Director Candon B. Guerrero

November 28, 1995 Director Candon B. Guerrero Department of Thrift Banks and Non-Bank Financial Institutions Bangko Sentral ng Pilipinas Manila S i r : This refers to your letter dated November 14, 1995 requesting opinion or clarification on the legality of the compensation granted to the directors/officers of SMC Employees Savings and Loan Association, Inc. prcd Please be advised that the Commission does not, as a matter of settled policy, render opinion on the legality of a corporate act or transaction if it involves justiciable issues which could only be clarified and determined in a proper proceeding, such as those presented in your letter. The opinion which may be rendered thereon would not 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 proper forum. The Commission, therefore, has to refrain from giving a categorical statement on the legality of the issue raised in your letter so that it will not be estopped to resolve any controversy pertaining thereto if brought before it in a proceeding. However, for purposes of information, only the following are imparted. Subject corporation is a special type of corporation whose operation is primarily governed by a special law, RA 3779, as amended, otherwise known as the Savings and Loan Association Act. As such, the Corporation Code, which is a general law, would have only a supplementary effect insofar as the provisions thereof may be applicable and are not inconsistent with the special law governing it. In case of conflict, the special law shall prevail. Consistent with the foregoing general principle on statutory construction and interpretation, the Corporation Code provides: "SECTION 4. Corporations created by special laws or charters . Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Code ,insofar as they are applicable." (Emphasis supplied) Thus, in the absence of a provision under RA 3779 on the matter, the following pertinent provisions of the Corporation Code may be applied: "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 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 ." (Emphasis supplied) The above-cited provision clearly states that the Board of directors are entitled to compensation only if there is an express authority in the by-laws or should there not be any such provision in the by-laws, by a stockholders resolution granting the same. Otherwise, they cannot, among themselves award salaries or compensation, except for reasonable per diems . As to what constitutes " net income before income tax of the corporation during the preceding year ",the Commission, for purposes of the 10% limitation under the aforecited provision, had previously opined on the basis of the Batasan deliberation on the matter that the computation thereof shall be based on the "net income before income tax of the year during which the directors have served as such " (Opinion dated May 21, 1992 addressed to Mr. O.P. Victorino) As to what covers "total yearly compensation" ,the Commission further opined in the same SEC opinion cited above that "usually, it includes salaries/remuneration, bonuses/gifts, or any incentive compensation for services rendered to the corporation." Relative to compensation of officers ,since, the Board of Directors appoints/elects the corporate officers, ordinarily then and as manager of the corporate affairs, it is within the Board's power to fix the salaries of the officers by way of a resolution to that effect. If there is such an authority, a director who is also an officer may collect a salary for his services done as an officer. The reason is that the offices of directors and officers have different functions. If a resolution fixing the salaries of officers is not tainted with irregularity and is not for the purpose of disposing of the profits of the corporation, the only question to be determined is whether the salary fixed is reasonable. Considering that the board of directors and officers have different functions, the Commission opined that the above 10% limitation excludes salaries for services rendered by officers . (SEC Opinion dated August 19, 1992 addressed to Ms. Ma. Lourdes S.M. Estanislao) While the above-cited provision of the Corporation Code speaks only of stockholders and makes no mention whatsoever about members in a non-stock corporation, the same may be applied in case of a non-stock corporations whose operation is in the nature of a stock corporation. Even if so organized as a non-stock corporation, savings and loan association cannot, per se ,fall under the so called non-stock corporation taking into consideration its nature and purpose. Somehow it has the character of a stock corporation as its purpose is primarily for profit . Unlike in ordinary non-stock corporation, the members of a savings and loan association have individual pecuniary interest in the association because of their individual investments/deposits. While the interest of the stockholders in a stock corporation is based on the number of shares held, in the case of savings and loan association, the member's interest is determined on the basis of the amount deposited. Likewise, it may be worth mentioning in this connection that in American jurisprudence, it was held that "If the powers of a corporation set forth in its articles of incorporation or certificate of incorporation are such as to bring it within the class of corporations covered by a particular statute, it is within such class, although the articles or certificate may recite that it was organized under the statute authorizing the formation of a different class of corporation." (1 Fletcher Sec. 71, citing State v. Minnesota Thresher Mfg. Co., 40 Minn 213. 41 NW 1090) This interpretation finds support under second paragraph of Section 87 of the Corporation Code which provides that " The provisions governing stock corporations, when pertinent, shall be applicable to non-stock corporations, except as may be covered by specific provisions of this Title ." Thus, in the absence of a specific provision on the matter under RA 3779, otherwise known as the Savings and Loan Association Act, the above provision of the Corporation Code may be resorted to in resolving the issue raised in your letter. LexLib Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner