Mr. Rafael N. Mondoñedo

January 22, 1982 Mr. Rafael N. Mondoedo Mina De Oro Arrastre Service, Inc. San Jose, Occidental Mindoro Sir : This is in reply to your letter dated November 26, 1981, seeking advice on what remedy to avail in order to prevent disloyalty of stockholders of a corporation, who are also stockholders of another corporation. cdll Please be advised that the Corporation Code does not prohibit the formation or organization of corporation with the same stockholders. Hence, you cannot prevent them from joining other corporations. However, Section 47(5) of the Code provides that a corporation may provide in its by-laws for the "qualifications" of directors or trustees, officers and employees. Prescribing certain qualifications as a device to control the corporation like disqualifying stockholders controlling another enterprise which is a competitor of the corporation, from being elected as a director had been upheld as valid by-laws (Gokongwei v. SEC, Soriano, San Miguel, et al., GR No. L-45911, April 11, 1979). To prevent the existence of disloyal directors, it is, thus proper to prescribe in the by-laws, a provision disqualifying stockholders with interest adverse to the business of the corporation, to be a director, thus, depriving them of the right to participate in the management of the business. In the case of the incumbent officers/agents/employees, they may be removed at any time by the Board even before the expiration of their term or expiry date of the contract entered by and between them and the corporation, provided there is justifiable ground for their removal. A corporation has the inherent power to remove any of its officer for "cause" (Fletcher, Cyclopedia Corporations, Vol. 2 p.356) Please be advised accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman