TIROL, Courtney Allison P.

          14-
0707

2003

Topic: By-Laws

QUESTION: To prevent the entry of Marlo Enriquez, whom it considered as one antagonistic to
its interests, into its Board of Directors, Bayan Corporation amended its articles of incorporation
and by-laws to add certain qualifications of stockholders to be elected as members of its Board
of Directors. When presented for approval at a meeting of its stockholders duly called for the
purpose, the amendments were overwhelmingly ratified. Marlo Enriquez brought suits against
Bayan Corporation to question the amendments. Would the action prosper?

ANSWER: No. Article 47 of the Revised Corporation Code of the Philippines (RCCP) provides
that a private corporation may provide in its by-laws for the qualifications, duties and
compensation of directors or trustees, officers and employees. Meanwhile, Article 48 provides
that the board of directors or trustees, by a majority vote thereof, and the owners of at least a
majority of the outstanding capital stock, or at least a majority of the members of a non-stock
corporation, at a regular or special meeting duly called for the purpose, may amend or repeal
any by-laws or adopt new by-laws. Moreover, in Gokongwei v. SEC (1979), the Supreme Court
reiterated that every corporation has the inherent power to adopt by-laws for its internal
government, and to regulate the conduct and prescribe the rights and duties of its members
towards itself and among themselves in reference to the management of its affairs. In this case,
Bayan Corporation amended its articles of incorporation and by-laws to add certain
qualifications of stockholders to be elected as members of its Board of Directors, which was
overwhelmingly ratified at the meeting of its stockholders. Hence, Marlo Enriquez’ suits will not
prosper.

II

Topic: Derivative Suit; Minority Stockholder

QUESTION: Gina Sevilla, a minority stockholder of Bayan Corporation, felt that various
investments of the company‘s capital were ultra vires if not, indeed, made in violation of law.
She filed a derivative suit seeking to nullify the questioned investments. Would her action
prosper? Why?
ANSWER: No. Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate
Controversies provides that a stockholder or member may bring an action in the name of a
corporation or association, as the case may be, provided, that:

1. He was a stockholder or member at the time the acts or transactions subject of the
action occurred and at the time the action was filed;
2. He exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation, by-laws,
laws or rules governing the corporation or partnership to obtain the relief he desires;
3. No appraisal rights are available for the act or acts complained of; and
4. The suit is not a nuisance or harassment suit.

In this case, Gina filed a derivative suit seeking to nullify the questioned investments, without
first showing that she exhausted all remedies available under the articles of incorporation or by-
laws. Hence, the suit will not prosper.