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BOARD OF DIRECTORS
AND TRUSTEES
TOPIC IN CORPORATION LAW
SECTION B- ATTY. EDIZA

DOCTRINE OF CENTRALIZED
MANAGEMENT
ALL CORPORATE POWERS ARE EXERCISED BY THE BOD OR BOT.(CC, SEC. 23). HOWEVER,
THIS DOCTRINE IS NOT APPLICABLE TO THE FOLLOWING INSTANCES:
1. IN CASE OF DELEGATION TO THE EXECUTIVE COMMITTEE DULY AUTHORIZED IN THE BY-
LAWS;
2. AUTHORIZATION PURSUANT TO A CONTRACTED MANAGER WHICH MAY BE AN
INDIVIDUAL, A PARTNERSHIP, OR ANOTHER CORPORATION; AND
3. IN CASE OF CLOSE CORPORATIONS, THE STOCKHOLDERS MAY MANAGE THE BUSINESS
OF THE CORPORATION INSTEAD OF A BOARD OF DIRECTORS, IF THE ARTICLES OF
INCORPORATION SO PROVIDE.

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SAMPLE GIS

BUSINESS JUDGMENT RULE

QUESTIONS OF POLICY OR MANAGEMENT ARE LEFT SOLELY TO THE HONEST DECISION OF OFFICERS AND
DIRECTORS OF A CORPORATION AND THE COURTS ARE WITHOUT AUTHORITY TO SUBSTITUTE THEIR
JUDGMENT FOR THE JUDGMENT OF THE BOARD OF DIRECTORS; THE BOARD IS THE BUSINESS MANAGER
OF THE CORPORATION AND SO LONG AS IT ACTS IN GOOD FAITH, ITS ORDERS ARE NOT REVIEWABLE BY
THE COURTS OR THE SEC. THE DIRECTORS ARE ALSO NOT LIABLE TO THE STOCKHOLDERS IN
PERFORMING SUCH ACTS. (MONTELIBANO V. BACOLOD-MURICA MILLING CO., G.R. NO. L-15092, MAY 18,
1962; PHIL. STOCK EXCHANGE, INC. V. CA, G.R. NO. 125469, OCTOBER 27, 1997)
GR: CONTRACTS INTRA VIRES ENTERED INTO BY THE BOARD OF DIRECTORS ARE BINDING UPON THE
CORPORATION BEYOND THE INTERFERENCE OF COURTS. THE COURTS ARE BARRED FROM INTRUDING
INTO BUSINESS JUDGMENTS OF CORPORATIONS, WHEN THE SAME ARE MADE IN GOOD FAITH. (ONG V TIU,
G.R. NO. 144476. APRIL 8, 2003)
XPNS: COURTS CAN INQUIRE UNTO CONTRACTS WHICH ARE:
1. Unconscionable and oppressive as to amount to wanton destruction to the rights of the minority.(Ong v Tiu,
ibid);and
2. Bad faith or gross negligence by the directors.(Republic Communications Inc v CA, G.R. No. 135074, January 29,
1999)

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TENURE, QUALIFICATIONS AND

DISQUALIFICATIONS OF DIRECTORS
OR TRUSTEES
TERM OF OFFICE OF BOD/BOT
GR: THE REGULAR DIRECTOR SHALL HOLD OFFICE FOR 1 YEAR.
XPN: IF NO ELECTION IS HELD, THE DIRECTORS AND OFFICERS WILL CONTINUE TO OCCUPY
POSITION EVEN AFTER THE LAPSE OF 1 YEAR UNDER A HOLD-OVER CAPACITY UNTIL THEIR
SUCCESSORS ARE ELECTED AND QUALIFIED.

NOTE: THIS IS APPLICABLE TO A GOING CONCERN WHERE THERE IS NO BREAK IN THE

EXERCISE OF THE DUTIES OF THE OFFICERS AND DIRECTORS. (SEC OPINION, DEC. 15, 1989)

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TENURE, QUALIFICATIONS AND DISQUALIFICATIONS

OF DIRECTORS OR TRUSTEES
TERM – IT IS THE TIME DURING WHICH THE OFFICER MAY CLAIM TO HOLD THE OFFICE AS A
MATTER OF RIGHT, AND FIXES THE INTERVAL AFTER WHICH THE SEVERAL INCUMBENTS SHALL
SUCCEED ONE ANOTHER. THE TERM OF OFFICE IS NOT AFFECTED BY THE HOLDOVER. IT IS
FIXED BY STATUTE AND DOES NOT CHANGE SIMPLY BECAUSE THE OFFICE MAY HAVE BECOME
VACANT, NOR BECAUSE THE INCUMBENT HOLDS OVER IN OFFICE BEYOND THE END OF THE
TERM DUE TO THE FACT THAT A SUCCESSOR HAS NOT BEEN ELECTED.
TENURE – REPRESENTS THE TERM DURING WHICH THE INCUMBENT ACTUALLY HOLDS OFFICE.
THE TENURE MAY BE SHORTER (OR, IN CASE OF HOLDOVER, LONGER) THAN THE TERM FOR
REASONS WITHIN OR BEYOND THE POWER OF THE INCUMBENT.
HOLDOVER PERIOD – THE TIME FROM THE LAPSE OF ONE YEAR FROM A MEMBER’S ELECTION
TO THE BOARD AND UNTIL HIS SUCCESSOR’S ELECTION AND QUALIFICATION. IT IS NOT PART OF
THE DIRECTOR’S ORIGINAL TERM OF OFFICE, NOR IS IT A NEW TERM; THE HOLDOVER PERIOD,
HOWEVER, CONSTITUTES PART OF HIS TENURE.(VALLE VERDE COUNTRY CLUB V. AFRICA, G.R.
NO. 151969, SEPTEMBER 4, 2009)

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CUMULATIVE VOTING/ STRAIGHT VOTING

DIFFERENT METHODS OF VOTING

1. STRAIGHT VOTING – EVERY STOCKHOLDER “MAY VOTE SUCH NUMBER OF SHARES FOR AS MANY
PERSONS AS THERE ARE DIRECTORS” TO BE ELECTED.

2. CUMULATIVE VOTING FOR ONE CANDIDATE – A STOCKHOLDER IS ALLOWED TO CONCENTRATE HIS

VOTES AND “GIVE ONE CANDIDATE, AS MANY VOTES AS THE NUMBER OF DIRECTORS TO BE ELECTED
MULTIPLIED BY THE NUMBER OF HIS SHARES SHALL EQUAL.”

3. CUMULATIVE VOTING BY DISTRIBUTION – A STOCKHOLDER MAY CUMULATE HIS SHARES BY

MULTIPLYING THE NUMBER OF HIS SHARES BY THE NUMBER OF DIRECTORS TO BE ELECTED AND
DISTRIBUTE THE SAME AMONG AS MANY CANDIDATES AS HE SHALL SEE FIT.

NOTE: CUMULATIVE VOTING IN CASE OF NON-STOCK CORPORATIONS IS ALLOWED ONLY IF IT IS

PROVIDED IN THE AOI. THE MEMBERS OF NON-STOCK CORPORATIONS MAY CAST AS MANY VOTES AS
THERE ARE TRUSTEES TO BE ELECTED BUT MAY CAST NOT MORE THAN ONE VOTE FOR ONE CANDIDATE.

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QUORUM
QUORUM REQUIRED IN A STOCK OR NON-STOCK CORPORATION
UNLESS OTHERWISE PROVIDED FOR IN THE BY-LAWS, A QUORUM SHALL CONSIST OF THE
STOCKHOLDERS REPRESENTING A MAJORITY OF THE OUTSTANDING CAPITAL STOCK
ENTITLED TO VOTE OR A MAJORITY OF THE MEMBERS IN THE CASE OF NON-STOCK
CORPORATIONS. (CC, SEC. 52)

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REMOVAL
POWER TO REMOVE DIRECTORS OR TRUSTEES
THE POWER TO REMOVE BELONGS TO THE STOCKHOLDERS EXCLUSIVELY. (SEC. 28, CC)
GR: REMOVAL MAY BE WITH OR WITHOUT CAUSE
XPN: IF THE DIRECTOR WAS ELECTED BY THE MINORITY, THERE MUST BE CAUSE FOR
REMOVAL BECAUSE THE MINORITY MAY NOT BE DEPRIVED OF THE RIGHT TO
REPRESENTATION TO WHICH THEY MAY BE ENTITLED UNDER SEC. 24 OF THE CODE. (SEC.
28, CC)

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FILLING OF VACANCIES
WAYS OF FILLING UP THE VACANCIES IN THE BOARD
1. VACANCIES TO BE FILLED UP BY STOCKHOLDERS OR MEMBERS: (ERORI)
• Expiration of term;
• Removal;
• Grounds Other than removal or expiration of term, where the remaining directors do not
constitute a quorum for the purpose of filling the vacancy;
• If the vacancy may be filled by the remaining directors or trustees but the board Refers the
matter to stockholders or members; or
• Increase in the number of directors results to vacancy.

2. VACANCIES FILLED UP BY MEMBERS OF THE BOARD

• IF STILL CONSTITUTING A QUORUM, AT LEAST A MAJORITY OF THE MEMBERS ARE
EMPOWERED TO FILL ANY VACANCY OCCURRING IN THE BOARD OTHER THAN BY REMOVAL
BY THE STOCKHOLDERS OR MEMBERS OR BY EXPIRATION OF TERM. (CC, SEC. 29)

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COMPENSATION
COMPENSATION OF DIRECTORS
GR: DIRECTORS, IN THEIR CAPACITY AS SUCH, ARE NOT ENTITLED TO RECEIVE ANY
COMPENSATION EXCEPT FOR REASONABLE PER DIEMS.
XPNS:
WHEN THEIR COMPENSATION IS FIXED IN THE BY- LAWS;
WHEN GRANTED BY THE VOTE OF STOCKHOLDERS REPRESENTING AT LEAST A MAJORITY OF
THE OUTSTANDING CAPITAL STOCK AT A REGULAR OR SPECIAL MEETING; OR
IF THEY PERFORM SERVICES OTHER THAN AS DIRECTORS OF THE CORPORATION (I.E. WHERE
DIRECTORS ARE ALSO CORPORATE OFFICERS OR EMPLOYEES OF THE CORPORATION). (SEC.
30, CC)

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FIDUCIARY DUTIES AND LIABILITY RULES

NATURE OF THE OBLIGATION OF THE DIRECTORS TO THE CORPORATION
THE DIRECTORS’ CHARACTER IS THAT OF A FIDUCIARY INSOFAR AS THE CORPORATION AND
THE STOCKHOLDERS AS A BODY ARE CONCERNED. AS AGENTS ENTRUSTED WITH THE
MANAGEMENT OF THE CORPORATION FOR THE COLLECTIVE BENEFIT OF THE
STOCKHOLDERS, THEY OCCUPY A FIDUCIARY RELATION, AND IN THIS SENSE THE RELATION IS
ONE OF TRUST.
THE ORDINARY TRUST RELATIONSHIP OF DIRECTORS OF A CORPORATION AND
STOCKHOLDERS SPRINGS FROM THE FACT THAT DIRECTORS HAVE THE CONTROL AND
GUIDANCE OF CORPORATE AFFAIRS AND PROPERTY AND HENCE OF THE PROPERTY
INTERESTS OF THE STOCKHOLDERS. EQUITY RECOGNIZES THAT STOCKHOLDERS ARE THE
PROPRIETORS OF THE CORPORATE INTERESTS AND ARE ULTIMATELY THE ONLY
BENEFICIARIES THEREOF. (GOKONGWEI VS. SEC, SUPRA)

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DOCTRINE OF CORPORATE OPPORTUNITY

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, THEREBY OBTAINING PROFITS TO THE
PREJUDICE OF SUCH CORPORATION, IS GUILTY OF DISLOYALTY AND SHOULD, THEREFORE,
ACCOUNT TO THE LATTER FOR ALL SUCH PROFITS BY REFUNDING THE SAME,
NOTWITHSTANDING THAT HE RISKED HIS FUNDS IN THE VENTURE. (CC, SEC. 34)
A DIRECTOR SHALL REFUND TO THE CORPORATION ALL THE PROFITS HE REALIZES ON A BUSINESS OPPORTUNITY
WHICH:

1. THE CORPORATION IS FINANCIALLY ABLE TO UNDERTAKE;

2. FROM ITS NATURE, IS IN LINE WITH CORPORATIONS BUSINESS AND IS OF PRACTICAL ADVANTAGE TO IT; AND

3. THE CORPORATION HAS AN INTEREST OR A REASONABLE EXPECTANCY. (IBID)

NOTE: THE RULE SHALL BE APPLIED NOTWITHSTANDING THE FACT THAT THE DIRECTOR RISKED HIS OWN FUNDS IN THE
VENTURE. (IBID).

HOWEVER, IF SUCH ACT IS RATIFIED BY A VOTE OF THE STOCKHOLDERS REPRESENTING AT LEAST 2/3 OF THE
OUTSTANDING CAPITAL STOCK, THE DIRECTOR IS EXCUSED FROM REMITTING THE PROFIT REALIZED. (IBID)

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RESPONSIBILITY FOR CRIMES

WHERE A LAW REQUIRES A CORPORATION TO DO A PARTICULAR ACT, FAILURE OF WHICH
ON THE PART OF THE RESPONSIBLE OFFICER TO DO SO CONSTITUTES AN OFFENSE, THE
RESPONSIBLE OFFICER IS CRIMINALLY LIABLE THEREFORE. THE REASON IS THAT A
CORPORATION CAN ACT THROUGH ITS OFFICERS AND AGENTS AND WHERE THE BUSINESS
ITSELF INVOLVES A VIOLATION OF LAW ALL WHO PARTICIPATE IN IT ARE LIABLE. WHILE THE
CORPORATION MAY BE FINED FOR SUCH CRIMINAL OFFENSE IF THE LAW SO PROVIDES,
ONLY THE RESPONSIBLE CORPORATE OFFICER CAN BE IMPRISONED. (PEOPLE VS. TAN BOON
KONG, GR L-35262, MARCH 15, 1930)

HOWEVER, A DIRECTOR OR OFFICER CAN BE HELD LIABLE FOR A CRIMINAL OFFENSE ONLY
WHEN THERE IS A SPECIFIC PROVISION OF LAW MAKING A PARTICULAR OFFICER LIABLE
BECAUSE BEING A CORPORATE OFFICER BY ITSELF IS NOT ENOUGH TO HOLD HIM
CRIMINALLY LIABLE.

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INSIDE INFORMATION
ANY MATERIAL NON-PUBLIC INFORMATION ABOUT THE ISSUER OF THE SECURITIES
(CORPORATION) OR THE SECURITY OBTAINED BY BEING AN INSIDER, WHICH
INCLUDES: (ID-REGOL)
1. THE ISSUER;

2. DIRECTOR OR OFFICER (OR ANY PERSON PERFORMING SIMILAR FUNCTIONS) OF, OR A PERSON
CONTROLLING THE ISSUER;

3. A PERSON WHOSE RELATIONSHIP OR FORMER RELATIONSHIP TO THE ISSUER GIVES OR GAVE HIM
ACCESS TO MATERIAL INFORMATION ABOUT THE ISSUER OR THE SECURITY THAT IS NOT GENERALLY
AVAILABLE TO THE PUBLIC;

4. A GOVERNMENT EMPLOYEE, DIRECTOR, OR OFFICER OF AN EXCHANGE, CLEARING AGENCY AND/OR

SELF- REGULATORY ORGANIZATION WHO HAS ACCESS TO MATERIAL INFORMATION ABOUT AN
ISSUER OR A SECURITY THAT IS NOT GENERALLY AVAILABLE TO THE PUBLIC; OR

5. A PERSON WHO LEARNS SUCH INFORMATION BY A COMMUNICATION FROM ANY FORGOING

INSIDERS. (SRC, SEC. 3.8)

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CONTRACTS- BY SELF-DEALING
DIRECTORS WITH THE CORPORATION
DEALINGS OF DIRECTORS, TRUSTEES OR OFFICERS WITH THE CORPORATION

A CONTRACT OF THE CORPORATION WITH ONE OR MORE OF ITS DIRECTORS OR TRUSTEES OR OFFICERS
IS VOIDABLE, AT THE OPTION OF THE CORPORATION UNLESS ALL THE FOLLOWING CONDITIONS ARE
PRESENT:

1. THAT THE PRESENCE OF SUCH DIRECTOR OR TRUSTEE IN THE BOARD MEETING IN WHICH THE
CONTRACT WAS APPROVED WAS NOT NECESSARY TO CONSTITUTE A QUORUM FOR SUCH MEETING;

2. THAT THE VOTE OF SUCH DIRECTOR OR TRUSTEE WAS NOT NECESSARY FOR THE APPROVAL OF THE
CONTRACT;

3. THAT THE CONTRACT IS FAIR AND REASONABLE UNDER THE CIRCUMSTANCES; AND

4. THAT IN THE CASE OF AN OFFICER, THE CONTRACT WITH THE OFFICER HAS BEEN PREVIOUSLY
AUTHORIZED BY THE BOARD OF DIRECTORS. (CC, SEC. 32, PAR. 1)

NOTE: SEC. 32 DOES NOT REQUIRE THAT THE CORPORATION SUFFERS INJURY OR DAMAGE AS A RESULT
OF THE CONTRACT.

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CONTRACTS- BETWEEN CORPORATIONS

WITH INTERLOCKING DIRECTORS
CONTRACTS BETWEEN CORPORATIONS WITH INTERLOCKING DIRECTORS
A CONTRACT BETWEEN TWO OR MORE CORPORATIONS HAVING INTERLOCKING
DIRECTORS SHALL NOT BE INVALIDATED ON THAT GROUND ALONE. PROVIDED
THAT:
1. Contract is not fraudulent;
2. Contract is fair and reasonable under the circumstances; and
3. If the interest of the interlocking director in one corporation or corporations
is merely nominal (not exceeding 20% of the outstanding capital stock), he
shall be subject to the provisions of Sec. 32 insofar as the latter corporation or
corporations are concerned.(CC, Sec. 33)

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EXECUTIVE COMMITTEE
AN EXECUTIVE COMMITTEE IS A BODY CREATED BY THE BY- LAWS AND COMPOSED
OF NOT LESS THAN THREE MEMBERS OF THE BOARD WHICH, SUBJECT TO THE
STATUTORY LIMITATIONS, HAS ALL THE AUTHORITY OF THE BOARD TO THE EXTENT
PROVIDED IN THE BOARD RESOLUTION OR BY-LAWS. THE COMMITTEE MAY ACT BY
A MAJORITY VOTE OF ALL OF ITS MEMBERS. (CC, SEC. 35)
NOTE: AN EXECUTIVE COMMITTEE CAN ONLY BE CREATED BY VIRTUE OF A PROVISION IN THE BY-LAWS
AND THAT IN THE ABSENCE OF SUCH BY-LAW PROVISION, THE BOARD OF DIRECTORS CANNOT SIMPLY
CREATE OR APPOINT AN EXECUTIVE COMMITTEE TO PERFORM SOME OF ITS FUNCTIONS. (SEC OPINION,
SEPT. 27, 1993)

NON-MEMBERS OF THE BOARD MAY BE APPOINTED AS MEMBERS OF THE

EXECUTIVE COMMITTEE
NON-MEMBERS OF THE BOARD MAY BE APPOINTED AS MEMBERS OF THE EXECUTIVE COMMITTEE
PROVIDED THAT THERE ARE AT LEAST 3 MEMBERS OF THE BOARD WHO ARE MEMBERS OF THE
COMMITTEE. (SEC OPINION, SEPT. 16, 1986) A PERSON NOT A DIRECTOR CAN BE A MEMBER OF THE
EXECUTIVE COMMITTEE BUT ONLY IN A RECOMMENDATORY OR ADVISORY CAPACITY.

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EXECUTIVE COMMITTEE

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MEETINGS- MEETINGS OF BOD/BOT

REGULAR MEETING SPECIAL MEETING

WHEN: The date fixed in the by-laws; or WHEN: At any time deemed necessary or as
may be provided in the bylaws.
If there is no date in the by-laws – shall be held
monthly.
NOTICE REQUIREMENT:
A. State the date, time and place of the meeting;
B. Be sent to every director or trustee
i. Within the period provided in the by- laws.
ii. In the absence of provision in the by-laws, at least 1 day prior to the scheduled
meeting.

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MEETINGS- MEETINGS OF BOD/BOT

REGULAR MEETING SPECIAL MEETING
WHEN: The date fixed in the by-laws; or WHEN: At any time deemed necessary or as
may be provided in the bylaws.
If there is no date in the by-laws – shall be held
monthly.
NOTICE REQUIREMENT:
A. State the date, time and place of the meeting;
B. Be sent to every director or trustee
i. Within the period provided in the by- laws.
ii. In the absence of provision in the by-laws, at least 1 day prior to the scheduled
meeting.

A director or trustee may waive this requirement, either expressly or impliedly.

VENUE:
A. Venue fixed by the by-laws; or
B. If venue is not provided by the by-laws, anywhere in or outside of the Philippines.

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MEETING OF STOCKHOLDERS OR MEMBERS

REGULAR MEETING SPECIAL MEETING

WHEN: Annually on a date fixed in the by-

laws. WHEN: At any time deemed necessary or as
may be provided in the bylaws.
If not so fixed, on any date in April of every
year as determined by the BOD/ BOT

NOTICE REQUIREMENT:

Written notice shall be sent to all stockholders or members of record at least 2 weeks prior
to the meeting, unless a different period is required by the law.
Notice of any meeting may be waived , expressly or impliedly

VENUE: In the city or municipality where the principal office of the Corporation is located,
and if practicable in the principal office of the corporation.

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QUORUM
GR: Majority of the number of directors or trustees.
XPN: If AOI or the by-laws provide for a greater number. (CC, Sec. 25)

The quorum is the same even if there is vacancy in the board.

Rule as to the decision of the quorum

GR: Every decision of at least a majority of the directors or trustees present at a
meeting at which there is quorum shall be valid as a corporate act. (ibid)
XPNs:
1. The election of officers which shall require the vote of a majority of all the
members of the board. (ibid).
2. No board approval is necessary where there is custom, usage and practice
in the corporation not requiring prior board approval or where subsequent
approval is sufficient. (Board of Liquidators v. Kalaw, G.R. No. L‐18805, August
14, 1967)

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RULE ON ABSTENTION
No inference can be drawn in a vote of abstention. When a director or trustee
abstains, it cannot be said that he intended to acquiesce in the action taken by
those who voted affirmatively. Neither, for that matter, can such inference be
drawn from the abstention that he was abstaining because he was not then ready
to make a decision. (Lopez v. Ercita, G.R. No. L-32991, June 29, 1972)

INSTANCES REQUIRED TO ABSTAIN

Whenever a director believes he/she has a conflict of interest, the director should
abstain from voting on the issue and make sure his/her abstention is noted in the
minutes. (Robert's Rules, 10th ed.)

The other reason a director might abstain is that he/she believes there was
insufficient information for making a decision. Otherwise, directors should cast
votes on all issues put before them. Failure to do so could be deemed a breach of
their fiduciary duties.

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DOCTRINE OF EQUALITY OF SHARES

Where the articles of incorporation do not provide for any
distinction of the shares of stock, all shares issued by the corporation
are presumed to be equal and enjoy the same rights and privileges
and are also subject to the same liabilities. (CC, Sec. 6)
PROXY
THE TERM “PROXY” DESIGNATES THE FORMAL WRITTEN AUTHORITY GIVEN BY THE
OWNER OR HOLDER OF THE STOCK, WHO HAS A RIGHT TO VOTE IT, OR BY A MEMBER,
AS PRINCIPAL, TO ANOTHER PERSON, AS AGENT, TO EXERCISE THE VOTING RIGHTS OF
THE FORMER.
IT IS ALSO USED TO APPLY TO THE HOLDER OF THE AUTHORITY OR PERSON
AUTHORIZED BY AN ABSENT STOCKHOLDER OR MEMBER TO VOTE FOR HIM AT A
STOCKHOLDERS’ OR MEMBERS’ MEETING.

IT ALSO REFERS TO THE INSTRUMENT WHICH EVIDENCES THE AUTHORITY OF THE

AGENT. (DE LEON, SUPRA)

NOTE: A PROXY IS A SPECIAL FORM OF AGENCY. A PROXY HOLDER IS AN AGENT AND

AS SUCH A FIDUCIARY. (DE LEON, SUPRA)

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