Andrew M.

Navarrete Corporation Law 3 February 2019

‘1. Valle Verde Country Club V. Africa (2009)

G.R. No. 151969 September 4, 2009
Lessons Applicable: Election of Directors; Vacancy in the Board (Corporate Law)

FACTS:
On February 27, 1996, Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal (Makalintal),
Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray
Gamboa were elected as BOD during the Annual Stockholders’ Meeting of petitioner Valle Verde Country
Club, Inc. (VVCC).

From 1997 – 2001, the Requisite quorum could not be obtained so they continued in a hold-over capacity.
On September 1, 1998, Dinglasan resigned, BOD still constituting a quorom elected Eric Roxas (Roxas)
Then on, November 10, 1998, Makalintal resigned.

On March 6, 2001: Jose Ramirez (Ramirez) was elected by the remaining BOD.

Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez as
members of the VVCC Board with the Securities and Exchange Commission (SEC) and the Regional Trial
Court (RTC) as contrary to:
Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees to be elected
from among the holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for 1 year until their successors are elected and qualified.

Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of
directors or trustees other than by removal by the stockholders or members or by expiration of term,
may be filled by the vote of at least a majority of the remaining directors or trustees, if still
constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or
special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be
elected only for the unexpired term of his predecessor in office.

Makalintal's term should have expired after 1996 there being no unexpired term. The vacancy should
have been filled in by the stockholders in a regular or special meeting called for that purpose.

The RTC favored Africa. Ramirez as Makalintal's replacement = null and void
The SEC, Roxas as Vice hold-over director of Dinglasan = null and void
VVCC appealed in SC for certiorari being partially contrary to law and jurisprudence

ISSUES:
1. W/N there is an unexpired term - NO
2. W/N the remaining directors of a 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. - NO

HELD:
Petition Denied. RTC Affirmed.

1. NO
The “term” time during which the officer may claim to hold the office as of right is not affected by the
holdover fixed by statute and it does not change simply because the office may have become vacant, nor
because the incumbent holds over in office beyond the end of the term due to the fact that a successor
has not been elected and has failed to qualify. The “tenure” term during which the incumbent actually
holds office.

Section 23 of the Corporation Code: term of BOD only 1 year - fixed and has expired (1 yr after 1996)
Andrew M. Navarrete Corporation Law 3 February 2019

2. NO
The underlying policy of the Corporation Code is that the business and affairs of a corporation must be
governed by a board of directors whose members have stood for election, and who have actually been
elected by the stockholders, on an annual basis. Only in that way can the directors' continued
accountability to shareholders, and the legitimacy of their decisions that bind the corporation's
stockholders, be assured. The shareholder vote is critical to the theory that legitimizes the exercise of
power by the directors or officers over properties that they do not own. The theory of delegated power
of the board of directors.

Section 29 contemplates a vacancy occurring within the director’s term of office (unexpired) vacancy
caused by Makalintal’s leaving lies with the VVCC’s stockholders, not the remaining members of its board
of directors.
Andrew M. Navarrete Corporation Law 3 February 2019

2. 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.

Held:
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
Andrew M. Navarrete Corporation Law 3 February 2019

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
Andrew M. Navarrete Corporation Law 3 February 2019

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.
Andrew M. Navarrete Corporation Law 3 February 2019

SPI TechnologiesInc.v. Mapua

G.R. No. 191154 April 7, 2014

Case Doctrine:
It is not the job title but the actual work that the employee performs. Also, change in the job title is not
synonymous to a change in the functions. A position cannot be abolished by a mere change of job title.
In cases of redundancy, the management should adduce evidence and prove that a position which was
created in place of a previous one should pertain to functions which are dissimilar and incongruous to
the abolished office.

Facts:
Victoria K. Mapua (Mapua) was the Corporate Development’s Research/Business Intelligence Unit Head
and Manager InSPI Technologies,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 Mapua retrieved 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.
Thus, SPI filed a petition for certiorari regarding the said decision.

Issue:
Whether or not Mapua was validly separated from service on the ground of redundancy? What is the
nature of obligation of the corporate officers vis-à-vis the corporation for Mapua’s illegal dismissal?

Ruling:
On the issue of the solidary obligation of the corporate officers impleaded vis-à-vis the corporation for
Mapua’s illegal dismissal, "[i]t 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
Andrew M. Navarrete Corporation Law 3 February 2019

personally and solidarily liable with the corporation; or (d) they are made by specific provision of law
personally answerable for their corporate action."

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.

With respect to the vehicle under the company car plan which the LA awarded to Mapua, the Court rules
that the subject matter is not within the jurisdiction of the LA but with the regular courts, the remedy
being civil in nature arising from a contractual obligation, following this Court’s ruling in several
cases.54

The Court sustains the CA’s award of moral and exemplary damages. Award of moral and exemplary
damages for an illegally dismissed employee is proper where the employee had been harassed and
arbitrarily terminated by the employer. Moral damages may be awarded to compensate one for diverse
injuries such as mental anguish, besmirched reputation, wounded feelings, and social humiliation
occasioned by the employer’s unreasonable dismissal of the employee. The Court has consistently
accorded the working class a right to recover damages for unjust dismissals tainted with bad faith;
where the motive of the employer in dismissing the employee is far from noble.1âwphi1 The award of
such damages is based not on the Labor Code but on Article 220 of the Civil Code.55 However, the Court
observes that the CA decision affirming the LA’s award of ₱500,000.00 and ₱250,000.00 as moral and
exemplary damages, respectively, is evidently excessive because the purpose for awarding damages is
not to enrich the illegally dismissed employee. Consequently, the Court hereby reduces the amount of
₱50,000.00 each as moral and exemplary damages.56

Mapua is also entitled to attorney’s fees but the Court is modifying the amount of ₱196,848.42 awarded
by the LA and fix such attorney’s fees in the amount of ten percent (10%) of the total monetary award,
pursuant to Article 11157 of the Labor Code.

WHEREFORE, the Decision dated October 28, 2009 and Resolution dated January 18, 2010 of the Court
of Appeals in CA-G.R. SP. No. 107879 are hereby AFFIRMED with the following MODIFICATIONS:

1. Moral and exemplary damages is hereby reduced to ₱50,000.00 each; and

2. Attorney's fees shall be computed at ten percent (10%) of the aggregate monetary award.

The monetary awards shall earn interest at the rate of six percent (6%) per annum from the time of
respondent Victoria K. Mapua's illegal dismissal until finality of this Decision, and twelve percent (12%)
legal interest thereafter until fully paid.

Petitioner SPI Technologies, Inc. shall be liable for the foregoing awards.

No. ART. 283. Closure of establishment and reduction of personnel. – The employer may also terminate
the employment of any employee due to installation of labor-saving devices, redundancy, retrenchment
to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the
closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the
worker and the Department of Labor and Employment at least one (1) month before the intended date
thereof. In case of termination due to installation of labor-saving devices or redundancy, the worker
affected thereby shall be entitled to a separation pay equivalent to at least one (1) month pay or to at
least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent
losses and in cases of closures or cessation of operations of establishment or undertaking not due to
serious business losses and financial reverses, the separation pay shall be equivalent to one (1) month
pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at
least six (6) months shall be considered as one (1) whole year. (Emphasis ours)
Andrew M. Navarrete Corporation Law 3 February 2019

Anent the first requirement which is written notice served on both the employee and the DOLE at least
one month prior to the intended date of termination, SPI had discharged the burden of proving that it
submitted a notice to the DOLE on March 21, 2007, stating therein that the effective date of termination
is on April 21, 2007. It is, however, quite peculiar that two kinds of notices were served to Mapua. One
termination letter stated that its date of effectivity is on the same day, March 21, 2007. The other
termination letter sent through mail to Mapua’s residence stated that the effective date of her
termination is on April 21, 2007. Explaining the discrepancy, SPI alleged that the company served a notice
to Mapua on March 21, 2007, which stated that the effective date of termination is on April 21, 2007.
However she refused to acknowledge or accept the letter. Later on, Mapua requested for a copy of the
said letter but due to inadvertence and oversight, a draft of the termination letter bearing a wrong
effectivity date was given to her. To correct the oversight, a copy of the original letter was sent to her
through mail. Our question is, after Mapua initially refused to accept the letter, why did SPI make a new
letter instead of just giving her the first one – which the Court notes was already signed and witnessed
by other employees? Curiously, there was neither allegation nor proof that the original letter was
misplaced or lost which would necessitate the drafting of a new one. SPI did not even explain in the
second letter that the same was being sent in lieu of the one given to her. Hence, SPI must shoulder the
consequence of causing the confusion brought by the variations of termination letters given to Mapua.
On the matter of separation pay, there is no question that SPI indeed offered separation pay to Mapua,
but the offer must be accompanied with good faith in the abolishment of the redundant position and fair
and reasonable criteria in ascertaining the redundant position. It is insignificant that the amount offered
to Mapua is higher than what the law requires because the Court has previously noted that "a job is more
than the salary that it carries. There is a psychological effect or a stigma in immediately finding one’s
self laid off from work."

As to the evidence negating redundancy was SPI’s publication of job vacancies after Mapua was
terminated from employment. SPI maintained that the CA erred when it considered Mapua’s self-serving
affidavit as regards the Prime Manpower advertisement because the allegations therein were based on
Mapua’s unfounded suspicions. Also, the failure of Mapua to present a sworn statement of Dimatulac
renders the former’s statements hearsay. Even if we disregard Mapua’s affidavit as regards the Prime
Manpower advertisement, SPI admitted that it caused the Inquirer advertisement for a Marketing
Communications Manager position. Mapua alleged that this advertisement belied the claim of SPI that
her position is redundant because the Corporate Development division was only renamed to Marketing
division. Instead of explaining how the functions of a Marketing Communications Manager differ from a
Corporate Development Manager, SPI hardly disputed Mapua when it stated that, "judging from the titles
or designation of the positions, it is obvious that the functions of one are entirely different from that of
the other." SPI, being the employer, has possession of valuable information concerning the functions of
the offices within its organization. Nevertheless, it did not even bother to differentiate the two positions.
It is not the job title but the actual work that the employee performs. Also, change in the job title is not
synonymous to a change in the functions. A position cannot be abolished by a mere change of job title.
In cases of redundancy, the management should adduce evidence and prove that a position which was
created in place of a previous one should pertain to functions which are dissimilar and incongruous to
the abolished office.
Andrew M. Navarrete Corporation Law 3 February 2019

Rodolfo Laborte, et al. v. Pagsanjan Tourism Consumers’ Coop., et al.,

G.R. No. 183860, Jan. 15, 2014

DOCTRINE: 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. 6713 have all been
dismissed. Thus, the Court finds no basis to hold petitioner Laborte liable.

FACTS:
Petitioner Philippine Tourism Authority (PTA) is a government-owned and controlled corporation that
administers tourism zones. Respondent Pagsanjan Tourism Consumers’ Cooperative (PTCC) is a
cooperative organized since 1988 under Republic Act No. 6938, or the "Cooperative Code of the
Philippines." The other individual respondents are PTCC employees, consisting of restaurant staff and
boatmen at the PTA Complex.

In 1989, 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.

In 1993, the PTA implemented a reorganization and reshuffling in its top level management. Herein
petitioner Rodolfo Laborte (Laborte) was designated as Area Manager, CALABARZON area with direct
supervision over the PTA Complex and other entities at the Southern Luzon. Eventually, 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, face lifting and upgrading project of the PTA Complex.

The PTCC filed with the RTC a complaint of Preliminary Injunction. On December 7, 1993, the PTCC filed
with the trial court a Petition for Contempt with Motion for Early Resolution. It alleged that Laborte and
his lawyers defied the TRO and proceeded to close the restaurant on December 2, 1993.

ISSUES:
(1) Should the injunction should be granted > No
(2) Can Laborte, the area manager, can be held liable > No

HELD:
(1) The PTA is a government owned and controlled corporation which was mandated to administer tourism
zones. Based on this mandate, it was the PTA’s obligation to adopt a comprehensive program and project
to rehabilitate and upgrade the facilities of the PTA Complex as shown in Annexes "H-2" to "H-4" of the
petition. The Court finds that there was indeed a renovation of the Pagsanjan Administration Complex
which was sanctioned by the PTA main office; and such renovation was done in good faith in performance
of its mandated duties as tourism administrator. In the exercise of its management prerogative to
determine what is best for the said agency, the PTA had the right to terminate at any moment the PTCC’s
operations of the restaurant and the boat ride services since the PTCC has no contract, concession or
franchise from the PTA to operate the above-mentioned businesses. As shown by the records, the
operation of the restaurant and the boat ride services was merely tolerated, in order to extend financial
assistance to its PTA employee-members who are members of the then fledging PTCC.

While the PTCC has been operating the restaurant and boat ride services for almost ten (10) years until
its closure, the same was by mere tolerance of the PTA. In the consolidated case of Phil. Ports Authority
v. Pier 8 Arrastre & Stevedoring Services, Inc., the Court upheld the authority of government agencies
to terminate at any time hold-over permits. Thus, considering that the PTCC’s operation of the restaurant
and the boat ride services was by mere tolerance, the PTA can, at any time, terminate such operation

(2) 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
Andrew M. Navarrete Corporation Law 3 February 2019

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. 6713 have all been dismissed. Thus, the Court finds no
basis to hold petitioner Laborte liable.
Andrew M. Navarrete Corporation Law 3 February 2019

5. GOKONGWEI, Jr. v. SEC

FACTS:
This is a petition for “declaration of nullity of amended by-laws, cancellation of certificate of filing of
amended by-laws and damages” filed by petitioner John Gokongwei against the majority of the members
of the Board of Directors. He has the following causes of action:
1. that the Board in amending the by-laws, had no authority to do so because it was based on the
a 1961 authorization and the amendment being contested was in 1976, and the authorization should have
been based on votes made according to the 1976 shares, not the 1961 shares,
2. the authority granted in 1961 had already been exercised in 1962 and 1963, after which the
authority of the Board ceased to exist,
3. membership of the Board changed since 1961, there are 6 new directors,
4. that prior to the amendment of the by-laws , he had all the qualifications to be a director (he
was a substantial stockholder) and the aamended by-laws disqualified him and deprived him of a vested
right to be voted,
5. that the corporation has no inherent power to disqualify a stockholder from being elected and
therefore it is an ultra vires and void act.

Petitioner also wanted to inspect records and documents of San Miguel Corporation but the request was
denied because the request was said to have been made in bad faith.

Respondents 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,
withdrawn or otherwise nullified by the stockholders of SMC". Also said that the power of the Board to
amend the by-laws are broad, subject only to existing laws.

In August 1972, the Universal Robina Corporation (URC), a corporation engaged in business competitive
to that of respondent corporation, began acquiring shares amounting to 622,987 shares. In October 1972,
the Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent corporation that
amounted to P543,959.00. On January 12, 1976, petitioner, who is president and controlling shareholder
of URC and CFC (both closed corporations) purchased 5,000 shares of stock of respondent corporation,
and thereafter, in behalf of himself, CFC and URC, "conducted malevolent and malicious publicity
campaign against SMC" to generate support from the stockholder "in his effort to secure for himself and
in representation of URC and CFC interests, a seat in the Board of Directors of SMC". Petitioner was
rejected by the stockholders in his bid to secure a seat in the Board of Directors on the basic issue that
petitioner was engaged in a competitive business and his securing a seat would have subjected
respondent corporation to grave disadvantages.

On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from
disqualifying or preventing petitioner from running or from being voted as director of respondent
corporation and from submitting for ratification or confirmation or from causing the ratification or
confirmation of the amendment. SEC held that petitioner should be allowed to run as a director but that
he should not sit as such until SEC has decided on the validity of the by-laws in dispute.

Respondents reason out that petitioner is engaged in businesses competitive and antagonistic to that of
respondent SMC and that the Board realized the clear and present danger in competitors being directors
because they would have easy and direct access to SMC’s business and trade secrets.

ISSUE:
Whether the amended by-laws of SMC disqualifying a competitor from nomination or election to
the Board of Directors of SMC are valid and reasonable.
Andrew M. Navarrete Corporation Law 3 February 2019

HELD/RATIONALE:
Amendments are valid.

The validity or reasonableness of a by-law of a corporation is purely a question of law. Petitioner

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

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 petitioner has a vested right to be elected director, in the face of the fact that the law
at the time such right as stockholder was acquired contained the prescription that the corporate charter
and the by-law shall be subject to amendment, alteration and modification.

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,
they should act for the collective benefit of the stockholders.

It is a settled state law in the United States that corporations have the power to make by-laws declaring
a person employed in the service of a rival company to be ineligible for the corporation's Board of
Directors. ". . . (A)n amendment which renders ineligible, or if elected, subjects to removal, a director
if he be also a director in a corporation whose business is in competition with or is antagonistic to the
other corporation is valid." 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 that 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.

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.

In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the
corporation in adopting measures to protect legitimate corporate interests. The test must be whether
the business does in fact compete, not whether it is capable of an indirect and highly unsubstantial
duplication of an isolated or non-characteristic activity.