G.R. No. 161886, 16 March 2007
FilPort is a domestic corporation engaged in stevedoring services with principal office in Davao City. In 1992, petitioner Eliodoro Cruz, Filport’s president from 1968 he lost his bid for re-election as Filport’s president during the general stockholders’ meeting in 1991, wrote a letter to the corporation’s Board of Directors questioning the board’s creation of the positions of Assistant Vice-Presidents for Corporate Planning, Operations, Finance and Administration, and the creation of the additional positions of Special Assistants to the President and the Board Chairman with a monthly remuneration of P13,050.00 each, and the election thereto of certain members of the board. In his aforesaid letter, Cruz requested the board to take necessary action/s to recover from those elected the salaries they have received. However, it was not shown on the records that action was taken.
In 1993, Cruz, purportedly in representation of Filport and its stockholders, among which is herein co-petitioner Mindanao Terminal and Brokerage Services, Inc., filed with the SEC a petition which he describes as a derivative suit against the herein respondents who were then the incumbent members of Filport’s Board of Directors, for alleged acts of mismanagement detrimental to the interest of the corporation and its shareholders at large. With the enactment of R.A. No. 8799, the case was first turned over to the RTC of Manila, Branch 14, sitting as a corporate court. Thereafter, on respondents’ motion, it was eventually transferred to the RTC of Davao City.
RTC-Davao City rendered its decision in the case. Even as it found that (1) Filport’s Board of Directors has the power to create positions not provided for in the by-laws of the corporation since the board is the governing body; and (2) the increases in the salaries of the board chairman, vice-president, treasurer and assistant general manager are reasonable, the trial court nonetheless rendered judgment against the respondents by ordering the directors holding the positions of Assistant Vice President for Corporate Planning, Special Assistant to the President and Special Assistant to the Board Chairman to refund to the corporation the salaries they have received as such officers “considering that Filipinas Port Services is not a big corporation requiring multiple executive positions” and that said positions “were just created for accommodation.” On appeal, the CA taking exceptions to the findings of the trial court that the creation of the positions of Assistant Vice President for Corporate Planning, Special Assistant to the President and Special Assistant to the Board Chairman was merely for accommodation purposes, granted the respondents’ appeal, reversed and set aside the appealed decision of the trial court and accordingly dismissed the so-called derivative suit filed by Cruz, et al. Hence this petition for review on certiorari.
Whether or not Filport’s Board of Directors has the power to create positions not provided for in the by-laws of the corporation.
The governing body of a corporation is its board of directors.
Section 23 of the Corporation Code explicitly provides that unless otherwise provided therein, the corporate powers of all corporations formed under the Code shall be exercised, all business conducted and all property of the corporation shall be controlled and held by a board of directors. Thus, with the exception only of some powers expressly granted by law to stockholders (or members, in case of non-stock corporations), the board of directors (or trustees, in case of non-stock corporations) has the sole authority to determine policies, enter into contracts, and conduct the ordinary business of the corporation within the scope of its charter, i.e., its articles of incorporation, by-laws and relevant provisions of law. Verily, the authority of the board of directors is restricted to the management of the regular business affairs of the corporation, unless more extensive power is expressly conferred.
The raison d’etre behind the conferment of corporate powers on the board of directors is not lost on the Court. Indeed, the concentration in the board of the powers of control of corporate business and of appointment of corporate officers and managers is necessary for efficiency in any large organization. Stockholders are too numerous, scattered and unfamiliar with the business of a corporation to conduct its business directly. And so the plan of corporate organization is for the stockholders to choose the directors who shall control and supervise the conduct of corporate business.
In the present case, the board’s creation of the positions of Assistant Vice Presidents for Corporate Planning, Operations, Finance and Administration, and those of the Special Assistants to the President and the Board Chairman, was in accordance with the regular business operations of Filport as it is authorized to do so by the corporation’s by-laws, pursuant to the Corporation Code.
Unfortunately, the bylaws of the corporation are silent as to the creation by its board of directors of an executive committee. Under Section 35 of the Corporation Code, the creation of an executive committee must be provided for in the bylaws of the corporation. Notwithstanding the silence of Filport’s bylaws on the matter, the creation of the executive committee by the board of directors cannot be ruled as illegal or unlawful. One reason is the absence of a showing as to the true nature and functions of said executive committee considering that the “executive committee,” referred to in Section 35 of the Corporation Code which is as powerful as the board of directors and in effect acting for the board itself, should be distinguished from other committees which are within the competency of the board to create at anytime and whose actions require ratification and confirmation by the board. Another reason is that, ratiocinated by both the 2 courts below, the Board of Directors has the power to create positions not provided for in Filport’s bylaws since the board is the corporation’s governing body, clearly upholding the power of its board to exercise its prerogatives in managing the business affairs of the corporation.
*Case Digest by Stephanie C. Castillo, JD-IV, Andres Bonifacio College, SY: 2019-2020