G.R. No. 153413. March 1, 2007.
NECTARINA S. RANIEL and MA. VICTORIA R. PAG-ONG, Petitioners, vs. PAUL JOCHICO, JOHN STEFFENS and SURYA VIRIYA, Respondents.

FACTS

Petitioners Nectarina S. Raniel and Ma. Victoria R. Pag-ong, together with respondents, were incorporators and directors of Nephro Systems Dialysis Center. Raniel also served as Corporate Secretary and Administrator. A conflict arose when petitioners questioned respondents’ plan for a joint venture with Butuan Doctors’ Hospital. Subsequently, Raniel requested an indefinite leave of absence, which was denied by respondent Paul Jochico as President. Raniel did not report for work, prompting Jochico to demand an explanation. A Special Board Meeting was called for February 2, 1998, which petitioners did not attend. At this meeting, the Board passed resolutions dismissing Raniel as Administrator, declaring the Corporate Secretary position vacant, and calling a Special Stockholders’ Meeting to remove petitioners as directors.
Notices for the Special Stockholders’ Meeting on February 16, 1998, were received by petitioners, but they again did not attend. The attending stockholders, representing 400 of the 500 outstanding shares, voted to remove petitioners as directors. Petitioners then filed a case with the Securities and Exchange Commission (SEC) seeking nullification of their removal, damages, and injunction. The SEC upheld the validity of the removal, a decision affirmed with modification by the Court of Appeals.

ISSUE

Whether the removal of petitioners as directors and corporate officer of Nephro Systems Dialysis Center was valid.

RULING

The Supreme Court denied the petition and upheld the validity of the removal. The legal logic proceeds from distinct corporate governance principles for officers and directors. For corporate officers, such as Raniel’s positions as Administrator and Corporate Secretary, the Board of Directors has the inherent power to remove them with or without cause, provided it is done in good faith. Raniel’s abrupt and unauthorized absence, despite a denied leave request, constituted a valid ground for loss of trust and confidence, justifying her removal by the Board.
For their removal as directors, the governing rule is Section 28 of the Corporation Code, which allows removal with or without cause by a vote of stockholders representing at least two-thirds of the outstanding capital stock at a meeting called for that purpose. The Court found the Special Stockholders’ Meeting was properly called with due notice. With Nephro’s total outstanding capital stock at 500 shares, the two-thirds threshold was 333.33 shares. The vote of 400 shares in favor of removal far exceeded this requirement, making the removal legally effective regardless of cause. The Court deferred to the factual findings of the SEC and the CA, which found no grave abuse of discretion, and thus affirmed the rulings below.