Liability of directors, trustees or officers (Section 30, Revised Corporation Code)

Summary

Attorney Marie Chris Batan Lasko's virtual classroom on YouTube simplifies legal concepts, focusing on director, trustee, and officer liability within corporations. Section 30 of the revised corporation code is dissected, outlining instances where corporate leaders can be held jointly and severally liable for damages due to unlawful acts, gross negligence, or conflicts of interest. The video clarifies the general rule of corporate entity separation and the exceptions to director liability, emphasizing the importance of ethical corporate governance.

Takeaways

• 📚 The video aims to simplify the law, specifically discussing the liability of directors, trustees, or officers in a corporation.
• 📖 Section 30 of the revised corporation code is the focus, which outlines the circumstances under which corporate officers can be held liable for damages.
• 🚫 Directors or trustees are liable if they willfully and knowingly vote for or assent to patently unlawful acts of the corporation.
• 🤔 Gross negligence or bad faith in directing the corporation's affairs can make directors or trustees jointly and severally liable for damages.
• 💰 Directors or trustees who acquire personal or pecuniary interest conflicting with their duty can be held liable and must account for profits that would have accrued to the corporation.
• 🏢 The general rule of the corporate entity doctrine states that a corporation is separate from its directors, trustees, officers, stockholders, or members.
• ⚠️ Section 30 is an exception to the corporate entity doctrine, specifying instances where directors, trustees, or officers can be held liable for corporate actions.
• 🔍 Three specific circumstances are identified for liability: unlawful corporate acts approval, gross negligence or bad faith, and conflict of interest in personal gain.
• 🙅‍♂️ Only guilty directors or trustees are held liable, not all members of the board, to ensure fairness and accountability.
• 💡 The video provides examples to illustrate each circumstance, such as directors being enticed by commissions to approve a supplier, leading to a conflict of interest.
• 👍 The video encourages viewers to like, subscribe, and enable notifications for new uploads, indicating the channel's educational value and engagement strategy.

Q & A

What is the main focus of the video by Attorney Marie Chris Batan Lasko?

The video focuses on discussing the liability of directors, trustees, or officers in a corporation, specifically the extent of their liability in case of damage or costs to the corporation, its stockholders, members, or other persons.

What does Section 30 of the revised corporation law state regarding the liability of directors or trustees?

Section 30 states that directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts, are guilty of gross negligence or bad faith, or acquire any personal or pecuniary interest in conflict with their duty, shall be liable jointly and severally for all damages resulting from their actions.

What is the general rule regarding the liability of directors, trustees, or officers in a corporation according to the doctrine of corporate entity?

The general rule, based on the doctrine of corporate entity, is that the corporation is separate and distinct from its directors, trustees, officers, stockholders, or members. As a result, the liabilities of the corporation remain the corporation's liabilities, and directors, trustees, or officers are generally not liable for them.

What are the three circumstances under Section 30 that make directors, trustees, or officers liable for damages caused to the corporation, its stockholders, members, or other persons?

The three circumstances are: 1) Willingly and knowingly voting for or assenting to patently unlawful acts of the corporation, 2) Being guilty of gross negligence or bad faith in directing the affairs of the corporation, and 3) Acquiring any personal or pecuniary interest in conflict with their duty as a director or trustee.

Can bad judgment on the part of directors or trustees be considered gross negligence?

No, bad judgment does not equate to gross negligence. Gross negligence implies an act with dishonest purpose or moral obliquity amounting to fraud, not a simple mistake of judgment.

What does it mean for directors or trustees to account for secret profits obtained in conflict with their duty?

Accounting for secret profits means that the directors or trustees must give their illicit gains, such as commissions received in conflict of interest, to the corporation because they acquired these benefits in violation of their duty to act in the corporation's best interest.

Is there a situation where all directors or trustees on the board would be held liable for the actions of one or two guilty parties?

No, only the guilty director or trustee will be held liable. It would be unfair to hold innocent parties accountable for the actions of those found guilty.

What is the significance of the conflict of interest in the example provided by Attorney Lasko involving a supplier and three directors?

The conflict of interest arises when directors accept commissions from a supplier to approve them, without considering the supplier's financial health or reputation. This puts their personal interests ahead of the corporation's, leading to liability under Section 30.

What should directors or trustees do when faced with a decision that could potentially lead to a conflict of interest?

Directors or trustees should recuse themselves from decisions where they have a personal or pecuniary interest that conflicts with their duty to the corporation, to avoid liability and maintain the integrity of their position.

How can a director or trustee demonstrate gross negligence in the context of the video?

Gross negligence can be demonstrated by actions that show dishonest purpose or moral obliquity, such as knowingly approving harmful or illegal corporate actions, rather than a simple error in judgment.

What is the importance of understanding Section 30 for directors, trustees, or officers of a corporation?

Understanding Section 30 is crucial as it outlines the specific instances where corporate officers can be held personally liable for damages, which helps them to navigate their responsibilities and avoid legal repercussions.