Miss Aida Samante

January 29, 1986 Miss Aida Samante 42 Mahinhin St., Teacher's Village Diliman, Quezon City Madam: This relates to your letter, dated December 5, 16 and 17, 1985, requesting the opinion of this Commission on the queries restated hereunder affecting The Catechists Foundation of the Philippines, Inc.: 1. May the board of directors: a) terminate with or without cause, the term of office of another member of the board; b) resolve the resignation of another member of the board; or c) restrain another member of the board from the performance of his function? 2. Does removal of director as used in Section 6, Article V of the by-laws of the Catechists Foundation of the Philippines, Inc. refers to termination or forced resignation as imposed by the majority vote of the board of directors? 3. What is the course of action of any director whose performance of function as such is restrained by the board? 4. May the president or the board of directors dissolve the Foundation without referring such corporate act to the general membership? 5. Does the President or/and the board of directors have the sole right to dispose of the properties of the corporation? 6. May the President and the board of directors appoint or elect a non-member of the corporation to sit in the board? If the answer is in the negative, may we consider such act as void ab initio? 7. May the President or the board of directors accept a new member to the Foundation without observing the procedure on admission as prescribed in the by-laws? 8. May the president terminate, suspend or remove any member of the staff of the corporation without consulting the other members of the staff? The answers to your aforementioned queries are as follows: 1. The board of directors does not have the power to terminate, with or without cause, the term of office of another director for such power is relegated by law to the members pursuant to the provision of Section 28 of the Corporation Code which provides thus: "Any director or trustees of a corporation may be removed from office by a vote of ... two-thirds (2/3) of the members entitled to vote . . . . Removal may be with or without cause: Provided, that removal without cause may not be used to deprive minority . . . members of the right of representation to which they may be entitled under Section 24 of this Code." (Emphasis supplied) The board of directors may, however, resolve the resignation of a director. Section 5, Article V of the by-laws of the Catechists Foundation of the Philippines, Inc. provides as follows: "Any director may resign his office at any time, such resignation to be made in writing and to take effect from the time of the acceptance by the corporation, unless a time be fixed in the resignation, and then it will take effect from that date." "Acceptance by the corporation" as used above refers to the acceptance by the board of directors for under the Corporation Code, corporate powers are exercised through the board of directors. Anent your query posed in no. 1 (c),please be advised that the board of directors has no power to restrain another member of the board from the performance of his function. 2. The term "removal" as used in Section 6, Article V of your by-laws refers to "removal of directors by the vote of at least two-thirds (2/3) of the members entitled to vote of the Foundation." Please be further informed that Section 28 of the Corporation Code imposes three (3) requisites for the removal of directors, namely: (1) The removal must take place at a regular meeting of the corporation, or a special meeting called for the purpose; (2) The removal must be by the vote of two-thirds of the members entitled to vote if the corporation is a non-stock corporation; and, (3) There must be a previous notice to the members of the intention to propose such removal at the meeting. 3. Any duly elected director of the corporation, whose performance of function as such, is restrained by the board, may file a verified complaint against the responsible officer under Section 5 of PD 902-A, as amended, quoted hereunder as follows: "In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: xxx xxx xxx b. Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates, between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively, and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity." prcd 4. Our answer to your fourth query is in the negative. In all cases of voluntary dissolution under Sections 118, 119 and 120 of the Corporation Code, the vote of the majority of the board of directors or trustees as well as the vote of 2/3 of the members of the corporation are statutory requirements. 5. The statutory authority to sell corporate assets is stated in Section 40 of the Corporation Code. Said Section provides thus: "Subject to the provisions of existing laws on illegal combination 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 ...' two-thirds (2/3) of the members, in a ...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 ....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 served personally ... A sale or disposition shall be deemed to cover substantially all the corporate properties and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. xxx xxx xxx Nothing in this section is intended to restrict the power of any corporation, without the authorization by the ...members, to sell, lease, exchange, mortgage or pledge or otherwise dispose of any of its property and assets if the same is necessary in the usual and regular course of the 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 corporation, 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". The sell out statutes in literal term give the directors acting with the requisite percentage of shareholders or members an absolute power to dispose of the corporate assets in their discretion. (Agbayani, Commercial Laws of the Philippines, Vol. 3, 1984 ed.,457, citing Ballantine 672).Our law has, however, imposed certain equitable limitations against abuse of powers when it provided that the sale or disposition of all or substantially all of assets of the corporation shall be subject to the provisions of existing laws on illegal combinations and monopolies. The second paragraph of Section 40, defines the term "sale or disposition of all or substantially all the assets" as 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. "Consequently, if after the sale, the selling corporation can continue the business for which it is organized, the sale can be made without complying with the requirement set forth in Section 40 as it is not covered by said Section".(Agbayani, Supra.,p. 355) Likewise, under the fourth paragraph of Section 40 of the Corporation Code, the board of directors alone has the full authority, and no consent of shareholders or members is required, in the sale, lease, exchange, pledge or other disposition of any of the property and assets of the corporation 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. "To determine if the sale is made in the regular course of business, the test applied by the courts is not the amount involved, but the nature of the transaction, whether the sale is in the regular course of business of the corporation and in furtherance of the express objects of its existence or something outside of the normal and regular course of business". (Fletcher, sec. 2949.3, p. 569, citing In re Miglietta, 287 NY 246, 39 NE 2d, 224; In re: Timmis, 200 NY 177, 93 NE 522). In any event, however, the president acting alone, has no power to dispose of or transfer the property or asset of the corporation. 6. Section 92 of the Corporation Code provides thus: "No person shall be elected as trustee, unless he is a member of the corporation". Negative or prohibitory words or terms are indicative intent that the statute is to be mandatory. (Crawford, Statutory Construction, sec. 263, p. 523). Likewise, Section 23 of the Corporation Code states: "...Trustees of non-stock corporation must be members thereof. ..." In view of the foregoing, a non-member of the corporation is not eligible or qualified to sit as director/trustee of the Foundation. In the event that a non-member is elected as director, said corporate act shall be deemed null and void. Article 5 of the New Civil Code provides: "Acts executed against the provisions of mandatory or prohibitory law shall be void except when the law itself authorized their validity". 7. By-laws are the private laws of the corporation, such self-imposed private laws have, when valid, substantially the same force and effect as laws of the corporation as have the provisions of its charter insofar as the corporation and the persons within it are concerned. (8 Fletcher, Cyc. Corps.,Sec. 4197).They are in effect written into the charter and in the sense, they become part of the fundamental law of the corporation. (Ibid) Article II, Section 3 (d) of your By-laws provides for the manner of acceptance of new members, to wit: "d. New Members those who may be admitted from time to time in a procedure and manner approved by the Board of Directors as provided in its policies". Hence, acceptance of new members to the Foundation may only be effected in pursuance of the policies laid down by the Board. 8. Under Section 4; Article VI of the by laws of your foundation, the President may, upon consultation with the other members of the staff of the corporation, appoint, accept and remove or suspend any or all of the agents, employees and other subordinate personnel of the corporation. Thus, your query no. 8 is likewise answered in the negative. Please be advised accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman