Sunday, April 10, 2016
CDA RULES ON CO-OP ROW
For possible lessons on COOPERATIVE GOVERNANCE, I am reproducing below the legal opinion, recently rendered by the Dep. Exec. Dir. GIOVANNI T. PLATERO, on the queries raised by a number of members/past officers of the Sto. Rosario Credit and Development Cooperative (SRCDC) , of the City of Malolos, Bulacan.
According to documents provided, said SRCDC members wrote CDA Pampanga Extension Office Regional Director Marieta P. Hwang on February 6, 2016. The matter was endorsed by the latter to the CDA Central Office on February 11, 2016. The CDA Main Office ruling was dated March 22, 2016, and was relayed to the concerned parties of SRCDC by the Pampanga Extension Office in a letter of endorsement dated April 4, 2016.
The body of the CDA ruling is reproduced below, as follows:
"..This is in reply to your (Dir. Hwang's) 11 February 2016 Memorandum requesting legal opinion (emphases provided here and below) on the following queries raised Mr. Nelson (sic) I. Buluran and others of the Sto. Rosario Credit and Development Cooperative (SRCDC):
"1. Alin po ba ang dapat ipatupad, ang nakasaad sa by-laws ng SRCDC (as amended on March 26, 2011) Art. IV, Section 3 -Disqualification o ang ipinalabas ng CDA na MC #2011-04, dated February 22, 2011?
2. Ang Lupon Patnugutan po ay nagpatibay ng isang Board Resolution na ginagawang pito (7) na lamang mula sa labing isang (11) bilang ng Lupon Patnugutan noong Setyembre 2015. Ito po ba ay dapat ng ipatupad sa election sa Abril 2016?
(CooperativesPhilippines note: Abril 2016 ang nakatakdang General Assembly ng SRCDC).
3. Matuwid po ba na ang Chairman ng Audit Committee ay kasama sa lahat ng pagpupulong ng Lupon Patnugutan (regular at special) at ng mga committee?.."
Per the letter of Mr. Buluran, the March 26, 2011 amended by-laws of SRCDC, expressly disqualifies any cooperative member related up to the third civil degree of consanguinity or affinity with any incumbent member of the Board of Directors (BOD), from being elected as member of the BOD or any committee. Said policy was observed in SRCDC previously.
However, despite said provision in the by-laws, the BOD subsequently enforced a rule allowing any member from being elected as member of the BOD or any committee even if related up to the third civil degree of consanguinity or affinity with any incumbent BOD member (emphasis provided) pursuant to CDA Memorandum Circular 2011-04.
As a result, some of the present elected officers of SRCDC are husbands and wives and others are relatives within the third degree of consanguinity or affinity. (Emphasis provided).
(Note: Inquiries by Cooperatives Philippines revealed that among the personalities referred to in this controversy, the current chairman of the Audit Committee is brother to a member of the Board of Director; while the chairman of the Audit Committee's wife is a member of the Election Committee; the wife of the Chairman of the Board of Directors is chairperson of the election committee.)
The same letter also averred that in September 2015 the BOD issued a resolution reducing the number of BOD members from eleven (11) to seven (7). (Emphasis provided).
It is likewise mentioned that in all meetings of the board, the Chairman of the Audit Committee took part therein (Emphasis provided).
Hence, these queries.
The aforesaid queries shall be answered in seriatim.
As to the first question, SRCDC's governing rule in determining the disqualification for election as member of its BOD or any committee is found in Section 3, Article IV of its March 26, 2011 amended by-laws. Said provision enumerates thirteen (13) grounds (letters a to m) for disqualification. But for purposes of the controversy raised, we however quote only in particular letter k thereof which reads:
Board of Directors
Section 3. Disqualifications
Any member who is under any of the following
circumstances shall be disqualified to be elected as a
member of the Board of Directors or any committee,
or to continue as such:
xx xx xx xx
xx xx xx xx
k. Is related to any person up to the third
civil degree of consanguinity or affinity who is
currently serving as member of the board of
xx xx xx xx
xx xx xx xx
Having been expressly stipulated in SRCDC's amended by-laws, the above grounds for disqualification of elective officers only manifest the deliberate intention of all individuals comprising the cooperative to be clearly governed and be bound by said set of rules concerning disqualification.
This is true for by-laws are are the rules of action adopted by a cooperative for its internal government and for the government of its members and those having the direction, management and control of its affairs in their relation to the cooperative and as among themselves. (Emphasis provided).
Pertinently, Article 42 of R.A. 9520 states:
"Article 42. Officers of the Cooperative. The board
of directors shall elect from among themselves the chair-
person and vice-chairperson, and elect or appoint other
officers of the cooperative from outside of the board in
accordance with their by-laws. All officers shall serve
during good behavior and shall not be removed except
for cause after due hearing.
Loss of confidence shall not be a ground for removal
unless evidenced by acts or omission causing loss of
confidence in the honesty and integrity of such officer.
No two (2) or more persons with relationship up to the
third civil degree of consanguinity or affinity nor shall
any person engaged in a business similar to that of the
of the cooperative nor who in any manner has interests
in conflict with the cooperative shall serve as an
appointive officer." (Emphasis supplied).
In a February 22, 2011 Memorandum Circular (2011-04), the Authority had occasion to clarify and came out with an interpretation of the afore-quoted provision particularly the last sentence thereof. Said Memorandum Circular made it clear that the prohibition referred to in Article 42 indeed applies only to appointive officers or those appointed by the BOD such as the following, to wit:
(3) Members of the Mediation and Conciliation Committee;
(4) Members of the Ethics Committee;
(5) Members of Other Committees unless otherwise
provided in the by-laws; and
(6) Members of the BOD appointed by the remaining
directors for vacancy due to causes other than
expiration of term (Article 41, R.A. No. 9520).
Hence, no two or more persons can be appointed by the BOD to hold above positions if and when they are related up to the third civil degree of consanguinity or affinity.
The Memorandum Circular made a categorical statement to the effect that the prohibition does not apply to elective officers or officers elected by the general assembly such as Members of the BOD, and those Members of the Audit and Election Committees. Thus, two or more persons can hold elective positions in the cooperative even if they are related up to the third civil degree of consanguinity or affinity.
Notably, Memorandum Circular 2011-04 also expressed the view that an elected officer of the cooperative can, however, have one (1) appointed relative within the third civil degree of consanguinity or affinity provided that in no instance shall there be relationship up to the third civil degree of consanguinity or affinity among the appointed officers.
It bears stress that R.A. No. 9520 (2008) and Memorandum Circular 2011-04 (February 22, 2011) came about earlier than SRCDC's amended by-laws (March 26, 2011) and SRCDC to say the least, is presumed to have knowledge of the provisions of R.A. 9520, as well as the issuance of Memorandum Circular 2011-04.
Nevertheless, despite such knowledge, the general assembly adopted and approved an amended by-laws containing a stipulation, among others, to disqualify any member from seeking an elective post if he or she is related up to the third degree of consanguinity or affinity to any incumbent member of the BOD.
Such act of the general assembly is justified (emphasis supplied) because one of the characteristics of contracts is that contracts are autonomous in nature. The amended by-laws of SRCDC serve a contract between and among the cooperative, the officers and members thereof. (emphasis supplied).
Such being the case, the general assembly is free to establish stipulations, terms and conditions as they may deem convenient in the by-laws, provided they are not contrary to law, morals, good customs, public order or public policy. (emphasis supplied).
The stipulation in SRCDC's amended by-laws to disqualify any member from seeking an elective post if he or she is related up to the third civil degree of consanguinity or affinity to any incumbent member of the BOD is not at all contrary to law, morals, good customs, public order or public policy. That is why SRCDC's amended by-laws gained approval upon registration (emphasis supplied).
While it is true that Article 42 prohibits two (2) or more persons with relationships up to third civil degree of consanguinity or affinity from serving as appointive officers, it does not however expressly restrain cooperatives from applying the same prohibition even on elective positions in the cooperative.
Hence, based on the principle of autonomy of contracts, the general assembly, if it so deliberately intends, may validly provide in the by-laws of the cooperative an even more stringent rules when it comes to disqualification for elective positions as in the case of SRCDC.
We therefore opine that until amended in accordance with the law and SRCDC's by-laws, the provision in SRCDC's by-laws disqualifying any member from seeking an elective post if he or she is related up to the third civil degree of consanguinity or affinity to any incumbent member of the BOD, serves as a continuing rule for the government of the cooperative and the individuals composing it for purposes of the April 2016 election of its officers. (emphasis supplied).
In addition, we wish to point out that for purposes of the April 2016 election of SRCDC officers, only such Election Guidelines duly approved by the general assembly should be implemented. (emphasis supplied).
As to the second question, it is claimed that the BOD allegedly issued a Board Resolution reducing the number of members of SRCDC's BOD from eleven (11) to seven (7).
The amended Articles of Cooperation of SRCDC however states that the number of Directors of the cooperative shall in no case be less than five (5) but not to exceed eleven (11).
Clearly, the phrase "shall in no case be less than five (5) but not to exceed eleven (11) does not and cannot be interpreted to mean that there shall only be seven (7) members of the BOD of SRCDC.
Therefore, the alleged Board Resolution fixing the number of the members of SRCDC's BOD from eleven (11) to seven (7) cannot prevail over the Articles of Cooperation. (emphasis supplied).
Although we understand the noble intention of the BOD in desiring to reduce the number of the members of the BOD from eleven (11) to seven (7), that is to adopt cost-cutting measure, the same cannot however be executed by a mere Board Resolution but by proper amendment of the Articles of Cooperation.
As to the third and last question, nowhere in the amended Articles of Cooperation and the by-laws of SRCDC can we find the inference that the Audit Committee Chairman shall at all times attend the join meetings of the BOD and of any other committees in the cooperative. (emphasis supplied).
As a matter of fact, SRCDC's by-laws does not allow any member of the Audit Committee to serve as member of the BOD and vice-versa. Reason dictates however that the Audit Committee Chairman's participation in the BOD meeting can only be justified if matters discussed upon in the BOD meeting include audit concerns or other related matters necessarily requiring his or her presence.
We note however the other factual issues averred by Mr. Buluran in his letter. In this regard, the Extension Office is advised to validate the same through the conduct of inspection.
We hope to have adequately addressed your queries.
(SGD.) GIOVANNI T. PLATERO
Deputy Executive Director
Cooperative Development Authority
Cubao, Quezon City
22 March 2016