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ISSUE:
Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election to the
Board of Directors of SMC are valid and reasonable – Yes.
The law expressly confers upon corporations the authority to prescribe qualifications of its directors.
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.
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 ... "
No vested right of stockholder to be elected director
Any person "who buys stock in a corporation does so with the knowledge that its affairs
are dominated by a majority of the stockholders and that he impliedly contracts that the will of the
majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted
by-laws and not forbidden by law."
A director stands in a fiduciary relation to the corporation and its shareholders
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."
An amendment to the corporation by-law which renders a stockholder ineligible to be director, if he be also
director in a corporation whose business is in competition with that of the other corporation, has been
sustained as valid
This is based upon the principle that where the director is so employed in the service of a rival
company, he cannot serve both, but must betray one or the other. Such an amendment "advances the
benefit of the corporation and is good."
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.
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.
The Constitution (Art XIV, Sec 2) and the Revised Penal Code (Art. 186) prohibit combinations in restraint of
trade or unfair competition.
Basically, these anti-trust laws or laws against monopolies or combinations in restraint of trade are
aimed at raising levels of competition by improving the consumers' effectiveness as the final arbiter
in free markets.
In the case at bar, the election of Gokongwei to the Board of SMC would result to an illegal situation.
The argument for prohibiting competing corporations from sharing even one director is that
the interlock permits the coordination of policies between nominally independent firms to an extent
that competition between them may be completely eliminated.
Election of Gokonwei to the Board of SMC may also be in violation of Sec 13(5) of the Corporation Law, which
states that:
"any stockholder of more than one corporation organized for the purpose of engaging in agriculture
may hold his stock in such corporations solely for investment and not for the purpose of bringing
about or attempting to bring about a combination to exercise control of incorporations ... ."
The amended By-Law is not discriminatory. It does not disqualify Gokongwei alone. It disqualifies all other
shareholders who are in a similar situation as Gokongwei.
Furthermore, SEC did not gravely abuse 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
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.