Sec23-25JOHN GOKONGWEI, JR., petitioner,vs.

SECFacts:

1)Petitioner alleged thatindividual respondents amended bybylaws of the corporation. It wascontended that according to section 22of the Corporation Law and Article VIIIof the by-laws of the corporation, thepower to amend, modify, repeal or adopt new by-laws may be delegatedto the Board of Directors only by theaffirmative vote of stockholdersrepresenting not less than 2/3 of thesubscribed 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. Since the amendment was based on the 1961 authorization ,petitioner contended that the Board acted without authority and inusurpation of the power of the stockholders. 2)The authority granted in 1961 had already been exercised in1962 and 1963, after which the authority of the Board ceased to exist.3)Petitioner averred that the membership of the Board of Directors had changed since the authority wasgiven in 1961, there being six (6) newdirectors.4)petitioner claimed to have had all the qualifications to be adirector

of respondent corporation,being a Substantial stockholder thereof; that as a stockholder,petitioner had acquired rights inherentin stock ownership, such as the rightsto vote and to be voted upon in theelection of directors; and that inamending the by-laws, respondentspurposely provided for petitioner'sdisqualification and deprived him of hisvested right as aforementioned hencethe amended by-laws are null and void.Petitioner filed with the Securities andExchange Commission (SEC) apetition for "declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by-laws, injunction and damages with prayer for a preliminary injunction"against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner.It was, therefore, prayed that theamended by-laws be declared null andvoid and the certificate of filing thereof be cancelled, and that individual respondents be made to pay damages,in

specified amounts, to petitioner.During the pendency of the motion for production,(another case filed bypetitioner opposed by the respondents)respondents filed their answer to thepetition, denying the substantialallegations (apparently, petitioner wasrejected by the stockholders in his bidto secure a seat in the Board of Directors on the basic issue thatpetitioner was engaged in acompetitive business and his securinga seat would have subjectedrespondent corporation to gravedisadvantages; that "petitioner nevertheless vowed to secure a seat inthe Board of Directors at the nextannual meeting; that thereafter theBoard of Directors amended the bylaws as aforestated.

SEC ordered production and permit toinspect, copying and photographing infavor of the petition , by or on behalf of the petitioner-movant, JohnGokongwei, Jr., of the minutes of thestockholders' meeting of therespondent San Miguel Corporationheld on March 13, 1961, and deniedthe petition the Petition to produce andinspect the Balance Sheet of SanMiguel International, Inc. as well as thelist of salaries, allowances, bonuses,compensation and/or remunerationreceived by respondent Jose M.Soriano, Jr. and Andres Soriano fromSan Miguel International, Inc. and/or itssuccessors-in- interest and held inabeyance the resolution on the matter of production and inspection of theauthority of the stockholders of SanMiguel Corporation to invest the fundsof respondent corporation in SanMiguel International, Inc., until after thehearing on the merits of the principalissues in the above-entitled case.This Order is immediately executoryupon its approval. 2While the petition was yet to be heard,respondent corporation issued a noticeof special stockholders' meeting for thepurpose of "ratification andconfirmation of the amendment to theBy-laws", setting such meeting for February 10, 1977. This promptedpetitioner to ask respondentCommission for a summary judgmentinsofar as

the first cause of action isconcerned. Respondent Commissionissued an order denying the motion for issuance of temporary restrainingorder. After receipt of the order of denial, respondents conducted thespecial stockholders' meeting whereinthe amendments to the by-laws wereratified. On February 14, 1977,petitioner filed a consolidated motionfor contempt and for nullification of thespecial stockholders' meeting.Respondents issued notices of theannual stockholders' meeting, includingin the Agenda thereof, the following:6 . R e a f f i r m a t i o n o f t h e authorization to the Board of Directorsby the stockholders at the meeting onMarch 20, 1972 to invest corporatefunds in other companies or businesses or for purposes other thanthe main purpose for which theCorporation has been organized, andratification of the investmentsthereafter made pursuant thereto.Petitioner filed with the SEC an urgentmotion for the issuance of a writ of preliminary injunction to restrain privaterespondents from taking up Item 6 of the Agenda at the annual stockholders'meeting, requesting that the same beset for hearing on May 3, 1977, thedate set for the second hearing of thecase on the merits. RespondentCommission, however, cancelled thedates of hearing originally

scheduledand reset the same to May 16 and 17,1977, or after the scheduled annualstockholders' meeting. For the purposeof urging the Commission to act,petitioner filed an urgent manifestationon May 3, 1977, but thisnotwithstanding, no action has beentaken up to the date of the filing of theinstant petition.With respect to the aforementionedSEC cases, it is petitioner's contentionbefore this Court that respondentCommission gravely abused its

discretion when it failed to act withdeliberate dispatch on the motions of petitioner seeking to prevent illegaland/or arbitrary impositions or limitations upon his rights asstockholder of respondent corporation,and that respondent are actingoppressively against petitioner, ingross derogation of petitioner's rightsto property and due process. Heprayed that this Court directrespondent SEC to act on collateralincidents pending before it.SC issued temporary restraining order restraining private respondents fromdisqualifying or preventing petitioner from running or from being voted asdirector of respondent corporation andfrom submitting for ratification or confirmation or from causing theratification or confirmation of Item 6 of the Agenda of the annual stockholders' meeting on May 10, 1977, or from Making effective the amended by-laws of respondent corporation, until further orders from this Court or until the Securities and Exchange Commission acts on the matters complained of in the instant petition .After the TRO was issued, Commission served upon

petitioner copies of thefollowing orders:(1) denying petitioner's motion for reconsideration, with its supplement, of the order of the Commission denying inpart petitioner's motion for productionof documents, petitioner's motion for reconsideration of the order denyingthe issuance of a temporary restrainingorder denying the issuance of atemporary restraining order, andpetitioner's consolidated motion todeclare respondents in contempt andto nullify the stockholders' meeting;(2)Allowing petitioner to run as adirector of respondent corporation butstating that he should not sit as such if elected, until such time that theCommission has decided the validity of the bylaws in dispute, and denyingdeferment of Item 6 of the Agenda for the annual stockholders' meeting; and(3)Denying petitioner's motion for reconsideration of the order of respondent Commission denyingpetitioner's motion for summary judgment;Issue: Whether or not amended bylaws are valid is purely a legal question which public interest requires to be resolvedHeld :In the case at bar, there are facts which cannot be denied, viz.: that the amended by-laws were

adopted by theBoard of Directors of the San MiguelCorporation in the exercise of thepower delegated by the stockholdersostensibly pursuant to section 22 of theCorporation Law; that in a specialmeeting on February 10, 1977 heldspecially for that purpose, theamended by-laws were ratified by morethan 80% of the stockholders of record;that the foreign investment in theHongkong Brewery and Distellery, abeer manufacturing company inHongkong, was made by the SanMiguel Corporation in 1948; and that inthe stockholders' annual meeting heldin 1972 and 1977, all foreign investments and operations of San Miguel Corporation were ratified by the stockholders.

Issue: Whether or not the amended by-laws of SMC of disqualifying acompetitor from nomination or electionto the Board of Directors of SMC arevalid and reasonableHeld: It is recognized by an authoritiesthat 'every corporation has the inherentpower to adopt bylaws 'for its internalgovernment, and to regulate theconduct and prescribe the rights andduties of its members towards itself and among themselves in reference tothe management of its affairs. 12 Atcommon law, the rule was "that thepower to make and adopt by-laws wasinherent in every corporation as one of its necessary and inseparable legalincidents. And it is settled throughoutthe United States that in the absenceof positive legislative provisions limitingit, every private corporation has thisinherent power as one of its necessaryand inseparable legal incidents,independent of any specific enablingprovision in its charter or in generallaw, such power of selfgovernmentbeing essential to enable thecorporation to accomplish thepurposes of its creation. 13In this jurisdiction, under section 21 of the Corporation Law, a corporationmay prescribe in its by-laws "thequalifications, duties andcompensation of directors, officers andemployees ... " This must necessarilyrefer to a

qualification in addition tothat specified by section 30 of theCorporation Law, which provides that"every director must own in his right atleast one share of the capital stock of the stock corporation of which he is adirector ... "Any person "who buys stock in acorporation does so with theknowledge that its affairs aredominated by a majority of thestockholders and that he impliedlycontracts that the will of the majorityshall govern in all matters within thelimits of the act of incorporation andlawfully enacted by-laws and notforbidden by law." 15 To this extent,therefore, the stockholder may beconsidered to have "parted with hispersonal right or privilege to regulatethe disposition of his property which hehas invested in the capital stock of thecorporation, and surrendered it to thewill of the majority of his fellowincorporators. ... It cannot therefore be justly said that the contract, express or implied, between the corporation andthe stockholders is infringed ... by anyact of the former which is authorized bya majority ... ." 16Pursuant to section 18 of theCorporation Law, any corporation mayamend its articles of incorporation by avote or written assent of thestockholders representing at least two-thirds of the subscribed capital stock of the corporation If the amendmentchanges, diminishes or restricts therights of the existing

shareholders thenthe disenting minority has only oneright, viz.: "to object thereto in writingand demand payment for his share."Under section 22 of the same law, theowners of the majority of thesubscribed capital stock may amend or repeal any bylaw or adopt new by-laws. It cannot be said, therefore, thatpetitioner has a vested right to beelected director, in the face of the factthat the law at the time such right asstockholder was acquired containedthe prescription that the corporatecharter and the by-law shall be subject