Mr. Marcial R. Garcia

October 16, 1995 Mr. Marcial R. Garcia 5 Susana St.,Gulod Novaliches Quezon City S i r : This refers to your undated letter received by the Commission on October 5, 1995, requesting opinion on the queries posed therein relative to certain acts of the Board of Directors of Sta. Lucia Jeepney Operators and Drivers Association, Inc. summarized as follows: 1. Can matters approved by the members in their meetings be changed by the Board of Directors? 2. Does the Board of Directors have the power to change the term of office of the president of the Association? 3. Is the Association required to adopt a constitution and by-laws as basis of its internal policies? Relative to the first 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: "SECTION 23. 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 be 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. Accordingly, in the absence of fraud, bad faith, or negligence, so gross as to amount to a breach of trust, the stockholders/members cannot interfere with the exercise of corporate judgment by the Board relating to the management of the corporation. The Board has the power to do or authorize any act which falls within what may properly be regarded as the management of corporate affairs without consulting with or obtaining consent of the stockholders/members. However, it has to be emphasized that the management powers conferred upon the board of directors usually refer only to the ordinary corporate transactions of the corporation and does not extend beyond the management of ordinary corporate affairs nor beyond the limits of its authority. There are some 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. Thus, while the performance of the corporate functions pertaining to the management of the corporation is vested upon the Board of Directors, the Corporation Code has expressly restricted such Board authority and made certain 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, such as: 1. Amendments to the Articles of Incorporation (Section 16); 2. Adoption of new amendments or repeal of by-laws (Sec. 48); 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate assets (Sec. 40); 4. Investment of corporate funds in another corporation or business or for any purpose other than the primary purpose. (Sec. 42); 5. Power of the corporation to enter management contract with another corporation (Sec. 44); 6. Incurring, creating or increasing bonded indebtedness (Sec. 38); LexLib 7. Merger or consolidation of the corporation with other corporations (Sec. 76); 8. Dissolution of the corporation (Secs. 118-120). Accordingly, the answer to the first query depends on whether or not the transaction allegedly approved by the members is a management prerogative. If it is, then it is within the power of the Board to resolve the issue. However, it has to be emphasized that transactions and dealings of the Board of Directors are subject to the provisions of Sections 31-34 of the Corporation Code and may be reviewed and questioned if the corporation's and/or stockholders'/members' interests are prejudiced. Anent the second query, the Commission, on several occasions, had opined that, as a general rule, there must be an annual election of directors and officers on the date fixed in the By-laws. Thus, the regular election of directors and officers as stated in the By-laws cannot de dispensed with or postponed by the board of directors in order to extend the term of office of the Board and officers. However, in case of failure of the corporation to hold a regular election on the date stated in the By-laws, the incumbent members of the board and officers may hold over their term of office and continue their functions until their successors are duly elected and qualified. It has to be emphasized, however, that "hold-over" is a situation that arises only when no successors are elected due to valid and justifiable reasons. Non-holding of annual meeting for the election of the Board of Directors and Officers without justifiable reason is subject to the SEC Rules Governing the Filing of Information Sheet by Domestic Corporation. Said SEC Rules require submission of a General Information Sheet effecting the elected Directors and Officers within thirty (30) days after election. Violations of said Rules carry with it the corresponding penalty prescribed therein. Anent the third issue, Section 46 of the Corporation Code mandates that every corporation formed under the Code is required to adopt corporate By-laws to govern its operations. It is well-settled that the By-laws signify the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns, and its stockholders/members and directors and officers with relation thereto and among themselves in their relation to it. They are in effect written into the charter and in this sense, they become part of the fundamental law of the corporation, and the corporation, its directors, officers and members are bound by and must comply with them (8 Fletcher, Sec. 4166, 4197). In addition to the By-laws, a corporation may adopt other Rules and Regulations, provided they are not contrary to the provisions of the By-laws, Articles of Incorporation and Corporation Code. While corporate By-laws are subject to the approval by the Commission, other Rules and Regulations of the corporation do not need SEC approval, unless they involve matters where the law requires SEC approval. Records on file with the Commission disclosed that your Association had already filed its by-laws. You may thus request a certified copy thereof from our Records Division located at the ground floor of the SEC Building. Finally, any grievance or complaint of any irregularity committed by the directors or officers in the exercise of their functions may be filed by the aggrieved or interested party with the Securities Investigation and Clearing Department of this Commission, pursuant to the provisions of PD 902-A, as amended, and the Revised Rules of Procedure in the Securities and Exchange Commission . LexLib (SGD.) FE ELOISA C. GLORIA Associate Commissioner