JOHN GOKONGWEI, JR. vs.

SECURITIES AND EXCHANGE

COMMISSION

(GR No. L-45911; April 11, 1979)

FACTS: Petitioner John Gokongwei alleged that the respondent corporation has been
investing corporate funds in other corporations or business outside of its primary
purpose in violation of Sec. 17-1/2 of the Corporation Law. Respondents sent notices of
the annual stockholders’ meeting including in the agenda thereof the re-affirmation of
the authorization of the BOD by the stockholders at the meeting to invest corporate
funds in other companies or businesses or for purposes other than the main purpose.
An injunction was prayed for by petitioner, but the date of hearing originally set was
cancelled. No action was taken up to the date of the filing of the instant petition.

ISSUE: WON respondent SEC committed grave abuse of discretion in allowing the
above agenda to be taken up in the stockholders’ meeting?

HELD: No. Section 17-1/2 of the Corporation Law allows a corporation to "invest its
funds in any other corporation or business or for any purpose other than the main
purpose for which it was organized" provided that its Board of Directors has been so
authorized by the affirmative vote of stockholders holding shares entitling them to
exercise at least two-thirds of the voting power. If the investment is made in pursuance
of the corporate purpose, it does not need the approval of the stockholders. It is only
when the purchase of shares is done solely for investment and not to accomplish the
purpose of its incorporation that the vote of approval of the stockholders holding shares
entitling them to exercise at least two-thirds of the voting power is necessary.

Assuming arguendo that the Board of Directors of SMC had no authority to make the
assailed investment, there is no question that a corporation, like an individual, may ratify
and thereby render binding upon it the originally unauthorized acts of its officers or other
agents. This is true because the questioned investment is neither contrary to law,
morals, public order or public policy. It is a corporate transaction or contract which is
within the corporate powers, but which is defective from a supported failure to observe
in its execution the. requirement of the law that the investment must be authorized by
the affirmative vote of the stockholders holding two-thirds of the voting power. This
requirement is for the benefit of the stockholders. The stockholders for whose benefit
the requirement was enacted may, therefore, ratify the investment and its ratification by
said stockholders obliterates any defect which it may have had at the outset.

Besides, the investment was for the purchase of beer manufacturing and marketing
facilities which is apparently relevant to the corporate purpose. The mere fact that
respondent corporation submitted the assailed investment to the stockholders for
ratification at the annual meeting of May 10, 1977 cannot be construed as an admission
that respondent corporation had committed an ultra vires act, considering the common
practice of corporations of periodically submitting for the gratification of their
stockholders the acts of their directors, officers and managers.