Gokongwei v.
SEC, 1979 section 22 of the Corporation Law; that in a special meeting on
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 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. 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 in amending the
by-laws in1976. 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 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
corporations and businesses outside the primary purpose
clause of the corporation in violation of the Corporation Code.
Issues/Ruling:
1. Whether the amendment of bylaws is valid –
yes. In the case at bar, there are facts which cannot be denied,
viz.: that the amended by-laws were adopted by the Board of
Directors of the San Miguel Corporation in the exercise of the
power delegated by the stockholders ostensibly pursuant to
February 10, 1977 held specially for that purpose, the
amended by-laws were ratified by more than 80% of the
stockholders of record; that the foreign investment in the
Hongkong Brewery and Distellery, a beer manufacturing
company in Hongkong, was made by the San Miguel
Corporation in 1948; and that in the stockholders' annual
meeting held in 1972 and 1977, all foreign investments and
operations of San Miguel Corporation were ratified by the
stockholders.
2. Whether or not the amended by-laws of SMC of disqualifying
a competitor from nomination or election to the Board of
Directors of SMC are valid and reasonable —
yes. The validity or reasonableness of a by-law of a corporation
in 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 a legal sense unreasonable and therefore unlawful is a
question of law. This rule is subject, however, to the limitation
that 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 their
authority.
In this jurisdiction, under section 21 of the Corporation Law, a
corporation may prescribe in its by-laws "the qualifications,
duties and compensation of directors, officers and employees
... " This must necessarily refer to a qualification in addition to
that specified by section 30 of the Corporation Law, which
provides that "every director must own in his right at least one
share of the capital stock of the stock corporation of which he
is a director ... "