TITLE III (c) Other corporations engaged in businesses vested with

BOARD OF DIRECTORS/TRUSTEE AND OFFICERS public interest similar to the above, as may be determined
by the Commission, after taking into account relevant
Section 22. The Board of Directors or Trustees of a factors which are germane to the objective and purpose of
Corporation; Qualification and Term. - Unless otherwise requiring the election of an independent director, such as
provided in this Code, the board of directors or trustees shall the extent of minority ownership, type of financial products
exercise the corporate powers, condict all business, and or securities issued or offered to investors, public interest
control all properties of the corporation. involved in the nature of business operations, and other
analogous factors.
Directors shall be elected for a term of one (10 Year from
among the holders of stocks registered in the corporation's An independent director is a person who apart from
book while trustees shall be elected for a term not shareholdings and fees received from any business or other
exceeding three (3) years from among the members of the relationship which could, or could reasonable be received to
corporation. Each director and trustee shall hold office until materially interfere with the exercise of independent
the successor is elected and qualified. A director who ceases judgment in carrying out the responsibilities as a director.
to own at least one (1) share of stock or a trustee who
ceases to be a member of the corporation shall cease to be Independent directors must be elected by the shareholders
such. present or entitled to vote in absentia during the election of
directors. Independent directors shall be subject to rules and
The board of the following corporations vested with public regulations governing their qualifications, disqualifications,
interest shall have independent directors constituting at voting requirements, duration of term and term limit,
least twenty percent (20%) of such board: maximum number of board membership and other
requirements that the Commission will prescribed to
(a) Corporations covered by Section 17.2 of Republic Act No. strengthen their independence and align with international
8799, otherwise known as "The Securities Regulation Code", best practices.
namely those whose securities are registered with the
Commission, corporations listed with an exchange or with Section 23. Election of Directors or Trustees. - Except when
assets of at least Fifty million pesos (50,000,000.00) and the exclusive right is reserved for holders of founders'
having two hundred (200) or more holders of shares, each shares under Section 7 of this Code, each stockholder or
holding at least one hundred (100) shares of a class of its member shall have the right to nominate any director or
equity shares; trustee who posseses all of the qualifications and none of
the disqualifications and none of the disqualifications set
(b) Banks and quasi-banks, NSSLAs, pawnshops, forth in this Code.
corporations engaged in money service business, preneed,
trust and insurance companies and other financial At all elections of directors or trustees, there must be
intermediaries; and present, either in person or through a representative
authorized to act by written proxy, the owners of majority of
the outstanding capital stock, or if there be no capital stock,
a majority of the members entitled to vote. When so

1
authorized in the bylaws or by a majority of the board of If no election is held, or the owners of majority of the
directors, the stockholders or members may also vote outstanding capital stock or majority of the members
through remote communication or in entitled to vote are not present in person, by proxy, or
absentia: Provided, That the right to vote through such through remote communication or not voting in absentia at
modes may be exercised in corporations vested with public the meeting, such meeting may be adjourned and the
interest, notwithstanding the absence of a provision in the corporation shall proceed in accordance with Section 25 of
bylaws of such corporations. this Code.

A stockholder or member who participates through remote The directors or trustees elected shall perform their duties
communication or in absentia, shall be deemed present for as prescribed by law, rules of good corporate governance,
purposes of quorum. and bylaws of the corporation.

The election must be by ballot if requested by any voting Section 24. Corporate Officers. - Immediately after their
stockholder or member. election, the directors of a corporation must formally
organize an elect: (a) a president, who must be a director;
In stock corporations, stockholders entitled to vote shall (b) a treasurer, who must be a resident; (c) a secretary, who
have the right to vote the number of shares of stock must be a citizen and resident of the Philippines; and (d)
standing in their own names in the stock books of the such other officers as may be provided in the bylaws. If the
corporation at the time fixed in the bylaws or where the corporation is vested with public interest, the board shall
bylaws are silent at the time of the election. The said also elect compliance officer. The same person may hold
stockholder may: (a) vote such number of shares for as two (2) or more positions concurrently, except that no one
many persons as there are directors to be elected; (b) shall act as president and secretary or as president and
cumulate said shares and give one (1) candidate as many treasurer at the same time, unless otherwise allowed in this
votes as the number of directors to be elected multiplied by Code.
the number of shares owned; or (c) distribute them on the
same principle among as many candidates as may be seen The officers shall manage the corporation and perform such
fit: Provided, That the total number of votes cast shall not duties as may be provided in the bylaws and/or as resolved
exceed the number of shares owned by the stockholders as by the board of directors.
shown in the books of the corporation multiplied by the
whole number of directors to be elected: Provided, Section 25. Report of Election of Directors, Trustees and
however, That no delinquent stock shall be voted. Unless Officers, Non-holding of Election and Cessation from Office. -
otherwise provided in the articles of incorporation or in the Within thirty (30) days after the election of the directors,
bylaws, members of nonstock corporations may cast as trustees and officers of the corporation, the secretary, or
many votes as there are trustees to be elected by may not any other officer of the corporation, the secretary, or any
cast more than one (1) vote for one (1) candidate. Nominees other officer of the corporation, shall submit to the
for directors or trustees receiving the highest number of Commission, the names, nationalities, shareholdings, and
votes shall be declared elected. residence addresses of the directors, trustees and officers
elected.

2
The non-holding of elections and the reasons therefor shall (1) Of an offense punishable by imprisonment for a period
be reported to the Commission within thirty (30) days from exceeding six (6) years;
the date of the scheduled election. The report shall specify a
new date for the election, which shall not be later than sixty (2) For violating this Code; and
(60) days from the scheduled date.
(3) For violating Republic Act No. 8799, otherwise known as
If no new date has been designated, or if the rescheduled "The Securities Regulation Code";
election is likewise not held, the Commission may, upon the
application of a stockholder, member, director or trustee, (b) Found administratively liable for any offense involving
and after verification of the unjustifiable non-holding of the fraudulent acts; and
election, summarily order that an election be held. The
Commission shall have the power to issue such orders as
may be appropriate, including other directing the issuance (c) By a foreign court or equivalent foreign regulatory
of a notice stating the time and place of the election, authority for acts, violations or misconduct similar to those
designated presiding officer, and the record date or dates enumerated in paragraphs (a) and (b) above.
for the determination of stockholders or members entitled to
vote. The foregoing is without prejudice to qualifications or other
disqualifications, which the Commission, the primary
Notwithstanding any provision of the articles of regulatory agency, or Philippine Competition Commission
incorporation or by laws to the contrary, the shares of stock may impose in its promotion of good corporate governance
or membership represented at such meeting and entitled to or as a sanction in its administrative proceedings.
vote shall constitute a quorum for purposes of conducting
an election under this section. Section 27. Removal of Director or Trustees. - Any director
or trustee of a corporation may be removed fro office by
Should a director, trustee or officer die, resign or in any vote of the stockholders holding or representing at least
manner case to hold office, the secretary or the director, two-thirds (2/3) of the outstanding capital stock, or in a
trustee or officer of the corporation, shall, within seven (7) nonstock corporation, by a vote of at least two-thirds (2/3) of
days form knowledge thereof, report in writing such fact to the member entitled to vote: Provided, That such removal
the Commission. shall take place either at a regular meeting of the
corporation or at a special meeting called for the purpose,
and in either case, after previous notice to stockholders or
Section 26. Disqualification of Directors, Trustees or members of the corporation of the intention to propose such
Officers. - A person shall be disqualified from being a removal at the meeting. A special meeting of the
director, trustee or officer of any corporation if, within five stockholders or members for the purpose of removing any
(5) years prior to the election or appointment as such, the director or trustee must be called by the secretary on order
person was: of the president, or upon written demand of stockholders
representing or holding at least a majority of the
(a) Convicted by final judgment: outstanding capital stock, or a majority of the members
entitled to vote. If there is no secretary, or the secretary,

3
despite demand, fails or refuses to call the special meeting authorizing the removal and this fact must be so stated in
or to give notice thereof, the stockholder or member of the the agenda and notice of said meeting. In all other cases,
corporation signing the demand may call the special the election must be held no later than forty-five (45) days
meeting or to give notice thereof, the stockholder or from the time the vacancy arose. A director or trustee
member of the corporation signing the demand may call for elected to fill vacancy shall be referred to as replacement
the meeting by directly addressing the stockholders or director or trustee elected to fill a vacancy shall be referred
members. Notice of the time and place of such meeting, as to as replacement director or trustee and shall serve only for
well as of the intention to propose such removal, must be the unexpired term of the predecessor in office.
given by publication or by written notice prescribed in this
Code. Removal may be with or without However, when the vacancy prevents the remaining
cause: Provided, That removal without cause may not be directors from consituting a quorum and emergency action
used to deprive minority stockholders or members of the is required to prevent grave, substantial, and irreparable
right representation to which they may be entitled under loss or damage to the corporation, the vacancy may be
Section 23 of this Code. temporarily filled from among the officers of the corporation
by unanimous vote of the remaining directors or trustees.
The Commission shall, motu propio or upon verified The action by the designated director or trustee shall be
complaint, and after due notice and hearing, order the limited to the emergency action necessary, and the term
removal of a director or trustee elected despite the shall cease within a reasonable time form the termination of
disqualification, or whose disqualification arose or is the emergency or upon election of the replacement director
discovered subsequent to an election. The removal of a or trustee, whichever comes earlier. The corporation must
disqualified director shall be without prejudice to other notify the Commission within three (3) days from the
sanctions that the Commission may impose on the board of creation of the emergency board, stating therein the reason
directors or trustees who, with knowledge of the for its creation.
disqualification, failed to remove such director or trustee.
Any directorship or trusteeship to be filled by a reason of an
Section 28. Vacancies in the Office of Director or Trustee; increase in the number of directors or trustees shall be filled
Emergency Board. - Any vacancy occurring in the board of only by an election at a regular or at a special meeting of
directors or trustees other that by removal or expiration of stockholders or members duly called for the purpose, or in
term may be filled by the vote of at least a majority of the the same meeting authorizing the increase of directors or
remaining directors or trustees, if still constituting a trustees if so stated in the notice of the meeting.
quorum; otherwise, said vacancies must be filled by the
stockholders or members in a regular or special meeting In all elections to fill vacancies under this section, the
called for that purpose. procedure set forth in Section 23 and 25 of this Code shall
apply.
When the vacancy is due to term expiration, the election
shall be held no later that the day of such expiration at a Section 29. Compensation of Directors or Trustees. - In the
meeting called for that purpose. When the vacancy arises as absence of any provision in the bylaws fixing their
a result of removal by the stockholders or members, the compensation, the directors or trustees shall not received
election may be held on the same day of the meeting any compensation in their capacity as such, except for

4
reasonable per diems: Provided, however, That the or more of its directors, trustees, officers or their spouses
stockholders representing at least a majority of the and relatives within the fourth civil degree of consanguinity
outstanding capital stock or majority of the members may or affinity is voidable, at the option of such corporation,
grant directors or trustees with compensation and approve unless all the following conditions are present:
the amount thereof at a regular or special meeting.
(a) The presence of such director or trustee in the board
In no case shall the total yearly compensation of directors meeting in which the contract was approved was not
exceed ten percent (10%) of the net income before income necessary to constitute a quorum for such meeting;
tax of the corporation during the preceding year.
(b) The vote of such director or trustee was not necessary
Directors or trustees shall not participate in the for the approval of the contract;
determination of their own per diems or compensation.
(c) The contract is fair and reasonable under the
Corporations vested with public interest shall submit to their circumstances;
shareholders and the Commission, an annual report of the
total compensation of each of their directors or trustees. (d) In case of corporations vested with public interest,
material contracts are approved by at least a majority of the
Section 30. Liability of Directors, Trustees or Officers. - independent directors voting to approved the material
Directors or trustees who willfully and knowingly vote for or contract; and
assent to patently unlawful acts of the corporation or who
are guilty of gross negligence or bad faith in directing the (e) In case of an officer, the contract has been previously
affairs of the corporation or acquire any personal or authorized by the board of directors.
pecuniary interest in conflict with their duty as such
directors or trustees shall be liable jointly and severally for Where any of the first three (3) conditions set forth in the
all damages resulting therefrom suffered by the corporation, preceding paragraph is absent, in the case of a contract with
its stockholders or members and other persons. a director or trustee, such contract may be ratified by the
vote of the stockholders representing at least two-thirds
A director, trustee or officer shall not attempt to acquire, or (2/3) of the outstanding capital stock or of at least two-thirds
any interest adverse to the corporation in respect of any (2/3) of the members in a meeting called for the
matter which has been reposed in them in confidence, and purpose: Provided, That full disclosure of the adverse
upon which, equity imposes a disability upon themselves to interest of the directors or trustees involved is made at such
deal in their own behalf; otherwise, the said director, trustee meeting and the contract is fair and reasonable under the
or officer shall be liable as a trustee for the corporation and circumstances.
must account for the profits which otherwise would have
accrued to the corporation. Section 32. Contaracts Between Corporations with
Interlocking Directors. - Except in cases of fraud, and
Section 31. Dealings of Directors, Trustees or Officers with provided the contract is fair and reasonable under the
the Corporation. - A contract of the corporation with one (1) circumstances a contract between two (2) or more

5
corporations having interlocking directors shall not be members' term, composition, compensation, powers, and
invalidated on that ground alone: Provided, That if the responsibilities.
interest of the interlocking director in one (1) corporation is
substantial and the interest in the other corporation or
corporations is merely nominal, the contract shall be subject CASES
to the provisions of the preceding section insofar as the
latter corporation or corporations are concerned.
GR No. 151969
VVCC vs. Africa
Stockholding exceeding twenty percent (20%) of the
outstanding capital stock shall be considered substantial for
purposes of interlocking directors.  HOLDOVER CAPACITY
 SECTION 29 of the RCC
Section 33. Disloyalty of a Director. - Where a director, by
virtue of such office, acquires a business opportunity which FACTS
should belong to the corporation, thereby obtaining profits
VVCC elected its members of the BOD which includes
to the prejudice of such corporation, the director must
account for and refund to the latter all such profits, unless Dinglasan and Makalintal. Upon the expiration of their term,
the act has been ratified by a vote of the stockholders the directors continue to serve in VVCC in a holdover
owning or representing at least two-thirds (2/3) of the capacity since quorum was not obtained to hold a
outstanding capital stock. This provision shall be stockholder’s meeting.
applicable, nothwithstanding the fact that the director risked
one's own funds in the venture. Thereafter, Dinglasan and Makalintal resigned from their
positions and the remaining directors, still constituting a
Section 34. Executive Management, and Other Special quorum, elected Roxas and Ramirez to fill the vacancies.
Committees. - If the bylaws so provide, the board may Herein respondent Africa, a member of VVCC, questioned
create an executive committee composed of at least three the election of Roxas and Ramirez and alleged that it was
(3) directors. Said committee may act, by majority of vote of
contrary to Section 29 of RCC. Africa claimed that Makalintal
all its members, on such specific matters within the
competence of the board, as may be delegated to it in the and the other members’ term as member of the board have
bylaws or by majority vote of the board, except with respect already expired hence, the resulting vacancy should have
to the: (a) approval of any action for which shareholders' been filed by the stockholders in a regular or special
approval is also required; (b) filing of vacancies in the board; meeting called for that purpose and not by the remaining
(c) amendment or repeal of bylaws or the adoption of new members of the VVCC board.
bylaws; (d) amendment or term is not amendable or
repealable; and (e) distribution of cash divendends to the ISSUE
shareholders. WON the remaining directors, still constituting a quorum can
elect another director to fill in the vacancy caused by the
The board of directors may create special committees of resignation of a holdover director.
temporary or permanent nature and determine the

6
RULING Petitioner then filed a complaint for collection of sum of
money against respondents. The respondents argued that
The Court ruled that a holdover period is not part of the the purchases on credit were spurious, simulated and
term of office of a member of the BOD. The vacancy was fraudulent since there was no delivery of the ₱7,000,000.00
due to the expiration of Makalintal and Dinglasan’s term worth of notebooks and other paper products.
which has been created long before their resignation.
Hence, there was no authority for the remaining directors to As to the loan transactions, the respondents countered that
fill in the vacancy since there was no more unexpired term these were the personal obligations of Tan and Uy to
to speak of. The authority now lies to the stockholders and Advance Paper. These loans were never intended to benefit
not the remaining members of its board of directors. the respondents.

GR No. 176897
Advance Paper vs. Arma Traders
ISSUE

 DOCTRINE OF APPARENT AUTHORITY WON Arma Traders is liable to pay the loans applying the
doctrine of apparent authority.
FACTS

Respondent Arma Traders is a domestic corporation engaged RULING

in the wholesale and distribution of school and office The Court ruled that through the doctrine of apparent
supplies. Through its former President and Treasurer, it authority, Arma Traders bestowed upon Tan and Uy broad
purchased on credit notebooks and other paper products powers by allowing them to transact with third persons
and obtained loans from petitioner Advance Paper, a without the necessary written authority from its non-
domestic corporation engaged in the business of producing, performing board of directors. The doctrine of apparent
printing, manufacturing, distributing and selling of various authority provides that a corporation will be estopped from
paper products. denying the agent’s authority if it knowingly permits one of
its officers or any other agent to act within the scope of an
As payment for the purchases on credit and loans, Arma apparent authority, and it holds him out to the public as
Traders issued 82 postdated checks payable to cash or to possessing the power to do those acts. Ng, who is the
Advance Paper. Both the former President and Treasurer corporate secretary, incorporator, stockholder and director,
signed the checks as they are the authorized bank testified that the sole management of Arma Traders was left
signatories. to Tan and Uy and that he and the other officers never dealt
with the business and management of Arma Traders for 14
Upon presentation of the said checks to the drawee bank, it years. Hence, Arma Traders is now estopped from denying
was dishonored. Tan and Uy’s authority to obtain loan from Advance Paper.

7
 The Court assented the ruling of the CA as it is supported by
GR No. 185664 both evidence and jurisprudence. As opted by the CA, there
Balinghasay vs. Castillo was no quorum when the Board meeting was held and that
the MOA was not ratified by a vote of two-thirds of MCPI’s
 QUORUM outstanding capital stock. Further, the circumstances and
 MAJORITY urgent hospital necessity justifying the purchase and
 BUSINESS JUDGMENT RULE operation of the ultrasound unit by the investors were not at
the outset offered as evidence. It was also indicated that
based on the financial records, MCPI was in a financial
FACTS position to purchase the ultrasound equipment.
The petitioners in this controversy are part of a group who Business Judgment Rule. is a legal doctrine that helps to
invested in the purchase of ultrasound equipment to be guard a corporation's board of directors (B of D) against
used in Medical Center Paranaque Inc. 9 of the herein frivolous legal allegations about the way it conducts
petitioners are Board of Directors of MCPI. business. A legal staple in common law countries, the rule
states that boards are presumed to act in "good faith"—that
In a Memorandum of Agreement entered into MCPI and the
is, within the fiduciary standards of loyalty, prudence, and
ultrasound investors, the gross income of the said
care directors owe to stakeholders. Absent evidence that the
equipment shall be divided into two, with the proportion of
board has blatantly violated some rule of conduct, the
60% belonging to the investors and 40% to MCPI. Further,
courts will not review or question its decisions.
the ownership of the ultrasound machine would eventually
be transferred to MCPI.

Herein respondent Flores challenged the the BOD’s approval GR No. 161886
of the MOA for being prejudicial to MCPI’s interest. FILPORT vs. Go, et. Al.
Respondents then filed a derivative suit against the
petitioners for violation of Section 31 of the RCC.
 SECTION 23
The RTC rendered a decision and found that MCPI impliedly
ratified the MOA. This decision was not supported by the
findings of the CA and declared the invalidity of the MOA as FACTS
it is not validly approved by the BOD. Petitioner Cruz, Filport’s president filed with the SEC a
ISSUE derivate suit against the respondents who was then the
incumbent members of Filport’s BOD for the alleged acts of
WON the CA erred in deciding that the MOA is invalid. mismanagement by creating positions for an executive
committee with monthly remuneration and the election
RULING
thereto of certain members of the board. The increase in the
emoluments of the Chairman, Vice-President, Treasurer and

8
Assistant General Manager were also questioned as it is subsidiary by acquiring JTH Davies Holdings, Inc. (JTH). In
allegedly disproportionate to the volume and character of 2006, PRCI’s Board of Directors, comprising Santiago Cua Jr.,
the work of the directors holding said positions. Solomon S. Cua, and Exequiel D. Robles (petitioners along
with Santiago Cua Sr.), decided to acquire 95.55% of JTH’s
shares from Jardine Matheson Europe B.V. (JME). The
ISSUE decision was met with opposition from some stockholders,
particularly Miguel Ocampo Tan, Jemie U. Tan, and Atty.
WON the creation of an executive committee and the Brigido J. Dulay (respondents), who filed a derivative suit
increase in the emoluments of the officers are in accordance questioning the Board’s resolution approving the acquisition
to the corporation’s by laws in pursuant to the Corporation and the subsequent transfer of PRCI’s Sta. Ana property to
Code. JTH in exchange for JTH shares. The respondents sought a
Temporary Restraining Order (TRO) to prevent these actions
from being ratified during PRCI’s 2007 Annual Stockholders’
RULING Meeting. The TRO was issued by Judge Cesar Untalan of the
Regional Trial Court (RTC), Branch 149, Makati, and later led
The Court ruled that the Board of Directors has the power to to the issuance of a permanent injunction against the PRCI
create positions not provided for in Filport’s bylaws since the Board. The PRCI directors filed separate petitions under
board is the corporation’s governing body, clearly upholding Rules 45 and 65 of the Rules of Court assailing the RTC’s and
the power of its board to exercise its prerogatives in the Court of Appeals’ (CA) decisions.
managing the business affairs of the corporation. As to the
increase of the emoluments, it was clearly stipulated in the ISSUES
corporation’s bylaws that the BOD shall fix the 1. Whether the Court of Appeals erred in dismissing the
compensation of the officers and agents of the corporation. petitions questioning the RTC’s issuance of the TRO and
permanent injunction.

GR No. 181455-56 2. Whether Civil Case No. 07-610 and Civil Case No. 08-458,
Santiago Cua, Jr., (Director of PRCI) et. al. vs. Miguel pending before the RTC, should be dismissed.
Ocampo Tan
RULING

1. The Supreme Court held that the derivative suit filed

FACTS
by the respondents was moot and academic as the
The Philippine Racing Club, Inc. (PRCI), a corporation resolutions questioned were already ratified and
organized under Philippine laws, sought to convert its Makati approved by the majority of stockholders during the
property from a racetrack to urban residential and 2008 Annual Stockholders’ Meeting. The TRO issued
commercial use and transfer its racetrack to Cavite. by the RTC expired on 5 August 2007, before the
Subsequently, PRCI management decided to spin off the higher court could resolve the matter, rendering it
management of its Makati property to a wholly owned moot. Moreover, the engagement agreement

9
 between PRCI and JTH for the property-for-shares
exchange was rescinded, subsequently rendering any
further judicial intervention irrelevant.
2. The Supreme Court declared that Civil Case No. 07-
610 filed as a derivative suit was flawed since
respondents failed to meet the requisites for such a
suit under the Interim Rules for Intra-Corporate
Controversies (IRPICC). The Resolution dated 26
September 2006 by the PRCI Board authorizing the
acquisition of JTH was already ratified by the
stockholders making any judicial declaration of
nullity irrelevant. Additionally, necessary stockholder
parties were not impleaded, warranting its dismissal.
Filed by a different set of minority stockholders, this
derivative suit was also rendered moot as it covered
the same issues as Civil Case No. 07-610 already
approved by the stockholders. Consequently, it also
embodied redundancy and potential forum shopping,
violating procedural rules.

Doctrine: The Supreme Court reiterated the principle that

corporate actions approved and ratified by stockholders bind
the corporation, making derivative suits moot if such
approval is subsequent. Furthermore, in derivative suits, the
corporation as the real party-in-interest must be the one to
take legal action, and any separate action by stockholders
individually covering the same factual grounds amounts to
impropriety and may be dismissed.

Derivative Suit: A legal action initiated by stockholders to

address wrongs committed against the corporation which
typically requires proof that remedies within the corporation
have been exhausted and that no appraisal rights are
available.

10