SEC Opinion No. 67-03

December 8, 2003 SEC OPINION NO. 67-03 Mr. Artemio U. Lim Air Materiel Wing Savings & Loan Association, Inc. AMWSLAI Bldg., Boni Serrano Ave. Quezon City Gentlemen : This pertains to your letter of December 5, 2003 inquiring on the following: a) whether Air Materiel Wing Savings and Loan Association, Inc. (AMWSLAI) may hold its membership in Quezon City (the venue as approved in the by-laws) instead in Pasay City which is the principal office stated in the articles of incorporation; and b) whether the restriction on proxy limiting the voting time of the proxy holders from 8:0010:00 am only is valid or not. Records show that the principal office of the corporation as indicated in the Articles of Incorporation is in Pasay City. However, the by-laws of the corporation was amended on 25 February 1998, duly approved by SEC on 27 March 2000 and by the Bangko Sentral ng Pilipinas on 18 January 2000 changing the principal office of the corporation from Pasay City to Quezon City. The articles of incorporation to reflect the transfer of AMWSLAI's principal office was not amended. Moreover, it is likewise alleged that proxy holders may be allowed to vote only from 8:00 a.m. to 10:00 a.m. Said restriction is not provided for in the charter nor in the by-laws of the corporation. In reply, please be advised that Section 51 of the Corporation Code mandates that meetings of the members should be held in the city or municipality where the principal office of the corporation is located, and if practicable, in the principal office of the corporation. The pertinent provision of the cited law provides thus: "Section 51. Place and time of meetings of stockholders or members . Stockholders' or members' meetings, whether regular or: Provided that Metro-Manila shall, for the purposes of this section, be considered a city or municipality." The above quoted provision has been held to be mandatory and not merely directory and violation thereof shall be treated as null and void. It is compulsory that meetings be held in the city or municipality where the principal office of the corporation is located and if practicable, in the principal office of the corporation . SEC thus opined: Provided, that Metro Manila shall be considered a city or municipality for purposes of said section. To illustrate: The SEC declared the election of directors and officers of respondent corporation null and void , having been held in outright violation of the corporate by-laws of the Corporation Code. The election was held on April 19, 1990 not April 5, 1990 which is the first Thursday of April as prescribed in its by-laws; six (6) officers were elected instead of five (5) which number was provided in their by-laws; and held in Manila, not in Makati which is the place of principal office of the corporation. Section 51 of the Corporation Code mandates that members meeting shall be filed in the city or municipality where the principal office of the corporation is located. This provision has been held to be mandatory not merely directory. (SEC Opinion dtd March 1, 1976, Col. Ciriaco P. Itoson (Ret.), Guarine Infantado vs. New Philippine Jockeys Association, Inc. et al , SEC Case No. 3774, January 15, 1991). The exception to Section 51 is Section 93 of the Corporation Code, which states that, "the by-laws of the corporation may provide that the members of non-stock corporations may hold their regular or special meeting at any place even outside the place where the principal office is located, provided that proper notice is sent to all members, indicating the date, time and place of the meeting shall be within the Philippines." In addition, if the meeting shall not be held at the principal office of the corporation, all members must also be present either in person or by proxy. Sec. 51 of the Corporation Code requires that: "all proceedings had and any business transacted at any meeting of stockholders or members shall be valid even if the meeting is improperly held or called provided, that said proceedings or business transactions is within the power or authority of the corporation, that is, they are not ultra vires and that all the stockholders and members are present or duly represented at said meeting." Should your corporation desire to follow Section 93 of the Code, AMWSLAI's by-laws should first be amended in accordance with Section 48 of the Corporation Code. With respect to the transfer of the principal office of your corporation from Pasay City to Quezon City by amending the by-laws without the corresponding amendment of the articles of incorporation, please be further advised that Section 16 of the Corporation Code provides thus: "Section 16. Amendment of the articles of incorporation . Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. . . . or the vote or written assent of two-thirds (2/3) of the members if it be a non-stock corporation. The original and amended articles together shall contain all provisions required by-law to be set out in the articles of incorporation. Such change or changes made, and a copy thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Securities and Exchange Commission. The Commission has consistently held that to legally effect the change of the principal office from one municipality or city to another, say from Manila to Quezon City (SEC opinion dated September 11, 1989, Mr. Joaquin T. Ortega) or from Quezon City to Makati (SEC opinion dated April 13, 1989, Mr. Benigno P. Aquino), it is necessary that the articles of incorporation, not only the by-laws shall be amended in accordance with law. The afore-mentioned section of the Corporation Code therefore, directs that any provision or matter stated in the articles of incorporation (in this particular case, the principal office) may be amended by majority vote of the Board of Trustees and the vote or written assent of two-thirds (2/3) of the members if it be a non-stock corporation. As to your second query, whether the COMELEC guidelines on the prescribed proxy form to be used by the members and the manner of voting it, limiting the proxy holders to vote from 810 AM, while the regular voting time is from 8 AM4 PM, please be advised that such limitation/restriction is not in accordance with/law since your by-laws contain no express provision on such restriction. cHCaIE Thus, the Commission opined that, the "by-laws may provide a deadline for the submission of proxies before the scheduled meeting (SEC Opinion, Nov. 13, 1972); or that no proxy shall be valid or voted on after a certain length of time from this date, or that no person shall vote at any meeting by virtue of any proxy executed within a certain period of time prior to such meeting, or that no proxy shall be used at more than one annual meeting of the corporation. (Fletcher, Vol 5, p. 190, Sept. 4. 1995)." Further, restrictions on the right to vote by proxy shall be void only where they operate unjustly, unreasonably, and oppressively so as to work the disenfranchisement of a majority of the legal voters." (SEC Opinion, July 16, 1974 citing Fletcher, Vol. 5, p. 211) . In the instant case, the time limitation on proxy voting to the effect that proxy holders shall be allowed to vote from 8:00 to 10:00 a.m. only which may result in the disenfranchisement of some of the members should not he countenanced by the Commission. The restriction appears to be void for being unreasonable and unjust, and therefore not conducive to a fair election process. Very truly yours, (SGD.) VERNETTE UMALI-PACO General Counsel