American International Underwriters (Philippines), Inc.

July 29, 1985 American International Underwriters (Philippines),Inc. AIU Bldg.,Alvarado corner Dela Rosa Sts.,Legaspi Vill. Makati, Metro Manila Attention : Mr . Jose C . Castillo Assistant Vice-President Sir : This has reference to your letter dated April 13, 1985, requesting for the opinion of this Commission on the queries posed therein. You allege that the By-laws of the corporation was amended as follows: "WHEREAS, Sub-Section 8, Section II of the by-laws of the company provide that the Board of Directors may constitute two or more of its members as an executive committee with authority to exercise between the meetings of the Board all the powers thereof excepting to fill vacancies in the membership of the board of said committee. NOW, THEREFORE, be it resolved, as it is hereby resolved that the Board of Directors of this Company hereby constitute an Executive Committee of the Board, with the following directors as members of said Committee." You now request for the opinion of this Commission on the following queries: 1) Whether the resolution passed and approved by the Executive Committee is valid as the resolution of the Board of Directors. 2) Is not the act of the Executive Committee merely recommendatory in nature and not as the resolution of the board of Directors. 3) In the event the resolutions of the Executive Committee are invalid and that they cannot act as the Board of Directors of the company, may the said resolutions of the Executive Committee be validated when confirmed by the Board of Directors. Sec. 35 of the Corporation Code provides and we quote: "SECTION 35. Executive Committee . The by-laws of the corporation may create an executive committee, composed of not less than three members of the board, to be appointed by the board. Said committee may act by majority vote of all its members on such specific matters within the competence of the board, as may be delegated it in the by-laws or on a majority vote of the board, except with respect to: (1) approval of any action for which shareholder's approval is also required; (2) the filling of vacancies in the board; (3) the amendment or repeal of by-laws or the adoption of new by-laws; (4) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable and, (5) a distribution of cash dividends to the shareholders." (emphasis supplied) An examination of your records on file with this Commission shows that your aforequoted amendment to the by-laws was not submitted to this Commission for approval. Considering the same, this Commission shall treat your queries in the light of the provisions of your approved by-laws. Sub-section 8 of Section II of your by-laws provides, and we quote en toto : "The board of directors may constitute two or more of its members as executive committee with authority to exercise between the meetings of the board all the powers thereof excepting to fill vacancies in the membership of the board or said committee. Such executive committee may meet or function without meeting, shall be free to fix its own rules of procedure, if any, and shall report to the board of directors as and when required by the board. But nothing herein shall be construed as in any wise diminishing or restricting any authority the board of directors may otherwise lawfully have to vest in any person or each several persons as full and plenary powers as can be held to vest such powers is hereby expressly confirmed for their exercise in their free discretion." Anent your first query, and applying the aforequoted provisions, it is clear that the resolutions passed and approved by the Executive Committee are valid as the resolutions of the Board of Directors provided the resolutions have been made at the time the committee is constituted, i.e.,between the meetings of the board. Insofar as your second query is concerned, please be informed that your Executive Committee is authorized by your by-laws is exercise all the powers of the Board of Directors subject to the exceptions provided for in the above-cited Section 35 of the Corporation Code. It has been ruled that "the scope of authority given to an executive or other committee should clearly appear in the duly adopted resolution or by-law creating it. There is some limit, however, to the power of the directors or trustees to abdicate authority and responsibility or exclude minority representatives. They cannot delegate entire supervision and control of the corporation to an executive committee for this is inconsistent with the charter or law, which requires that they shall have general supervision and control of the corporation." (Ballantine on Corporation, p. 135) Regarding their third query, it has been ruled that "As a matter of business practice there is no doubt that in many companies the use of an executive committee may reduce the directors to little more than a supervising and ratifying body " (Gadfrey L. Cabot, Inc. v. Gas Products Co. 93 Mont. 497, cited in Ballantine, p. 135) (emphasis supplied) LibLex From the aforequoted provision, it can be deduced that in the event the resolutions of the Executive Committee are invalid, said resolutions may be validated and ratified by the Board of Directors, the latter being a supervising and ratifying body. Please be advised accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman