Ms. Marita B. Alover

May 4, 1994 Ms. Marita B. Alover 4205 Gen. Mojica St. Evangelista, Makati, Metro Manila M a d a m : This refers to your letter of April 11, 1994 inquiring on the legality of the act of a stockholder and director of a corporation forming another corporation engaged in the same line of business wherein he is a majority stockholder. The Corporation Code does not prohibit the above situation. An individual may be a stockholder in different corporations and it is not unusual to find a director or corporate officer occupying the same position in another corporation not only because one has investments therein but also because his services may have been proven to be valuable and efficient. However, while such situation is allowable, dealings of interlocking directors are subject to Sections 31, 33 and 34 of the Corporation Code, quoted hereunder: "SECTION 31. 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. When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation." "SECTION 33. 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 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 corporation is substantial and his interest in the other corporation or corporations is merely nominal, he shall be subject to the provisions of the preceding section insofar as the latter corporation or corporations are concerned. Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for purposes of interlocking directors." "SECTION 34. Disloyalty of a director . Where a director, by virtue of his office, acquires for himself a business opportunity which should belong to a corporation, thereby obtaining profits to the prejudice of such corporation, he must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director risked his own funds in the venture." Considering that you have cited a specific situation in your letter, we therefore should not express any advice or opinion as the matter may develop into a case that might be litigated before this Commission. Please be advised accordingly. Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner