Opinion No. 21-04Re: Quorum in By-Laws

Securities and Exchange Commission OFFICE OF THE GENERAL COUNSEL Republic of the Philippines Department of Finance

30 March 2021

SEC-OGC Opinion No.21-04 Re: Quorum in By-Laws DURAN &DURAN-SCHULZE LAW Unit 604The Infinity Tower 26th Street, Fort Bonifacio Global City Taguig City, 1634 Philippines

AttentionATTY.RHONALIZA BURCE

Counsel

Dear Atty.Burce

This refers to your letter requesting for a legal opinion on whether the By-laws of The Infinity Condominium Corporation (TICC) can provide therein and require as quorum for members' meeting the presence of members in good standing representing at least thirty percent (30%) of the relevant number of units entitled to be represented and vote.

In said letter, you represented that your client TICC is a non-stock, non-profit, condominium corporation duly organized on 5 July 2011 with Company Registration No. CN201110847.You stated that TICC would like to seek confirmation from the Commission in relation to its intention to amend its By-law provisions on quorum in members' meeting.

Article VI, Section 5 of the By-laws of TICC embodies the provision on quorum, to wit:

members in good standing representing at "Section5. Quorum.The presence of

least a maiority of the relevant number of units entitled to be represented and vote at the meeting shall constitute a quorum. A majority of the quorum (50% +1) shall be competent to decide on any matter, unless the Corporation Code or the Condominium Act requires the affirmative vote of a greater proportion. A smaller number of votes

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insufficient to constitute a quorum may adjourn the meeting from time to time and may take up only social or ceremonial matters."

Relative to the instant request, you stated that TICC intends to amend the afore-quoted provision of its By-laws as follows:

"Section 5.Quorum.The presence of members in good standing representing at least thirty percent (30%) of the relevant number of units entitled to be represented and vote at the meeting shall constitute a quorum. A majority of the quorum (50% +1) shall be competent to decide on any matter unless the Corporation Code or the Condominium Act requires the affirmative vote of a greater proportion.A smaller number of votes insufficient to constitute a quorum may adjourn the meeting from time to time and may take up only social or ceremonial matters."

You cited Section 51 in relation to Section 46(c) of the Revised Corporation Code (RCC) as basis for the proposed amendment, to wit:

"Section 51. Quorum in Meetings.-Unless otherwise provided in this Code or in the bylaws, a quorum shall consist of the stockholders representing a majority of the outstanding capital stock or a majority of the members in. the case of nonstock corporations."

Section 46.Contents of Bylaws.-A private corporation may provide the following in its bylaws: x x x

(c) The required quorum in meetings of stockholders or

1 Republic Act No.11232,Revised Corporation Code of the Philippines

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members and the manner of voting therein;"

The Commission, citing Section 52 of the Corporation Code2 (now Section 51 of the RCC), has opined that any corporation,whether stock or non-stock, is authorized to provide in its by-laws a specific number of stockholders or members necessary to constitute a quorum for the transaction of corporate business,except in those instances where the Corporation Code or applicable special law explicitly prescribes the proportion of stockholders or members necessary to resolve or carry out a particular corporate proposal, to wit:

"Stock corporations or non-stock corporations are authorized to define what constitutes a quorum based on its by-laws The Commission has opined that any corporation whether stock or non-stock is authorized to provide in its by-laws a specific number of stockholders or members necessary to constitute a quorum for the transaction of a corporate business.

x x x However, the provision in the by-laws relative to quorum will not hold true in those instances where the Corporation Code or applicable special law explicitly prescribes the proportion of stockholders or members necessary to resolve or carry out a particular corporate proposal. In such cases, a quorum shall consist of such ratio of stockholders or members as may be declared by statutory provisions. It is a cardinal rule that a by-law providing what shall constitute a quorum is invalid if it is in conflict with the provisions of a statute on the subject matter.Where the number necessary to constitute a quorum is prescribed by a statute, a by-law requiring less than the proportion required by the particular legislation is subordinate to the statute.

2 Batas Pambansa Bilang 68, The Corporation Code of the Philippines

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It was noted that "regardless of the provision in the by-laws on quorum, when the Corporation Code (now RCC explicitly requires a specific number of stockholders or members necessary to resolve or carry out a particular corporate proposal the Corporation Code prevails. Some of these instances are: 1.Amendment to the Articles of Incorporation3 2. Removal of directors or trustees4; 3.Extension or shortening of corporate term5:and 4.Sale,lease, exchange, mortgage pledge or any disposition of all or substantially all of the corporate assets6"7

Similarly, in Legrand Properties, Inc., it was opined

"Thus, any corporation, whether stock or non- stock, is authorized to provide in its by-laws a specific number of stockholders or members necessary to constitute a quorum for the transaction of corporate business, except in cases where the law requires a minimum stockholders' or members' vote for a certain corporate action (e.g., 2/3 of the stockholders representing the outstanding capital stock or the members in case of amendment of articles of incorporation) which would in effect be the required quorum."8

Given the wording of the proposed amendment to Section 5 of the By-laws of TIcc,we answer your query in the affirmative.

It shall be understood,however, that the foregoing opinion is rendered solely on the basis of the facts and circumstances disclosed to the Commission, and should be considered relevant only to the particular issue

dated July 22,2019 addressed to Mr.William L.Chew and SEC-OGC Opinion No.25-14 dated September 4,2014 3 RCC, Section 15 5 RCC, Section 36 SEC-OGC Opinion No.11-23 dated 13 April 2011,Architect Norberto V.UySee also SEC-OGC Opinion No.25-19 4 RCC,Section 27 RCC,Section 39

8 SEC-OGC Opinion No. 36-19 dated 13 September 2019 addressed to Legrand Properties, Inc. addressed to Mr.Gerardo L.Romero-Salas.

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raised therein. This opinion shall not be considered and used in the nature of a standing rule binding upon the Commission in other cases, or upon the courts whether of similar or dissimilar circumstances.9 If, upon further inquiry or investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered void.

Please be guided accordingly

wwwwhLm ROMUALD C/PADILLA

Geheral Counsel

9 SEC Memorandum Circular 2003-15,No.7