Gokongwei, Jr vs SEC FACTS: Gokongwei, Jr is a stockholder of SMC representing: Gokongwei, Jr- 6 325 Universal Robina- 738 647 Considated

d Foods- 658 313 TOTAL 1 403 258/ 33 139 749= 4.2344% URC and CFC (both closely held) are substantially owned and allegedly controlled by petitioner and his family. Both URC and CFC are engaged in businesses directly and substantially competing with businesses of SMC and corpos which MSC has substantial investments. On Sept. 1976, the BOD of SMC amended the by laws of the corporation. The BOD has the power to amend, modify, repeal or adopt new by laws for such was validly delegated to the board by a resolution of the stockholders in 1961. The contested portion of the amended by laws is the disqualification of a stockholder to be elected as a BOD to wit: stockholder who is a BOD/officer of a competing corporation shall not be eligible to run as BOD of SMC. Petitioner filed with the SEC a declaration of nullity of such amended by laws. He contended that corporations have no inherent power to disqualify a stockholder from being elected as a director therefore the question asked is ultra vires and void. In connection with the same case, he filed with the SEC an urgent motion for production and inspection of documents alleging that the secretary refused to allow him to inspect its records despite request. To wit: minutes of the meeting, management contracts, latest balance sheet of San Miguel International and authority to invest funds in San Miguel International. San Miguel International is a subsidiary of SMC, SMC wholly owns SMI and is controlled by the former. ISSUES: 1. Whether or not the amended by laws of the Corporation are valid. 2. Whether or not the amended by laws of SMC disqualifying a competitor from nomination or election to the BOD of SMC are valid and reasonable. 3. Whether or not a stockholder of SMC be denied of examination of the records of SMI, a fully owned subsidiary of SMC. RULING: 1. Whether or not the amended by laws of the Corporation are valid. YES. In the case at bar, the facts cannot be denied that the amended by laws were adopted by the BOD of SMC pursuant to Sec 22 of the Corpo Code, in a special meeting on Feb 10, 1977 held especially for that purpose, the amended by laws were ratified by more than 80% of the stockholders of record. 2. Whether or not the amended by laws of SMC disqualifying a competitor from nomination or election to the BOD of SMC are valid and reasonable. YES. The court ruled in the affirmative despite the claims of the petitioner 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 and at the same time depriving him of the vested right to be voted for and to vote for a person of his choice as a director. As provided in section 48 of the Corpo Code: the corporation may prescribe in its by-laws the qualifications, duties and compensation of its directors, employees, and officers. And as validly claimed by the respondents, the petitioner cannot devote an unselfish and undivided loyalty to the corporation. That what SMC did was a preventive measure to assure its stockholders an unrestrained self interest of its directors. That access to confidential information by a competitor may result either in the promotion of the interest of the competitor at the expense of SMC. VESTED RIGHT. A stockholder has no vested right to be elected director. It has been settled that any person who buys stocks in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholder and he impliedly contracts with the will of the majority. It cannot therefore be said that petitioner has vested right to be elected director, in the face of the fact the law at the time right as stockholder was acquired is subject to amendment, alteration or modification. To the question whether disqualification is valid. It is nit denied that a member of the BOD of SMC has access to sensitive and highly confidential information such as: Marketing strategies Pricing structures Research and development Sources of funding Therefore, it is obvious tat the amended by-laws were create to prevent an opportunity for an officer of SMC and at the same time officer of a rival corporation to take advantage of the information he gets from SMC to its prejudice. It shall be impossible to satisfy the duty of loyalty of a director to both corporations and place his performance above his personal concerns. Certainly, a person cannot serve two hostile masters at the same time without detriment to one of them. Combinations in restraint of trade. Another important consideration is the prohibition enshrined in the constitution wit regard to combinations in restraint of trade. Section 2 Article 14 of the Constitution the State shall regulate or prohibit private monopolies when public interest so requires. No combinations in restraint of trade or unfair competition shall be snowed. The election of the petitioner to the Board of SMC may bring about an illegal situation. Interlock permits the coordination of policies between nominally independent firms to an extent that competition between them may completely be eliminated. Discriminatory Neither is the court persuaded by the respondents claim that such amended by laws prevents his candidacy to the board. If the by laws were to be applied in the case of one stockholders but waived in the case of another, then it could reasonably be claimed that such is applied in a discriminatory manner. However, by the by laws and by its terms, applies to all stockholders. While the court sustains the validity of the amended by laws, it does follow that as a necessary consequence, petitioner is ipso facto disqualified. Consonant with the requirement of due process, there must be hearing at which the petitioner must be given the fullest opportunity to show hat is not covered by the disqualification. 3. Whether or not a stockholder of SMC be denied of examination of the records of SMI, a fully owned subsidiary of SMC. YES. The petitioner is entitled to inspect books and records. Pursuant to Section 51 of the corporation code: The record of all business transactions of the Corpo sand minutes of any meeting shall be open to the inspection of any director, member or stockholder of the Corporation at reasonable hours. The stockholders right of inspection of books and records is based upon their ownership of assets and properties of the corporation. In the case of Bailey, an American jurisprudence: stockholders were entitled to inspect the records of a controlled subsidiary corporation which used the same office and directors. In the case at bar, it should be noted that SMIs records and books are in the hands of the SMC. Therefore, the amendments to the by laws and the disqualification clause are held to valid and petitioner is entitled to inspect the books and records of SMI.