SEC 29 VACANCIES IN THE OFFICE OF DIRECTOR OR TRUSTEE Vacancy - operative fact that justifies the election or appointment of the

replacement. Presupposes the vacancy during the directors term. Election done by directors: not mandatory. permissive Manner of election is discretionary to the corporarion. o By-laws may provide the procedure 1) Provided it is consistent with the other provisions of the corporation code.

many vacancies in certain cases and there would be no directors to perform their functions. Reason: avoids expenses and inconveniences attending the calling of stockholders or members meeting. Effect of vacancy: a. b. The board may continue to function provided there is a quorum Any act, resolution of the board shall be considered valid

Who can fill vacancies? a. b. Stockholders or members Remaining directors or trustees

**remaining hold-over directors cannot replace a director who resigned after the expiration of their term rests on the theory of delegated power of the board of directors. The vacancy is, in legal effect, not due to resignation but to expiration of the term.

Constituting quorum depending on the reason for the vacancy.

Reasons for replacement/election: a. b. c. Removal Expiration of term A ground other than removal or expiration of term (e.g. death, resignation, abandonment) where the remaining directors do not constitute quorum a. Abandonment director of corporation accepts a position in which his duties are incompatible with which will render him physically incapable of performing his duties as director.

***the director who will fill up the vacancy will not serve for another one-year term. The replacement does not change the length of the term. Term cannot be split into two or more terms. The replacement will serve only for the remaining period of the original term of the director that he replaced.

______________________________ SEC 30 COMPENSATION OF DIRECTORS RULES: a. The by-laws may provide for a fixed compensation b. If by-laws does not provide, compensation may be granted by the vote of stockholders representing at least a majority of the outstanding capital stock.

d.

Increase in the number of directors

c. Even if by-laws does not provide, the directors are entitled to reasonable per
If the causes other than enumerated: the board can fill the vacancy, if the remaining directors constitute a quorum. ***in certain cases: the directors are allowed to elect the replacement so that the operation of the corporation cannot be hampered or jeopardized. There may be too diems (daily allowance, pay etc.)

***the directors or trustees are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. Reason: presumption that directors/trustees render services gratuitously, and that the return upon their shares adequately furnishes the motives for service, without compensation.

-covered by business judgment rule. *if a director is also an officer, he is entitled to receive salaries and not subject to restrictions. *remedy in case of abuse may be recovered in a stockholder/member suit. _________________________________

PER DIEM to pay for a days services. -allowances of money for expenses each day. -power of directors to fix per diems emanates from statute itself. -may vary from year to year provided the same is reasonable. SEC 31 LIABILITY OF DIRECTORS, TRUSTEES OR OFFICERS Rationale: o To assure that the BOD does not act in a manner that is unlawful or to the prejudice of the corporation because of personal or pecuniary interest of the directors.

COMPENSATION treated synonymously with salaries, remunerations, bonuses, gifts (e.g. christmas gifts) or any incentive for services rendered for the corporation. -may be given only if there are profits. Not more than 10% of income of the corporation. Reason: a. if corporation did not earn.no compensation. b. protection not only to stockholders but also of the corporate creditors and prospective investors. It is strictly observed. - derived from net income of the preceding year- net income of the year during which the director served. - this applies to trustees if they actually render services to the corporation.

Management duties: o Obedience 1) 2) o Requires compliance with law and rules. Duty to act intra vires and within authority.

Diligence 1) Required to exercise due care in the performance of their functions. Utmost good faith in the management of corporate affairs. Due care entails examination of the facts and circumstances of a particular case. Due diligence dictates that they must maintain familiarity with the financial status of the corporation.

2) 3)

COMPENSATION OF OFFICERS -may be fixed by the board by way of resolution. -prospective in application -not covered by the 10% limit. - it must be reasonable. 4)

Loyalty 1) Loyalty that is undivided and an allegiance that is influenced by no consideration other than the welfare of the corporation.

2)

Held to the extreme measure of candor, unselfishness and good faith. Thise principles are rigid, essential and salutary. Cannot serve himself first his cestuis second. Not permitted to use their position of trust and confidence to further their private interests. There must be loyalty to other stakeholders like creditors. 3)

3) 4)

act, not inadvertently but wilfully and intentionally with a conscious indifference to consequences insofar as other persons may be affected. o Thoughtless disregard of consequences without exerting any effort to avoid them. Must establish clear and convincing evidence.

5)

LIABILITY GENERAL RULE: directors and officers are not solidarily liable with the corporation. Criminal liability personal liability Solidary liability: (piercing the veil of corporate fiction) o When directors and trustees are officers of the corporation 1) Vote for or assent to patently unlawful acts of the corporation Patently unlawful acts one declared unlawful by law which imposes penalties for commission of such unlawful ats. 4)

Guilty of conflicts of interest to the prejudice of corporation and stakeholders When a director has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto; Water stocks- issued for less than their par or issued value or in any other form other than cash value in excess of its fair value. Liable for the difference between the fair value received at the time of the issuance of the stock and the par or issued vale of the same.

2)

Act in bad faith or with gross negligence in directing the affairs of the corporation Bad faith dishonest purpose o Breach of a known duty through some ill motive or interest. Nature of fraud. Design to mislead or deceive another. All kinds of deception. It must be established.it cannot be presumed. Example: officers exceeds their authority

5) When the director, trustee, or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation. 6) When a director, trustee or officer is made, by specific provisions of law, personally liable for his corporate actions.

DUTIES OF OFFICERS -same with directors, they have duties of obedience and loyalty. -the fiduciary duties of officers are subject to the general principles of agency. o Agent act within the authority given to him by the board, by-laws or AOI Avoid conflict of interest situtions.

Gross negligence want of even slight are, acting or omitting to act in a situation where there is a duty to

Duty if diligence makes an officer liable for damages.

**may be ratified (as valid and effective) provided a vote of at least 2/3 of outstanding capital stock or at least 2/3 of the members in a meeting called for the purpose. Conditions must be present:

_____________________________ a. There must be full disclosure of the adverse interest of the directors/trustees involved is made at such meeting The contract is fair and reasonable under the circumstances

b.

**contract is still voidable if the director did not disclose the disastrous consequences of the contract. SEC 32 DEALINGS OF DIRECTORS, TRUSTEES OR OFFICERS WITH THE CORPORATION SEC 33 CONTRACTS BETWEEN CORPORATIONS WITH INTERLOCKING DIRECTORS

SELF-DEALING those who personally contract with the corporation, in which they are directors, trustees or officers, o IT IS DISCOURAGED because they have fiduciary relationship with the corporation and there can be no real bargaining where the same is acting on both sides of the trade. GENERAL RULE: It is VOIDABLE EXCEPTIONS: A. The presence of such director/trustee in the board meeting approving the contract was not necessary for constituting a quorum for such meeting. B. The vote of such director/trustee in the board meeting approving the contract was not necessary for the approval of the contract. C. The contract circumstances is fair and reasonable under the

Effect of interlocking relationship o Itself not prohibited under the corporation code unless prohibited by bylaws A contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone.

INTERLOCKING RELATIONSHIP when one (or some or all) of the directors in one corporation is (or are) a director in another corporation. EFFECT ON CONTRACTS: GR: VALID. Provided conditions are present: The presence of the interlocking director/trustee in a board meeting (corporation which interest is nominal) in which the contract was approved was not necessary to constitute a quorum for such meeting. That the vote of such director/trustee was not necessary for the approval of the contract That the contract is fair and reasonable under the circumstances

D. In the case of an officer, there was previous authorization by the board of directors or trustees.

 Indispensable requirement for the contract to be valid.

voidable

Absence of 1st and 2nd