Atty. Rosario B. Jurado

January 22, 1982 Atty. Rosario B. Jurado Corporate Secretary FVR, Inc. Group of Companies 3/F PNCC Building 151 Legaspi St., Legaspi Village Makati, Metro Manila Dear Atty. Jurado: This refers to your letter-query dated 18 September 1981 relative to the sale of the assets of ( illegible portion in SEC files ) Loan and Leasing Corporation (ALLCC), which owns all the shares of the First Nationwide Credit Corporation (FNCC), and Fund Managers, Inc. (FMI) by Francisco V. Del Rosario, Inc. (FVRI) and Allpro Business Corporation (ALLPRO) to the Entrepreneurial Management Group, Inc. et al. (ENGI), through a duly notarized Deed of Sale dated June 1, 1981. cdlex According to your letter, the consideration is ( illegible portion in SEC files ) of which ( illegible portion in SEC files ) is payable in four (4) installments from June 1, 1981 to December 1, 1992 and the balance of ( illegible portion in SEC files ) is payable within ten (10) years; that ENGI or Group B agreed to make representation with the various creditors of ALLCO/FNCC/FMI to relieve Francisco B. Del Rosario of his personal guarantees or to reduce him to "residual guarantor" as far as possible under certain conditions; (Section 5); that apparently to assure the payment of the ( illegible portion in SEC files ) balance, EMCI or Group B allows FVRI/ALLCO/FNCC/FMI or Group A to select one board member who will consign for all checks and disbursements slips with the representative of Group B; that although Group B has full management prerogative, for as long as the ( illegible portion in SEC files ) is not completely paid and/or any guarantee referred in Section 4 subsists, Group B shall cause the election into directorship of ALLCO/FNCC/FMI of Four (4) nominees of Group A; and that Group A sent a letter dated 11 August 1981 to Group B to clarify Sections 8 and 9 of the Deed of Sale in the sense that "it is understood that (Messrs. Francisco V. Del Rosario and Cesario T. Uy) are not to exercise any responsibility and authority in running the affairs and business operations of the companies, more specifically as it relates to the companies' borrowing and lending operations." You now wish to know whether or not Messrs. del Rosario and Uy are liable as directors of ALLCO/FNCC/FMI under Sections 23 and 31 of the Corporation Code although they have sold their interests therein; and in the affirmative, if it is possible to escape liability by the simple expediency of amending the by-laws to transfer for executive responsibility to the managing directors or executive presidents? The law is very clear on this matter, as you have keenly observed in your letter, so that under the aforesaid circumstances, Messrs. del Rosario and Uy can not clear themselves of any liability in case of willful dishonesty or even negligence that may be committed by the incumbent Board. However, they may cause an amendment to the Deed of Sale (Please see Sec. 15 thereof) so that the four (4) nominees of the SELLERS and/or GUARANTORS in the Board of Directors may be designated only as ex-oficio members thereof without the right to vote. Once the amendment to the Deed of Sale has been effected, the By-Laws of the corporation may likewise be amended to conform to the provision of the Deed of sale relative to the directorship of subject corporation. Finally, your proposal to amend the by-laws for the purpose of transferring executive responsibility to the managing directors or executive vice-presidents as a means of evading the directors liability contemplated in the abovementioned provision of law has no legal basis. Otherwise, it will undermine or neutralize the rationale for including these new provisions on Directors' liability in the Corporation Code of the Philippines which has been aptly stated as follows: "This provision is valuable in that it seeks to impress upon those who would seat in the management of corporation that there are responsibilities that are attached to the position. This would in some degree correct the present practice whereby prominent men and women, including highly-placed public officials and their relatives, lend their names as directors and executive officers for the sake of prestige, advertising and promotions value to the company, upon an understanding that they need not take active part in management and supervision thereof, and with only nominal responsibility." (Balbin & Gloria, the Corporate Organization: New Dimensions, p. 421). Please be advised accordingly. LexLib Very truly yours, (SGD.) ROSARIO N. LOPEZ Associate Commissioner