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Section 26. Report of election of directors, trustees and officers.

The objective sought to be achieved by Section 26 is to give the public information, under sanction of oath of
responsible officers, of the nature of the business, financial condition, and operational status of the corporation
together with information on its key officers or managers so that those dealing with it and those who intend to do
business with it may know or have the means of knowing facts concerning the corporation's financial resources and
business responsibility.

Section 27. Disqualification of directors, trustees or officers.

The obvious purpose is to avoid the election or appointment of unworthy officers in view of the fiduciary character of
their positions.

The offense need not involve moral turpitude. The rule applies regardless of the nature or classification of the offense
as long as it is punishable by imprisonment for a period exceeding six (6) years.

If the disqualification is based on a violation of the Code (see Sec. 144.), the duration of the imprisonment is
immaterial, but the commission (not conviction) of the violation must have taken place within the five (5) years prior to
the date of the election or appointment.

De facto directors/trustees/officers

A person is an officer or director de facto where he is in possession of the office and is exercising the duties thereof
under color or appearance of right, but is not an officer or director de jure on account of irregularity in his election; or
ineligibility; or disqualification resulting from a non-residence or not being a stockholder; or failure to take an oath of
office or file a written acceptance of the trust when required by statute or charter or corporate by-laws.

Powers and rights

1. All powers of de jure official


- To bind all persons who acquiesce in their management and direction, and they may continue to
exercise these powers in such binding manner until they are, through proper legal steps, removed from
office and replaced by other legally constituted directors and officers.
2. Powers or acts within the scope of corporate business
3. Right to possess office and to salary
- They do not have the same rights since they may be ousted from office in a proper proceeding and they
cannot recover the salary of the office.
- De facto officers in good faith "are thereby legally entitled to the emoluments of the office including
salary, fees and other compensation attached to the office until they vacate the same" or are removed
in an action for quo warranto or replaced by the election of other persons.

Validity of contracts and acts

A. As to 3rd P
 When acting within the scope of their authority, are just as binding as the acts of the officers de jure, at
least so far as third persons are concerned.
B. Where de facto officers ousted from office
 Acts of de facto officers cannot be collaterally attacked for it is only through direct attack (quo warranto
proceedings) can the election or appointment of a de facto officer be questioned.
 And the fact that a de facto officer is subsequently, in a direct attack, ousted from office, cannot be set
up as a defense by a corporation to escape liability for the acts of its ostensible officer.
Section 28. Removal of directors or trustees

Power of Stockholders or members

A. Generally
 Law does not specify cases for removal of a director or trustee nor even require that removal should be
for sufficient cause or reason.
 The stockholders shall be the ultimate masters, not the directors, "to make the corporate government
responsible to the owners."
 Those who acquire control will have to wait or else make some bargain with the existing directors to
resign in order that they may put in office a new board of directors representing their views or policy.
B. Where director or trustee elected by cumulative voting
 Limitation that a director or trustee cannot be removed without cause if the effect of such removal is to
deprive minority stockholders or members who united in cumulative voting to elect such director, of right
of representation to which they may be entitled under Section 24.
o To protect the minority against any abuse by the majority since there is no cumulative voting in
the removal of directors.
 The rule does not apply where the removal is initiated by the minority stockholders or members
themselves.
C. Where removal done by electing replacement
 The Code requires that the removal "shall take place either at a regular or special meeting called for the
purpose," and "after previous notice to stockholders or members of the corporation of the intention to
propose such removal at the meeting."
D. Where removal done for disqualification
 No need to follow the said procedure. A mere declaration of such disqualification is sufficient to remove
him from office.
E. Where the replacement elected not qualified
 Directors shall serve until the election and qualification of their duly qualified successors.

Power of the board

 The board of directors (or trustees) has no power to remove one of its members as director (or trustee).
 Neither can it replace the vacancy caused by removal effected by the stockholders or members of the
corporation.
 They can be removed only by the power that appointed them.

Power of the Court

GR: No power to remove directors/trustees

 Appointment of receiver: See Sec. 122

Institution of quo warranto proceedings:

"a person who usurps, intrudes into, or unlawfully holds or exercises x x x an office in a corporation created by
authority of law."

Requisites for removal

(1) The removal must "take place either at a regular meeting of the corporation or at a special meeting called for the
purpose";
(2) There must be "previous notice to the stockholders or members of the corporation of the intention to propose such
removal at the meeting"; and

(3) The removal must be "by a vote of the stockholders holding or representing two-thirds (2/3) of the outstanding
capital stock, or if the corporation be a non-stock corporation, by a vote of two-thirds (2/ 3) of the members entitled to
vote."

Requirement of notice of meeting

For removal: expressly state “the intention to propose such removal

For choosing replacements: may be filled by election at the same meeting without further notice, or at any regular
or at any special meeting called for the purpose after giving the prescribed notice. (Sec. 28.) Thus, the stockholders
or members who have removed a director or trustee are also given the power to choose his replacement at the same
meeting.

Resignation

A. Right to resign any time


B. Liability for wrongful resignation
 As part of fraudulent scheme to prejudice the corporation or its stockholders and make profit to his own
advantage or at an unreasonable time if the immediate consequence would be to leave the interest of
the corporation without proper care and protection.
C. Must clearly show an intention to resign and must be reported immediately to the SEC (Sec. 26)
D. Effectivity of registration
GR: The resignation of a corporate official becomes complete and his office becomes vacant the moment
the resignation is made to the proper officer or body, and it is not necessary that the resignation be
accepted, or that someone be elected to take his place, in order to make the resignation effective.
Expn.: Unless a future date of acceptance by the corporation is required by the by-laws

Abandonment of office and failure to attend meetings

A. Acceptance of incompatible office


 Presumed that he abandoned his office as director (or trustee) of the corporation
B. Absence for an unreasonable length of time
 Absence for nearly a year and announced his refusal to act as an officer and stockholder, there is
abandonment of his position as director.
 Implied resignation of his office as director
C. Mere absence or continued failure to attend meetings
 Does not have the effect of vacating his seat or terminating his term of office unless there is some
express provision to such effect
D. Specified no. of unjustified absences as ground for automatic disqualification
 Prescribed in the by-laws

Section 29. Vacancies in the office of director or trustee

 A director or trustee can only be replaced during his term upon his resignation or removal (see Sec. 28.) or
when his position is otherwise lawfully vacated. Temporary absence does not result in vacancy as
contemplated in Section 29.
 Contemplates a vacancy occurring within the director's term of office.

Tenure of successor: only for the unexpired period of term


Prohibition against election of alternate in case of temporary vacancy: To allow such an alternate would be to
have two directors for the same position, one permanent and the other temporary, a situation that finds no sanction in
the law and is irregular.

Filing of Vacancies

A. By the Stockholders/Members
 The stockholders/members may fill the vacancy in the following cases:
o If the vacancy results from the removal by the stockholders or members or the expiration of
term;
o If the vacancy occurs other than by removal or by expiration of term (see Sec. 23, par. 1.),
such as death, resignation, abandonment, or disqualification, if the remaining directors or
trustees do not constitute a quorum for the purpose of filling the vacancy;
o If the vacancy may be filled by the remaining directors or trustees (infra.) but the board refers
the matter to the stockholders or members; or
o If the vacancy is created by reason of an increase in the number of directors or trustees.
B. By the Members of Board
 If still constituting a quorum, at least a majority of the members are empowered
 The power of the board of directors or trustees is not suspended by vacancies in the board unless the
number is reduced below a quorum.
o If four (4) of nine (9) directors died (Nakakaawa naman to apat agad namatay hahahahaha),
the remaining five (5) directors still constitute a quorum, and a majority of the five (5) or three
(3) may fill the four (4) vacancies.28 But if five (5) of the directors died, the vacancies will have
to be filled by the stockholders in a regular or special meeting duly called for the purpose.
 The board has no power to fill any directorship or trusteeship by reason of an increase in the number of
directors or trustees. The amendment increasing the number of directors or trustees which results in a
vacancy becomes effective upon its approval. This is deducible from the last clause of Section 29 which
authorizes the filling of the vacancy "in the same meeting authorizing the increase of directors or
trustees in the notice of meeting."
C. Where the vacancy caused by the resignation of a holdover director
 The stockholders, and not the remaining members of the board, have the power to elect a director to fill
the vacancy.
 Theory of delegated power: in cases where the vacancy in the corporation's board of directors is
caused not by the expiration of a member's term, the successor so elected to fill a vacancy shall be
elected only for the unexpired term of his predecessor in office. The law has authorized the remaining
members of the board to fill a vacancy only in specified instances, so as not to retard or impair the
corporation's operations; yet, in recognition of the stockholders' right to elect the members of the board,
it limited the period during which the successor shall serve only to the unexpired term of his
predecessor in office.

Section 30. Compensation of directors

In the absence of any provision in the by-laws fixing their compensation, the directors or trustees, as such, shall not
receive any compensation, unless authorized by a vote of the stockholders representing at least a majority of the
outstanding capital stock or a majority of the members entitled to vote. Any compensation to the officers of a
corporation without proper authorization in the by-laws or by the vote of the stockholders may be recovered in a
stockholders' suit.

The amount of compensation of directors must be fixed either in the by-laws or in the resolution of the stockholders;
hence, the stockholders cannot delegate to the board of directors the authority to fix the amount of their own
compensation.

Directors w/o authority to grant themselves compensation


1. As a general rule, when directors perform nothing more than the usual and ordinary duties of their office,
they are not entitled to salary or other compensation. The reason is that directors render services
gratuitously and that the return upon their shares adequately furnishes the motives for services without
compensation.
2. Services which are not properly incidental to their office and are rendered outside of their regular duties shall
not be entitled to compensation.

Expn.: A stockholders' resolution or agreement for the payment of compensation for such services would be valid.
But the stockholders cannot ratify a board of directors' action fixing their own salaries. Such action being contrary to
law, cannot be ratified. The stockholders themselves, by the requisite vote, must fix the compensation.

Limit to compensation

The total yearly compensation of directors, as such, shall in no case exceed 10% of the net income before income tax
of the corporation during the preceding year.

Per diems

 In view of the real distinction between per diems and compensation, the per diems granted to directors
should not be included in their total yearly compensation for purposes of the 10% limitation.
 The term “as such director” delimits the prohibition and implicates that members of the board may receive
compensation in addition to reasonable per diems, when they render services to the corporation in a
capacity other than as directors or trustees.
 Per diems received without proper authorization or found to be unreasonably excessive may ordinarily be
recoverable in a stockholders' or members' suit.

Compensation of corporate officers

A. Corporate officers who are not directors


The general rule that directors of a corporation are not entitled to compensation does not apply to corporate
officers who are not directors. Such officers, not being directors and having no control over the funds and
property of the corporation, even though they may be stockholders, do not occupy the relation of trustees to
the corporation.
B. Corporate officers who are directors
Directors who are also corporate officers are entitled, in addition to reasonable per diems as directors, to
compensation as such corporate officers, and the amount thereof may be fixed by mere board resolution in
the absence of provision to the contrary in the by-laws and subject to the provision of Section 32.