Duties and liabilities of corporate directors
By Atty. Gregorio B. Austral, CPA
The Revised Corporation Code provides that the Board of Directors shall exercise the corporate powers, conduct all business, and control all the properties of the corporation. This means that after a stockholder invested his hard-earned money to the corporation, he entrusts the said money to the corporation’s board relying on the latter’s integrity, capacity, and honesty to fulfill his investment goals in the corporation. This fiduciary duty of the board is clearly outline in the RCC.
Three-fold duty of directors or trustees
In this jurisdiction, the members of the board of directors have a three-fold duty:
- Duty of obedience – A director or trustee shall direct the affairs of the corporation only in accordance with the purposes for which it was organized.
- Duty of diligence – A director or trustee shall (i) not willfully and knowingly vote for or assent to patently unlawful acts of the corporation or (ii) act in bad faith or (iii) with gross negligence in directing the affairs of the corporation
- Duty of loyalty – A director or trustee shall not acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees (Strategic Alliance Development Corp. v. Radstock Securities Ltd., G.R. Nos. 178158 & 180428, [December 4, 2009], 622 PHIL 431-623)
Liabilities of directors or trustees
Section 30. Liability of Directors, Trustees or Officers. – Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.
A director, trustee or officer shall not attempt to acquire, or any interest adverse to the corporation in respect of any matter which has been reposed in them in confidence, and upon which, equity imposes a disability upon themselves to deal in their own behalf; otherwise, the said director, trustee or officer shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation.
Malice or bad faith required to hold corporate officers acting as corporate agents liable
A corporation, upon coming to existence, is invested by law with a personality separate and distinct from those of the persons composing it. Ownership by a single or a small group of stockholders of nearly all of the capital stock of the corporation is not, without more, sufficient to disregard the fiction of separate corporate personality. Thus, obligations incurred by corporate officers, acting as corporate agents, are not theirs, but direct accountabilities of the corporation they represent. Solidary liability on the part of corporate officers may at times attach, but only under exceptional circumstances, such as when they act with malice or in bad faith. Also, in appropriate cases, the veil of corporate fiction shall be disregarded when the separate juridical personality of a orporation is abused or used to commit fraud and perpetrate a social injustice, or used as a vehicle to evade obligations. ||| (Edsa Shangri-La Hotel and Resort, Inc. v. BF Corp., G.R. Nos. 145842 & 145873, [June 27, 2008], 578 PHIL 588-609)