FIRST DIVISION

PAUL LEE TAN, ANDREW G.R. No. 153468

LIUSON, ESTHER WONG,
STEPHEN CO, JAMES TAN, Present:
JUDITH TAN, ERNESTO
TANCHI JR., EDWIN NGO, PANGANIBAN, CJ.,Chairperson,
VIRGINIA KHOO, SABINO YNARES-SANTIAGO,
PADILLA JR., EDUARDO P. AUSTRIA-MARTINEZ,
LIZARES and GRACE CALLEJO, SR., and
CHRISTIAN HIGH SCHOOL, CHICO-NAZARIO, JJ.
Petitioners,
- versus -
PAUL SYCIP and MERRITTO
LIM, Promulgated:
Respondents. August 17, 2006
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, CJ.:

For stock corporations, the quorum referred to in Section 52 of the Corporation Code is based on the number
of outstanding voting stocks. For nonstock corporations, only those who are actual, living members with voting rights shall be
counted in determining the existence of a quorum during members meetings. Dead members shall not be counted.
The Case

The present Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court seeks the reversal of the January
23 and May 7, 2002,[3]Resolutions of the Court of Appeals (CA) in CA-GR SP No. 68202. The first assailed Resolution
[2]

dismissed the appeal filed by petitioners with the CA.Allegedly, without the proper authorization of the other petitioners, the
Verification and Certification of Non-Forum Shopping were signed by only one of them -- Atty. Sabino Padilla Jr. The
second Resolution denied reconsideration.
The Facts

Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with fifteen (15) regular
members, who also constitute the board of trustees.[4] During the annual members meeting held on April 6, 1998, there were
only eleven (11)[5] living member-trustees, as four (4) had already died. Out of the eleven, seven (7)[6] attended the meeting
through their respective proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection of
Atty. Antonio C. Pacis, who argued that there was no quorum. [7] In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo,
Virginia Khoo, and Judith Tan were voted to replace the four deceased member-trustees.

When the controversy reached the Securities and Exchange Commission (SEC), petitioners maintained that the deceased
member-trustees should not be counted in the computation of the quorum because, upon their death, members automatically
lost all their rights (including the right to vote) and interests in the corporation.

SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack of quorum. She held that
the basis for determining the quorum in a meeting of members should be their number as specified in the articles of
incorporation, not simply the number of living members.[8] She explained that the qualifying phrase entitled to vote in Section
24[9] of the Corporation Code, which provided the basis for determining a quorum for the election of directors or trustees,
should be read together with Section 89.[10] The hearing officer also opined that Article III (2) [11] of the By-Laws of GCHS,
insofar as it prescribed the mode of filling vacancies in the board of trustees, must be interpreted in conjunction with Section
29[12] of the Corporation Code. The SEC en banc denied the appeal of petitioners and affirmed the Decision of the hearing
officer in toto.[13] It found to be untenable their contention that the word members, as used in Section 52 [14] of the Corporation
Code, referred only to the living members of a nonstock corporation.[15]
 As earlier stated, the CA dismissed the appeal of petitioners, because the Verification and Certification of Non-
Forum Shopping had been signed only by Atty. Sabino Padilla Jr. No Special Power of Attorney had been attached to show
his authority to sign for the rest of the petitioners.

Hence, this Petition.[16]

Issues

Petitioners state the issues as follows:

Petitioners principally pray for the resolution of the legal question of whether or not in NON-STOCK
corporations, dead members should still be counted in determination of quorum for purposed of conducting
the Annual Members Meeting.

Petitioners have maintained before the courts below that the DEAD members should no longer be counted
in computing quorum primarily on the ground that members rights are personal and non-transferable as
provided in Sections 90 and 91 of the Corporation Code of the Philippines.

The SEC ruled against the petitioners solely on the basis of a 1989 SEC Opinion that did not even involve
a non-stock corporation as petitioner GCHS.
The Honorable Court of Appeals on the other hand simply refused to resolve this question and
instead dismissed the petition for review on a technicality the failure to timely submit an SPA from the
petitioners authorizing their co-petitioner Padilla, their counsel and also a petitioner before the Court of
Appeals, to sign the petition on behalf of the rest of the petitioners.

Petitioners humbly submit that the action of both the SEC and the Court of Appeals are not in accord with
law particularly the pronouncements of this Honorable Court in Escorpizo v. University of Baguio (306
SCRA 497), Robern Development Corporation v. Quitain (315 SCRA 150,) and MC Engineering, Inc. v.
NLRC, (360 SCRA 183). Due course should have been given the petition below and the merits of the case
decided in petitioners favor.[17]

In sum, the issues may be stated simply in this wise: 1) whether the CA erred in denying the Petition below, on the basis of a
defective Verification and Certification; and 2) whether dead members should still be counted in the determination of the
quorum, for purposes of conducting the annual members meeting.
The Courts Ruling

The present Petition is partly meritorious.

Procedural Issue:
Verification and Certification
of Non-Forum Shopping

The Petition before the CA was initially flawed, because the Verification and Certification of Non-Forum Shopping
were signed by only one, not by all, ofthe petitioners; further, it failed to show proof that the signatory was authorized to sign
on behalf of all of them. Subsequently, however, petitioners submitted a Special Power of Attorney, attesting that Atty.
Padilla was authorized to file the action on their behalf.[18]
In the interest of substantial justice, this initial procedural lapse may be excused. [19] There appears to be no intention
to circumvent the need for proper verification and certification, which are aimed at assuring the truthfulness and correctness
of the allegations in the Petition for Review and at discouraging forum shopping. [20] More important, the substantial merits of
petitioners case and the purely legal question involved in the Petition should be considered special circumstances [21] or
compelling reasons that justify an exception to the strict requirements of the verification and the certification of non-forum
shopping.[22]
Main Issue:
Basis for Quorum

Generally, stockholders or members meetings are called for the purpose of electing directors or trustees [23] and transacting
some other business calling for or requiring the action or consent of the shareholders or members, [24] such as the amendment
of the articles of incorporation and bylaws, sale or disposition of all or substantially all corporate assets, consolidation and
merger and the like, or any other business that may properly come before the meeting.
Under the Corporation Code, stockholders or members periodically elect the board of directors or trustees, who are charged
with the management of the corporation.[25] The board, in turn, periodically elects officers to carry out management functions
on a day-to-day basis. As owners, though, the stockholders or members have residual powers over fundamental and major
corporate changes.

While stockholders and members (in some instances) are entitled to receive profits, the management and direction of the
corporation are lodged with their representatives and agents -- the board of directors or trustees.[26] In other words, acts of
management pertain to the board; and those of ownership, to the stockholders or members. In the latter case, the board cannot
act alone, but must seek approval of the stockholders or members. [27]

Conformably with the foregoing principles, one of the most important rights of a qualified shareholder or member is the
right to vote -- either personally or by proxy -- for the directors or trustees who are to manage the corporate affairs.[28] The
right to choose the persons who will direct, manage and operate the corporation is significant, because it is the main way in
which a stockholder can have a voice in the management of corporate affairs, or in which a member in a nonstock
corporation can have a say on how the purposes and goals of the corporation may be achieved. [29] Once the directors or
trustees are elected, the stockholders or members relinquish corporate powers to the board in accordance with law.

In the absence of an express charter or statutory provision to the contrary, the general rule is that every member of a nonstock
corporation, and every legal owner of shares in a stock corporation, has a right to be present and to vote in all corporate
meetings. Conversely, those who are not stockholders or members have no right to vote.[30] Voting may be expressed
personally, or through proxies who vote in their representative capacities. [31] Generally, the right to be present and to vote in a
meeting is determined by the time in which the meeting is held. [32]

Section 52 of the Corporation Code states:

Section 52. Quorum in Meetings. Unless otherwise provided for in this Code or in the by-laws, a quorum
shall consist of the stockholders representing a majority of the outstanding capital stock or a majority of the
members in the case of non-stock corporations.

In stock corporations, the presence of a quorum is ascertained and counted on the basis of the outstanding capital stock, as
defined by the Code thus:

SECTION 137. Outstanding capital stock defined. The term outstanding capital stock as used in this Code, means
the total shares of stock issued under binding subscription agreements to subscribers or stockholders,
whether or not fully or partially paid, except treasury shares. (Underscoring supplied)

The Right to Vote in

Stock Corporations

The right to vote is inherent in and incidental to the ownership of corporate stocks. [33] It is settled that unissued stocks may
not be voted or considered in determining whether a quorum is present in a stockholders meeting, or whether a requisite
proportion of the stock of the corporation is voted to adopt a certain measure or act. Only stock actually issued and
outstanding may be voted.[34]Under Section 6 of the Corporation Code, each share of stock is entitled to vote, unless
otherwise provided in the articles of incorporation or declared delinquent [35] under Section 67 of the Code.

Neither the stockholders nor the corporation can vote or represent shares that have never passed to the ownership of
stockholders; or, having so passed, have again been purchased by the corporation. [36] These shares are not to be taken into
consideration in determining majorities. When the law speaks of a
given proportion of the stock, it must be construed to mean the shares that have passed from the corporation, and that may be
voted.[37]

Section 6 of the Corporation Code, in part, provides:

Section 6. Classification of shares. The shares of stock of stock corporations may be divided into classes or series of
shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as
may be stated in the articles of incorporation: Provided, That no share may be deprived of voting rights
except those classified and issued as preferred or redeemable shares, unless otherwise provided in this
Code: Provided, further, that there shall always be a class or series of shares which have complete voting
rights.
 xxxxxxxxx

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of
such shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
corporation property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this
Code; and
8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act
as provided in this Code shall be deemed to refer only to stocks with voting rights.

Taken in conjunction with Section 137, the last paragraph of Section 6 shows that the intention of the lawmakers
was to base the quorum mentioned in Section 52 on the number of outstanding voting stocks.[38]

The Right to Vote in

Nonstock Corporations

In nonstock corporations, the voting rights attach to membership. [39] Members vote as persons, in accordance with the law
and the bylaws of the corporation.Each member shall be entitled to one vote unless so limited, broadened, or denied in the
articles of incorporation or bylaws.[40] We hold that when the principle for determining the quorum for stock corporations is
applied by analogy to nonstock corporations, only those who are actual members with voting rights should be counted.

Under Section 52 of the Corporation Code, the majority of the members representing the actual number of voting
rights, not
the number or numerical constant that may originally be specified in the articles of incorporation, constitutes the quorum. [41]

The March 3, 1986 SEC Opinion[42] cited by the hearing officer uses the phrase majority vote of the members;
likewise Section 48 of the Corporation Code refers to 50 percent of 94 (the number of registered members of the association
mentioned therein) plus one. The best evidence of who are the present members of the corporation is the membership book;
in the case of stock corporations, it is the stock and transfer book. [43]

Section 25 of the Code specifically provides that a majority of the directors or trustees, as fixed in the articles of
incorporation, shall constitute a quorum for the transaction of corporate business (unless the articles of incorporation or the
bylaws provide for a greater majority). If the intention of the lawmakers was to base the quorum in the meetings of
stockholders or members on their absolute number as fixed in the articles of incorporation, it would have expressly specified
so. Otherwise, the only logical conclusion is that the legislature did not have that intention.

Effect of the Death

of a Member or Shareholder

Having thus determined that the quorum in a members meeting is to be reckoned as the actual number of members
of the corporation, the next question to resolve is what happens in the event of the death of one of them.
In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a shareholder, the executor or
administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it. Until a settlement
and division of the estate is effected, the stocks of the decedent are held by the administrator or executor.[44]

On the other hand, membership in and all rights arising from a nonstock corporation are personal and non-transferable, unless
the articles of incorporation or the bylaws of the corporation provide otherwise. [45] In other words, the determination of
whether or not dead members are entitled to exercise their voting rights (through their executor or administrator), depends on
those articles of incorporation or bylaws.

Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the death of the
member.[46] Section 91 of the Corporation Code further provides that termination extinguishes all the rights of a member of
the corporation, unless otherwise provided in the articles of incorporation or the bylaws.

Applying Section 91 to the present case, we hold that dead members who are dropped from the membership roster in the
manner and for the cause provided for in the By-Laws of GCHS are not to be counted in determining the requisite vote in
corporate matters or the requisite quorum for the annual members meeting. With 11 remaining members, the quorum in the
present case should be 6. Therefore, there being a quorum, the annual members meeting, conducted with six [47] members
present, was valid.

Vacancy in the
Board of Trustees

As regards the filling of vacancies in the board of trustees, Section 29 of the Corporation Code provides:
SECTION 29. Vacancies in the office of director or trustee. -- Any vacancy occurring in the board
of directors or trustees other than by removal by the stockholders or members or by expiration of term, may
be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting
a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting
called for that purpose. A director or trustee so elected to fill a vacancy shall be elected only for the
unexpired term of his predecessor in office.

Undoubtedly, trustees may fill vacancies in the board, provided that those remaining still constitute a quorum. The
phrase may be filled in Section 29 shows that the filling of vacancies in the board by the remaining directors or trustees
constituting a quorum is merely permissive, not mandatory. [48]Corporations, therefore, may choose how vacancies in their
respective boards may be filled up -- either by the remaining directors constituting a quorum, or by the stockholders or
members in a regular or special meeting called for the purpose. [49]

The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of directors; that is, by a
majority vote of the remaining members of the board. [50]

While a majority of the remaining corporate members were present, however, the election of the four trustees cannot
be legally upheld for the obvious reason that it was held in an annual meeting of the members, not of the board of
trustees. We are not unmindful of the fact that the members of GCHS themselves also constitute the trustees, but we cannot
ignore the GCHS bylaw provision, which specifically prescribes that vacancies in the board must be filled up by the
remaining trustees. In other words, these remaining member-trustees must sit as a board in order to validly elect the new
ones.
Indeed, there is a well-defined distinction between a corporate act to be done by the board and that by the constituent
members of the corporation. The board of trustees must act, not individually or separately, but as a body in a lawful
meeting. On the other hand, in their annual meeting, the members may be represented by their respective proxies, as in the
contested annual members meeting of GCHS.

WHEREFORE, the Petition is partly GRANTED. The assailed Resolutions of the Court of Appeals are
hereby REVERSED AND SET ASIDE. The remaining members of the board of trustees of Grace Christian High School
(GCHS) may convene and fill up the vacancies in the board, in accordance with this Decision. No pronouncement as to costs
in this instance.

SO ORDERED.

ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson, First Division

W E C O N C U R:
 CONSUELO YNARES-SANTIAGO MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice Associate Justice

ROMEO J. CALLEJO, SR. MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

ARTEMIO V. PANGANIBAN
Chief Justice

,
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. 163356-57 July 10, 2015
JOSE A. BERNAS, CECILE H. CHENG, VICTOR AFRICA, JESUS B. MARAMARA, JOSE T. FRONDOSO, IGNACIO T.
MACROHON, JR., AND PAULINO T. LIM, ACTING IN THEIR CAP A CITY AS INDIVIDUAL DIRECTORS OF
MAKATI SPORTS CLUB, INC., AND ON BEHALF OF THE BOARD OF DIRECTORS OF MAKATI SPORTS
CLUB, Petitioners,
vs.
JOVENCIO F. CINCO, VICENTE R. AYLLON, RICARDO G. LIBREA, SAMUEL L. ESGUERRA, ROLANDO P. DELA
CUESTA, RUBEN L. TORRES, ALEX Y. PARDO, MA. CRISTINA SIM, ROGER T. AGUILING, JOSE B. QUIMSON,
CELESTINO L. ANG, ELISEO V. VILLAMOR, FELIPE L. GOZON, CLAUDIO B. ALTURA, ROGELIO G. VILLAROSA,
MANUEL R. SANTIAGO, BENJAMIN A. CARANDANG, REGINA DE LEON-HERLIHY, CARLOS Y. RAMOS, JR.,
ALEJANDRO Z. BARIN, EFRENILO M. CAYANGA AND JOHN DOES, Respondents.
x-----------------------x
G.R. Nos. 163368-69
JOVENCIO F. CINCO, RICARDO G. LIBREA AND ALEX Y. PARDO, Petitioners,
vs.
JOSE A BERNAS, CECILE H. CHENG AND IGNACIO A. MACROHON, Respondents.
DECISION
PEREZ, J.:
Before us are two consolidated Petitions for Review on Certiorari1 assailing the 28 April 2003 Decision and the 27 April 2004
Resolution of the Court of Appeals in CA-G.R. SP No. 62683,2 which declared the 17 December 1997 Special Stockholders' Meeting
of the Makati Sports Club invalid for having been improperly called but affirmed the actions taken during the Annual Stockholders'
Meeting held on 20 April 1998, 19 April 1999 and 17 April 2000. The dispositive portion of the assailed decision reads:
WHEREFORE, foregoing considered, the instant petition for review is hereby GRANTED. The appealed Decision dated December
12, 2000 of the SEC en bane is SET ASIDE and the Decision dated April 20, 1998 of the Hearing Officer is REINSTATED and
AMENDED as follows:
1. The supposed Special Stockholders' Meeting of December 17, 1997 was prematurely or invalidly called by the [Cinco
Group]. It therefore failed to produce any legal effects and did not effectively remove [the Bernas Group] as directors of the
Makati Sports Club, Inc.;
2. The expulsion of petitioner Jose A. Bernas as well as the public auction of his share[s] is hereby declared void and without
legal effect;
3. The ratification of the removal of [the Bernas Group] as directors, the expulsion of petitioner Bernas and the sale of his
share by the defendants and by the stockholders held in their Regular Stockholders' Meeting held in April of 1998, 1999 and
2000, is void and produces no effects as they were not the proper party to cause the ratification;
4. All other actions of the [Cinco Group] and stockholders taken during the Regular Stockholders' Meetings held in April
1998, 1999 and 2000, including the election of the [Cinco Group] as directors after the expiration of the term of office of
petitioners as directors, are hereby declared valid;
5. No awards for damages and attorney's fees.3
The Facts
Makati Sports Club (MSC) is a domestic corporation duly organized and existing under Philippine laws for the primary purpose of
establishing, maintaining, and providing social, cultural, recreational and athletic . activities among its members.
Petitioners in G.R. Nos. 163356-57, Jose A. Bernas (Bernas), Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose T. Frondoso,
Ignacio T. Macrohon and Paulino T. Lim (Bernas Group) were among the Members of the Board of Directors and Officers of the
corporation whose terms were to expire either in 1998 or 1999.
Petitioners in G.R. Nos. 163368-69 Jovencio Cinco, Ricardo Librea · and Alex Y. Pardo (Cinco Group) are the members and
stockholders of the corporation who were elected Members of the Board of Directors and Officers of the club during the 17 December
1997 Special Stockholders Meeting.
The antecedent events of the meeting and its results, follow:
Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight Committee (MSCOC), composed of the
past presidents of the club, demanded from the Bernas Group, who were then incumbent officers of the corporation, to resign from
their respective positions to pave the way for the election of new set of officers. 4Resonating this clamor were the stockholders of the
corporation representing at least 100 shares who sought the assistance of the MSCOC to call for a special stockholders meeting for the
purpose of removing the sitting officers and electing new ones.5 Pursuant to such request, the MSCOC called a Special Stockholders'
Meeting and sent out notices6 to all stockholders and members stating therein the time, place and purpose of the meeting. For failure
of the Bernas Group to secure an injunction before the Securities Commission (SEC), the meeting proceeded wherein Jose A. Bernas,
Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose T. Frondoso, Ignacio T. Macrohon, Jr. and Paulino T. Lim were removed from
office and, in their place and stead, Jovencio F. Cinco, Ricardo G. Librea, Alex Y. Pardo, Roger T. Aguiling, Rogelio G. · Villarosa,
Armando David, Norberto Maronilla, Regina de Leon-Herlihy and Claudio B. Altura, were elected.7
Aggrieved by the turn of events, the Bernas Group initiated an action before the Securities Investigation and Clearing Department
(SICD) of the SEC docketed as SEC Case No. 5840 seeking for the nullification of the 17 December 1997 Special Stockholders
Meeting on the ground that it was improperly called. Citing Section 28 of the Corporation Code, the Bernas Group argued that the
authority to call a meeting lies with the Corporate . Secretary and not with the MSCOC which functions merely as an oversight body
and is not vested with the power to call corporate meetings. For being called by the persons not authorized to do so, the Bernas Group
urged the SEC. to declare the 17 December 1997 Special Stockholders' Meeting, including the removal of the sitting officers and the
election of new ones, be nullified.
For their part, the Cinco Group insisted that the 17 December 1997 Special Stockholders' Meeting is sanctioned by the Corporation
Code and the MSC by-laws. In justifying the call effected by the MSCOC, they reasoned that Section 258 of the MSC by-laws merely
authorized the Corporate Secretary to issue notices of meetings and nowhere does it state that such authority solely belongs to him. It
was further asseverated by the Cinco Group that it would be useless to course the request to call a meeting thru the Corporate
Secretary because he repeatedly refused to call a special stockholders' meeting despite demands and even "filed a suit to restrain the
holding of a special meeting.9
Meanwhile, the newly elected directors initiated an investigation on the alleged anomalies in administering the corporate affairs and
after finding Bernas guilty of irregularities,10 the Board resolved to expel him from the club by selling his shares at public
auction.11 After the notice12 requirement was complied with, Bernas' shares was accordingly sold for ₱902,000.00 to the highest
bidder:
Prior to the resolution of SEC Case No. 5840, an Annual Stockholders' Meeting was held on 20 April 1998 pursuant to Section 8 of
the MSC bylaws.13 During the said meeting, which was attended by 1,017 stockholders representing 2/3 of the outstanding shares, the
majority resolved to approve, confirm and ratify, among others, the calling and · holding of 17 December 1997 Special Stockholders'
Meeting, the acts and resolutions adopted therein including the removal of Bernas Group from the Board and the election of their
replacements.14
Due to the filing of several petitions for and against the removal of the Bernas Group from the Board pending before the SEC resulting
in the piling up of legal controversies involving MSC, the SEC En Banc, in its Decision15dated 30 March 1999, resolved to supervise
the holding of the 1999 Annual Stockholders' Meeting. During the said meeting, the stockholders once again approved, ratified and
confirmed the holding of the 17 December 1997 Special Stockholders' Meeting.
The conduct of the 17 December 1997 Special Stockholders' Meeting was likewise ratified by the stockholders during the 2000
Annual Stockholders' Meeting which was held on 17 April 2000. 16
On 9 May 2000, the SICD rendered a Decision17 in SEC Case No. 12-. 97-5840 finding, among others, that the 17 December 1997
Special Stockholders' Meeting and the Annual Stockholders' Meeting conducted on 20 April 1998 and 19 April 1999 are invalid. The
SICD likewise nullified the expulsion of Bernas from the corporation and the sale of his share at the public auction. The dispositive
portion of the said decision reads:
WHEREFORE, in view of the foregoing considerations this Office, through the undersigned Hearing Officer, hereby declares as
follows:
(1) The supposed Special Stockholders' Meeting of December 17, 1997 was prematurely or invalidly called by the [the Cinco
Group]. It therefore failed to produce any legal effects and did not effectively remove [the Bernas Group] as directors of the
Makati Sports Club, Inc.
(2) The April 20, 1998 meeting was not attended by a sufficient number of valid proxies. No quorum could have been present
at the said meeting. No corporate business could have been validly completed and/or transacted during the said meeting.
Further, it was not called by the validly elected Corporate Secretary Victor Africa nor presided over by the validly elected
president Jose A. Bernas. Even if the April 20, 1998 meeting was valid, it could not ratify the December 17, 1997 meeting
because being a void meeting, the December 1 7, 1997 meeting may not be ratified.
(3) The April 1998 meeting was null and void and therefore produced no legal effect.
(4) The April 1999 meeting has not been raised as a defense in the Answer nor assailed in a supplemental complaint.
However, it has been raised by [the Cinco Group] in a manifestation dated April 21, 1999 and in their position paper dated
April 8, 2000. Its legal effects must be the subject of this Decision in order to put an end to the controversy at hand. In the
first place, by [the Cinco Group's] own admission, the alleged attendance at the April 1999 meeting amounted to less than 2/3
of the stockholders entitled to vote, the minimum number required to effect a removal. No removal or ratification of a
removal may be effected by less than 2/3 vote of the stockholders. Further, it cannot ratify the December 1997 meeting for
failure to adhere to the requirement of the By-laws on notice as explained in paragraph (2) above, even if it was accompanied
by valid proxies, which it was not.
(5) The [the Cinco Group], their agents, representatives and all persons acting for and conspiring on their behalf, are hereby
permanently enjoined from carrying into effect the resolutions and actions adopted during the 17 December 1997 and April
20, 1998 meetings and of the Board of Directors and/or other stockholders' meetings resulting therefrom, and from
performing acts of control and management of the club.
(6) The expulsion of complainant Jose A. Bernas as well as the public auction of his share is hereby declared void and
without legal effect, as prayed for. While it is true that [the Cinco Group] were no.t restrained from acting as directors during
the pendency of this case, their tenure as directors prior to this Decision is in the nature of de facto directors of a de facto
Board. Only the ordinary acts of administration which [the Cinco Group] carried out de facto in good faith are valid. Other
acts, such as political acts and the expulsion or other disciplinary acts imposed on the [the Bernas Group] may not be
appropriately taken by de facto officers because the legality of their tenure as directors is not complete and subject to the
outcome of this case. (7) No awards for damages and attorney's fees.18
On appeal, the SEC En Banc, in its 12 December 2000 Decision19 reversed the findings of the SICD and validated the holding of the
17 December 1997 Special Stockholders' Meeting as well as the Annual Stockholders' Meeting held on 20 April 1998 and 19 April
1999.
On 28 April 2003, the Court of Appeals rendered a Decision 20 declaring the 17 December 1997 Special Stockholders' Meeting invalid
for being improperly called but affirmed the actions taken during the Annual Stockholders' Meeting held on 20 April 1998, 19 April
1999 and 17 April 2000.
In a Resolution21 dated 27 April 2004, the appellate court refused to reconsider its earlier decision.
Aggrieved by the disquisition of the Court of Appeals, both parties elevated the case before this Court by filing their respective
Petitions for Review on Certiorari. While the Bernas Group agrees with the disquisition of the appellate court that the Special
Stockholders' Meeting is invalid for being called by the persons not authorized to do so, they urge the Court to likewise invalidate the
holding of the subsequent Annual Stockholders' Meetings invoking the application of the holdover principle. The Cinco Group, for its
part, insists that the holding. of 17 December 1997 Special Stockholders' Meeting is valid and binding underscoring the overwhelming
ratification made by the stockholders during the subsequent annual stockholders' meetings and the previous refusal of the Corporate
Secretary to call a special stockholders' meeting despite demand. For the resolution of the Court are the following issues:
The Issues
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE 17 DECEMBER 1997
SPECIAL STOCKHOLDERS' MEETING IS INVALID; AND
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO NULLIFY THE HOLDING OF THE
ANNUAL STOCKHOLDERS' MEETING ON 20 APRIL 1998, 19 APRIL 1999 AND 17 APRIL 2000.
The Court's Ruling
The Corporation Code laid down the rules on the removal of the Directors of the corporation by providing, inter alia, the persons
authorized to call the meeting and the number of votes required for the purpose of removal, thus:
Sec. 28. Removal of directors or trustees. -Any director or trustee of a corporation may be removed from office by a vote of the
stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock
corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote: Provided, That such removal shall take place either
at a regular meeting of the corporation or at a special meeting called for the purpose, and in either case, after previous notice to
stockholders or members of the corporation of the intention to propose such removal at the meeting. A special meeting of the
stockholders or members of a corporation for the purpose of removal of directors or trustees, or any of them, must be called by the
secretary on order of the president or on the written demand of the stockholders representing or holding at least a majority of the
outstanding capital stock, or, if it be a non-stock corporation, on the written demand of a majority of the members entitled to vote.
Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice, or if there is no
secretary, the call for the meeting may be addressed directly to the stockholders or members by any stockholder or member of the
corporation signing the demand. Notice of the time and place of such meeting, as well as of the intention to propose such removal,
must be given by publication or by written notice prescribed in this Code. Removal may be with or without cause: Provided, That
removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may
be entitled under Section 24 of this Code. (Emphasis supplied)
Corollarily, the pertinent provisions of MSC by-laws which govern the manner of calling and sending of notices of the annual
stockholders' meeting and the special stockholders' meeting provide:
SEC. 8. Annual Meetings. The annual meeting of stockholders shall be held at the Clubhouse on the third Monday of April of every
year unless such day be a holiday in which case the annual meeting shall be held on the next succeeding business day. At such
meeting, the President shall render a report to the stockholders of the clubs.
xxxx
SEC. 10. Special Meetings. Special meetings of stockholders shall be held at the Clubhouse when called by the President or by the
Board of Directors or upon written request of the stockholders representing not less than one hundred (100) shares. Only matters
specified in the notice and call will be taken up at special meetings.
xxxx
SEC. 25. Secretary. The Secretary shall keep the stock and transfer book and the corporate seal, which he shall stamp on all
documents requiring such seal, fill and sign together with the President, all the certificates of stocks issued, give or caused to be given
all notices required by law of these By-laws as well as notices of all meeting of the Board and of the stockholders; shall certify as to
quorum at meetings; shall approve and sign all correspondence pertaining to the Office of the Secretary; shall keep the minutes of all
meetings of the stockholders, the Board of Directors and of all committees in a book or books kept for that purpose; and shall be
acting President in the absence of the President and Vice-:President. The Secretary must be a citizen and a resident of the Philippines.
The Secretary shall keep a record of all the addresses and telephone numbers of all stockholders. 22
Textually, only the President and the Board of Directors are authorized by the by-laws to call a special meeting. In cases where the
person authorized to call a meeting refuses, fails or neglects to call a meeting, then the stockholders representing at least 100 shares,
upon written request, may file a petition to call a special stockholder's meeting.
In the instant case, there is no dispute that the 17 December 1997 Special Stockholders' Meeting was called neither by the President
nor by the Board of Directors but by the MSCOC. While the MSCOC, as its name suggests, is created for the purpose of overseeing
the affairs of the corporation, nowhere in the by-laws does it state that it is authorized to exercise corporate powers, such as the power
to call a special meeting, solely vested by law and the MSC by-laws on the President or the Board of Directors.
The board of directors is the directing and controlling body of the corporation. It is a creation of the stockholders and derives its power
to control and direct the affairs of the corporation from them. The board of directors, in drawing to itself the power of the corporation,
occupies a position of trusteeship in relation to the stockholders, in the sense that the board should exercise not only care and
diligence, but utmost good faith in the management of the corporate affairs. 23
The underlying policy of the Corporation Code is that the business and affairs of a corporation must be governed by a board of
directors whose members have stood for election, and who have actually been elected by the stockholders, on an annual basis. Only in
that way can the continued accountability to shareholders, and the legitimacy of their decisions that bind the corporation's
stockholders, be assured. The shareholder vote is critical to the theory that legitimizes the exercise of power by the directors or
officers over the properties that they do not own.24
Even the Corporation Code is categorical in stating that a corporation exercises its powers through its board of directors and/or its duly
authorized officers and agents, except in instances where the Corporation Code requires stockholders' approval for certain specific
acts:
SEC. 23. The Board of Directors or Trustees. - Unless otherwise provided in this Code, the corporate powers of all the corporations
formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the
board of directors and trustees x x x.
A corporation's board of directors is understood to be that body which (1) exercises all powers provided for under the Corporation
Code; (2) conducts all business of the corporation; and (3) controls and holds all the property of the corporation. Its members have
been characterized as trustees or directors clothed with fiduciary character. 25
It is ineluctably clear that the fiduciary relation is between the stockholders and the board of directors and who are vested with the
power to manage the affairs of the corporation. The ordinary trust relationship of · directors of a corporation and stockholders is not a
matter of statutory or technical law.26 It springs from the fact that directors have the control and guidance of corporate affairs and
property and hence of the property interests of the stockholders. 27 Equity recognizes that stockholders are the proprietors of the
corporate interests and are ultimately the only beneficiaries thereof. 28 Should the board fail to perform its fiduciary duty to safeguard
the interest of the stockholders or commit acts prejudicial to their interest, the law and the by-laws provide mechanisms to remove and
replace the erring director.29
Relative to the powers of the Board of Directors, nowhere in the Corporation Code or in the MSC by-laws can it be gathered that the
Oversight Committee is authorized to step in wherever there is breach of fiduciary duty and call a special meeting for the purpose of
removing the existing officers and electing their replacements even if such call was made upon the request of shareholders. Needless
to say, the MSCOC is neither · empowered by law nor the MSC by-laws to call a meeting and the subsequent ratification made by the
stockholders did not cure the substantive infirmity, the defect having set in at the time the void act was done. The defect goes into the
very authority of the persons who made the call for the meeting. It is apt to recall that illegal acts of a corporation which contemplate
the doing of an act which is contrary to law, morals or public order, or contravenes some rules of public policy or public duty, are, like
similar transactions between individuals, void.30 They cannot serve as basis for a court action, nor acquire validity by performance,
ratification or estoppel.31 The same principle can apply in the present case. The void election of 17 December 1997 cannot be ratified
by the subsequent Annual Stockholders' Meeting.
A distinction should be made between corporate acts or contracts which are illegal and those which are merely ultra vires. The former
contemplates the doing of an act which are contrary to law, morals or public policy or public duty, and are, like similar transactions
between individuals, void: They cannot serve as basis of a court action nor acquire validity by performance, ratification or estoppel.
Mere ultra vires acts, on the other hand, or those which are not illegal or void ab initio, but are not merely within the scope of the
articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders. 32 The 1 7
December 1997 Meeting belongs to the category of the latter, that is, it is void ab initio and cannot be validated.
Consequently, such Special Stockholders' Meeting called by the Oversight Committee cannot have any legal effect. The removal of
the Bernas Group, as well as the election of the Cinco Group, effected by the assembly in that improperly called meeting is void, and
since the Cinco Group has no legal right to sit in the board, their subsequent acts of expelling Bernas from the club and the selling of
his shares. at the public auction, are likewise invalid.
The Cinco Group cannot invoke the application of de facto officership doctrine to justify the actions taken after the invalid election
since the operation of the principle is limited to third persons who were originally not part of the corporation but became such by
reason of voting of government-sequestered shares.33 In Cojuangco v. Roxas,34the Court deemed the directors who were elected
through the voting of government of sequestered shares who assumed office in good faith as de facto officers, viz:
In the light of the foregoing discussion, the Court finds and so holds that the PCGG has no right to vote the sequestered shares of
petitioners including the sequestered corporate shares. Only their owners, duly authorized representatives or proxies may vote the said
shares. Consequently, the election of private respondents Adolfo Azcuna, Edison Coseteng and Patricio Pineda as members of the
board of directors of SMC for 1990-1991 should be set aside. However, petitioners cannot be declared as duly elected members of the
board of directors thereby. An election for the purpose should be held where the questioned shares may be voted by their owners
and/or their proxies. Such election may be held at the next shareholders' meeting in April 1991 or at such date as may be set under the
by-laws of SMC.
Private respondents in both cases are hereby declared to be de facto officers who in good faith assumed their duties and
responsibilities as duly elected members of the board of directors of the SMC. They are thereby legally entitled to emoluments of the
office including salary, fees and other compensation attached to the office until they vacate the same. (Emphasis supplied)
Apparently, the assumption of office of the Cinco Group did not bear parallelism with the factual milieu in Cojuangco and as such
they cannot be considered as de facto officers and thus, they are without colorable authority to authorize the removal of Bernas and the
sale of his shares at the public auction. They cannot bind the corporation to third persons who acquired the shares of Bernas and such
third persons cannot be deemed as buyer in good faith. 35
The case would have been different if the petitioning stockholders went directly to the SEC and sought its assistance to call a special
stockholders' meeting citing the previous refusal of the Corporate Secretary to call a meeting. Where there is an officer authorized to
call a meeting and that officer refuses, fails, or neglects to call a meeting, the SEC can assume jurisdiction and issue an order to the
petitioning stockholder to call a meeting pursuant to its regulatory and administrative powers to implement the Corporation
Code.36 This is clearly provided for by Section 50 of the Corporation Code which we quote:
Sec. 50. Regular and special meetings of stockholders or members. - x x x
xxxx
Whenever, for any cause, there is no person authorized to call a meeting, the Securities and Exchange Commission, upon petition of a
stockholder or member, and on a showing of good cause therefore, may issue an order to the petitioning stockholder or member
directing him to call a meeting of the corporation by giving proper notice required by this Code or by the by-laws. The petitioning
stockholder or member shall preside thereat until at least majority of the stockholders or members present have chosen one of their
member[s] as presiding officer.
As early as Ponce v. Encarnacion, etc. and Gapol,37 the Court of First Instance (now the SEC)38 is empowered to call a meeting upon
petition of the stockholder or member and upon showing of good cause, thus:
On the showing of good cause therefore, the court may authorize a stockholder to call a meeting and to preside thereat until the
majority stockholders representing a majority of the stock present and permitted to be voted shall have chosen one among them to
preside it. And this showing of good cause therefor exists when the court is apprised of the fact that the by-laws of the corporation
require the calling of a general meeting of the stockholders to elect the board of directors but the call for such meeting has not been
done.39
The same jurisprudential rule resonates in Philippine National Construction Corporation v. Pabion, 40 where the Court validated the
order of the SEC to compel the corporation to conduct a stockholders' meeting in the exercise of its regulatory and administrative
powers to implement the Corporation Code:
SEC's assumption of jurisdiction over this case is proper, as the controversy involves the election of PNCC's directors. Petitioner does
not really contradict the nature of the question presented and agrees that there is an intra-corporate question involved.
xxxx
Prescinding from the above premises, it necessarily follows that SEC can compel PNCC to hold a stockholders' meeting for the
purpose of electing members of the latter's board of directors.
xxxx
As respondents point out, the SEC's action is also justified by its regulatory and administrative powers to implement the Corporation
Code, specifically to compel the PNCC to hold a stockholders' meeting for election purposes. 41
Given the broad administrative and regulatory powers of the SEC outlined under Section 50 of the Corporation Code and Section 6 of
Presidential Decree (PD) No. 902-A, the Cinco Group cannot claim that if was left without recourse after the Corporate Secretary
previously refused to heed its demand to call a special stockholders' meeting. If it be true that the Corporate Secretary refused to call a
meeting despite fervent demand from the MSCOC, the remedy of the stockholders would have been to file a petition to the SEC to
direct him to call a meeting by giving proper notice required under the Code. To rule otherwise would open the floodgates to abuse
where any stockholder, who consider himself aggrieved by certain corporate actions, could call a special stockholders' meeting for the
purpose of removing the sitting officers in direct violation of the rules pertaining to the call of meeting laid down in the by-laws.
Every corporation has the inherent power to adopt by-laws for its internal government, and to regulate the conduct and prescribe the
rights and duties of its members towards itself and among themselves in reference to the management of its affairs. 42 The by-laws of a
corporation are its own private laws which substantially have the same effect as the laws of the corporation. They are in effect written
into the charter. In this sense they become part of the fundamental law of the corporation with which the corporation and its directors
and officers must comply.43 The general rule is that a corporation, through its board of directors, should act in the manner and within
the formalities, if any, prescribed in its charter or by the general law. Thus, directors must act as a body in a meeting called pursuant to
the law or the corporation's by-laws, otherwise, any action taken therein may be questioned by the objecting director or shareholder. 44
Certainly, the rules set in the by-laws are mandatory for every member of the corporation to respect.1âwphi1 They are the
fundamental law of the corporation with which the corporation and its officers and members must comply. It is on this score that we
cannot upon the other hand sustain the Bernas Group's stance that the subsequent annual stockholders' meetings were invalid.
First, the 20 April 1998 Annual Stockholders Meeting was valid because it was sanctioned by Section 8 45 of the MSC bylaws. Unlike
in Special Stockholders Meeting46 wherein the bylaws mandated that such meeting shall be called by specific persons only, no such
specific requirement can be obtained under Section 8.
Second, the 19 April 1999 Annual Stockholders Meeting is likewise valid because in addition to the fact that it was conducted in
accordance to Section 8 of the MSC bylaws, such meeting was supervised by the SEC in the exercise of its regulatory and
administrative powers to implement the Corporation Code. 47
Needless to say, the conduct of SEC supervised Annual Stockholders Meeting gave rise to the presumption that the corporate officers
who won the election were duly elected to their positions and therefore can be rightfully considered as de jure officers. As de jure
officials, they can lawfully exercise functions and legally perform such acts that are within the scope of the business of the corporation
except ratification of actions that are deemed void from the beginning.
Considering that a new set of officers were already duly elected in 1998 and 1999 Annual Stockholders Meetings, the Bernas Group
cannot be permitted to use the holdover principle as a shield to perpetuate in office. Members of the group had no right to continue as
directors of the corporation unless reelected by the stockholders in a meeting called for that purpose every year. 48 They had no right to
hold-over brought about by the failure to perform the duty incumbent upon them. 49 If they were sure to be reelected, why did they fail,
neglect, or refuse to call the meeting to elect the members of the board? 50
Moreover, it is fundamental rule that factual findings of quasi-judicial agencies like the SEC, if supported by substantial evidence, are
generally accorded not only great respect but even finality, and are binding upon this Court unless it was shown that the quasi-judicial
agencies had arbitrarily disregarded evidence before it had misapprehended evidence to such an extent as to compel a contrary
conclusion if such evidence had been properly appreciated. 51 It is not the function of this Court to analyze or weigh all over again the
evidence and credibility of witnesses presented before the lower court, tribunal, or office, as we are not trier of facts. 52 Our jurisdiction
is limited to reviewing and revising errors of law imputed to the lower court, the latter's finding of facts being conclusive and not
reviewable by this Court.53 However, when it can be shown that administrative bodies grossly misappreciated evidence of such nature
as to compel a contrary conclusion, the Court will not hesitate to reverse its factual findings.54 In the case at bar, the incongruent
findings of the SEC on the one hand, and the Court of Appeals on the other, constrained the Court to review the records to ascertain
which body correctly appreciated the facts vis-a-vis the standing statutory and jurisprudential principles.
After finding that the ruling of the appellate court was in accordance with the existing laws and jurisprudence as exhaustively
discussed above, we hereby quote with approval its disquisition: (1) The supposed Special Stockholders' Meeting of 1 7 December
1997 was prematurely or invalidly called by the [Cinco Group]. It therefore failed to produce any legal effects and did not effectively
remove [the Bernas Group] as directors of the Makati Sports Club, Inc.;
(2) The expulsion of [Bernas] as well as the public auction of his shares is hereby declared void and without legal effect;
(3) The ratification of the removal of [the Bernas Group] as directors, the expulsion of Bernas and the sale of his share by the
[Cinco Group] and by the stockholders held in their Regular Stockholders' Meeting held in April of 1998, 1999 and 2000, is
void and produces no effects as they were not the proper party to cause the ratification;
(4) All other actions of the [Cinco Group] and stockholders taken during the Regular Stockholders' Meetings held in April
1998, 1999 and 2000, including the election of the [Cinco Group] as directors after the expiration of the term of office of
[Bernas Group] as directors, are hereby declared valid. 55
In fine, we hold that 17 December 1997 Special Stockholders' Meeting is null and void and produces no effect; the resolution
expelling the Bernas Group from the corporation and authorizing the sale of Bernas' shares at the public auction is likewise null and
void. The subsequent Annual Stockholders' Meeting held on 20 April 1998, 19 April 1999 and 17 April 2000 are valid and binding
except the ratification of the removal of the Bernas Group and the sale of Bernas' shares at the public auction effected by the body
during the said meetings. The expulsion of the Bernas Group and the subsequent auction of Bernas' shares are void from the very
beginning and therefore the ratifications effected during the subsequent meetings cannot be sustained. A void act cannot be the subject
of ratification.56
WHEREFORE, premises considered, the petitions of Jose A. Bernas, Cecile. H. Cheng, Victor Africa, Jesus B. Maramara, Jose T.
Frondoso, Ignacio A. Macrohon and Paulino T. Lim in G.R. Nos. 163356-57 and of Jovencio Cinco, Ricardo Librea and Alex Y.
Pardo in G.R. Nos. 163368-69 are hereby DEN~ED. The assailed Decision dated 28 April 2003 and Resolution dated 27 April 2004
of the Court of Appeals are hereby AFFIRMED.
SO ORDERED.
JOSE PORTUGAL PEREZ
Associate Justice
WE CONCUR:
MARIA LOURDES P.A. SERENO
Chief Justice
Chairperson
TERESITA J. LEONARDO DE-CASTRO LUCAS P. BERSAMIN
Associate Justice Associate Justice
Please see Separate Concurring Opinion
ESTELA M. PERLAS-BERNABE
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of the Court's Division.
MARIA LOURDES P.A. SERENO
Chief Justice
 SECOND DIVISION
[G.R. No. 131394. March 28, 2005]
JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES, petitioners, vs. COURT OF APPEALS,
SECURITIES AND EXCHANGE COMMISSION, DOLORES ONRUBIA, ELENITA NOLASCO, JUAN O.
NOLASCO III, ESTATE OF FAUSTINA M. ONRUBIA, PHILIPPINE MERCHANT MARINE SCHOOL,
INC., respondents.
DECISION
TINGA, J.:
Presented in the case at bar is the apparently straight-forward but complicated question: What should be the basis of quorum for
a stockholders meetingthe outstanding capital stock as indicated in the articles of incorporation or that contained in the companys
stock and transfer book?
Petitioners seek to nullify the Court of Appeals Decision in CAG.R. SP No. 41473[1] promulgated on 18 August 1997, affirming
the SEC Order dated 20 June 1996, and the Resolution[2] of the Court of Appeals dated 31 October 1997 which denied petitioners
motion for reconsideration.
The antecedents are not disputed.
In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred (700) founders shares and
seventy-six (76) common shares as its initial capital stock subscription reflected in the articles of incorporation. However, private
respondents and their predecessors who were in control of PMMSI registered the companys stock and transfer book for the first time
in 1978, recording thirty-three (33) common shares as the only issued and outstanding shares of PMMSI. Sometime in 1979, a special
stockholders meeting was called and held on the basis of what was considered as a quorum of twenty-seven (27) common shares,
representing more than two-thirds (2/3) of the common shares issued and outstanding.
In 1982, the heirs of one of the original incorporators, Juan Acayan, filed a petition with the Securities and Exchange
Commission (SEC) for the registration of their property rights over one hundred (120) founders shares and twelve (12) common
shares owned by their father. The SEC hearing officer held that the heirs of Acayan were entitled to the claimed shares and called for a
special stockholders meeting to elect a new set of officers. [3] The SEC En Banc affirmed the decision. As a result, the shares of
Acayan were recorded in the stock and transfer book.
On 06 May 1992, a special stockholders meeting was held to elect a new set of directors. Private respondents thereafter filed a
petition with the SEC questioning the validity of the 06 May 1992 stockholders meeting, alleging that the quorum for the said meeting
should not be based on the 165 issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital
stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation. The petition was
dismissed.[4] Appeal was made to the SEC En Banc, which granted said appeal, holding that the shares of the deceased incorporators
should be duly represented by their respective administrators or heirs concerned. The SEC directed the parties to call for a
stockholders meeting on the basis of the stockholdings reflected in the articles of incorporation for the purpose of electing a new set of
officers for the corporation.[5]
Petitioners, who are PMMSI stockholders, filed a petition for review with the Court of Appeals. [6] Rebecca Acayan, Jayne O.
Abuid, Willie O. Abuid and Renato Cervantes, stockholders and directors of PMMSI, earlier filed another petition for review of the
same SEC En Bancs orders. The petitions were thereafter consolidated. [7] The consolidated petitions essentially raised the following
issues, viz: (a) whether the basis the outstanding capital stock and accordingly also for determining the quorum at stockholders
meetings it should be the 1978 stock and transfer book or if it should be the 1952 articles of incorporation; and (b) whether the Court
of Appeals gravely erred in applying the Espejo Decision to the benefit of respondents. [8] The Espejo Decision is the decision of the
SEC en banc in SEC Case No. 2289 which ordered the recording of the shares of Jose Acayan in the stock and transfer book.
The Court of Appeals held that for purposes of transacting business, the quorum should be based on the outstanding capital stock
as found in the articles of incorporation.[9] As to the second issue, the Court of Appeals held that the ruling in the Acayan case
would ipso facto benefit the private respondents, since to require a separate judicial declaration to recognize the shares of the original
incorporators would entail unnecessary delay and expense. Besides, the Court of Appeals added, the incorporators have already
proved their stockholdings through the provisions of the articles of incorporation. [10]
In the instant petition, petitioners claim that the 1992 stockholders meeting was valid and legal. They submit that reliance on the
1952 articles of incorporation for determining the quorum negates the existence and validity of the stock and transfer book which
private respondents themselves prepared. In addition, they posit that private respondents cannot avail of the benefits secured by the
heirs of Acayan, as private respondents must show and prove entitlement to the founders and common shares in a separate and
independent action/proceeding.
In private respondents Memorandum[11] dated 08 March 2000, they point out that the instant petition raises the same facts and
issues as those raised in G.R. No. 131315[12], which was denied by the First Division of this Court on 18 January 1999 for failure to
show that the Court of Appeals committed any reversible error. They add that as a logical consequence, the instant petition should be
dismissed on the ground of res judicata. Furthermore, private respondents claim that in view of the applicability of the rule
on res judicata, petitioners counsel should be cited for contempt for violating the rule against forum-shopping.[13]
For their part, petitioners claim that the principle of res judicata does not apply to the instant case. They argue that the instant
petition is separate and distinct from G.R. No. 131315, there being no identity of parties, and more importantly, the parties in the two
petitions have their own distinct rights and interests in relation to the subject matter in litigation. For the same reasons, they claim that
counsel for petitioners cannot be found guilty of forum-shopping.[14]
 In their Manifestation and Motion[15] dated 22 September 2004, private respondents moved for the dismissal of the instant
petition in view of the dismissal of G.R. No. 131315. Attached to the said manifestation is a copy of the Entry of Judgment[16] issued
by the First Division dated 01 December 1999.
The petition must be denied, not on res judicata, but on the ground that like the petition in G.R. No. 131315 it fails to impute
reversible error to the challenged Court of Appeals Decision.
Res judicata does not apply in
the case at bar.
Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter settled by judgment.[17] The
doctrine of res judicata provides that a final judgment, on the merits rendered by a court of competent jurisdiction is conclusive as to
the rights of the parties and their privies and constitutes an absolute bar to subsequent actions involving the same claim, demand, or
cause of action.[18] The elements of res judicata are (a) identity of parties or at least such as representing the same interest in both
actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) the identity in the two
(2) particulars is such that any judgment which may be rendered in the other action will, regardless of which party is successful,
amount to res judicata in the action under consideration.[19]
There is no dispute as to the identity of subject matter since the crucial point in both cases is the propriety of including the still
unproven shares of respondents for purposes of determining the quorum. Petitioners, however, deny that there is identity of parties and
causes of actions between the two petitions.
The test often used in determining whether causes of action are identical is to ascertain whether the same facts or evidence would
support and establish the former and present causes of action.[20] More significantly, there is identity of causes of action when the
judgment sought will be inconsistent with the prior judgment. [21] In both petitions, petitioners assert that the Court of
Appeals Decision effectively negates the existence and validity of the stock and transfer book, as well as automatically grants private
respondents shares of stocks which they do not own, or the ownership of which remains to be unproved. Petitioners in the two
petitions rely on the entries in the stock and transfer book as the proper basis for computing the quorum, and consequently determine
the degree of control one has over the company. Essentially, the affirmance of the SEC Order had the effect of diminishing their
control and interests in the company, as it allowed the participation of the individual private respondents in the election of officers of
the corporation.
Absolute identity of parties is not a condition sine qua non for res judicata to applya shared identity of interest is sufficient to
invoke the coverage of the principle.[22] However, there is no identity of parties between the two cases. The parties in the two petitions
have their own rights and interests in relation to the subject matter in litigation. As stated by petitioners in their Reply to Respondents
Memorandum,[23] there are no two separate actions filed, but rather, two separate petitions for review on certiorari filed by two distinct
parties with the Court and represented by their own counsels, arising from an adverse consolidated decision promulgated by the Court
of Appeals in one action or proceeding.[24] As such, res judicata is not present in the instant case.
Likewise, there is no basis for declaring petitioners or their counsel guilty of violating the rules against forum-shopping. In
the Verification/Certification[25] portion of the petition, petitioners clearly stated that there was then a pending motion for
reconsideration of the 18 August 1997 Decision of the Court of Appeals in the consolidated cases (CA-G.R. SP No. 41473 and CA-
G.R. SP No. 41403) filed by the Abuids, as well as a motion for clarification. Moreover, the records indicate that petitioners filed
their Manifestation[26] dated 20 January 1998, informing the Court of their receipt of the petition in G.R. No. 131315 in compliance
with their duty to inform the Court of the pendency of another similar petition. The Court finds that petitioners substantially complied
with the rules against forum-shopping.
The Decision of the Court of
Appeals must be upheld.
The petition in this case involves the same facts and substantially the same issues and arguments as those in G.R. No. 131315
which the First Division has long denied with finality. The First Division found the petition before it inadequate in failing to raise any
reversible error on the part of the Court of Appeals. We reach a similar conclusion as regards the present petition.
The crucial issue in this case is whether it is the companys stock and transfer book, or its 1952 Articles of Incorporation, which
determines stockholders shareholdings, and provides the basis for computing the quorum.
We agree with the Court of Appeals.
The articles of incorporation has been described as one that defines the charter of the corporation and the contractual
relationships between the State and the corporation, the stockholders and the State, and between the corporation and its
stockholders.[27] When PMMSI was incorporated, the prevailing law was Act No. 1459, otherwise known as The Corporation Law.
Section 6 thereof states:
Sec. 6. Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippines, may form a private
corporation for any lawful purpose or purposes by filing with the Securities and Exchange Commission articles of incorporation duly
executed and acknowledged before a notary public, setting forth:
....
(7) If it be a stock corporation, the amount of its capital stock, in lawful money of the Philippines, and the number of shares into which
it is divided, and if such stock be in whole or in part without par value then such fact shall be stated; Provided, however, That as to
stock without par value the articles of incorporation need only state the number of shares into which said capital stock is divided.
(8) If it be a stock corporation, the amount of capital stock or number of shares of no-par stock actually subscribed, the amount or
number of shares of no-par stock subscribed by each and the sum paid by each on his subscription. . . . [28]
A review of PMMSIs articles of incorporation[29] shows that the corporation complied with the requirements laid down by Act
No. 1459. It provides in part:
7. That the capital stock of the said corporation is NINETY THOUSAND PESOS (P90,000.00) divided into two classes, namely:
FOUNDERS STOCK - 1,000 shares at P20 par value- P 20,000.00
COMMON STOCK- 700 shares at P 100 par value P 70,000.00
TOTAL ---------------------1,700 shares----------------------------P 90,000.00
....
8. That the amount of the entire capital stock which has been actually subscribed is TWENTY ONE THOUSAND SIX HUNDRED
PESOS (P21,600.00) and the following persons have subscribed for the number of shares and amount of capital stock set out after
their respective names:
SUBSCRIBER SUBSCRIBED AMOUNT SUBSCRIBED

No. of Shares Par Value

Crispulo J. Onrubia 120 Founders P 2,400.00

Juan H. Acayan 120 " 2, 400.00
Martin P. Sagarbarria 100 " 2, 000.00
Mauricio G. Gallaga 50 " 1, 000.00
Luis Renteria 50 " 1, 000.00
Faustina M. de Onrubia 140 " 2, 800.00

Mrs. Ramon Araneta 40 " 800.00

Carlos M. Onrubia 80 " 1,600.00
700 P 14,000.00

SUBSCRIBER SUBSCRIBED AMOUNT

No. of Shares SUBSCRIBED
Par Value

Crispulo J. Onrubia 12 Common P 1,200.00

Juan H. Acayan 12 " 1,200.00
Martin P. Sagarbarria 8" 800.00
Mauricio G. Gallaga 8" 800.00
Luis Renteria 8" 800.00
Faustina M. de Onrubia 12 " 1,200.00

Mrs. Ramon Araneta 8" 800.00

Carlos M. Onrubia 8" 800.00
76 P 7,600.00[30]
There is no gainsaying that the contents of the articles of incorporation are binding, not only on the corporation, but also on its
shareholders. In the instant case, the articles of incorporation indicate that at the time of incorporation, the incorporators
were bona fide stockholders of seven hundred (700) founders shares and seventy-six (76) common shares. Hence, at that time, the
corporation had 776 issued and outstanding shares.
On the other hand, a stock and transfer book is the book which records the names and addresses of all stockholders arranged
alphabetically, the installments paid and unpaid on all stock for which subscription has been made, and the date of payment thereof; a
statement of every alienation, sale or transfer of stock made, the date thereof and by and to whom made; and such other entries as may
be prescribed by law.[31] A stock and transfer book is necessary as a measure of precaution, expediency and convenience since it
provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the
ownership of stock and like matters.[32] However, a stock and transfer book, like other corporate books and records, is not in any sense
a public record, and thus is not exclusive evidence of the matters and things which ordinarily are or should be written therein.[33] In
fact, it is generally held that the records and minutes of a corporation are not conclusive even against the corporation but are prima
facie evidence only,[34]and may be impeached or even contradicted by other competent evidence. [35] Thus, parol evidence may be
admitted to supply omissions in the records or explain ambiguities, or to contradict such records. [36]
In 1980, Batas Pambansa Blg. 68, otherwise known as The Corporation Code of the Philippines supplanted Act No. 1459. BP
Blg. 68 provides:
Sec. 24. Election of directors or trustees.At all elections of directors or trustees, there must be present, either in person or by
representative authorized to act by written proxy, the owners of a majority of the outstanding capital stock, or if there be no capital
stock, a majority of the members entitled to vote. . . .
Sec. 52. Quorum in meetings.- Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders
representing a majority of the outstanding capital stock or majority of the members in the case of non-stock corporation.
Outstanding capital stock, on the other hand, is defined by the Code as:
Sec. 137. Outstanding capital stock defined. The term outstanding capital stock as used in this code, means the total shares of stock
issued to subscribers or stockholders whether or not fully or partially paid (as long as there is binding subscription agreement) except
treasury shares.
Thus, quorum is based on the totality of the shares which have been subscribed and issued, whether it be founders shares or
common shares.[37] In the instant case, two figures are being pitted against each other those contained in the articles of incorporation,
and those listed in the stock and transfer book.
To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer book, and completely
disregarding the issued and outstanding shares as indicated in the articles of incorporation would work injustice to the owners and/or
successors in interest of the said shares. This case is one instance where resort to documents other than the stock and transfer books is
necessary. The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does not reflect
the totality of shares which have been subscribed, more so when the articles of incorporation show a significantly larger amount of
shares issued and outstanding as compared to that listed in the stock and transfer book. As aptly stated by the SEC in its Order dated
15 July 1996:[38]
It is to be explained, that if at the onset of incorporation a corporation has 771 shares subscribed, the Stock and Transfer Book should
likewise reflect 771 shares. Any sale, disposition or even reacquisition of the company of its own shares, in which it becomes treasury
shares, would not affect the total number of shares in the Stock and Transfer Book. All that will change are the entries as to the owners
of the shares but not as to the amount of shares already subscribed.
This is precisely the reason why the Stock and Transfer Book was not given probative value. Did the shares, which were not recorded
in the Stock and Transfer Book, but were recorded in the Articles of Iincorporation just vanish into thin air? . . . . [39]
As shown above, at the time the corporation was set-up, there were already seven hundred seventy-six (776) issued and
outstanding shares as reflected in the articles of incorporation. No proof was adduced as to any transaction effected on these shares
from the time PMMSI was incorporated up to the time the instant petition was filed, except for the thirty-three (33) shares which were
recorded in the stock and transfer book in 1978, and the additional one hundred thirty-two (132) in 1982. But obviously, the shares so
ordered recorded in the stock and transfer book are among the shares reflected in the articles of incorporation as the shares subscribed
to by the incorporators named therein.
One who is actually a stockholder cannot be denied his right to vote by the corporation merely because the corporate officers
failed to keep its records accurately.[40] A corporations records are not the only evidence of the ownership of stock in a
corporation.[41] In an American case,[42] persons claiming shareholders status in a professional corporation were listed as stockholders
in the amendment to the articles of incorporation. On that basis, they were in all respects treated as shareholders. In fact, the acts and
conduct of the parties may even constitute sufficient evidence of ones status as a shareholder or member. [43] In the instant case, no less
than the articles of incorporation declare the incorporators to have in their name the founders and several common shares. Thus, to
disregard the contents of the articles of incorporation would be to pretend that the basic document which legally triggered the creation
of the corporation does not exist and accordingly to allow great injustice to be caused to the incorporators and their heirs.
Petitioners argue that the Court of Appeals gravely erred in applying the Espejo decision to the benefit of respondents. The Court
believes that the more precise statement of the issue is whether in its assailed Decision, the Court of Appeals can declare private
respondents as the heirs of the incorporators, and consequently register the founders shares in their name. However, this issue as recast
is not actually determinative of the present controversy as explained below.
Petitioners claim that the Decision of the Court of Appeals unilaterally divested them of their shares in PMMSI as recorded in
the stock and transfer book and instantly created inexistent shares in favor of private respondents. We do not agree.
The assailed Decision merely declared that a separate judicial declaration to recognize the shares of the original incorporators
would entail unnecessary delay and expense on the part of the litigants, considering that the incorporators had already proved
ownership of such shares as shown in the articles of incorporation.[44] There was no declaration of who the individual owners of these
shares were on the date of the promulgation of the Decision. As properly stated by the SEC in its Order dated 20 June 1996, to which
the appellate courts Decision should be related, if at all, the ownership of these shares should only be subjected to the proper judicial
(probate) or extrajudicial proceedings in order to determine the respective shares of the legal heirs of the deceased incorporators. [45]
WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioners.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.