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VI. Control and Management of corporations

VI. CONTROL AND MANAGEMENT OF

CORPORATIONS

A. BOARD OF DIRECTORS OR TRUSTEES

CAMPOS NOTES (340-383)

1. GENERAL

What they do:

1) Exercise corporate powers

2) Conduct all business

3) Control and hold all property

Who may be elected:

1) Stock corporations –(From among the) Stockholders

2) Non-stock corps – (From among the) Members

Term: 1 year, until their successors are elected and qualified

Qualifications:

1) Must own at least 1 stock

a. Of the corporation of which he is a director

b. This must be listed in his name in the

corporate books

2) Majority must be PH residents (23)

Ramirez v. Orientalist Co. (1918)

Orientalist, which operates a theatre business, wanted to be

the exclusive agent of Eclair Films and Milano Films in the PH,

so Fernandez (Director) made an talked with Jose Ramirez

(agent of JF Ramirez, engaged marketing films in Paris).Ramirez made an offer which was accepted by Fernandez in a

letter.

However, when time came to pay for the shipments, the

company couldn’t produce the necessary funds so the

shipments were paid for and the films accepted by

Hernandez, Orientalist’s President. The company actually

never came into possessionof these films, though Hernandez

rented it out to the former for showing. This arrangement

continued for some time.

This action involves several films shipped to the PH drawn on

drafts (similar to the first ones) upon the company and

accepted by Hernandez as President (except for one film

which was accepted by him personally). This is an action to

collect on those drafts.

Issue: Who is liable for the contracts, Hernandez or the

company?

Corporate power shall be exercised, and all corporate

business conducted by the board of directors; and this

principle is recognized in the by-laws of the corporation in

question which contain a provision declaring that the power

to make contracts shall be vested in the board of directors.

The power of the President to sign contracts has reference to

the formality of reducing to proper form the contract and

isn’t intended to confer an independent power to make

contract binding on the corporation.

The theory of a corporation is that the stockholders may have

all the profits but shall turn over the complete management

of the enterprise to their representatives and agents, calleddirectors. Accordingly, there is little for the stockholders to

do beyond electing directors, making by-laws, and exercising

certain other special powers defined by-law.

However, the fact that the power to contract is vested on the

board doesn’t mean that a formal vote must always be taken

for the corporation to enter into contracts. Like an individual

a corporation can create liability by other means than a

formal expression of its will.

In this case, the acceptance of the contract and the

arrangement with Hernandez was made during a specia

meeting consisting of four board members (as evidenced bythe minutes of said meeting) and with the consent of the

stockholders (through resolutions?). It is also evidenced by a

board resolution made after Fernandez left for abroad stating

that the manager Ocampo should advertise that the company

is engaged in importing films.

Manila Metal v. PNB (2006)

PNB foreclosed property owned by Manila Metal located in

Mandaluyong. The latter failed to redeem the property, and

no extensions were granted despite several requests made by

MM.

The Special Assets Management Department of the PNB later

assessed MM’s total obligation at 1.5MM, including the

1.05MM purchase price for the property. Upon receiving the

assessment, MM sent 725k, as evidenced by an officia

receipt. However, PNB later informed MM that the BOD

would sell the property to it at 1.9MM. MM protested and

filed an action for annulment of mortgage.

PNB claims that the assessment was not a valid offer because

it was still subject to the approval of the BOD.

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Issue: Was there a perfected contract?

No. There is no evidence that the SAMD was authorized by

respondent's Board of Directors to accept petitioner's offer

and sell the property for P1,574,560.47. Any acceptance by

the SAMD of petitioner's offer would not bind respondent. As

this Court ruled in AF Realty Development, Inc. vs. Diesehuan

Freight Services, Inc.:

Section 23 of the Corporation Code expressly provides that

the corporate powers of all corporations shall be exercised

by the board of directors. Just as a natural person may

authorize another to do certain acts in his behalf, so may

the board of directors of a corporation validly delegate

some of its functions to individual officers or agents

appointed by it. Thus, contracts or acts of a corporation

must be made either by the board of directors or by a

corporate agent duly authorized by the board. Absent such

valid delegation/authorization, the rule is that the

declarations of an individual director relating to the affairs

of the corporation, but not in the course of, or connected

with the performance of authorized duties of such director,are held not binding on the corporation.

Thus, a corporation can only execute its powers and transact

its business through its Board of Directors and through its

officers and agents when authorized by a board resolution or

its by-laws.

Filipinas Port Services v. Go (2007)

Filport’s (stevedoring company) President Cruz, together with

some stockholders, filed a derivative suit against the

incumbent BOD members of Filport, alleging

“mismanagement detrimental to the interest of thecorporation and the shareholders at large”. Cruz had

previously questioned certain acts of members of the BOD,

(such as creating superfluous positions and giving

compensation for meetings when none was authorized in the

by-laws).

Issue: Did the BOD have the power to do such acts?

The governing body of a corporation is its board of directors.

Section 23 of the Corporation Code12

explicitly provides that

unless otherwise provided therein, the corporate powers of

all corporations formed under the Code shall be exercised, all

business conducted and all property of the corporation shallbe controlled and held by a board of directors.

The authority of the board of directors is restricted to the

management of the regular business affairs of the

corporation, unless more extensive power is expressly

conferred. The concentration in the board of the powers of

control of corporate business and of appointment of

corporate officers and managers is necessary for efficiency in

any large organization.

In the present case, the board’s creation of the positions o

Assistant Vice Presidents for Corporate Planning, Operations

Finance and Administration, and those of the Specia

Assistants to the President and the Board Chairman, was in

accordance with the regular business operations of Filport as

it is authorized to do so by the corporation’s by -laws

pursuant to the Corporation Code. Likewise, the fixing of the

corresponding remuneration for the positions in question is

provided for in the same by-laws of the corporation.

Under Section 35 of the Corporation Code, the creation of an

executive committee must be provided for in the bylaws of

the corporation. Notwithstanding the silence of Filport’s

bylaws on the matter, the Board of Directors has the powe

to create positions not provided for in Filport’s bylaws since

the board is the corporation’s governing body, clearly

upholding the power of its board to exercise its prerogatives

in managing the business affairs of the corporation.

The claims of mismanagement are based solely on the

insinuations of Cruz, so the court did not lend credence to the

allegations.

Questions of policy or of management are left solely to the

honest decision of the board as the business manager of the

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 in the exercise of honest judgment in the

interest of the corporation, its orders are not reviewable by

the courts.

Board of Liquidators v. Heirs of Kalaw (1967)

Francisco v. GSIS (1963)

Trinidad Francisco borrowed money from GSIS and

mortgaged property as security. This property had 21bungalows erected on it. GSIS eventually extrajudicially

foreclosed the mortgage. Trinidad’s father Atty. Vicente later

communicated with GSIS on her behalf requesting certain

terms for repayment of the purchase price (for them to take

over the administration and get the rent from the bungalows

to get the deficiency until full payment, and to set aside the

foreclosure), which was accepted by telegram by the genera

manager Andal. Although GSIS never took over the property

Vicente nevertheless judiciously remitted the rent collected

to GSIS. The amounts collected in 1 year weren’t sufficient to

http://www.lawphil.net/judjuris/juri2007/mar2007/gr_161886_2007.html#fnt12




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pay the debt so the GSIS consolidated title in its name.

Francisco sued for specific performance and damages.

Issue: Did Andal have the power to bind GSIS?

He raises the defense that he did not sign it, but that it was

sent by the Board Secretary in his name and without his

knowledge. Assuming this to be true, how was appellee to

know it? Corporate transactions would speedily come to a

standstill were every person dealing with a corporation held

duty-bound to disbelieve every act of its responsible officers,

no matter how regular they should appear on their face.

If a private corporation intentionally or negligently clothes its

officers or agents with apparent power to perform acts for it,

the corporation will be estopped to deny that such apparent

authority is real, as to innocent third persons dealing in good

faith with such officers or agents.

Hence, even if it were the board secretary who sent the

telegram, the corporation could not evade the binding effect

produced by the telegram. Also, in this case, it pocketed theamounts received and kept silent about the telegram, so it

cannot deny the contract now.

2. QUALIFICATIONS AND DISQUALIFICATIONS

What they do:

1) Exercise corporate powers

2) Conduct all business

3) Control and hold all property

Who may be elected:

1) Stock corporations –(From among the) Stockholders

2) Non-stock corps – (From among the) Members

Term: 1 year, until their successors are elected and qualified

Qualifications:

1) Must own at least 1 stock

a. Of the corporation of which he is a director

b. This must be listed in his name in the

corporate books

2) Majority must be PH residents (23)

3) Must not have been convicted— a. For an offense punishable by more than 6

years’ imprisonment, or

b. A violation of this Code committed 5 years

before his election/appointment (27)

Gokongwei, Jr. v. SEC (1979)

John G filed a petition with the SEC for the declaration of

nullity of amended by-laws. He claims, among others, that

the by-laws were amended specifically to disqualify him

(specifically, the provision preventing competitors from being

elected—he owns significant investments in Universal Robina

and Consolidated Foods Corp.), and that no inherent power

to disqualify a stockholder from being elected as a director

and, therefore, the questioned act is ultra vires and void.

Issue: Are the amended by-laws valid? Yes.

In the absence of any legal prohibition or overriding public

policy, wide latitude may be accorded to the corporation in

adopting measures to protect legitimate corporation

interests. In this case, it is perfectly reasonable to prevent a

competitor from seizing control of the company.

Lee v. CA (1992)

A complaint for a sum of money was filed by the Internationa

Corporate Bank, Inc. against the private respondents (Sacoba

Manufacturing Corp., Pablo Gonzales, Jr. and Thomas

Gonzales) who, in turn, filed a third party complaint against

ALFA and the petitioners (Lee and Lacdao, directors of ALFA

Integrated Textile Mills).

The petitioners raised the defense that by virtue of the voting

trust agreement1

between ALFA and DBP, they ceased to be

officers and directors of ALFA, hence, they could no longer

receive summons or any court processes for or on behalf of

ALFA.

The private respondents, on the contrary, insist that the

actually safeguarded the petitioners' continuance as officers

and directors of ALFA because the general object of voting

trust is to insure permanency of the tenure of the directors of

a corporation.

Issue: Are they disqualified from acting as directors? Yes.

In order to be eligible as a director, what is material is the

legal title to, not beneficial ownership of, the stock as

appearing on the books of the corporation. Petitioners, by

virtue of the voting trust agreement executed in 1981

disposed2

of all their shares through assignment and delivery

in favor of the DBP, as trustee. Consequently, the petitioners

ceased to own at least one share standing in their names on

the books of ALFA as required under Section 23 of the new

Corporation Code. They are also not included in the list o

stockholders according to a certification by the VP of the

1 What this means: an agreement in writing whereby one or more

stockholders of a corporation consent to transfer his or their shares to a

trustee in order to vest in the latter voting or other rights pertaining to said

shares for a period not exceeding five years upon the fulfillment of statutory

conditions and such other terms and conditions specified in the agreement.

The execution of a voting trust agreement, therefore, may create a

dichotomy between the equitable or beneficial ownership of the corporate

shares of a stockholders, on the one hand, and the legal title thereto on the

other hand.

23. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA

annual or special, upon any resolution, matter or business that may be

submitted to any such meeting, and shall possess in that respect the same

powers as owners of the equitable as well as the legal title to the stock ;

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Special Accounts Dept. Also, the DBP could not have

transferred its rights to the Asset Privatization Trust if the

contract really did end after five years.

Detective and Protective Bureau v. Cloribel (1968)

DPB filed a suit for accounting with preliminary injunction

and receivership against its ex-managing director, Fausto

Alberto. They claim that the latter refuses to surrender

corporate books and property, is continuing to act as

managing director despite having been replaced, and is

disposing of corporate property without proper authority.

DPB filed the bond required for the WPI but Alberto filed a

counterbond, so it wasn’t able to get the temporary remedy

prayed for. DPB filed a petition for certiorari with the SC.

As to the relevant issue, Alberto claims that de la Rosa was

disqualified because he did not own any of the stock of the

corporation.

Issue: Is de la Rosa qualified to be a director? No.

There is in the record no showing that Jose de la Rosa owned

a share of stock in the corporation. If he did not own any

share of stock, certainly he could not be a director

If he could not be a director, he could also not be a managing

director of the corporation, pursuant to Article V, Section 3 of

the By-Laws of the Corporation which provides that:

The manager shall be elected by the Board of Directors

from among its members. ...

If the managing director-elect was not qualified to become

managing director, respondent Fausto Alberto could not be

compelled to vacate his office and cede the same to the

managing director-elect because the by-laws of the

corporation provides in Article IV, Section 1 that "Directors

shall serve until the election and qualification of their duly

qualified successor."

3. ELECTION, VACANCIES, REMOVAL

Who must be present at all D/T elections:

1) Owners of a majority of the OCS, or

2) Majority of members entitled to vote, if there be nocapital stock.

Do they need to be physically present? No. But they can be

there either—

1) In person, or

2) by representative authorized to act by written proxy.

How is the voting conducted? It must be by ballor if

requested by any voter.

How many votes does a stockholder get?

“In stock corporations, every stockholder entitled to vote

shall have the right to vote in person or by proxy the number

of shares of stock standing, at the time fixed in the by-laws, in

his own name on the stock books of the corporation, or

where the by-laws are silent, at the time of the election;”

Sec. 24. Election of directors or trustees. - and said

stockholder may vote such number of shares for as many

persons as there are directors to be elected or he maycumulate said shares and give one candidate as many votes

as the number of directors to be elected multiplied by the

number of his shares shall equal, or he may distribute them

on the same principle among as many candidates as he shal

see fit: Provided, That the total number of votes cast by him

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: Provided, however,

That no delinquent stock shall be voted. Unless otherwise

provided in the articles of incorporation or in the by-laws

members of corporations which have no capital stock may

cast as many votes as there are trustees to be elected but

may not cast more than one vote for one candidate

Candidates receiving the highest number of votes shall be

declared elected. Any meeting of the stockholders o

members called for an election may adjourn from day to day

or from time to time but not sine die or indefinitely if, for any

reason, no election is held, or if there not present or

represented by proxy, at the meeting, the owners of a

majority of the outstanding capital stock, or if there be no

capital stock, a majority of the member entitled to vote.

Sec. 25. Corporate officers, quorum. - Immediately after thei

election, the directors of a corporation must formally

organize by the election of a president, who shall be a

director, a treasurer who may or may not be a director, a

secretary who shall be a resident and citizen of the

Philippines, and such other officers as may be provided for in

the by-laws. Any two (2) or more positions may be held

concurrently by the same person, except that no one shall act

as president and secretary or as president and treasurer at

the same time.

The directors or trustees and officers to be elected shal

perform the duties enjoined on them by law and the by-laws

of the corporation. Unless the articles of incorporation or the

by-laws provide for a greater majority, a majority of the

number of directors or trustees as fixed in the articles ofincorporation shall constitute a quorum for the transaction of

corporate business, and every decision of at least a majority

of the directors or trustees present at a meeting at which

there is a quorum shall be valid as a corporate act, except for

the election of officers which shall require the vote of a

majority of all the members of the board.

Directors or trustees cannot attend or vote by proxy at board

meetings.

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Sec. 26. Report of election of directors, trustees and

officers. - 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 Securities and Exchange Commission, the names,

nationalities and residences of the directors, trustees, and

officers elected. Should a director, trustee or officer die,

resign or in any manner cease to hold office, his heirs in case

of his death, the secretary, or any other officer of thecorporation, or the director, trustee or officer himself, shall

immediately report such fact to the Securities and Exchange

Commission.

Sec. 28. 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 at least two-

thirds (2/3) of the outstanding capital stock, or if the

corporation be a non-stock corporation, by a vote of at least

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 of a corporation for the

purpose of removal of directors or trustees, or any of them,

must be called by the secretary on order of the president or

on the written demand of the stockholders representing or

holding at least a majority of the outstanding capital stock, or,

if it be a non-stock corporation, on the written demand of a

majority of the members entitled to vote. Should the

secretary fail or refuse to call the special meeting upon such

demand or fail or refuse to give the notice, or if there is no

secretary, the call for the meeting may be addressed directlyto the stockholders or members by any stockholder or

member of the corporation signing the demand. 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 this Code. Removal may be with

or without cause: Provided, That removal without cause may

not be used to deprive minority stockholders or members of

the right of representation to which they may be entitled

under Section 24 of this Code.

Sec. 29. Vacancies in the office of director or trustee. - Any

vacancy occurring in the board of directors or trustees other

than by removal by the stockholders or members or byexpiration 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 in a regular or special meeting

called for that purpose. A director or trustee so elected to fill

a vacancy shall be elected only or the unexpired term of his

predecessor in office.

A directorship or trusteeship to be filled by reason of an

increase in the number of directors or trustees shall be filled

only by an election at a regular or at a special meeting of

stockholders or members duly called for the purpose, or in

the same meeting authorizing the increase of directors or

trustees if so stated in the notice of the meeting.

4. TERM

Sec. 23. The board of directors or trustees. - Unless

otherwise provided in this Code, the corporate powers of al

corporations formed under this Code shall be exercised, al

business conducted and all property of such corporations

controlled and held by the board of directors or trustees to

be elected from among the holders of stocks, or where there

is no stock, from among the members of the corporation

who shall hold office for one (1) year until their successors

are elected and qualified.

Every director must own at least one (1) share of the capita

stock of the corporation of which he is a director, which share

shall stand in his name on the books of the corporation. Any

director who ceases to be the owner of at least one (1) share

of the capital stock of the corporation of which he is adirector shall thereby cease to be a director. Trustees of non

stock corporations must be members thereof. a majority o

the directors or trustees of all corporations organized under

this Code must be residents of the Philippines.

Sec. 92. Election and term of trustees. - Unless otherwise

provided in the articles of incorporation or the by-laws, the

board of trustees of non-stock corporations, which may be

more than fifteen (15) in number as may be fixed in thei

articles of incorporation or by-laws, shall, as soon as

organized, so classify themselves that the term of office of

one-third (1/3) of their number shall expire every year; and

subsequent elections of trustees comprising one-third (1/3of the board of trustees shall be held annually and trustees so

elected shall have a term of three (3) years. Trustees

thereafter elected to fill vacancies occurring before the

expiration of a particular term shall hold office only for the

unexpired period.

No person shall be elected as trustee unless he is a member

of the corporation.

Unless otherwise provided in the articles of incorporation or

the by-laws, officers of a non-stock corporation may be

directly elected by the members. (n)

Sec. 108. Board of trustees. - Trustees of educationa

institutions organized as non-stock corporations shall not be

less than five (5) nor more than fifteen (15): Provided

however, That the number of trustees shall be in multiples o

five (5).

Unless otherwise provided in the articles of incorporation on

the by-laws, the board of trustees of incorporated schools

colleges, or other institutions of learning shall, as soon as


one-fifth (1/5) of their number shall expire every year

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Trustees thereafter elected to fill vacancies, occurring before

the expiration of a particular term, shall hold office only for

the unexpired period. Trustees elected thereafter to fill

vacancies caused by expiration of term shall hold office for

five (5) years. A majority of the trustees shall constitute a

quorum for the transaction of business. The powers and

authority of trustees shall be defined in the by-laws.

For institutions organized as stock corporations, the numberand term of directors shall be governed by the provisions on

stock corporations. (169a)

5. MEETINGS

Sec. 49. Kinds of meetings. - Meetings of directors, trustees,

stockholders, or members may be regular or special. (n)

Sec. 53. Regular and special meetings of directors or

trustees. - Regular meetings of the board of directors or

trustees of every corporation shall be held monthly, unless

the by-laws provide otherwise.

Special meetings of the board of directors or trustees may be

held at any time upon the call of the president or as provided

in the by-laws.

Meetings of directors or trustees of corporations may be held

anywhere in or outside of the Philippines, unless the by-laws

provide otherwise. Notice of regular or special meetings

stating the date, time and place of the meeting must be sent

to every director or trustee at least one (1) day prior to the

scheduled meeting, unless otherwise provided by the by-

laws. A director or trustee may waive this requirement, either

expressly or impliedly. (n)

Sec. 54. Who shall preside at meetings. - The president shall

preside at all meetings of the directors or trustee as well as of

the stockholders or members, unless the by-laws provide

otherwise. (n)

Sec. 92. Election and term of trustees. - Unless otherwise

provided in the articles of incorporation or the by-laws, the

board of trustees of non-stock corporations, which may be

more than fifteen (15) in number as may be fixed in their

articles of incorporation or by-laws, shall, as soon as


one-third (1/3) of their number shall expire every year; andsubsequent elections of trustees comprising one-third (1/3)

of the board of trustees shall be held annually and trustees so

elected shall have a term of three (3) years. Trustees

thereafter elected to fill vacancies occurring before the

expiration of a particular term shall hold office only for the

unexpired period.

No person shall be elected as trustee unless he is a member

of the corporation.

Unless otherwise provided in the articles of incorporation or

the by-laws, officers of a non-stock corporation may be

directly elected by the members. (n)

Sec. 97. Articles of incorporation. - The articles o

incorporation of a close corporation may provide:

1. For a classification of shares or rights and the qualifications

for owning or holding the same and restrictions on their

transfers as may be stated therein, subject to the provisions

of the following section;

2. For a classification of directors into one or more classes,

each of whom may be voted for and elected solely by a

particular class of stock; and

3. For a greater quorum or voting requirements in meetings

of stockholders or directors than those provided in this Code.

The articles of incorporation of a close corporation may

provide that the business of the corporation shall be

managed by the stockholders of the corporation rather than

by a board of directors. So long as this provision continues in

effect:

1. No meeting of stockholders need be called to elect

directors;

2. Unless the context clearly requires otherwise, the

stockholders of the corporation shall be deemed to be

directors for the purpose of applying the provisions of this

Code; and

3. The stockholders of the corporation shall be subject to al

liabilities of directors.

The articles of incorporation may likewise provide that al

officers or employees or that specified officers or employees

shall be elected or appointed by the stockholders, instead of

by the board of directors.

Sec. 101. When board meeting is unnecessary or improperly

held. - Unless the by-laws provide otherwise, any action by

the directors of a close corporation without a meeting shal

nevertheless be deemed valid if:

1. Before or after such action is taken, written consent

thereto is signed by all the directors; or

2. All the stockholders have actual or implied knowledge of

the action and make no prompt objection thereto in writing;

or

3. The directors are accustomed to take informal action with

the express or implied acquiescence of all the stockholders;

or

4. All the directors have express or implied knowledge of the

action in question and none of them makes prompt objection

thereto in writing.

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If a director's meeting is held without proper call or notice, an

action taken therein within the corporate powers is deemed

ratified by a director who failed to attend, unless he promptly

files his written objection with the secretary of the

corporation after having knowledge thereof.

6. DUTIES OF DIRECTORS

Sec. 30. Compensation of directors. - In the absence of any

provision in the by-laws fixing their compensation, the

directors shall not receive any compensation, as such

directors, except for reasonable pre diems: Provided,

however, That any such compensation other than per diems

may be granted to directors by the vote of the stockholders

representing at least a majority of the outstanding capital

stock at a regular or special stockholders' meeting. In no case

shall the total yearly compensation of directors, as such

directors, exceed ten (10%) percent of the net income before

income tax of the corporation during the preceding year.

Sec. 31. Liability of directors, trustees or officers. - Directorsor 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.

When a director, trustee or officer attempts to acquire or

acquires, in violation of his duty, any interest adverse to the

corporation in respect of any matter which has been reposed

in him in confidence, as to which equity imposes a disabilityupon him to deal in his own behalf, he shall be liable as a

trustee for the corporation and must account for the profits

which otherwise would have accrued to the corporation.

Sec. 32. Dealings of directors, trustees or officers with

the corporation. - A contract of the corporation with one or

more of its directors or trustees or officers is voidable, at the

option of such corporation, unless all the following conditions

are present:

1. That the presence of such director or trustee in the board

meeting in which the contract was approved was not

necessary to constitute a quorum for such meeting;

2. That the vote of such director or trustee was nor necessary

for the approval of the contract;

3. That the contract is fair and reasonable under the

circumstances; and

4. That in case of an officer, the contract has been previously

authorized by the board of directors.

Where any of the first two conditions set forth in the

preceding paragraph is absent, in the case of a contract with

a director or trustee, such contract may be ratified by the

vote of the stockholders representing at least two-thirds (2/3

of the outstanding capital stock or of at least two-thirds (2/3)

of the members in a meeting called for the purpose

Provided, That full disclosure of the adverse interest of the

directors or trustees involved is made at such meeting

Provided, however, That the contract is fair and reasonable

under the circumstances.

Sec. 33. 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 or more corporations

having interlocking directors shall not be invalidated on that

ground alone: Provided, That if the interest of the

interlocking director in one corporation is substantial and his

interest in the other corporation or corporations is merely

nominal, he shall be subject to the provisions of the

preceding section insofar as the latter corporation or

corporations are concerned.

Stockholdings exceeding twenty (20%) percent of theoutstanding capital stock shall be considered substantial fo

purposes of interlocking directors.

Sec. 34. Disloyalty of a director. - Where a director, by virtue

of his office, acquires for himself a business opportunity

which should belong to the corporation, thereby obtaining

profits to the prejudice of such corporation, he must account

to the latter for all such profits by refunding the same, unless

his 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 his own

funds in the venture.

Memo Circ. 6, series of 2009

A. GENERAL RULE

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B. DUTY OF DILIGENCE; BUSINESS JUDGMENT RULE

C. FIDUCIARY DUTY

I. THE SELF-DEALING DIRECTOR

Sec. 32. Dealings of directors, trustees or officers with

the corporation. - A contract of the corporation with one or

more of its directors or trustees or officers is voidable, at the

option of such corporation, unless all the following conditions

are present:

1. That the presence of such director or trustee in the boardmeeting in which the contract was approved was not

necessary to constitute a quorum for such meeting;

2. That the vote of such director or trustee was nor necessary

for the approval of the contract;

3. That the contract is fair and reasonable under the

circumstances; and

4. That in case of an officer, the contract has been previously

authorized by the board of directors.

Where any of the first two conditions set forth in thepreceding paragraph is absent, in the case of a contract with

a director or trustee, such contract may be ratified by the

vote of the stockholders representing at least two-thirds (2/3)

of the outstanding capital stock or of at least two-thirds (2/3)

of the members in a meeting called for the purpose:

Provided, That full disclosure of the adverse interest of the

directors or trustees involved is made at such meeting:

Provided, however, That the contract is fair and reasonable

under the circumstances.

II. FIXING OF COMPENSATION

Sec. 30. Compensation of directors. - In the absence of any

provision in the by-laws fixing their compensation, the

directors shall not receive any compensation, as such

directors, except for reasonable pre diems: Provided

however, That any such compensation other than per diems

may be granted to directors by the vote of the stockholders

representing at least a majority of the outstanding capita

stock at a regular or special stockholders' meeting. In no case

shall the total yearly compensation of directors, as suchdirectors, exceed ten (10%) percent of the net income before

income tax of the corporation during the preceding year.

III. USING INSIDE INFORMATION

Sec. 23. The board of directors or trustees. - Unless

otherwise provided in this Code, the corporate powers of al

corporations formed under this Code shall be exercised, al

business conducted and all property of such corporations

controlled and held by the board of directors or trustees to

be elected from among the holders of stocks, or where there

is no stock, from among the members of the corporationwho shall hold office for one (1) year until their successors

are elected and qualified.

Every director must own at least one (1) share of the capita

stock of the corporation of which he is a director, which share

shall stand in his name on the books of the corporation. Any

director who ceases to be the owner of at least one (1) share

of the capital stock of the corporation of which he is a

director shall thereby cease to be a director. Trustees of non

stock corporations must be members thereof. a majority o

the directors or trustees of all corporations organized under

this Code must be residents of the Philippines.

Sec. 27. Disqualification of directors, trustees or officers.

No person convicted by final judgment of an offense

punishable by imprisonment for a period exceeding six (6)

years, or a violation of this Code committed within five (5

years prior to the date of his election or appointment, shal

qualify as a director, trustee or officer of any corporation.

3.8. “Insider ” means: (a) the issuer; (b) a director or office

(or person performing similar functions) of, or a person

controlling the issuer; (c) a person whose relationship or

former relationship to the issuer gives or gave him access to

material information about the issuer or the security that is

not generally available to the public; (d) a governmentemployee, or director, or officer of an exchange, clearing

agency and/or self-regulatory organization who has access to

material information about an issuer or a security that is not

generally available to the public; or (e) a person who learns

such information by a communication from any of the

foregoing insiders.

IV. SEIZING CORPORATE OPPORTUNITY

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Sec. 34. Disloyalty of a director. - Where a director, by virtue

of his office, acquires for himself a business opportunity

which should belong to the corporation, thereby obtaining

profits to the prejudice of such corporation, he must account

to the latter for all such profits by refunding the same, unless

his 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 his ownfunds in the venture.

V. INTERLOCKING DIRECTORS

Sec. 33. 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 or more corporations

having interlocking directors shall not be invalidated on that

ground alone: Provided, That if the interest of the

interlocking director in one corporation is substantial and his

interest in the other corporation or corporations is merelynominal, he shall be subject to the provisions of the

preceding section insofar as the latter corporation or

corporations are concerned.

Stockholdings exceeding twenty (20%) percent of the

outstanding capital stock shall be considered substantial for

purposes of interlocking directors

7. EXECUTIVE COMMITTEE

Sec. 35. Executive committee. - The by-laws of a corporation

may create an executive committee, composed of not less

than three members of the board, to be appointed by the

board. 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 by-laws or on a

majority vote of the board, except with respect to: (1)

approval of any action for which shareholders' approval is

also required; (2) the filing of vacancies in the board; (3) the

amendment or repeal of by-laws or the adoption of new by-

laws; (4) the amendment or repeal of any resolution of the

board which by its express terms is not so amendable or

repealable; and (5) a distribution of cash dividends to the

shareholders.

Documents

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