Mr. Francisco Ortigas, Jr.

December 8, 1987 Mr. Francisco Ortigas, Jr. Ortigas Bldg.,Ortigas Ave. Pasig, Metro Manila Sir : This refers to your letter, dated August 20, 1987, requesting the opinion of this Commission on the following queries: 1. May the board of directors of a private corporation increase its per diem or benefits or emoluments without prior approval from the stockholders? 2. May the board of directors of a private corporation secure insurance on the life of its members and making them the beneficiaries instead of the company? In connection with your first query, the relevant provisions of the Corporation Code read thus: "SECTION 30. Compensation of directors. In the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation, as such directors, except for reasonable per diems: Provided, however, that any such compensation (other than per diems) may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders' meeting. In no case shall the total yearly compensation of directors as such directors, exceed ten (10) percent of the net income before income tax of the corporation during the preceding year." The term "per diem" is limited to pay for a day's services (32 Words & Phrases, p. 17). The power of the board of directors to fix per diems for themselves emanates from the statute itself. (Sec. 30, C.C.P.). On the other hand, the word "compensation" does not imply an immediate payment, an immediate or direct return, nor the payment of cash fare or its equivalent (15 C.J.S.,652);"fare" refers to money paid for transportation or food. (Webster's New World Dictionary, pocket-size edition, p. 222). A perusal of Section 30 of the Corporation Code shows that "per diems" have been twice excluded from the coverage of "compensation". It is a rule in the interpretation of statute that the appropriate and natural office of the exception is to exempt something from the scope of the general words of a statute which would otherwise be within the scope and meaning of such general words. The existence of an exception in a statute clarifies the intent that the statute should apply in all cases not excepted. (Crawford, Statutory Construction, pp. 609-610). Likewise, a reading of the Batasan proceedings on Section 30 of the Corporation Code shows that the terms "salary" and "compensation" were treated as synonymous and used interchangeably. And while "salary" connotes a fixed compensation, "per diems" relates to expense reimbursement. Hence, the board of directors of a private corporation may fix or increase its per diems without the prior approval of its stockholders. There is one limitation though, that per diems must be reasonable. Thus, stockholders may review such board resolution fixing or increasing the per diems of its members and may inquire into its reasonableness, and if found excessive, to afford adequate relief therefrom. Furthermore, other benefits and emoluments of directors fall within the context of "compensation", the fixing of which is subject to the limitations imposed under Section 30 of the Corporation Code. Anent your second query, please be advised that a person is deemed to have an insurable interest in the subject matter insured where he has a relation or connection with or concern in it that he will derive pecuniary benefit or advantages from its preservation and will suffer pecuniary loss or damage from its termination, destruction or injury by the happening of the event insured against. (H. de Leon, The Insurance Code of the Phil., 1981 ed., p. 50, citing 32 C.J. 1111). Hence, corporation may insure its officers in whose life and health, it has an insurable interest. (6 Fletcher, Cyc. Corp., 1979, rev. vol., sec. 2516, at 360). The Insurance Code does not contain any prohibition as against the board of directors of a private corporation securing insurance policy on the life of its members, and making the directors the beneficiaries instead of the company. However, premium paid thereon is analogous to a continuing bonus or gift, and thus falls within the context of additional compensation. In such event, therefore, the requisite vote of the stockholders prescribed in Section 30 of the Corporation Code, as well as the limitation on the amount of compensation of directors as fixed therein shall be observed. However, it has to be emphasized that a corporation may not be used by its officers or stockholders as a means of diverting its profit or proceeds to the payment of premium on insurance policies to the enrichment of its beneficiaries at the expense of, or to the detriment its creditors. (6 Fletcher, Cyc. Corp.,sec. 2516, citing Pen. Mut. Ins. Co.,v. Bank of America Nat. Trust & Savings Ass'n.,5 Cal. 2d 288, 54 P2d 453). Subject to the foregoing observations, your queries are answered affirmatively. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman