Mr. Jose Ma. Nieto

April 4, 1991 Mr. Jose Ma. Nieto 3rd Floor, La Paz Centre Salcedo cor. Herrera Sts. Legaspi Vill.,Makati S i r : This refers to your letter of February 26, 1991 requesting opinion on the queries posed therein. As stated your client, Isabela Golf Club, Inc. has a problem on the procurement of quorum in the sense that for a number of years the stockholders' meeting of the corporation have been short of the quorum required by law and its by-laws. As a consequence, the incumbent members of the board have always been holding over their position as directors. Majority of the stockholders have became indifferent to the detriment of other stockholders. Hence, the corporation cannot act on matters which require prior approval by the stockholders. Moreover, some stockholders have passed away and the required quorum becomes more difficult to achieve. The heirs of some stockholders appear to have no interest in executing the transfer of the shares of their deceased predecessors. Your queries are: 1. What actions, steps or measures can the corporation or the active stockholders take under such circumstances? 2. In the absence of a quorum, may the Board approve and proceed with the sale of its only asset, which is the piece of land where the golf course is situated? Relative to the hold-over status of its present directors, generally there must be an annual election of directors. However, in case of failure of the corporation to hold an election due to any justifiable reason, the incumbent members of the board may hold-over their office and continue their function until their successors are duly elected and qualified. This hold-over principle is sanctioned under Section 23 of the Corporation Code which provides that the Board of Directors shall hold office for one (1) year and until their successors are elected and qualified. Since in the present case no election has been possible due to luck of quorum, the incumbent Board may hold-over until a new Board is chose and qualified. Anent the plan of the present Board to sell the land where the golf course is located, Section 40 of the Corporation code provides: "SECTION 40. Sale or other disposition of assets . Subject to the provisions of existing laws on illegal combinations and monopolies, a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon such terms and conditions and for such consideration, which may be money, stocks, bonds or other instruments for the payment of money or other property, or consideration as its board of directors or trustees may deem expedient, when authorized by the vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock; or in case of non-stock corporation, by the vote of at least two-thirds (2/3) of the members , in a stockholders' or members' meeting duly called for the purpose. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or serve personally: Provided, That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code. A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. cdlex After such authorization or approval by the stockholders or members, the board of directors or trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or other disposition of property and assets, subject to the rights of third parties under any contract relating thereto, without further action or approval by the stockholders or members. Nothing in this section is intended to restrict the power of any corporation without the authorization by the stockholders or members, to sell, lease, exchange, mortgage, pledge, or otherwise dispose of any of its property and assets if the same is necessary in the usual and regular course of business of said corporation or if the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of its remaining business. In non-stock corporations, where there are no members with voting rights, the vote of at least a majority of the trustees in office will be sufficient authorization for the corporation to enter into any transaction authorized by this section." (Emphasis supplied) It is clear from the aforecited provision that the stockholders' vote necessary to approve the sale of all or substantially all of the corporate assets is two-thirds (2/3) of the outstanding capital stock, or in the case of a non-stock corporation, by the vote of at least two-thirds of the members. Thus, the sale of the golf-course short of this legal requirement cannot be validly effected by the corporation. Under the above-situation, due to the unsuccessful attempt of the corporation to muster the required quorum in all stockholders' meeting, the corporation may petition the SEC for the appointment of a management of the committee/receiver to undertake the management of the corporation pursuant to the provisions of Presidential Decree 902-A, as amended. llcd Very truly yours, (SGD.) RODOLFO L. SAMARISTA Associate Commissioner