of the stockholders representing a
to the Board of Directors. majority of the subscribed capital stock at any regular or
special meeting, as provided in Article VIII, section I of
The respondents in this case amended the by-laws of the by-laws and section 22 of the Corporation law, hence
SMC basing their authority on a resolution of the, petition is premature; that petitioner is estopped
stockholders that was adopted. It was contended that from questioning the amendments on the ground of lack
according to Sec 22 of the CCP and Art VIII of the by- of authority of the Board. since he failed, to object to
laws of the corporation, power to amend, modify, repeal other amendments made on the basis of the same 1961
or adopt new by-laws may be delegated to BoDs only by authorization: that the power of the corporation to amend
affirmative vote of stockholders representing not less its by-laws is broad, subject only to the condition that the
than 2/3 of the subscribed and paid up capital stock of by-laws adopted should not be respondent corporation
the corporation. inconsistent with any existing law; that respondent
corporation should not be precluded from adopting
Since the amendment was based on the 1961 protective measures to minimize or eliminate situations
authorization, Gokongwei contended that the Board where its directors might be tempted to put their personal
acted without authority and in usurpation of the power of interests over t I hat of the corporation; that the
the stockholders. Furthermore, the authority granted in questioned amended by-laws is a matter of internal
1961 had ceased to exist and that membership of the policy and the judgment of the board should not be
BoD had changed since that 1961 authorization. interfered with: That the by-laws, as amended, are valid
and binding and are intended to prevent the possibility of
Lastly, Gokongwei had all the qualifications to be a violation of criminal and civil laws prohibiting
director of SMC, being a Substantial stockholder; that as combinations in restraint of trade; and that the petition
a stockholder, petitioner had acquired rights inherent in states no cause of action. It was, therefore, prayed that
stock ownership, such as the rights to vote and to be the petition be dismissed and that petitioner be ordered
voted upon in the election of directors; and that in to pay damages and attorney's fees to respondents. The
amending the by-laws, respondents purposely provided application for writ of preliminary injunction was likewise
for petitioner's disqualification and deprived him of his on various grounds.
vested right as afore-mentioned hence the amended by-
laws are null and void. 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 Directors of said corporation, whose decision shall be
affirmative defenses, that in August 1972, the Universal appealable to the SEC and ultimately to the Supreme
Robina Corporation (Robina), a corporation engaged in Court.
business competitive to that of respondent corporation,
began acquiring shares therein. until September 1976 The aforementioned six justices, together with Fernando,
when its total holding amounted to 622,987 shares: that J., voted to declare the issue on the validity of the foreign
in October 1972, the Consolidated Foods Corporation investment of SMC as moot. Fred Ruiz Castro, C.J.,
(CFC) likewise began acquiring shares in respondent reserved his vote on the validity of the amended by-laws
(corporation. until its total holdings amounted to pending hearing by this Court on the applicability of
P543,959.00 in September 1976; that on January 12, section 13(5) of the Corporation law to petitioner.
1976, petitioner, who is president and controlling Fernando, J., reserved his vote on the validity of subject
shareholder of Robina and CFC (both closed amendment to the by-laws but otherwise concurs in the
corporations) purchased 5,000 shares of stock of result.
respondent corporation, and thereafter, in behalf of
himself, CFC and Robina, "conducted malevolent and Four Justices (Teehankee, Conception Jr., Fernandez
malicious publicity campaign against SMC" to generate and Guerrero, JJ.) in a separate opinion voted against
support from the stockholder "in his effort to secure for the validity of the questioned amended by-laws and held
himself and in representation of Robina and CFC that this question should properly be resolved first by the
interests, a seat in the Board of Directors of SMC", that SEC as the agency of primary jurisdiction. They concur
in the stockholders' meeting of March 18, 1976, in the result that petitioner may be allowed to run for and
petitioner was rejected by the stockholders in his bid to sit as director in the scheduled election and subsequent
secure a seat in the Board of Directors on the basic elections until disqualified after proper hearing by the
issue that petitioner was engaged in a competitive respondent's Board of Directors and petitioner's
business and his securing a seat would have subjected disqualification shall have been sustained by respondent
respondent corporation to grave disadvantages; that SEC en banc and ultimately by final judgment of this
"petitioner nevertheless vowed to secure a seat in the Court.
Board of Directors at the next annual meeting; that
thereafter the Board of Directors amended the by-laws
as afore-stated.

As counterclaims, actual damages, moral damages,

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

Subsequently, a Joint Omnibus Motion for the striking

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

The Court voted unanimously to grant the petition insofar

as it prays that Gokongwei be allowed to examine the
books and records of the wholly-owned subsidiary of
SMC. For lack of necessary votes, the Court denied the
petition insofar as it assails the validity of the by-laws
and ratification of the foreign investment of SMC. On the
validity of the amended By-laws, six justices (Barredo,
Makasiar, Antonio,Santos, Abad Santos and De Castro,
JJ.) voted to sustain the validity per se of the amended
by-laws and to dismiss the petition without prejudice to
the question of Gokongwei´s actual disqualification from
running if elected from sitting as director of SMC being
decided, after a new and proper hearing by the Board of