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Case Digest on GOKONGWEI V. SEC

November 11, 2010

Case Digest on GOKONGWEI V. SEC

The amendment to the corporate by-law of SMC  which renders a stockholder ineligible to be director, if he be also a director in a corporation whose business is in competition with that of the other corporation, has been sustained as valid.

An officer of a corporation cannot engage in business in direct competition with that of the corporation where he is a director by utilizing information he has received as such officer, under the established law that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the corporation of which he is an officer or director.

A director of SMC has access to sensitive and highly confidential information such as (a) marketing strategies and pricing structure; (b) budget for expansion and diversification; (c) research and development; and (d) sources of funding, availability of personnel, proposals of mergers or tie-ups with other firms.

4.  Seizing corporate opportunity

Sec. 34. Disloyalty of a director. – Where a director. By virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director risked how own funds in the venture.

Sec. 31. Liability of directors, trustees or officers. –  When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the rpofits which otherwise would have accrued to the corporation.

An officer is similarly liable for seizing corporate opportunity because he is considered to have more chances than a board member to do so, since he is usually a full-time corporate agent, with great opportunity and with authority to make decisions on the operational level.

The main problem in most cases would be whether or not the corporate opportunity seized was one which properly belonged to the corporation.

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