Mr. Nestor S. Mangio

May 2, 1994 Mr. Nestor S. Mangio Unit I Corporate House, 239 Santolan Road Corner C. Benitez St., Quezon City S i r : This refers to your letter of April 22, 1994 requesting clarification on the following: a) Does a member or group of members have the right to ask the President or Secretary General for minutes of meeting and seek clarifications on important matters relating thereto? b) Does a member have the right to request from the UAP treasurer a copy of the latest financial statement of UAP? c) Do an incumbent President and National Board of Directors have the right to approve a project which will commit five administrations for 5 years to implement it with an expenditure that will cost P13 million or 50% or more of the annual income of the association? If not, will the approval of the project by the general membership be the answer so that the project could be implemented? Relative to your first and second queries, the pertinent provisions of the Corporation Code provide: "The records of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his expense . Any officer or agent of the corporation who shall refuse to allow any director, trustee, stockholder or member of the corporation to examine and copy excerpts from its records or minutes , in accordance with the provisions of this Code, shall be liable to such director, trustee, stockholder or member for damages ,and in addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided, That if such refusal is pursuant to a resolution or order of the board of directors or trustees, the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal: and Provided, further, That it shall be a defense to any action under this section that the person demanding to examine and copy excerpts from the corporation's records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand." (Sec. 74, emphasis supplied) "Within ten (10) days from receipt of a written request of any stockholder or member, the corporation shall furnish to him its most recent financial statement, which shall include a balance sheet as of the end of the last taxable year and a profit or loss statement for said taxable years, showing in reasonable detail its assets and liabilities and the result of its operations. At the regular meeting of stockholders or members, the board of directors or trustees shall present to such stockholders or members a financial report of the operations of the corporation for the preceding year, which shall include financial statements, duly signed and certified by an independent certified public accountant. (Section 75, emphasis supplied) Thus, all stockholders/members of a corporation have the right to inspect corporate books and records. This right is based on the principle that all stockholders/members have the right to be fully informed as to the status and condition of the corporation, the manner its affairs are conducted, and how its capital to which they have contributed is employed or managed. However, the exercise of the right of inspection of corporate books and records should be for a legitimate purpose. This means that the intention should be germane to the interest of a stockholder (member) as such, as where the purpose is to find out the actual financial condition of the corporation and how his investment (capital contribution) is being used. Likewise, the purpose should not be contrary to the interest of the corporation nor should it be made merely to gratify a stockholder's (member's) curiosity or for a speculative use. (Gutherie v. Harkness 199 US 148, 50L Ed 130, 26 SCt 4; Steinberg v. American Bantam Car co. 76 F Supp. 426, dismd 173 F2d 179) In the event the exercise of the above right is wrongfully denied to the person entitled thereto, he may enforce his right by filing with the Commission a petition for a writ of mandamus to compel the officer having charge of the above-mentioned corporate documents to permit him an inspection, or in proper case maintain an action for damages which he may have sustained thereby. Anent your third query, it is well-settled that the Board of Directors is the governing body of the corporation with whom the management of the corporate affairs is vested. Section 23 of the Corporation Code provides: "The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to 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 and until their successors are elected and qualified." (Emphasis supplied) It is thus within the duty and power of the Board to administer and manage the corporate affairs. The board, in the absence of express restrictions, has the discretionary power to enter into contracts or transactions which fall within what may properly be regarded as the management of the ordinary business of the corporation and which in its judgment is necessary or proper in order to carry out the objectives of the corporation without consulting with or obtaining consent of the stockholders/members. (2 Fletcher Ch 11 Sec. 505, citing several authorities) However, 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. There are powers which are reserved to the shareholders/members and which cannot be exercised solely by the directors until they are approved or ratified by the stockholders/members . No board can usurp the power of control of the corporation vested by law in the shareholders or members. Thus, while the performance of the corporate functions pertaining to the management of the corporations is vested upon the Board of Directors, the Corporation Code has expressly restricted Board authority and made the following corporate actions to rest for their validity upon the concurrence of the required statutory votes of the stockholders/members by prior action or subsequent ratification: amendments of articles of incorporation (Section 16); adoption of new, amendment or repeal of the by-laws (Section 48); sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate assets (Section 40); incurring, creating or increasing bonded indebtedness (Section 38); increase or decrease of capital stock (Section 38); merger or consolidation of a corporation with another corporation or other corporations (Section 76); dissolution of corporation (Sections 118-120); investment of corporate funds in another corporation or business or for any purpose other than the primary purpose (Section 42); power of the corporation to enter into management contract with another corporation (Section 44); 10) power of the corporation to declare stock dividend (Section 43). Furthermore, it has to be emphasized that the dealings of the Board are subject to Sections 31-34 of the Corporation Code and may be reviewed and questioned if the corporation's or stockholders/members' interest is prejudiced. Any grievance of complaint against the corporation, its directors or officers may be filed with the Securities Investigation and Clearing Department of this Commission pursuant to the provisions of P.D. 902-A, as amended, and the Revised Rules of Procedure in the Securities and Exchange Commission . Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner