CHAPTER 8: BY-LAWS e.

The form for proxies of stockholders and members and the

manner of voting them;
BY-LAWS
- are rules and ordinances made by a corporation for its f. The directors’ or trustees’ qualifications, duties and
own government; to regulate the conduct and define responsibilities, the guidelines for setting the compensation
the duties of the stockholders or members towards the of directors or trustees and officers and the maximum
corporation and among themselves. number of other board representations that an independent
- They are the rules and regulations or private laws director or trustee may have which shall, in no case, be
enacted by the corporation to regulate, govern and more than the number prescribed by the Commission;
control its own actions, affairs and concerns and tis
stockholder or members and directors and officers g. The time for holding the annual election of directors of
with relation thereto and among themselves in their trustees and the mode or manner of giving notice thereof;
relation to it.
h. The manner of election or appointment and the term of
SEC. 45. Adoption of Bylaws. office of all officers other than directors or trustees;
For the adoption of bylaws by the corporation, the affirmative
vote of the stockholders representing at least a majority of the i. The penalties for violation of the bylaws;
outstanding capital stock, or of at least a majority of the
members in case of nonstock corporations, shall be necessary. j. In the case of stock corporations, the manner of issuing
The bylaws shall be signed by the stockholders or members stock certificates; and
voting for them and shall be kept in the principal office of the
corporation, subject to the inspection of the stockholders or k. Such other matters as may be necessary for the proper or
members during office hours. A copy thereof, duly certified by convenient transaction of its corporate affairs for the
a majority of the directors or trustees and countersigned by the promotion of good governance and anti-graft and
secretary of the corporation, shall be filed with the Commission corruption measures.
and attached to the original articles of incorporation. (AFTER
INCORPORATION) An arbitration agreement may be provided in the bylaws
pursuant to Section 181 of this Code.
Notwithstanding the provisions of the preceding paragraph, by-
laws may be adopted and filed prior to incorporation; in SEC. 47. Amendment to Bylaws.
such case, such by-laws shall be approved and signed by all the A majority of the board of directors or trustees, and the owners
incorporators and submitted to the Commission, together with of at least a majority of the outstanding capital stock, or at least
the articles of incorporation. (PRIOR TO a majority of the members of a nonstock corporation, at a
INCORPORATION) regular or special meeting duly called for the purpose, may
amend or repeal the bylaws or adopt new bylaws. (1st Mode)
In all cases, bylaws shall be effective only upon the issuance
by the Commission of a certification that the bylaws are in The owners of two thirds (2/3) of the outstanding capital stock
accordance with this Code. (Effectivity) or two thirds (2/3) of the members in a non-stock corporation
may delegate to the board of directors or trustees the power to
The Commission shall not accept for filing the bylaws or any amend or repeal the bylaws or adopt new bylaws: Provided,
amendment thereto of any bank, banking institution, building That any power delegated to the board of directors or trustees
and loan association, trust company, insurance company, public to amend or repeal the bylaws or adopt new bylaws shall be
utility, educational institution, or other special corporations considered as revoked whenever stockholders owning or
governed by special laws, unless accompanied by a certificate representing a majority of the outstanding capital stock or
of the appropriate government agency to the effect that such majority of the members shall so vote at a regular or special
bylaws or amendments are in accordance with law. meeting. (2nd Mode)

Notes: Whenever the bylaws are amended or new by-laws are adopted,
BY-LAWS PRIOR TO INCORPORATION: the corporation shall file with the Commission such amended
It must be signed by all the incorporators without the need of or new bylaws and, if applicable, the stockholders’ or members’
the affirmative vote of the majority of the outstanding capital resolution authorizing the delegation of the power to amend
stock or the members provided it is submitted together with the and/or adopt new bylaws, duly certified under oath by the
AOI. corporate secretary and a majority of the directors or trustees.

THIRD PERSONS: The amended or new bylaws shall only be effective upon the
Generally, not bound, affected or prejudiced the bylaws, it issuance by the Commission of a certification that the same is
being merely internal rules of the corporation, EXCEPT: if they in accordance with this Code and other relevant laws.
have knowledge of its existence and contents.
HENRY FLEISCHER vs. BOTICA NOLASCO CO., INC.,

SEC. 46. Contents of Bylaws. FACTS:

A private corporation may provide the following in its bylaws: Manuel Gonzales, the original owner of 5 shares of stock in
question of Defendant Company, assigned and transferred to
a. The time, place and manner of calling and conducting herein plaintiff Fleischer. Two days after, Dr. Miciano,
regular or special meetings of the directors or trustees; secretary-treasurer of the company, offered to buy from
Fleischer the said shares in behalf of the corporation,
b. The time and manner of calling and conducting regular or contending that Art. 12 of the by-laws grants the company
special meetings and mode of notifying the stockholders or preferential right to buy Gonzales’ shares. Plaintiff refused and
members thereof; requested Dr. Miciano to register said shares in his name, and
the latter refused to do so.
c. The required quorum in meetings of stockholders or
members and the manner of voting therein; ISSUE:
WON Fleischer is bound by the provisions of the corporation’s
d. The modes by which a stockholder, member, director, or bylaws?
trustee may attend meetings and cast their votes;
HELD: the welfare of the corporation, or to enable another shareholder
No. Section 13, paragraph 7 (of Act 1459), empowers a to make gains and profits. (10 Cyc., p. 577.)
corporation to make by - laws, not inconsistent with any
existing law, for the transferring of its stock. It follows from It follows from the foregoing that a corporation has no power to
said provision, that a by-law adopted by a corporation relating prevent or to restrain transfers of its shares, unless such power
to transfer of stock should be in harmony with the law on the is expressly conferred in its charter governing statute. This
subject of transfer of stock. The law on this subject is found in conclusion follows from the further consideration that by – laws
section 35 of Act No. 1459. Said section specifically provides or other regulation restraining the transfers, unless derived from
that the shares of stock "are personal property and may be authority expressly granted by the legislature, would be
transferred by delivery of the certificate indorsed by the owner, regarded as impositions in restraint of trade. (10 Cyc., p. 578.)
etc." Said section 35 defines the nature, character and
transferability of shares of stock. Under said section they are The foregoing authorities go farther than the stand we are taking
personal property and may be transferred as therein provided. on this question. They hold that the power of a corporation to
Said section contemplates no restriction as to whom they may enact by-laws restraining the sale and transfer of shares, should
be transferred or sold. It does not suggest that any not only be in harmony with the law or charter of the
discrimination may be created by the corporation in favor or corporation, but such power should be expressly granted in said
against a certain purchaser. The holder of shares, as owner of law or charter.
personal property, is at liberty, under said section, to dispose of
them in favor of whomsoever he pleases, without any other The only restraint imposed by the Corporation Law upon
limitation in this respect, than the general provisions of law. transfer of shares is found in section 35 of Act No. 1459, quoted
Therefore, a stock corporation in adopting a by-law governing above, as follows: "No transfer, however, shall be valid, except
transfer of shares of stock should take into consideration the as between the parties, until the transfer is entered and noted
specific provisions of section 35 of Act No. 1459, and said by- upon the books of the corporation so as to show the names of
law should be made to harmonize with said provisions. It should the parties to the transaction, the date of the transfer, the number
not be inconsistent therewith. of the certificate, and the number of shares transferred." This
restriction is necessary in order that the officers of the
As a general rule, the by-laws of a corporation are valid if they corporation may know who are the stockholders, which is
are reasonable and calculated to carry into effect the objects of essential in conducting elections of officers, in calling meeting
the corporation, and are not contradictory to the general policy of stockholders, and for other purposes. but any restriction of
of the laws of the land. (Supreme Commandery of the Knights the nature of that imposed in the by-law now in question, is ultra
of the Golden Rule vs. Ainsworth, 71 Ala., 436; 46 Am. Rep., vires, violative of the property rights of shareholders, and in
332.) restraint of trade

On the other hand, it is equally well settled that by-laws of a And moreover, the by-laws now in question cannot have any
corporation must be reasonable and for a corporate purpose, and effect on the appellee. He had no knowledge of such by-law
always within the charter limits. They must always be strictly when the shares were assigned to him. He obtained them in
subordinate to the constitution and the general laws of the land. good faith and for a valuable consideration. He was not a privy
They must not infringe the policy of the state, nor be hostile to to the contract created by said by-law between the shareholder
public welfare. (46 Am. Rep., 332.) They must not disturb Manuel Gonzalez and the Botica Nolasco, Inc. Said by-law
vested rights or impair the obligation of a contract, take away cannot operate to defeat his rights as a purchaser.
or abridge the substantial rights of stockholder or member,
affect rights of property or create obligations unknown to the GOVERNMENT VS. EL HOGAR
law. (People's Home Savings Bank vs. Superior Court, 104 Cal., FACTS:
649; 43 Am. St. Rep., 147; Ireland vs. Globe Milling Co., 79 It appears that among the by-laws of the association there is an
Am. St. Rep., 769.) article (No. 10) which reads as follows:

The validity of the by-law of a corporation is purely a question “The board of directors of the association, by the vote of an
of law. (South Florida Railroad Co. vs. Rhodes, 25 Fla., 40.) absolute majority of its members, is empowered to cancel
shares and to return to the owner thereof the balance resulting
“The power to enact by - laws restraining the sale and transfer from the liquidation thereof whenever, by reason of their
of stock must be found in the governing statute or the charters. conduct, or for any other motive, the continuation as members
Restrictions upon the traffic in stock must have their source in of the owners of such shares is not desirable.”
legislative enactment, as the corporation itself cannot create
such impediments. By-laws are intended merely for the ISSUE:
protection of the corporation, and prescribe regulation and not WON the above provision is valid?
restriction; they are always subject to the charter of the
corporation. The corporation, in the absence of such a power, HELD:
cannot ordinarily inquire into or pass upon the legality of the No. This by-law is of course a patent nullity, since it is in direct
transaction by which its stock passes from one person to conflict with the latter part of section 187 of the Corporation
another, nor can it question the consideration upon which a sale Law, which expressly declares that the board of directors shall
is based. A by-law cannot take away or abridge the substantial not have the power to force the surrender and withdrawal of
rights of stockholder. Under a statute authorizing by - laws for unmatured stock except in case of liquidation of the corporation
the transfer of stock, a corporation can do no more than or of forfeiture of the stock for delinquency. It is agreed that this
prescribe a general mode of transfer on the corporate books and provision of the bylaws has never been enforced, and in fact no
cannot justify an unreasonable restriction upon the right of sale. attempt has ever been made by the board of directors to make
(4 Thompson on Corporations, sec. 4137, p. 674. use of the power therein conferred. In November, 1923, the
Acting Insular Treasurer addressed a letter to El Hogar Filipino,
The jus disponendi, being an incident of the ownership of calling attention to article 10 of its by-laws and expressing the
property, the general rule (subject to exceptions hereafter view that said article was invalid. It was therefore suggested that
pointed out and discussed) is that every owner of corporate the article in question should be eliminated from the by-laws.
shares has the same uncontrollable right to alienate them which At the next meeting of the board of directors the matter was
attaches to the ownership of any other species of property. A called to their attention and it was resolved to recommend to the
shareholder is under no obligation to refrain from selling his shareholders that in their next annual meeting the article in
shares at the sacrifice of his personal interest, in order to secure question be abrogated. It appears, however, that no annual
meeting of the shareholders called since that date has been
attended by a sufficient number of shareholders to constitute a contracts (specifically a management contract) with respondent
quorum, with the result that the provision referred to has not corporation, which was allowed because the questioned
been eliminated from the by-laws, and it still stands among the amendment gave the Board itself the prerogative of determining
by-laws of the association, notwithstanding its patent conflict whether they or other persons are engaged in competitive or
with the law. antagonistic business; that the portion of the amended bylaws
which states that in determining whether or not a person is
It is supposed, in the fourth cause of action, that the existence engaged in competitive business, the Board may consider such
of this article among the by-laws of the association is a factors as business and family relationship, is unreasonable and
misdemeanor on the part of the respondent which justifies its oppressive and, therefore, void; and that the portion of the
dissolution. In this view we are unable to concur. The amended by-laws which requires that "all nominations for
obnoxious by-law, as it stands, is a mere nullity, and could not election of directors ... shall be submitted in writing to the Board
be enforced even if the directors were to attempt to do so. There of Directors at least five (5) working days before the date of the
is no provision of law making it a misdemeanor to incorporate Annual Meeting" is likewise unreasonable and oppressive.
an invalid provision in the by-laws of a corporation; and if there
were such, the hazards incident to corporate effort would ISSUE:
certainly be largely increased. There is no merit in this cause of WON the amended by-laws of SMC disqualifying a competitor
action. from nomination or election to the BOD are valid and
reasonable?
ISSUE2:
Owing to the failure of a quorum at most of the general HELD:
meetings since the respondent has been in existence, it has been Yes. The validity or reasonableness of a by-law of a corporation
the practice of the directors to fill vacancies in the directorate in purely a question of law. Whether the by-law is in conflict
by choosing suitable persons from among the stockholders. with the law of the land, or with the charter of the corporation,
This custom finds its sanction in article 71 of the bylaws, which or is in a legal sense unreasonable and therefore unlawful is a
reads as follows: question of law. This rule is subject, however, to the limitation
that where the reasonableness of a by-law is a mere matter of
“ART. 71. The directors shall elect from among the judgment, and one upon which reasonable minds must
shareholders members to fill the vacancies that may occur in the necessarily differ, a court would not be warranted in
board of directors until the election at the general meeting” substituting its judgment instead of the judgment of those who
are authorized to make by-laws and who have exercised their
WON Art. 71 is valid? authority.

HELD: It is a settled state law in the United States, according to

Yes. We are unable to see the slightest merit in the charge. No Fletcher, that corporations have the power to make by-laws
fault can be imputed to the corporation on account of the failure declaring a person employed in the service of a rival company
of the shareholders to attend the annual meetings; and their non- to be ineligible for the corporation's Board of Directors. ... (A)n
attendance at such meetings is doubtless to be interpreted in part amendment which renders ineligible, or if elected, subjects to
as expressing their satisfaction of the way in which things have removal, a director if he be also a director in a corporation
been conducted. Upon failure of a quorum at any annual whose business is in competition with or is antagonistic to the
meeting the directorate naturally holds over and continues to other corporation is valid." This is based upon the principle that
function until another directorate is chosen and qualified. where the director is so employed in the service of a rival
Unless the law or the charter of a corporation expressly provides company, he cannot serve both, but must betray one or the
that an office shall become vacant at the expiration of the term other. Such an amendment "advances the benefit of the
of office for which the officer was elected, the general rule is to corporation and is good." An exception exists in New Jersey,
allow the officer to holdover until his successor is duly where the Supreme Court held that the Corporation Law in New
qualified. Mere failure of a corporation to elect officers does not Jersey prescribed the only qualification, and therefore the
terminate the terms of existing officers nor dissolve the corporation was not empowered to add additional
corporation (Quitman Oil Company vs. Peacock, 14 Ga. App., qualifications. This is the exact opposite of the situation in the
550; Jenkins vs. Baxter, 160 Pa. State, 199; New York B. & E. Philippines because as stated heretofore, section 21 of the
Ry. Co. vs. Motil, 81 Conn., 466; Hatch vs. Lucky Bill Mining Corporation Law expressly provides that a corporation may
Company, 71 Pac., 865; Youree vs. Home Town Matual Ins. make by-laws for the qualifications of directors. Thus, it has
Company, 180 Missouri, 153; Cassell vs. Lexington, H. and P. been held that an officer of a corporation cannot engage in a
Turnpike Road Co., 10 Ky. L. R., 486). The doctrine above business in direct competition with that of the corporation
stated finds expressions in article 66 of the by-laws of the where he is a director by utilizing information he has received
respondent which declares in so many words that directors shall as such officer, under "the established law that a director or
hold office "for the term of one year on until their successors officer of a corporation may not enter into a competing
shall have been elected and taken possession of their offices." enterprise which cripples or injures the business of the
corporation of which he is an officer or director.
It results that the practice of the directorate of filling vacancies
by the action of the directors themselves is valid. Nor can any It is also well established that corporate officers "are not
exception be taken to then personality of the individuals chosen permitted to use their position of trust and confidence to further
by the directors to fill vacancies in the body. Certainly it is no their private interests." In a case where directors of a
fair criticism to say that they have chosen competent corporation cancelled a contract of the corporation for exclusive
businessmen of financial responsibility instead of electing poor sale of a foreign firm's products, and after establishing a rival
persons to so responsible a position. The possession of means business, the directors entered into a new contract themselves
does not disqualify a man for filling positions of responsibility with the foreign firm for exclusive sale of its products, the court
in corporate affairs. held that equity would regard the new contract as an offshoot of
the old contract and, therefore, for the benefit of the corporation,
GOKONGWEI VS. SEC as a "faultless fiduciary may not reap the fruits of his
FACTS: misconduct to the exclusion of his principal.
As additional causes of action, it was alleged that corporations
have no inherent power to disqualify a stockholder from being The doctrine of "corporate opportunity" is precisely a
elected as a director and, therefore, the questioned act is ultra recognition by the courts that the fiduciary standards could not
vires and void; that Andres M. Soriano, Jr. and/or Jose M. be upheld where the fiduciary was acting for two entities with
Soriano, while representing other corporations, entered into competing interests. This doctrine rests fundamentally on the
unfairness, in particular circumstances, of an officer or director It is recognized by an authority that 'every corporation has the
taking advantage of an opportunity for his own personal profit inherent power to adopt by-laws 'for its internal government,
when the interest of the corporation justly calls for protection. and to regulate the conduct and prescribe the rights and duties
It is not denied that a member of the Board of Directors of the of its members towards itself and among themselves in
San Miguel Corporation has access to sensitive and highly reference to the management of its affairs. At common law, the
confidential information, such as: (a) marketing strategies and rule was "that the power to make and adopt by-laws was
pricing structure; (b) budget for expansion and diversification; inherent in every corporation as one of its necessary and
(c) research and development; and (d) sources of funding, inseparable legal incidents. And it is settled throughout the
availability of personnel, proposals of mergers or tie-ups with United States that in the absence of positive legislative
other firms. provisions limiting it, every private corporation has this
inherent power as one of its necessary and inseparable legal
It is obviously to prevent the creation of an opportunity for an incidents, independent of any specific enabling provision in its
officer or director of San Miguel Corporation, who is also the charter or in general law, such power of self-government being
officer or owner of a competing corporation, from taking essential to enable the corporation to accomplish the purposes
advantage of the information which he acquires as director to of its creation.
promote his individual or corporate interests to the prejudice of
San Miguel Corporation and its stockholders, that the In this jurisdiction, under section 21 of the Corporation Law, a
questioned amendment of the by-laws was made. Certainly, corporation may prescribe in its by-laws "the qualifications,
where two corporations are competitive in a substantial sense, duties and compensation of directors, officers and employees ...
it would seem improbable, if not impossible, for the director, if " This must necessarily refer to a qualification in addition to that
he were to discharge effectively his duty, to satisfy his loyalty specified by section 30 of the Corporation Law, which provides
to both corporations and place the performance of his that "every director must own in his right at least one share of
corporation duties above his personal concerns. the capital stock of the stock corporation of which he is a
director ... " In Government v. El Hogar, the Court sustained the
Sound principles of corporate management counsel against validity of a provision in the corporate by-law requiring that
sharing sensitive information with a director whose fiduciary persons elected to the Board of Directors must be holders of
duty of loyalty may well require that he disclose this shares of the paid up value of P5,000.00, which shall be held as
information to a competitive arrival. These dangers are security for their action, on the ground that section 21 of the
enhanced considerably where the common director such as the Corporation Law expressly gives the power to the corporation
petitioner is a controlling stockholder of two of the competing to provide in its by-laws for the qualifications of directors and
corporations. It would seem manifest that in such situations, the is "highly prudent and in conformity with good practice
director has an economic incentive to appropriate for the benefit
of his own corporation the corporate plans and policies of the ISSUE3:
corporation where he sits as director. WON stockholders have the vested right to be elected a
director?
Indeed, access by a competitor to confidential information
regarding marketing strategies and pricing policies of San HELD:
Miguel Corporation would subject the latter to a competitive No. Any person "who buys stock in a corporation does so with
disadvantage and unjustly enrich the competitor, for advance the knowledge that its affairs are dominated by a majority of the
knowledge by the competitor of the strategies for the stockholders and that he impliedly contracts that the will of the
development of existing or new markets of existing or new majority shall govern in all matters within the limits of the act
products could enable said competitor to utilize such knowledge of incorporation and lawfully enacted bylaws and not forbidden
to his advantage. by law." To this extent, therefore, the stockholder may be
considered to have "parted with his personal right or privilege
Neither are We persuaded by the claim that the by-law was to regulate the disposition of his property which he has invested
Intended to prevent the candidacy of petitioner for election to in the capital stock of the corporation, and surrendered it to the
the Board. If the by-law were to be applied in the case of one will of the majority of his fellow incorporators. ... It cannot
stockholder but waived in the case of another, then it could be therefore be justly said that the contract, express or implied,
reasonably claimed that the by-law was being applied in a between the corporation and the stockholders is infringed ... by
discriminatory manner. However, the by law, by its terms, any act of the former which is authorized by a majority ...."
applies to all stockholders. The equal protection clause of the
Constitution requires only that the by-law operate equally upon Under section 22 of the same law, the owners of the majority of
all persons of a class. Besides, before petitioner can be declared the subscribed capital stock may amend or repeal any by-law or
ineligible to run for director, there must be hearing and evidence adopt new bylaws. It cannot be said, therefore, that petitioner
must be submitted to bring his case within the ambit of the has a vested right to be elected director, in the face of the fact
disqualification. Sound principles of public policy and that the law at the time such right as stockholder was acquired
management, therefore, support the view that a by-law which contained the prescription that the corporate charter and the by-
disqualifies a competition from election to the Board of law shall be subject to amendment, alteration and modification.
Directors of another corporation is valid and reasonable.
It being settled that the corporation has the power to provide for
ISSUE2: the qualifications of its directors, it has also been settled that the
WON the Corporation has the power to prescribe disqualification of a competitor from being elected to the Board
qualifications? of Directors is a reasonable exercise of corporate authority.

HELD2: CHAPTER 9: MEETINGS

Yes. Private respondents contend that the disputed amended by Meetings applies to every duly convened assembly either of
laws were adopted by the Board of Directors of San Miguel stockholders, members, directors or trustees, managers, etc. for
Corporation a-, a measure of self-defense to protect the any legal purpose or the transaction of business of common
corporation from the clear and present danger that the election interest.
of a business competitor to the Board may cause upon the
corporation and the other stockholders inseparable prejudice. SEC. 48. Kinds of Meetings.
Submitted for resolution, therefore, is the issue — whether or Meetings of directors, trustees, stockholders, or members may
not respondent San Miguel Corporation could, as a measure of be regular or special.
self- protection, disqualify a competitor from nomination and
election to its Board of Directors.
SEC. 49. Regular and Special Meetings of Stockholders or i. A director or trustee compensation report prepared in
Members. accordance with this Code and the rules the Commission
Regular meetings of stockholders or members shall be held may prescribe;
annually on a date fixed in the bylaws, or if not so fixed, on any
date after April 15 of every year as determined by the board of j. Director disclosures on self-dealings and related party
directors or trustees: Provided, That written notice of regular transactions; and/or
meetings shall be sent to all stockholders or members of record
at least twenty-one (21) days prior to the meeting, unless a k. The profiles of directors nominated or seeking election or
different period is required in the bylaws, law, or regulation: reelection.
Provided further, That written notice of regular meetings may
be sent to all stockholders or members of record through A director, trustee, stockholder, or member may propose any
electronic mail or such other manner as the Commission shall other matter for inclusion in the agenda at any regular meeting
allow under its guidelines. of stockholders or members.

At each regular meeting of stockholders or members, the board Special meetings of stockholders or members shall be held at
of directors or trustees shall endeavor to present to stockholders any time deemed necessary or as provided in the bylaws:
or members the following: Provided however, That at least one (1) week written notice
shall be sent to all stockholders or members, unless a different
a. The minutes of the most recent regular meeting which shall period is provided in the bylaws, law or regulation.
include, among others:
A stockholder or member may propose the holding of a special
1. A description of the voting and vote tabulation meeting and items to be included in the agenda.
procedures used in the previous meeting;
Notice of any meeting may be waived, expressly or impliedly,
2. A description of the opportunity given to stockholders by any stockholder or member: Provided, That general waivers
or members to ask questions and a record of the of notice in the articles of incorporation or the bylaws shall not
questions asked and answers given; be allowed: Provided, further, That attendance at a meeting
shall constitute a waiver of notice of such meeting, except when
3. The matters discussed and resolutions reached; the person attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting
4. A record of the voting results for each agenda item; is not lawfully called or convened.

5. A list of the directors or trustees, officers and Whenever for any cause, there is no person authorized or the
stockholders or members who attended the meeting; person authorized unjustly refuses to call a meeting, the
and Commission, upon petition of a stockholder or member on a
showing of good cause therefor, may issue an order directing
6. Such other items that the Commission may require in the petitioning stockholder or member to call a meeting of the
the interest of good corporate governance and the corporation by giving proper notice required by this Code or the
protection of minority stockholders. bylaws. The petitioning stockholder or member shall preside
thereat until at least a majority of the stockholders or members
b. A members’ list for non-stock corporations and, for stock present have chosen from among themselves, a presiding
corporations, material information on the current officer.
stockholders, and their voting rights;
Unless the bylaws provide for a longer period, the stock and
c. A detailed, descriptive, balanced and comprehensible transfer book or membership book shall be closed at least
assessment of the corporation’s performance, which shall twenty (20) days for regular meetings and seven (7) days for
include information on any material change in the special meetings before the scheduled date of the meeting.
corporation’s business, strategy, and other affairs;
In case of postponement of stockholders’ or members’ regular
d. A financial report for the preceding year, which shall meetings, written notice thereof and the reason therefor shall be
include financial statements duly signed and certified in sent to all stockholders or members of record at least two (2)
accordance with this Code and the rules the Commission weeks prior to the date of the meeting, unless a different period
may prescribe, a statement on the adequacy of the is required under the bylaws, law or regulation.
corporation’s internal controls or risk management
systems, and a statement of all external audit and non-audit The right to vote of stockholders or members may be exercised
fees; in person, through a proxy, or when so authorized in the bylaws,
through remote communication or in absentia. The Commission
e. An explanation of the dividend policy and the fact of shall issue the rules and regulations governing participation and
payment of dividends or the reasons for nonpayment voting through remote communication or in absentia, taking
thereof; into account the company’s scale, number of shareholders or
members, structure, and other factors consistent with the
f. Director or trustee profiles which shall include, among protection and promotion of shareholders’ or member’s
others, their qualifications and relevant experience, length meetings.
of service in the corporation, trainings and continuing
education attended, and their board representations in other Notes:
corporations; The stockholders have no power to act as or for the corporation
except at a corporate meeting called and conducted according
g. A director or trustee attendance report, indicating the to law. This rule arises from the need to protect the stockholder
attendance of each director or trustee at each of the by providing them with notice of meeting and giving them
meetings of the board and its committees and in regular or opportunity to attend the meeting, discuss the issues and vote
special stockholder meetings; (an exception would be an ordinary amendment where “written
asset” is acceptable).
h. Appraisals and performance reports for the board and the
criteria and procedure for assessment;
DATE OF REGULAR MEETING: notice at the different departments and plants of the San
The date so fixed in the by-laws, if not fixed, on any date of Miguel Brewery Inc., not less than five (5) days prior to the
April of very year as the BOD/T may determine. April, because date of the meeting. (Annex K.)”
this is the time the Audited Financial Statements are already
available. Notice of a special meeting of the members should be given
at least five days before the date of the meeting. Therefore,
DATE OF SPECIAL MEETING: the five days previous notice required would not be
At any time deemed necessary or as provided for in the by-laws. complied with.

REQUIREMENTS FOR A VALID STOCKHOLDERS’ 3. It Must Be Held at the Proper Place

MEETING: SEC. 50. Place and Time of Meetings of Stockholders or
Members.
1. It Must Be Held On the Date Fixed in The By-Laws or Stockholders’ or members’ meetings, whether regular or
in Accordance with The Law. special, shall be held in the principal office of the
corporation as set forth in the articles of incorporation, or,
The date required, as previously discussed, admits of an if not practicable, in the city or municipality where the
exception, as when the annual meeting cannot be held on principal office of the corporation is located: Provided,
the appointed time for some valid and meritorious reasons. That any city or municipality in Metro Manila, Metro
Cebu, Metro Davao, and other Metropolitan areas shall, for
2. Prior Notice Must Be Given purposes of this section, be considered a city or
Sec 50 and 51 requires that written notice of regular municipality.
meeting shall be sent at least 2 weeks prior to the meeting,
whereas, 1-week prior notice is required for special Notice of meetings shall be sent through the means of
meetings. communication provided in the bylaws, which notice shall
state the time, place and purpose of the meetings.
EXCEPTIONS: (a) If the by-laws provide for a different
period for sending out notice for regular or special Each notice of meeting shall further be accompanied by the
meetings (failure to comply would render the resolutions following:
adopted at the option of the stockholder who was not
notified); (b) Waiver, either express or implied. a. The agenda for the meeting;

The Notice must contain the agenda or business matter/s b. A proxy form which shall be submitted to the
that may be taken up before the meeting otherwise it may corporate secretary within a reasonable time prior to
become voidable at the instance of any objecting the meeting;
stockholder or member.
c. When attendance, participation, and voting are
THE BOARD OF DIRECTORS AND ELECTION allowed by remote communication or in absentia, the
COMMITTEE OF THE SMB WORKERS SAVINGS requirements and procedures to be followed when a
AND LOAN ASSOCIATION, INC., ET AL vs. HON. stockholder or member elects either option; and
BIENVENIDO A. TAN, ETC., ET AL
d. When the meeting is for the election of directors or
FACTS: trustees, the requirements and procedure for
A meeting electing the BOD of herein petitioner was nomination and election.
declared null and void by the Court in a suit filed by John
Castillo, et. al. All proceedings and any business transacted at a meeting
of the stockholders or members, if within the powers or
In compliance with the order, another election was authority of the corporation, shall be valid even if the
scheduled on March 28 at 5:30. On March 27, the plaintiff meeting is improperly held or called: Provided, That all the
filed an ex-parte motion alleging that the meeting is stockholders or members of the corporation are present or
composed of the same people that had conducted and duly represented at the meeting and not one of them
supervised the previously nullified meeting; that the expressly states at the beginning of the meeting that the
election to be conducted did not comply with the 5 day purpose of their attendance is to object to the transaction of
notice requirement required by the by-laws and the any business because the meeting is not lawfully called or
constitution of the association, since the notice was posted convened.
and sent out only on March 26 and the election was to be
held on March 28. Notes:
Meeting must, at all times, be held in the city or
ISSUE: municipality where the principal office is located, or if
WON the notice requirement is complied with? practicable at the principal office of the corporation. For
this purpose, Metro Manila is considered as one city or
HELD: municipality.
No. Section 3, article III, of the constitution and by-laws
the association provides: While there is no law allowing a STOCK corporation to
hold a meeting outside the city or municipality where the
“Notice of the time and place of holding of any annual principal office is located, NON-STOCK corporations are
meeting, or any special meeting, the members, shall be allowed to provide a provision in its by-laws any place of
given either by posting the same in a postage prepaid members’ meeting provided there is proper notice.
envelope, addressed to each member on the record at the
address left by such member with the Secretary of the 4. It Must Be Called by the Proper Party
Association, or at his known post-office address or by
delivering the same person at least (5) days before the date 5. Quorum and Voting Requirement Must Be Met
set for such meeting. In lieu of addressing or serving SEC. 51. Quorum in Meetings.
personal notices to the members, notice of the members, Unless otherwise provided in this Code or in the bylaws, a
notice of a regular annual meeting or of a special meeting quorum shall consist of the stockholders representing a
of the members may be given by posting copies of said
 majority of the outstanding capital stock or a majority of STOCKHOLDERS’ RIGHT TO VOTE AND MANNER
the members in the case of nonstock corporations. OF VOTING
Being a property right, a stockholder can vote his share the way
Notes: he pleases except in the following:
A by-law provision may provide for a higher quorum
requirement than that prescribed in the Code, but not less. 1. Non-voting shares are not entitled to vote except in those
Otherwise, the by-law provision providing for a lesser instances provided in the penultimate paragraph of Sec. 6
quorum requirement have no force and effect since a by- of the Code;
law provision is subordinate to the statute and could not 2. Treasury shares have no voting rights while they remain in
defeat the requirements of the law. The same goes for a by- the treasury (Sec. 56);
law provision providing for a voting requirement less than
that provided in the Code. SEC. 56. Voting Right for Treasury Shares.
Treasury shares shall have no voting right as long as such
If the voting requirement is met, any resolution passed in shares remain in the Treasury.
the meeting, even if improperly held or called will be valid
if ALL the stockholders or members are present or duly 3. Shares of stock declared delinquent are not entitled to vote
represented thereat, as provided under the last paragraph of at any meeting; and
Sec. 51: 4. Unregistered transferee of shares of stock.

All proceedings had any business transacted at any meeting PROXY VOTING:
of the stockholders or members, if within the powers or Is allowed or through a voting trust agreement, or by the
authority of the corporation, shall be valid even if the executor, administrator, receiver or other legal representative
meeting be improperly held or called, provided all the appointed by the court.
stockholders or members of the corporation are present or
duly represented at the meeting. PLEDGED OR MORTGAGED SHARES:
The pledgor or mortgagor are entitled to vote in the absence of
DIRECTORS’/TRUSTEES’ MEETING an agreement to the contrary:
SEC. 52. Regular and Special Meetings of Directors or
Trustees; Quorum. SEC. 54. Right to Vote of Secured Creditors and
Administrators.
Unless the articles of incorporation or the by-laws provides for In case a stockholder grants security interest in his or her shares
a greater majority, a majority of the directors or trustees as in stock corporations, the stockholder-grantor shall have the
stated in the articles of incorporation shall constitute a quorum right to attend and vote at meetings of stockholders, unless the
to transact corporate business, and every decision reached by at secured creditor is expressly given by the stockholder-grantor
least a majority of the directors or trustees constituting a such right in writing which is recorded in the appropriate
quorum, except for the election of officers which shall require corporate books.
the vote of a majority of all the members of the board, shall be
valid as a corporate act. Executors, administrators, receivers, and other legal
representatives duly appointed by the court may attend and vote
Regular meetings of the board of directors or trustees of every in behalf of the stockholders or members without need of any
corporation shall be held monthly, unless the bylaws provide written proxy.
otherwise.
SEC. 55. Voting in Case of Joint Ownership of Stock.
Special meetings of the board of directors or trustees may be The consent of all the co-owners shall be necessary in voting
held at any time upon the call of the president or as provided in shares of stock owned jointly by (2) two or more persons, unless
the bylaws. there is a written proxy, signed by all the co-owners, authorizing
(1) one or some of them or any other person to vote such share
Meetings of directors or trustees of corporations may be held or shares: Provided, that when the shares are owned in an
anywhere in or outside of the Philippines, unless the bylaws “and/or” capacity by the holders thereof, any one of the joint
provide otherwise. Notice of regular or special meetings stating owners can vote said shares or appoint a proxy therefor.
the date, time and place of the meeting must be sent to every
director or trustee at least two (2) days prior to the scheduled PROXY AND OTHER REPRESENTATIVE VOTING
meeting, unless a longer time is provided in the bylaws. A PROXY:
director or trustee may waive this requirement, either expressly Is a species of absentee voting by mail by a one-way ballot for
or impliedly. the slate or proposals suggested by the management or even
perhaps, the solicitor thereof. It is the authority given by the
Directors or trustees who cannot physically attend or vote at stockholder or member to another to vote for him at a
board meetings can participate and vote through remote stockholders’ or members’ meeting. The term is also used to
communication such as videoconferencing, teleconferencing, refer to the instrument or paper which is evidence of the
or other alternative modes of communication that allow them authority of an agent or the holder thereof to vote for and in
reasonable opportunities to participate. Directors or trustees behalf of the stockholder or member.
cannot attend or vote by proxy at board meetings.
SEC. 57. Manner of Voting; Proxies.
A director or trustee who has a potential interest in any related Stockholders and members may vote in person or by proxy in
party transaction must recuse from voting on the approval of the all meetings of stockholders or members.
related party transaction without prejudice to compliance with
the requirements of Section 31 of this Code. When so authorized in the by-laws or by a majority of the board
of directors, the stockholders or members of corporations may
SEC. 53. Who Shall Preside at Meetings. also vote through remote communication or in absentia:
The chairman or, in his absence, the president shall preside at Provided, That the votes are received before the corporation
all meetings of the directors or trustees as well as of the finishes the tally of votes.
stockholders or members, unless the bylaws provide otherwise.
A stockholder or member who participates through remote
communication or in absentia, shall be deemed present for
purposes of quorum.
The corporation shall establish the appropriate requirements condition in a loan agreement, said voting trust may be for a
and procedures for voting through remote communication and period exceeding five (5) years but shall automatically expire
in absentia, taking into account the company’s scale, number of upon full payment of the loan. A voting trust agreement must
shareholders or members, structure and other factors consistent be in writing and notarized, and shall specify the terms and
with the basic right of corporate suffrage. conditions thereof. A certified copy of such agreement shall be
filed with the corporation and with the Commission; otherwise,
Proxies shall be: the agreement is ineffective and unenforceable. The certificate
1. in writing, or certificates of stock covered by the voting trust agreement
2. signed and filed, by the stockholder or member, in any shall be cancelled and new ones shall be issued in the name of
form authorized in the bylaws and the trustee or trustees, stating that they are issued pursuant to
3. received by the corporate secretary within a reasonable said agreement. The books of the corporation shall state that the
time before the scheduled meeting. transfer in the name of the trustee or trustees is made pursuant
to the voting trust agreement.
Unless otherwise provided in the proxy form, it shall be valid
only for the meeting for which it is intended. No proxy shall be The trustee or trustees shall execute and deliver to the
valid and effective for a period longer than five (5) years at any transferors, voting trust certificates, which shall be transferable
one time. in the same manner and with the same effect as certificates of
stock.
SEC. 88. Right to Vote.
The right of the members of any class or classes to vote may be The voting trust agreement filed with the corporation shall be
limited, broadened, or denied to the extent specified in the subject to examination by any stockholder of the corporation in
articles of incorporation or the bylaws. Unless so limited, the same manner as any other corporate book or record:
broadened, or denied, each member, regardless of class, shall Provided, That both the trustor and the trustee or trustees may
be entitled to one (1) vote. exercise the right of inspection of all corporate books and
records in accordance with the provisions of this Code.
Unless otherwise provided in the articles of incorporation or the
bylaws, a member may vote by proxy, in accordance with the Any other stockholder may transfer the shares to the same
provisions of this Code. The bylaws may likewise authorize trustee or trustees upon the terms and conditions stated in the
voting through remote communication and/or in absentia. voting trust agreement, and thereupon shall be bound by all the
provisions of said agreement.
Note:
PROXY VOTING: No voting trust agreement shall be entered into for purposes of
Is a right granted by law to all stockholders entitled to vote in circumventing the laws against anticompetitive agreements,
stock corporations and cannot, therefore, be denied. EXCEPT: abuse of dominant position, anti-competitive mergers and
In a non-stock corporation with by-laws providing for a acquisitions, violation of nationality and capital requirements,
prohibition on the use of proxies. or for the perpetuation of fraud.

It is to be noted, however, that publicly listed companies are Unless expressly renewed, all rights granted in a voting trust
required to observe and comply with SEC Memorandum agreement shall automatically expire at the end of the agreed
Circular No. 5 -1996. period. The voting trust certificates as well as the certificates
of stock in the name of the trustee or trustees shall thereby be
TYPES OF PROXIES: deemed cancelled and new certificates of stock shall be reissued
1. General – gives a general discretionary power of attorney in the name of the trustors.
to vote for directors and all ordinary matters that my
properly come before a meeting. It is not an authority, The voting trustee or trustees may vote by proxy or in any
however, to vote for fundamental changes in the corporate manner authorized under the bylaws unless the agreement
charter or for other unusual transactions, unless so provides otherwise.
specified;
VOTING TRUST PROXY
2. Special – restricts the authority to vote on specified matters The beneficial owner of the Legal title to the shares
only and may direct the manner in which the vote will be shares ceased to be remain with the beneficial
cast. stockholder of record of the owner
corporation since the shares
DURATION: are transferred to the trustee
May be fixed by the proxy’s own terms but it cannot exceed 5 Trustee votes as owner of the Proxy votes merely as an
years and for not more than 5 years for each renewal. Otherwise, shares agent
it expires after the meeting for which it was given. The beneficial owner is The owner of the shares may
disqualified to be a director be elected as such since legal
VOTING TRUST: title thereof remains with
is one created by an agreement between a group of stockholders him
of a corporation and a trustee, or a group of identical agreements Purpose is to acquire voting Generally used to secure
between individual stockholders and a common trustee, control of the corporation voting a quorum
whereby it is provided that for a term of years, or for a period requirements or merely for
contingent upon a certain event, or until the agreement is the purpose of representing
terminated, control over the stock owned by such stockholders, an absent stockholder
shall be lodged in the trustee, either with or without reservation Irrevocable Revocable anytime unless
to the owners or persons designated by them the power to direct coupled with an interest
how such control shall be issued. The trustee can act and vote Proxy can generally act as
at any meeting during the such only at a particular
SEC. 58. Voting Trusts. duration of the VTA meeting
One or more stockholders of a stock corporation may create a Trustee may vote in person Proxy holder must vote in
voting trust for the purpose of conferring upon a trustee or or by proxy person
trustees the right to vote and other rights pertaining to the shares Duration may exceed five Proxy is of a shorter duration
for a period not exceeding five (5) years at any time: Provided, years and may not exceed 5 year
That in the case of a voting trust specifically required as a
 VOTING TRUST PROXY of the Voting Trust Agreement, on 26 October 1970, NIDC
VTA to be valid and Unless required by the by- should tum over the assets of the three (3) oil mills to Batjak
effective, must be notarized laws, proxies need not be From the foregoing provisions, it is clear that what was assigned
and filed with the SEC notarized nor is it required to to NIDC was the power to vote the shares of stock of the
be filed with the SEC. stockholders of Batjak, representing 60% of Batjak's
outstanding shares, and who are the signatories to the
NIDC VS AQUINO agreement. The power entrusted to NIDC also included the
FACTS: authority to execute any agreement or document that may be
On Oct. 26, 1965, private respondent Batjak, Inc. entered into a necessary to express the consent or assent to any matter, by the
Voting Trust Agreement with petitioner NIDC, in order to assist stockholders. Nowhere in the said provisions or in any other
the former with its financial obligations. The VTA was for a part of the Voting Trust Agreement is mention made of any
period of 5 years constituting 60% of the outstanding paid-up transfer or assignment to NIDC of Batjak's assets, operations,
and subscribed shares of Batjak. 5 years therafter, or on Aug. and management. NIDC was constituted as trustee only of the
31, 1970, Batjak represented by majority stockholders, through voting rights of 60% of the paid-up and outstanding shares of
Atty. Amado Duran, legal counsel, wrote to NIDC inquiring if stock in Batjak. This is confirmed by paragraph No. 9 of the
the atter was still interest in negotiating the renewal of the VTA, Voting Trust Agreement, thus:
but there was no reply even with the second letter sent on Sept.
22, 1970. 9. TERMINATION — Upon termination of this Agreement as
heretofore provided, the certificates delivered to the TRUSTEE
On Sept. 23, 1970, legal counsel of Batjak wrote another letter by virtue hereof shall be returned and delivered to the
asking for a complete accounting of the assets, properties, undersigned stockholders as the absolute owners thereof, upon
management and operation of Batjak, preparatory to their turn- surrender of their respective voting trust certificates, and the
over and transfer to the stockholders of Batjak. duties of the TRUSTEE shall cease and terminate. -

NIDC replied that it had no intention to comply with such Under the aforecited provision, what was to be returned by
demand. Batjak filed an action for mandamus with preliminary NIDC as trustee to Batjak's stockholders, upon the termination
injunction which was granted. of the agreement, are the certificates of shares of stock
belonging to Batjak's stockholders, not the properties or assets
ISSUE: of Batjak itself which were never delivered, in the first place to
WON Batjak has the personality to enforce the voting trust NIDC, under the terms of said Voting Trust Agreement.
agreement executed by its stockholders and whether it may
compel the trustee to turn over the assets of the corporation? In any event, a voting trust transfers only voting or other rights
HELD: pertaining to the shares subject of the agreement or control over
No. In support of the third ground of their motion to dismiss, the stock. The law on the matter is Section 59, Paragraph 1 of
PNB and NIDC contend that Batjak's complaint for mandamus the Corporation Code (BP 68) which provides: Sec. 59. V o tin
is based on its claim or right to recovery of possession of the g T r u s t s — One or more stockholders of a stock corporation
three (3) oil mills, on the ground of an alleged breach of may create a voting trust for the purpose of confering upon a
fiduciary relationship. Noteworthy is the fact that, in the Voting trustee or trusties the right to vote and other rights pertaining to
Trust Agreement, the parties thereto were NIDC and certain the shares for a period not exceeding five (5) years at any one
stockholders of Batjak. Batjak itself was not a signatory thereto. time:
Under Sec. 2, Rule 3 of the Rules of Court, every action must
be prosecuted and defended in the name of the real party in The acquisition by PNB-NIDC of the properties in question was
interest. Applying the rule in the present case, the action should not made or effected under the capacity of a trustee but as a
have been filed by the stockholders of Batjak, who executed the foreclosing creditor for the purpose of recovering on a just and
Voting Trust Agreement with NIDC, and not by Batjak itself valid obligation of Batjak.
which is not a party to said agreement, and therefore, not the
real party in interest in the suit to enforce the same.

In addition, PNB claims that Batjak has no cause of action and

prays that the petition for mandamus be dismissed. A careful
reading of the Voting Trust Agreement shows that PNB was
really not a party thereto. Hence, mandamus will not lie against
PNB.

Batjak has no clear right to be entitled to the writ prayed for.

What Batjak seeks to recover is title to, or possession of, real
property (the three (3) oil mills which really made up the assets
of Batjak) but which the records show already belong to NIDC.
It is not disputed that the mortgages on the three (3) oil mills
were foreclosed by PNB and NIDC and acquired by them as the
highest bidder in the appropriate foreclosure sales. Ownership
thereto was subsequently consolidated by PNB and NIDC, after
Batjak failed to exercise its right of redemption. The three (3)
oil mills are now titled in the name of NIDC. From the
foregoing, it is evident that Batjak had no clear right to be
entitled to the writ prayed for. In Lamb vs. Philippines (22 Phil.
456) citing the case of Gonzales V. Salazar vs. T h e B o a r d o
f P h a r m a c y , 20 Phil. 367, the Court said that the writ of
mandamus will not issue to give to the applicant anything to
which he is not entitled by law.

Batjak premises its right to the possession of the three (3) off
mills on the Voting Trust Agreement, claiming that under said
agreement, NIDC was constituted as trustee of the assets,
management and operations of Batjak, that due to the expiration