72 G.R. No.

89070 May 18, 1992

BENGUET ELECTRlC COOPERATIVE, INC.,
vs.
NATIONAL LABOR RELATIONS COMMISSION,
PETER COSALAN and BOARD OF DIRECTORS
OF BENGUET ELECTRIC COOPERATIVE, INC.,
FACTS:
Private respondent Peter Cosalan was the General
Manager
of
Petitioner
Benguet
Electric
Cooperative, Inc. ("Beneco"). On November 1982,
respondent received two (2) Audit Memorandum
from Commission on Audit regarding the writing off
of cash advances given to the officers and the audit
of per diems and allowances in substantial
inconsistency with the directives of NEA.
On 19 May 1983, petitioner Beneco received the
COA Audit Report on the financial status and
operations of Beneco for the eight (8) month period
ended 30 September 1982. This Audit Report noted
and enumerated irregularities in the utilization of
funds amounting to P37 Million released by NEA to
Beneco, and recommended that appropriate
remedial action be taken.
Having been made aware of the serious financial
condition of Beneco and what appeared to be
mismanagement, respondent Cosalan initiated
implementation of the remedial measures
recommended by the COA. The respondent
members of the Board of Beneco reacted by
adopting a series of resolutions during the period
from 23 June to 24 July 1984. These Board
Resolutions abolished the housing allowance of
respondent Cosalan; reduced his salary and his
representation and commutable allowances;
directed him to hold in abeyance all pending
personnel disciplinary actions; and struck his name
out as a principal signatory to transactions of
petitioner Beneco.
During the period from 28 July to 25 September
1984, the respondent Beneco Board members
adopted another series of resolutions which
resulted in the ouster of respondent Cosalan as
General Manager of Beneco and his exclusion from
performance of his regular duties as such, as well
as the withholding of his salary and allowances.
These resolutions were as follows:
1. Resolution No. 91-4 dated 28 July 1984: . . . that
the services of Peter M. Cosalan as General
Manager of BENECO is terminated upon approval
of the National Electrification Administration;

2. Resolution No. 151-84 dated September 15,

1984;that Peter M. Cosalan is hereby suspended
from his position as General Manager of the
Benguet Electric Cooperative, Inc. (BENECO)
effective as of the start of the office hours on
September 24, 1984, until a final decision has been
reached by the NEA on his dismissal; . . . that GM
Cosalan's suspension from office shall remain in full
force and effect until such suspension is sooner
lifted, revoked or rescinded by the Board of
Directors; that all monies due him are withheld until
cleared;
3. Resolution No. 176-84 dated September 25,
1984; . . . that Resolution No. 151-84, dated
September 15, 1984 stands as preventive
suspension for GM Peter M. Cosalan.
Respondent Cosalan nevertheless continued to
work as General Manager of Beneco, in the belief
that he could be suspended or removed only by
duly authorized officials of NEA, in accordance with
provisions of P.D. No, 269, as amended by P.D.
No. 1645 (the statute creating the NEA, providing
for its capitalization, powers and functions and
organization), the loan agreement between NEA
and petitioner Beneco 2 and the NEA
Memorandum of 2 July 1980. 3 Accordingly, on 5
October and 10 November 1984, respondent
Cosalan requested petitioner Beneco to release the
compensation due him. Beneco, acting through
respondent Board members, denied the written
request of respondent Cosalan.
Respondent Cosalan then filed a complaint with the
National Labor Relations Commission ("NLRC") on
5 December 1984 against respondent members of
the Beneco Board, challenging the legality of the
Board resolutions which ordered his suspension
and termination from the service and demanding
payment of his salaries and allowances.
ISSUE: whether or not the board of directors validly
suspended and terminated respondent
HELD:
No.As noted earlier, the respondent Board
members responded to the efforts of Cosalan to
take seriously and implement the Audit Memoranda
issued by the COA explicitly addressed to the
petitioner Beneco, first by stripping Cosalan of the
privileges and perquisites attached to his position
as General Manager, then by suspending
indefinitely and finally dismissing Cosalan from
such position. As also noted earlier, respondent
Board members offered no suggestion at all of any

just or lawful cause that could sustain the

suspension and dismissal of Cosalan. They
obviously wanted to get rid of Cosalan and so
acted, in the words of the NLRC itself, "with
indecent haste" in removing him from his position
and denying him substantive and procedural due
process.
Thus, the record showed strong indications that
respondent
Board
members
had
illegally
suspended and dismissed Cosalan precisely
because he was trying to remedy the financial
irregularities and violations of NEA regulations
which the COA had brought to the attention of
Beneco. The conclusion reached by the NLRC that
"the records do not disclose that the individual
Board members were motivated by malice or bad
faith" flew in the face of the evidence of record. At
the very least, a strong presumption had arisen,
which it was incumbent upon respondent Board
members to disprove, that they had acted in
reprisal against respondent Cosalan and in an
effort to suppress knowledge about and remedial
measures against the financial irregularities the
COA Audits had unearthed. That burden
respondent Board members did not discharge.
The Solicitor General has urged that respondent
Board members may be held liable for damages
under the foregoing circumstance under Section
31 of the Corporation Code which reads as
follows:
Sec. 31. Liability of directors, trustees or officers.
Directors or trustees who willfully and knowingly
vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or
bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees
shall be jointly liable and severally for all damages
resulting therefrom suffered by the corporation, its
stockholders or members and other persons . . .
(Emphasis supplied)
We agree with the Solicitor General, firstly, that
Section 31 of the Corporation Code is applicable in
respect of Beneco and other electric cooperatives
similarly situated.
We agree with the Solicitor General, secondly, that
respondent Board members were guilty of
"gross negligence or bad faith in directing the
affairs of the corporation" in enacting the series of
resolutions noted earlier indefinitely suspending
and dismissing respondent Cosalan from the
position of General Manager of Beneco.

Respondent Board members, in doing so, acted

belong the scope of their authority as such Board
members. The dismissal of an officer or employee
in bad faith, without lawful cause and without
procedural due process, is an act that iscontra
legem. It cannot be supposed that members of
boards of directors derive any authority to violate
the express mandates of law or the clear legal
rights of their officers and employees by simply
purporting to act for the corporation they control.
We believe and so hold, further, that not only are
Beneco and respondent Board members properly
held solidarily liable for the awards made by the
Labor Arbiter, but also that petitioner Beneco which
was controlled by and which could act only through
respondent Board members, has a right to be
reimbursed for any amounts that Beneco may be
compelled to pay to respondent Cosalan. Such
right of reimbursement is essential if the innocent
members of Beneco are not to be penalized for the
acts of respondent Board members which were
both done in bad faith and ultra vires. The
liability-generating acts here are the personal and
individual acts of respondent Board members, and
are not properly attributed to Beneco itself.

73

74
JOHN
GOKONGWEI,
JR.,
petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION,
ANDRES M. SORIANO, JOSE M. SORIANO,
ENRIQUE
ZOBEL,
ANTONIO
ROXAS,
EMETERIO BUNAO, WALTHRODE B. CONDE,
MIGUEL ORTIGAS, ANTONIO PRIETO, SAN
MIGUEL
CORPORATION,
EMIGDIO
TANJUATCO, SR., and EDUARDO R. VISAYA,
respondents.
FACTS:
On October 22, 1976, petitioner, as
stockholder of respondent 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.
It was claimed that prior to the questioned
amendment,
petitioner
had
all
the
qualifications to be a director of respondent
corporation, being a Substantial stockholder
thereof; that as a stockholder, petitioner 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,
respondents
purposely
provided
for
petitioner's
disqualification and deprived him of his
vested right as afore-mentioned hence the
amended by-laws are null and void.
Petitioner filed with respondent Commission
a Manifestation stating 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 the Board of
Directors
of
respondent
corporation
disqualifying and precluding petitioner from
being a candidate for director unless he
could submit evidence on May 3, 1977 that
he
does
not
come
within
the
disqualifications specified in the amendment
to the by-laws, subject matter of SEC Case
No. 1375.
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 Item 6 of
the Agenda of the annual stockholders'
meeting on May 10, 1977, or from Making
effective
the
amended
by-laws
of
respondent corporation, 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 9, 1977, the respondent
Commission served upon petitioner copies
of the following orders: xxx (2) Order No.
450, Series of 1977 (SEC Case No. 1375),

allowing petitioner to run as a director of

respondent corporation but stating that he
should not sit as such if elected, until such
time that the Commission has decided the
validity of the bylaws in dispute, and
denying deferment of Item 6 of the Agenda
for the annual stockholders' meeting;

On May 17, 1977, respondent SEC, Andres

M. Soriano, Jr. and Jose M. Soriano filed
their comment, alleging that the petition is
without merit for the following reasons:
(1) that the petitioner the interest he
represents are engaged in business
competitive and antagonistic to that of
respondent San Miguel Corporation, it
appearing that the owns and controls a
greater portion of his SMC stock thru the
Universal Robina Corporation and the
Consolidated Foods Corporation, which
corporations are engaged in business
directly and substantially competing with the
allied businesses of respondent SMC and of
corporations in which SMC has substantial
investments. Further, when CFC and
Robina had accumulated investments.
Further, when CFC and Robina had
accumulated shares in SMC, the Board of
Directors of SMC realized the clear and
present danger that competitors or
antagonistic parties may be elected
directors and thereby have easy and direct
access to SMC's business and trade secrets
and plans;
(2) that the amended by law were adopted
to preserve and protect respondent SMC
from the clear and present danger that
business competitors, if allowed to become
directors, will illegally and unfairly utilize
their direct access to its business secrets
and plans for their own private gain to the
irreparable prejudice of respondent SMC,
and, ultimately, its stockholders. Further, it
is asserted that membership of a competitor
in the Board of Directors is a blatant
disregard of no 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
to preserve and protect itself by excluding
competitors and antogonistic parties, under

the law of self-preservation, and it should be

allowed a wide latitude in the selection of
means to preserve itself;
ISSUE:
Whether or not the provisions of the amended bylaws of respondent corporation, disqualifying a
competitor from nomination or election to the Board
of Directors are valid and reasonable;
Whether or not respondent San Miguel Corporation
could, as a measure of self- protection, disqualify a
competitor from nomination and election to its
Board of Directors.
HELD:
Yes.
It is recognized by an 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. And it is
settled throughout the United States that in
the
absence
of
positive
legislative
provisions limiting 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 or in general
law, such power of self-government being
essential to enable the corporation to
accomplish the purposes of its creation.
Moreover, it is a settled state law in the
United States, according to Fletcher, that
corporations have the power to make bylaws 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."
An exception exists in New Jersey, where
the Supreme Court held that the

Corporation Law in New Jersey prescribed

the only qualification, and therefore the
corporation was not empowered to add
additional qualifications. This is the exact
opposite of the situation in the Philippines
because as stated heretofore, section 21 of
the Corporation Law expressly provides that
a corporation may make by-laws for the
qualifications of directors. Thus, it has been
held that an officer of a corporation cannot
engage in a business in direct competition
with that of the corporation where he is a
director by utilizing information he has
received as such officer, under "the
established law that a director or officer of a
corporation may not enter into a competing
enterprise which cripples or injures the
business of the corporation of which he is
an officer or director.
It is also well established that corporate
officers "are not permitted to use their
position of trust and confidence to further
their private interests."
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.
The offer and assurance of petitioner 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 here involved. Apart from the
impractical results that would ensue from
such arrangement, it would be inconsistent
with petitioner's primary motive in running
for board membership which is to protect
his investments in San Miguel Corporation.
THUS, 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

experience point to the inevitable conclusion that

the inherent tendency of interlocking directorates
between companies that are related to each other
as competitors is to blunt the edge of rivalry
between the corporations, to seek out ways of
compromising opposing interests, and thus
eliminate competition. As respondent SMC aptly
observes, knowledge by CFC-Robina of SMC's
costs in various industries and regions in the
country win enable the former to practice price
discrimination. CFC-Robina can segment the entire
consuming population by geographical areas or
income groups and change varying prices in order
to maximize profits from every market segment.
CFC-Robina could determine the most profitable
volume at which it could produce for every product
line in which it competes with SMC. Access to SMC
pricing policy by CFC-Robina would in effect
destroy free competition and deprive the
consuming public of opportunity to buy goods of the
highest possible quality at the lowest prices.---

75_______________________________________

----Discussion on interlocking directors:

According to the Report of the House Judiciary
Committee of the U. S. Congress on section 9 of
the Clayton Act, it was established that: "By means
of the interlocking directorates one man or group of
men have been able to dominate and control a
great number of corporations ... to the detriment of
the small ones dependent upon them and to the
injury of the public. Shared information on cost
accounting may lead to price fixing. Certainly,
shared information on production, orders,
shipments, capacity and inventories may lead to
control of production for the purpose of controlling
prices.
Obviously, if a competitor has access to the pricing
policy and cost conditions of the products of San
Miguel Corporation, the essence of competition in a
free market for the purpose of serving the lowest
priced goods to the consuming public would be
frustrated, The competitor could so manipulate the
prices of his products or vary its marketing
strategies by region or by brand in order to get the
most out of the consumers. Where the two
competing firms control a substantial segment of
the market this could lead to collusion and
combination in restraint of trade. Reason and

#76
C. H. STEINBERG, as Receiver of the Sibuguey
Trading
Company,
Incorporated
vs. GREGORIO VELASCO, ET AL.
G.R. No. L-30460. March 12, 1929
DOCTRINE:
The creditors of a corporation have the right to
assume that so long as there are debts and
liabilities, the board of directors of the corporation
will not use its assets to purchase its own stock or
to declare dividends to its stockholders when the
corporation is insolvent.
If the directors of a corporation do acts clearly
beyond their power, by reason of which a loss
ensued, or dispose of its property without authority,
they will be required to make good the loss out of
their private estate.
FACTS:

Plaintiff is the receiver of the Sibuguey

Trading Company, a domestic corporation.
The defendants are residents of the
Philippine Islands.

It is alleged that the defendants (president,

vice president, secretary-treasurer and
director), at a BOD meeting, approved and
authorized various lawful purchases already
made of a large portion of the capital stock
of the company from its various
stockholders, thereby diverting its funds to
the injury, damage and in fraud of the
creditors of the corporation.
That the total amount of the capital stock
unlawfully purchased was P3,300.
That at the time of such purchase, the
corporation
had
accounts
payable
amounting to P13,807.50, most of which
were unpaid at the time petition for the
dissolution of the corporation was financial
condition, in contemplation of an insolvency
and dissolution.
As a second cause of action, plaintiff
alleges that on July 24, 1922, the officers
and directors of the corporation approved a
resolution for the payment of P3,000 as
dividends to its stockholders, which was
wrongfully done and in bad faith, and to the
injury and fraud of its creditors.
Plaintiff prays judgment for the sum of
P3,300 from the defendants personally as
members of the Board of Directors, or for
the recovery from the defendants and under
his second cause of action, he prays
judgment for the sum of P3,000, with legal
interest against the board of directors, and
costs.
For answer the defendants Felix del
Castillo, Rufino Manuel, S. R. Ganzon,
DionisioSaavedra and ValentinMatias made
a general and specific denial.
April 30, 1928, the case was tried and
based upon which the lower court dismissed
plaintiff's complaint, and rendered judgment
in favor the defendants.

ISSUES:
a.) Whether or not Sibuguey could legally
purchase its own stock. (Sec. 41)
b.) Whether or not the Board of Directors of
Sibuguey could legally declare a
dividend. (Sec. 43)
HELD:
a.) NO.
In this issue, the SC held that the directors
did not act in good faith or that they were
grossly ignorant of their duties.

It appeared that the action of the board in

purchasing the stock and in declaring
dividends was all done at the same meeting
of the board of directors. At that time,
Ganzon and Mendaros were formally
directors and resigned before the board
approved the purchase and declared
dividends.
In other words, they were permitted to
resign so that they could sell their stock to
the corporation.
b.) NO.
It seemed that the board of directors acted
on the assumption that, because it
appeared from the books thatit had
accounts receivable, therefore it had a
surplus over and above its debts and
liabilities.
However, the SC noted that there was no
stipulation as to the actual cash value of
those accounts. Thus, that in the purchase
of its own stock and in declaring dividends,
the real assets of the corporation were
diminished by Php 6,300.
In other words, the corporation did not have
then an actual bona fide surplus from which
dividends could be paid, and that eh
payment of them in full at that time would
affect the financial condition of the
corporation.
The SC reversed the decision of the lower
court and held the defendants liable.

JOHN GOKONGWEI v. SECURITIES AND EXCHANGE

COMMISSION, ANDRES M. SORIANO, JOSE M.
SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS,
EMETERIO BUNAO, WALTHRODE B. CONDE,
MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL
CORPORATION, EMIGDIO TANJUATCO, SR., and
EDUARDO R. VISAYA

DOCTRINES:
1. 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.
2. A corporation may prescribe in its by-laws the
qualifications, duties and compensation of
directors, officers and employees
3. 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.

Facts: John Gokongwei, as of May 6, 1978, has
exercised, personally or thru two corporations
owned or controlled by him, control over the
following shareholdings in San Miguel Corporation,
vis.: (a) John Gokongwei, Jr. 6,325 shares; (b)
Universal Robina Corporation 738,647 shares; (c)
CFC Corporation 658,313 shares, or a total of
1,403,285 shares. Since the outstanding capital
stock of San Miguel Corporation, as of the present
date, is represented by 33,139,749 shares with a
par value of P10.00, the total shares owned or
controlled by petitioner represents 4.2344% of the
total outstanding capital stock of San Miguel
Corporation.

Gokongwei is the president and substantial
stockholder of Universal Robina Corporation and
CFC Corporation, both of which are allegedly
controlled by the Gokongwei family. These
corporations are engaged in business directly and
substantially competing with San Miguel Corp. and
other corporations where San Miguel has
substantial investments.

Gokongwei sought to be a director of San Miguel
Corporation, but he was prohibited to do so
because the Board of Directors adopted an
amendment of the corporations by-law
disqualifying a competitor from nomination and
election to its Board of Directors as a measure of
protection.
Issue: Are the proposed by-laws reasonable, viz.
Constitutional prohibitions on restraint of trade or
unfair competition and the concept of interlocking
directors?
Held: Yes.
US jurisprudence holds thus: "By means of the
interlocking directorates one man or group of men
have been able to dominate and control a great
number of corporations ... to the detriment of the
small ones dependent upon them and to the injury
of the public. 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.
Indeed, if a director, for example, is to be faithful to
both corporations, some accommodation must
result. Suppose X is a director of both Corporation
A and Corporation B. X could hardly vote for a
policy by A that would injure B without violating his
duty of loyalty to B at the same time he could
hardly abstain from voting without depriving A of

his best judgment. If the firms really do compete

in the sense of vying for economic advantage at the
expense of the other there can hardly be any
reason for an interlock between competitors other
than the suppression of competition.
Obviously, if a competitor has access to the pricing
policy and cost conditions of the products of San
Miguel Corporation, the essence of competition in
a free market for the purpose of serving the lowest
priced goods to the consuming public would be
frustrated, The competitor could so manipulate the
prices of his products or vary its marketing
strategies by region or by brand in order to get the
most out of the consumers. Where the two
competing firms control a substantial segment of
the market this could lead to collusion and
combination in restraint of trade. Reason and
experience point to the inevitable conclusion that
the inherent tendency of interlocking directorates
between companies that are related to each other
as competitors is to blunt the edge of rivalry
between the corporations, to seek out ways of
compromising opposing interests, and thus
eliminate competition. As respondent SMC aptly
observes, knowledge by CFC-Robina of SMC's costs
in various industries and regions in the country win
enable the former to practice price discrimination.
CFC-Robina can segment the entire consuming
population by geographical areas or income groups
and change varying prices in order to maximize
profits from every market segment. CFC-Robina
could determine the most profitable volume at
which it could produce for every product line in
which it competes with SMC. Access to SMC pricing
policy by CFC-Robina would in effect destroy free
competition and deprive the consuming public of
opportunity to buy goods of the highest possible
quality at the lowest prices.
Regarding by-laws: Are the proposed by-laws
reasonable? Yes.
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.
The offer and assurance of petitioner 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 here involved. Apart from the impractical
results that would ensue from such arrangement, it
would be inconsistent with petitioner'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.
JUDGMENT:
On the matter of the validity of the amended by-
laws of respondent San Miguel Corporation, six (6)
Justices, namely, Justices Barredo, Makasiar,
Antonio, Santos, Abad Santos and De Castro, voted
to sustain the validity per se of the amended by-
laws in question and to dismiss the petition
without prejudice to the question of the actual
disqualification of petitioner John Gokongwei, Jr. to
run and if elected to sit as director of respondent
San Miguel Corporation being decided, after a new
and proper hearing by the Board of Directors of
said corporation, whose decision shall be
appealable to the respondent Securities and
Exchange Commission deliberating and acting en
banc and ultimately to this Court. Unless
disqualified in the manner herein provided, the
prohibition in the afore-mentioned amended by-
laws shall not apply to petitioner.