G.R. No.

L-45911 April 11, 1979

JOHN GOKONGWEI, JR., petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION SEC, ANDRES M. SORIANO, JOSE M.
SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B.
CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO
TANJUATCO, SR., and EDUARDO R. VISAYA, respondents.
De Santos, Balgos & Perez for petitioner.
Angara, Abello, Concepcion, Regala, Cruz Law Offices for respondents Sorianos
Siguion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation.
R. T Capulong for respondent Eduardo R. Visaya.

Facts: GOKONGWEI, stockholder of San Miguel Corp. filed a petition with the SEC for the
declaration of nullity of its 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 xxx, thus, the paid-up capital stock of
the corporation, which 2/3, could have been computed based on the capitalization at the time of
the amendment.

GOKONGWEI contends that the amendment was based on the 1961 authorization, the Board
acted without authority and in the usurpation of the power of the stockholders in amending the
by-laws in 1976.

GOKONGWEI also contends that the 1961 authorization was already used in 1962 and 1963.
Furthermore, he also contends that the amendment, deprived him of his right to vote and be
voted upon as a stockholder (because amended BY-LAWS disqualifies competitors
from nomination and election in the BOD of San Miguel Corp), thus the amended by-
laws were null and void.

While this was pending, the corporation called for a stockholder’s meeting for ratifying the
amendments to the by-laws. This prompted GOKONGWEI to seek summary judgment. This
was denied by the SEC.

In another case filed by GOKONGWEI, 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 by-laws is purely a question of law. Whether the by-
laws are 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 by-laws 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 under the law has authority
prescribed, within the authority vested on its by-laws 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
about 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 have the vested right, as a stockholder, 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 board of directors 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 is also a director in a corporation whose business
competes with that of the other corporation, and therefore 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.