The Doctrine of Corporate Opportunity
deprived him of his right to vote and be voted upon
GOKONGWEI vs SEC
FACTS:
John Gokongwei Jr., a stockholder of San
Miguel Corp., filed a petition with the SEC for the
declaration of nullity of the by-laws, cancellation of
certificate of filing of amended by- laws, injunction
and damages against the majority members of the
Board of Directors and San Miguel Corporation.
According to Gokongwei: The majority of the
members of the Board amended the by-laws of the
corporation, basing their authority to do so on a
resolution of the stockholders adopted on March 13,
1961, when the outstanding capital stock of
respondent corporation was only P70,139.740.00,
divided into 5,513,974 common shares at P10.00 per
share and 150,000 preferred shares at P100.00 per
share. At the time of the amendment, the outstanding
and paid up shares totalled 30,127,047 with a total
par value of P301,270,430.00. It was contended that
according to section 22 of the Corporation Law and
Article VIII of the by-laws of the corporation, the
power to amend, modify, repeal or adopt new by-
laws may be delegated to the Board of Directors only
by the affirmative vote of stockholders representing
not less than 2/3 of the subscribed and paid up
capital stock of the corporation, which 2/3 should
have been computed on the basis of the capitalization
at the time of the amendment (THUS 1961). Not in
1971-76, thus Board acted without authority and
usurped the power of stockholders. 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 up capital
stock of the corporation, which 2/3 could have
been computed on the basis of the capitalization at
the time of the amendment (1961). 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
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 (right
to be vote and be voted upon as a stockholder)
(uestioned amendment gave the Board itself the
prerogative of determining whether they or other
persons are engaged in competitive or antagonistic
business; that the portion of the amended bylaws
which states that in determining whether or not a
person is engaged in competitive business, the Board
may consider such factors as business and family
relationship, is unreasonable and oppressive and,
therefore, void). POINT: Wants to declare the
amended by-laws as null and void.
While this was pending, the corporation
called for a stockholder’s 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 and businesses outside
the primary purpose clause of the corporation in
violation of the Corporation Code.
ISSUE: WON the amended by-laws are valid?
SC held that it is a pure question of law. The
Court held that a corporation has authority prescribed
by law to prescribe the qualifications 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 the
doctrine of corporate opportunity.