(A case involving political contributions by a company)

Facts

On March 14, 1960, the representative directors of A company, Y et.al., made a political donation of Y3.5 million to the Liberal Democratic Party in the name of A company. X, a shareholder in A Company, has taken the responsibility of the directors in filing this representative lawsuit, alleging that the act of making a political donation undertaken by Y et al. is an act outside the scope of business prescribed by the Articles of Incorporation, namely "manufacture and sale of iron and steel products and all matters incidental thereto," and, therefore, in violation of the Articles of Incorporation, and also that the directors are in violation of their duty of loyalty. X prevailed in the court of first instance. The court held that a company's activities could be divided into transactional activities for the purpose of making a profit and free, non-transactional activities and that, regarding the latter, while directors cannot be held to have individual liability for those socially responsible activities for which it is reasonable to expect the consent of all shareholders, political contributions do not come under this heading. However, the court of second instance reversed the lower court, saying that political contribution is a socially useful activity and, if undertaken within appropriate and recognizable limits, directors do not have any liability to the company for such contributions. X appealed to the Supreme Court claiming that constitutionally, and from the standpoint of maintaining public order, the political contribution in question was an unconstitutional activity which infringed on the political rights of the citizens and also on the free political activities of the individual shareholders.

Gist

Appeal dismissed.

1) "Political contributions by a company, when observed objectively and in the abstract, can be recognized as the carrying out by the company of its role in society and, as such, is not prevented from being an activity within the scope of the purpose stated in the Articles of Incorporation."

2) "Each of the rights and obligations of citizens laid down in Article 3 of the Constitution, insofar as possible as a matter of temperament, are understood to apply equally to domestic juridical persons. Consequently, a company, in the same manner as a natural person who is a citizen, is entitled to freely undertake political activities in either support and promotion or opposition to specific policies of the country or of a political party. The donation of political funds is certainly one aspect of this freedom and, when such a donation is undertaken by a company, even if it will exert influence over political trends, there is no constitutional requirement that it be treated any differently than a donation by a natural person who is a citizen."

3) "While the donation of political funds by directors acting as representative of a company is, practically-speaking within the scope of business of a company, those directors must determine the amount of the contribution and can go beyond the scope if they make an unsuitable contribution. In such a case, their activities would be considered to be in violation of the director's duty of loyalty."

(translation by Vicki L. Beyer)

Temple University Japan