SUBJECT (2019) MIDTERM REVIEWER ATTY.

CONTRACTS BETWEEN CORPORATIONS WITH the intention to propose such removal at the meeting. A
INTERLOCKING DIRECTORS. special meeting of the stockholders or members for the
purpose of removing any director or trustee must be called
Section 32. Contracts between corporations with by the secretary on order of the president, or upon written
Interlocking Directors. – except in cases of fraud, and demand of the stockholders representing or holding at least
provided the contract is fair and reasonable under the a majority of the outstanding capital stock, a majority of the
members entitled to vote.
circumstances, a contract between two (2) or more
corporations having interlocking directors shall not be If there is no secretary, or if the secretary, despite demand,
invalidated on that ground alone: provided, that if the fails or refuses to call the special meeting or to give notice
interest of the interlocking director in one (1) thereof, the stockholder or member of the corporation
corporation is substantial and the interest in the other signing the demand may call for the meeting by directly
corporation or corporations is merely nominal, the addressing the stockholders or members. Notice of the
contract shall be subject to the provisions of the time and place of such meeting, as well as of the intention
preceding section insofar as the latter corporation or to propose such removal, must be given by publication or
corporations are concerned. by written notice prescribed in this code. Removal may be
with or without cause: provided, that removal without
cause may not be used to deprive minority stockholders or
Stockholdings exceeding twenty percent (20%) of the
members of the right of representation to which they may
outstanding capital stock shall be considered be entitled under section 23 of this code.
substantial for purposes of interlocking directors
The commission shall, motu propio or upon verified
GENERAL RULE: complaint, and after due notice and hearing, order the
CONTRACTS BETWEEN CORPORATIONS WITH INTERLOCKING removal of a director or trustee elected despite the
DIRECTORS IS VALID SO LONG AS IT IS FAIR AND REASONABLE.
disqualification, or whose disqualification arose or is
(INTERLOCKING DIRECTORS IS NOT A GROUND TO INVALIDATE A
CONTRACT) discovered subsequent to an election. The removal of a
disqualified directed shall be without prejudice to other
EXCEPTION: sanctions that the commission may impose on the board
1. IN CASES OF FRAUD. of directors or trustees who, with knowledge of the
disqualification, failed to remove such director or trustee
2. IF THE INTEREST OF THE INTERLOCKING DIRECTOR IS
SUBSTANTIAL IN ONE, AND NOMINAL IN THE OTHER
CONTRACTING CORPORATION, IN WHICH CASE, THE WHO MAY REMOVE DIRECTORS OR TRUSTEES
CORPORATION WHERE THE DIRECTOR HAS A NOMINAL
INTEREST HAS TO COMPLY WITH THE REQUIREMENTS 1. By a vote of the stockholders holding or
ON SELF- DEALING (SEC. 31). representing at least two-thirds (2/3) of the
outstanding capital stock, or if the corporation in
CONDITIONS UNDER SECTION 31. a non-stock corporation, by a vote of at least two-
thirds (2/3) of the members entitled to vote;
A. The presence of such director or trustee in the board
meeting in which the contract was approved was HOW ?
not necessary to constitute a quorum for such
meeting; A. There must be a meeting, in a regular or special meeting.
B. If in a special meeting, the special meeting shall be for
B. The vote of such director or trustee was not the purpose of removing the director.
necessary for the approval of the contract. C. Must be called by the secretary on order of the president,
or upon written demand of the stockholders
representing or holding at least a majority of the
REMOVAL OF DIRECTORS OR TRUSTEES outstanding capital stock, a majority of the members
Section 27. Removal of directors or trustees. – any entitled to vote.
director or trustee of a corporation may be removed from D. If there is no secretary, or if the secretary, despite
office by a vote of the stockholders holding or representing demand, fails or refuses to call the special meeting or to
at least two-thirds (2/3) of the outstanding capital stock, or give notice thereof, the stockholder or member of the
corporation signing the demand may call for the
if the corporation in a non-stock corporation, by a vote of
meeting by directly addressing the stockholders or
at least two-thirds (2/3) of the members entitled to vote: members. Notice of the time and place of such meeting,
provided, that such removal shall take place either at a as well as of the intention to propose such removal, must
regular meeting of the corporation or at a special meeting be given by publication or by written notice prescribed in
called for the purpose, and in either case, after previous this code
notice to stockholders or members of the corporation of

NAME | NAME | NAME | NAME U N I V E R S I T Y O F S A N C A R L O S | PAGE 1 OF 2

2. By the securities and exchange commission upon

NAME | NAME | NAME | NAME U N I V E R S I T Y O F S A N C A R L O S | PAGE 2 OF 2