BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Dec. 14 2016 Acosta, M.
Section 23. The board of directors or trustees. –
Unless otherwise provided in this Code, the
corporate powers of all corporations formed under
this Code shall be exercised, all business
conducted and all property of such corporations
controlled and held by the board of directors or
trustees to be elected from among the holders of
stocks, or where there is no stock, from among the
members of the corporation, who shall hold office
for one (1) year until their successors are elected
and qualified. (28a)
Every director must own at least one (1) share of the
capital stock of the corporation of which he is a
director, which share shall stand in his name on the
books of the corporation. Any director who ceases
to be the owner of at least one (1) share of the
capital stock of the corporation of which he is a
director shall thereby cease to be a director.
Trustees of non-stock corporations must be
members thereof. A majority of the directors or
trustees of all corporations organized under this
Code must be residents of the Philippines.
Section 23 is that the powers of a corporation, the
ownership of property of a corporation are vested in the
board of directors. The board of directors is considered
the body politic that which is vested the exercise of the
powers of the corporation and the holding of the
property of such corporation and this form is constituted
by the stockholders or members of a corporation.
For stocks and profit corporation, the general rule is that
the term of the board of directors, those selected to the
board is 1 year but there is an automatic holdover
clause in section 23, if a successor is not elected then
they continue with their position as director because
section 23 says they shall hold office for one (1) year
and until their successors are elected and qualified.
Question, you are not yet a stockholder of a corporation,
the board elects you as a member of the board, Can
you then be granted xx for the secretary of the
corporation one share because what is needed is every
director must own at least one share of the capital stock
of the corporation of which he is a director you’ll be
granted one share so that you will qualify.
The issue is when should you be a stockholder
holder of the corporation? At the time of election or
at the time of qualification?
From you constitutional law, you know that to qualify to
a position is a technical term. For government office you
qualify to a position when? To qualify for office means
you accept the burden of office, so take an oath, so you
make it your own. Mamili ka man, kung di ka maapoint,
mao gihapon di ka kalingkod.
1
What is the age qualification of a senator? The
qualifications are in the Constitution; they cannot be
increased or decreased. It is determined by the
Constitution, we are talking about qualifications. To
qualify needs to take oath. When do you have to that
age when you are president? You have to meet the
requirements when you qualify, when you run you may
not yet be of that age but when you take oath you must
be that is the case of Benigno Aquino vs COMELEC
that is when the Supreme Court says the qualifications
must be met when they take oath.
So if you are elected and you are not yet a
shareholder then after you are elcted you are
granyted the privilege of buying one share so that
yopu can sit, is that alright?
Yes that’s alright. You satisfy section 23 because
when you are elected as director you do not become
director right away you first accept the position, you do
not take an oath but you attend a meeting now you are
director.
Remember the board of directors is a body politic. When
you sit as director then you are a director, a member of
a body politic known as the board of directors. So
disabuse yourself of the pedestrian idea na pag director
na tag iya na siya sa corporation- kana ligas lang na sa
dila-pero mahulog na sa pagka-ignorante, ayaw mug
suod ana.ayaw. abogado ka, technical imong
panghuna-huna, di gani ni na mapakita sa Bar, hagbong
ka do. Hagbong ka. You should know what section 23
says.
Nay director musud sa opisina muingon na nga kini
kinahanglan ni nya wa may authority wa may resolution,
kuyaw na kay kanang nisulod ug nisulti niana dili mana
siya director, director na siya kung nilingkod na siya in
the body politic during a regular or special meeting and
there is a quorum that is. And the one who first certifies
to that is the secretary of the corporation, bisag gani
pag-abli ug account sa bangko, the bank will require you
a resolution of the board. Unya ng resolution di mana
ma xx didto sa bangko- so therefor is a secretary’s
certification.
So there is a resolution and it is attested by the
secretary. This resolution shall be considered as
directive to the depositary bank to act in accordance
with the resolution of the corporation. So it’s the
secretary who attests and then it is submitted.
Now, that’s not enough, the bank will require the article
of incorporation and the by-laws of the corporation.
Why? To inform the bank that it is a real corporation.
Pangayuon pa na nila copy of certificate of
incorporation. Ug wana dinha patay and bangko
tulisukon sa internal auditor, musipyat gani ang internal
auditor ana, madakpan gani ka sa BSP, tulion ka sa
BSP. Mao ng ginatawag na essentials of AYC, unsa
manang ayc, bag-o na chicken unsa na kompetensya
na sa KFC? What is the rule now is know your client,
AYC, ang banko dapat nakaila sa iyang client. Unsa ng
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
kwartaha, din na gikan? So part of its obligation is to
know. So that’s important.
How does the corporation act through the board of
directors? Always the resolutions.
Now there are certain things that the board can delegate
which binds the corporation. For example hiring and
firing. That can be delegated to lower officers,
department heads, and that is presumed as authority.
Now, the requirement is a majority of the directors or
trustees of corporations organized under this code must
be residents of the Philippines. Why residents? So that
you will be within the reach of court processes. Serving
of summons, serving you a copy of the information. How
can you be served if you’re not in the Philippines. You
have to be resident of the Philippines. So majority must
be within reach of the leagal processes.
Now it says here any director who ceases to be an
owner of at least one share of the capital stock of the
corporation of which he is a director. Di na siya director.
One share ran a ang gikinahanglan to be a director but,
if you should use that one share-wa najud kay share
ipso facto you cease to be a director andif you continue
to sit down there, it is as if your presence is not counted
as part of quorum and your vote, with more reason is
not valid vote. Because you have ceased to be a
director.
Now, can the by-laws of the corporation put
addition qualifications? The answer is yes, you can
put additional qualifications for director, especially when
you come to close corporations, its with special
qualifications because it’s a close corporation with not
more than 20 stockholders. That’s the rule in close
corporation, there are special qualifications.
Now, can you put additional disqualification
because disqualification by law is found in section
27?
Section 27. Disqualification of directors, trustees
and officers. No person convicted by final judgment
of an offense punishable by imprisonment for a
period exceeding six years, or a violation of this
Code committed within 5 years prior to the date of
his election or appointment , shall qualify as a
director, trustee or officer of any corporation.
Now, can the bylaws add disqualifications? That was
answered in the decided case of Gokongwei vs. SEC.
(G.R. No. L-45911 April 11, 1979)
Mr John Gokongwei for many years was
accumulating stocks of San Miguel Corp. How did he
accumulate? Naa manay mga extra kwarta iyang
corporation, papalition na niyag shares sa san Miguel.
Papaliton na niys nga papalitioon til finally he had
sufficient number to be elected. Why is that possible?
Because of cumulative voting. Remember, I told you,
the corporation that is stock and profit cannot deny
cumulative voting.
2
Cumulative voting has two tenets:
 First tenet is you have as many votes as the
number of shares multiplied by the number
of directors.
So if there are 9 directors to be elected and you have
ten shares what is your total number of votes? 90 di ba.
9 mana x 10 shares so naa kay 90.
 Now, the Second tenet says you can cast
those ballots, those votes- divide it equally
among the candidates or put more in one
candidate than the other or cumulate the
entire amount of the votes and put it in just
lone candidate.
That is cumulative voting, that cannot be denied, why?
Because if it were not for that the minority would have
no representation at all.
So Gokongwei accumulated and announced that he
was running for director of San Miguel. You know in
some corporation, especially with very wide ownership
base, they have a cutoff date (PLDT, Meralco). Their
cutoff date is normally 2 to 3 months before the annual
meeting. So di ka mahimo nga pag sulod nimo sa
annual meeting na dira pa ka muabiso nga mudagan ka,
too late na. Because it must be 3 months before you
have to announce your candidacy with the secretary of
the corporation and then you have to qualify your votes
because from that date the stock and transfer book is
close. So you buy shares of that corporation beyond
that date, you can no longer exercise your vote during
the annual meeting because the transfer of ownership of
the shares will no longer be recorded in the book. Cut-
off date that is allowed.
Now, when Gokongwei announced he was informed by
the secretary of the board of San Miguel that you are
disqualified from running. Why? Because of an
amendment of the bylaws; it says no stockholder who is
engaged in a business similar to, in competition with or
in contrary any of the businesses of San Miguel
Corporation is qualified to be director of San Miguel.
Now, at that time unsa may business ni Gokongwei?
Gokongwei had Presto Ice cream, unya na pa siyay
Robina feeds. And San Miguel had what? What is the
similar business of San Miguel? B-meg feeds. And then
Gokongwei had Robina chicken and San Miguel had
Magnolia. So very antagonistic businesses. So he was
informed that he was disqualified. He then raises it with
the SEC, and the SEC upheld the stand of the board of
directors so Gokongwei had to go question of law to the
Supreme Court.
And the Supreme Court said: There is a presumption
in the Corporation Code that once you are a
stockholder of a corporation you are qualified to be
a director because all that is needed by way of
qualification is that you are an owner of at least one
share. So you are presumed to be qualified.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Now, if the board says that you are not qualified,
then the burden of proof falls on the board to prove
that you are disqualified. So there must be a
hearing, an internal investigation.
What are these business engagements that is
qualifying? Presto ice cream , unsa mana iyaha, is it
really your business because you can begin to
argue.ang mga tag-iya, let us say Robinsons Land that
holds title to the shares of stocks xx is a real property.
Now, San Miguel had San Miguel Properties but its not
moving stock xx. So you have to prove that he is
disqualified.
Now, the Supreme Court ask was there an opportunity
for Mr. Gokongwei to present his side? Was he given an
opportunity? The board could not respond that is
why the decision of the Supreme Court in
Gokongwei vs. SEC is to remand the case to the
SEC and to conduct hearing to show that what the
board of San Miguel claim is proven by substantial
evidence.
Now Gokongwei did not fight it anymore, at that point
they arrived at a compromise that Gokongwei must first
made a director of San Miguel International, so
HongKong corporation. San Miguel has sold so many of
its arms. It sold CocaCola, it used to be that CocaCola
is under San Miguel then it was sold to CocaCola
Australia then when Cojuangco came back, he bought it
back and the 3 or 4 years ago San Miguel sold it to
CocaCola Mexico Femsa. Now the owner is Mexico, lain
na dili na na San Miguel and CocaCola. When
Cojuangco took over, he wanted to raise money to
convert the coco levy shares into paper shares, so he
sold Magnolia ice cream to Nestle but he did not sell the
name, he retained the name and they just sign a non-
competition clause for 5 years, which is already valid
according to the Supreme Court. So he waited and after
5 years he revived the Magnolia ice cream. They said
Cojuangco was wise because what he sold was old
equipment already.
Can a corporation provide for this qualification?
Yes. Why? Because just like any person according to
the Supreme Court, a corporation has a right to self-
defense; defend yourself against competitors especially
when they make undue advantage. If you find
somebody there, you’re competitor, sitting right in the
board, then your first move is already known by your
competitor.
So the real controlling interest in corporation never goes
into discussion in the board Buang-buang ka kung mag
sige ka pag dicuss dira, the board meeting is not for
discussion. The board meeting is for voting for the
corporation to pay action. If you want a discussion
then you call the corporate directors, mag-inom mu,
magdiscuss mu. Pero ayaw paghuna-huna nga
magmeeting ka nya magkumbinsihay mu, samuk-samuk
ra naa.
3
Remember, the record breaking products came into
existence not by discussion but by the risk-taking
individuals. Kana sila ang musugod ana. Mao ng
makatawa ko anang mga magkuhag marketing, survey,
unsa pa na. gisurvey ban a ni Bill Gates iyang mga unsa
ni, Microsoft, wa mana siyay survey2x ana. Way
survey2x. kanang mga survey tinonto na.
(Story of why Gokongwei was not allowed, was an
enemy of existing corporation)
Ayala was already before an antagonistic business, the
same as San Miguel. Ang Ayala niadto mao man ang
tag-iya sa Purefoods. Xx Ayala had many businesses
that are in competition with San Miguel and yet he was
not disqualified, why? Because Ayala first cousin of the
Zobels, because they say Gokongwei failed the
Hispanic test. How do you say in Spanish “why oh why
my love” and then say that with a Chinese accent, you
will know why Gokongwei was disqualified. In Spanish
it is “porque mi amor? “ Gokongwei was disqualified
because he cannot pronounce it.
Now I would just like to point out the formula for knowing
how many votes how many shares you need to elect
that is found in almost all commentaries:
Formula for knowing how many votes how many
shares you need to elect :
(ab/c + 1) + 1 = the shares that you need or
the votes that you need to elect the director.
a = total of standing shares
b = for the desired number of directors to be
elected
c = the total number of directors to be voted
You have to know that, if you have in-house secretary,
the controlling interest will tell you, do we have enough
votes, we need this number of votes, and we only have
this number of shares we have to make up the
difference by getting proxies. Then you go to the list,
panawgan na nimo sa cellphone kuhaon na nimo ilang
proxy. Very important.
If you want to see a hotly contested election, you read
the case GSIS by President General Manager
Winston Garcia vs. Anthony Rosete et al. (GR
183905 April 16, 2009) basaha na kay grabe kaayung
away ana.
Anthony Rosete was the secretary of the corporation the
board of directors of Meralco and Winston Garcia was
the surrogate of Danding Cojuangco and Ramon Ang
because they want to take over Meralco.They wanted
the votes, voting to be postponed because they wanted
to examine the proxies of the Lopez. Xx so finally the
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Lopez could not sustain anymore, Danding Cojuangco

was favored by Gloria Arroyo who ordered GSIS and
SSS to sell the shares of GSIS that they had in Meralco
to Danding Cojuangco.
Cojuangco got it at 50, niadto Meralco was already at
40, patubuan lang niya gamay aron acceptable to the
public so GSIS sold to him Pag-Ibig sold to him SSS
LandBank sold to him. Kaingon jud ka makakuha na
sila, wa man mubaligya si Lopez, ingon siya over my
dead body. There was already Lopez Corporation which
used to be BenPres Corp; Benjamin Lopez and
Preciosa Lopez. BenPres was the holding company of
Lopez.
Nganong di naman sila mukuha ug dugang kwarta to
put up for Meralco ? Because the Lopez are now in the
business more profitable than distributing electricity,
they are now in power generation, they generate
something like 15 thousand megawatts 1/3 of that
geothermal, EDC they bought that during Estrada’s
time. Then the 10 thousand is liquefied natural gas in
Batangas from Malampaya then under water pipe (that’s
the single biggest enterprise investment, that is 10B US
dollar) so the Lopez are there, they put money there.
Niya labad sa ulo pa ni niya nga sige kag distribute ug
xx, sige lang kag singgit, daghan kaayog kalaban nimo.
Why did Pangilinan go into that business? Nga gamay
ra man ka ha ang margin, if your total sales is 300B
only 30M of that is yours the rest you pay to the power
producers, the owners of the xx that you secure. So why
did Pangilinan go into that? Because of the new EPIRA
law. The new EPIRA law says if you are a power
distributor you can now produce up to ½ of the power
that you distribute, that is why appointees did not grant
this coal plant. Dinha sila musapi, dinha mudistribute
.That’s the new EPIRA law.

So read that case, so that you’ll know what happens

when there is a “proxy fight”, sa ato pa, naay away sa
election. The secretary of Meralco used to be my
classmate xx

The Lopez only has 21%. Lopez already go to

Pangilinan, I will sell it to you. Why? It’s a question of
profit. This guy Cojuangco very lax during Martial law
with Marcos I can never sell it to you. So he had the
word of Lopez that he is going to sell, but the thing is
you not are secure in the control of the corporation just
by 21% so Pangilinan had to buy in the open market
slowly. Pas2x kag palit, musirit tug saka ang presyo sa
shares. In fact it was tiing already because he was
buying and buying. And that is why they did not get
wanted in the. They wanted a meeting right away before
Cojuangco would position himself because the GSIS
and SSS shares that he bought were already 18% of
outstanding hapit na sila mapareho. Fight sila. Fight.
Read that case, very interesting. Mura lag sine.