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
Petitioners,
- versus -
PAUL
SYCIP and MERRITTO
LIM, Promulgated:
Respondents.
August 17, 2006
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- x
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 present Petition for
Review on Certiorari[1]
under Rule 45 of the Rules of Court seeks the reversal of the January 23[2]
and May 7, 2002,[3]
Resolutions of the Court of Appeals (CA) in CA-GR SP No. 68202. The first assailed Resolution 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
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
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]
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 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, of
the 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.
x x x x x x x x x
“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.
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
Chairperson, First
Division
W E C O N C U R:
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 Court’s Division.
ARTEMIO V. PANGANIBAN
Chief Justice
[1]
Dated
[2] Annex “A” of the Petition; rollo,
p. 35. Penned by Justice B.A. Adefuin-de
la Cruz (Division chair) and concurred in by Justices Wenceslao I. Agnir Jr.
and Josefina Guevara-Salonga.
[3] Annex “B” of the Petition; rollo,
p. 37.
[4] Art. II (1), Amended By-Laws of GCHS,
provides:
“1. Number – The regular members of the
Corporation shall be fifteen (15) in number and they shall constitute the Board
of Trustees. Associate, non-voting
members may be admitted upon such terms as the Board of Trustees may
determine.” (Memorandum for petitioners,
p. 2; rollo, p. 92.)
[5]
Petitioners
James Tan, Paul Lee Tan, Andrew Liuson, Esther Wong, Stephen Co; Respondents
Paul Sycip and Merritto Lim and four others not parties in this Petition – John
Tan, Claro Ben Lim, Wang Ta Peng and Anita So.
(Memorandum for petitioners, p. 2; rollo, p. 92.)
[6] Wang Ta Peng, Esther Wong, Stephen Co
and James L. Tan, represented by Atty. Sabino Padilla; Paul Lee Tan and Andrew
Liuson, represented by Atty. Eduardo P. Lizares; and Anita So, represented by
Atty. Antonio C. Pacis. (
[7] See
Decision dated
[8]
[9] “Section 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.
x x x. Any meeting of the stockholders or members called for an election may
adjourn from day to day or from time to time but not sine die or
indefinitely if, for any reason, no election is held, or if there are not
present or represented by proxy, at the meeting, the owners of a majority of
the outstanding capital stock, or if there be no capital stock, a majority of
the member entitled to vote.” (Underscoring supplied)
[10] “Section 89. Right
to vote. – The right of the members of any class or classes to vote may be
limited, broadened or denied to the extent specified in the articles of
incorporation or the by-laws. Unless so
limited, broadened or denied, each member, regardless of class, shall be
entitled to one vote.”
“Unless
otherwise provided in the articles of incorporation or the by-laws, a member
may vote by proxy in accordance with the provisions of this Code.
“Voting
by mail or other similar means by members of non-stock corporations may be
authorized by the by-laws of non-stock corporations with the approval of, and
under such conditions which may be prescribed by, the Securities and Exchange
Commission.”
[11] “Article III (2).
Vacancies – Any vacancy in the Board of Trustees shall be filled by a
majority vote of the remaining members of the Board.” (Cited in Decision, SEC
Case No. 08-98-6065, p. 6; rollo, p. 43.)
[12] “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. x x x.” (Underscoring supplied)
[13] See
SEC Order dated
[14] “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.”
(Underscoring supplied)
[15] SEC Order dated
[16] To resolve old cases, the Court created
the Committee on Zero Backlog of Cases on
[17] Petitioner’s Memorandum, pp. 6-7; rollo,
pp. 96-97.
[18] Ateneo
De Naga University v. Manalo, 458 SCRA 325, May 9, 2005; Vicar International Construction, Inc. v.
FEB Leasing and Finance Corporation, 456 SCRA 588, April 22, 2005; Alternative
Center for Organizational Reforms and Development, Inc. (ACORD) v. Zamora, 459 SCRA 578, June 8,
2005.
[19] Estares
v. Court of Appeals, 459 SCRA 604, June 8, 2005; Torres v. Specialized Packaging Development Corporation, 433 SCRA
455, July 6, 2004; National Steel Corp.
v. CA, 436 Phil. 656, August 29, 2002;
Sy Chin v. Court of Appeals,
399 Phil. 442, November 23, 2000.
[20] Pilipinas
Shell Petroleum Corporation v. John Bordman Ltd. of Iloilo, Inc., GR No.
159831, October 14, 2005.
[21] In certain exceptional circumstances,
the Court has allowed the relaxation of the rule requiring verification and
certification of non-forum shopping. LDP Marketing, Inc., v. Monter, GR No.
159653, January 25, 2006 citing Uy v. Land Bank of the Philippines, 336 SCRA 419, July 24, 2000, Roadway Express, Inc. v. Court of Appeals, et al., 264 SCRA 696,
November 21, 1996, and Loyola v. Court of
Appeals, et al., 245 SCRA 477, June 29, 1995; Ateneo De Naga University v. Manalo, 458 SCRA 325, May 9, 2005.
[22] Uy
v. Land Bank of the Philippines, supra.
[23] Corporation
Code, Sec. 24.
[24] See
Corporation Code, Secs. 6, 16,
24, 28-30, 32, 34, 38, 40, 42-44, 46, 48, 77, 118-120.
[25] Corporation
Code, Sec. 23.
“Sec. 23. The
board of directors or trustees. – Unless otherwise provided in this Code,
the corporate powers of all 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
or trustees to be elected from among the holders of stocks, or where there is
no stock, from among the members of the corporation x x x.”
[26] J.
[27] J.
Campos, Jr. and M.C. Campos, supra at 490.
[28] 5 Fletcher
Cyclopedia of the Law of Private Corporations 116 (1976).
[29] J.
Campos, Jr. and M.C. Campos, supra note 26 at 436.
[30] 5 Fletcher
Cyclopedia of the Law of Private Corporations 127 (1976).
[31]
[32]
[33] R.
Lopez, The Corporation Code of the
Phils. 396, Vol. I (1994).
[34] 5 Fletcher
Cyclopedia of the Law of Private Corporations 77 (1976).
[35] “Section
71. Effect
of delinquency. – No delinquent stock shall be voted for or be entitled to
vote or to representation at any stockholders’ meeting. x x x.”
[36] “Section 9. Treasury
shares. – Treasury shares are shares of stock which have been issued and
fully paid for but subsequently reacquired by the issuing corporation by
purchase, redemption, donation or through some other lawful means. x x x.”
“Section
57. Voting
right for treasury shares. – Treasury shares shall have no voting right as
long as such stock remains in the Treasury.”
[37] 90 ALR 316.
[38] J.
Campos, Jr. and M.C. Campos, supra note 26 at 423.
[39] R.
Lopez, supra note 33 at 965.
[40] Corporation
Code, Sec. 89.
[41] In Noremac, Inc. v. Centre Hill Court, Inc., (178 SE 877, March 14, 1935) the management and control of
the corporation were vested in lot owners who were members of the corporation,
by virtue of their ownership; and the bylaws provided that a quorum should
consist of members representing a majority of the lots, numbered from 1 to 30,
inclusive; but the number of lots was later reduced to 29 so the Court said
that the majority of members representing actual number of lots was a quorum.
The
landmark case Avelino v. Cuenca (83 Phil. 17,
In
this case, the law refers to the “majority of the members” and not the
“majority of all the members.”
Thus, we can use the same reasoning that the “majority of the members”
requires a lesser number than the “majority of all the members.”
[42] See
the Decision dated
[43] R.
Lopez, supra note 33 at 973.
[44] SEC Letter-Opinion to Ms. Rosevelinda E.
Calingasan, et al., (R. Lopez)
[45] Corporation
Code, Sec. 90.
[46] See
Petition, p. 11 (citing Art. III, Amended By-Laws of GCHS on Termination of
Membership); rollo, p. 20.
[47] Excluding Atty. Antonio C. Pacis (proxy
for Anita So), who left the meeting in protest of the alleged lack of quorum.
[48] SEC Letter-Opinion to Mr. Noe S. Andaya
(R. Lopez)
[49] J.
Campos, Jr. and M.C. Campos, supra note 26 at 465.
[50] Article III (2), By-laws of GCHS (cited
in the Decision dated