Gokongwei Case

GOKONGWEI VS.
SECURITIES & EXCHANGE COMMISSION

Facts:
Petitioner, stockholder of San Miguel Corp. filed a petition with the SEC for
the declaration of nullity of the by-laws etc. against the majority members of
the BOD and San Miguel. It is stated in the by-laws that the amendment or
modification of the by-laws may only be delegated to the BODs upon
an affirmative vote of stockholders representing not less than 2/3 of the
subscribed and paid uo capitalstock of the corporation, which 2/3 could
have been computed on the basis of the capitalization at the time of
the amendment. Petitioner contends that the amendment was based on the
1961 authorization, the Board acted without authority and in usurpation of
the power of the stockholders n amending the by-laws in 1976. He also
contends that the 1961 authorization was already used in 1962 and 1963.
He also contends that the amendment deprived him of his right to vote and
be voted upon as a stockholder (because it disqualified competitors from
nomination and election in the BOD of SMC), thus the amended by-laws
were null and void. While this was pending, the corporation called for a
stockholders meeting for the ratification of the amendment to the by-laws.
This prompted petitioner to seek for summary judgment. This was denied
by the SEC. In another case filed by petitioner, he alleged that the
corporation had been using corporate funds in other corps
andbusinesses outside the primary purpose clause of the corporation in
violation of the Corporation Code.
Issue: WON the amendments are valid?
Held:
The validity and reasonableness of a by-law is purely a question of
law. Whether the by-law is in conflict with the law of the land, or with
the charter of the corporation or is in legal sense unreasonable and
therefore unlawful is a question of law. However, this is limited where
the reasonableness of a by-law is a mere matter of judgment, and

one upon which reasonable minds must necessarily differ,
a court would not be warranted in substituting its judgment instead of
the judgment of those who are authorized to make by-laws and who
have exercised authority. The Court held that a corporation has
authority prescribed by law to prescribe thequalifications of directors.
It 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. A corporation, under the Corporation law,
may prescribe in its by-laws the qualifications, duties and
compensation of directors, officers, and employees. 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 he impliedly
contracts that the will of the majority shall govern in all matters within
the limits of the acts of incorporation and lawfully enacted by-laws
and not forbidden by law. Any corporation may amend its by-laws by
the owners of the majority of the subscribed stock. It cannot thus be
said that petitioners has the vested right, as a stock holder, to be
elected director, in the face of the fact that the law at the time such
stockholder's right was acquired contained the prescription that the
corporate charter and the by-laws shall be subject to amendment,
alteration and modification. A Director stands in a fiduciary relation to
the corporation and its shareholders, which is characterized as a trust
relationship. An amendment to the corporate by-laws 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 employed in the service of a rival
company, he cannot serve both, but must betray one or the other.
The amendment in this case serves to advance the benefit of the
corporation and is good. Corporate officers are also not permitted to
use their position of trust and confidence to further their private
needs, and the act done in furtherance of private needs is deemed to

be for the benefit of the corporation. This is called thedoctrine of
corporate opportunity.

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GOKONGWEI VS.

SECURITIES & EXCHANGE COMMISSION

the reasonableness of a by-law is a mere matter of judgment, and

needs, and the act done in furtherance of private needs is deemed to

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