G.R. No.

153468 August 17, 2006

PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG, STEPHEN CO, JAMES TAN, JUDITH TAN, ERNESTO
TANCHI JR., EDWIN NGO, VIRGINIA KHOO, SABINO PADILLA JR., EDUARDO P. LIZARES and GRACE
CHRISTIAN HIGH SCHOOL, Petitioners,
vs.
PAUL SYCIP and MERRITTO LIM, Respondents.

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.

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. During the annual members meeting held on April 6,
1998, there were only eleven (11) living member-trustees, as four (4) had already died. Out of the eleven, seven
(7) 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. 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.

Issue:

Whether or not in NON-STOCK corporations, dead members should still be counted in determination of quorum
for purpose of conducting the Annual Members Meeting.

Ruling:
The Right to Vote in Nonstock Corporations
In nonstock corporations, the voting rights attach to membership. 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. 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.
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
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.
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. 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. 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 members present, was valid.
G.R. No. 151969 September 4, 2009

VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA, RAY GAMBOA, AMADO M. SANTIAGO,
JR., FORTUNATO DEE, AUGUSTO SUNICO, VICTOR SALTA, FRANCISCO ORTIGAS III, ERIC ROXAS, in
their capacities as members of the Board of Directors of Valle Verde Country Club, Inc., and JOSE
RAMIREZ, Petitioners,
vs.
VICTOR AFRICA, Respondent.

FACTS
On February 27, 1996, during the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club, Inc.
(VVCC), the VVCC Board of Directors were elected including Eduardo Makalintal (Makalintal) among others. In
the years 1997, 1998, 1999, 2000, and 2001, however, the requisite quorum for the holding of the stockholders’
meeting could not be obtained. Consequently, the directors continued to serve in the VVCC Board in a hold-over
capacity. Later, Makalintal resigned as member of the VVCC Board. He was replaced by Jose Ramirez (Ramirez),
who was elected by the remaining members of the VVCC Board on March 6, 2001. Respondent Africa (Africa), a
member of VVCC, questioned the election of Ramirez as members of the VVCC Board with the Regional Trial
Court (RTC), respectively. Africa claimed that a year after Makalintal’s election as member of the VVCC Board in
1996, his [Makalintal’s] term – as well as those of the other members of the VVCC Board – should be considered
to have already expired. Thus, according to Africa, the resulting vacancy should have been filled by the
stockholders in a regular or special meeting called for that purpose, and not by the remaining members of the
VVCC Board, as was done in this case. The RTC sustained Africa’s complaint.

ISSUE
Whether the remaining directors of the corporation’s Board, still constituting a quorum, can elect another director
to fill in a vacancy caused by the resignation of a hold-over director.

RULING

NO.
When Section 23 of the Corporation Code declares that “the board of directors…shall hold office for one (1) year
until their successors are elected and qualified,” we construe the provision to mean that the term of the members
of the board of directors shall be only for one year; their term expires one year after election to the office. The
holdover period – that time from the lapse of one year from a member’s election to the Board and until his
successor’s election and qualification – is not part of the director’s original term of office, nor is it a new term; the
holdover period, however, constitutes part of his tenure. Corollary, when an incumbent member of the board of
directors continues to serve in a holdover capacity, it implies that the office has a fixed term, which has expired,
and the incumbent is holding the succeeding term.
[Here], when remaining members of the VVCC Board elected Ramirez to replace Makalintal, there was no more
unexpired term to speak of, as Makalintal’s one-year term had already expired. Pursuant to law, the authority to
fill in the vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders, not the remaining members
of its board of directors. To assume – as VVCC does – that the vacancy is caused by Makalintal’s resignation in
1998, not by the expiration of his term in 1997, is both illogical and unreasonable. His resignation as a holdover
director did not change the nature of the vacancy; the vacancy due to the expiration of Makalintal’s term had been
created long before his resignation.
G.R. No. 11897 September 24, 1918

J. F. RAMIREZ, plaintiff-appellee,
vs.
THE ORIENTALIST CO., and RAMON J. FERNANDEZ, defendants-appellants.

FACTS:
Orientalist Company was engaged in the business of maintaining and conducting a theatre in the city of Manila for
the exhibition of cinematographic films. engaged in the business of marketing films for a manufacturer or
manufacturers, there engaged in the production or distribution of cinematographic material. In this enterprise the
plaintiff was represented in the city of Manila by his son, Jose Ramirez. The directors of the Orientalist Company
became apprised of the fact that the plaintiff in Paris had control of the agencies for two different marks of films,
namely, the “Eclair Films” and the “Milano Films;” and negotiations were begun with said officials of the Orientalist
Company by Jose Ramirez, as agent of the plaintiff. The defendant Ramon J. Fernandez, one of the directors of
the Orientalist Company and also its treasure, was chiefly active in this matter. Ramon J. Fernandez had an
informal conference with all the members of the company’s board of directors except one, and with approval of
those with whom he had communicated, addressed a letter to Jose Ramirez, in Manila, accepting the offer
contained in the memorandum the exclusive agency of the Eclair films and Milano films. In due time the films
began to arrive in Manila, it appears that the Orientalist Company was without funds to meet these obligations.
Action was instituted by the plaintiff to Orientalist Company, and Ramon J. Fernandez for sum of money.

ISSUE:
WON the Orientalist Co. is liable for the acts of its treasurer, Fernandez?

HELD:
Yes. It will be observed that Ramon J. Fernandez was the particular officer and member of the board of directors
who was most active in the effort to secure the films for the corporation. The negotiations were conducted by him
with the knowledge and consent of other members of the board; and the contract was made with their prior
approval. In the light of all the circumstances of the case, we are of the opinion that the contracts in question were
thus inferentially approved by the company’s board of directors and that the company is bound unless the
subsequent failure of the stockholders to approve said contracts had the effect of abrogating the liability thus
created.
G.R. No. L-40620 May 5, 1979

RICARDO L. GAMBOA, LYDIA R. GAMBOA, HONORIO DE 1A RAMA, EDUARDO DE LA RAMA, and the
HEIRS OF MERCEDES DE LA RAMA-BORROMEO, petitioners,
vs.
HON. OSCAR R. VICTORIANO as Presiding Judge of the Court of First Instance of Negros Occidental,
Branch II, BENJAMIN LOPUE, SR., BENJAMIN LOPUE, JR., LEONITO LOPUE, and LUISA U.
DACLES respondents.

FACTS
Gamboas et al were sued by private respondents Lopues. Lopues wanted to nullify the issuance of 823 shares of
stock of Inocentes de la Rama Inc. their favor. Plaintiffs own 1,328 shares of stock of Inocentes, which has an
ACS of 3,000 shares, par value of 100 per share. 2,177 of those were subscribed and issued, leaving 823
unissued.
Upon plaintiff’s acquisition of the shares held by Ledesma and Sicangco (then Pres and VP), Gamboa, de la Rama
and Borromeo were the remaining members of the Board of Directors. They met and secretly elected Gamboa
and De la Rama as Pres and VP respectively, in order to prevent/ forestall the takeover of the corp.

They then passed a resolution authorizing authorizing the sale of such 823 shares among themselves, and elected
their board of directors.
Complaint was filed in that the sale of the unissued 823 shares of stock of the corporation was in violation of the
plaintiffs' and pre-emptive rights and made without the approval of the board of directors representing 2/3 of the
outstanding capital stock, and is in disregard of the strictest relation of trust existing between the defendants, as
stockholders thereof.
They prayed for injunction, receivership, nullification of sale of the 823 shares and damages.

RTC judge ordered writ of PI.

Lopues entered into a compromise agreement with the board members, that Lopues will withdraw their claim; but
in return, De La Rama and Batistuzi will waive and transfer their rights to the shares in favor of plaintiffs.

The Compromise Agreement was approved by the trial court, BUT the motion to dismiss was NOT GRANTED.
Gamboas filed for MR, claiming the court has no jurisdiction to interfere with the management of the corporation
by the BOD. Denied, hence this appeal.

ISSUE:
Does the court have J to interfere with the management of the corporation by the BOD?

RULING:
YES
The petition is without merit. The questioned order denying the petitioners' motion to dismiss the complaint is
merely interlocutory and cannot be the subject of a petition for certiorari. The proper procedure to be followed in
such a case is to continue with the trial of the case on the merits and, if the decision is adverse, to reiterate the
issue on appeal. It would be a breach of orderly procedure to allow a party to come before this Court every time
an order is issued with which he does not agree.
On J: The well-known rule is that courts cannot undertake to control the discretion of the board of directors about
administrative matters as to which they have legitimate power of, 10 action and contractsintra vires entered into
by the board of directors are binding upon the corporation and courts will not interfere unless such contracts are
so unconscionable and oppressive as to amount to a wanton destruction of the rights of the minority. 11 In the
instant case, the plaintiffs aver that the defendants have concluded a transaction among themselves as will result
to serious injury to the interests of the plaintiffs, so that the trial court has jurisdiction over the case.
The petitioners further contend that the proper remedy of the plaintiffs would be to institute a derivative suit against
the petitioners in the name of the corporation in order to secure a binding relief after exhausting all the possible
remedies available within the corporation.
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds
stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or
are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded
as a nominal party, with the corporation as the real party in interest. 12 In the case at bar, however, the plaintiffs
are alleging and vindicating their own individual interests or prejudice, and not that of the corporation. At any rate,
it is yet too early in the proceedings since the issues have not been joined. Besides, misjoinder of parties is not a
ground to dismiss an action.
was merely an admission by the defendants Ramon de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi
of the validity of the claim of the plaintiffs.
The claim of the petitioners, in their Addendum to the motion for reconsideration of the order denying the motion
to dismiss the complaint, questioning the trial court's jurisdiction on matters affecting the management of the
corporation, is without merit. The well-known rule is that courts cannot undertake to control the discretion of the
board of directors about administrative matters as to which they have legitimate power of, 10 action and contracts
intra vires entered into by the board of directors are binding upon the corporation and courts will not interfere
unless such contracts are so unconscionable and oppressive as to amount to a wanton destruction of the rights
of the minority. 11 In the instant case, the plaintiffs aver that the defendants have concluded a transaction among
themselves as will result to serious injury to the interests of the plaintiffs, so that the trial court has jurisdiction over
the case.
The petitioners further contend that the proper remedy of the plaintiffs would be to institute a derivative suit against
the petitioners in the name of the corporation in order to secure a binding relief after exhausting all the possible
remedies available within the corporation.??
Derivative suit? No, too early. An individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the
corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the
suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. 12 In the case
at bar, however, the plaintiffs are alleging and vindicating their own individual interests or prejudice, and not that
of the corporation. At any rate, it is yet too early in the proceedings since the issues have not been joined.
G.R. No. L-15092 May 18, 1962

ALFREDO MONTELIBANO, ET AL., plaintiffs-appellants,

vs.
BACOLOD-MURCIA MILLING CO., INC., defendant-appellee.

FACTS:
Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and the Limited co-partnership Gonzaga and
Company, had been and are sugar planters adhered to the defendant-appellee’s sugar central mill under identical
milling contracts. Originally executed in 1919, said contracts were stipulated to be in force for 30 years starting
with the 1920-21 crop, and provided that the resulting product should be divided in the ratio of 45% for the mill and
55% for the planters. Sometime in 1936, it was proposed to execute amended milling contracts, increasing the
planters’ share to 60% of the manufactured sugar and resulting molasses, besides other concessions, but
extending the operation of the milling contract from the original 30 years to 45 years. The Board of Directors of the
appellee Bacolod-Murcia Milling Co., Inc., adopted a resolution granting further concessions to the planters over
and above those contained in the printed Amended Milling Contract. The appellants initiated the present action,
contending that three Negros sugar centrals with a total annual production exceeding one-third of the production
of all the sugar central mills in the province, had already granted increased participation (of 62.5%) to their planters,
and that under the resolution the appellee had become obligated to grant similar concessions to the plaintiffs. The
appellee Bacolod-Murcia Milling Co., inc., resisted the claim, and defended by urging that the stipulations
contained in the resolution were made without consideration; that the resolution in question was, therefore, null
and void ab initio, being in effect a donation that was ultra vires and beyond the powers of the corporate directors
to adopt.

ISSUE:
WON the board resolution is an ultra vires act and in effect a donation from the board of directors?

HELD:

No. There can be no doubt that the directors of the appellee company had authority to modify the proposed terms
of the Amended Milling Contract for the purpose of making its terms more acceptable to the other contracting
parties. As the resolution in question was passed in good faith by the board of directors, it is valid and binding,
and whether or not it will cause losses or decrease the profits of the central, the court has no authority to review
them. Whether the business of a corporation should be operated at a loss during depression, or close down at a
smaller loss, is a purely business and economic problem to be determined by the directors of the corporation and
not by the court. The appellee Bacolod-Murcia Milling Company is, under the terms of its Resolution of August 20,
1936, duty bound to grant similar increases to plaintiffs-appellants herein.