Gokongwei vs.

SEC, 89 SCRA 336 (1979)

Facts: Petitioner, stockholder of San Miguel Corp. filed a

petition with the SEC for the declaration of nullity of the bylaws 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 capital stock 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 and businesses outside the primary
purpose clause of the corporation in violation of the
Corporation
Code.
Issue: Are

amendments

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
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 bylaws 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.