62.

Are there instances when corporate powers can be exercised by persons other than the
Board of Directors?
·        1. Executive Committee duly authorized in the by-laws
2. contracted manager
3. contracted manager is another corporation
4. close corporations, stockholders may directly manage

63. What are the qualification of a director?

  1. At least one (1) share of the capital stock of the corporation in his own name, if he ceases to own at least
automatically ceases to be a director.
2. legal title, not beneficial ownership.
3. does not own a stock at the time of his election or appointment does not disqualify him as a director before
assuming the duties of his office
4. not a stockholder cannot be a director, ex officio member without voting rights
5. majority residents of the Philippines
6. Must not have been convicted by final judgment of an offense punishable by imprisonment exceeding (6)
years, violation of the Corporation Code committed within (5) years date of his election or appointment
7. Only natural persons can be elected directors/trustees
8. corporate stockholders or members, representation by making their individual representatives trustees of the
shares or membership
9. of legal age
10 other qualifications as may be prescribed

64. What is the term of office of directors?

Elected for a term of one year but may continue to serve until their successors are elected and qualified.

65. What is the holdover principle?

It states that upon failure of a quorum at any annual meeting, the directorate naturally holds over and continues
to function until another directorate is chosen and qualified. Unless the law or the charter of a corporation
expressly provides that an office shall become vacant at the expiration of the term of office for which the
officer was elected, the general rule is to allow the officer to holdover until his successor is duly qualified.

66. What is the required number of stockholders or members that must be present during
elections?
A stock corporation, a majority of the outstanding capital stock, in person or by their authorized representative
by written proxy. A non-stock corporation, a majority of the members entitled to vote, in person or by proxy.

67. What is the manner of voting in the election of directors or trustees?

A stock corporation, cumulative voting is mandatory. Is a matter of right granted by law to each stockholder
with voting rights. Non-stock corporation, cumulative voting is generally not available unless allowed by the
articles of incorporation or by-laws. Members of non-stock corporations may cast as many votes as there are
trustees to be elected but may cast not more than one vote for one candidate.

68. What are the methods of voting?

  1. Straight voting- may vote such number of shares for as many persons as there are directors to be elected.
2. Cumulative Voting for One Candidate- allowed to concentrate his votes and give one candidate, as many
votes as the number of directors to be elected multiplied by the number of his shares.
3. Cumulative Voting by Distribution- multiplying the number of his shares by the number of directors to be
elected and distribute the same among as many candidates as he shall see.

69. What is the limitation on cumulative voting in stock corporations?

Shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied the
whole number of directors to be elected.

70. Can a stock corporation deprive its stockholders of their right to vote?
Stock corporations, being a statutory right, a corporation is without power to deprive the stockholders of its use
or even restrict the right to vote to only one way or method. Non-stock corporations, may be limited, broadened
or denied to the extent specified in the articles of incorporation or the by-laws.

71. Discuss the requisites in order for an election to be valid?

·        1. Present in person or by representation authorized to act by written proxy, the owners of a majority of
the outstanding capital stock
2. by ballot
3. statutory right
4. No delinquent stock
5. highest number of votes, quorum
6. failure to hold an election for
7. Notice
72. Are non-voting shares absolutely prohibited from exercising voting rights?
·        Where the articles of incorporation provides for classification of shares pursuant to Sec. 6, non-voting
shares are not entitled to vote except:
1. Incurring, creating or increasing bonded indebtedness
2. Dissolution of the corporation
3. Increase or decrease of capital stock
4. substantially all
5. Merger or consolidation
6. Amendment of the articles of incorporation
7. Investment of corporate
8. Adoption and amendment of by-laws

73. Enumerate the shares which do not have voting rights?

·        1. Classified as preferred or redeemable
2. Fractional shares of stock
3. Treasury shares
4. declared delinquent
5. Transferee of stock cannot vote if transfer is not registered in and transfer book of the corporation.

74. Which court or administrative body has jurisdiction over election contests in corporation?
Regional Trial Court now has the jurisdiction over election contest or those relating to any controversy or
dispute involving title or claim to any elective office. The validation of proxies, manner and validity of
elections, the qualifications of candidates.
What is the quorum required during elections of directors or trustees?
Unless, stockholders representing a majority of the outstanding capital stock or a majority of the members in
case of non-stock corporations.

75. What is the quorum required during election of directors or trustees?

Unless, stockholders representing a majority of the outstanding capital stock or a majority of the members in
case of non-stock corporations.

76. How are directors or trustees removed by the stockholders or members?

·        1. At a regular or special meeting duly called for the purpose
2. only be removed by a vote of the stockholders representing at least 2/3 of the outstanding capital stock or 2/3
of the members.
3. a previous notice to stockholders or members intention.
4. may NOT be used to deprive minority stockholders or members of the right of representation
5. no need to follow if the director is disqualified. By operation of law, such director is disqualified to act as
director thereby creating vacancies in the Board.
6. Special meeting be called by the secretary on order or the president or on the written demand of the
stockholders.

77. What constitutes “Cause” as basis for removal?

Loyalty, obedience and diligence

78. What is the remedy of stockholders if the corporate secretary failed or refused to call a
special meeting to remove a director or trustees?
May be addressed directly to the stockholders or members by any stockholder or member of the corporation
signing the demand.

79. How is vacancy in board filled?

·        1. By the stockholders or members
a. vacancy results from the removal by the stockholders or members or the expiration of term.
b. OTHER than by removal or by expiration of term, death, resignation, abandonment, or disqualification,
remaining directors or trustees do NOT constitute a quorum for purpose of filling the vacancy.
c. may be filled by the remaining directors or trustees but the board refers the matter to stockholders or
members; or
d. created by reason of an increase in the number of directors or trustees.
2. By the members of the Board- at least a majority of them are empowered to fill any vacancy.

80. What is the term of the director of trustee elected to fill the vacancy?
Shall be elected only for the unexpired term of his predecessor in office.

81. Are directors entitled to compensation?

 A general rule, are not entitled to receive any compensation except for reasonable per diems. Exceptions:
1. Compensation is fixed in the by-laws
2. representing at least a majority of the outstanding capital stock, regular or special stockholders.
82. What is the limitation to the compensation granted to directors?
Shall NOT exceed 10% of the net income before income tax of the corporation during the preceding year.

83. Are the directors still entitled to such compensation amidst the absence of corporate net
income?
Directors shall only be given compensation when there is a net income. To prevent the violation of the trust
fund doctrine.

84. What are the fiduciary duties of directors or trustees?

  1. Duty of Obedience- perform the duties enjoined on them by law and the by-laws of the corporation
2. Duty of Diligence- guilty of gross negligence or bad faith, liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or members and other persons.
3. Duty of Loyalty- conflict of interest, self-dealing directors, interlocking directors, usurpation of corporate
business opportunity. The director owes loyalty and allegiance to the corporation, a loyalty that is undivided.

85. Define watered stock.

Less than its par value or issued value a consideration in any form other than cash, valued in excess of its fair
value.

86. Are directors and officers solidarily liable for the issuance of watered down stocks?
Consenting to the issuance of watered stocks or who, does not forthwith express his objection in writing and
file the same with the corporate secretary, solidarily liable stockholder concerned to the corporation and its
creditors for difference fair value par issued value of the same.

87. What is the special facts doctrine?

A director does not stand in fiduciary relation to the stockholder, under legal obligation make fair and full
disclosure of pertinent official information where special circumstances exist giving rise to the obligation to
disclose such information.
88. When can a corporation be held criminally liable?
By express provision of law (i.e. Anti-Dummy Law, Anti-Money Laundering Act and Trust Receipts Law).

89. Are officers liable for the criminal acts done on behalf of the corporation?
Only where the law directly requires the corporation to do such an act in a given manner and the same law
makes the person who fails to perform the act in the prescribed manner criminally liable.

90. What is an inside information? (SRC, Sec. 27)

  Nature of “material non-public”
(a) it has not been generally disclosed to the public would likely affect the market price of the security after
being disseminated to public.
(b) would be considered by a reasonable person important determining his course of action whether to buy, sell
or hold security.

91. Can directors or trustees deal with securities using inside information?
  No. It shall be unlawful for an insider (director or trustee) to sell or buy a security of the issuer, while in
possession of material information with respect to the issuer or the security that is not generally available to the
public.
92. Who are self-dealing directors, trustees or officers?
Who personally contract with the corporation directors, trustees, or officers.

93. What is the status of a contract entered into by a self-dealing director?

 VOIDABLE UNLESS:
1. presence of such director/trustee in the board meeting approving the contract was NOT necessary a quorum
2. vote NOT necessary the approval
3. fair and reasonable under the circumstances
4. an officer, previously authorized by the board of directors.

94. Who are interlocking directors?

    One, some or all of the directors in one corporation, a director in another corporation.
95. Does the law prohibit interlocking directorship?
·        By itself is not prohibited. However, by-laws may contain provisions that disallow interlocking
directorship. Two or more corporations having interlocking directors not be invalidated on that ground alone.
VALID provided:
1. is not fraud
2. contract is fair and reasonable under the circumstances

96. When is an interlocking director deemed to have substantial interest?

Interlocking director has substantial interest in one corporation if his equity exceeds 20%, does not exceed
20%, a nominal director.

97. What is an executive committee?

Body created by the by-laws composed of not less than three appointed members which all the authority of the
board extent provided in the board resolution or by-laws.

98. What is the authority of the executive committee?

All the authority of the board to the extent provided for in the resolution of the board or in the by-laws. A
majority vote of all of its members on such specific matters within the competence of board.

99. Is the decision of the executive committee subject to appeal to the board of directors?
Are not subject to appeal. However, may be ratified.

100. Suppose the board of directors created a body called “executive committee” and the
corporate By-Laws is silent on the power to create an executive committee. Is the said
committee illegal?
Notwithstanding the silence of the corporate by-laws on the matter, cannot be held that the creation of the
executive committee by the board of directors is illegal or unlawful. Nature and functions. Should be
distinguished from other committees which are within the competency of board to create at any time and whose
actions require ratification and confirmation by the board.

101. What are the limitations on the powers of an executive committee?

  1. For which stakeholders’ approval is also required;
2. Filing up of board vacancies
3. Amendment, repeal of by-laws or adoption of new by-laws
4. amendment or repeal of any resolution
5. distribution of cash dividends to shareholders.
102. What are the kinds of meetings of the board of directors or trustees?
 1. Regular- monthly, unless the by-laws provide otherwise
2. Special- board at any time upon the call of the president or as provided in the by-laws

103. When are the meetings of the board of directors or trustees held?
  Regular meetings, monthly, unless the by-laws provide otherwise.
Special Meetings, at any time upon the call of the president or as provided in the by-laws.

104. Where are the meetings of the board of directors and trustees held?
Anywhere in or outside of the Philippines, unless by-laws provide otherwise.

105. Discuss the required notice in order that meetings of directors or trustees be valid?
  Meetings of Directors/Trustees
1. General Rule: at least 1 day prior
2. Exception: unless otherwise provided

106. Who calls the meetings of the board of directors or trustees?

  1. Officer designated in the by-laws
2. Directors/Trustees
3. Entrusted with the management of the corporation otherwise provided by law.

107. How is quorum in the meeting of the board of directors or trustees determined?
A general rule, majority of the number of directors or trustees AS FIXED IN THE ARTICLES OF
INCORPORATION every decision of at least a majority of the directors or trustees present at a meeting at
which there is a quorum be valid as a corporate act, except election of officers a majority of all the members of
the board. Exception the articles of incorporation or the by-laws provide for a greater majority.

108. What happens in case a director or trustee failed to attend a meeting?

Abstention, general rule is counted in favor of the issue that won the majority vote; the abstaining directors are
deemed to abide by the rule of the majority acquiescence in the action of those who vote affirmatively.

109. Explain the Doctrine of Apparent Authority / Doctrine of Estoppel.

JURISPRUDENCE
AF Realty & Dev’t. v. Dieselman Freight Services, January 16, 2002
The Government of the Philippine Island v. Filipino, July 13, 1927
People v. Tan Boon Kong, March 15, 1930