GARCIA, Maria Francheska M.

Board of Directors/Trustees/Oficers – Business Judgment Rule

57) Filipinas Port Services, Inc. vs. Go. G.R. No. 161886. March 16, 2007.

FACTS
Petitioner Eliodoro C. Cruz, the President of Filipinas Port Services (FILPORT), a
domestic corporation engaged in stevedoring services with principal office in Davao City, wrote a
letter to the corporation’s Board of Directors questioning the board’s creation of several positions
with a monthly renumeration of P13,050 each and the election of certain members of the board.
Cruz requested the board take steps to recover the salaries of the mentioned elected members.
It appears that whatever action the board undertook did not sit well with Cruz. Consequently,
Cruz, purportedly in representation of Filport and its stockholders, filed with the SEC a derivative
suit against respondents who were then the incumbent members of Filport’s Board of Directors,
for alleged acts of mismanagement detrimental to the interest of the creation and its shareholders
at large.

ISSUE
Whether or not of the creation of an executive committee by the Board of Directors of
Filport is illegal or unlawful?

HELD
NO. If the cause of the corporate damages and/or business losses is merely error in
business judgment, not amounting to bad faith or negligence, directors and/or officers are not
liable. For them to be held accountable, the mismanagement and the resulting losses on account
thereof are not the only matters to be prove; it is necessary to show that the directors and/or
officers acted in bad faith and with malice in doing the assailed acts. Bad faith does not simply
connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of a well-known duty through some motive or interest or ill-
will partaking in the nature of fraud. In the case at bar, the court did not find any “dishonest
purpose” or “some moral obliquity,” or “conscious doing of a wrong” on the part of the respondents
that “partakes of the nature of fraud.”