Mr. Miguel V. Rios

July 27, 1994 Mr. Miguel V. Rios 124 Mindanao Drive Ayala Alabang Village Muntinlupa, M.M.. S i r : This refers to your letter of March 4, 1994 inquiring on the legality of the following corporate acts/situations and the appropriate action necessary to correct them if they are violative of law. 1. Whether failure to notify some members of the Board in a special meeting, wherein additional members of the Daniel B. Pea Memorial College Foundation, Inc. were admitted, would invalidate the meeting. The Commission does not, as a matter of settled policy, render opinions on queries or transactions which may eventually be litigated in the future. The opinion which may be rendered thereon would be binding upon private parties who would in all probability, if the opinion happens to be adverse to their interest, take issue therewith and contest it before the Court. The Commission, therefore, has to refrain from giving categorical answer to your first query so that it will not be estopped to resolve any controversy pertaining thereto if brought before it in a proper proceeding. However, for purposes of information only, the following are imparted. Section 53 of the Corporation Code provides: "Meetings of directors or trustees of corporations may be held anywhere in or outside of the Philippines, unless the by-laws provide otherwise. Notice of regular or special meetings stating the date, time and place of the meeting must be sent to every director or trustee at least one (1) day prior to the scheduled meeting, unless otherwise provided by the by-laws. A director or trustee may waive this requirement, either expressly or impliedly .(Emphasis supplied) Likewise, the Commission previously opined that the Board of Trustees of a corporation cannot hold an emergency meeting or special meeting without proper notice to the members thereof. "Notice of a special meeting must be given to every director, unless there is an express provision in the charter or by-laws or establish usage to the contrary or unless it is useless, impossible or impracticable to do so." "Except in these cases, a special meeting held in the absence of some of the directors, and without any notice to them, is illegal and the action at such a meeting although by a majority of the directors is invalid unless subsequently ratified or unless rights have been acquired by innocent third persons, as against whom the corporation must be held estopped or set up the failure to observe formalities." ( Ltr. to Atty. Angel F. Lobatan, Sr.,dtd.,March 10, 1972 ,citing Ballantine on Corporation, p. 127). 2. Whether a situation, wherein majority of the members of a non-stock corporation are non-residents, is violative of Section 10 of the Corporation Code which provides: SECTION 10. Number and qualifications of incorporators . Any number of natural persons not less than five (5) but not more than fifteen (15),all of legal age and a majority of whom are residents of the Philippines ,may form a private corporation for any lawful purpose or purposes. Each of the incorporators of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporations." (Emphasis supplied) " Incorporators " should be distinguished from the " members " of the corporation. Under Section 5 of the Corporation Code, members are the corporators who compose a corporation. Incorporators are those members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof." While it is a requirement under Section 10 of the Corporation Code that at least majority of the "incorporators" must be residents of the Philippines, the above provision does not require that majority of the "members" must also be residents. Accordingly, a situation wherein majority of the members of a corporation non-residents is allowable. 3. Whether a situation, wherein majority of the members of the Board of Trustees are non-residents, is violative of Section 23 of the Corporation Code, quoted hereunder: "Every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. Trustee of non-stock corporations must be members thereof: A majority of the directors or trustees of all corporations organized under this Code must be residents of the Philippines " (Emphasis supplied) The above-provision appears to be mandatory. Hence, the requirement that at least majority of the Board must be residents of the Philippines must be complied with. 4. Whether an election of officers, where there were only three (3) out of five (5) members of the Board were present during the meeting, is violative of Section 25 of the Corporation Code. Section 25 of the Corporation Code provides in part: "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 officer which shall require the vote of a majority of all the members of the board." (Emphasis supplied) The above provision clearly requires a vote of majority of all of the members of the Board for an election of Officers to be valid. Finally, please be advised that your request for an audit of the above-mentioned corporation was referred to the Supervision and Monitoring Department (SMD) of this Commission for appropriate action. LexLib Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner