Board of Directors

holoer oF the THe ty, Pe
fo del WHA hr the pete ORY /SY tne white cmt donee |
MH .
anther: . OP” / PONCE CAKRY — personfo whore benefit
nf ona vinci ( the rst We beay create;
QA Oreter wn ‘: ry) mei :
; l
BOAmiaRD to'sOF
i! \ Arist
DIRECTORS/TRUS TEES) ‘ink tr cl AJHythe
whe le NI i “tr Teg mee
sha iahr {OFFICERS hacia

Sec. 22. The Board of D
ein irectors or Trustees of a Cor, bes
Qualification
L and Terms. — Ofa
Corporation;
Unless otherwise provided
this Code, the board of dir in
ectors or trustees shall exerci
the corporate Powers, conduc se
t all business and control all
properties of (ec
the corporation controlled. (SA)
Directors shall be elected fora term of
one (1) year from
among the holders of stocks registered in
the corporation’s
books, while trustees shall be elected for a
term not
exceeding three (3) years from among the members of the
corporation. Each director and trustee shall hold office
until the successor is elected and qualified. A director who
ceases to own at least one (1) share of stock or a trustee
who ceases to be a member of the corporation shall cease
to be such. (SA)
The board of the following corporations vested
with public interest shall have independent directors
constituting at least twenty percent (20%) of such board:
(N) , |
(a) Corporations covered by Section 17.2 of Republic
Act No. 8799, otherwise known as “The Securities
Regulation Code”, namely those whose securities a
registered with the Commission, corporations listed wi
pesos
an exchange or with assets of at least Fifty million
d (200) 9 more
(P50,000,000.00) and having two hundre hun
holders of shares, each holding at least one
(N)
shares of a class of its equity shares;
and quasi-banks, NSSLAs, pawnshops,
(b) Banks service business
engaged in money
CO porations thier r
insu if ance comp antes ; and
trust and
: need :’
Pre
financial intermediaries; (N) and
213
Scanned with CamScanner

214 THE REVISED CORPORATION CODE OF THE PHILIPPINES Sec. 22
ylag
ry
7 4 6) \Other:|torporations engaged in business vested

with public interest similar to, the, above, as may be
determined bythe] Commission, after taking into account
‘relevant! \factors‘which) }are germane to’the ‘objective and
{Purpose of requiring the election of an independent
- oe director, such as the extent of minority ownership, type
‘' “9f financial products or securities issued ‘or offered to
investors, public interest involved in-the nature of business
operations, and other analogous factors. (N)
An independent director is a person who, apart from
shareholdings and fees received from the corporation, is
independent of management and free from any business
or other relationship which could, or could reasonably
be perceived to materially interfere with the exercise of
independent judgment in carrying out the responsibilities
as a director. (N)
Independent directors must be elected by the
shareholders present or entitled to vote in absentia
during the election of directors. Independent directors
shall be subject to rules and regulations governing their
qualifications, disqualifications, voting _ requirements,
duration of term and term limit, maximum number of board
memberships and other requirements that the Commission
will prescribe to strengthen their independence and align
~~“
with international best practices. (N)
Structure of the corporate Srgantzatlon:

(1) Binding effects of acts or contracts. — Actions proposed to be
taken by a corporation involve two (2) basic questions:
First, to bind the corporation, who within the organization must
act on its behalf?
Second, what is the result if the statutory requirements are not
complied with and the proper parties do not act? :
(2) Tri-level structure. — The standard operating procedure for
corporations, frequently called a corporate norm, mightbe described
as pyramidal i in form.
At the base are the shareholders (or members) whose vote is
required to elect the board of directors (or trustees) and to pass on
other major corporate actions.

Sec. 22 TITLE Ill. BOARD ‘OF DIRE
/ TRU
CSTE
TESO/OF
RFIC
SERS 215
The next level. are ‘the officers tasked! to “execute policies

formulatAed UAE
by the'boat d’ s
tO DAWN yo ia OIL NACo fi ok) ph Ube
Finally,\atithe top ofthe pyramid is the,board of director
s who
constitute ‘the policy-making body of the corporation and select
the officers annually. The keystone of corporate procedure
is the
provisioh common to most corporate laws‘ that the business of a
corporation shall’be managed by its board of directors.
The board of directors and corporate officers are
frequently
called management. In its strict sense, the term refers to the corporat
e
officers given the authority to implement the policies determined
by the board of directors as the governing body of the corporat
ion.’
(3) Respective. powers, and. functions. — In- the light. of this
tri-level structure, the question then arises: What are the respective
functions and powers of officers, directors, and shareholders within
the corporate organization? _(W.L. Cary, Cases.and Materials on
Corporations, 1969 ed.,. pp. 151-152.) Corporate powers may be
directly conferred upon corporate officers or agents by\2tatute, the
@articles of incorporation, th vylaws, or byZesolution ofvther act of
the board of directors. (Citibank, N-A: vs. Chua, 220 SCRA 75 [1993].)
The rule is that absenteauthoritynfromimthesboarduomairectorsmaio
person (eveniits officers); canwva bind-li
a corpo
dl ratio
yn. (Olongapo
City s. Subic Water and Sewerage Co., Inc., 732 SCRA 132 [2014].)
Corporate powers exercised by board

of directors or trustees.
All corporations, existing only in contemplation of law, can
only act and contract through the aid and by means of individuals.
Such individuals may be those holding corporate offices or agents
Properly appointed by such officers. The same general principles
of law which govern the relation of agency for a natural person
govern the officer or agent of a corporation in respect to his power
or. authority to act for the corporation. a !
IThe Bangko Sentral ng Pilipinas (BSP), the Insurance Commission,

and the SEC have
all issued circulars and/or memoranda requiring corporat
ions to have at least two (2)
Independent directors, i.e, BSP Circular No. 296, IC Circu
‘mo. Circ. No. 6 (June 29,.2009) is the Revised Code oflar Letter 31-2005, and SEC
Corporate Governance. It
“uperseded SEC Memo. Circ. No. 2 (April 5, 2002).
| )

(1) Governing body of the corporation. — It is well established in

corporation law that the corporation, as a juridical entity, can act
only through the board of directors in the case of stock corporations,
or board of trustees in the case of nonstock corporations. The board
exercises most corporate power, lays down all corporate business
policies and is responsible for the efficient management. of the
corporation. ,
Section 22 provides that “unless otherwise provided in this Code,
the board of directors or trustees shall exercise the corporate powers,
conduct all business, and control all properties of the corporation,”?
The board of directors or trustees, therefore, not its officers, is the
governing body of the corporation chosen by the stockholders or
members.’ The officers have only such authority as given them by
the board. Thus, contracts or acts of a corporation must be made
za
either by the board of directors or trustees or by ‘a corporate officer '
duly authorized by the board. The rule ‘is that absent authority or
valid delegation from the board of directors or trustees, no person,
not even its officers, can validly bind a corporation. oS fee
(2) Binding. effect of stockholders’ action. — The stockholders
or members elect a board of directors (or trustees) to oversee the
management and operation of the corporation. They are not the
agents of the corporation and cannot bind it by their acts. They have
only indirect control of the corporation through their votes. With
the exception only of some powers reserved by law to stockholders
(or members), ethendirectorsy(onstrustees)zhavezsolevauthority:to
*Even if the corporate powers ofa corporation are reposed in the board
of directors,
it is of common knowledge and practice that the board is not directl
y engaged or charged
with the running of the recurring business affairs of the corporation.
the powers granted to them’by the/articles of incorpora Dependinon g
generally do not concern themselves with the day
‘the’tio
membe
n, rs of the board
to day
those corporate officers who are charged with running affairs of the corporation, except
and are concurrently membe the business of the corporation
rs of the board like the president. (Ty vs.
De Jemie, 638 SCRA
671 [2010]; see Calubad vs. Ricarcen Development
Corporation, 838 SCRA 303 [2017].)
The general principles of agency govern the relationship
representatives,
between a corporation and its
*Impliedly, it is not necessary for the stockholders (or
members) to ratify the acts of
the bard save instances wherein the Corporation
Code.or the bylaws provides otherwise,
e.g.,
investment of corporate funds (Sec. 41.))declaration of stockdividends
(Sec. 42.), and
eother acts where approval or’consent
of stockholders (or members) is necessary. (SEC
Opinion, May 21, 1982.) 4 i} i "

Sec. 22 TITLE Ill. BOARD “At
OF DIRECTORS / TRUSTEES/
OFFICERS 217
itsycharter, i.€., its articles of incorporation, bylaws, and relevant

provisions of law. ; phan
(a) Contracts between a corporation and the third persons
must be made by or under the authority of its board of directors
(or trustees) and not by its stockholders (or members). Hence,
theractiorvof 'the:stockholders:iny such:matters:is:only.advisory
ormrecom
"and im
otinmany
en mwis
da eabito
ndingson
ry mthe
eonporation (Barreto vs)'La Previsora’ Filipina, 57 Phil. 649
[1932].) ‘The power to modify or nullify corporate contracts
generally remains in the board of directors. (Bonate vs. Phil.
Countryside Rural Bank, Inc; 626 SCRA 21 [2010].)
(b) Because a corporation can_act only through the board
of directors, a resolution adopted at a meeting of stockholders
refusing to recognize a corporate contract effected with the.
approval of the board of directors or repudiating it;is without
effect.> (Ramirez vs. Orieritalist, 38 Phil’ 634 [1918].) ~
(c) Stockholders entrust their investments in the corporate
business to the management of the board of directors, thus
establishing a fiduciary relationship between them. It is the
prerogative and discretion of the board of directors of a parent
or holding corporation to choose its nominees in the board of
directors of its subsidiaries. The stockholders of the parent or
‘holding company cannot demand proportionate representation
in the board of directors of its subsidiaries. (SEC Opinion, Aug.
8,.1995.) | 1 fh :
Reason for the rule:.

The’ theory ‘of ‘évery ‘corporate organization is that the
stockholders may have all the profits but shall turn over to a
small and compact body ’— the board of directors — the exclusive
eae SNS ) a
‘Visayan vs, National Labor Relations Commission, 196 SCRA 410 (1991), citing De
Leon, The Corporation Code of the Philippines, p. 168 [1989].
‘It may well be recognized, however, that where the stockholders unanimously vote
that certain actions be taken, this should control the discretion of the directors. ‘Directors
ve no personal interest as such in their official acts. If the real parties in interest
a Danously agree on lawful corporate acts, their voice should control. (Ballantine,
» 123.)

218 THE REVISED CORPORATION CODE OF THE PHILIPPINES Sec.22
authority to rhanage and control the transaction of its business/ang

the use of its assets, the power of the stockholders being limited to\a
few specified matters concerning its internal affair. : !
This concentration of the power of control of the business and
of appointing of officers and managers in the board. of directors
(or trustees) is deemed necessary to efficiency especially in a
large organization. It is impractical and unwise to entrust the
administration of corporate management. Stockholders are too
numerous and scattered and unfamiliar with the business of a
corporation to conduct its business directly. It is the plan of corporate
organization that the stockholders shall choose the directors who
shall control and supervise the conduct of the corporate business.
ray
tin.
(see Ballantine, pp. 121-122; Ramirez vs. Orientalist, 38;Phil: 634

“Se
[1918]; Filipinas Port Services, Inc. vs. Go, 518 SCRA 483 [2007]; Cua,
Jr. vs. Tan, 607 SCRA 646 [2009].) If they are not satisfied with the
policies or management of the board of directors, the remedy of the
_ stockholders is togeplace them) (see Sec. 28:) oa stece ng.
In a¢closescorporation, however, ‘the;articles -of:incorporatiow
¢may provide that the business of the:corporation shall-be-managed.
by.the stockholders: of the-corporation rather than by a board of’a
iVdirectors: (Sec. 96, par. 2.)
Extent of judicial review. — eur et Shon ee

‘silongias'the ‘directors \(or'truistees)'actshonestly:and:their. acts
or contracts do not disregard the rights of the minority, the courts
will not interfere. They are not liable for losses if the cause is
merely error in business judgment, not amounting to bad faith or
negligence.
(1) Business judgment rule. — The members ofthe board of
directors hold such office charged, with the duty to act for the
corporation according to their best judgment, and in so doing’they
cannot be controlled in the reasonable exercise and performance of
such duty. It is a well-known rule of law that questions of policy
or of management are left solely to the honest decisions of officers
and directors of a corporation, and the court is without authority to
substitute its judgment for the board of directors; the-boardsis the
-business:manager of the corporation; and so long as it acts in good ‘
faith itsactsare notreviewable by.the courts. Courts cannot supplant
the discretion of the board on administrative matters as to which they

have legitimate power of action, and contracts which are intra-vires
entered into by the board are binding upon the corporation and the
courts will not interfere unless such contracts are so unconscion
able
and oppressive as to amount to a wanton destruction of the rights
of the minority. (SEC Opinion No. 15-05, Nov. 16, 2005; Gov’t. vs.
El Hogar Filipino, 50 Phil. 399 [1927]; Gamboa vs. Victoriano,’' 90
SCRA 40 [1979]; Ingersoll vs. Malabon Sugar Co., 53 Phil. 745 [1929];
rae vs. Pampanga Electric Cooperative, Inc., 596 SCRA 542
[2009}.
Stated differently:
‘In general, courts will not undertake to review the expediency
of thesbusiness; transactions authorized by the directors. A large
discretion is lodged in them. Hence, questions of value and poli
are for their business judgment and under the so called business
ae rule7, it is sufficient’ that reasonable diligence and care
have been exercised in the management of corporate affairs. . : The
business judgment rule exists to protect and promote the full and free
_ exercise of the power of management given to the directors... Thus,
‘in Auerbach v. Bennett, 47 NY2d 619, 419 NYS2d 920, 393 NE2d 994,
(cited in Fletcher, Supra., p. 49), the Court held: “Business judgment
rule bars judicial inquiry into.actions of corporate directors taken
in good faith and in the exercise of honest judgment in lawful and
legitimate furtherance of corporate purposes.” Likewise, in Fields
v. Sax, 123 Ill app 3d’ 460, 462 NE2d 983, (cited in Fletcher, Supra.,
p. 50), “absent bad faith, fraud or illegality, or gross overreaching,
the courts are not at liberty to interfere with the exercise of business
judgment by directors. Also, in Helfman v. American Light & Traction
Co.,121 NJEq. 1, 187 A 540, “Courts will not substitute its judgment
for that of directors in matters of purely business and economic
problems.” In Lewis v. S.L. & E. Inc., 62 F2d, 764, (CA2, 1980), citing
Fletcher Cyc. Corp., sec. 1239 (perm. ed.), it was further held that
“Business judgment rule places heavy burden on shareholders who
would attack corporate transactions.”(SEC Opinion, December 9,
1988.) EuT D2
(2) Questions of policy of management. — A corporation is but an
association of individuals, ‘allowed to transact under an assumed
corporate name, and with a distinct legal personality. As to its
Corporate and’ management decisions, the State will generally
Not interfere with the same. Questions,of,policysof-management
are-left-solely-to-the-honest«decision of-the board:as the business

220 THE REVISED CORPORATION CODE OF THE PHILIPPINE
S Sec. 22
managerofithe corporation, and-the,court,is without authority to

substitute its judgment for that of the board; and as long as it acts
in.good faith and inthe exercise of honest judgment in the interest
of the corporation; its orders are not reviewable by the courts.* (see
Montelibano vs. Bacolod-Murcia Milling Co., Inc., 5 SCRA 36 [1962],
Sales vs. Securities and Exchange Commission, 169 SCRA 109 [1989];
Philippine Stock Exchange, Inc. vs. Court of Appeals, 281 SCRA 232
[1997]; Filipinas Port Services, Inc. vs. Go, 518 SCRA 453 [2007]; Cua,
Jr. vs. Tan, 607 SCRA 645 [2009].) Its acts or contracts are presumed
to be valid and regular.
(a) Whether the business of a corporation should be Operated
at a lost during depression, or closed at a smaller loss, is a purel
y
business and economic problem to be determined by the direc
and not by the court. (SEC Opinion No. 03-04, Oct. 26, 2004.
tors
)
(b) A judicial order to decrease capital stock without the assen
of directors and stockholders violates the “business
t
judgment rule”.
(Ong Yong vs. Tiu, 405 SCRA 1 [2003].)
(c) The creation of additional paid-in capital is a matter
within
the business judgment of the corporation. (SEC-OGC
Opinion No.
14-19, March 28, 2019.) .
(d). Determining who shall be assessed association.
dues is
already within the business judgment of officers of
the condominium
corporation. (SEC-OGC Opinion No. 05-18, Mar
ch 19, 2018.)
(e) Compensation is an issue of business be judgment to
questioned only in case of clear abuse. (SEC Opi
nion No. 32-04, May
4, 2004.)
(3) Corporate transactions not requiring stockholders
’ or members’
approval. — Any corporate act which does not fall
under any of the
transact ions requiring stockholders’ or members’ approval
(see
‘The reason for the rule is aptly explained thus:

“Courts and other tribunals are
wont to override the business judgment of the
board mainly because courts are not in
the business of business, and the Iaissez faire rule
or the free enterprise system prevailing
in our social and economic set up dictates that
it is better for the State and its organs to
leave business to the businessmen; especially
so, when courts are ill-equipped to make
business decisions. More importantly, the social contr
act in the corporate family to decide
the course of the corporate business has been veste
d in the board and not with courts.”
(Ong Yong vs. Tiu, 405 SCRA 1 [2003], citin
g Cesar L. Villanueva, Philippine Corporat
Law, 1998 Ed., p. 228.) e
,

Sec. 22 TITLE III. BOARD OF DIRECTORS/ TRUSTE
/ OFFIC
ES ERS 221
Note 5.) can be carried out by mere board resolution although the
activities or transactions involved may span beyond the term of the
directors or trustees and entail obligations to be borne by succeeding
poards if the action was done in good faith and for the best interest
of the corporation. (SEC Opinion, Feb. 21,
1994.)
(4) Rule of the majority. — The minority directors or stoc
kholders
cannot come into court upon allegations of a want of
judgment
or lack of efficiency by the majority and change the course of
administration. Corporate elections furnish the only reme
dy for
internal dissensions, as the majority must rule so long as it keeps
within the powers conferred by the corporate charter. (Flynn v.
Brooklyn CityR. Co., 53 N.E. 520.)
Nature of powers of board of directors

__ or trustees,
(1) The powers of the board of directors or trustees are, ina
very important sense, original and undelegated. The stockholders
or members do not confer, nor can they revoke, those powers.
They are derivative only in the sense of being received from the -
State in the act of incorporation. They cannot: exercise powers
which the corporation does not possess, nor is their action valid
when inconsistent with: valid bylaws. Neither can’ they perform
constituent acts, that is, acts which involve fundamental changes in
the constitution of the corporation, and:which can be done only by
the stockholders or members as constituting the corporation. (14-A
CJ. 82.) :
Acts of management pertain to the board, and those of
ownership, to the stockholders or members. In the latter case, the
board cannot act alone, but must seek approval of the stockholders
or member. (Tan vs. Sycip, 499 SCRA 216 [2006], citing J. Campos, Jr.
& M.C. Campos, The Corporation Code, 1990, Vol. 1,p. 490.)Tt has
been ruled that the approval by 2/3 of the outstanding capital stock
either prior to the voting of the board or by subsequent ratification,
is required for the temporary stoppage of operation of a corporation.
The cessation of business, though temporary, is a fundamental
concern of the stockholders who stand to be primarily affected
by such event. It involves not a mere exercise of management
Prerogative. (SEC Opinion No. 03-04, Oct. 26, 2004.)

Vo] UW zea Very |
222 THE REVISED CORPORATION CODE OF THE PHILIPPINES, Sec. 22
(2) The other view favors the delegation theory, which holds
that the directors are the officers and agents of the corporation,
representing the interests of that abstract legal entity and of those
who own shares of stock (see Mead vs. McCullough, 21 Phil. 95
[1911]; Angeles vs. Santos, 64 Phil. 697 [1937].), and as such, they
can bind the corporation provided they act within the scope of their
authority.
(3). The powers of the board of directors or trustees are directly
conferred by statute and, as a rule, the stockholders or members
cannot control their actions or exercise of judgment vested in them
by virtue of their office. Once the directors or trustees are elected,
the stockholders or members relinquish corporate powers to the
board as provided by law.
In certain corporate acts, however, the approval or authorization
of the stockholders or members is necessary for their validity. It has
been held, however, that where, except for one, the stockholders of
a corporation also sit as members of the board of directors, it will
illogical and superfluous to require the stockholders’ approval of
subject resolutions requiring the authorization of the stockholders
on record. (Lopez Realty, Inc. vs. Fontecha, 247 SCRA 183 [1995].)
Limitations on powers of board of directors. ---

or trustees.
The managerial authority of the board of directors or trustees is
subject to Sections 30-33 of the Revised Corporation Code and to at
least three (3) limitations.
These are:
(1) Limitations or restrictions imposed by the Constitution,
- Statutes, articles of incorporation, or bylaws of the corpora
tion;
(2) The board cannot by itself, perform constituent acts, that
is, acts involving fundamental or major changes in the corporation
(such as amendment of the articles of incorporation under Sec: 15),
which require the approval or ratification of the stockholders or
members; and

gee. 22 TITLE III. BOARD OF DIRECTORS / TRU
STEES / OFFICERS 223
(3) It cannot exercise powers not possessed by the corporation.

(see Clark on Corporations, Sec. 192; SEC-OGC Opinion No. 43-04,
October 26, 2004.)
Powers exercised by board of directors

or trustees as a board.
(1) Acting together as a body in a meeting. — The board of directors

or trustees must act together as a body in a lawful meeting, not
individually or separately, to bind the corporation by their acts. In
other words, to exercise their powers, they must meet as directors or
trustees and act “at a meeting at which there is quorum.” (see Sec. 24
as to requisites for board meetings.) If they act or give their consent
separately or if they act at’a meeting which is not a legal meeting,
their action is not that of the corporation, although all may consent,
ow ee eae ne
valid authorization/delegation, the declarations of an individual

director or trustees relating to the affairs of the corporation, but not
in the course of, or connected with, the performance of authorized
duties of stich director, are not binding on the corporation. (Heirs of
Fausto C. Ignacio vs. Home Bankers Savings and Trust Co., G.R. No.
PV78S; Jatin 23; QUISJe eek ets el eae
(3) Exceptions to rule. — There are recognized exceptions to the
tule that a corporation cannot act except by authority of the board
of directors or trustees in a meeting duly convened. (Infra.)
SS
’The ‘corporate powers conferred upon the board of directors usually refer only
to the ordinary business transactions of the corporation and does not extend beyond the
management of ordinary corporate affairs nor beyond the limits of its authority. (SEC
Opinion, May 2, 1994.) There are powers reserved to the stockholders /members and,
erefore, cannot be exercise d solely by the directors/trustees until they are ratified'or
4Pproved by the stockholders/ members. It has been n heldhe! that the power of the board of
directors to control the corporation’s property and business does not empower them to.
Provide themselves compensation. The law is well-settled that directors of a corporation
Presumptively serve without compensation absent express agreement or resolution in
Co.,
"elation thereto, no claim can be asserted therefor. (Central Cooperative Exchange
©. Vs. Tiber, Jr,, 33 SCRA 593 [1970]; see Sec. 30.) :
‘Citing De Leon, The Corporation Code of the Philippines Annotated, p. 221 [2002].

224 THE REVISED CORPORATION CODE OF THE PRUILIPEINES Sec. 22
Reasons for the rule.

The rule that the directors or trustees can bind the corporation
only by action taken at a board meeting seems to rest upon two (2)
reasons:
(1) A meeting is necessary in order that any action may be
deliberately adopted, after opportunity for discussion and an
interchange of views; and
(2) As agents of the corporation managing its affairs, directors
(or trustees) have no power to act other than as a board. (Ballantine,
p. 124.) :
Unlike its asses (Sec. 24.), directors are not-the agents of the
corporation per se and they have no power acting individually
to
bind the corporation.
Exceptions to the rule.

The directors or trustees must act as a body and
personally (see
Sec. 51.) to bind the corporation; proxies cannot
act for them. This
requirement is not without any exception.
2
(1): It has been held that a contract ente
red into by the directors
without-a-meeting of the board is binding upon
where thal the corporation
Wirectors happen to be the sole stockholders.
Transportation Co. vs. Bachrach Motor (Zamboanga
Co., 52 Phil. 244 [1928].) :
(2) The corporation is similarly bound by-@
into by a corporate officer such as the general contract entered
by
manager, authorized
the board of directors either expressly or implie
contract. (Acufia vs. Batac Producers Cooper dly, to bind it by
ative Assoc., Inc., 20
SCRA 526 [1967].)
:
Settled jurisprudence has it that where
similar acts have been
approv by edthe directors as a matter of gen l prac
and policy, the general manager may bind era the
tice, custom,
formal authorization of the board
compan
y without
of directors. In varying language,
existence of such authority is established by
proof of the course
of business, the usages and
prac tices
knowledge which the board of director of the company, and by the
s has, or must be presumed
to have, of acts and doings
of its subordinates in and abo
affairs of the corporation, (Board of ut the.
Liquidators vs. Heirs of Maximo
Kalaw, 20 SCRA 987 [19 67].) :

Sec. 22 TITLE Ill. BOARD OF DIRE
CT ORS / TRUSTEES/ OFFICE
RS 225
(3) The corporation is also bound by a par

ticular transaction
ratified in a subsequent board meeting (Ramirez vs.
Orientalist Co.,
38 Phil. 634 [1918].); the ratification may be'express by
a formal
or by acceptance and retention of

benefits flowing therefrom (Acufi
vs. Batac a
Producers Cooperative Assoc., Inc., supra.) and
ratification relates back to the time of such
the contract and is equivalent
to original authority. (Board of Liquidators vs.
Heirs of Maximo
Kalaw, supra.) ar
(4) The corporation is likewise bound by
the acts of one of its
directors or age nts held out by the corporation to the public as pos
power to do those acts. (Yu Chuck vs. Kong LiPo, sessing
The authority to act
46 Phil. 608 [1924].)
for and bind the corporation may be presum
from acts of recognition in other instances, ed
where in the power was
in fact exercised with'no objection from its
board or stockholders.’
(People’s Aircargo & Warehousing, Co.,
Inc. vs. Court:of Appeals,
297 SCRA 170 [1998].)
)
The rule that the members of the board have
authority to act
only ‘when convened: in.a board meeting is for the benefi
shareholders which they are authorized to wai t: of:the
ve. The stockholders
are the residuary owners, and the rule requiring
directors’ meetings
to authorize acts is for, their benefit. (Merchant
s & FE. Bank v. Harris
Lumber Co., 103 Ark. 283.) Lea !
(5) Where the -stockholders, by acquiescence, -invest.
the
executive officers of the corporation with powers of the, dire
ctors
as the usual method of doing business, the. board being \inactive,
acts of such the
officers will bind the corporation according to-some
courts although not:authorized by,any vote either of
stockholders
or directors. (Ballantine, p. 126.)
(6) The adoption or ratification of a contract by a corporation
is
nothing more nor less than making of an original contr
act: The theory
of corporate ratification is predicated in the right of a corporat
ion to
Contract and any ratification or adoption is equivale
nt to a grant of
Priorauthority. The ratification may be implied. (Virata vs. Ng
860 SCRA 50 [2018].) Wee,
(7) The bylaws of ‘a corporation::may. create
tive an execu
“Ommittee with authority
to act on such specific matters within the

226 THE REVISED CORPORATION CODE
OF THE PHILIPPINES Sec. 22
Competence of the board, as may be

delegated to it in the bylaws of
€ corporation, or ona Majority vote of the
board, except on certain _
matters specified in Section 34
!
(8) A corporation is ‘allowed, subject to certain limitation
s
Provided in Section 43, to’ enter into ‘a management contra
ct under
which it delegates the management of lits affairs to another
corporation for a certain period of time.
cas
(9) Ina close corporation, any action by the directors without a
meeting or at a meeting improperly held, shall, unless the bylaws
otherwise provide be deemed valid or ratified in the cases mentioned
in Section 100. . i
Power of directors or trustees to delegate
_ authority. : fe sete Sa
; ! IS] TR IGT JOE ni
(1) General rule. —,The-rule is that, absent authority from,the
board of directors, no person, not even its officers, can validly
bind
a corporation: , The power to bind the corporation by contracts
rests
in its board of directors or trustees. TAS 2 &
The directors or trustees do not themselves exercise deleg
| ated
authority so“as tobe precluded from delegating powe
r by the
, maxim, delegata potestas non potest delegare.
bios
) (a), Just as a natural, person may authorize another ito
do,
_ certain acts for and in his behalf, the board may validly deleg
ate,
either expressly or impliedly, some of its powers and
functions
_ to other officers or agerits of the corporation
appointed by
it. (Yu Chuck vs. Kong Li'Po; 46 Phil. 608 [1924];
Visayan vs.
Nati onal Labor Relations Commission, '196 SCRA
‘410
Banate’ vs. Phil.‘ Countryside’ Rural ‘Bank, Inc, 626 [1991];
‘ [2010].) Although it cannot completely’ abdi
SCRA 21
cate ‘its power and’
responsibility to act for the juridical entity, the boar
d ‘may
expr essly delegate specific powers to the president or any
of its
. officers (Prime White Cement Corp. vs. Intermediate Appellate
Court, 220 SCRA 103 | [1993].), particularly with. respect. to
employment of lower level personnel. . ;
1G ‘biim 1B
| (b) The ‘board’ may delegate to agents of its own
appointment the performance of any act which itself can legally
perform. As the governing body
of the corporation vested with
the management \of its corporate affairs (Sec. 23.), it has ithe

Sec. 22 TITLE III. BOARD OF DIRECTORS / TRUSTEES/ OFFICERS
227
power and authority to adopt a resolution appointing one of its

members, or an executive committee, or a particular officer or
ie the power to perform purely ministerial acts. (19 CJ.S.
(c) The same is true even in matters involving the exercise of

judgment and discretion. Their authority, to a large extent, must
be implied from necessity and usage for the directors or trustees
cannot attend to the details and business of the corporation. (2
Fletcher, p. 495.) Whatever authority the officers or agents of
a corporation may have is derived from the board of directors
or other governing body, unless conferred by the charter of the
corporation. (Vicente vs. Geraldez, 52 SCRA 210 [1973].)
(d) The delegation. of corporate powers, except for the
executive committee, must be for specific purposes. Such
delegation to officers makes the latter agents of the corporation;
accordingly, the general rules of agency as to the binding effects
of their act would apply. (ABS-CBN Broadcasting vs. Court of
Appeals, 301 SCRA 572 [1999].)
(2) Exceptions. — The rule recognizing the power of the board to
delegate authority is not without limitations.
,_ (a) It has been held that discretionary powers which, by
provisions of law (e.g., to. declare dividends, Sec. 42.) or the
_ bylaws or by the vote of the stockholders, are vested exclusively
in the board of directors or:are especially delegated to them,
cannot be delegated to subordinate offices and agents. (Bliss v.
~“Kaweah Canal, etc., 65 Cal. 502; see Sec. 24, re other officers and
agents.) | es
(b) There is a limit, even to the power of the directors or
trustees to delegate authority. As their authority to delegate
is implied from the necessities in the management of the
corporation and from the ‘usage, so also, it is limited by the
. same considerations. It cannot delegate entire supervision and
control of the corporation to others for this is not only unnecessary
and contrary to usage, but it is inconsistent with’ Section 22,
which requires that “the corporate powers... shall be exercised,
all business conducted and all property of such corporation
~ controlled and held by its board of directors or trustees.” (see 2
Fletcher, pp. 378-379.)

(c) Neither can'the board delegate special powers especially

conferred upon it by a resolution of the stockholders or members
of the corporation. Unquestionably, it may’ delegate purely
ministerial duties. (2 Fletcher, p. 537.) |
(d) It is clear that the power of the board to delegate author-
ity is subject to restrictions as provided in the bylaws. 3
Terms of office of directors or trustees.
(1) One (1) year/three (3) years. — As a rule, the directors or

trustees/ officers of a corporation shall.serve only for.the term as
fixed in the bylaws. The-word “term,” in a legal sense, means the
fixed and definite period of time which the law prescribes that an
officer may hold office and a hold-over does not change the length
of the term ‘but results in shortening the period served ‘by his
successor.’ a)
Section 22 provides that the directors “shall be elected fora term
of one (1) year” and trustees, “for a term not exceeding three (3)
years.”
The rationale for fixing a term is to protect the corporation, and
its creditors and the public dealing with it so that if an improvidenor
t
wrongful act is committed by the board of directors; the subsequent
board can redress or prevent the perpetration
of the wrong, and
protect its stockholders, creditors and the’ public having dealings
with it. (SEC-OGC Opinion No. 08-12, May 17, 2012: |
(2), Hold-over. — They shall hold “office until their successors
are elected and qualified” (Sec. 22, par. 2.) meaning that their term
may be extended on a hold-over basis. 0 Te
*Being a fixed period, it cannot be split into two (2) or more terms so as to consider
the remaining period as another term. Thus, a. director (previously elected in the
immediately preceding election) who merely served the remaining period of the original
term of a resigned director (subsequently elected) is not covered by the prohibition in the
bylaws against serving more than two (2) consecutive terms unless the clear intention is
to cover such a situation, (SEC Opinion, Feb. 8, 1993.) Term is distinguished from tenure
in that the latter represents the period during which the incumbent actually hold office.
Thus, tenure may be shorter (or, in case of hold-over, longer) than the term for reasons
within or beyond the power of the incumbent. The holder-over period + that time from
the lapse of one year from a member’s election to the board and until his successor’s
election and qualification — is not part of the director’s original term of office, nor is it a
new term. (Valle Verde Country Club, Inc. vs. Africa, 598 SCRA 200 [2009].)

Sec. 22 TITLE III. BOARD OF DIRECT.
ORS /TRUSTEES/ OFFICERS
229
The principle’ of hold-over is sanctioned by

Section.22. Upon
failure of a quorum at an y meeting of the stockholders
or members
called for an election, the directors hold over and ‘continue
to
function until the successor directors are chosen and quali
fied. The
failure: to elect does not terminate the terms of incumbent officers
nor dissolve the corporation. Similarly, the failure to hold an annual
meeting does not affect the power of a corporation to transact
its
business since the directors in office continue in office with power
to act thereby averting the creation of a vacuum in the
operation of
the corporation.
(a) To “hold over” when applied:to an office impl
ies that
the office has a fixed term which has expired; and the incumbent
is holding the succeeding term.” (19 Words and Phrases 576.)
Although the members of the board are hold-over director
s
or trustees, they still possess the powers of bona fide member
s
until their successors are duly elected and qualified. Thus, a
hold-over board has the power to declare the position of the
president vacant and elect another. (SEC Opinion, Aug. 3, 1976.)
(b) The rule. that where the articles of incorporation or
bylaws of a corporation provide for the annual election directors
and no election is held, the former directors hold over until their
successors are elected and qualified, applies to a going concern
where there is no break in the exercise of duties of directors. (2
Fletcher Cyc. Corp., p. 138 [1982 ed.].) One occupying an office in
a hold-over capacity can be removed at any time, without cause,
upon the electionor appointment of his successor. (Barayaga vs.
Adventist University of the Phils., 655 SCRA 640 [2011].)
(c) Hold-over is a situation that arises when no successor is
elected due to valid and justifiable reason (e.g., pending election
protest on the outcome of the annual election), in which case the
incumbent holds over and continues to function until another
officer is chosen and qualified. (SEC Opinion, June 24, 1998.) The
corporation should, as soon as possible, call a special meeting
for such purpose with proper notice given to all stockholders or
members.
Election” is the choice of one man among a number to fill a certain office. Ina
hold-over. an officer is merely allowed to continue functioning as such. He is not chosen
°ver other contenders for the position he occupies.

(d) The hold-over doctrine has a purpose which is at

once legal as it is practical. It accords validity to what would
otherwise be deemed as dubious corporate acts and gives
continuity to a corporate enterprise in its relation to outsiders,
The old hold-over officer is a de facto officer and by fiction of law,
his acts as such are considered valid and effective. (Sefieres vs,
Commission on Elections, 585 SCRA 557 [2009].)
(e) Where the reason for hold-over is not for failure to
elect but to give the incumbents more time to learn, or for
reasons of economy and the uncertainty that a quorum can
be secured, the hold-over violates the provision requiring an
annual election of the directors or trustees (SEC Opinions, July
3, 1989 and May 18, 1993.), and this:is especially true where the
hold-over extends beyond the one (1)-year term: (SEC Opinion,
March 1, 1988.) Mp
The regular election of directors as stated in the bylaws cannot
be dispensed with the board to extend the term of the incumbents.
(SEC Opinion, Feb. 3, 1994.) :
(3) Modification of term. — Unlike in the’ case ‘of nonstock
corporations (see Sec. 91.) and educational corporations (see Sec.
106.), stock corporations under the general provisions of
Title II
are not authorized to divide the members of its board’of directors
into groups with each group having a different term of office.
(SEC
Opinion, Feb. 4, 1971.) bec tl Ew oy,
(a) Their term of office being fixed by law, the same
cannot
be shortened, or extended by agreement of: the
parties or by
those interested in the position. (SEC Opin
ion, Jan. 15, 1975.)
“An annual meeting required and stated for each
year cannot
be dispensed with and the directors cannot’so change
of the annual election so as to continue
the date
themselves
more than a year,” unless the reason in justifiable in office for
notice
and proper
of the postponement is given. (SEC Opinion,
Jan. 5, 1981,
citing 5 Fletcher, p. 22.) Bee ,
(b) The corporation should hold an annual
not merely call meeting and
a special election since the electionof directors
or trustees occurs during such meeting
of its members. The
non-holding of a regular meeting cannot
be justified merely
because huge expenses may be incurred in holding
another

Sec. 22 TITLE III. BOARD OF DIRECTORS/ TRUSTEES/ OFFI
CERS 231
meeting and/oror \that securing a quorum may be uncertai

(SEC-OGC b n.i
Opinion No. 11-31, July 13, 2011.)
Number of directors or trustees to be elected.

(1) Under ‘the Revised Corporation Code,’ the number of
directors in a stock corporation “shall not be more than fifteen (15)
(Sec. 13[f].). The size of the board should be not small to be ineffective
nor too large to be unwieldy and inefficient.
(2) In ordinary nonstock corporations, the number of trustees shall
be fixed in the articles of incorporation or bylaws which may be
more than fifteen (15). (see Sec. 91, par. 1.)
_ (3) In a close corporation, the articles of incorporation may
provide that the business of the corporation-shall be managed by
its stockholders rather than by a board of directors in which case no
meeting of stockholders need be held to elect directors. (see Sec. 96,
par. 2.) . |
(4) Trustees of nonstock educational corporation “shall not be less
than five (5) nor more than fifteen (15),”. with the term of office of
1/5 of their number expiring every year. (see Sec. 106, pars. 1, 2.)
(5) In ‘a corporation sole, there is no board of directors or trustees
as it consists of one member or corporator only. (Sec. 108.) .
(6) The board of trustees of religious societies “shall also be not
less than five (5) nor more than fifteen (15).” (see Sec. 114[f].)
The limitation as to the number of directors or trustees seeks
to give ample representation to stockholders or members of a
corporation to its board while at the same time avoiding that it will
be too unwieldy.
Election of less than the required number. |

The failure of the stockholders or members to elect the required
number of directors or trustees provided for by statute or its articles
"See Sec, 38 of the Securities Regulation Code with respect to corporations required
to have at least two (2) independent directors. They shall serve for a maximum cumulative
term of nine (9) years. In the instance that a company wants to retain an independent
director who has served for nine (9). years, the board should provide meritorious
justification /s and seek stockholder’s approval during the annual stockholder’s meeting.
(SEC Memo. Circ. No. 4, March 9, 2017.)

232 THE REVISED CORP
ORATION CODE OF
THE PHILIPPINES
may be filled up ina subseq

uent special stockholders’
called for the Purpose. (S meeting dul
EC Opinions, Feb. 2, 1987 y
1992.) ' ; an d Ju ne 10,
Qualifications of direct
ors or trustees.
(1) Stock corporations. —
prescribed for ‘a director unde The only mandatory qualification
that he should appear in the cor the Revised Corporation Code is
rporate books (i.e,, Stock and
book) as a stockholdeor r me
mber of the corporation. (S
transfer
Opinion No. 51-19, Octobe
r 11, 2019.) Thus, the re
EC-OGC
quirements are:
(a) Every director includin
g an incorporating director
own at least one (1) sha
re of must
the capital stock (see De
> Protective Bureau, Inc. tective &
vs. Cloribel, 26 SCRA 255
[1968].); and
(b):The share of stock held by
in his name on the books the director must bere
of the corporation; and” gistered
(c) Ever y director must c ontinuousl
, Stock during his term, y own at least a share of
other wise, he shall auto
be a director._' matically cease to
ry,
The election of'a’ person

necessarily mean that he has paidto the board of directors of 4 corporation does not
for the shares recorded in his name.
In most cases,
ominee directors do not pay for the qualifying shares assigned ‘to them.
(Baguio vs.
Court of Appeals, 226 SCRA 366 [1993].) '

Sec. 22 TITLE III. BOARD OR DIRE
CTORS / TRUSTEES/ OFFICE
RS 233
bylaws. (SEC-OGC Opinion

No. 07-18, March 27, 2018.)
(2) Nonstock corporations, —
Trustees of nonstock corporations
must be members in good standj ng thereof.
A person with the dis qualification mentioned in Section
not qualified to hold the p 27 is
Osition of director or truste
e.
Natural persons contemplated by law.
It is deducible from Section 22 that onl
y natural persons can be
elected as directors or trustees (I nfra.) and they
must be elected from
among the stockholders or members,
However, a corporation which owns shares of
stock or is a
corporate member in another corporation can
give qualifying shares
to a natu ral person so that such natural person can be
elected as
director.
Citizenship and residence requirements.

(1) There is no specific citizenship and resident requ
irement
demanded of the members of the board of directors or
trustees
under the Revised Corporation Code.
(2) Incorporationsnot organized under the Revised Corporat
ion
Code, certain citizenship requirements are established. Thus,
in case
of domestic banks, the General Banking Law of 2000 allows
non-
Filipino citizens to become members of the board of directors
to the
extent of the foreign participation in the equity of said bank
(Sec:
5, R.A. No. 2029.) and private development banks (Sec. 4, R.A: No.
4093.), all the members of the board of directors must be citizens of
the Philippines.
(3) Under the Constitution, aliens may not be elected as directors
Or officers of corporations engaged in business or industries whic
are totally or partially nationalized busin h
ess or industries," (Art.
XII, Sec. 10 thereof.)
nee TEI AFT
BA company engaged in the business of
real estate development whose primary
Secondary purpose includes ownership of land is cons and
idered as undertaking a partially-
nationalized activity. (SEC Opinion 02-16, Feb. 2, 2016.)

S Sec. 22
Stock ownership requirement.

(1) Holder of legal title. — The rule is that the person who holds
the legal title to the stock as shown by the books of the corporations
is qualified although some other person may be the beneficial owner
of the stock recorded in his name. (see Sec. 63.)
The former Corporation Law required that “every director
must own in his own right at least one share of the capital stock
of the corporation.” (Sec. 30 thereof.) Thus, under the former law,
the eligibility of director, strictly speaking, could not be adversely
affected by the simple act of such a director being a party toa voting
trust agreement (see Sec. 58.) inasmuch as he remained ‘owner
(although beneficial or equitable only) of the shares subject of the
agreement. (Lee vs. Court of Appeals, 205 SCRA 752 [1992]:)
The phrase “in his own right” is deleted in Section 23 of the
old Corporation Code (now Sec. 22.). A mere proxy who is not a
stockholder cannot be elected as a member of a corporation’s board
of directors or trustees. fé
(2) Voting trustee. — Whatever doubt may have existed before,
a voting trustee may now be considered _as the legal owner of the
shares transferred to him by virtue of a voting trust agreement and,
therefore, eligible to office of director. With the omission of the
phrase “in his own right,” the election of trustees and other persons
who, in fact, are not the beneficial owners of the shares registered
in their names on the books of the corporations becomes formally
legalized. (see Sec. 58.) P on <s
Consequently, the transferors who.cease to own at least one (1)
share standing in their names on the books of the corporation.
as
required under Section 22 also cease to be directors. (Lee vs. Court
of Appeals, supra.)
(3) Transferee of qualifying share. — A person to whom one share
of stock has been transferred for the express purpose
of qualifying
him as a director is eligible. Ownership of the qualifying
share need
only be in a nominal capacity, with the beneficial
title remaining in
the transferor who or which actually owns the share. It is sufficient
that the title to the stock, as it appears in the books of the corpo
ration,
is in the director. (SEC Opinion, Jan. 25, 1985.)

bie TITLE Ill, BOAR
D OR DIRECToR
S/ TRUSTEES /
OFFICERS
235
Said transfer woul
of “ownership,” hence
remain with the assigno
©. 03-21, Feb. 18, r 20nominee of the transferor.

21.)
The transfer need no
of incorporation such
; tc
omply with the restrictions in
as Siving the cor the articles
refusal thereon or Prohibiting
rule ot th ?
herwise would create
an
ers’ shares. To
who, under the law, inj rporate stockholders
have the 7;
is not disqualified when he

merely pledged his shares
into an executing contract to or entered
sell the same.
|
(6). Transferee of shares previously sol

a valid and effective transfer of
d.— Where a director makes
all his
sto
a director'and the subsequent purcha ckholdings, he ceasés to be
se by him of shares does not
reinvest him with title to his former pos
1971.) ition. (SEC Opinion, June 6,
(7) Transferee at time of assumption of

office. — It is not essential
‘0 the validi ty of the election of one as a director that he
be a legal
“The transfer is not violative of the transf
er restriction clause in the articles of
incorporation, as it would be more of a “trust”
ansferee should be described in the deed
and not a transf er of “ownership.” The
of assignment, corporate books, and certif
Stock merely as a qualifying stockholder or nomin icate ;
ee of the transferor or assignor, Such
“Scription serves as notice to the corporation and third parties that the holde
°€s not hold the share in his own right, but only r thereof
as nominee for the benefit of the real
ner, Any unpaid balan of the subscription to the qualifying share transferred would
"Main the liability of the cetransfer or-beneficial owner. (SEC Opinion, Aug.
4, 1995.)

236 THE REVISED CORPORATION CODE OF THE PHI
LIPPINES Sec, 29
Owner of stock at the time of the election as director

April 5, . (SEC Opinion,
1990.)
(8) Co-owners of shares. — Where the system
absolute of
community governs the property relations between
husband and
wife, the provisions on co-ownership shall apply to
the communi
of property. (see Arts. 75, 90, F amily Code.) Accordin
gly, the husband
or wife who desires to be elected as a member
of the board must
Secure standing by having their shares recorded in
the corporate
book
s as co-owned by them, in which case either of them
, not both,
may be voted for as director. Section 55 of the Revi
sed Corporation
Code applies.
As co-owners of the shares, the husband and wife shall be
considered as one stockholder. (SEC Opinion,
Sept. 4, 1990.)
Reason for the requirement.
The reason for Tequiring a director to own in the stock
corporation is simple enough. It is commonly
felt that a man with a
financial interest at stake will devote more atte
ntion to the business.
(SEC-OGC Opinion No. 06-09,% March 16, 2009.)
Today, however, management is chosen for its
professional
competence rather than its financial contribution. If
the financial
contribution of management is small, it is hardly an
incentive to the
individual director to be more careful or a deterrent to
carelessness.
On the other hand, to require a director that he invest subs
tantially
all of his fortune to the company of which he is a director woul
d
mean losing many valuable men. (Bonneville Dewey, and Kelle
y,
Organizing and Financing Business, 6th ed., p. 85.)
Additional qualifications in the bylaws.

(1) Consistency with corporation law. — The qualifications of
directors or trustees of the corporation, i.e., qualifications besides
those specified in Section 22 (par. 1.), may be prescribed by the
bylaws (Sec. 46[f].) but their qualifications may not be modified if
such modification would conflict with the requirements prescribed
by law.
‘SCiting De Leon, The Corporation Code of the Philippines Annotated, p. 235 [2002].

Sec. 22 TITLE Ill. BOARD OF
DIRECT ORS / TRUSTE
ES / OFFICERS
237
(a) For instance, the by

laws May not provide
need not be o that a director
: On, Is really a qualification expres

negative way. sed in a
(b) A provision in the corporate byl

persons elected to the board aw requiring that
of directors must be holders
shares of the paid-up value of of
a specified amount which shall
be held as security for their action, was
Section 21 (now Sec. 46.) of the held valid because
Corpor ation Law expressly gives
the power to the corporation
to provide in its bylaws for the
qualifications of directors and suc
h provision “is highly prudent
and in conformit y with good practice.” (Gov't. vs.
Phil. 399 El Hogar, 50
[1927].)
(c)
Similarly, an amendment to the byl
aws to the effect “that
no person shall qualify or be eligib
le for nomination or election
to the Board of Directors if he is eng
aged in any business (as
an officer, manager, or controlling per
son of, or the owner
of at least 10% of any of the outstandi
ng class of shares of a
competing corporation) which competes with
or isantagonistic
to that of the corporation” was sustained as
valid, upon the
principle that where the director is so employed in
the service
of a rival company, he cannot serve both but must bet
ray one or
the other."
(2) Approval by stockholders or members. — Additional
qualifications of directors or trustees cannot be enforced
unless
approved by the stockholders or members and contained in
the
bylaws of the corporations. (SEC Opinion, July 13, 1966.)
16“Sound principles of corporate management counsel against

sharing sensitive
information with a director whose fiduciary duty to loyalty may
well require that he
disclose this information toa competitive rival. These danger
s are enhanced considerably
Where the common director is a controlling stockholder of two (2)
Corporations.
of the competing
It would seem manifest that in such situations, the directo
r
has an economic
incentive to appropriate for the benefit of his own corporation the corpora
te plans and
Policies of the corporation where he sits as director.” (Gokongwei, Jr. vs. Securit
ies and
Exchange Commission, 89 SCRA 336 [1979].)

Effect of want of eligibility.

(1) As to corporation. — Votes cast for a person who is not eligible
as a director (or trustee) cannot elect him. In any event, one not
eligible as director because he does not own any stock is not a de
facto director where he never accepted the office, nor performed any
act as director, nor ever held himself out as director.
(2) As to third persons. — It does not follow, however, that
ineligibility of a person elected as an officer will invalidate
his acts. Persons dealing with a corporation are not required
to ascertain whether the directors or other officers of the
corporation have the qualifications prescribed by the
bylaws. Acts of a director or other officers are, therefore, valid so
far as third persons are concerned, although he may not possess the
qualifications prescribed, if he has been elected or appointed by the
corporation and permitted to act for it. (2 Fletcher, p. 98.)
Election of independent directors.

(1) The Revised Corporation Code requires corporations vested
with public interest to have independent directors constituting at
least 20%, of such board:” Such corporations are enumerated in
Section 22(a), (b), and (c). (see Sec. 179 [m].)
(2) An independent director is.a person who, apart from
shareholdings and: fees, received from. the corporation, is
independent of management and free from. any business or.other
relationship which could, or could reasonably, be perceived to
materially interfere with the exercise of independent judgment in
carrying out the responsibilities as a director,
“To promote and reinforce board independence and

17
tobe consistent with recognized
regional best practice, the Securities and Exchange
Commission in its en banc meeting on
09 March 2017 amended its rules on the term limit of
independent directors as follows:
(1) A company’s independent director shall serve for a
maximum cumulative term of
nine (9) years; (2) After which, the independent director
shall be perpetually barred from
re-election as such in the same company, but may
continue to qualify as anon-independent
director; (3) In the instance that a company wants to retain
an independent director who
has served for nine (9) years, the board should provide
meritorious justification/s and
seek shareholders’ approval during the annual shareholders’ meeting; and (4)
of the cumulative nine-year term is from 2012,” (SEC Reckoning
Memo. Circ. No, 4, March 10, 2017.)

trustee who PoSses
ses all of th
the disqualifications set
forth in this Code. (N)
“At all elections of
directo rs or trustees, the
be present, either in Per re must
son or through a repres
authorized to act by writte entative
n proxy, the Owners of maj
of the outstanding c apital ority
stock, or if'there be no
Stock, a majority oft he member capital
s entitled to vote. When
so
laws. or by a majority of the boa
rd of
S, the
. stockholders or members
also vote through remote commun may
ication or in absentia:
Provided, That the right to vote th
rough such modes may
be exercised in corporations vested
with public interest,
notwithsta nding the absence of a provision in the by
of such corporations. (SA) laws
A stockholder or member who Participates through
remote communicatioor n jin absentia, shall be deemed
Present for purposes of quorum. (N)
The election must be by ballot if requested by. any
voting stockholder or member.
“SEC Memo. Circ. No. 20-2020 (Aug.

11, 2020) prescribes the rules on the num
of independent directions and sectoral representations of ber
Markets, excha nges and other organ ized
? |

240 THE REVISED CORPORATION CODE OF THE
PHILIPPINES Sec, 23
In stock corporations, stockholders

entitled to vote
Shall have the right to vote the number
of shares of stock
standing, own names in the Stock boo
ks of the corporation
at the time fixed in the bylaws or whe
re the bylaws are
silent, at the time of the election. The said
stockholder
may: (a) vote such number of shares
for as many persons
as there are directors to be elected;
saiq (b) cumulate
shares and give one (1) candidate as
many votes as ‘the
num ber of directors to be elected multipli
ed by the number
of the shares owned: or (c) distribute the
m on the same
pri
nciple among as many candidates
as may be seen fit:
Provided, That the total number
of votes cast shall not |
exceed the number of shares owned by
the stockholders
as shown in the books of the corporati
on multiplied by the
whole number of director to be elec
ted: Provided, however,
That no delinquent stock shall be vote
d. Unless otherwise
pro vided in the articles of corporation or in the bylaws,
members of nonstock corporations, may y cast as man
votes as there are trustees to be elec
ted but may not cast
more than one (1) vote for one
(1) candidate. Nominees
for directors or trustees receiv
ing the highest number of
votes shall be declared elected. (A)
If no election is held, or the
owners of majority of the
outstanding capital stock
or majority of the member
entitled to vote are not Pre s
sent in person, by proxy,
through remote or
communication or not voting
at the meeting, such in absentia
meeting may be
adjourned and the
Corporation shall proceed in
accordance with Section 25
of this Code. (SA)
:
The directors or trustees ele
cted shall perform their
duties as prescribed
by law, rules’ of good cor
governance, and bylaws of porate
the Corporation. (N)
Election of directors or tru

stees.
These limitations or condition
s are imposed in the election
directors or trustees:! of
'The SEC has “original and

exclusive jurisdiction to hear
involving... controversies in the election and decide. cases
or
appointment of directors,
or managers of such corporat trustees, officers,
ions, partnerships, or associat
S[a].) Thus, in a labo ions.” (P.D. No. 902-A, Sec.
r case, the claim for unpaid salaries
filed with the Ministry (now

(b) Voting is on th
e base S of the number
share-one vote) in stoc of shares (one
k corpo rations and not on the
stockholders present in number of
the st ockholders’ meeting.
of all'the stockholders or memb

ers,
(2) The election must be by bal
lot if requested by any voting
)
is means that voting by ballot
Do
Department) of Labor and Employment

I , i ‘ saa ‘
stockholders and the general manager by complainant who was one of the controllin
Z 4 { : 4 ‘ i 5
of a'corporation who was su
'V 20858-78, 3rd Division, June 30, 1980; see Phil. Scho
Leafio, 127 SCR ol of Busine
A 778 [1984].) }
"The election can be held only at a meeting s wig l
of stockholders or members because Sec.
Tequires presence,either in person or proxy
. The bylaws of nonstock corporations
©wever, authorize voting through remote may,
Stockholder or member who particip communication and/or in absentia. (Sec.
ates through remote communication 88.)
Shall be deemed present for purposes of the or in absen tia
evidence to the contrary, the presum quorum. (Sec. 23, Par. 3.) In the absence of
ption is that the directors /trustees
as Such.
t
were duly elected
‘
rf

OF THE PHILIPPINES Sec,23
(3) A stockholder
cannot be deprived in the articles of
incorporation or in the bylaws of his statutory right
to use any of
the methods of voting in the election of directors;
(4) No stockholder delinquent for unpaid subscription
vote.
shall
A delinquent stock is not entitled to vote or
be represented for
any corporate purpose whatsoever;
(5) If a quorum is present, the candidate
s
number of votes shall be declared elected2 Thereceiving the highest
plur law requires only
ality, and not majority of the votes cast at the
Stock is not included in determining the election. Delinquent
existence of the required
quorum; ,
(6) In case of failure to ‘hold an ele
ction for any reason, the
meeting may be adjourned from
day to day or time to time but it
cannot be adjourned sine die or ind
efinitely;
ei (7) The requisite notice must
be given (see Sec. 49, par. 1.); and
| (8) Each stockholder or member
shall have the right tonominate
any director or trustee unless suc
h right is reserved exclusively
holders of founders shares under for
Section 7.
(9) The right to vote throug
absentia may be exercised only h remote communication or in
when so authorized by the by
or by a majority of the board
of directors or trustees. Such
laws
is not Tequired in corpor
ations vested with publ
authority
par. 2.) ic int erest. (Sec. 23,
Bh
°Deadlock-in corpor
an acceptable.corporate ate-elections ‘may: bedecided ‘by'the drawing of
practice) among the cand
ein the bylaws-on-the idates concernedsabsen 1ots"(which ig
matter. Thus, in the t'any provision
the winner shall be dete event of a tie for the
last regular director
rmined by drawing of slot,
number of votes, If
they do not agree on draw lots by the candidates receiving the same
may vote again and ing of lots,’ the stockhol
elect among them the ders or members
cannot be lef t for decision to remaini
the old board

Where directors or truste
es merely
designated.
Section 22 is clear that
the corporate power
s of ofall
all corporati
ti ons
shall be exercised by the b Oard ofFP powers
directors or trustees
.
Therefore, mere desi
Time of annual election.

Since Section 2? fixes the te rm
of office of directors and trustees
one (1) year and three (3) years, respec at
tively. The Revised Corporation
Code does not provide when the first electi
on of directors or trustees
shall be held. It, however, authorize
s the corporation to pro
vide in
its bylaws “the time for holding the ann
ual election of directors or
trustees.” (Sec. 46[g].)
Incidentally, the old Corporation Code
deleted Section 29 of
the former Corporation Law providing amo
ng others, that the first
election of directors shall be held “at the meeting
for the adoption of
the orig
inal bylaws, or at such subsequent meeting as
may be then
determined.”
Postponement of the election.

The board of directors cannot change the date of the annual
Meeting prescribed in the bylaws of the corporation so
as to
lengthen their terms ‘of office unless the reason is justifiable (e.g,
lack of quorum) and proper notice of the postponement is given
to the stockholders of members. (SEC-OGC Opinion No. 13-05,!
October 10, 2004; SEC Opinion, April 23,1987.)° ° . r
‘Citing De Leon, The Corporation Code of the Philippines Annotated

[1980].

If no election is held, the meeting may be adjour

ned and the
Corporat ion shall proceed in accordance with Section 25.
meeting must be held within a reasonable time
The
for the date it has
been postponed, with proper notice of the change
of date given to
all the stockholders of record. (SEC Opinion, April 17, 1986
.)
Methods of voting.
Every stockholder entitled to vote shall have the right to vote
in the numbers of shares of stock standing in his name in the stock
books of the corporation at the time fixed in the bylaws (e.g., as of 10
days before the election), in his own name on the stock books of the
corporation’ (see Sec. 23, par. 5.) or, where the bylaws are silent, at
the time of the election, and the stockholders may vote his shares in
any of the ways mentioned below. :
(1) Straight voting. — By this voting method, every stockholder
may vote such number of shares for as many persons as there are
directors to be elected.
ILLUSTRATION:
A owns 100 shares of stock in a corporation. If there are five’
(5) directors to be chosen, A is entitled to 500 votes obtained by:
multiplying 100 by 5. He may give to the five (5) candidates
he
wants to be elected 100 votes each.
Under this method, the votes are distributed equally
among the five candidates without preference. |
(2) ‘Cumulative voting for one candidate. — By this method, a
stockholder is allowed to concentrate his votes and
give one (1)
candidate as many votes as the number of director
s to be elected
multiplied by the number of the shares’ owned:
(see SEC-OGC
Opinion No, 10-14,5 June 2, 2014.) In other words, the
stockholder
has the number of votes which equals the number of
directors to be
elected. Needless to say, straight voting does not benefit mino
rity
‘The stockholder of record (as of the cut-off date
fixed in the bylaws, or where
the bylaws are silent, as of the day of the election) entitled
to vote may no longer be a
shareholder at the time of the election by reason of the
transfer of his shares before the
meeting. (see Sec. 63.) The buyer, however, has the right
to compel the record owner to
give him proxy to vote the stock sold.
‘Citing De Leon, The Corporation Code of the Philippines Annotate
d, pp. 238-239
[2006].

245
to,if the group controlling the majority of the

cumulate its votes shares does not
or cumulates them improperly.
(c) A director elected. because of the
vote of minority
stockholders who united in ‘cumulative voting cannot be
removed without cause. (Sec. 27, par. 2.)
(d) Minority stockholders cannot demand as
a matter of
tight for proportionate representation in the boar
d of directors
of its subsidiaries. It is the sole prerogative and discreti
on of the
board of directors of a parent or holding corporation to
choose
its nominees in the board of directors of its subsidiary.
However, the dealings of the parent company and its directors
with the subsidiary-will be subjected \to vigorous scrutiny, and
where their interest are adverse, they must be under a burden to
Prove not only the good faith of the transaction by also its fairness.
The fiduciary obligation is designed not only for the protection
of the minority stockholders but for the creditors as well. But the
fiduciary thereof will not be employed merely to enable a minori
to dictate corporate polices. (SEC Opinion, March 13, 1991, citing
Ballantine, pp. 326-328.)
ILLUSTRATIONS:
(1) If A owns 200 shares of stock and there are five (5)
directors to be elected, he is entitled to 1,000 votes all of which

PHILIPPINES Sec. 23
he may cast in favor of are candidate. If there are seven (7)

directors to be elected, each share has seven (7) votes. Thus, the
voting power of each stockholder depends upon the number of
directors to be elected. :
(2) Suppose that out of a total of 1,000 shares, A and B
(representing a group of stockholders) own 800 shares while C,
D, E, and F (representing another group of stockholders) own
200 shares.
If there are five (5) directors to be elected, A and B are
entitled to 4,000 votes and C, D, E and F, to 1,000 votes. The
highest number of votes thatA and B can give each of their four
(4) candidates is 1,000. Hence, by cumulating their 1,000 votes
in favor of a candidate, C, stockholders D, E, and F
would be
able to secure representation in the board of directors.
(3) If the majority group owns 501 shares and the minori
group, 499 shares, the former would have a total of 2,505
(501
x 5) votes, and the latter 2,495 (499 x5) votes.
By cumulating
its votes, the minority could elect’ two (2)
candidates (one
receiving 1,248 and the other, 1,247 votes
). - Under straight
voting, the majority could always elect all its
five candidates,
giving them 501 votes each, since the minority grou
p cold cast
only a maximum of 499 for each of its candidates.
Now assume that the majority group cast 501
votes each
for five (5) candidates, and the minority
group distributes its
votes (Infra.) to four (4) candidates (e.g.,
one [1] receiving 623
votes and the other three [3], 624 votes),
the minority would
have control of the board. The same js true if
group concentrates its votes, 831, 832, the minority
and 832 respectively,
while the majority group cumulates its
votes also on the three
(3) candidates giving them 830, 835 and
840 votes, respectively,
the mino rity will have three (3) candidate
s elected to the board.
(3) Cumulative voting by distribution
. —
By this method, a
stockholder may distribute the shares
distribute the
on the same principle
same among as many candidates as
shall see fit.
In electing directors by cumulative voti
ng, “the total number of
votes cast by a [stockholder] shall not exceed the
number of shares
owned by him as shown in the books of
the corporation multiplied
by the whole number of directors to be elected.”

Sec. 23 TITLE III‘ BOARD OF DI
RECTORS / TRUSTEES/ OF
FICERS 247
ILLUSTRATIONS:
of directors to be el
ected is 11. The total
can be cast for the 1] numb er of votes that
directors is 550,000 (50,000 x 11). What is
directors?
Under the cumulative voti

ng system, the number ma
calculated by using the fo y be
llowing formula:
1. AXB i 2..D+1X C=E
C +4 |
Where:
A = Total number of outstandin
g shares entitled to vote (at
meeting);
|
B = Number of directors desire
d to be elected;
C = Total number of directors
to be elected;
D = Number of shares necessary to elec
directors; and
t desired number of
E = Number of votes tequired to elec

directors. t desired number of
: | : -
Thus
A. Total no. of outstanding shares
)
entitled to vote _ — 50,000
B. No. of directors desired ,
to be elected 4 — x6
Divided by: Sum of:
300,000

PHILIPPINES
Sec, 23
C. Total no. of directors

to be elected +1 (11 + 1) — +12
25,000
Plus 1
— ek
D. =No. of shares necessary to
elect desired no. of directors — 25,001
Multiplied by:
C.. =Total no. of directors
to be elected cr ee9
E. =No. of votes required to
elect desired:no. of directors
==:510275,011
Thus, the 275,011 votes may be distributed equa

lly to six
(6) candidates for directors, five (5) of whom
will receive 45,835
votes and the sixth, 45,836 votes. If the remainin
g 24,999 shares
are controlled by another group, it can only
elect a maximum
of five directors with its 274,989 (24,999 x 11)
votes which, if
distributed equally to six (6) candidates, will give
each of them
only less than 45,835 votes.
(3) X, a stockholder, is a candidate to a
nine-man board.
He expects that out of 3,000 outstanding
shares, only 2,000
shares will be represented at the meeting. How
many of the
2,000 shares does X need to get elected? -
By applying the formula, X will ‘need 200
of the 2,000
shares to be elected. Now, if X seeks control of
the corporation
and desires to elect five directors, then, he
will need 1,001 (or
simp ly 5/10[B/C + 1] A + 1) shares to elect the five.
(4) Assume: 18,825 — total outstanding shares; 13.
-
numbers of directors to be elected; all shares
(244,725) will vote.
(a) to elect 13 directors:
1) 18,825(A) x 13 (B) = 244,725 +14 (13 + 1)
= 17,480.36 + 1 = 17,482 (D; rounded off)
X 13(C) =
227,266(E)
;
2) 17,481 X 13 =227,253. This number of share
s is
sufficient.
3) 244,725 - 227,266 = 17,459. This number of
shares cannot elect one (1) director.

Sec. 23 TITLE III: BOARD OF DIRECTORS
/TRUSTEES/ OFFICERS 249
4) 244,725 ~ 297,253 = 17,470. This number of

shares cannot also elect one
(1) director.
(b) to elect 12 directors:
1) 18,825 x 12(B) = 225,900'+
14 = 16,135.71 +1 =
16,137 (rounded off) X 13
= 209,781
2) 244,725 — 209,781 = 34,
944 +2 = 17,472
34,944 shares cannot elect
two (2) directors, only one
(1).
3) 209,781 +12 = 17,481
(c) to elect 11 directors:
1) 18,825 x 11= 207,075 + 14=14,7914+1
= 14,792
X 13 = 192,296
2) 244,725 - 192,296 = 52,429. This num
ber of
shares cannot elect three (3) director
s, only two (2).
192,296 + 11 = 17,481
52,429 +3 = 17,476:
(d) to elect 10 directors: ,
1) 18,825 x 10 = 188,250 +14 = 13,446
+ 1 = 13,447
X13 =174811
2) 244,725 -174,811 = 69,914. This number
of shares
cannot elect four (4) directors, only three (3).
174,811 + 10 = 17,481
69,914+4=17,478
(e) to elect three (3) directors:
1) 18,825 x 3= 56,475 + 14'= 4,034 + 1=4035
x 13
=52, |
2) 244,725 - 52,445 = 192,270. This number of
shares cannot elect,11 directors only 10.
192,+ 11 =17,
52,+3=17,
(f). to elect two (2) directors:

1) 18,825 X 2= 37,650 + 14= 2,689 +1=2,600 x.
13 =34970 .

250 THE REVISED CORPORATION CODE OF
THE PHILIPPINES Sec, 23
2) 244,725 -34,970 = 209,755. This number

shares
cannot elect 12 directors, only/11.
209,755 + 12 = 17,479
34,970 + 2 = 17,485
(g) to elect one (1) director:
1) 18,825 X 1 =18,825+14 = 1,345 +
1 = 1,346 x
13 = 17,498
2) 244,725 - 17,498 = 227,227. This num
ber shares
- cannot elect 13 directors, only 12
227,227 + 13 = 17,479
17,499 + 1-= 17,499
Right of stockholder to use

cumulative voting.
Cumulative voting being a statut
ory right, a corporation is
without power to deprive the stockh
olders of its use (SEC Opinion,
October 4, 2001; SEC Opinio
n,’ Oct. 20, 1964:) or even
the right to vote to only one way the restrict
or method. A stockholder may
or may not exercise the right as “he
shall see fit.” (Sec. 23.) He may
contract with other stockh olders with reference to his sto
right. (see Secs. 58, 99.) ck or such
Cumulative votin
stealthily or indirect]
- Sanitary Wares Manufacturing Corp.,

SCRA 130 [1989].) 180
Situations involving cumula
tive voting.
In a study of proxy fights, situation
voting were generally of six s involving cumulative
(6) types:
(1) Cases towing out of con
spicuous management or board
failures;
’Citing De Leon, The Corporation

Code of the Philippines Annotated,
p. 209 [1993].

251
(2) Situations Srounded j; N conflicts of important. busine

interests among Stockholder Ss, ss
or between stockholders
management; and
(3) Where stockholders became
co
nvinced on rather gene
grounds that the board ral
of directors was unrepres
generally insensitive to, entative of, and
Stockholders’ interest;
(4) Instances involving
clashes of Strong personal
ities;
(5) Struggles for control
of the corporation in which
representation through cumulat
ive voting was an intermed
objective; and iate
(6) Cases of “anglers” — Op
position leaders who appear
seek board membership ed to
in order to Push narrow and selfish
of their own. (W.L. Cary, Cases an interest
d Materials on Corporation, 1969
ed., p. 285, citing C.M. Williams, Cumulati
ve Voting, 33 Harv. Bus.
Rev. 108, at 113 [May-June, 1955].
)
Arguments for cumulative vot

ing.
They have been summarized:
(1) Perhaps, foremost of the varied arg
uments made _ by
Proponents of cumulative voting is that
it is basically fair. They
argue that it is only equitable that stockhold
ers with a large stake in
the corporation can gain representation
on the board of directors, in
Proportion to their holdings; )
(2) Minority representation under cumulative
Not constitute a breakdown of the principle of
voting does
majority rule since
the number of directors electe
d by each group will vary wit
Proportions of ownership;? h its
(3) Significant conflicts of interest can develop
between
© stockholders’ groups (or the stockholders in
general) and
management and the board of directors. Unless mino
rity groups can
8ain representation on the board, they may fail
to get an adequate
Voice in policy (Illustration of conflict: dividend poli
cy or majority
Shareholders taking out profits in salaries);
a ante SLO
‘Thus, cumulative voting cannot be considered undemocratic.

(4)'In ‘the case of many larger corporations, proponents of

cumulative voting argue that the management virtually controls
the typical board of directors - the stockholders merely ratify that
selections. Thus, cumulative voting represents potential power to
assert stockholders’ points of view;
(5) The position of the management and the controlling interest
in generally very strong; the balance of power lies heavily with the
“ins” who hold great advantages in the event of a proxy fight; and
(6) Minority representation on the board can be helpful in
protecting or advancing the interests of minority groups. If the
board is composed of individuals who think essentially alike, and
operations are conducted in a private club atmosphere — as does
happen too often — an intelligent gadfly can prove useful. (Ibid, pp.
287-288.)
Arguments against cumulative voting.

They have been summarized:
(1) A basic argument against cumulative voting is that it means
the election of directors who are, by their nature, partisans of
particular interest groups; and the role of a partisan on the board
- of directors is inherently inconsistent with the proper function of a
director, which is to represent all interest groups in the corporation;
(2) The board of directors is an integral part of the management
team;
(3) Disharmony in the. board can dissipate and destroy the

energy of management and lead to an atmosphere of uncertainty
and inaction at the top level. Officers susceptible to unfriendly
criticism are like to avoid action which might result in failure and
hostility, even when such drastic and risky action is appropriate
and
necessary; |
(4) A director who cannot be trusted may leak such informatio
n
to the harm of the corporation;
(5) Too frequently, cumulative voting tend
s to be used in practice
by persons motivated by narrow selfish interest
rather than
broader interests of the stockholders (which they may profeby the
ss to
represent); and

Sec. 23 TITLE III. BOARD OF
DIRECTORS / TRUS
TEES / OFFICERS
253
(6) Not infrequently oppositi

to secure a toe-hold in a , P on Sroups
grou use cumulative voting
Voting in a nonstock Corporati

on.
Unless limited, broaden
ed, or denied in the articles of
incorporation or in the bylaws , each
member shall be entitled to one
vote. (see Sec. 88.)
ILLUSTRATION:
If Ais amember of a nonstock corporati
on and there are five
(5) directors to be elected, he is ent
itled only to five
(5) votes.
He may give one (1) vote to each of the
five (5) candidates he
wants to be elected.
If he has only one (1) candidate, he can cast
only one (1)
vote for said candidate unless cumulative voti
ng is authorized
in the articles of incorporation or in the bylaws.
Thus, where
cumulative voting exists, and there are nine (9) trustees
to be
elected, a member is entitled to cast nine (9) votes
for one (1)
candidate or to distribute the same among as many candidat
es
as he shall see fit.
‘
Separate voting by zones or regions

not allowed. ‘
. , It is clear from Section 23 that in the election of the trustees of a
nonstock corporation, it is necessary that at least “a majority of the
members entitled to vote” must be present at the meeting held for
the purpose. It follows that trustees cannot be elected by zones or
tegions, each zone or region electing independently and separately
a member of the board of trustees of the corporation, such method
being violative of Section 23. (SEC Opinions, Jan. 30, 1969 and
April
1, 1981.)
However, the bylaws of a nonstock corporation can validly
Provide in its bylaws for the election of trustees by category (e. Ru
age bracket, regional area), a practice followed by most corporations
With nationwide membership. (SEC Opinion, Feb. 22, 1972.)

254 THE REVISED CORPORATION CODE OF THE PHILIPPINES Sac. 94
To elect directors or trustees, the bylaws may divide the

members into groups, with each group entitled to nominate qualified
members coming from the group, but the nominated members shal]
be elected not by the group itself but by the entire members of the
Corporation in accordance with Sections 22 and 23. (SEC Opinion,
Oct. 29, 2001; see SEC Opinion, Sept. 4, 1989.)
Segregation of votes for regular and independent

directors.
The election procedure for segregation of votes for regular
and independent directors is not contrary to any provision of the
Revised Corporation Code or the Securities Regulation Code and its
implementing rules and regulations.
The segregation is a practical device to ensure that at least two
(2) nominees for independent directors are elected to the board in
accordance with Section 38 of the Securities Regulation Code. Thus,
it may be provided that one (1) vote cast for each of the two
(2)
nominees for independent director will already be sufficient to elect
them. (SEC Opinion No. 19-11, March 23, 2011.)
Sec. 24. Corporate Officers. — Immediately after their

election, the directors of a corporation
must formally
organize and elect: (a) a president, who
must be a director;
- (b) a treasurer, who must be a resident
: (c) a secretary,
who must be a citizen and resident of
the Philippines; and
(d) such other officers as may be prov
ided in the bylaws.
f ion isv with public interest, the boar
li fficer. The same person may
‘hold two (2) or more positions conc
urrently, except that no tay mi
one shall act as president and
Secretary or as president
and treasurer at the same time, unless otherw
in this Code. ise allowed
The officers shall manage
the corporation and perfor
such duties as ma y
be Provided in the by! aw m
resolved by the board s and/or as
of directors. (N)
* .
Citain ing De Leon, The Corpor ,

ation Code of the Philippin
es Annotated, p. 213 [1993]
.

Oi Ot Oe Wr 8 ee
OT a eg ee arr 0 COND
2 Conpures ofhtuy Iegue by Yo,
oi oA TITLE Ill. - BOARBOARD
D, OF 7 DI
ae RE CT
/ TRUS TEESOR
/ OFFIS
CERS 255
Corporate officers.
The board of directors or trustees, as
we have seen, formulate
the board policy of the corporation and directs
the conduct of its
business oper ations. (Sec. 22.) But the task ofldctual management °
and\¢arrying on the details of business operations and corporat
policy are delegated to the officers elected by it and over e
whom it
exercises supervision. Such officers shall manage the cor
d perform duties as may be provided in th poration
ylaws and/or as
Bresolved by the board of directors or trustees.
,
(1) Elected or appointed by the board of direc
tors. — The only
officers of a eee thosdlPlected or appointed by the
pense of directors and\who are given that character either by the
Revised Farrer ati on. Code, specifically, the president, the treasurer,
e secretary, “andGuch other officers asmaypro
be vided
for in its
/bylaws, (Sec. 24.) The“humber of corpogate officers is thus limited
_
A evised Corporation Code and tht’corporation’s bylaws. The
rest can be considered merely as employees or subordinate officials.
(Gurrea vs. Lezama, 103 Phil. 553 [1958]; SEC-OGC Opinion No. 17-
09,' July 22, 2009.)
(2) Mere designation as corporate officer. — The mere designation
as a high-ranking employee is not enough to consider one as a
corporate officer. There is a distinction between an employee
and a corporate officer, regardless of designation. Thus, although
the intention of the board of trustees of a corporation is to make
the “General Financial Secretary” an officer thereof, he cannot be
classified as such where the bylaws of the corporation discloses
that the position is not one of the officers provided therein. (SEC
Opinion, Nov. 1993.) ae
(3) ‘Scope of the term “officers.” — The scope of the term inthe
phrase’“and such other officers as may ‘be provided for in the
bylaws” (Sec. 25, par. 1.), would naturally depend on the bylaws
of the corporation. ‘(SEC Opinion, Dec. 4, 1991.) The president,
Vice-president, treasurer and secretary are commonly regarded as
the principal or executive officers of a corporation. (Tabang vs.
National Labor Relations Commission, 266 SCRA 462 [1997]; SEC-
OGC Opinion No. 17-09; July 22, 2009.)
*Citing De Leon, The Corporation Code of the Philippines Annotated, p. 252 [2002].

256 THE REVISED CORPORATION CODE OF THE PHI
LIPPINES dp)
However, if the bylaws enumerate

the board, the provision is conclusive, the officers to be e] €cted h
power to create new offices and the board is Without
for corporate officers without amendi
the bylaws unless it is empowered n
by the bylaws to create additional
officers as may be necessary.
(4) Appointive positions other than
those of corporate Officers, _
The board may create appointive
positions other than Positions of
corporate officers but the
persons occupying such positi
considered as corporate officers wit ons are Not
hin the meaning of Section 24
and are not em powered to exercise the
Officers, except those functions functions of the corporate
lawfully delegated to them. The
functionsand duties are to be determined ir
Opinion, Nov. 25, 1993.) -' by the board. (SEC
~
7 |
If, for ‘example, the general manager
listed as an officer, he is to be of a corporation ‘is -not
classi
fied as an employée althoy
he has always been considered
as one of the Principal officers
of
National: Labor Relations S Corporation vs.

Commission, 314 SCRA
WPP. Marketing Communicat 531 [1999]: see
ions, Inc. vs, Goltha, 616:
[2010].) : SCRA 422
(5) Position not expressly mentio
ned amon 8 Officers of the corporati
— Where the bylaws of the on.
corporation provides “and
other officers as the board of directors ma for such
fit to provide for” and “said Off y from time to time does
icers shall be elected ‘by majori
vote of the board of director
s,” ty
general manager which appo
in
(6) Corporate officerlordinary

position under the corporation’ employee. — The creation of the
s charter or bylaws and the electi
on
ordinary employee or off

icer. (Wesleyan University
Maglaya, Sr., 814 SCRA
171 [2017].)

Se)
he ane CUS
T RES) OFFICE
RS 257
Need for express mentio

n Of cor
office in bylaws, Rotate
Commission. (Matling Industri

Coros,? 633 SCRA 12 [2010]; Loc
sin vs. Nissan Lease Phils., Inc
SCRA 392 [2010]; Marc ., 634
II Marketing, Inc. vs. Joson, 662
[2011]; see Barbara vs. Liceo de Cagaya SCRA 35
n University, 686 SCRA 648
[2012].) 3
(2) In most cases the “bylaws may
and usually do provide
for such other officers” and that where
a corporate office is not
specifically stated in the roster of corpor
ate offices in the bylaws
of a corporation, the board of directors may
also be empowered
under the bylaws to create additional office
rs as may be necessary.*
(Nacpil vs. Intercontinental Broadcasting Corporation,
653 [2002].)
379 SCRA
Corporate employees.
(1) ‘Appointed, not elected. — An “office” has been defined as a
Cteation of the charter of a corporation. An employee is appointed,
"The dicta in Tabang vs. National Labor Relations Commission, 266 SCRA 462
(1997)
and Nacpil vs, International Broadcasting Corporation, 379 SCRA 653 (2002)
Controlli are no longer
ji
‘Thee: aa (2) circumstances which must concur in order for an individual to be
“Onsidered a corporate officer; as against an ordinary employee or officer: (1) the creation
of the position is under the corporation’s charter or
bylaws; and (2) the election of the
Officer jg by the board of directors or by the stockholders. (Cosare
vs. Broadcom Asia,
ine, 715 SCRA 345 [2014]; see Malcaba vs. ProHealth Pharma Philip
pines, Inc., 864 SCRA
18 [2018],
)

258 THE REVISED CORPORATIO
N CODE OF THE PHILIPPIN
ES Sec. 24
not elected, unless

h € is also a corporate officer. He
No office and usuall Occupi
is generally employed not by the act
ion of theel
dirit
ectors
e
Central
Nacpil vs. Intercontinental Glo bal Exposition, Inc., 371 P
Broadcasting Corporation, 379 3£SC818.
653 [2002]; Uy vs. Villanueva, RA
526 SCRA 73 [2007].)
(2) Duties of clerical or manual nat
the corporation are its employee ure. — Actually, all officers of
s, although in common usage
term “officers” is meant to refer to those elected by
the
stockholders / members, the board of
0 Vi iti
(3). Presidentas an employee. — When the

example, acts only as such, performin president, ' for
g his regular executive duties
pertaining to his office, he is not con
sidered an employee. However,
a corporation may hire its president
to perform services under
circumstances which will make him an
employee. (SEC Opinion,
May 9, 1989, citing 2 Fletcher, Chap. II,
Sec. 266.1.)
Election of officers by the board.

The directors or trustees of the corporation are
elected to their
office by the stockholders or members to represent them
in the
affai rs of the corporation at the stockholders’ or members’ meeting.
(Sec. 23.)
(1) The Revised Corporation Code requires no particular
designations or titles for corporate officers, except that there must
be a president, a treasurer, and secretary. (SEC Opinion No. 10-11,
March 7, 2011.) The election of the administrative officers, such as
the president, treasurer, secretary, and “such other officers as may
be provided for in the bylaws” is, in turn, entrusted to the board
of directors or trustees.’ Thus, pursuant to the bylaws, the. board
5 W Corporation obtained a loan from X Corporation and Y Corporation

si ea iy Z Cetdratiens the condition in the guaranty agrecen petit ath ae
X requiring all appointments to executive positions in W should be mma s y We
approval of X’s management, though intended to protect theinteres OFS ihe
board of directors of prerogative to elect corporate officers and vio

(2) The articles of inco
provide, however, that all poration of
officers or employees Sha
ll b
stockholders, instead of the
(3) In a nonstock corporati aes ,
elected by the members tanlens oth ny the officers may be directly
: : erwise
of incorporation or the bylaws. (Sec. 91, last patid e for ini the articles
‘
amended by P.D. No. 715.)

(5) The Revised Corporation Code requ
ires that the president
must be a director.(Sec. 24, par. 1.) Other officers may be elected
or appointed although they do not own shares of stock
of the
corporation. | ~ a
'
(6) Section 24 requires an, election of a new set of officers
immediately after the election of the newly elected members of the
board which is, therefore, not bound by the choice of the previous
board. Accordingly, a mere resolution of the stockholders and the
board of directors of a corporation amending the bylaws of the
stockholders and the board of directors of a corporationamending the
appointment of officers by the directors cannot be the subject of a valid contract between
the, directors and eine such appointment. (SEC Opinion, March 18, 1981.)
‘In a case, the board of directors, at its regular meeting declared vacant all corporate
Positions in order to effect a reorganization, and at the ensuing election of officers, the
Tespondent was not reelected as executive vice dies It at ioe that a create
Was fu: intra-corporate in nature and not a cas ismissal. a:
paren a would call for SEC (now Regional Trial Court) jurisdiction; a labor
ispute, that of the National Labor Relations Commission. The matter of whom to elect is
4 prerogative that belongs to the board, and involves the exercise of Seer ae ctelee and
€ faculty of discriminative selection. Generally speaking, a
* -Orporation,-
O
whether as officer or a: is not determined by. the nature
tor employee,
servicesofperformed,sbut
Of the School by the incidents’of the relationship.as they. actually-exist.
Phil Business Administration vs. Leafio, 127 SCRA 778 [1984].)

bylaws of the corporation which would provide that the incumbent

vice-chairman of the board of directors shall automatically be the
chairman of the succeeding board if he is elected as a member of the
said board, is invalid as it would deny the newly elected board the
prerogative to elect the new chairman. (SEC Opinion, Aug. 4, 1995)
(7) There is no prohibition as to the right of any elected boarq
member who is also a stockholder to participate in the electioofn
president or any other officer of a corporation. There is no conflict
of interest considering that a stockholder has the right to vote and
be voted upon in the corporate election process. (SEC Opinion No.
34-04, June 28, 2004.)
Compensation, terms of office, and removal.

(1) It is within the power of the board to fix the salaries of
corporate officers whom it appoints, for the power to employee
must necessarily include the power to grant compensation. It may
likewise grant bonuses to them subject to the test of reasonableness.
(2) The terms of office of these officers may be fixed in
the
bylaws; otherwise, they shall be deemed for one (1) year and
until
their successors shall have been elected by the board.
(a) It would seem that under Section 24 (par. 1.), the term
of the officers of the corporation cannot extend beyond
that
of the directors which under Section 22 is only one (1) year
(par. 1, thereof.), since they shall be elected immediately
after
the election of the board of ‘directors. Section 46(h), however,
permits a corporation to provide in its bylaws a term of office
longer than one (1) year for its corporate officers, other than
directors or trustees.
(b) In the case of the president, since he must also_be
a director, his term of office as such would necessar
ily be
co-t erminus with his term as director,
(c) Ithasbeena long-standing policy of the SEC not to allow
a provision in the articles of incorporation or bylaws providing
for a lifetime term of office of corporate officers to avoid possible
abuse of persons in power. Contracts of employment for life
or indefinite period of officers and other key personnel are
generally invalid because they bind the hands of future board of
directors. They also deprive other members of the corporation

Sec. 24 TITLE III. BOARD OR DI
RECTORS / TRUSTEES/ OF
FICERS 261
of the Opportunity to become

officers of the corporation. (SEC
Opinion, Dec. 16, 1991.)
(d) The SEC has ruled on several occasion
s that holdover
of incumbent cor porate officers whose term
allowable when no successors are elected has expired is
due to justifiable or
valid reas
ons. (SEC Opinion, April 5, 1995.) Non-holding
annual meeting for the election of the boa of the
rd is subj
ect to the SEC
Rules Governing the Filing of Information
Sheet by Domestic
Corporations. Violations of the rules have the cor
responding
penalty prescribed. (SEC Opinion, Oct.
16, 1995.)
(3) The power to remove an officer for cause inheres
in every
corporation as part of its existence. (SEC Opinion, July
3, 2002.)
The power to elect or appoint corporate officers being vested
with
the board, the power of removal must necessarily be exercised by it
as.an incident to its power of appointment. However, in nonstock
corporations, if the officers are elected by the members, as allowed
under Section 91, the power to remove them is also vested directly
in the latter. |
(a) In instances where the term of an officer is not fixed by
contract or in the bylaws, he may be removed at any time with
or without cause at the pleasure of the body. But the power must
not be exercised in bad faith or in‘such a manner-as to work in-
justice. me |
(b) Where the term of an officer as fixed in the bylaws or in
a contract of employment is for more than one (1) year, he has to
be reelected by the board until the expiration of the term; other-
wise, the corporation may be held liable for damages.
(c) The election of successors to.corporate officers after
the expiration of their term does not constitute their dismissal.
The matter of whom to elect is a prerogative that belongs to
the board and involves the exercise of deliberate choice and
the faculty of discriminate selection. Generally speaking, the
relationship of a person to a corporation, whether as officer or
as agent or employee is not determined by the nature of the
services performed, but by the incidents of the relationship as
’Citing De Leon, The Corporation Code of the Philippines Annotated, p. 217 [1993].
ee

262 THE REVISED CORPORATION COD
E OF THE PHILIPPINES Sec. 24
they actually exist. (Phil. School of Business

Administration vs.
Leafio, 127 SCR A 778 [1984].)
.
Positions concurrently held by
same person.
The directors or trustees and officers elec
ted shall perform the
duties enjoin ed on them by law and by the bylaws of the
Any two (2) or more positions may be held con corporation.
currently by the same
person except as provided in Section 24.8
(1) The same person may hold two (2) or
concurrently except that no corporate officer
more positions
shal l act as president
and secretary or treasurer at the same time unle
ss it is allowed in the
Revised Corporation Code. The positions of pres
ident and secret
or treasurer are considered by law as incompatible
with each other
due to the very nature appertaining to each office.
The rationale
behind the provision is to ensure the effective mon
itoring of each
offi cer’s separate functions. (Ong Yong vs. Tiu, 401
SCRA 1 [2003].)
(2) There is no prohibition in the law against
a stockholder
being a director or officer of two (2) or more corp
orations.
(3). The Revised Corporation Code does not prohibit a corp
orate
officer. from. occupying the same position in another.
corporation
organized for the same purp ge However, such a situa
tio ay be
' prohibited by pecial law, the<articles of corporation, or the ylaws
of the corporation.
Acceptance of office and taking of oath

Of office. ©
(1) To make one an officer of a corporation, his consent, and
an
appointment or election, is necessary. ,
(a) A, person who, is appointed/elected without his
knowledge, and who does not accept the office, or act.as an
officer, is not. an officer, although he may have received, stock
after his election. |
(b) No formal acceptance is necessary. If a person enters
upon the duties of an office after his election or appointment, it
§In American law, directors who are also officers of a corporation are old ne
directors. Too many inside directors create the danger of the board being under
control of officers.

sec. 24 TITLE III. BOARD OF
DIRECTORS / TRUSTE
ES / OFFICERS
263
is a sufficient acceptance
or, rather, efficient ground
acceptance, absent Pr for implying
oof to the con
may be presumed ‘without
any ‘act, absent evidence to
contrary.(2 Fletcher, pp. 99-100; 19 CJ.S. 64. the
)
(2) There is no provision in the Rev
ised Corporation Code
which requires taking an oath of office to qualify the elected direct
and officers. Oath of office constitutes no par ors
t of the office itself.
Acceptance of the office will suffice unless
by the corporate bylaws in which cas taking an oath is required
e, they are not de jure but de
facto officers (Infra.) until they have taken the oath.
Jan. 21, 1986.) (SEC Opinion,
Sources of powers or authority

of corporate officers.
The actual authority of corporate officers to bind the
corporation
is generally derived from laws, the articles of
incorpor ation, the
bylaws, or the resolutions of the board,. or authorization from
the
board impliedly given by habit, custom, or acquiesc
ence in the
general course of business. (People’s Aircargo & Wareho
using Co.,
Inc. vs. Court of Appeals, 287 SCRA 172 [1998]; Associat
ed Bank
vs. Pronstoller, 558 SCRA 113 [2008]; Cebu Mactan Member Cent
s er,
Inc. vs. Tsukahara, 593 SCRA 172 [2009].)
(1) Anofficer’s authority to act for the corporation in a particular
matter is determined by his actual office and not by the description
he may, use in acting for the corporation.
This authority may be derived from some provision of statute or
the articles of incorporation. It may be contained in a bylaw, if the
bylaw is deemed not to violate rules of law such as the provision of
the Revised Corporation Code vesting powers of management in
the board of directors or trustees. Authority may also be conferred
On an officer by a resolution of the board of directors or trustees,
Provided that the resolution does not attempt. to delegate non-
delegable powers. (W.L. Cary, op. cit., pp. 190-191.)
(2) Corporate officers shall perform the duties and functions
enjoined by the by law and the bylaws of the corporation. However,
Powers of corporate officers under the bylaws are always subject
to the rule in Section 23 that the board of direct
ors or trustees is
© governing body of the corporation. By virtue of Section 22,

the board may in its best judgment and for the best interest of the
corporation, appoint or authorize the president or another Officer
or agent to act for and on behalf of the corporation, but:in all cases
such officers shall be under the ultimate direction of the board.
(SEC Opinion, Jan. 18, 1995.) One may be an agent of a private
domestic corporation although he is not an officer thereof. (Aboitiz
International Forwarders, Inc. vs. Court of Appeals, 488 SCRA 492
[2006].)
It has been held that where the real party-in-interest is a body
corporate, neither the administrator of the agency or a project
manager could sign the certificate against forum shopping without
being duly authorized by resolution of the board of the corporation.
(Eslaban, Jr. vs. Onorio, 360 SCRA 230 [2001].)
Extent of powers or authority of corporate

_ Officers. é'
(1) Determination of authority. — The full extent of the powers
or authority of any particular officer of a corporation is to ‘be
determined by inquiring into:
(a) The authority which he has by virtue of his office;
(b) The authority expressly conferred upon him or is
inci-
dental to the effectualness of such express authority; and.
~ (c) As to third persons dealing with him without
notice
of any restriction thereof, the authority which the corp
oration
holds the officer out as Possessing or is estopped
to deny.
In determining the authority which certain officers
by virtue of their office, the nature of the corporat may exercise
also be considered.
e business must
:
Besides the foregoing, the act of an
officer though originally
unauthorized may become binding upon the corporation by a
subsequent ratification. (13 Am.
Jur, 875.)
(2) Exemption from liability.
acted for and in behalf of the —Corp
Officers of a corporation who
oration within the scope of
their authority and in. good faith do not become liable
corporation, whether with the
civilly or otherwise, for the cons
their acts. eque
nces of
Those acts are Properly attributed to the
corporation

Sec. 24 T ITLE II. BOARD
OF DIRECTORS / TRUSTEES
/ OFFICERS 265
alone and no personal liability ic;

Electric Cooper ativ ty is incurred by such officers. (Benguet
Inc. vs. National vis
209 Relations, 6 SCRA 719 [1962}) Labor Relations Commission,
unles ority, the corporation is not bound

Code.s) itor has ratif ied
it may be heldthem ex ressly
Pressly oror tacit ivil
tacitly (see Art. 1910, Civi
in estoppel. ( Infra.)
(3) Authority to bind by
contract, — The lack of authority
corporate officer to bind of a
’ the cor porate by contract exe
its na
me, is a defense which sho uld cuted in
corporation. (Lao vs. Cour be especially pleaded by the
t of Appeals, 325 SCRA 694 [2000].)
should first prove by clear evide nce that It
its corporate officers are not
in fact authorized to act in its b
ehalf the burden of evidence shifts to
the other party to prove, for ex ampl
e, that, by previous specific acts,
an officer was cloaked by the corporation
with apparent authority.’
(Westmont Bank vs. Inland C onstruction
and Development Corp.,
582 SCRA 230 [2009].)
Classification of powers or authority

of corporate officers.
The general principles of agency applicable to agents of
individuals govern the relation between the corporation and its
officers or agents, subject to the articles of incorporation, bylaws, or
relevant provisions of law.” (San Juan Structural & Steel Fabricators,
Inc. vs. Court of Appeals, 293 SCRA 631 [1998]; Litonjua, Jr. vs.
sp
*The general rule is that a contract, to be binding on the parties thereto, need not
be in writing, unless the law requires that such contract be in some form in order that it
may be valid or enforceable or that it be executed in a certain form. (see Art. 1356, Civil
Code.) Indeed, corporate policies need not be in writing. But
a verbal promise made
by the corporation, through its chairman and president, obligating itself, as a matter of
policy, to grant petitioner (who retired as general manager, after 36 years of service) the
cash value of his vacation and sick leave credits cannot bind the corporation absent
a
board resolution to that effect. (Kuok vs. Phil. Carpet
Manufacturing Corp., 457 SCRA
465[2005].) sare: (a) consent
Othe det petit jac elton os th peor Oe agents
; ! ; to establish the relationship;
of the parties ionship:
aS a representative and not for himself; and (d) the agent acts baie e aap of his
authority. (Yu Eng Cho vs. Pan American World Airways, inc,
ane He 15 [2005}.)
emere fact that an entity may be a 100% subsidiary corporation
does not necessarily mean that the former is a duly authorized agento oth niisethadeon
°r a contract of a fo to exist, it is essential that the consents so as toof the latter, because
act, (Apex Mining
©., Inc. vs, eas Mindanao Gold Mining Corp., 492 SCRA 355 [2006].)

266 THE REVISED CORPORATION CODE OF THE PHILIPPINES
Sec. 24
Eternal Corporation, 490 SCRA 204 [2006]; Philippine Rabbit

Bys
Lines, Inc. vs. Aladdin Transit Corp., 493 SCRA 358 [2006].)
(1) The inherent authority or power of an officer or agent is taken
to mean that authority to act and bind the corporation which the
officer has by reason of his office, although it may not be sanctioned
by express authority. (Ibid.) :
(2) The express authority of an officer or agent includes every
power or authority expressly conferred upon him by law and the
bylaws of the corporation.
(3) The implied authority of an officer or agent of a corporation
includes all such incidental authority as is necessary, usual, and
proper to effectuate the main authority expressly conferred.
(a) A corporate officer entrusted with the general
management and control of. the corporate. business has the
implied authority to act or contract for the corporation which
may be necessary or appropriate to conduct the ordinary
business. If the act or contract comes within corporate powers
but it is done without any express or implied authority therefor
from the bylaws, board resolution or corporate practices, such
unauthorized act or ‘contract does ‘not bind the corporation
unless ratified by the board of directors or the corporation may
be held ‘in estoppel (Infra.) from denying as against innocent
~ third persons the authority of the corporate officer. (Rural Bank
of Milaos vs. Ocfemia, 325 SCRA 99 [2000].)
(b) An officer of a corporation who is authorized to purchase
the stock of another corporation has the’ implied. power to
perform all other obligations arising there from such as payment
of the shares of stock. (Inter-Asia Investments Industries, Inc.
vs. Court of Appeals, 403 SCRA 452 [2003].) .
(4) When in the usual course of business of the corporation, an
officer or agent is held out by such corporation, or has been permitted
to act for it in such way as to justify third persons who deal with him -
in assuming that he is doing an act or making a contract within the
scope of his authority, the corporation is bound even though such
officer or agent does not have the actual authority to do such act or
make such contract. This authority is known as apparent or ostensible .
authority. It is essentially a question of fact.

267
or agent’s authority." (13 Am.

Jur. 869-871 ; BPI Family Savings
Bank, Inc. vs. Fir
st Metro Investment Corp., 429 SCR
Hydro Resources Corp. vs. Nati A 30 [2004];
onal Irrigation Administration,
44 1'SCRA 614 [2004]; D evelopment Bank of the
Phils. vs.'Ong,
460 SCRA.170 [2005].)
(b) The authority of a corporate officer to‘act for and bind
the corporation may be presumed 'from acts of recognition in
other ‘instances where the power was in fact exercised. Where
similar acts have been approved by the board of directors as a
matter of general practice, custom, and policy, a corporate officer
_ may bind the company without formal authorization of the
board.” ! |
(c) Apparent authority is derived not merely from corporate
practice (defined as frequent or customary action). Its existence
may be ascertained through: 1) the general manner in which the
corporation holds out an officer or agent as having the power
Thus, where the board secretary sent to VF a telegram purportedly signed by the
general manager of the GSIS accepting VF's offer to liquidate his daughter’s mortgage
indebtedness and pursuant to such telegram VF paid P30,000.00 for which 4 receipt
the telegram ishould
was issued by the GSIS and subsequently, /GSIS claimed that of the board’s
be disregarded in view of its failure to express accurately the contents
resolution due to the error of its minor employees and that the board secretary sent the
: f the general manager, it was held that GSIS could
Ease hi by the telegram within the general manager’s
: sactions would speedily come to a standstill where
every eet aia pe ipeeantnm held duty bound to are a - aE is
face: 0 pacer
Tesponsible officers no matter how regular they should appear on sir
Corporation Ye a6) i CRA
vs, GSIS, 7 SCRA 577 [1963]; see Maharlika Publishing 9 [1996].)
553 [1986]: First Phil. International Bank vs. Court of ppc
ie ; 7 Aa ractice of the corporation aE ow Tore manager to
es
Nepotiate and wie T epact! in its copra trading Pe retnoe S iaat ; 2 ;OY mea on
f
beh; alf without a board d approval,
prior ap E tha Pein
it was theheldbylaws’ requirement of prior approval.
. : id aside :
meen acquiescence, peachy aximo M. Kalaw, 20 SCRA 987 [1967]; see Lipat vs.
P ard of Liquidators vs. ‘402 SCRA 399 [2003].)
ACific Banking Corporation,

to act or, other words, the apparent authority to act in general,

with which it clothes him; or 2) the acquiescence in his acts
of a particular nature, with actual or constructive knowledge
_ thereof, whether within or beyond the scope of his ordinary
powers.
It requires presentation of similar act(s) executed either in
its favor or in favor of other parties. It is not the quantity of
similar acts which establishes apparent authority but the vesting
of a'corporate officer with the power to bind the corporation.
(People’s Aircargo & Warehousing, Co., Inc.-vs. Court of
Appeals, 297 SCRA 170 [1998]; Advance Paper Corporation vs.
Arma Travels Corporation, 713 SCRA 313 [2013].)
3 (d) Where a power is one, which would. otherwise be
possessed by an officer, it is generally held that a bylaw (or
a board. resolution or articles: of incorporation. provision)
restricting.
Thus, a corporation was held bound by a note signed by the
president and secretary where they had signed numerous
other
notes which had been paid, although there was no
evidence that
the plaintiff knew of this fact, notwithstanding a prov
ision of its
bylaws requiring checks or notes to be signed by ,the
president
and _ treasurer. (Ibid., citing Produce Exchange Trust .Co. v.
Bierberbach, 176 Mass. 58 N.E. 167 [1900].)
(e) The rule that knowledge of an officer
is considered
knowledge of the corporation applies only
whenthe officer
is acting within the authority given to him
corporation.
or her by the
The corporation will not be bound by una
uthorized
actions made on its account. (Univers
ity of Mindanao, Inc. vs.
Bangko Sentral ng Pilipinas, 778 SCRA 458
[2016].)
Extent of authority of particular Officers.
(1) Chairman of the Board. — The concept
of board chairman and
his functions as an executive vary So widely
in different companies
as to be indefinable. There is no settled practice.
(2 Fletcher, p. 541;
Ballantine, p. 142 [1946 ed.].)
(a) The typical pattern of executive duties is that the
president or the chairman of the board is designated usually
by the bylaws but sometimes, in board resolutions, as the

269
Opinion, May 15, 1985.)

(b) Where the president is the chief
typically, the dutie S of the chairman rela executive officer,
te to presiding at
_ meetings of the board and of commit
tees of which he is a
member, and of stockholders or members,
and carrying out such
other duties as the board shall assign. The duty of the cha
of the board as presiding officer is not an execut irman
ive one.
Thus, where the functions of the chairman of the
board
as provided in the bylaws consists merely of presiding at
the meetings of the board or of committees of which he is
a
member, an alien may qualify as chairman of the board in such
enterprises. (SEC Opinion, May 15, 1985, citing 2 Fletcher, p. 542
and Ballantine & Sterling, supra.)
(c) If a vice-chairman is appointed, he presides at the

meetings absent the chairman. He shall exercise such powers
and perform such duties and functions as the board may, from
time to time, assign to him.
(2) President. — Generally, a president of a corporation is
defined as the one placed in authority over others, a chief officer, a
Presiding or managing officer.
Customarily, he is given general superv
ision and management
of the business affairs of the corporation.
(SEC-OGC Opinion No.
13-15, Nov. 3, 2015.)
The president of a corporation is the pri
ncipal executive officer
of the corporation. In general, he supervises and controls the
Usiness and affairs of the corporation.
Fro th r foregoing, ie sen
© inferred that the position of a corporate prem sid ent is reposed with
uties and responsibilities provided by the law and jurisprudence,

which can be further expanded by its bylaws. Therefore, it serves

not merely as a title of prestige or status, but also serves as a basis
for its stockholders and the other persons/entities transacting with
it to. determine whether such person is clothed with authority to
perform the duties conferred by the law and the functions given
by the bylaws, within the general objectives of the corporation’s
business. (SEC-OGC Opinion No. 13-15, Nov. 3, 2015)
The president is the only officer required by law to be a member
of the board of directors. Upon the expiration of his term as member
of the board, he automatically ceases to be president for lack of
qualification. (Sec. 22, par. 2.)
(a) The powers of the president of the corporation are such
only as are conferred upon him. by ,the board of directors or
trustees or vested in him by the bylaws. If there is nothing in
the bylaws conferring any. particular authority upon him, he
has from his office and alone no more power over the corporate
property and business than has any other director. (Fisher,
op. cit., p. 357.) It is the board of directors or trustees, not the
president, that exercises corporate powers. (Safic Alcan & Cie
vs. Imperial Vegetable Oil Co., Inc., 355 SCRA 559 [2001].)
However, according to 'the view, taken by many authorities,
regard must be had to the fact that presidents of corporations
are often given general supervision and control of the busin
ess
as chief executive officers from which is to be inferr
ed that
contracts or acts made or done by the president in the ordin
ary
course of business are presumed to be duly authorized
unless
the contrary appears." (2 Fletcher, p. 443; SEC-OGC
No. 23-14,"
‘August 26, 2014.) Unless there is a charter or bylaw
provision to
a the contra ry, the president May, as a rule, bind the corpo
ration
Ay
_., "Even absent express delegation by the boar

d or implied authority by ratification,
unless there is a charter or bylaw provision
to the contrary, the president, as such, may,
as a general rule, bind the corporation by a
contract in the ordinary course of business,
provided that the same is reasonable under
the circumstances. (see Prime White Cement
Corp. vs. Intermediate Appellate Court
, 220 SCRA 103 [1993].) Furthermore,
dealing with the president of a corporation is entit a person
led to assume that he has the authority
to enter, on behalf of the corporation, into contr
acts that are within the scope of the powers
of the corporatio
n. (People’s Aircargo & Warehousing, Co., Inc. vs.
Court of Appeals, 297
SCRA 170 [1998].) r n
“Citing De Leon, The Corporation Code of the Philippine re
s Annotated, p. 261 [2006].

Sec. 24 TITLE Ill: BOARD
OF DIRECTORS /
TRUSTEES/ OFFICE
RS 271
| € corporation, it must, as
shown that he was duly a gene
authorized by the board ral rule, be
of directors.
(d) A contract entered into

by the president who was
the chairman of the board, also
in behalf of the corporation,
held void absent any prov . was
isio n in the bylaws conferring
him the authority to enter upon
into such contracts independ
of the board of directors, pa ently
rticularly because the corpor
had a general manager who, ation
under its bylaws, was given the
active management of the co
rporation, there being no evid
adduced to show that th ence
e corporation clothed him with ap
power to act for it. (Yao Ka Sin parent
Trading vs. Court of Appeals,
209 SCRA 763 [1992].)
(e) Absent specific provisions
governing the situation
and where circumstances of an eme
rgency nature arise which
Necessitate the exercise of discretion,
the rule on agency may
be applied. (SEC Opinion, June 11, 1974.) Article 188
“The agent must
1 provides:
act within the scope of the agency
. He ma
do such acts as may be conducive to
the accomplishment of the
Pur pose of agency.”
(f): The unauthorized act of an agentis subject to
ratification,
(Art. 1910, Civil Code.) Such ratification is
implied’ from the
acceptance of benefits as where a corporat
ion deposited in its
Current account the proceeds of a loan
allegedly without authority, retained obtained by its President,
and disbursed the same

for the corporate purposes. Such use may bebe |taken as evidence
to be lie the claim of lack of authority. (De Asis & Co. vs, Court
of Appeals, 136 SCRA 599 [1985].)
(g) Unless the bylaws provide otherwise, in the absence of
the chairman, the president shall preside at all meetings of the
directors or trustees. (Sec. 53.) or in the absence of the chairman
or vice-chairman.
(h) The president of a corporation, by the authority
of his
office alone, has no power to delegate the
powers and duties
of his position as president to any member of
the board of
director or trustees. Should he become incapacitated
to perf
orm
his functions, what should be done,
in the absence of a Vice-
president or any specific Provision in the bylaws
is for the board to temporarily elect on the matter,
an acting president.
Nevertheless, if the director, who
was allowed to discharge
the duties of president, performed his fun
over the board meetings without ctions and presided
objection on the part of the
other members of the board, it wou
ld seem that if no irregularity
has been committed by him, his
past actuations need not be the
subject of further inquiry. (SE
C Opinion, May 21, 1971.)
(i) In some corporations, the
chairman is made the chief
(k) To. allow.

three (3), more co
would each be called as Tporate officers, who
“President” co uld mislea
confusion as to who shou d and create
ld perform the duties en
the law to be pe rformed by the president, umerated by
qualifications/ disqualificati and as to whom su
ons must apply. (SEC-OGC Opinioch
No. 13-15, Nov. 3, 2015.) n

Sec. 24 TITLE I. BOARD
OR DIRECTORS / TR
USTEES /OFFICER
S 273
(3) Vice-President.
considered as an Office
— The vice- President has always been
to the president.
Pinion, May 20, 1975

774.) citing 2 Fletcher, p
He has no authorit
y by virtue of his of
contracts in behalf fice alone to enter in
of the Corporation. to
Ho
(b) Where the bylaws

provide that it
(4) Secretary. — The secret

ary must be a tesident and
of the Philippines." The as
sumption is that the sececrreta a citizen
Custodian of corporate reco ry , being the
rds, should at all times be
the regular conduct and op available in
erations of the corporatio
allowed to act as president an n. He is not
d secretary at the same time.
He need not be a director unl (Sec. 24.)
ess req uired by the bylaws.
"No aiizenahip
requirement is im
posed by the Revi
T€spect to other corpor sed Corporation
ate officers. However, in en Code with
totally or Partially reserv terprises or industries wh
ed for Filipino citizens, the elec ich are
or members of the board of tion of aliens as officers and/
°f the Constitution-a directors is prohibited or re
st
lipino citizen, a Filind special laws. (see Sec. 13,) Wher ricted under Specific Provisions
pino with dual citize
nship may bee elan officer Is requir
ected Provided thated prto bea
Such election he/she shall ha ior to
ve complied with the requir
€tention and Re-Acqui
sition Act of 2003 (R ements under the Citizenshi
.A, No. 9225.) and its impl p
Tegulations.” ementing rules

Seavy
(a) It is generally the duty of the

secretary of a Corporation
to make and keep its records and to make Proper, entries o¢
the votes, resolutions and proceedings
members) and directors
of the shareholders (or
(or trustees) in
corporation and all other matters req the management of the
uired to be entered on the
records. (Ballantine, p. 142.) As custod
corollarily, he keeps the stock and ian of corporate Tecords,
‘tr
proper and necessary entries. (Torre ansfer book and makes
278 SCRA 793 [19
s, Jr. vs. Court of Appeals,
97].)
(b) He issues notices of meetings and
has custody of the
corporate seal which he uses when
attesting the signatures of
the officers to important documents: The
other functions, secretary may perform
, |
Where the corporate bylaws state, amo
secretary shall also’ “send notices ng others, that the
of all regular and special
meetings of the member s and of the board of directors,”
connotes that the principal signat this
ory to such notices is the
corporate secretary. The term
“to send” may be deemed
synonymous with “issuance” of
the notices, in accordance with
sound corporate practices, suppor
ted by jurisprudence. (SEC
Opinion, Oct. 1, 1981.).
tortuously slow an
d
Court of Appeals, 26
7 SCRA 380 [1997].)
(e) The secreta
the corporation un
less h
(Bal
lantine, Pp. 142.)
Th

275
(a) The treasu

re of the co
entrusted wit ‘poration is the proper office
h the authorit
yto receive and keep the
r
the corporation money of
ang to disburse
them as he may be au
thorized.
is (b) Tewiewy is taken that
he has no inherent power
© corporation by contracts or to bind
corporation. (Ballantine, to
143: 13borrow money in behalf of the
an assistant treasurer. P89; 1S Am. Jur. 886.) There may be
effect the transfer of corporate funds out

of the country, for, in view
of his status
as a non-resident, he can easily leave the
country and
escape. (SEC Opinion, May 27, 1991.)
A comptroller differs from a treasurer. The former is
said to be
an officer appointed to control accounts and to check expe
nditures.
By virtue of his office, the authority of a comptroller is restricted
to
doing those things which are usual and necessary in the performance
of his duties. (19 Am. Jur. 24.599.) !
(6) General Manager.— The general business of corporations is
frequently entrusted to the management of a general manager or
managing officer who has power to bind the corporation by acts
within the scope of his apparent authority. Accordingly, the general
manager or managing officer has very broad powers, especially as
far as third persons are concerned.
oC tt has bazopine d, that there is all the more reas

on for the treasurer to also possess
is ,
eine ; . Being the holder of the purse, the treasurer is
quae bens AP a cate ian and disburse funds of the corporation.
ed with the autho rovide to local investors ample protection from the
ermore, there is a need IP eign nationals. Thus, while the Revised Corporation
danger of getting victimized by:
Code does not impose igre tapecy Faeerahid requirement, nevertheless, considering
corp¢porate April
* Nature of his functions, g00d practice dictates that the treasurer must be a
13, 1989 and Jan. 30 1990.)
"sident of the Philippines. (SEC Opinions,

transaction of the comp
any’s business, This
broadly de scribed as being co -ext Power has been
corporation itself unless ensive with the POwe
speci fically restricted rs of the
.
(b) He has implied au
thority to make any co
necessary or appropriat ntract or do an
e to the conduct of the
of the director or trustee. (SEC

26, 1969, citing 19
C.J.s, 96.) Opinion June
(2) Through a receiv ’
er, — Where the corporation is under
Teceiv ership, the appointm
terminates at least, fo en t of a receiver for a co
r the most part, the powe rporation
officers as to the Prop rs of the corporate
erty in po Ssession of the
receiver where the

Occupy the position of a trustees, its
authorized representative ma y be
elected as member of the board
if, under the bylaws, such r €presentative is also consid
ered as a
member of the corporation to qualify him as a tru
stee. (SEC Opinion,
Sept.2, 1991.) In such case, the trustee is not the
corporation but the
representative.
Sec. 25. Report of Election of Directors, Trustees and

Officers, Non-Holding of Election and Cessation from Office.
— Within thirty (30) days after the election of the directors,
trustees and officers of the corporation, the secretary, or
any other officer of the corporation, shall submit to the
Commission, the names, nationalities, shareholdings, and
residence addresses of the directors, trustees and officers
elected.
The non-holding of elections and the reasons therefor
shall be reported to the Commission within thirty (30) days
from the date of the scheduled election. The report shall
specify a new date for the election, which shall not be later
than sixty (60) days from the scheduled date. (N)
date has been designated, or ifthe rescheduled
aiden is likewise not held, the Commission may, upon
aflcal f or
the application of a stockholder, member, er , Te
trustee, and after verification of the
that Sectors
-holding of the election, summarily orderPowe rit sue Buc
held. The Commission shall have the ee ing
uding oneers
Orders as may be appropriate, incl
the issuance of a notice stating the Miele Ree: 9 ane
election, designate
det
d pres
erm ina tio n ofo atec
stockh o ldate or members
kivo
or date s for the
entitled to vote. (N)

—g,, 25
Notwithstanding any provision of the articles of

incorporation or bylaws to the contrary, the shares of stock
or membership represented at such meeting and entitled to
vote shall constitute a quorum for purposes of conducting
an election under this section. (N)
Should a director, trustee or officer die, resign or in any
manner cease to hold office, the secretary, or the director,
trustee or officer r ion, shall, withi Vv
days from knowledge thereof report in writing such fact to
)
the Commission.
Report of elections and vacancies.

Section 25 requires that:
(1) The secretary or any other officer of the corporation shall
submit to the SEC the names, nationalities, shareholdings and
residence addresses of the directors / trustees (see Sec. 13[7].)
and
officers elected, which must be done within 30 days after the meeting
in which they were elected;
(2) The non-holding of elections and the reasons thereof shall be
reported to the SEC within 30 days from the date of the-scheduled
election. The report shall specify a new date for the election.
(3) If no new date has been designated, or if the reschedule
d
election is likewise not held, the SEC may, upon the application of
a stockholder, member, director or trustee, and after verification
of
the unjustified non-holding of the election, summarily order that an
election be held. The SEC shall have the power to issué such orders
as may be appropriate in order that an election be held (see OGC-
SEC Opinion No. 49-19, Oct. 2, 2019); and :
(4), Should a director / trustee or officer die, resi
gn, or any manner
cease to hold office, the secretary or director /trustee or officer of
the corporation, shall within seven (7) days from know
ledge thereof
report in writing such fact to the SEC.
The filling of vacancies in the office
of director or trustees is
governed by Section 28.
Objective of Section 25. .

The objective sought to be achieved by Section 25 is to
public information, under sanction of oath of responsi give the
ble officers

. it ites. > ST DURECTORS/ TRUS
TEES/ OFFICERS
279
264 SCRA 1 [1996]: M

onfort Hermanos Agricultural
Corp. vs. Monfort III, Development
434 SCRA 27 [2004]; see SEC-OG
No. 9-14, June 2; 2014:) C-Opinion
e voluntarily or of their own

volition. However, if the members’ non-attendance results to no
quorum for at least two (2) attempts at meet
electing directors/ trustees, Sec ings for the purpose of
tion 25 of the Revi
sed Corporation
Code applies. (SEC-OGC Opinio
n No. 43-19, Sept. 19, 2019.)
Emergency quoruni.f% dinate ldy | and uch

To solve the recurring problem of “no quorum-no
meeting,”
the Revised Corporation Code provides for an emergency
quorum
under paragraph 4 for purposes of conducting an election: It stat
es
that notwithstanding any provision of the articles of incorporation
or bylaws to the contrary, “the shares of stock or membership
represented at such meeting and entitled to vote shall constitute a
quorum for purposes of conducting an election under this section.”
Based on this provision, if no election is held consecutive times,
or if the non-holding of election is unjustified, the SEC may, upon
application of a stockholder or member, director or officer and after
verification of the unjustified non-holding of the election, summarily
order that an election be held. The shares or members represented
at such a meeting and entitled to vote shall constitute a' quorum
for conducting an election. (SEC-OGC Opinion No. 37-19, Sept. 13,
2019.)
_ Disqualification of Directors, Trustees or Officers.

- ee shall be disqualified from being a director,
er of any corporation if, within five (5) years
ee ie eiccilon or appointment as such, the person
3 )
was:
ment;
(a) Convicted by final judg

280 THE REVISED CORPORAT
ION CODE OF THE PHIL
IPPINES Sec. 26
(1) Of an offense punishable by imp

a period exceeding six (6) yea
risonment for
rs;
(2) For violating this Code; and
(3) For violating Republic Act No: 8799
otherwise
known as “The Securities Regulatio
n Code”;
(b) Found administratively liable for any offense
involving fraudulent acts; and
(c) By a foreign court or equivalent for

eign regulatory
authority for acts, violations or miscon
duct similar to those
enumerated in paragraphs (a) and (b)
above. (N, from Par. 1
to [c].)
The foregoing is without prejudice
to qualifications
or other disqualifications, which
the. Commission, the
primary regulatory agency, or the
Philippine Competition
Commissio n | may, .impose , in, its promotion
corporate governance or as a sancti of good
on in its administrative
Proceedings. (N)
Disqualification of directors/trust
ees
or officers.
Section 26 disqualifies as a dir
ector’ or trustee a person:
(1)' convicted by final judgment
of an offense punishable by
imprisonment for a period exceed
ing six (6) years or for violating
( the
, or the Securitie
s Regulation Code (R.A.
No. 8799.); (2) found administrativel
y liable for an offense involving
fraudulent acts, or (3) found guilty
by a foreign court or regulatory
authority. of acts, violation
s or misconduct similar to those
The purpose is to avoid the above.
election or appointment of un
officers in view of the worthy
fiduciary character of their pos
itions.
The offense need not involve
moral turpitude.! The rule app
regardless of the nature or lies
classification of the offense
as long as
In the exercise of its

corporations, the SEC power of suspension,
reg
ma y require certificates of goo ulation and control over all
trustees and officers d moral character for director
of corporations, s/
™~

Sec. 26
The S i
Compeuton enemmis
Nesiaon) arTee Buemlapotowe
ry reagdencyby, Seanctdionthe26 Phto ilippine
qualifications or other impose
disqualifications in the
promotion of
good ‘corporate 8Overnance or « y a l ? 2
.
proceedings. as a san \ction in its i administ :
obs rative
De facto directors/trus
tees Or Officers.
A person is an officer or director de facto where
of the office and is exe Tcising the he isin possession
duti
es thereof under color or
appearance of right, butis not an officer or
director de jure on account
of irregula rity in his election; or ineligibility; or ‘disqualific
resulting from a non-residence or not bein
ation
g a stockholder; or failure
to take an oath of office or file a written atceptarice
of the trust when
required by statute or charter (19 CJ.S. 78.) or corporate
bylaws.
(1).,Where, for example, the directors are elected before the
amendment increasing the number of directors had become effective
upon its approval by the SEC (see Sec. 15.) and they act as such
without objection, they are de facto directors. (see SEC Opinion, Oct.
21, 1974.) oO
(2) Directors elected through voting. by the government of
shares sequestered by it and who in good faith assumed their duties
as such are de facto officers. Only the owners of the shares or their
duly authorized representatives or proxies may vote the sequestered
shares, Sequestration does not divest the owners of their ownership
of the shares, and the election of the board of directors is distinctly
and unqualifiedly an act of ownership. (Cojuangco, Jr. vs. Roxas,
195 SCRA 797 [1991].)
(3) Conversely, a person is not a de facto officer or director where
he is not holding office under some appearance or color of right, or
where he is not in actual possession of the office, or where he is not
a functions
i generallly
and performing the dutiei s thereo of genera l
a ae kes from the single instance in which his authority is
questioned.
“ “de facto officer”
icer” isi common ly applied3 to
Gees
i term
officers of a private corporation, yet, technically

PHILIPPINES Sec, 26
speaking, it applies to a public officer only. Generall

y, there cannot
be ade facto office, nor can there be a de facto offic
er,
Corresponding legally constituted office. (19 CJ.S where there ig no
. 78.)
Powers and rights of de facto officers
in general.
(1) All powers of the jure official. — De facto dire
may exercise all powers of de jure official
ctors and Officer
s so as to bind all persons
who acquiesce in their management and dire
ction, and they may
continue to exercisethese powers in such binding manner
are, through proper legal steps, removed until they
from office and replaced
by other legally constituted directors and officers.
Co., 30 F. Supp. 964 aff'd. 115 F [2d] 158; (In re Pearl Coal
2 Fletch er, p. 214, cited in
SEC Opinions, Oct. 21, 1974 and July
4, 1975.)
(2) Powers or acts within the scope
of corporate business. — A de
facto board of directors. may legally
perform such acts as are within the
scope of the business of the corporati
ons; and a de facto president may
such acts pending a det do
ermination of who are the lawful
the company, as are necessary to officers of
keep its machinery in motion.
Thus, a de facto board of directors
the stockholders to consider and may call a special meeting of
act upon any matter pertaining
the corporation, as to which, und to
er the law, the stockholders may
ock is registered in one’s name
on the
on capital stock.
(3) Right to possess office and to
salary. — While de facto officers
have the same powers as de jure
officers, they do not have the sam
tights since they may be ousted e
from office in a proper proceedin
and they cannot recover the g
salary of the office.
|
faith “are thereby legally entitled declared de facto officers in good

including salary, fees and other to the emoluments of the office
co
until they vacate the same” (2 Fletchmpensation attached to the office
er, pp. 213-214.) or are removed
in an action for quo warranto or
Persons, replaced by the election of other
\

Sec. 27 TITLE II, BOARD OF
DIRECTORS / TRUSTE
ES / OFFICERS
283
Validity of contracts an d acts

of de facto
offi cers.
scope of their authority, are jus

t as binding as the acts of the
de jure; at least officers
so far as third Persons are con
cerned. (Consumers
Alt. Co. v. Riggings, 208 Cal. 537, 282
Pac. 954; 2 Fletcher, p. 214.)
(1) Inasmuch ‘as de facto officers are hel
by the corporation as its tepresent d out to the world
atives and the corporation
has it within its power to Oust
a de facto officer and prevents
him from acting as its officer it is
unquestionably the rule that a
corporation is bound by the acts
of its de facto officers.
(2) Furthermore, so far as third
persons are concerned, the
rule that th e acts of de facto officers are bin
ding in their favor is
ordinarily merely another way of sta
ting that the corporation
is bound; and if a contract between de
facto officers and third
persons binds the latter, then it cannot
‘be attacked by the
cor poration as the act of de facto officers,
This rule seems based on the principle of esto
ppel. Thus, it
is no defense to the foreclosure of a corporate mor
tgage that the
directors authorizing the mortgage were not lega
lly elected as
such. (see 2 Fletcher, pp. 217-220; 19 CJ.S. 76-78.)
Sec. 27. Removal of Directors or Trustees. — Any

director
or trustee of a corporation may be removed
from office
by a vote of the stockholders holding or representing
two-thirds (2/3) of the outstanding capital Stock, or if
a
nonstock corporation by a vote of two-thirds (2/3) of the
members entitled to vote: Provided, That such removal shall
take place either at a regular meeting of the corporation or
at a special meeting called for the Purpose, and in either
Case, after previous notice to stockholders or members of
the corporation of the intention to propose such removal
at the meeting. A special meeting of the stockholders or
members for the purpose of removing any director ortr
ustee
must be called by the secretary on order of the presiden
t
Or upon written demand of the stockholders representing
or holding at least a majority of the outstanding capital
Stock, or a majority of the members entitled to vote.
If there
is no secretary, or if the secretary, despite demand
fails or

284 THE REVISED CORPORATION CODE OF
THE PHILIPPINES Sec, 27
refuses to call the Special meeting

or to give any notice
thereof, the stockholder or member of the corporati
on
Signing the demand may call for the mee
ting by directly
addressing the stockholders or mem
bers. Notice of the
time and place of such meeting, as
well as of the intention
to propose such removal, must
be given by publication
or by written notice prescribed in the
Code. Removal may
be with or without cause: Provided, That removal without
Cause may not be used to deprive
minority stockholders or
mem bers of the right of representation to
which they may
be entitled under Section 23 of this
Code. (SA)
The Commission Shall, motu pro
prio or upon verified
complaint, and after due not
ice and hearing, order the
removal of a director or tru
stee elected despite the
disqualification, or whose dis
qualification arose or is
discovered Subsequent to an
election. The removal of a
disqualified director Shall be
without prejudice to other
Sanctions that the Commissio
n may impose on the board
of directors or trustees
who, with knowledge of
disqualification, failed to rem the
ove such director or trustee.
(N)
Power of Stockholders
or members to remove
directors or trustees
(1) Generally. — Section
27 prescribes the rules on
the directors or trustees of removal of
the corporation, by Providin
others, the persons author g, among
ized to call the meeting
of votes required for and the number
removal.
the ultimate masters, not

the directors, “to make the
S0vernment responsible to corporate
the ow
to continue in office to the comp ners”. If the directors have a right
letion of their term, despite
a change
The non-election of a director or tru

year is not a case of dismissal stee after serving for one (1)
or removal but expiration of
his term.
5|

Sec. +7 44ibuh, ill, DYAKD OF DIRECT
ORS / TRUSTEES / OF
FICERS
285
the minority against any abu

cumulative voting in the remo
The rule does not apply wh
ere the removal is initiated
minority stockholders or me by the
mbers themselves.
(3) Where removal done by elec
ting replacement. — The incumbent
directors or trustees cannot be tem
oved merely by electing a new set
of directors or trustees.
The reason is that the directors or truste
es can be removed onl
by at least 2/3 of the outstanding capital stock or of the
entitled to vote (Sec. 27.), while vacanc members
ies in the board, when they
exist, can be filled by mere majority (or
plurality) vote. (Sec. 23.)
.
Furthermore, the Revised Corporation Code
‘requires that the
removal “shall take place either at a regular or spe
cial meeting
called for the purpose,” and “after previous notice to
stockholders
or members of the corporation of the intention to pro
pose such
removal at the meeting.” (Roxas vs. De la Rosa, 49 Phil
. 609 [1926].)
(4) Where removal done for disqualification. —-A director or trustee
can be removed by following the procedure in Section 27. In case
of
disqualification by operation of law, there is no need to follow the -
Procedure. A mere declaration of such disqualification is sufficient
to remove him from office..(SEC Opinion, Oct. 6, 1994.)
(5) Where replacement elected not qualified. — It has been held

that a director removed by the stockholders who elected another
Person in his place cannot be compelled to vacate his’ office,
Where is shown that the successor is not qualified not being the
Owner of any share in the corporation and because under the
bylaws of the corporation, “directors shall serve until the election
and qualification of their duly qualified successors.” (Detective and
Protective Bureau, Inc. vs. Cloribel, 26 SCRA 255 [1968];
see Sec. 22:) :
Under Section 27, however, the removal of a director does not °
pend upon the qualification of his successors if the removal has
been duly made.

286 THE REVISED CORPORATION CODE OF THE PHILIPPINES Sec, 27
(6) Where authorized officer refuses, fails or neglects to call a meeting

— The SEG, in exercising its regulatory and rulentuvieene
to implement the Revised Corporation Code, is Seca to cal]
a special meeting upon petition of a stockholder or ae er and
upon showing good cause when there is an officer authorized to
call a meeting and that officer, despite demand, fails, refuses, fails
or
neglects to call a meeting. (Bernas vs. Cinco, 761 SCRA
104 [2015]:
see Sec. 49, par. 7.)
Power of the SEC to remove

directors or trustees.
(1) The SEC is given the power, motu
proprio or upon verified
complaint, and after due notice and
hea ring,
to.order the removal
of a director or trustee elected despite the
dis
disqualification, or whose
qualification arose or is discovered
after an election.
(2) The removal of a disqualif
ied director shall -be without
prejudice to other sanctions that the SEC
of directors or trustees who, with may i
knowledge of the disqualificatio
failed to remove such director or truste n
e.
Power of the board to
remove a member.
The board of directors (or tru
stees) has’ no power to’ remo
one (1) of its members as
director (or trustee), (Bruch
ve
Guarantee Credit Corp., ’v. National
116 A, 738.) Neither can
vacancy caused by remova l effected
it replace the
by the stockholders or memb
of the corporation. (see Sec
, 28.) ers
The reason is that as
Officers de Tiving their
stockholders (or member
s), they can be re
title‘ from the
that appointed them. (Ib moved only by the power
id.) Since the law expres
authority to stockholders sly confers the
usurp or disregard the
o; me mb er s, the bo ar d cannot indirectly
same. ( SEC Opinion, May
23, 198 5.)
Power of court to remo
ve directors
or tr ustees,
(1) General rule. — The
confer expressly upon Revised Corporation Co
the courts the de does not
trustee or any appoin
ted officer of a cor
mismanagemen t of its affairs,
Temoval is in the co
rp

EME ERD J NIE ILBND
287
“The reason for this rule ;

‘wer thet ete: sho is
uld be no that if the courts were given such
feason why the courts should
also be given the power to dec; not
‘houldb e substitu ting cm €signate the one to fill the office, which
jud
stockholders or member” “| Sment of the court for that of the
others appointed in their place

jurisdiction. (2 Fletcher, pp. 189-190.)
But where the properties and assets of the corporat
ion are
amp ly protected by the appointment of a receiver, such rem
unnecessary and unwarranted because of thé provisio oval is
ns prescribing
the manner of removal of directors or trustees, (see Ange
les vs.
Santos, 64 Phil. 697 [1937].)
Requisites for removal of directors or trustees.

Section 27 specifies these requisites for the removal of directors
or trustees:
(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 holding
or representing two-thirds (2/3) of the outstanding capital stock,
or if the corporation be a nonstock corporation, by a vote of
two-thirds (2/3) of the members entitled to vote;”
(3) The removal must be “by a vote of the stockholders holding |
or representing two-thirds (2/3) of the outstanding capital stock, or
by a vote of two-thirds (2/3) of the members entitled to vote.”
While a director or trustee can be removed from office as
Provided in Section 27, he cannot be removed as stockholder of
the corporation, depriving him of his ownership of shares of stock,
Without due process of law.
Requirement of notice of meeting.

(1) For removal. — Section 27 requires that the notice of the
Meeting called for the removal of any director or trustee must

expressly state “the intention to propose such removal.” A notice

of a special meeting to consider amendments of the bylaws and
“reorganization of the board of directors” cannot be considered as a
notice contemplated under Section 28 as it couched in general terms
and, therefore, the action of the members which passed a resolution
declaring vacant all the seats in the board and nominated and elected
a new set of directors, is not proper and may be questioned by the
directors who did not attend the meeting as this is tantamount to
their unjust removal from office. (SEC Opinion, Dec. 3, 1971.)
“Previous notice... of the intention to propose such removal” is
not required where the meeting is a regular annual meeting. There is
no removal involved when a director or trustee is reelected. (Supra.)
(2) For choosing replacements. — When the vacancy arises because
of removal by the stockholders or members, the election may be
held on the same day of the meeting authorizing the removal and
this fact must be so stated in the agenda and notice of the meeting.
(Sec. 27.) :
Resignation of directors or trustees.

(1) Right to resign. — The fact that the law requires directors:or
trustees (unless removed) to continue in office until their successors
are elected and qualified (Sec. 22.) does not prevent a director
or trustee from resigning at any time. A corporation, however,
continues to exist despite the resignation of the directors or trustees.
It can be dissolved only in the manner provided for by the Revised’
Corporation Code, particularly under Title XIV thereof. -
(2) Liability for wrongful resignation. — By reason, however, of
the fiduciary nature of the position they occupy, a director cannot
resign, 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 prop
er care and protection.
(Ballantine, p. 217.) |
If a director quits under circumstances which occasioned ‘a
deprivation of profits to the corporation, it is but right that
he should
repair and make good such loss.’
(3) Form and report of resignation.’ — In the abse
nce of express
provision, a resignation ‘need not'be in any particular form. It may

Sec. 27 ALLE I, BOARD OF DIRECTORS/TR
USTEES / OFFICERS 289
be oral or in writing, but it must clearly and positively show an

intent to resign. (2 Fletcher, p. 140.) A mere statement, for example,
by a director that he has nothing more to do with the
corporation or
he is resigning from his position, is not sufficient.
_ The Revised Corporation Code requires the resignation of a
director or trustee to be reported to the SEC. (Sec. 25.)
(4) Effectivity of resignation. — As a rule, unless a future date
of acceptance by the corporation is required by the bylaws, 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 unnecessary that the resignation be
accepted, or that someone be elected to take his place, to make the
resignation effective. This is the rule, notwithstanding a provision in
the statute, charter, or bylaws that the officers shall hold office until
their successors are duly elected.
The basis of the rule is that where a director (or trustee) thus
resigns, the inaction or refusal of the board of directors should not
impose upon him a future liability or responsibility which he does
not undertake. (SEC Opinion, Jan. 23, 1963, citing 2 Fletcher, pp. 105-
106.) )
Abandonment of office and failure to attend

meetings.
(1) Acceptance of incompatible office. — Where’a director (or
trustee) in a corporation accepts a position in which his duties are
incompatible with those as such director (or trustee), it is presumed
that he has abandoned his office as director .(or , trustee) of the
corporation. (Mead vs McCullough, 21 Phil. 95 [1991].)
(2) Absence for an unreasonable length of time. — Similarly, where
a director absented himself from all meetings for nearly a year and
announced his refusal to act as an officer and stockholder, there is
an abandonment of his position as director. (Dodge v. Kenwood
Ice Co., 204 Fed. 577.) Abandonment by a director of all his duties
for several years must be regarded as an implied resignation of his
Office as director. (Bartholomew v. Bentley, 1 Ohio St. 37.)
(3) Mere absence or continued failure to attend meetings. —However,
Mere absence of a director from the country, or continued failure to

attend meetings, etc. where there has been no resignation, does not
have the effect of vacating his seat or terminating his term of office
unless there is some express provision to such effect. (2 Fletcher, p.
132.) .
(4) Specified number of unjustified absences as ground for automatic
disqualification. — Where the general authority to remove directors
or trustees rests with the stockholders or members, .a corporation,
to protect its interests, is empowered to prescribe in the bylaws (see
Sec. 46[f].) attendance in board meetings as a qualification. device,
such that a specified. number of unjustified absences.may be a
ground for automatic disqualification which need not be approved
again by the stockholders or members as required under Section 27,
The bylaws are written into the charter of the corporation and
the corporation, directors, trustees, officers, and stockholders /
members are bound by and must comply with them. (SEC Opinion,
May 19, 1992.) pile’
Sec. 28. Vacancies in the Office of. Director or Trustee;
-. Emergency Board. — Any vacancy occurring in the board of
directors or trustees other than by removal or by expiration
of term, may be filled by the vote of at least a majority of
the remaining directors or trustees, if still.constituting a
quorum; otherwise, said vacancies must be filled by the
stockholders or members in a regular or special meeting
‘called for that purpose.
When the vacancy is due to term expiration, the election .
shall be held no later than the day of such expiration at a
meeting called for that purpose. When the vacancy arise
s
as a result of removal by the stockholders or members,
-
the election may be held on the same day of the meeti
ng
authorizing the removal and this fact must be so stated
in
the agenda and notice of said meeting. In all
other cases,
the election must be held no later than forty-five
(45) days
from the time the vacancy arose. A director.
or trustee
elected to fill a vacancy shall be referred to as repla
cement
director or trustee and shall serve for the une
xpired term
of the predecessor in office. (N)
_ However, when the vacancy prevents the remaining
directors from constituting a quorum and emergency

291
Any directorship or trusteeship

to be filled by reason
of an increase in the number of dir
ectors or trustees shall
be filled only by an election at a
regular or at a special
meeting of stockholders or member
s duly called for the
purpose, or in the same meeting author
izing the increase
of directors or trustees if So stated in the notice of the
meeting.
In all elections to fill vacancies under this sect
ion, the
procedure set forth in Sections 23 and 25 of
this Code
shall apply. (N)
Vacancies in the office of director

or trustee.
(1) Grounds for replacement during term. — A director or trustee
may be replaced during his term upon his resignation or removal
(see Sec. 27.) or when his position is otherwise lawfully vacated.
Temporary absence does not result in vacancy as contemplated in
Section 28. (SEC Opinion, April 25, 1985.)
(2) Tenure of successor. — The director or trustee elected to
fill a vacancy holds the office only for the unexpired term of his
Predecessor.
(3) Prohibition against election of alternate if temporary vacancy
curs, — In the absence of a vacancy, no one can be elected
88 an alternate, to replace an incumbent director or trustee ,whoevenis
temporarily absent only. To allow such an alternate would be to have
0 (2) directors or trustees for the same position, one (1) permanent
d the other temporary, a situation that finds no sanction in the law
and js irregular. (Ibid.
)

THE REVISED CORPORATION CODE OF THE PHILIPPINES Sec, 28
292
The procedure in Sections 23 and 25 shall apply in all elections

to fill vacancies in the office of director or trustee.
Filling of vacancies.
(1) By the stockholders or members. — A vacancy in the office of
director or trustee may be filled by the stockholders or members in a
regular or special meeting called for that purpose in these cases:
(a) If the vacancy results from the removal by the
stockholders or members, the election may be held on the same
day of the meeting authorizing the removal; or if due to the
expiration of term, the election shall be held not later than the
day of such expiration;
(b) If the vacancy occurs. other than by removal or by
expiration of term (see Sec. 28, par. 1.), such as death, resignation,
abandonment, or disqualification, if the remaining directors or
trustees do not constitute a. quorum to fill the vacancy;
(c) 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
(d) If the vacancy is created by reason of an increase

in the
number of directors or trustees.
In requiring that vacancies in the board resulting from
resignation be filled up by the stockholders or
members in a regular
or special meet
ing called for the purpose if the remainin
do not constitute a quorum, the law seeks g trustees
to ensure the recognition
and strict implementation of the policy that only.
been elected by the shareholders or mem
those who-have
bers can rightfully exercise
and discharge the duties and function
s of a director or trustee, and
be made fully accountable to the
shareholders or members for the
same. (SEC-OGC Opinion No. 01-21, Jan. 18, 2021.)
by the Supreme Court in Valle As explained
Verde Country Club, Inc. vs. Afr
(G.R. No. 151969, Septembe r 4, 2009): ica
|
The board of directors is the dir
of the Corporation. It is a cre
ecting and controlling body
ation of the stockholders and de-
tives 1ts power to control and dir
ect the affairs of the corporation
from them. The board of directors
, in drawing to themselves the
powers of the corporati on, occupies a position of tru
steeship in

293
relation to the stockholders,

. not onl
exercise ,; in th e sense that the board should
Y care and diligence, but utmost good fai
the management of th in
corporate affairs,
:
The underlying Policy of
business and affairs of a Co the Corporation Code is that the
rpor
ation must be governed by
board of directors whose me
mbers have stood for election, a
who have actually been ele and
cted by the stockholders, on
nual basis. Only in that way can an an-
the directors’ continued ac-
countability to shareholders, an
d the legitimacy of their deci-
sions that bind the corporation’
s stockholders, be assured. The
itical to the theory that legitimiz
es the ex-
‘ercise of power by the directors or offi
cers over properties that
they do not own.
This theory. of delegated power of the
board of directors
similarly explains why, under Section 29 Inow
Section 28] of
the Corporation Code, in cases where the vacanc
y in the cor-
poration’s board of directors is caused not by the exp
iration of
a member’s term, the successor “so elected to fill
in a vacancy
shall be elected only for the unexpired term of his predec
essor
in office.” The law has authorized the remaining members of the
board to fill in 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.”
(2) By the 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. (see SEC-OGC Opinion No. 43-
19, Sept. 19, 2019.)
When the vacancy prevents the remaining directors from
constituting a quorum and emergency action is required to prevent
grave, substantial, and irreparable loss or damage to the corporation,
the vacancy may be temporarily filled from among the officers of
the corporation by unanimous vote of the remaining directors or
trustees. The action by the designated director or trustee shall be
limited to the emergency action necessary, and the term shall cease
within a reasonable time from the termination of the emergency
or upon election of the replacement director or trustee, whichever
Comes earlier. (Sec. 28, par. 3.)

PHILIPPINES Sec, 28
(a) Allowing the remaining directors or trustees to fill u

vacancies avoid the expenses and inconveniences attending the
calling of stockholders’ or members’ meeting, especially Where
there are many of them. (SEC Opinion Jan. 3, 1986.)
(b) The power of the board of directors or trustees is not.
suspended by vacancies in the board unless the number jg
reduced below a quorum.
(c) 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 28
which authorizes the filling of the vacancy “in the same meeting
authorizing the increase of directors ‘or trustees if so stated in
the notice of meeting.” . |
However, any amendment to the articles and bylaws requi
res
SEC approval.
;
ILLUSTRATION:
If four (4) of nine (9) directors died, the
remaining five (5)
director s still constitute a quorum, and a majority
(5) or three (3) may fill the four (4) vacancie of the five
s.’ But if five (5) of
_ the directors died, the vacancies will hav
stockholders in a regular or special meetineg to be filled by the
purpose.
duly called for the
. | ae es
(d) The phrase “may be filled”
in Section 28 indicates that
the filling of vacancies in the board
by the remaining directors
constituting a quorum is merely
permissive. Corporations may
choose how vacancies in the
ir board may be filled up,
by the remaining directors either
or trustees constituting
a quorum
"Note that the ele

the vote of majority of alctiloni Of of corpor
or all
made after the vacancie the membersateof oftheficeboar
rs other than dire
d. Sec. esctors or trustees requires
s in the boar d have been Aten nef i ay be
Be Sapa clacton ay
“i

sec. 2 9 TITLE ML: B OARD
OF DIRECTORS / TR
USTEES /OFFICERS
295
4) Where vacan nalite
Apne 16 git resignation of a hold-o
ver directo
members of the boar r, —
the power to elect not the femaining
a director to fill the d, have
— that time from vacancy. The hold-o
the lapse ofone (1) year after ver period
to the board and a member’s electi
unti] his Successor’s on
vacancy caused by the 0 shall possess the authority to

expirat; fill a
Country Club, Inc. vs Afr
ica, 598 SCRA 202 [2009]
.)
Successor to serve for
unexpired term
of predecessor.
The theory of delegated power
explains why, under Section
of the board of directors
28, in cases where the vacancy
corporation’s board of directors in the
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 mem
bers of the board to
fill a vacancy only in specified instances so as not to retard
the corporation’s operations; yet, in rec
or impair
ognition of the stockholders’
tight to elect the members of the board, it limited the per
iod during
Which the successor shall serve only to the unexpired ter
Predecess
m of his
or in office. (Ibid.)
Sec. 29. Compensation of Directors or Trustees) — In

the absence of any provision in the bylaws fixing their
compensation, the directors or trustees shall not receive
any compensation, in their capacity as ‘such, except
for reasonable per diems: Provided, however, That the
Stockholders representing at least a. majority of the
Outstanding capital stock or
majo
of the
ri membe
ty rs may
grant
rant directo
di wi
rs or trustees ees compe
with nsation and approve
the amount thereof at a regular or meeting. In no case shall
the total yearly compensation of directors, exceed ten

percent (10%) of the net income before income tax of the.

corporation during the preceding year.
Directors or trustees shall not participate in the
determination of their own per diems or compensation. (N)
Corporations vested with public interest shall submit
to their shareholders and the Commission, an annual
report of the total compensation of each of their directors
or trustees. (N)
Compensation of directors or trustees.

(1) Authorization. — Under the law, a private corporation
is authorized to provide in its bylaws for the compensation’ of
directors
or trustees. (Sec. 46[f].) Absent any provision in the bylaws
fixing their compensation, the directors or trustees shall receive no
compensation, in their capacity as such, except for reasonable per
diems, 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 per diems or compensation to
the officers of a corporation without proper authorization in the
bylaws or by the vote of the stockholders may, be recovered in a
stockholder’s suit.
(2) Amount. — The amount of compensation of directors or
trustees must be fixed either in the bylaws or in the resolution of
the stockholders or members; hence, the stockholders or members
cannot delegate to the board of directors or trustees the authority to_
fix the amount of their own compensation.
If the corporation is vested with public interest, it shall submit
to its shareholders and the SEC an annual report of the’ total
compensation of each director or trustee. Here, transparency is the
objective. |
Directors without authority to grant

themselves compensation.
(1) The directors or trustees have no authority to grant
compensation or per diems to themselves.! They are prohibited
'There is a radical difference when a stockholder is voting strictly as a stockholder

and when voting as a director. When voting as a stockholder he has the legal right to
vote with a view of his own benefits and is representing himself only; but a director

297
(b) Forservicesoutside the

ir regular duties. — Inview
wording of Section 29, it of the clear
is doubtful whether a di
entitled to compensation
even when they ren
or unusual ser vices, i.e., services not properly
office and are rendered outside of incidental to their
their regular duties. (see SEC
Opinion, June 10, 1974.) Corp
orate directors presumptively
serve without compensation. While
they may assign themselves
additional duties, the
y are without power to vote for them
additional duties, they are without po selves
wer to vote for themselves
compensation for such additional duties
. (Central Cooperative
Exchange, Inc. vs. Enciso,.162 SCRA 706 [19
78].) Compensation
ma
y be granted to them by the corporat
ion when they serve the
_ corporation in another capacity.
(2) A stockholders’ resolution or agreement for the payment of
compensation for such services would be valid. (SEC Opinion,
Dec.
29, 1975.) But the stockholders cannot ratify a board of- direct
ors’
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. (Supra.)
a ————$_<——
Tepre ; ity
u ea e dite te hi kholders in
ected the capacity of tru forsthe
t m e
andehe c
benefi t at theof expens
trus ot
e of the stockholders.PANO(Halde
hi
NSE s
V. Halocman 176 Ky. 635, 197 S.W. 376 [1917], cited in Sulpicio Gue man
vara, The Phil. Corp.
Law, , 1967 Rq +
ees A ha
p. 145.)s ding a corporate mee i g as suchch is is not enti
nes eae fi hidel? as antinown tled
tled to toper s s § for
er of stocks of the cor per diemtem
not enti
poration. (SEC
pinion, September 1971.)

298 THE REVISED CORPORATION
CODE OF THE PHILIPPINES
Sec, 29
Limit to compensation.
Where compensation is granted either in
the bylaws or by the
vote of stockholders, the total yearly
compensation of directors
shall in no case exceed 10% of the net
income before income tax of
the corporation during the preceding
year.
This limitation seeks to curb the Practi
ce particularly of close
corporation to grant excessive bonuses
to their directors to reduce
the taxable income of such corporations
. It is also intended for
the protectio
n of the stockholders and the corporate cre
prospective investors.? ditors and
The phrase “as such directors” follow
ing the phrase “the total
yearly income of directors” in Section 30
of the old Code is deleted
on Section 29. (par. 2.)
The phrase delimits the prohibition to
compensation given to
them for services performed purely in thei
r capacity as directors or
trustees. The implication is that members
of the board may receive
compensation. besides reasonable per. diem
s, when they render
services to the corporation ina capacity oth
er than as directors or
trustees. (Western.
Institute of Technology vs. Salas, 278 SCR
[1997].) Now, the limitation applies to A 216
compensation for services
performed by directors for the corpor
ation “even not-as such
directors.”
Per diems of directors or trustees.

(1) Whether or not authorized by the bylaws
stockholders, directors are entitled to rec or by. the
eive reasonable per diems2
expense of, or to the detriment of,

its creditors. (SEC Opinion, Dec.
“It is a daily allowance “given, for each 8, 1987.)
day an officer or employee was away
home base or permanent station. from
” (Lexal Lab oratories vs. National Industries Worker his
Union-PAFLU, 25 SCRA s’
[1968 ].) It
and Phrases 17.) Per diems are paid per is limited to pay for a day’s service, (32 Words
668
attendance in board meetings. Other benef
emoluments of directors fall within its and
the term “compensation.”

Secti
aL not specify what amounts shall be
Paiee netbioo
‘ nable.” If the matter shall:be decided by the
directors or trustees: themselves, they may easily circumvent the
10% limitation. The stockholders, however, may approve or adopt
as its own (not ratify) a board resolution fixing or increasing the per
diems of Lies after inquiring into its reasonableness. What is
a reasonable per diem depends on the circumstances ,
(3) 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.

(1) Corporate officers: who are not directors. — The reason for
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. (Cheeney v. Lafayette, B.O.R. Co., 61 Il. 570.)
Accordingly, if they are elected or appointed to perform valuable
for the corporation under ‘circumstances indicating an
services
intention and expectation of payment, there are an implied promise
by the corporation to pay a reasonable compensation for services
p. 378.)
rendered, even absent an express contract. (5 Fletcher,
employee ‘hired “by the
This principle applies: as well to |
corporation.
Cor por ate off ice rs who are directors. — Directors who are
(2) sonable per diems
also corporate officers ar e entitled, bes
ides reaoe
rP rs, to compensa tion as such corporate officers, and the
as directo
‘se rvi ces ren der ed, like sal arye which is a
fs ‘It isi any give n for
ey . vast the month. It doe not s imp ly an im me di at payment, or
in paid regu en of cash far e or itssequ lent. aa
ivae .) e
(15p C.J.S. 652p ensation
Compa
ym ST m
Tect return, nor the pa ;
:
cis peat Or eee reine ement. (SEC Opinion, June 13, 1991.) Fare refers to money
‘ chan eably. ney
an
sons or goods.
Paid for transportation of per

amount thereof may be fixed by mere board resolution absen}
provision to the contrary in the bylaws and subject to the provision
of Section 31. (Infra.) It must appear that the intention is to give them
salaries as such officers.
(3) Form of compensation. — Compensation may take the form
of salary and fringe benefits, such as housing, membership in clubs,
company cars, stock options, etc. Needless to say, the compensation
must not be excessive.
ILLUSTRATION:
The bylaws of the corporation are silent as to the salary
of the president. While resolutions of the incorporators and
stockholders provide salaries for the general manager, secretary,
treasurer, and other employees, there was no provision for the
president's salary.
On the other hand, other resolutions provide for per diems
to be paid to the president and the directors for each meeting
attended. This leads to the conclusion that the president and the _-
board of directors were expected to serve without salary, and
that the per diems paid to them were sufficient compensation
for their services. (Lingayen Gulf Electric Power Co., Inc.’vs.
Baltazar, 93 Phil. 404 [1953].)
Sec. 30. Liability of Directors, Trustees or Officers. —

Directors or trustees who willfully and knowingly vote
for or assent to patently unlawful acts of the corporation
or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty
as such directors or trustees shall be liable jointly and
severally for all damages resulting therefrom suffered by
the corporation, its stockholders or members and other
persons.
:
A director, trustee, or officer shall not attempt to
acquire or acquire any interest adverse to the corporation
in respect of any matter which has been reposed in them
in confidence, and upon which equity imposes a disability
upon themselves to deal in their own behalf; otherwise, the
Said director, trustee or officer shall be liable as a trustee
for the corporation and must account for the profits which
otherwise would have accrued to the corporation. (A)

Sec . 30 TITLE III. BOAR D OF DIRECTORS
/ TRUSTEES/ OFFICERS 301
Nature of director’s/trustees’
Position
The directors or trustees of th i shall
y erform the duties enjoined on them by! the au aad by the
bylaws of the corporation (see Sec, 46[f].) and in accordance with
the purposes for which it was organized. (Sec. 14.) In discharging
their responsibility and exercising their powers, they are held to
high standards. They have a three-fold duty of obedience, diligence,
and loyalty in exercising their powers as the governing body of the
corporation (Sec. 22.), violation of which will render them personally
liable under Section 30 and Section 170.
(1) Agents or trustees for the corporation. — The directors of a
corporation are its agents. Their duties are often referred to as
“fiduciary duties” and they are sometimes referred to as “fiduciaries”
because they also occupy a fiduciary relation to the corporation. By
numerous authorities they have been called “trustees” with certain
powers, and subject to certain duties analogous to those of a trustee,
in the management of its property, and each stockholder a cestui
que trust according to his interest and shares. In the performance of
their official duties, they are under obligations of trust and confidence
to the corporation and its stockholders and must act in good faith and
for the interest of the corporation or its stockholders with due care
and diligence and within the scope of their authority. (Jackson v.
Ludeling, 21 Wall. [U.S.] 616; Agdao Landless Residents Association,
Inc. vs. Maramion,? G.R. Nos. 188642, 189425 & 188888-89, October
17, 2016.)
It is settled that absent malice, bad faith, or specific provision of
law, a director or officer of a corporation cannot be made personally
liable for corporate liabilities. (Lowe, Inc. vs. Court of Appeals, 596
SCRA 140 [2009].)
The ordinary trust relationship of directors of a corporation
and stockholders is not'a matter of statutory or technical law. It
ev Omnapennmneppin pense sc coentas eae ‘ ’

1Art, 1173... If the law or contract does not state the diligence which is to be observed
d.
in the performance, that which is expected of a good father of a family shall be require
nce with the
Art, 1887. In the execution of the agency, the agent shall act in accorda
Nstruct3 i a pine 2 PP principah
l. do all that a good father of a family
‘ would do, as required
by theGnen of Feeiness. (CivilCode )
ration Code of the Philippines Annotated, p. 292 [2013].

JUL PME REVISED CORPORATION CODE OF THE PHILIPPINES Sec, 39
springs from the fact that directors have the control and guidance of
corporate affairs and property and, hence, of the prope
rty interest
of the stockholders. Equity recognizes that stockholders are the
proprietors of the corporate interest and are ultimately the only
beneficiaries thereof. (Gokongwei, Jr. vs. Securities and Exchange
aa 89 SCRA 336 [1979], citing Ashaman v. Miller, 101 Feg.
2d 85.
Thus, in Gokongwei, the Supreme Court held that “the offer
and assurance of petitioner,” a candidate for board membership in
San Miguel Corporation, under whose bylaws he was disqualified
for being engaged in any business which competes with or is
antagonistic to that of the corporation, “that to avoid any possibility
of his taking unfair advantage of his position as director of San
Miguel Corporation, he would absent himself from meetings at
which confidential matters would be discussed, would not detract
from the validity and reasonableness of the bylaws here involved.
Apart from. the impractical results that would ensue from such
arrangement, it would be inconsistent with petitioner’s primary
motive in running for board membership — which is to protect his
investments in San Miguel, Corporation. More important, such a
proposed norm of conduct would be against all accepted principles
underlying a director’s duty of fidelity to the corporation, for the
*The standard of fiduciary obligation of the directors of corporations has been

emphatically restated, this: “A director is fiduciary... Their powers in trust. He who
is in such fiduciary position cannot serve himself first and his cestuis second... He
cannot manipulate the affairs of his corporation to their detriment! and ‘in disregard of
the standards of common decency. He cannot by the intervention of a corporate entity
violate the ancient precept against serving two masters... He cannot utilize his inside
information and strategic position for his own preferment. He cannot violate rules of fair
play by doing indirectly through the corporation what he could not do so directly. He
cannot use his power for his personal advantage and to the detriment of the stockholders
and creditors no matter how absolute in terms that power may be and no matter how
meticulous he is to satisfy technical requirement. For that power is at all times subject to
the equitable limitation that it may not be exercised for the aggrandizement, preference,
or advantage of the fiduciary to the exclusion or detriment of the cestuis.” (Ibid., citing
Pepper v. Litton, 308 U.S. 309, 84 L. ed. 281, 289-291.)
“The law will not tolerate the passive attitude... without active and conscientious
participation in the managerial functions of the company. As directors, it is their duty to
control and supervise the day-to-day business activities of the company or to promulgate
definite policies and rules of guidance with vigilant eye toward seeing to it that these
policies carried out. It is only then that directors may be said to have fulfilled their duty
of fealty to the corporation.” (Gokongwei, Jr. vs. Securities and Exchange Commission,
supra, citing Olek, Modern Corp. Law, Vol. 2, Sec. 960; Commission, 89 SCRA 336 [1979],
citing Ashaman v. Miller, 101 Fed. 2d 85.)

TITLE
aaa NY BOARD OF DIRECTORS/ TRUSTEES / OFFICERS 303
olicy of the law is to e
management? "courage and enforce responsible corporate
poration or not, and must mana

property and assets with str ict ge its
regard’to their interest and if they are
themselves creditors while the ins
olvent
management, they will no tbe permit corporation is under.-their
by purchasing the corporate Property ted to secure to th
emselves
or otherwise acquiring any
per sonal advantage over other creditors, (Mead vs.
Phil. 952 [1911] McCullough, 21
.) |
Cases when directors/trustees or
officers
liable for damages.
Corporate officers, because of the separate legal personality of a
corporation, are not personally liable for their official acts unless it
is shown that they exceeded their authority.
(1) Under Section 30. — Section 30 enumerates the instances
when a director or trustee may be held liable for resulting damages
and thus, the veil of corporate fiction may be pierced: Wh
(a) He willfully and knowingly votes or assents to patently
unlawful acts of the corporation;
(b) He is guilty of gross negligence’ (not mere “want of
ordinary prudence” as held in Steinberg vs. Veloso, supra.) or
bad faith in directing the affairs of the corporation; and
(c) He acquires any personal or pecuniary interest in conflict
with his duty as such director or trustee;
‘Directors owe duties to the corporation as a whole rather to individual stockholders

or to indivi es ae adhareholder s.
Bid corporatio n who was authorized
to issue checks for
the corporation was held negligent for signing the confirmations letter requeste‘by d
the indorsee and the payee (indorser) of four (4) crossed checks issued by the treasurer
for the payee for the rediscounting of the crossed checks when the treasurer was aware
that the checks were strictly endorsed for deposit only to the payee’s account and
not to
be further negotiated, and made personally liable to'the resulting damage. (see Lynoil
Fishing Enterprises vs. Ariola, 634 SCRA 679 [2012].)

(d) He acquires, or to attempts to acquire,

any interest
adverse to the corporation in respect of any matter whic
h has
been reposed in him in confidence, and upo
n which equity
imposes a disability upon the director to deal in his own behalf,
In the above instances, the erring board members or officers shal]
be held jointly and severally (or solidarily) liable for all damages
resulting therefrom suffered by the’ corporation, its stock
holders
or members, or other persons. The complainant must
clearly and
convincingly prove the unlawful acts, gross negligen
ce,
or bad faith
of the defendant which must be alleged in the ‘complaint. (Cari
g
vs. National Labor Relations Commission, 520 SCRA 282 [2007];
Francisco vs. Mallen, Jr., 631 SCRA 118 [2010]; Heirs of Fe Tan Uy vs,
International Exchange Bank, G.R. No. 166282, Feb. 13, 2013; Bank
of Commerce vs. Nite, 763 SCRA 620 [2015].)
Note that even where personal liability attaches, not all the
officers are made accountable but only the “responsible officers,”
i.e., those responsible or who acted in, bad faith” in committing the
unlawful acts. (Guillermo vs. Uson, 785 SCRA 5463 [2016].)
(2) Other cases. — Personal liability of a corporate director/
trustee or officer along (although not necessarily) with the
corporation may also validly attach, as a rule: |
(a) When-he consents. to the issuance of watered stocks
or
who, having knowledge thereof, does not forthwith file with
the
corporate secretary his written objection thereto (see Sec.
64.);
(b) When he is made, by a specific provision of law, to
personally answer for his corporate action (see Sec. 144; PD.
No.
115 [Trust Receipts Law], Sec. 13:); and
(c) When he agrees to hold himself personally and
solidarily liable with the corporation. (Tramat Merc
antile, Inc.
Ei Bini uses ts Se
*Art. 1216, The creditor may proceed against anyo
ne of the solidary debtors or some
or all of them simultaneously. The demand made against
obstacle to those which may subsequently be directed agaione (1) of them shall not be an
nst the others, so long as the
debt has not been fully collected. (Civi
l Code)
The liability of corporate directors and officers
and solidarily liable with their company, there mustis not automatic. To make them jointly
be a finding that they were remiss
in directing the affairs of that company, such
illegal activities. (Sto. Tomas vs, Salac as sponsoring or tolerating the conduct of
, 685 SCRA 285 [2012].)

bz 30 TITLE Ill. BOAR DO
R DIRECTORS / TRUS
TEES / OFFICERS
305
238 SCRA 14 [1994]; Santos vs. National

Poot Aun bs ommission, 20 SCRA ‘sep [1967]; National
FCY Corporation ag of Appeals, 311 SCRA 700 [1999];
270 [2000]; Malayan aceséoit-,
Powton Conelor
VS: Court of Appeals, 323 SCRA
anan vs. Ramos, 357 SCRA 77 [2001];
§lomerate, Inc. vs. Agcolicol,
400 SCRA 523 [2003].)
Liability of directors/trus
tees Or officers
for bad faith or gross ne
gligence,
(1) Directors or trustee
. are
disposition of corporate assets P ersonally
ally liable
liable f for any wrongful
and for any loss or injury to the
Sross negligence or unauthorized
acts or violation of their duties. (see Steinber
g vs. Velasco, 52 Phil.
953 [1929].) :
(a) But they are not liable for busine
ss losses incurred —
bec ause of honest bad judgment not amo
unting to bad-faith
or gross negligence. (see Ballantine, p. 160; see
also Board of
Liquidators vs. Heirs of Maximo Kalaw,|20 SCR
A 987 [1967]:)
No one can guarantee the success of a business becaus
e there is
_always that element of risk. The officers of a corporation are
not
insurers of its success. hae
(b), Neither can a corporate officer be made personally liable
for the money claims of discharged corporate employees where
no malice or bad faith can be attributed to him in terminating
their employment., (Midas. Touch Food, Corp. vs...National
Labor Relations Commission, 259 SCRA 652 [1996].) As a rule,
corporate directors .and officers are solidarily liable -with the
corporation for the termination of employment of employees if
the termination:is done with malice:or in bad faith.’ (Progress
Homes vs. National: Labor Relations Commission, 269 SCRA
274 [1997]; Mandaue Dinghow Dimsum House Co,, Inc. vs.
National Labor Relations Commission, 547 SC402
RA [2008];
SHS Perforated Materials, Inc. vs. Diaz, 633 SCRA 258 [2010].)
(2). Bad faith or negligence on the part of a corporate officer
is a question of fact. It must be alleged in the complaint and the
Complainant has the onus of proving it. It has been said that “bad
faith does not simply mean bad judgment or negligence; it imparts
4 dishonest purpose or some moral obliquity and conscious doing
of wrong. It means breach of a known duty through some motive

306 THE REVISED CORPORATION CODE OF THE PHILIPPINES See, 31
or interest or ill-will; jt partakes of the natu

re of fraud.” (Ibid.) It
for reasons of negligence by the director, trustee
of officeinr the
conduct of the transactions of the corporation, such
negligence must
be gross. (Magalang vs, Ong, 562 SCRA 152 [2008];
Reyes vs, Ng
Wee, 860 SCRA 50 [2018].)
Liability of directors/trustees or offi

cers
for secret profits.
In the case mentioned in the second paragraph, the director/
trustee or officer guilty of violation of duty shall be held
accountable
for the profits which otherwise would have accr
ued to the
corporation. Private or secret profits obtained must be acco
unted for,
even though the transaction on which they are made
is advantageous
or is not harmful to the corporation, or even thou
gh the director /
trustee or officer acted without intent to injure the corporat
ion. That
the agreement whereby a person is'to receive a secret
profit is made
before he becomes an officer does not change the rule. And
the fact
that the profits were derived from transaction ultra vires
(see Sec,
44.) does not relieve the director / trustee or officer from
liability. (19
Am. 2d 688-689.) | :
Similarly, a director guilty of disloyal act against the
corporation
is required by Section 33 to account for and refund to the
corporation
for the profits obtained by him from a business opportunity
which
should belong to the corporation. |
Sec. 31. Dealings of Directors, Trustees or Offic
ers with the
Corporation. — A contract of the corporation with one (1) or
more of its directors, trustees, officers or their spo
nd relatives within the fourth deqree of consanqu
ini
or affinity is voidable, at the option of such corp
oration,
unless all the following conditions are present:
_ (a) 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 meet
ing;
(b) The vote of such director or trustee was not
necessary for the approval of the contract;
(c) The contract is fair and reasonable under the
circumstances; and

307
roved by at least two-thirds

a majority of the inde P of the board, with at least
e : 5
the material contract: iN) and directors voting to approve
(e) In case of an off
. :
previously authorized by the cer, the contract has
board of directors.
been
Where any of the first

three (3) conditions set forth in
the preceding Paragrap his
absent, in the case of a contract
with a director or trus tee, such
contract may be ratified
by the vote of the stoc kholde
rs representing at least two-
thirds (2/3) of the outstanding capital stock or of at leas
two-thirds (2/3) of the members t
in a meeting called for
the purpose: Provided, That full disclosure of the
adverse
interest of the directors or trustees involved is mad
e at
such meeting and the contract is fair and reasonable
under the circumstances.
Self-dealing directors/trustees
or officers.
(1) Contract void. — Section 31 renders voidable at the option of
the corporation a contract of such corporation with one (1) or more
of its directors/trustees or officers, or their spouses and relatives
within the fourth civil degree of consanguinity or affinity. It can be
interpreted as allowing self-dealing of directors/trustees provided
the stated conditions are met.
Being its agents and entrusted with the management ofits affairs,
the directors or trustees and other officers of a corporation occupy a
fiduciary relation towards it, and cannot be allowed to contract with
the corporation, directly or indirectly, or to sell property to it, or
purchase property from it, where they act both for the corporation
and for themselves. (3 Fletcher, p. 387.) (Agdao Landless Residents
Association, Inc. vs. Maramion,' G.R. Nos. 188642, 189425 & 188888-
89, October 17, 2016.)
Section.31 does not require that the corporation suffers injury or
damage as a result of the contract.

S Sec, 39
(2) Exceptions. — In any of the following

cases, the contract Shall]
be valid and cannot be set aside merely because of the relationship
of the parties:
(a) All the conditions enumerated in Section 31 (sub
sections
a to e) are present;
(b) Not all the conditions set forth are present

but the
corporation (through the board) elects not to ques
tion the
validity of the contract without prejudice to the liability
of the
consenting directors or trustees for damages unde
r Section 30.
In such case, a dissenting stockholder.or member
may file a
derivative suit in behalf of the corporation; or
(c) In the case of a contract with a director or trustee, where
any of the first three (3) conditions is absent, such contr
act may
be ratified by the required vote of the stockholders
or members
in a meeting called for the purpose, provided that full
disclosure
of the adverse interest of the directors or trustees invol
made at
ved is
such meeting. If the contract is with an officer of
corporation, it must have been’ authorized by the
'the board, ie,
there is a prior board resolution authorizing the
contract.
Section 31 fails to specify whether the vote of
the self-dealing
director or trustee shall be counted in the stoc
kholders’ méeting for
the ratification of the contract.
(3) Ratification by stockholders or members:—
Even if the board
does not act on conflicts of interest issue, the sam
e can stillbe settled
favorably by the required vote of the stockh
olders or members in
a meeting called specifically to decide such
issue, as long as there
is full disclosure of the adverse interest of the dire
ctors or trustees,
and the contract is fair and reasonable under the circumst
par.) ances. (last
:
Sec. 32. Contracts Between Corporations
with Interlocking
Directors. - Except in cases of fraud,
and provided the
contract is fair and reasonable under
the circumstances,
a contract between two (2) or more cor
porations having
interlocking directors shall not be inva
lidated on that
ground alone: Provided, That if the inte
rest of the
interlocking director in one (1) corporation is subs
tantial
and the interest in the other corporation or corpor
ations
is merely nominal, the contract shall, be subject
to the

309
Contracts between cor porati i

interlocking direct Ors. a
(1) Validity. — Section 32
reco nize i
two or more corporations which hve ited
some, OF all of the direct doekine csctoss eos ome
ors in one co rporation is/
are also directory
directors in another corporation) as long as
there is no fraud and
the contract is fair and reasonable under the ci
rcumstances. (see
Sec. 43.) However, if the interest of the interlocking director in one
corporation is substantial, i.e., his stockhol
di
outstanding capital stock and in the other mengreslyexno
ceed 20% of the
minal, ie., his
stockholdings do not exceed 20%, the pr
ovision of Se ion 31 shall
apply to the contract insofar as the latter corporation orctcorporations
are concerned. (Sec. 33.)
(2) Application. — Section 32 pertains to transactions between
corporations with interlocking directors resulting in the prejudice to
one corporation. It does not apply where the corporation allegedly
prejudiced is a third party, not,one of the corporations with
interlocking directors. (Development Bank of the Phils. vs. Court of
Appeals, 363 SCRA 307 [2001].)
ILLUSTRATION: ::
P500,000.00 to
: X Corporation sold a parcel of land worth
board member of both
Y Corporation for only P50,000.00. Z is
corporations.
ength the contract is
If the purchase price is not arms-l
dable. But if the
not fair and reasonable and is therefore, voi
circumstances (e.g,.,
contract is fair and reasonable under the d Z’s interest
: ‘ .
liens and encumbrances) an
ation
land.ge.,sbi
Co rp
ecinke
or at io n is mer ely nominal and in Y corpor
in X ns + Section 31 must be present insofar
th e co nd it io
substantial, that the contract
is conceme® d, on the theory
as X Corporation
is with Z.
of X Corporation

310 THE REVISED CORPORATION CODE OF THE PHIL
IPPINES Sec, 3p
However, if Z’s interest in both corporations is nomi

nal oy
is substantial, the provision of Section 31
does not apply but the
contract shall be valid only if there is no fraud and the contract
is fair and reasonable under the circumstances. The corporat
ion
which seeks to uphold the contract has the burden to show that
it is fair and reasonable. ai | :
Evils of interlocking directorates.
(1) Validity of bylaws prohibiting interlocking directorates,
Byla
_
ws which prohibit a director of a corporation from Servi
ng at
the same time as a director of a corporation from serving
at the same
time as a director of a competing corporation, have been
valid and
upheld as
reasonable. (Gokongwei, Jr. vs. Securities and Exchange
Commission, 89 SCRA 336 [1979].) The’ reason has been aptly
explained, thus:
“The argument for prohibiting competing corporations

from sharing even one director is that the interlock perm
its the
coordination of policies between nominally independ
ent firms
to an extent that competition between them may be
completely
eliminated. Indeed, if a director, for example,
is to be faithful to
both corporations, some accommodation may resul
t. Suppose
X is a director of both Corporation A and Corp
oration B. X
could hardly vote for a policy by A that would injur
e B without
violating his duty of loyalty to B; at the same time,
he could
hardly abstain from voting without depriving A of his best
judgment. If the firms really do compete — in the sense of vyin
from economic advantage at the expense of the other g
—
can hardly be any reason for an interlock between comp there
etitors
other than the suppression of competition.” (Ibid., citin
g Travers,
Interlock in Corporate Management and the Anti-Trust
Law, 46
L. Rev., 819, 840 [1968].)
‘According to the Report of the House Judic

iary Committee of the US. Congress
on Section 9 of the Clayton Act, it was establishe
d that “By means of the interlocking
directorates one man or group of men have
been able to dominate and control a
great number of corporations . . . to the detrimen
t of the small ones depended upon
them and to the injury of the public.” (Ibid., citin
g 51 Cong
competing firms control a substantial segment of the marke . Rec. 9091.) Where two (2)
t, this could lead to collusion
and combination in restraint of trade. Reason and experience show that the inherent
tendency of interlocking directorates between comp
anies that are related to each other as
competitors is to blunt the edge of tivalry between the corporatio
compromising Opposing interests, and ns, to seek out ways of
thus, eliminate competition. (Ibid.)

gec. 33 TITLE I I. I. BOARD OF : DIR
ECTORS/ TRUSTEES / OFFICERS 311
(2) No absolute prohibition’ Of interlocking directorates.

— Under
Section 32, contracts betwee N corporations having interlocking
directors are not rendered voi dor voidable on that
ground alone.
An individual may be a stackholder in different corporations
and it is not unusual to find a director or corporate officer occupying
the same position in another corporation not only because he has
investment therein but also because ‘his services may have been
proven to be valuable. However, while such situation is allowable,
dealing of interlocking directors ‘are subject to Sections 31, 32, and
Sec, 33.) Disloyalty of a Director. — Where a director,

by virtue of such office, acquires a business opportunity
which should belong to the corporation, thereby obtaining
profits to the prejudice of such corporation, the director
must account for _and refund to the latter all such
profits, unless the 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 one’s .own funds in the venture.
Doctrine of “corporate opportunity.”

Under this doctrine, a director who, by virtue of his office,
acquires for himself a business opportunity which should belong
’These transactions usually occur in a parent-subsidiary relationship between

corporations. Hence, in some cases, the contract between two (2) corporations may
tequire representatives of one (1) corporation to sit in the board of the other. To prohibit
business transactions of one corporation with another corporation controlled ,by the
former would discourage formation of business subsidiaries and investments and thus,
21, 1992.)
hamper capital market forma tion in the country. (SEC Opinion, Dec.
The law recognizes that interlocking directorates are very common in today’s
business world and to absolutely prohibit such contracts would be impractical and
unwise, But transactions between such corporations should be subjected to close judicial
Scrutiny to determine the absence or presence of fraud or unfairness.” For example,
Where the circumstances show that the transaction would be of great advantage to
ne corporation at the expense of the other, especialy where, in addition to this, the
Personal interests of the directors or any of them would be enhanced at the expense of
time
© stockholders, the transaction is voidable by the stockholders within a reasonable
)
er discovery of the fraud. (19 Am. Jur. 2d 714.
4

312 THE REVISED CORPORATION
CODE OF THE PHILIPPINES
Sec. 33
to the corporation, thereby obtain

ing'profits to the prejudice of Suc
Corporation, is guilty of disloyalty arid’should, h
for and:refund to the latter for all therefore, account
such profits, notwithstanding that
he risked his funds in the ventur
e’:
(1) Where the directors ‘of a corporation
cancelled ‘a contract
of the corporation for exclusive sale of
a for
and after establishing a rival business the eign firm’s products
directors signed a new
contract themselves with the foreign
firm for exclusive sale of its
products, the court held that equity wou
ld regard the new contract
as an offshoot of the old contract and,
therefore, for the benefit of the
corporation, as a “faultless fiduciary
may not reap the fruits of his
misconduct, to the exclusion of his
principal.” (Gokongwei, Jr, vs.
Securities and Exchange Commission,
89 SCRA’ 336 [1979], ‘citin
Silakot Importing Corp. v. Berlin, 68 N.E.
2d'501;-503.) ' |
(2) An amendment to the bylaws of a
corporation requiring
that a director shall not be an officer,
manager or controlling person
of, or the owner (either of record or ben
eficially) of 10% or more of
any outstanding class of shares, of any
other corporation: or entity
engaged in any line of business compet
itive or antagonistic to that of
the former, was sustained as valid and reasonable, as “it
to prevent the creation of an Opport is obviously
unity for an officer or director
of San Mig
uel Corporation, who is ‘also the offi
competing corporation, from taking
cer or owner of 4
advant
which he acquires as director to promote his agofe the information
interests to the
individual or corporate
prejudice of San Miguel Corporation
stockholders. Certainly, where two (2) cor and its
porations are competitive
in substantial sense, it would seem
improvable, if not impossible,
for the dire
ctor, if he were to effectively discharge
his loyalty to both corporations and his duty, to satisfy
place the performance of his
corporation duties above his person
al3 concerns .” (Gokongwei, Jr.
vs. Securities and Exc hange Commission, supra.)
: 5
Poration upon the property interest and profits

55; Ontjes v, MacNilan, 5 N.W. 2d 860.)

Sec: 33
313
Section 33 applies to gi
an officer, he is liable ulides fie seat disloyalty is committed b
- Second par agraph of Section 30.
When doctrine not applicable,
ment of company’s resources, or

bracing Opportunity personally is
not brought into direct competi tion with
the
Words and Phrases 393 -394.) Under Section 33, corporation. (see 9-A
the profits must have
been obtained by the director to the prejudice of
the corporation.
(3) Opportunityceases to be a “corporate opportunity.” —
The
doctrine is pursuant to jurisprudence which rules
that one who
occu pies a fiduciary relationship to a corporation may not
acquire,
in opposition to the corporation, property in which the corporation
has an interest or tangible expectancy or which is essential to its
existence. (SEC Opinion, March 4, 1982, citing 11 Fletcher, Cy.
Corp. 227.) However, this property or business opportunity ceases
to'be a “corporate opportunity” and transforms into a “personal
°pportunity” where the corporation is definitely:no longer able
to avail itself of the opportunity, which may “arise from fina
ncial
insolvency, or from legal restrictions, or from any other factor which
Prevents it from acting upon the opportunity for its own advantag
(Ibid.
, citing 11 Fletcher, p. 241.) e.
Section
i 33 applies
i only where a business
i opportunity ong
ity belongs
to the Soon ari the director takes advantage of that business
»PPortunity for his own profit..(see ibid., citing Proceedings of the
atasang
1979 Pambansa on the proposed Corporation Code, Dec. 11,
)

314 THE REVISED CORPORATION CODE 'OF THE PHIL
IPPINES Sec. 34
Ratification by stockholders of disloyal act.

Under Section 33, the guilty director will be exempt only from
liability to the corporation to account for the profits he realized
i
his disloyal act is ratified by the vote of the stockholders Owning or
Tepresenting at least 2/3 of the outstanding capital stock. There isno
similar provision in Section 30.
Section 33 is silent on whether the disloyal director shall be
allowed to vote his shares in the ratification of his act.
Sec. 34. Executive, Management, and Other Special

Comm
— If
itthe bylaw
te s soes
provide,
,the board may
create an executive committee, composed of at least three
(3) directors. Said committee may act, by majority vote
of all its members, on such specific matters within the
competence of the board, as may be delegated to it in the
bylaws or by majority vote of the board, except with respect
to the: (a) approval of any action for which shareholders’
approval is also required; (b) filing of vacancies in the
board; (c) amendment or repeal of bylaws or the adoption
of new bylaws; (d) amendment or repeal of any resolution
of the board which by its express terms is not amendable
or repealable; and (e) a distribution of cash dividends to
the shareholders.
The board of directors may create special committees
of temporary or permanent nature and determine
the
members’ term, composition, compensation, power
s, and
responsibilities. (N)
Executive, management, and other

special committees.
(1) Need for an executive or management committee — Secti
on 34
recognizes an already existing corporat
e practice in the Philippines
(dictated by necessity owing to the growing comp
lexities of modern
business), whereby the board of directors
delegates to an executive
committe e composed of some members of the board corporate
powers to assure prompt and Speedy action and solution to
important matters without the need for
a board meeting, especially
wher e such meetings cannot readily be
held.

Port Services, Inc. vs. Go, 518 SCR
A 453 [2007].) Because of the
nature of the fun
ction of the executive committee, the aut
appoint such body should be expressly pro hority to
vided in the bylaws, and
a provision in the bylaws which states that
“authorizing the board
to create such committees as the board may deem
necessary,” is not
a sufficient reason for its creation and appointment.
(SEC Opinion,
Sept. 27, 1993.)
The board cannot create or appoint an “executive committee”
to perform some of its functions absent authority in the bylaws. In
such case, the principle on de facto officers may be applied insofar
as third persons are concerned. However, insofar as the corporation
is concerned, the unauthorized act of appointment of an executive
committee may be ‘subject to Section 170, which provides for
penalties in case‘ of violation ‘of the provisions of the Revised
Corporation Code. (SEC Opinion, Sept. 21, 1993.)
(4) Matters excepted from delegation by board. — The committee
may act on specific matters within the competence of the board, as
may be delegated to it by the board or in the bylaws, including those
involving the exercise of judgment and discretion, except those
matters enumerated (a to e) with respect to which only the board
duly called and assembled as such can act upon.
Thus. an executive committee can function as the board itself in
all matters delegated to iti other than the except ted matters.3 However
the board ait validly delegate to the executive committee blanket
pp nn pp
6 ‘Citing De Leon, The Corporation Code o
02].

316 THE REVISED CORPORATION CODE OF THE PHILIPPINES —_Sec. 34
or general authority to act for the board if the delegation constitutes

in effect an abdication of the corporate powers and duties vested in
it by law. The board cannot delegate entire supervision and contro]
of the corporation to an executive committee for this will violate
Section 22.
(5) Enlargement by board of restrictions. — The restrictions on the
power of the executive committee as provided in Section 34 may be
enlarged by the board to cover other matters.
Note that under (d), the executive committee may amend or
repeal any resolution of the board unless “by its express terms is not
amendable or repealable.”
(6) Authority to function as the board itself. — As a matter of
business practice, the use of an executive committee in many
companies may reduce the directors to little more than a supervising
and ratifying body. (SEC Opinion, July 29, 1985, citing Ballantine,
p. 135.) Subject to the statutory limitations, a properly constituted
committee composed of directors has all the authority of the board
to the extent provided in the resolution of the board or bylaws. (SEC
Opinion, Sept. 16, 1986.)
(7) Membership. — Non-members of the board may be appointed
as members of the executive committee provided that there are
at least three (3) members of the board who are members of the
committee. (Ibid.)
An “Executive Committee” is a “governing body” which
functions as the board itself. Thus, membership shall be governed by
the same law/rules applicable to the board of directors as provided
in Section 34, (SEC Opinion, June 3, 1998.)
(8) Ultimate control by the board. — Where the. committe
comprises, or includes persons who are not directors, such comm e
ittee
shall be subject to the normal restrictions and requ
irement relating
to.undue abdication of authority by the boar
d. Thus, while the
executive committee may manage the
day to day operation of the
business of the corporation, the business
affairs thereof shall be
SS
7An earlier opinion of the SEC states

must be directors of the corporat
that all
members of an executive committee
ion. However, if all the acts of
merely recommendatory in nature the committee will be
and shallnot be carried out without the form
approval of the board of directors acting al
through a Majority of the quorum, alte rnate
representation may be allowed in
the committee such that some ment
not be directors ofthe corporations. (SEC Opinion, the reof may
July 5, 1974.) ae

317
judgment of the board of directo

: ce aes at
provided in Section 34, *s subject to the specific limitations
(9) Quorum and voting. —
requirements is the same as th at The general rule for quorum
for board of directors. A majority
of the committee members (regardless of the classification of
membership into directors/ members or non-directors / mem
bers)
constitutes a quorum.
To bind the corporation, it is
essential that the executive
committee acts “by a Majority vote of all its
members.” From this,
itcan be inferred that the committee cannot delega
te its authority
even to one of its number. (see 18 Am. Jur. 2d 588.
)
(10) Membership of a foreigner. — While “for
eigners” are
disqualified from being elected /appointed as “corpora
te officers”
in wholly or partially nationalized business activities
, they are
allowed representation in the “board of directors” or “governi
ng
body” of said entities in proportion to their shareholdings. (Sec. 2-A,
Anti-Dummy Law; Sec. 11, Art. XII, Constitution.)
The reason for the exception is that the board of directors/
governing body performs specific duties as a “body.” Unlike
corporate officers, each member of the board of directors/ governing
body has no individual power or authority to perform management
function. The powers delegated to the board of directors/ governing
body can only be exercised by it acting as a body when a quorum
is present. Hence, there can be no intervention in the management,
Operation, administration, and control of the corporation by the
members thereof in their individual capacity.
(11) Special committees. — The executive Or management
Committee referred to in Section 34 should be distinguished from
other committees which are within the competence of the board
fo create at any time and whose actions require confirmation
by the board itself.. The board may create special committees of
temporary or permanent nature and. determine the members’ term,
‘oOmposition, process, and responsibilities.
— 000—

Board of Directors

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Board of Directors

Uploaded by

Copyright:

Available Formats

holoer oF the THe ty, Pe

sha iahr {OFFICERS hacia

Scanned with CamScanner

7 4 6) \Other:|torporations engaged in business vested

with international best practices. (N)

Structure of the corporate Srgantzatlon:

Scanned with CamScanner

The next level. are ‘the officers tasked! to “execute policies

Corporate powers exercised by board

IThe Bangko Sentral ng Pilipinas (BSP), the Insurance Commission,

Scanned with CamScanner

(1) Governing body of the corporation. — It is well established in

Scanned with CamScanner

itsycharter, i.€., its articles of incorporation, bylaws, and relevant

Reason for the rule:.

Scanned with CamScanner

authority to rhanage and control the transaction of its business/ang

(see Ballantine, pp. 121-122; Ramirez vs. Orientalist, 38;Phil: 634

Extent of judicial review. — eur et Shon ee

Scanned with CamScanner

Scanned with CamScanner

managerofithe corporation, and-the,court,is without authority to

‘The reason for the rule is aptly explained thus:

Scanned with CamScanner

Nature of powers of board of directors

Scanned with CamScanner

222 THE REVISED CORPORATION CODE OF THE PHILIPPINES, Sec. 22

Limitations on powers of board of directors. ---

Scanned with CamScanner

(3) It cannot exercise powers not possessed by the corporation.

Powers exercised by board of directors

(1) Acting together as a body in a meeting. — The board of directors

valid authorization/delegation, the declarations of an individual

Scanned with CamScanner

Reasons for the rule.

Exceptions to the rule.

Scanned with CamScanner

(3) The corporation is also bound by a par

or by acceptance and retention of

Scanned with CamScanner

Competence of the board, as may be

Scanned with CamScanner

power and authority to adopt a resolution appointing one of its

(c) The same is true even in matters involving the exercise of

Scanned with CamScanner

(c) Neither can'the board delegate special powers especially

Terms of office of directors or trustees.

(1) One (1) year/three (3) years. — As a rule, the directors or

Scanned with CamScanner

The principle’ of hold-over is sanctioned by

Scanned with CamScanner

(d) The hold-over doctrine has a purpose which is at

Scanned with CamScanner

meeting and/oror \that securing a quorum may be uncertai

Number of directors or trustees to be elected.

Election of less than the required number. |

Scanned with CamScanner

may be filled up ina subseq

The election of'a’ person

Scanned with CamScanner

bylaws. (SEC-OGC Opinion

Citizenship and residence requirements.

Scanned with CamScanner