Mr. Antonio V. Magno

September 3, 1991 Mr. Antonio V. Magno Dai-ichi Petroleum Refinery Corporation Suite 411, Katigbak Building 1000 A Mabini St.,Ermita Manila S i r : This refers to your letter dated August 26, 1991, requesting opinion on the following queries: a) Can a corporation legally function or do corporate business after the resignation of two of its 5 directors/incorporators whose resignations were submitted to the SEC without furnishing the corporation a copy of such resignations? b) Is a resignation by any member of the board of directors/incorporators tendered to the SEC not to the board/corporation effective, final & binding to the corporation? c) Can the remaining three (3) members of the board do legitimate, corporate business, assuming that the resignations of the two (2) members are effective, final & binding to the corporation despite the fact that the corporation was not furnished a copy of the resignations? d) Can the remaining three (3) members call for prospective shareholders to complete a five (5) board of directors by issuing additional subscription of shares, the original subscription of which were all fully paid-up upon inception and registration? e) Will the corporation die a natural death upon the resignation of one (1) or two (2) of the remaining three (3) directors/incorporators assuming also that the resignations of the two (2) directors/incorporators are effective, final & binding to the corporation? f) How will then the corporation die a natural death on the basis of the above circumstances or by what means other than the above conditions will the corporation die a natural death other than what the law provides? Relative to your first and second queries, generally, a director or other officer, even though elected for a fixed term may resign at any time by definite notice. Unless a future date of acceptance by the corporation is specified, resignation will take effect at once and no acceptance is necessary .This is of course, subject to any express charter or statutory provision to which he has expressly or impliedly assented in accepting office, and subject to any express contract he may have made with the corporation. (Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Phil. citing Ballantine 217 and Sec. 2 Fletcher, 100). Aside from notifying the Corporation of the resignation, the pertinent provision of the Corporation Code provides: SECTION 26. ..."Should a director, trustee or officer die, resign or in any manner cease to hold office, his heirs in case of his death, the secretary, or any other officer of the corporation, or the director, trustee or officer himself, shall immediately report such fact to the Securities and Exchange Commission ." (Emphasis supplied) As to your third query, any resignation of directors would not affect the corporate existence of the corporation nor render the remaining directors incapable of transacting business, for such situation would merely give rise to vacancy in the Board which may be filled up in accordance with the provisions of the Corporation Code and By-Laws of the Corporation. "The general rule is well settled that the power of the board is not suspended by vacancies in the board unless the number is reduced below a quorum ." (Fletcher, Sec. 421, citing Porter v. Lassen Country Land & Cattle Co.,127 Cal. 261, 59 p. 563).In a similar case, the court likewise held that "if a certain number of directors as provided for by statute or of the articles of incorporation, the failure of the stockholders to fill all the directorships does not invalidate the title of the directors who are elected or prevent them from legally representing the corporation so long as they constitute a quorum ." (Great Falls & T.C.R. Co., versus Ganong, 48 Mont. 54, 136 p. 390, cited in Fletcher, Sec. 421, p. 270). As to what constitutes a quorum, the pertinent provision of the Corporation Code provides in part: "SECTION 25. Corporate officers, quorum ....Unless the articles of incorporation or the by-laws provide for a greater majority, a majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate business ,and every decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a majority of all the members of the board. ...(Emphasis supplied) Regarding your fourth query, if additional stockholders are desired, the Board, if it still constitutes a quorum , may issue shares out of the unissued capital stock, and if the present authorized capital stock is already fully subscribed, it may increase its authorized capital stock in accordance with Section 38 of the Corporation Code. In the event the resignation of directors would result in the lack of quorum ,the rest of the directors/stockholders who desire to continue the business operation of the Corporation may transfer qualifying shares to nominees for the purpose of qualifying them to sit in the Board of Directors. Anent your last two queries, Section 2 of the Corporation Code provides: "A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence." (Emphasis supplied) A corporation has a personality separate and distinct from that of each stockholder and by corporate right of succession, a corporation has a continuity of existence independent of that of its shareholders. Hence, a corporation continues to exist despite the resignation of the directors. A corporation can be dissolved only in the manner provided for by the Corporation Code particularly under Title XIV thereof. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman