Re : Deadlock in the Election of the Board of Trustees

February 24, 2004 SEC OPINION NO. 15-04 Re : Deadlock in the Election of the Board of Trustees Mr. Ricardito R. Aquino Rural Bank of Pinamalayan, Inc. Pinamalayan, Oriental Mindoro Philippines S i r : This refers to your query dated February 19, 2004 inquiring on how to resolve the election deadlock in your corporation, where incidentally seven persons tied in the number of votes for the four remaining positions in the board of trustees. Please be advised that the SEC, in an Opinion on the matter, laid down the following rules for resolution of deadlocks in the election: In the absence of pertinent provision in the by-laws regarding resolution of a deadlock in corporate elections, it is common practice to decide the votes by drawing of lots among the candidates concerned. In the event that the candidates involved do not agree on the drawing of lots, the stockholders may vote again and elect from among them the remaining members of the board of directors. This matter should not be left for decision to the old board of directors or to the newly elected directors. As stated by Fletcher, "In the case of business corporations, the directors are usually elected or appointed by the stockholders at a duly and properly called meeting for that purpose, in the absence of charter or statutory provisions to the contrary." Pending resolution of the deadlock, it is proper for the elected directors to convene and organize and elect the officers of the corporation, provided the statutory provision on voting requirements shall be complied with. Section 25 of the Corporation Code expressly provides for the election of officers, the vote of a majority of all the members of the board must be necessary. Thus, the vote of six (6) directors must be necessary to elect the officers of the corporation. (SEC Opinion dated April 14, 1981, Atty. Estanislao L. Cesa Jr.) SDHITE Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel