que BOARD OF DIRECTORS/TRUSTEES AND OFFICER: Ss ae TITLE 11 BOARD IRECTORS/TRUSTEES AND OFFICERS {the board of directo} veation rs/trustees, offi con under eC tuirccr Code, stockholders Bienes sete a ‘on. The board, in turn, periodically jects y elects me carry out management fi cers tO functions on a day-to-d: 9 toc! lay basis. A: en the st ‘kholders or members have residual 5 ees pfpcree eron o rorate changes Powers over jasof management and ownership while stockholders and members (in some 2 instances) are entitl ceceive profits the management and direction of the fa parati are isa wath thei representatives and agents -- the board of directors or trustees. In other words, acts of management pertain to the board; and those of ship, to the stockholders or members. In the latter case, the board e srmnotactalone, but must seek approval ofthe stockholders or members where do corporate powers reside? Conformably with the foregoing principles, one of the most important rights of a qualified shareholder or member is the right to vote -- either personally or by proxy -- for the directors or trustees who are to manage the corporate affairs. The right to choose the persons who will direct, manage and operate the corporation is significant, because it is the main way in which a stockholder can have a voice in the management of corporate affairs, or in which a member in a nonstock corporation can have a say on tow the purposes and goals of the corporation may be achieved. Once the directors or trustees are elected, the stockholders or members relinquish corporate powers to the board in accordance with law. What is business judgment rule? Contracts intra vires entered into by the board of directors are binding upon the corporation and courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to wanton destruction to the rights of the minority, as when plaintiffs aver that the defendants (members of the board), have concluded a transaction Sou themselves ge will result in serious injury to the plaintiffs stockholders: The reason behind the rule is aptly explained by Dean Cesar tis Villanueva, an esteemed author in corporate law, thus: ¢ ide the business f Courts and other tribunals are wont to overri ¥ judgment of the board mainly because, courts are not in the business of | business, and the laissez faire rule or the free enterprise system prevailing in our social and economic set uP dictates that it is better Jor the State and its organs to leave business ‘0 the businessmen 245eRe - BOARD TITLE Ill - ill-equipped to make busine, a _ SS q tu ct in the corporate fo, °’ tec, when cou" ql contrac AMily 4b cially 30 socia' vines has been vested £6 gah More important) moral pusiness ha: othe boat of the C0! Voy the course 4 rts. not with cou’ pirectors or Trustees of a of Direc! 7 on rovide: Dora, ee fi fase A Sarciaelihe oa Co Aa je ‘erm. e ate Ao ification an stees shal ‘ © po srr of det ond control al properties OF the corpyora4 P%%y all business, sae ted for a term of one (1) year from a Directors shall be ele tered in the corporation's hogy "yy the holders of stocks ie term not exceeding three (3) ye," “hi, trustees shall be nae pearcara dbus Each director and trustes among the ie eee is elected and qualified. irecto, tal e hold office ae east one (1) share of stock or a trustee who ceaseg ee eee of the corporation shall cease to be such, iT jorations vested with The board of the following corp: ah Ublie interest shall have independent directors constituting at least twenty rcent (20%) of such board: ri i Corporations covered by Section 17.2 of Republic Act No, 8799, otherwise known as “The Securities Regulation Code’, namely those whose securities are Tegistered with the Commission, corporations listed with an exchange or with assets of at least Fifty million pesos (P50,000,000.00) ang having two hundred (200) or more holders of shares, each holding at least one hundred (100) shares of a class of its equity shares; (b) Banks and quasi-banks, n associations, Pawnshops, Corporations engaged in money Service business, Preneed, trust and i i , , ind insurance companies, and other financial intermediaries; and onstock savings and loa a ' oF see gprova tract is fair and reasonabje under the circumstances; That the con material contracts incase oF byat least two-thirds (2/3) of nee areapprer at least a majority of rd, ial contract; an . srprove the etait. the contract has been previously authorized in case of ar 5. (ai board of directors. by Td meeting in ‘0 COnStitute q essary for the ? hip agreement whereby Y rete aT tite ett net i act as the exclusive mi Cor - peut oe re Mindanao area fora See Pia Re afer ee ted inten See t of his being the exclusive — y jnanewspanesd Ba rea and was even placed an pabernae nent ina ney products in Mindasen aed = dealer of X Corp.'s pete conen associates, so pe Le app ygis i ind close assoi peecatulates i friends ai i essmen a abdeler inthe Mi Saree i ent, Y entere sub-dealer in the eeiece the dealership gercene ee Davo parse Ra eee hic aliseat p ee with gave thus enable him to el) Sed written agr which wou id commodity. tere 2000 hog regu pyaptithe said 20,000 bags of w! ecessary Ee Nae regas Stl his allocation at? he is making the oe the his supposed buyert ed X Corp. tha letter of credit to ates See eiset of he eet peed et w X vend letter of ' c Pp Senior the Paty ery, looking porn to the afores: .d to impose Price of the due initial ee is rely tothe ae i lealership aj irectors 0 Xa ee the board of di “* Corp. re Conditions,TORO ay itn the dealership agre,, sto comply We eta to Repos ent, several demands Tr, X Com strained to cance! his yest ge by Yt0X COP ances was fpird parties, which were seh i ii ne may vy fore of tothe said dealership agreem coast forthe SUPE pursuant ership agreement between y, a .. in violatig ‘ e and subsisting, Mesut ae eran ‘ wa nich was in FOr pound by the ie with a certrt® then comm intentio® a ve dealership agreement with a certain Chop z evident sive : in exclus indanao. entered ot whie en re avalid and enforce marketing tn rshi a Is the “deal ville Ntrag oad T Under the Corp exercised by the Board of DI jon Code, all corporate powers. Bee en PES otherwise aa ompletely abdicate its power and Tesponsiiy law. although it itl the Board may expressly delegate ee to act for the juridical 3 or any of its officers. In the absence of uch powers to its Sea entered into by its President, on behalf of Sarre craton may stil bind the corporation ifthe board shoul wn the parreeeae or impliedly. Furthermore, even in the a ao a lied suthority by ratification, the President as such may, as express 7 abla the corporation by a contract in the ordinary course eet provided the same is reasonable under the Sera eeeriieereteetinarctal general and they auite flexible. They apply where the President or other officer, purportedly acting for the corporation, is dealing with a third Person, ie, person outside the corporation. The situation is quite different where a director or officer is dealing with his own corporation. In the instant case Y was not ay ordinary stockholder; he was a member of the Board of Directors and Auditor of the corporation as well. He was what is often referred to asa “self-dealing” director. A director of a corporation holds a position of trust and as such, i a duty of loyalty to his Corporation, In case his interests conflict ose of the cor not sacrifice the latter to his own adh poration, he cani ‘oh eee 4s corporate managers, directors are committed imum am for the corporation, This trust ae = lount of profits f TY or technical law. It springs from land guidance of corporate affai’ sence of nota the fact that directors pene Of Statutor and property a nd h fave the contro} : © 4S Of Gokongwel ya t*® PrODerty interests of the see rxnolders” Nn ‘Woted with favor san roe ee Exchange Commission, this ou" Tv. Litton, thus: a s: ~~ He cannot by tn een ageing serngton °fa corporate entity violate the Cat "9 0 masters. He cannot utilize his 1" 276ru wt BpoaRD OF PIRECTORS/TRUSTRES Al : jon and hi ND OFFICERS info? ration and his strategic positiy ze rules of fair play by doin, n for his o viol! onal ig indir wn prefe uid not do directly, ectly th ferme I He camel through tect He came ¢ ‘anno ¥ gntage and £0 the detrimene ne fs Corporation wh irate absolute in terme rice the Stockhotdery or, Ms at mar mulous he is to satisfy te es that power may be point oon ett ubject to the equltable linn requiremens e,o04 70 matier har, ant ggrandizement, fe coh that it mar hat repress ' or xclusion or detriment of the cestuis, advantage of the paaneresed for Br ary to the on the other hand, a director's jeaot inal instances void or voidable. If the aes oorPOFation feasonable under the circumstances, it € contract is fair and mrhoders provided a full disclosure of ne fre ratified by the poade- 3 verse interest is Granting arguendo that the “dealershi sre woul be valid and enforceable entered Sake wrirector oF officer of the corporation, the fact at a te contract was a Director and Auditor BRET aee ena toon First of all,the Court believe thatthe eso eee semeasonable. The "dealership agreement’ entered eta was Ee ata amiply to ¥ 20,000 bags of white cement per month, for oe su price of P9.70 per bag. Y isa businessman phen rea abba known, or at least must be presumed to know, that at eat Bison ae letmmodities in general, and white cement in particular, were Sea and were expected to rise. At the time of the contract, X Corp. ne a even. commenced the manufacture of white cement, the reason sh delivery was not to begin until 14 months later. He must have known ee within that period of six years, there would be a considerable rise in the fice of white cement. No provision was made in the “dealership agreement” to allow for an increase in price mutually acceptable to the parties, Instead, the price was pegged at P9.70 pet bag for the whole 5 years of the contract. Fairness on his partas@ director of the corporation from whom he was to buy the cement, would require such a provision. In fact, this unfairness in the contract is alsoa basis which renders a contract intered into by the President, without authority from the Board of Directors, void or voidable, although it may have been in the ordinary course of business. We believe that the fixed price of P9.70 per bag for a period of 5 years was not fair and reasonable. Y, himself, when he Subsequently entered into contracts to resell the cement to his "new Ts" stipulated as follows: tually determined by us but inno case The price of white cement shall be mu bag (94 Ibs). shail the same be less than P14.00 peUSTEES AND OFFICERS ors/TR pIRECT' oF OARD : é wi-B d into soon after hic» ee tracts were eeabas of them he Protect on in ea : iy Allofthese oor an " preeonwoie erent Why a ee agreement” n vin the ae same manner when he enteraq\ Hey, 5 r, why did the Presig, any increa’ matter, why « ent a the corpora ror that ither? As director, SPecialhy «Mth Maealership 28722 ot do 50 el in “deal ‘ duty was to y's bounden d 1 act j, Boat epee ; Chairaan ery He seule the aes thse n ewe or was the ‘ot to unduly ue js to us quite clear U at he was Baily 5 of this case, he was attempting in effect, to oY of oration; i © is no showing yo Mth te oat the corporation. mre or that they? att himself atthe ped the "dealership agreem SY Wer atifi¢ stockholders rat therefore not valid ¢ contract was Aes nd aware ofits provisions 1 the fruits of his distoyaney“s°™ thy low Court cannot al disloyalty to by stockholders on self-dealing directors, or trustecs RATIFICATION by s nee t of the corporation with directors or trustees contrac c vote of the stockholders representing at He ya neal capital stock or of at least two: the members in a meeting called for the purpose. The requisi 1. Any of the first three conditions set forth in the fir. above section is absent; 2. Full disclosure of the adverse inter involved is made at such meeting; and 3. That the contract is fair and reasonable under the circumstances OP OF Officers least two. -thirds (2 /3) of ites are: St Paragraph of the est of the directors or trustees SEC, 32, Contracts Between Corporation: Directors, - Except in cases of fraud, and Provided the contract is fair anal Peale under the circumstances, a contract between two (Q)or ini ie having interlocking directors shall not be Interlocking director tnd 1%: Provided, That if the interest of the ration is substantial and the A ctor in one (1) cr interest in th i Orpol contract sh; ne Roan °F corporations is merely nominal, the ‘™sofar as the latter co oration Provisions of the preceding sectiot Corp wee erations are concerned. lock capitay oh tOldings, exceeding ty, interlocks, Shall he Consider eT eeRE (20%) of the outstanit a Si ing directors sub iS. with Interlocking ‘ubstantial for purposes ©ARV UP MIREC pe ae TRUSTER, ee § a FFICERS eee the memb these. re ers o, ie rit i th ‘ion who are also directors in chee of din c ectors corporation, ">" a certain eral ule: contract between two or mo, us 5 shall not be invalidated on ae Corporation: t ground al S having intertocky lone. cking ee ite ptract is not fraudulent; and i contract i$ fair and reasonable under the circumsta stances, jon: i ee the interest of the interlocking director j tial and his interestin the other corporation fe one corporation is oe he shall be subject to the provisions of & a ation or corporations are concerned, a corpor Porations is merely n 31 insofar as the substantial interest ‘stockholdings exceeding twenty percent (20%) of th stack shall be considered substantial for me 4 ee capital directors. SEC. 33. Disloyalty of a Director. - Where a director, by virtue of office, acquires a business opportunity which should belong to the ion, thereby obtaining profits to the prejudice of such ion, the director must account for and refund to the latter all such profits, unless the act has been ratified by a vote of the sockholders 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 one’s own funds in the venture. such Doctrine of Corporate Opportunity : i ony A director, by virtue of his office, acquires for unset a Sen mportun ich ion, thereby obtaining P! "pportunity which should belong to the corporation, ther nee pis ‘othe prejudice of such corporation, he must account to th by refunding the same. the fact that the director loctrine shall be applicable, notwithstandinget $ : g the doctrine of cor Porate « 7 py ne store owning OF represen Pty, tor vio? ders “Senting ny gATIELGATION YY director se stock Mean the al stock. ad by a vote ae anding capital he outst can be rat tworthirds SEC. 34. Exec va rovide, the bylaws $0 a "9 ft i, (2/3) 0 ent, and Other Special Comp, Managemen e a Mittes, create an executive a8 board etors. Said committes °°"; three (3) director's, Specter sey ane ed of at least Ur gabers, on SU ed to it in the byjgr™ ti, compormyote of all its 1 may be delegat Vlaws 6, majority Wy or the board, 3S ept with respect to the: (a) @PProval oe / approval is also requireg; b) fi” Ming i reholders any action foe hic ¢; (€) amendment or repeal of bylaw. n jes i repeal of any reso}, ” of vacances in bylaws; (d) ra ms ahi repent ado tion aah by its express ter able, the board wt onof eas dividends to the shareholders and (e) distribution O'qirectors may create Special committee; Tie) bone ie ent nature and determine the members’ term, femora or Pala tion, powers, and responsibilities. composition, compensa TTEE ees vee by the by-laws and composed of not less than three je the statutory limitations, has qi) th bers of the board which, subject to ry lin : ice ie board of directors to the extent provided in the by-laws, Limitations on the powers of the executive committee 1. Approval ofany action for which shareholders’ approval is also required 2. Filing of vacancies in the board; 3, Amendment or repeal of by-laws or the adoption of new by-laws; 4, Amendment orrepeal of any resolution of the board which by its express terms is not amendable orrepealable; and 5. Distribution of cash dividends to the shareholders, Quorum required of The committe Specific matters withi Problem: the executive committee “may act, by majority vote of all its members, on such in the competence of the board. CF Corp’ a Board of Direoyee ormer President wrote a letter to the corporation ning the board’s creation of the position” ministration, 's) for Corporate Planning, pee lection theret “tt @ Monthly remuneration of P13: ___Inhis aforesaid | of certain members of the board. af sition actions to recover from, duested the board to take neces Positions ‘he saat they haven ved ted t© the aforement” ceived, 2a._ BOARD OF DIRE (i g “TORS TRUSTE ae SAND OFFICE RS subsequently, C, purpor rtedl , among which in gpoiders amone which ISX Corp, fee wan es as a derivat Ten eePresentat ie Beta Pe tvcncmane againcd With the Sut were gots of Paiiitinsweracrcl ore 1 pees aPetition whiee A ement F Corps Beat Nea is Higgon and ts shareholders g ‘sine ee “MNand ae ages nanai? Te Inere ee : & _ creation of an executive joard with compensation committee com apfce which, £0 G is not ved Foo Pon cemPosed of menber ahd whose Junction merely a for in the eee pr per tot ermeral Manage’; uplicates those of a corporation resident an, id XXX pid F Corp.’s Board of Di i D croatin8 the executive committee? rectors acted within its po ‘i wers in. ri nse Unfortunately, the bylaws of the qeation by its board of directors of © comporation are silent sto th aetjon 35 of the Corporation Code ee Under tion Code), the creation of an ex low Section 34, Revised teoiged fr in the bylaws ofthe SR aMo on Hamed Notwithstanding the silence of F Corp.'s byl: cannot rule that the creation of the rauaratebeatntess b ee eee nots i illegal or unlawful. One reason i hai a as to the true nature and functions of said acai od cane considering that the "executive committee,” Reeredtaii s ee of the Corporation Code (Now Section 34, Se casas Code) which is as powerful as the board of directors ate acting for the board itself, should be distinguished from other ae s which are within the competency of the board to create at any time ei whose actions require ratification and confirmation by the board. is that the Board of Directors has the power to create positions not provided for in F Corp’s bylaws since the board is the corporation's governing body, clearly upholding the power of its board to exercise its prerogatives in managing the business affairs of the corporation?” of temporary or create special committees mn, compensation, __ The board of directors may es it nature and determine the members’ term, compositio’ erage Services: ne Y= zara $00, etal GN