RURAL BANK OF SALINAS, INC. and MANUEL SALUD ET. AL., vs.

CA, SEC and MELANIA GUERRERO ET. AL.

G.R. No. 96674. June 26, 1992

March 15, 2018

FACTS:

Clemente Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power of Attorney in
favor of his wife, Melania, giving and granting the latter full power of authority to sell or otherwise
dispose of and/or mortgage 473 shares of stock of the Bank registered in his name. before the death of
Clemente, Melania, pursuant to the said SPA, executed Deed of Assignments for the shares of stock in
favor of private respondents. After the death of Clemente, Melania proceeded in presenting the said
Deeds and for registration with a request for the transfer in the Bank’s stock and transfer book of the 473
shares of stock so assigned, the cancelation of stock certificates in the name of Clemente and the
issuance of new stock certificates in the name of the new owners thereof. The Bank however denied the
request. Melania then filed with SEC an action for Mandamus against Rural Bank of Salinas, its President
and Secretary. The latter bank contended in its answer that the shares of Guerrero became the property
of his estate and thus must be first settled and liquidated before distribution.

ISSUES:

1. Whether SEC has jurisdiction over the matter.

2. Whether petitioner may restrict the registration of shares of stock or its transfer.

RULING:

1. YES. Sec. 5 (b) of PD 902-A grants to the SEC the original and exclusive jurisdiction to hear and decide
cases involving intracorporate controversies. An intracorporate controversy has been defined as one
which arises between a stockholder and the corporation. There is no distinction, qualification, not any
exception whatsoever. The case at bar involves shares of stock, their registration, cancellation and
issuances thereof by petitioner.
2. NO. Sec. 63 of the Corporation Code provides that the shares of stock issued are personal property
and may be transferred by delivery of the certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to make the transfer. A corporation either by its
Board, its by-laws, or the act of its officers, cannot create restrictions in stock transfer. The Restrictions in
the transfer of stock must have their source in legislative enactment, as the corporation itself cannot
create such impediment. By-laws are intended merely for the protection of the corporation, and
prescribe regulation, not restriction; they are always subject to the charter of the corporation. The
corporation, in the absence of such power, cannot ordinarily inquire into or pass upon the legality of the
transactions by which its stock passes from one person to another, nor can it question the consideration
upon which a sale is based. The right to transfer shares is inherent from the stockholders ownership of
the same, thus whenever a corporation refuses to transfer and register stocks, mandamus will lie to
compel the officers of the corporation to transfer said stocks to the books of the corporation.

Tan versus Sycip

G.R. No. 153468; August 17, 2006

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.

FILIPINAS PORT SERVICES INC v. GO, ET AL.

FACTS:

The case involves a petition for review on certiorari.

We have here Eliodoro C. Cruz suing on behalf of the stockholders of Filipinas Port Services
alleging that there has been numerous cases of mismanagement by the board of directors:

creation of an executive committee not provided for in the by-laws of the corporation

disproportionate increase in the salary of officials

re-creation of already existing positions

creation of additional positions with holders not doing any work to deserve any monthly remuneration.
He prayed for the return of the salary received by all the unnecessarily appointed members.

The Trial Court sided with the respondent and ruled that the creation of the executive committee and
the additional position was legitimate given that it was provided by the corporation’s by-law. However,
the prayer for the return of salaries received was granted, even if the positions and the committee were
valid, for the court ruled that Filipinas Port Services is not a big corporation requiring multiple executive
positions.

The respondents appealed the decision and they received a favourable decision as the Court of Appeals
granted the respondents’ appeal, reversed and set aside the appealed decision of the trial court and
accordingly dismissed the so-called derivative suit filed by Cruz, et al.,

Cruz did not take the decision sitting down, hence the petition.

To counter the appeal filed by Cruz, respondents also claim that what Cruz filed is not a derivative suit.

The petition was denied and the challenged decision of the CA was affirmed. Only, the Supreme
Court clarified the issue involving the legitimacy of the derivative suit.

ISSUE:

Was the case filed by Cruz, on behalf of Filipinas Port Services Inc., a derivative suit?

HELD:

YES.

Under the Corporation Code, where a corporation is an injured party, its power to sue is lodged with its
board of directors or trustees. But an individual stockholder or an individual trustee may be permitted to
institute a derivative suit in behalf of the corporation in order to protect or vindicate corporate rights
whenever the officials of the corporation refuse to sue, or when a demand upon them to file the
necessary action would be futile because they are the ones to be sued, or because they hold control of
the corporation. In such actions, the corporation is the real party-in-interest while the suing stockholder,
in behalf of the corporation, is only a nominal part.

Here, the action below is principally for damages resulting from alleged mismanagement of the
affairs of Filport by its directors/officers, it being alleged that the acts of mismanagement are
detrimental to the interests of Filport. Thus, the injury complained of primarily pertains to the
corporation so that the suit for relief should be by the corporation. However, since the ones to be sued
are the directors/officers of the corporation itself, a stockholder, like petitioner Cruz, may validly institute
a “derivative suit” to vindicate the alleged corporate injury, in which case Cruz is only a nominal party
while Filport is the real party-in-interest.

Besides, the requisites before a derivative suit can be filed by a stockholder or individual trustee are
present in this case, to wit:

a) the party bringing suit should be a shareholder as of the time of the act or transaction
complained of, the number of his shares not being material;

b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of
directors for the appropriate relief but the latter has failed or refused to heed his plea; and

c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or
being caused to the corporation and not to the particular stockholder bringing the suit.

Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he sought without success to have its
board of directors remedy what he perceived as wrong when he wrote a letter requesting the board to
do the necessary action in his complaint; and (3) the alleged wrong was in truth a wrong against the
stockholders of the corporation generally, and not against Cruz or Minterbro, in particular. And while it is
true that the complaining stockholder must show to the satisfaction of the court that he has exhausted
all the means within his reach to attain within the corporation itself the redress for his grievances, or
actions in conformity to his wishes, nonetheless, where the corporation is under the complete control of
the principal defendants or other trustees, as here, there is no necessity of making a demand upon the
directors. The reason is obvious: a demand upon the board to institute an action and prosecute the same
effectively would have been useless and an exercise in futility.

Bottom line, when it comes to cases involving two or more trustees, an individual trustee can file a
derivative suit duly following the requisites without the need to exhaust internal remedies where the
trusteeship is under the complete control of the other trustees for it will be a waste of time