Cagayan Fishing Development Co. Inc. VS Sandiko GR.No.

L43350, December 23, 1937

-DIGEST- Cagayan Fishing Development Co., Inc. vs. Teodoro Sandiko (G.R. No. L-43350, December 23, 1937)
Facts:
1. Ownership and Mortgages:
o Manuel Tabora owned four parcels of land in Aparri, Cagayan, evidenced by Transfer Certificate of Title No.
217.
o To secure loans, Tabora executed three mortgages:
 A first mortgage in favor of the Philippine National Bank (PNB) for PHP 8,000 on August 14, 1929.
 A second mortgage also in favor of PNB for PHP 7,000 in April 1930.
 A third mortgage in favor of Severina Buzon for PHP 2,900 on April 16, 1930.
o These mortgages were registered, and annotations were made on the title.
2. Transfer to Cagayan Fishing Development Co., Inc.:
o On May 31, 1930, Tabora executed a document titled "Escritura de Transpaso de Propiedad Inmueble"
(Exhibit A), transferring the four parcels to Cagayan Fishing Development Co., Inc., which was under
incorporation at the time, for PHP 1.
o The transfer was subject to existing mortgages and a condition that the title would not be transferred to the
company until Tabora's debt to PNB was paid.
3. Incorporation of Plaintiff Company:
o The company, Cagayan Fishing Development Co., Inc., was officially incorporated on October 22, 1930,
nearly five months after the transfer was executed.
4. Subsequent Sale to Defendant:
o On October 28, 1931, the company’s board authorized its president, Jose Ventura, to sell the land to
Teodoro Sandiko for PHP 42,000.
o Three documents were executed on February 15, 1932:
 Exhibit B: Deed of sale transferring the company’s rights to Sandiko, who assumed the mortgages.
 Exhibit C: Promissory note for PHP 25,300 payable after one year.
 Exhibit D: Mortgage deed securing the promissory note with the four parcels of land.
5. Failure to Pay:
o Sandiko failed to pay the promissory note, prompting the plaintiff to file a suit for PHP 25,300 plus interest in
the Court of First Instance of Manila on January 25, 1934.
6. Lower Court Decision:
o The court dismissed the complaint, holding Exhibit B invalid due to a vice in consent and illegality.

Issue:
  Whether the plaintiff corporation, Cagayan Fishing Development Co., Inc., had a valid right to sell the four parcels
of land to the defendant, Teodoro Sandiko, given that the transfer from Manuel Tabora to the plaintiff was made
before the company's incorporation.

Ruling:
 The Supreme Court affirmed the lower court’s decision to dismiss the complaint against Sandiko.
Reasoning:
1. Non-Existence of the Corporation at the Time of Transfer:
o The transfer of the four parcels of land by Tabora to the plaintiff was executed on May 31, 1930 (Exhibit A),
while the plaintiff was incorporated on October 22, 1930.
o At the time of the transfer, the plaintiff was not yet a legal entity; hence, it lacked the juridical capacity to
enter into any contract.
2. Legal Principles on Corporations:
o Corporations are creations of law and can only enter into contracts or conduct business after they have been
lawfully organized according to statutory requirements.
o Before lawful organization, a corporation does not have legal existence and cannot be considered an entity
capable of owning property or entering into contracts.
3. Contractual Implications:
o The court found that Exhibit A (the contract of sale) was not between Tabora and a valid corporation but
rather between Tabora and a group of promoters for a projected corporation that did not yet exist.
o Because the corporation did not legally exist at the time of the sale, it could not acquire any rights over the
property.
4. Lack of Resultant Right to Dispose of Property:
o Since the plaintiff corporation never validly acquired the parcels of land, it did not possess the right to sell
them to Sandiko.
5. Condition Precedent:
o The transfer to the plaintiff was subject to the condition that the mortgage debt to PNB be paid. This
condition was not met, rendering the transfer ineffective under the doctrine of condition precedent.
Conclusion:
 The Supreme Court affirmed the lower court’s judgment dismissing the complaint against Sandiko. The plaintiff
corporation had no legal capacity to acquire or dispose of the property in question due to its non-existence at the
time of the initial transfer and failure to fulfill conditions precedent. The corporation's acts were invalid, and
Sandiko could not be held liable for the promissory note.
Hall VS Picco, G.R.no. L-2598, June 29, 1950
-DIGEST- C. Arnold Hall and Bradley P. Hall vs. Edmundo S. Piccio, et al. (G.R. No. L-2598, June 29, 1950)
Facts:
1. Incorporation and Business Activities:
o On May 28, 1947, C. Arnold Hall, Bradley P. Hall, Fred Brown, Emma Brown, Hipolita D. Chapman, and
Ceferino S. Abella signed and acknowledged the articles of incorporation for the Far Eastern Lumber and
Commercial Co., Inc., in Leyte. The company was organized to engage in a general lumber business.
o An affidavit by the treasurer was attached, stating that 23,428 shares of stock had been subscribed and fully
paid through the transfer of certain properties to the corporation.
o Immediately after executing the articles of incorporation, the company began its business operations,
adopted by-laws, and elected officers.
o The articles of incorporation were submitted to the Securities and Exchange Commissioner on December 2,
1947, for the issuance of a certificate of incorporation.
2. Filing of the Lawsuit:
o On March 22, 1948, while awaiting the issuance of the certificate of incorporation, Fred Brown, Emma
Brown, Hipolita D. Chapman, and Ceferino S. Abella filed Civil Case No. 381 before the Court of First Instance
of Leyte. They alleged that the company was an unregistered partnership, and they sought its dissolution
due to internal dissension, mismanagement, fraud, and financial losses.
3. Response from Defendants:
o Defendants C. Arnold Hall and Bradley P. Hall filed a motion to dismiss, arguing that the court lacked
jurisdiction and that the complaint was insufficient to state a cause of action.
o After hearing the arguments, Judge Edmundo S. Piccio ordered the dissolution of the company and
appointed a receiver for its properties upon the plaintiffs' request, subject to a PHP 20,000 bond.
4. Subsequent Actions:
o The defendants (petitioners) offered to post a counter-bond to discharge the receiver, but the respondent
judge refused to accept this offer and maintained the appointment of the receiver.
o Consequently, the petitioners filed a special civil action before the Supreme Court to set aside all
proceedings in Civil Case No. 381 and to enjoin the respondent judge from further acting on the case.
Issues:
o Whether the Court of First Instance of Leyte had jurisdiction to decree the dissolution of the company, Far
Eastern Lumber and Commercial Co., Inc., on the basis that it was a de facto corporation, whose dissolution
could only be ordered through a quo warranto proceeding in accordance with Section 19 of the Corporation
Law.
o Whether the company was a corporation de facto or an unregistered partnership and whether the actions
taken by the stockholders were sufficient to claim corporate status.
Ruling:
 The Supreme Court dismissed the petition to set aside the proceedings of the Court of First Instance of Leyte.
Reasoning:
 1. Lack of Corporate Status:
o The Court noted that the Far Eastern Lumber and Commercial Co., Inc. had not obtained a certificate of
incorporation from the Securities and Exchange Commission. Under Section 11 of the Corporation Law, a
corporation's legal existence begins only upon the issuance of such a certificate. Since the certificate was not
issued, the corporation did not legally exist.
2. Application of Section 19 of the Corporation Law:
o Section 19 of the Corporation Law protects the corporate status from collateral attacks in private suits only if
the entity claims, in good faith, to be a corporation under the law. The Court concluded that this protection
did not apply because the Far Eastern Lumber and Commercial Co., Inc. did not exist as a legal entity due to
the lack of a certificate of incorporation.
o Additionally, this was not a suit where the corporation itself was a party. Instead, it was a dispute among
stockholders seeking the dissolution of the entity. Even a de jure corporation could be dissolved in a private
suit among stockholders.
3. No Estoppel Against Respondents:
o The Court held that there was no estoppel because all parties were aware that the certificate of
incorporation had not been issued and thus could not claim they were misled into believing the corporation
existed.
4. Appointment of Receiver and Counter-Bond:
o The appointment of a receiver was appropriate in a suit for the dissolution of the company. The Court did
not find any abuse of discretion by the lower court in rejecting the counter-bond and appointing a receiver.
5. Remedy through Appeal:
o The Supreme Court indicated that the petitioners had an available remedy through an appeal of the order of
dissolution if they wished to challenge the decision of the lower court.
Conclusion:

 The Supreme Court dismissed the petition for lack of merit, affirming that the Court of First Instance of Leyte acted within its
jurisdiction to dissolve the company and appoint a receiver. The preliminary injunction issued by the Supreme Court was also
dissolved.
The Missionary Sisters of Our Lady of Fatima VS Alzona, GR.No. 224307, AUGUST 6,2018

Facts

1. Parties Involved:

o Petitioner: The Missionary Sisters of Our Lady of Fatima, also known as the Peach Sisters of Laguna, a religious and
charitable group established under the patronage of the Roman Catholic Bishop of San Pablo.

o Respondents: The legal heirs of the late Purificacion Y. Alzona, who owned several parcels of land in Calamba City,
Laguna.

2. Purificacion's Involvement with the Petitioner:

o Purificacion, a spinster and property owner, desired to devote her life to charitable causes. In 1996, she became a
benefactor of the petitioner by supporting their community and charitable works.

o In 1997, Purificacion was diagnosed with lung cancer and requested the petitioner's Superior General, Mother Ma.
Concepcion R. Realon, to take care of her.

3. Donation to the Petitioner:

o In October 1999, Purificacion expressed her intent to donate her properties in Calamba, Laguna, to the petitioner
through a handwritten letter.

o On August 29, 2001, Purificacion executed a formal Deed of Donation Inter Vivos, conveying her properties to the
petitioner. The Deed was notarized and witnessed by her relatives.

4. Registration Issues and Subsequent Death:

o After the donation, the petitioner applied for a donor's tax exemption and attempted to register the Deed with the
Register of Deeds. The registration was denied due to an Affidavit of Adverse Claim filed by Purificacion's brother,
Amando Y. Alzona.

o Purificacion passed away on October 30, 2001, leaving her brother Amando as her sole heir. Amando, who later died
during the pendency of the case, was substituted by his legal heirs, the respondents.

5. Legal Proceedings:

o Amando filed a complaint to annul the Deed of Donation, claiming the petitioner lacked the juridical personality to
accept the donation as it was not registered with the SEC at the time of the donation.

o The RTC dismissed the complaint, ruling in favor of the petitioner. The RTC held that the petitioner had the capacity to
accept the donation as a de facto corporation.

o The respondents appealed to the CA, which set aside the RTC decision and declared the Deed of Donation void,
concluding that the petitioner, not being a registered corporation at the time, lacked the capacity to accept the
donation.

o The petitioner sought reconsideration, which the CA denied, prompting the petitioner to elevate the case to the
Supreme Court.

Issue

 Whether the Deed of Donation executed by Purificacion in favor of the petitioner is valid and binding, considering the
petitioner's legal capacity to accept the donation and the authority of Mother Concepcion to act on behalf of the petitioner in
accepting the donation.
Ruling

 The Supreme Court ruled in favor of the petitioner, finding the petition meritorious.

1. Legal Capacity to Accept Donation:

o The Court held that the petitioner, although not a de facto corporation at the time of the donation, could be
considered a corporation by estoppel. Purificacion dealt with the petitioner as if it were a corporation, evidenced by
her execution of documents conveying her properties to the petitioner. Thus, the petitioner is vested with the
personality to accept the donation.

2. Authority of Mother Concepcion:

o The Court affirmed that Mother Concepcion had the authority to accept the donation on behalf of the petitioner. The
petitioner's subsequent incorporation and ratification of Mother Concepcion's actions validated the acceptance of the
donation.

3. Application of Doctrine of Corporation by Estoppel:

o The Court applied the doctrine of corporation by estoppel, which prevents a person who has dealt with a non-existent
corporation from denying its existence to avoid enforcement of a contract. Since Purificacion treated the petitioner as
a corporate entity and executed the donation in favor of the petitioner, the doctrine applies, and the donation is valid.

4. Conclusion:

o The Supreme Court concluded that the Deed of Donation was valid and binding on the parties involved, including the
respondents as heirs of Purificacion. The Court reversed the CA's decision and reinstated the RTC ruling, thereby
upholding the validity of the Deed of Donation.
SEC Memorandum Circular No. 16 Series 2002

Guidelines on the Nomination and Election of Independent Directors

This circular provides guidelines for companies in the nomination and election of independent directors, ensuring
uniform procedures and compliance with corporate governance standards.

I. Coverage

This circular applies to public companies and those subject to secondary licenses from the Securities and Exchange
Commission (SEC). These include:

A. Issuers of registered securities to the public, regardless of listing status in the Philippine Stock Exchange (PSE).
B. Public companies with assets of at least PHP 50,000,000 and 200 or more shareholders, each holding at least 100
shares.
C. Finance companies.
D. Investment houses.
E. Brokers and dealers of securities.
F. Investment companies.
G. Pre-need companies.
H. Subsidiaries or branches of foreign corporations operating in the Philippines and listed in the PSE.
I. Stock and other securities exchanges.

II. Definition

A. Independent Director: A person who, apart from their fees and shareholdings, is independent of management and free
from any business or other relationship that could interfere with their independent judgment as a director. This includes
individuals who:

i. Are not directors, officers, or substantial shareholders of the corporation, its related companies, or any substantial
shareholders, except as an independent director.
ii. Are not relatives of any director, officer, or substantial shareholder of the corporation or its related companies.
iii. Are not acting as nominees or representatives of a substantial shareholder of the corporation or its related
companies.
iv. Have not been employed in an executive capacity by the public company, its related companies, or substantial
shareholders within the last five years.
v. Are not retained as professional advisers by the public company, its related companies, or substantial
shareholders within the last five years.
vi. Have not engaged in any transaction with the corporation, its related companies, or substantial shareholders,
except transactions at arm's length and insignificant.

B. Related Company: Another company that is a holding company, subsidiary, or a subsidiary of a holding company.
Substantial Shareholder: A person who owns more than 10% of any class of equity security.

C. Qualifications for Independent Directors:

i. Must own at least one share of stock in the corporation.

ii. Must be a college graduate or have been engaged or exposed to the business of the corporation for at least five
years.
 iii. Must possess integrity and probity.
iv. Must be diligent and assiduous.

D. Disqualifications: An independent director shall be disqualified if:

i. They become an officer or employee of the corporation or any person enumerated under letter (A).
ii. Their beneficial ownership exceeds 10% of the outstanding capital stock of the company.
iii. They fail to attend at least 50% of the total number of Board meetings without justifiable cause.
iv. Any other disqualifications provided in the company's Manual on Corporate Governance.

III. Number of Independent Directors

A. All companies are encouraged to have independent directors. Issuers of registered securities and public
companies must have at least two independent directors or at least 20% of the board size, whichever is lesser.
Companies may opt to have more than the minimum requirement.

B. Stock exchanges are required to have at least three independent directors and an independent director-
President.

IV. Nomination and Election of Independent Directors

A. The Nomination Committee must have at least three members, including one independent director, to oversee
the nomination process and disclose guidelines in the company's information statement or proxy statement.

B. Nomination of independent directors shall occur before a stockholders' meeting, with recommendations signed
by nominating stockholders and accepted by the nominees.

C. The Nomination Committee will pre-screen qualifications and prepare a final list of candidates.

D. Only candidates on the final list may be elected as independent directors. No nominations will be accepted
during the stockholders' meeting.

E. The election must comply with the standard procedures of the company, and the Chairman of the Meeting must
ensure independent directors are elected.

F. If independent directors are not elected, a separate election will be called.

G. Companies must amend their by-laws to align with these requirements.

V. Termination/Cessation of Independent Directorship

In the event of resignation, disqualification, or cessation, and upon notifying the SEC within five days, the vacancy
shall be filled by a majority vote of the remaining directors if a quorum is present. If not, stockholders will fill the
vacancy in a regular or special meeting.

VI. Effectivity

This Memorandum Circular takes effect 15 days after its publication in a newspaper of general circulation, effective
from November 28, 2002.
 Valle Verde Country Club Inc. et.al. VS Africa, GR.No. 151969, September 4, 2009

Facts:

 The members of the Board of Directors of Valle Verde Country Club, Inc. (VVCC) were elected during the annual
stockholders' meeting on February 27, 1996. Due to a lack of quorum in the succeeding years (1997 to 2001), the
directors continued to serve in a hold-over capacity.
 On September 1, 1998, one of the directors, Jaime C. Dinglasan, resigned. The remaining board members elected
Eric Roxas to fill the vacancy. Similarly, after Eduardo Makalintal's resignation on November 10, 1998, the board
elected Jose Ramirez on March 6, 2001.
 Victor Africa, a VVCC member, contested these elections, arguing that the election of Roxas and Ramirez violated
Sections 23 and 29 of the Corporation Code. He claimed that once a director's one-year term expired, any vacancies
should be filled by the stockholders and not by the remaining directors.

Issue:

 Can the remaining members of a corporation's board of directors elect another director to fill a vacancy caused by
the resignation of a hold-over director?

Ruling: -- NO

 The Supreme Court ruled that the remaining directors of the VVCC Board could not elect another director to fill the
vacancy caused by the resignation of a hold-over director. The Court explained that once a director's one-year term
has expired, the vacancy should be filled by the corporation's stockholders in a regular or special meeting called for
that purpose. The Court emphasized that the term of office of a director is for one year, and any period beyond that
is considered a holdover period, not part of the original term. Since Makalintal's term had expired and he was only
holding over, the vacancy caused by his resignation should have been filled by the stockholders.
SEC-OGC Opinion No. 14-10, June 2, 2014 addresses the issue of filling vacancies in the board of directors of a corporation,
particularly in the context of the term of office of directors and the holdover period.

Key Points:
1. Term of Office of Directors:
o The term of office of directors is generally one year, as stated in the Corporation Code, unless the
corporation's articles of incorporation or by-laws provide otherwise.
o Directors hold office for one year and until their successors are elected and qualified. If a new election is not
held due to lack of quorum or any other reason, the current directors will continue to hold office in a
holdover capacity.
2. Holdover Period:
o The holdover period is the period after the expiration of a director's term but before the election and
qualification of their successor.
o During the holdover period, the directors continue to function with full authority, as there is no vacancy per
se in their positions despite the expiration of their official term.
3. Filling of Vacancies:
o Vacancies in the board of directors may arise due to resignation, death, removal, or any other reason that
prevents a director from continuing their term.
o If a vacancy arises not due to the expiration of the director's term but for other reasons (such as resignation
or death), and the remaining directors still constitute a quorum, the remaining directors may elect a
replacement to serve for the unexpired term of the vacating director.
4. Restriction on Filling Vacancies for Expired Terms:
o If the vacancy occurs due to the expiration of a director's term and not due to other reasons (such as
resignation or death), the vacancy must be filled by the stockholders in a regular or special meeting called
for that purpose.
o The directors do not have the authority to fill a vacancy resulting from the expiration of a director's term;
this power is reserved to the stockholders to ensure their right to elect their representatives.
5. Authority of Remaining Directors:
o The opinion clarifies that the authority of the remaining directors to fill a vacancy is contingent on the
existence of an unexpired term. If the term has already expired, there is no unexpired term to fill, and
therefore, the stockholders must elect a replacement.
o The legal framework ensures that corporate governance remains in the hands of the stockholders and
prevents directors from unduly perpetuating themselves in office.

Conclusion:

The SEC-OGC Opinion No. 14-10 emphasizes the distinction between filling a vacancy caused by reasons other than the
expiration of a term and those caused by the expiration of a term. For vacancies caused by reasons other than the
expiration of a term, remaining directors may fill the vacancy if they still constitute a quorum. However, for vacancies due
to the expiration of a term, the power to elect a replacement rests solely with the stockholders.

SEC Memorandum Circular No. 4, Series of 2002 outlines the paid-up capital requirements for existing and new pre-need
companies in the Philippines. This circular is in accordance with the Securities Regulation Code, specifically addressing the
minimum capital that pre-need companies must maintain to continue their operations and sell pre-need plans.

Key Points:
1. Paid-Up Capital Requirements for Existing Pre-Need Companies:

o Companies with Traditional Education Plans: Must have a minimum paid-up capital of PHP 100,000,000.
o Companies with Three Types of Pre-Need Plans: Must have a minimum paid-up capital of PHP 100,000,000.
o Companies with Two Types of Pre-Need Plans: Must have a minimum paid-up capital of PHP 75,000,000.
o Companies with One Type of Pre-Need Plan: Must have a minimum paid-up capital of PHP 50,000,000.

2. Guidelines for Companies with Insufficient Paid-Up Capital:

o Pre-need companies currently authorized to sell two or three types of pre-need plans but with a paid-up
capital of PHP 50 million but less than PHP 75 million are restricted to selling only one type of plan.
o Affected companies must indicate their chosen plan type no later than May 7, 2002.
o These companies have the option to increase their paid-up capital to meet the required levels for multiple
plan types.
o Companies selling traditional plans that do not meet the PHP 100 million requirement can also infuse
additional capital to continue offering these plans.

3. Compliance for Companies with Paid-Up Capital Below PHP 50 Million:

o Pre-need companies with a paid-up capital below PHP 50 million must raise their capital to at least PHP 50
million by May 30, 2002 to sell one type of plan.
o Failure to meet the capital deficiency within this non-extendible period will result in the suspension of their
permit to sell.

4. Requirements for New Pre-Need Companies:

o The minimum paid-up capital for new pre-need companies remains at PHP 100 million, irrespective of the
type of plans they intend to offer.

5. Compliance Date:

o All companies are expected to comply strictly with these requirements as stipulated in the circular dated
April 30, 2002.
This circular sets the financial groundwork to ensure that pre-need companies are adequately capitalized to fulfill their
contractual obligations to planholders and maintain financial stability within the industry.

Section 29 of RA 11232: Revised Corporation Code of the Philippines outlines the rules regarding the compensation of
directors or trustees of a corporation. Here are the key points:

1. Compensation in the Absence of Bylaws:

o If the corporation's bylaws do not specify the compensation for directors or trustees, they shall not receive
any compensation in their capacity as directors or trustees, except for reasonable per diems (allowances for
attending meetings).
2. Approval of Compensation by Stockholders or Members:
o Stockholders representing at least a majority of the outstanding capital stock or a majority of the members
can grant compensation to directors or trustees and approve the amount at a regular or special meeting.
3. Limitation on Yearly Compensation:
o The total yearly compensation of directors shall not exceed 10% of the net income before income tax of
the corporation from the preceding year.
4. Restriction on Participation in Compensation Decisions:
o Directors or trustees are not allowed to participate in determining their own per diems or compensation.
This rule ensures fairness and prevents conflicts of interest in compensation decisions.
5. Reporting Requirements for Corporations Vested with Public Interest:
o Corporations with public interest must submit an annual report to their shareholders and the Securities and
Exchange Commission (SEC) detailing the total compensation of each director or trustee. This promotes
transparency and accountability in the compensation practices of such corporations.

Overall, Section 29 of the Revised Corporation Code emphasizes transparency, fairness, and shareholder control over the
compensation of corporate directors or trustees, with specific limits and requirements to prevent conflicts of interest and
ensure responsible corporate governance.
SEC.22-34 CORPO

TITLE III BOARD OF DIRECTORS/TRUSTEES AND OFFICERS

SEC. 22. The Board of Directors or Trustees of a Corporation; Qualification and Term. – Unless otherwise provided in this Code, the
board of directors or trustees shall exercise the corporate powers, conduct all business, and control all properties of the corporation.

Directors shall be elected for a term of one (1) year from among the holders of stocks registered in the corporation’s books, while
trustees shall be elected for a term not exceeding three (3) years from among the members of the corporation. Each director and
trustee shall hold office until the successor is elected and qualified. A director who ceases 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 such.

The board of the following corporations vested with public interest shall have independent directors constituting at least twenty
percent (20%) of such board:

a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as “The Securities Regulation Code”, namely those
whose securities are registered with the Commission, corporations listed with an exchange or with assets of at least Fifty million pesos
(P50,000,000.00) and having two hundred (200) or more holders of shares, each holding at least one hundred (100) shares of a class of
its equity shares;

b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business, pre-need, trust and insurance
companies, and other financial intermediaries; and

c) Other corporations engaged in business vested with public interest similar to the above, as may be determined by the Commission,
after taking into account relevant factors which are germane to the objective and purpose of requiring the election of an independent
director, such as the extent of minority ownership, type of financial products or securities issued or offered to investors, public interest
involved in the nature of business operations, and other analogous factors.

An independent director is a person who, apart from shareholdings and fees received from the corporation, is independent of
management and free from any business or other relationship which could, or could reasonably be perceived to materially interfere
with the exercise of independent judgment in carrying out the responsibilities as a director.

Independent directors must be elected by the shareholders present or entitled to vote in absentia during the election of directors.
Independent directors shall be subject to rules and regulations governing their qualifications, disqualifications, voting requirements,
duration of term and term limit, maximum number of board memberships and other requirements that the Commission will prescribe
to strengthen their independence and align with international best practices.

1. What is the primary function of the board of directors or trustees in a corporation?

 Keyword: Corporate powers

 Answer: The board of directors or trustees exercises corporate powers, conducts all business, and controls all properties of
the corporation.

2. How long is the term of directors and trustees?

 Keyword: Term
 Answer: Directors are elected for a term of one year, while trustees can be elected for a term not exceeding three years.

3. Who is eligible to become a director or trustee?

 Keyword: Qualification
  Answer: Directors must be stockholders holding shares registered in the corporation’s books, while trustees must be members
of the corporation.

4. What happens when a director or trustee loses their eligibility?

 Keyword: Cease to own shares

 Answer: A director who ceases to own at least one share of stock, or a trustee who ceases to be a member, will cease to hold
office.

5. Which types of corporations are required to have independent directors?

 Keyword: Public interest

 Answer: Corporations covered by Section 17.2 of the Securities Regulation Code, banks, quasi-banks, NSSLAs, pawnshops,
financial intermediaries, and other similar businesses vested with public interest must have at least 20% independent directors
on their board.

6. How is an independent director defined under this section?

 Keyword: Independent director

 Answer: An independent director is someone who is independent of management, does not have a business relationship that
could interfere with their judgment, and is free from conflict of interest.

7. Who elects the independent directors?

 Keyword: Election
 Answer: Independent directors are elected by the shareholders during the election of directors, either in person or in
absentia.

8. What factors determine whether a corporation is required to elect independent directors?

 Keyword: Factors
 Answer: Factors include minority ownership, the nature of financial products or securities, the public interest in the business
operations, and other relevant factors as determined by the Commission.

9. What are some rules governing independent directors?

 Keyword: Rules and regulations

 Answer: Rules regarding independent directors cover qualifications, disqualifications, voting requirements, duration of term,
term limits, maximum number of board memberships, and other standards to ensure their independence.

SEC. 23. Election of Directors or Trustees. – Except when the exclusive right is reserved for holders of founders’ shares under Section 7
of this Code, each stockholder or member shall have the right to nominate any director or trustee who possesses all of the
qualifications and none of the disqualifications set forth in this Code.

At all elections of directors or trustees, there must be 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 authorized in the bylaws or by a majority of the board of directors, the stockholders or members may also
vote through remote communication or in absentia: Provided, That the right to vote through such modes may be exercised in
corporations vested with public interest, notwithstanding the absence of a provision in the bylaws of such corporations.

A stockholder or member who participates through remote communication or in absentia, shall be deemed present for purposes of
quorum.

The election must be by ballot if requested by any voting stockholder or member.

In stock corporations, stockholders entitled to vote shall have the right to vote the number of shares of stock standing in their own
names in the stock books of the corporation at the time fixed in the bylaws or where the bylaws are silent, at the time of the election.
The said stockholder may:

(a) vote such number of shares for as many persons as there are directors to be elected;

(b) cumulate said shares and give one (1) candidate as many votes as the number of directors to be elected multiplied by the number
of the shares owned; or

(c) distribute them on the same principle among as many candidates as may be seen fit:

Provided, That the total number of votes cast shall not exceed the number of shares owned by the stockholders as shown in the books
of the corporation multiplied by the whole number of directors to be elected: Provided, however, that no delinquent stock shall be
voted. Unless otherwise provided in the articles of incorporation or in the bylaws, members of nonstock corporations may cast as
many votes as there are trustees to be elected but may not cast more than one (1) vote for one (1) candidate. Nominees for directors
or trustees receiving the highest number of votes shall be declared elected.

If no election is held, or the owners of majority of the outstanding capital stock or majority of the members entitled to vote are not
present in person, by proxy, or through remote communication or not voting in absentia at the meeting, such meeting may be
adjourned and the corporation shall proceed in accordance with Section 25 of this Code.

The directors or trustees elected shall perform their duties as prescribed by law, rules of good corporate governance, and bylaws of
the corporation.

1. Who has the right to nominate directors or trustees?

 Keyword: Nomination
 Answer: Any stockholder or member has the right to nominate directors or trustees, provided they meet all the qualifications
and none of the disqualifications in the Code.

2. What is required for a valid election of directors or trustees to take place?

 Keyword: Majority
 Answer: The owners of a majority of the outstanding capital stock or, in non-stock corporations, a majority of members
entitled to vote must be present in person, by proxy, or through remote communication or voting in absentia.

3. Can stockholders vote remotely or in absentia?

 Keyword: Remote Communication/In Absentia

 Answer: Yes, stockholders or members can vote through remote communication or in absentia if authorized in the bylaws or
by a majority of the board. Corporations vested with public interest may vote remotely even without a bylaw provision.

4. What happens if a voting stockholder or member requests a ballot?

 Keyword: Ballot
 Answer: If any voting stockholder or member requests it, the election must be conducted by ballot.

5. What are the voting options for stockholders in a stock corporation?

 Keyword: Cumulative Voting

 Answer: Stockholders can:
 (a) Vote their shares for as many persons as there are directors to be elected.
 (b) Cumulatively give all their votes to one candidate.
 (c) Distribute votes among multiple candidates.
6. How does voting work in non-stock corporations?

 Keyword: Non-stock Corporations

 Answer: Members of non-stock corporations may cast as many votes as there are trustees to be elected, but may not cast
more than one vote for one candidate.

7. What happens if there is no quorum or the election does not take place?

 Keyword: Quorum
 Answer: If no election is held or a quorum is not present, the meeting may be adjourned, and the corporation shall follow the
procedure outlined in Section 25 of the Code.

8. What is the rule about delinquent stock in elections?

 Keyword: Delinquent stock

 Answer: Delinquent stock cannot be voted in the election of directors or trustees.

9. Who is declared elected in an election?

 Keyword: Highest number of votes

 Answer: The nominees who receive the highest number of votes are declared elected as directors or trustees.

SEC. 24. Corporate Officers. – Immediately after their election, the directors of a corporation must formally organize and elect:

(a) a president, who must be a director;

(b) a treasurer, who must be a resident;

(c) a secretary, who must be a citizen and resident of the Philippines; and

(d) such other officers as may be provided in the bylaws.

If the corporation is vested with public interest, the board shall also elect a compliance officer. The same person may hold two (2) or
more positions concurrently, except that no one shall act as president and secretary or as president and treasurer at the same time,
unless otherwise allowed in this Code.

The officers shall manage the corporation and perform such duties as may be provided in the bylaws and/or as resolved by the board
of directors.

1. Who elects the corporate officers and when are they elected?

 Keyword: Election
 Answer: The board of directors elects the corporate officers immediately after their own election.

2. Who must be elected as the president of the corporation?

 Keyword: President
 Answer: The president must be a director of the corporation.

3. What are the qualifications for the treasurer?

 Keyword: Treasurer
 Answer: The treasurer must be a resident of the Philippines.

4. What are the qualifications for the secretary?

 Keyword: Secretary
  Answer: The secretary must be both a citizen and a resident of the Philippines.

5. What additional officer is required for corporations vested with public interest?

 Keyword: Compliance Officer

 Answer: The board must elect a compliance officer for corporations vested with public interest.

6. Can the same person hold multiple officer positions?

 Keyword: Concurrent Positions

 Answer: Yes, one person may hold two or more positions concurrently, but no one can be both president and secretary or
president and treasurer at the same time, unless allowed by the Code.

7. What is the role of the officers in managing the corporation?

 Keyword: Duties
 Answer: The officers manage the corporation and perform duties specified in the bylaws or as resolved by the board of
directors.

SEC. 25. Report of Election of Directors, Trustees and Officers, Non-holding of Election and Cessation from Office. – Within thirty (30)
days after the election of the directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation,
shall submit to the Commission, the names, nationalities, shareholdings, and residence addresses of the directors, trustees, and
officers elected.

The non-holding of elections and the reasons therefor shall be reported to the Commission within thirty (30) days from the date of the
scheduled election. The report shall specify a new date for the election, which shall not be later than sixty (60) days from the
scheduled date.

If no new date has been designated, or if the rescheduled election is likewise not held, the Commission may, upon the application of a
stockholder, member, director or trustee, and after verification of the unjustified non-holding of the election, summarily order that an
election be held. The Commission shall have the power to issue such orders as may be appropriate, including orders directing the
issuance of a notice stating the time and place of the election, designated presiding officer, and the record date or dates for the
determination of stockholders or members entitled to vote.

Notwithstanding any provision of the articles of incorporation or bylaws to the contrary, the shares of stock or membership
represented at such meeting and entitled to vote shall constitute a quorum for purposes of conducting an election under this section.

Should a director, trustee or officer die, resign or in any manner cease to hold office, the secretary, or the director, trustee or officer of
the corporation, shall, within seven (7) days from knowledge thereof, report in writing such fact to the Commission.

1. When must the corporation report the election of directors, trustees, and officers to the Commission?

 Keyword: Report to Commission

 Answer: The report must be submitted to the Commission within 30 days after the election, including the names, nationalities,
shareholdings, and residence addresses of the elected individuals.

2. What should the corporation do if no election is held?

 Keyword: Non-holding of Elections

  Answer: The corporation must report the non-holding of the election and the reasons for it to the Commission within 30 days
of the scheduled election date. A new election date must be specified, and it cannot be later than 60 days from the original
date.

3. What happens if no new election date is designated, or the rescheduled election is not held?

 Keyword: Commission's Authority

 Answer: If no new election date is set or the rescheduled election does not take place, the Commission can, upon the
application of a stockholder, member, director, or trustee, order that an election be held. The Commission can issue orders
regarding the election's time, place, and presiding officer.

4. What constitutes a quorum in the rescheduled election ordered by the Commission?

 Keyword: Quorum
 Answer: The shares of stock or membership represented at the rescheduled meeting and entitled to vote will constitute a
quorum, regardless of provisions in the articles of incorporation or bylaws.

5. How soon must the corporation report the cessation from office of a director, trustee, or officer?

 Keyword: Cessation from Office

 Answer: The corporation must report the cessation from office to the Commission within 7 days of learning that a director,
trustee, or officer has died, resigned, or otherwise ceased to hold office.

SEC. 26. Disqualification of Directors, Trustees or Officers. – A person shall be disqualified from being a director, trustee or officer of
any corporation if, within five (5) years prior to the election or appointment as such, the person was:

(a) Convicted by final judgment:

(1) Of an offense punishable by imprisonment for a period exceeding six (6) years;

(2) For violating this Code; and

(3) For violating Republic Act No. 8799, otherwise known as “The Securities Regulation Code”;

(b) Found administratively liable for any offense involving fraudulent acts; and

(c) By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to those enumerated in
paragraphs (a) and (b) above.

The foregoing is without prejudice to qualifications or other disqualifications, which the Commission, the primary regulatory agency, or
the Philippine Competition Commission may impose in its promotion of good corporate governance or as a sanction in its
administrative proceedings.

1. What is the basis for disqualification of a person from being a director, trustee, or officer of a corporation?

 Keyword: Disqualification
 Answer: A person is disqualified if, within five years before election or appointment, they were convicted by final judgment of
certain offenses, found administratively liable for fraudulent acts, or sanctioned by a foreign court for similar violations.

2. What types of offenses lead to disqualification based on conviction?

 Keyword: Conviction
 Answer: A person is disqualified if convicted by final judgment for:
 1. An offense punishable by imprisonment exceeding six years.
2. Violating the Corporation Code.
3. Violating the Securities Regulation Code (Republic Act No. 8799).

3. Can administrative liability lead to disqualification?

 Keyword: Administrative Liability

 Answer: Yes, if a person is found administratively liable for any offense involving fraudulent acts, they are disqualified from
being a director, trustee, or officer.

4. Can a disqualification come from a foreign court?

 Keyword: Foreign Court

 Answer: Yes, disqualification can arise if a person is sanctioned by a foreign court or regulatory authority for acts similar to
those that lead to disqualification under Philippine law.

5. What authority does the Commission have regarding disqualification?

 Keyword: Commission's Authority

 Answer: The Commission or other regulatory agencies like the Philippine Competition Commission may impose additional
qualifications or disqualifications in promoting good corporate governance or as a sanction in administrative proceedings.

6. How does this section promote good corporate governance?

 Keyword: Good Corporate Governance

 Answer: This section helps ensure that individuals with a history of serious legal or administrative violations are disqualified
from holding key positions, promoting ethical conduct and integrity in corporations.

SEC. 27. Removal of Directors or Trustees. – Any director or trustee of a corporation may be removed from office by a vote of the
stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or in a nonstock corporation, by a vote
of at least two-thirds (2/3) of the members entitled to vote: Provided, That such removal 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 members of
the corporation of the intention to propose such removal at the meeting. A special meeting of the stockholders or members for the
purpose of removing any director or trustee 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 outstanding capital stock, or a majority of the members entitled to vote.
If there is no secretary, or if the secretary, despite demand, fails or refuses to call the special meeting or to give notice thereof, the
stockholder or member of the corporation signing the demand may call for the meeting by directly addressing the stockholders or
members. Notice of the time and place of such meeting, as well as of the intention to propose such removal, must be given by
publication or 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 members of the right of representation to which they may be entitled under
Section 23 of this Code.

The Commission shall, motu proprio or upon verified complaint, and after due notice and hearing, order the removal of a director or
trustee elected despite the disqualification, or whose disqualification arose or is discovered subsequent to an election. The removal of
a disqualified director shall be without prejudice to other sanctions that the Commission may impose on the board of directors or
trustees who, with knowledge of the disqualification, failed to remove such director or trustee.

1. How can a director or trustee be removed from office?

 Keyword: Removal
 Answer: A director or trustee can be removed by a vote of at least two-thirds (2/3) of the stockholders or members entitled to
vote, either at a regular or special meeting called for that purpose.
2. What vote is required to remove a director or trustee?

 Keyword: Two-thirds Vote

 Answer: A vote of at least two-thirds (2/3) of the outstanding capital stock or two-thirds (2/3) of the members entitled to vote
is required to remove a director or trustee.

3. How is a special meeting for the removal of a director or trustee called?

 Keyword: Special Meeting

 Answer: A special meeting for removal must be called by the secretary on order of the president or upon written demand of
stockholders representing at least a majority of the outstanding capital stock or members entitled to vote. If the secretary fails
to act, stockholders or members can directly call the meeting.

4. What role does the secretary play in the removal process?

 Keyword: Secretary’s Role

 Answer: The secretary is responsible for calling the special meeting for removal upon order of the president or written
demand from stockholders or members. If the secretary fails, the stockholders or members may call the meeting themselves.

5. What notice requirements must be followed for a removal meeting?

 Keyword: Notice
 Answer: Notice of the time and place of the meeting, along with the intention to propose the removal, must be given by
publication or written notice as prescribed by the Code.

6. Can a director or trustee be removed without cause?

 Keyword: Removal without Cause

 Answer: Yes, removal can be with or without cause, but removal without cause cannot be used to deprive minority
stockholders or members of their right to representation under Section 23 of the Code.

7. What authority does the Commission have regarding the removal of disqualified directors or trustees?

 Keyword: Commission's Authority

 Answer: The Commission can, either on its own or upon a verified complaint, order the removal of a director or trustee who is
disqualified or whose disqualification is discovered after election. It can also impose other sanctions on the board if they fail to
act on a known disqualification.

SEC. 28. Vacancies in the Office of Director or Trustee; Emergency Board. – Any vacancy occurring in the board of directors or trustees
other than by removal or by expiration of term may be filled by the vote of at least a majority of the remaining directors or trustees, if
still constituting a quorum; otherwise, said vacancies must be filled by the stockholders or members in a regular or special meeting
called for that purpose.

When the vacancy is due to term expiration, the election shall be held no later than the day of such expiration at a meeting called for
that purpose. When the vacancy arises as a result of removal by the stockholders or members, the election may be held on the same
day of the meeting authorizing the removal and this fact must be so stated in the agenda and notice of said meeting. In all other cases,
the election must be held no later than forty-five (45) days from the time the vacancy arose. A director or trustee elected to fill a
vacancy shall be referred to as replacement director or trustee and shall serve only for the unexpired term of the predecessor in office.

However, when the vacancy prevents the remaining directors from constituting a quorum and emergency action is required to prevent
grave, substantial, and irreparable loss or damage to the corporation, the vacancy may be temporarily filled from among the officers of
the corporation by unanimous vote of the remaining directors or trustees. The action by the designated director or trustee shall be
limited to the emergency action necessary, and the term shall cease within a reasonable time from the termination of the emergency
or upon election of the replacement director or trustee, whichever comes earlier. The corporation must notify the Commission within
three (3) days from the creation of the emergency board, stating therein the reason for its creation.
Any directorship or trusteeship to be filled by reason of an increase in the number of directors or trustees shall be filled only by an
election at a regular or at a special meeting of stockholders or members duly called for the purpose, or in the same meeting
authorizing the increase of directors or trustees if so stated in the notice of the meeting.

In all elections to fill vacancies under this section, the procedure set forth in Sections 23 and 25 of this Code shall apply.

1. How can vacancies in the board of directors or trustees be filled?

 Keyword: Vacancy
 Answer: Vacancies not due to removal or expiration of term may be filled by a majority vote of the remaining directors or
trustees, provided they still form a quorum. If not, the vacancies must be filled by stockholders or members in a meeting.

2. What happens when the vacancy is due to the expiration of a director or trustee's term?

 Keyword: Expiration of Term

 Answer: The election to fill the vacancy must be held on or before the day of the term's expiration, at a meeting called for that
purpose.

3. What is the procedure for filling a vacancy created by removal?

 Keyword: Removal
 Answer: If a director or trustee is removed, the election to fill the vacancy may be held on the same day as the meeting
authorizing the removal, provided it is stated in the agenda and notice.

4. What happens if the remaining directors or trustees cannot form a quorum and urgent action is required?

 Keyword: Emergency Board

 Answer: If the remaining directors cannot form a quorum, and emergency action is necessary to prevent substantial loss, they
can temporarily fill the vacancy by unanimous vote, selecting from the officers of the corporation. The action must be limited
to emergency matters.

5. What is the term of a replacement director or trustee?

 Keyword: Replacement Director/Trustee

 Answer: The replacement director or trustee serves only for the unexpired term of the predecessor in office.

6. How soon must the corporation notify the Commission of the creation of an emergency board?

 Keyword: Commission Notification

 Answer: The corporation must notify the Commission within three days of creating an emergency board, explaining the
reasons for its creation.

7. How are vacancies created by an increase in the number of directors or trustees filled?

 Keyword: Increase in Directors/Trustees

 Answer: Vacancies due to an increase in the number of directors or trustees must be filled by election at a regular or special
meeting of stockholders or members, or in the same meeting that authorized the increase, if stated in the notice.

SEC. 29. Compensation of Directors or Trustees. – In the absence of any provision in the bylaws fixing their compensation, the
directors or trustees shall not receive any compensation in their capacity as such, except for reasonable per diems: Provided however,
That the stockholders representing at least a majority of the outstanding capital stock or majority of the members may grant directors
or trustees with compensation and approve the amount thereof at a regular or special meeting.

In no case shall the total yearly compensation of directors exceed ten (10%) percent of the net income before income tax of the
corporation during the preceding year.
Directors or trustees shall not participate in the determination of their own per diems or compensation.

Corporations vested with public interest shall submit to their shareholders and the Commission, an annual report of the total
compensation of each of their directors or trustees.

1. What compensation can directors or trustees receive if the bylaws do not specify it?

 Keyword: Compensation
 Answer: If the bylaws do not fix their compensation, directors or trustees can only receive reasonable per diems, unless
approved otherwise by the stockholders or members.

2. Who can approve the compensation for directors or trustees?

 Keyword: Stockholders' Approval

 Answer: Stockholders representing at least a majority of the outstanding capital stock or a majority of the members may grant
compensation and approve the amount at a regular or special meeting.

3. What is the maximum allowable yearly compensation for directors?

 Keyword: 10% Limit

 Answer: The total yearly compensation of directors cannot exceed 10% of the corporation’s net income before income tax for
the preceding year.

4. Can directors participate in deciding their own compensation?

 Keyword: Non-participation
 Answer: No, directors or trustees are not allowed to participate in determining their own per diems or compensation.

5. What must corporations vested with public interest do regarding director compensation?

 Keyword: Annual Report

 Answer: Corporations vested with public interest must submit an annual report to shareholders and the Commission detailing
the total compensation of each director or trustee.

SEC. 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 acquire 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.

1. What liabilities do directors or trustees face if they assent to unlawful acts of the corporation?

 Keyword: Willful and Knowingly

 Answer: Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts are liable for all
damages resulting from those acts, suffered by the corporation, its stockholders or members, and other persons.

2. What constitutes gross negligence or bad faith in directing the affairs of the corporation?

 Keyword: Gross Negligence

 Answer: Gross negligence or bad faith involves a significant failure in the standard of care expected of directors or trustees,
leading to harm or damage to the corporation.
3. What happens if a director or trustee acquires a personal or pecuniary interest that conflicts with their
duty?

 Keyword: Conflict of Interest

 Answer: If a director or trustee acquires a personal or pecuniary interest conflicting with their duty, they are liable jointly and
severally for damages resulting from this conflict and must account for any profits that would have accrued to the corporation.

4. Can a director or trustee acquire an interest adverse to the corporation?

 Keyword: Adverse Interest

 Answer: No, a director, trustee, or officer shall not attempt to acquire or acquire any interest adverse to the corporation
concerning matters in which they have been entrusted with confidence.

5. What is the responsibility of a director or trustee if they acquire an adverse interest?

 Keyword: Account for Profits

 Answer: If a director or trustee acquires an adverse interest, they must account for the profits that would have otherwise
accrued to the corporation.

SEC. 31. Dealings of Directors, Trustees or Officers with the Corporation. – A contract of the corporation with (1) one or more of its
directors, trustees, officers or their spouses and relatives within the fourth civil degree of consanguinity or affinity is voidable, at the
option of such corporation, unless all the following conditions are present:

(a) The presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute
a quorum for such meeting;

(b) The vote of such director or trustee was not necessary for the approval of the contract;

(c) The contract is fair and reasonable under the circumstances;

(d) In case of corporations vested with public interest, material contracts are approved by at least two-thirds (2/3) of the entire
membership of the board, with at least a majority of the independent directors voting to approve the material contract; and

(e) In case of an officer, the contract has been previously authorized by the board of directors.

Where any of the first three (3) conditions set forth in the preceding paragraph is absent, in the case of a contract with a director or
trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital
stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full disclosure of the adverse
interest of the directors or trustees involved is made at such meeting and the contract is fair and reasonable under the circumstances.

1. Under what conditions is a contract between a corporation and its directors, trustees, or their relatives
voidable?

 Keyword: Voidable Contract

 Answer: A contract is voidable unless:
o The presence of the director or trustee was not necessary to constitute a quorum.
o The vote of the director or trustee was not needed for approval.
o The contract is fair and reasonable.
o For public interest corporations, material contracts need approval from at least two-thirds of the board, with a
majority of independent directors.
o For officers, the contract must be authorized by the board of directors.

2. What conditions must be met for a contract involving a director or trustee to be ratified if it lacks the
initial required conditions?

 Keyword: Ratification
  Answer: The contract may be ratified by stockholders or members representing at least two-thirds of the outstanding capital
stock or members. Full disclosure of the adverse interest must be made, and the contract must be fair and reasonable.

3. What is the role of quorum in approving a contract involving a director or trustee?

 Keyword: Quorum
 Answer: The presence of the director or trustee in the board meeting must not be necessary to constitute a quorum for the
contract to be valid.

4. What requirements apply to material contracts in public interest corporations?

 Keyword: Public Interest Corporations

 Answer: Material contracts must be approved by at least two-thirds of the entire board membership, including a majority of
independent directors.

5. How must a contract involving an officer be authorized?

 Keyword: Board Authorization

 Answer: A contract involving an officer must be previously authorized by the board of directors.

6. What must be disclosed when ratifying a contract with a director or trustee?

 Keyword: Disclosure
 Answer: Full disclosure of the adverse interest of the directors or trustees involved must be made at the meeting where the
contract is ratified.

SEC. 32. Contracts Between Corporations with Interlocking Directors. – Except in cases of fraud, and provided the contract is fair and
reasonable under the circumstances, a contract between two (2) or more corporations having interlocking directors shall not be
invalidated on that ground alone: Provided, That if the 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 to the provisions of the preceding
section insofar as the latter corporation or corporations are concerned.

Stockholdings exceeding twenty percent (20%) of the outstanding capital stock shall be considered substantial for purposes of
interlocking directors.

1. When is a contract between corporations with interlocking directors not invalidated?

 Keyword: Interlocking Directors

 Answer: A contract between corporations with interlocking directors is not invalidated solely on that ground if it is fair and
reasonable under the circumstances, except in cases of fraud.

2. What happens if an interlocking director has a substantial interest in one corporation and a nominal
interest in another?

 Keyword: Substantial Interest

 Answer: If an interlocking director has a substantial interest in one corporation and a nominal interest in another, the contract
with respect to the latter corporation is subject to the provisions of the preceding section (SEC. 31).

3. How is a substantial interest defined in the context of interlocking directors?

 Keyword: Stockholdings
 Answer: Stockholdings exceeding twenty percent (20%) of the outstanding capital stock are considered substantial for
purposes of interlocking directors.
4. Under what condition can a contract involving interlocking directors be deemed invalid?

 Keyword: Fraud
 Answer: A contract can be deemed invalid if there is evidence of fraud, despite the contract being fair and reasonable under
the circumstances.

5. What must be true about a contract for it to be considered fair and reasonable under SEC. 32?

 Keyword: Fair and Reasonable

 Answer: The contract must be fair and reasonable under the circumstances, meaning it should be equitable and just to all
parties involved.

SEC. 33. Disloyalty of a Director. – Where a director, by virtue of such office, acquires a business opportunity which should belong to
the corporation, thereby obtaining profits to the prejudice of such corporation, the director must account for and refund to the latter
all such profits, unless the act has been ratified by a vote of the stockholders owning or representing at least twothirds (2/3) of the
outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director risked one’s own funds in the
venture.

1. What must a director do if they acquire a business opportunity that should belong to the corporation and
profit from it?

 Keyword: Business Opportunity

 Answer: The director must account for and refund all such profits to the corporation, unless the act has been ratified by a vote
of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock.

2. What happens if a director's act of acquiring a business opportunity is ratified by the stockholders?

 Keyword: Ratification
 Answer: If the act is ratified by stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock,
the director is not required to refund the profits.

3. Does the fact that a director risked their own funds in the venture affect their obligation to account for
and refund the profits?

 Keyword: Risked Funds

 Answer: No, the director must account for and refund the profits to the corporation regardless of whether they risked their
own funds in the venture.

4. What is the threshold for stockholder approval required for the ratification of a director’s act?

 Keyword: Stockholders
 Answer: The threshold for ratification is a vote of stockholders owning or representing at least two-thirds (2/3) of the
outstanding capital stock.

5. How does SEC. 33 address the situation where a director profits from a business opportunity that
prejudices the corporation?

 Keyword: Prejudice to Corporation

 Answer: SEC. 33 requires that the director must account for and refund the profits to the corporation if the opportunity was
obtained to the prejudice of the corporation, unless the act is ratified by the required stockholder vote.
SEC. 34. Executive, Management, and Other Special Committees. – If the bylaws so provide, the board may create an executive
committee composed of at least three (3) directors. Said committee may act, by majority vote of all its members, on such specific
matters within the competence of the board, as may be delegated to it in the bylaws or by majority vote of the board, except with
respect to the: (a) approval of any action for which shareholders’ approval is also required; (b) filling of vacancies in the board; (c)
amendment or repeal of bylaws or the adoption of new bylaws; (d) amendment or repeal of any resolution of the board which by its
express terms is not amendable or repealable; and (e) distribution of cash dividends to the shareholders.

The board of directors may create special committees of temporary or permanent nature and determine the members’ term,
composition, compensation, powers, and responsibilities.

1. What is the minimum number of directors required to form an executive committee?

 Keyword: Executive Committee

 Answer: An executive committee must be composed of at least three (3) directors.

2. What are some matters that the executive committee cannot act on, even if delegated to them by the
board?

 Keyword: Delegation of Authority

 Answer: The executive committee cannot act on the following matters: (a) approval of actions requiring shareholders’
approval; (b) filling of vacancies in the board; (c) amendment or repeal of bylaws or adoption of new bylaws; (d) amendment
or repeal of any resolution of the board which is not amendable or repealable; (e) distribution of cash dividends to
shareholders.

3. What authority does the board have regarding the creation of special committees?

 Keyword: Special Committees

 Answer: The board of directors may create special committees of either a temporary or permanent nature and determine
their members’ term, composition, compensation, powers, and responsibilities.

4. Can the executive committee make decisions on amending or repealing the bylaws?

 Keyword: Bylaws
 Answer: No, the executive committee cannot act on amending or repealing the bylaws. Such actions require the full board's
authority.

5. Under what conditions can an executive committee act on matters delegated to it?

 Keyword: Delegation of Authority

 Answer: The executive committee can act on matters within its competence if such matters are specifically delegated to it by
the bylaws or by majority vote of the board, except for the matters listed under the delegation restrictions.