Atty. Rosario S. Bernaldo

July 23, 2002 SEC OPINION Atty. Rosario S. Bernaldo Bernaldo Mirador Law Offices, u-1810-11 Cityland Condominium 10- Tower I, 6815 Ayala Avenue North, Makati City, Metro Manila, Philippines Ma'am : This is a reply to your letter-query dated October 24, 2001 requesting this Commission for an opinion on the legality of a provision in the by-laws of Financial Executives Institute of the Philippines, Inc. (FINEX) which provides that: "Article VII. Section 6. Executive Vice President. The Executive Vice President shall assist the President in the discharge of the latter's duties as the President or Board may direct. He shall act as the President in the latter's absence or incapacity and shall automatically become the President in the year immediately following his term as EVP." The query was posed in the light of a perceived inconsistency that the abovestated provision has with Section 25 of the Corporation Code which provides that: Section 25. Corporate Officers, quorum. Immediately after their 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 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. It is a basic tenet in Corporation Law that the by-laws of a Corporation must conform with the provisions of its articles of incorporation and the Corporation Code. A cursory reading of the above-provision of the by-laws would, at first glance, indicate a circumvention with the latter provision of the Corporation Code in that the by-laws provide for an automatic conferment of the position of president to the current EVP, in total disregard of the right of a newly-elected board to choose from among themselves, the position of president and other corporate officers, as may be provided by its by-laws. However, a reading of the corporation's by-laws would reveal that there are other provisions which provide an effective mechanism to make the above-quoted provision work. Article VI, Section 1 and 3 and Article VII, Section 1 of the subject corporation's by-laws provide support to make Article VII, Section 6 work. Article VI, Section 1. Composition. The general management of the affairs, business and property of the Institute shall be vested in a Board of Directors, composed of fifteen (15) members, one half of whom i.e. seven (7) and eight (8),alternately, shall be elected yearly. Article VI, Section 3. Term of Office. Members of the Board shall hold office for a term of two (2) years starting on the first day of January next following their election and until their successors are elected and qualified. Article VII, Officers, Duties and Responsibilities, Section 1. Officers. The Officers of the Institute shall consist of a President, an Executive Vice President (EVP),one or more Vice Presidents, a Treasurer and a Corporate Secretary, all of whom shall be elected by a Board of Directors from among themselves; Provided, That the EVP shall be elected from among the directors serving the first year of their two-year term. The Institute may also have such other officers as the Board or the President may appoint from time to time. Furthermore, it should be pointed out that since the corporation's by-laws has already been approved by this Commission, its provisions are presumed valid in the absence of a clear contravention of the provisions of the Corporation Code. It was suggested by the inquirer that in order to harmonize the provisions of the corporation's by-laws with the above-mentioned Sec. 25 of the Corporation Code, the members of the Board of Trustees must still undergo a process of confirmation of the EVP as the next President upon the expiration of the term of the incumbent President presumably based on the rule in Corporation law that the power to elect or remove officers primarily rests with the members of the board unless the by-laws otherwise provides. The Commission is of the opinion that in order to remove all doubts as to the validity of the aforesaid provision (Article VII, Section 6) it is advised that the corporation amend its by-laws to include the process of confirmation of the EVP as the next President. Very truly yours, (SGD.) BENITO A. CATARAN Director Company Registration and Monitoring Department