When is a contract between a corporation and its director, officer, or relative considered voidable?
A contract between the corporation and one or more of its directors, trustees, officers, or their spouses and relatives within the fourth civil degree of consanguinity or affinity is generally considered voidable, at the option of the corporation (SEC. 31, Revised Corporation Code of the Philippines). This voidability applies unless several strict conditions are concurrently met, such as the interested director’s presence not being necessary for the quorum, and their vote not being essential for the contract’s approval. The contract must also be fair and reasonable under the circumstances, and if the corporation is vested with public interest, the material contract must be approved by at least two-thirds (2/3) of the entire board membership, with a majority of the independent directors voting to approve it. Furthermore, if the contracting party is merely an officer, the contract must have been previously authorized by the board of directors.
02 November 2025
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