Title 3

Board of Directors/Trustees/Officers

Officers
(The one who execute
the policies formulated
by the Board)

Directors / Trustees
(The policy-making body of
a corporation. They select
officers annually as a rule)

Stockholders / Members
(They elect BOD or BOT and they also
participate on corporate major actions
through voting)

Rules and Principles to watch out:

1. Business Judgment Rule (Extent of Judicial Review)
a. Courts cannot undertake to control the discretion of the board of directors
about administrative matters as to which they have legitimate power of
action, and contracts intra vires entered into by the board of directors are
binding upon the corporation and courts will not interfere unless such
contracts are so unconscionable and oppressive as to amount to wanton
destruction of the rights of minority.
i. This rule must be qualified with respect to the power to declare dividends
since its exercise is governed by specific rules provided by law.

b. Questions of policy and management are left solely to the honest decision
of the board as the business manager of the corporation, and the court is
without authority to substitute its judgment for that of the board, and as
long as it acts in good faith and in the exercise of honest judgment in the
interest of the corporation, its orders are not reviewable by the court.

i. Reason: Courts and other tribunals are wont of to override the

business judgment of the board mainly because courts are not in
the business of business, and the laissez faire rule (a doctrine that
government should not interfere in commercial affairs ) or free enterprise
system prevailing in our social and economic set-up dictates that it
is better for the state and its organs to leave business to the
businessmen.
2. Hold Over Principle (Term of Office of Directors or Trustees)
a. This rule provides that where the articles of incorporation provides for the
annual election of directors and no election is held, the former directors
hold over until their successors are elected and qualified.
i. It is a situation that arises when no successor is elected due to
valid and justifiable reason (e.g pending election protest on the
outcome of the annual election).
3. Doctrine of Corporate Opportunity (Disloyalty of a Director)
a. Under this doctrine, a director, by virtue of his office, acquires for himself a
business opportunity which should belong to the corporation, thereby
obtaining profits to the prejudice of such corporation, is guilty of disloyalty
and should, therefore, account to the latter for all such profits by refunding
the same notwithstanding that he risked his funds in the venture.
i. A director is supposed to protect the interest of the corporation.