COURTS ARE BARRED FROM INTRUDING INTO THE BUSINESS JUDGMENTS OF

THE CORPORATION, WHEN THE SAME ARE MADE IN GOOD FAITH

BALINGHASAY v. CASTILLO
G.R. No. 185664 April 8, 2015
REYES, J.
FACTS:
This is a petition for review on certiorari assailing the CA decision which reversed the
RTC judgment upholding the validity of the MOA entered into between respondents and
petitioners. Medical Center Paranaque, Inc. (MCPI), one of the respondents, is a
domestic corporation operating the Medical Center Paranaque. The other respondents
are its stockholders holding Class B shares. Some petitioners are holders of Class A
shares and are members of the Board of Directors, while others are also holders of
Class B shares.
In 1997, the MCPIs Board of Directors awarded the operation of the ultrasound unit to a
group of investors (ultrasound investors).Subsequently, 12 Board Directors attended the
Board meeting and eight of them were among the ultrasound investors. A Memorandum
of Agreement (MOA) was entered into by and between MCPI, represented by its
President then, Bernabe, and the ultrasound investors, represented by Oblepias. Per
MOA, the gross income to be derived from the operation of the ultrasound unit, minus
the sonologists professional fees, shall be divided between the ultrasound investors and
MCPI, in the proportion of 60% and 40%, respectively. It provided further that on a
certain date, MCPIs share would be 45%, while the ultrasound investors would receive
55% and that the ownership of the ultrasound machine would eventually be transferred
to MCPI.
Flores, one of the respondents, wrote MCPIs counsel a letter challenging the Board of
Directors approval of the MOA for being prejudicial to MCPIs interest and claimed that
the MOA was void The petitioners, on the other hand claimed that under Section 32 of
the Corporation Code, the MOA was merely voidable. Since there was no proof that the
subsequent Board of Directors of MCPI moved to annul the MOA, the same should be
considered as having been ratified.
ISSUE:
Is the MOA void for being prejudicial to MCPIs interest?
HELD:
Yes, the MOA is void. Under the "business judgment rule", the courts are barred from
intruding into the business judgments of the corporation, when the same are made in
good faith.
However, in this case, the petitioners, MCPI directors, who are ultrasound investors, in
violation of their duty as such directors, acquired an interest adverse to the corporation
when they entered into the ultrasound contract. By doing so, they have unjustly profited
from the transaction which otherwise would have accrued to MCPI. The
directors/ultrasound investors failed to inhibit themselves from participating in the
meeting and from voting with respect to the decision to proceed with the signing of the
MOA. Certainly, said petitioners have dealt in their behalf and took an interest adverse to
MCPI. Thus, the MOA is void.