G.R. No.

157479 November 24, 2010

PHILIP TURNER and ELNORA TURNER vs. LORENZO SHIPPING

CORPORATION

FACTS:

Philip Turner and Elnora Turner (the Turners) held 1,010,000 shares of stock of Lorenzo
Shipping Corp. (LSC). LSC decided to amend its articles of incorporation to remove the
stockholders pre-emptive rights to newly issued shares of stock. Feeling that the corporate
move would be prejudicial to their interest as stockholders, the Turners voted against the
amendment and demanded payment of their shares. LSC found the fair value of the shares
demanded by the Turners unacceptable. The disagreement on the valuation of the shares led
the parties to constitute an appraisal committee pursuant to Section 82 of the Corporation
Code.

Subsequently, the Turners demanded payment based on the valuation of the appraisal
committee, plus 2%/month penalty from the date of their original demand for payment, as
well as the reimbursement of the amounts advanced as professional fees to the appraisers.
LSC however refused the Turners demand, explaining that pursuant to the Corporation Code,
the dissenting stockholders exercising their appraisal rights could be paid only when the
corporation had unrestricted retained earnings to cover the fair value of the shares, but that it
had no retained earnings at the time of the petitioners demand, as borne out by its Financial
Statements for Fiscal Year 1999 showing a deficit of P72,973,114.00 as of December 31,
1999. Upon the LSC’s refusal to pay, the Turners sued the latter for collection and damages
(Civil Case No. 01-086) in the Regional Trial Court (RTC).

Thereafter, the Turners filed their motion for partial summary judgment which was opposed
by LSC.

ISSUE:

Whether or Not dissenting stockholders can recover the value of their shareholding.

RULING:

NO. A stockholder who dissents from certain corporate actions has the right to demand
payment of the fair value of his or her shares. This right, known as the right of appraisal, is
expressly recognized in Section 81 of the Corporation Code, to wit:

Section 81. Instances of appraisal right. – Any stockholder of a corporation shall have the
right to dissent and demand payment of the fair value of his shares in the following instances:

1. In case any amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholder or class of shares, or of authorizing preferences in
any respect superior to those of outstanding shares of any class, or of extending or shortening
the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets as provided in the Code; and

3. In case of merger or consolidation.

Clearly, the right of appraisal may be exercised when there is a fundamental change in the
charter or articles of incorporation substantially prejudicing the rights of the stockholders. It
does not vest unless objectionable corporate action is taken. It serves the purpose of enabling
the dissenting stockholder to have his interests purchased and to retire from the corporation.

G.R. No. 181455-56 December 4, 2009

SANTIAGO CUA, JR., SOLOMON S. CUA and EXEQUIEL D. ROBLES, in their

capacity as Directors of PHILIPPINE RACING CLUB, INC. vs. MIGUEL OCAMPO
TAN, JEMIE U. TAN and ATTY. BRIGIDO J. DULAY

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 182008

SANTIAGO CUA, SR., in his capacity as Director of PHILIPPINE RACING CLUB,

INC. vs. COURT OF APPEALS, MIGUEL OCAMPO TAN, JEMIE U. TAN, ATTY.
BRIGIDO J. DULAY, and HON. CESAR UNTALAN, Presiding Judge, Makati
Regional Trial Court, Br. 149

Facts: PRCI is a corporation organized and established under Philippine laws to carry on the
business of a race course in all its branches and, in particular, to conduct horse races or races
of any kind, to accept bets on the results of the races, and to construct grand or other stands,
booths, stablings, paddocks, clubhouses, refreshment rooms and other erections, buildings,
and conveniences, and to conduct, hold and promote race meetings and other shows and
exhibitions.

PRCI owns only two real properties, each covered by several transfer certificates of title. One
is known as the Sta. Ana Racetrack located in Makati City, and the other is located in the
towns of Naic and Tanza, Cavite.

Following the trend in the development of properties in the same area, PRCI wished to
convert its Makati property from a racetrack to urban residential and commercial use. Given
the location and size of its Makati property, PRCI believed that said property was severely
under-utilized. Hence, PRCI management decided to transfer its racetrack from Makati to
Cavite.

Now as to its Makati property, PRCI management decided that it was best to spin off the
management and development of the same to a wholly owned subsidiary, so that PRCI could
continue to focus its efforts on pursuing its core business competence of horse racing. Instead
of organizing and establishing a new corporation for the said purpose, PRCI management
opted to acquire another domestic corporation, JTH Davies Holdings, Inc. The Board agreed
to acquire the stocks of latter company through an exchange of their Makati property.

Said move was made into a resolution but was opposed by some stockholders. The Board and
petitioners continued to acquire the company, which was surrounded by fraud as alleged by
the respondents. The petitioners proceeded with the plan despite the demand by respondents
to appraise the stocks of JTH Davies Holdings. A case was filed by respondents and was
granted by the RTC.

Issue: Whether or not appraisal rights are available to respondents.

Held: No. It bears to point out that every derivative suit is necessarily grounded on an alleged
violation by the board of directors of its fiduciary duties, committed by mismanagement,
misrepresentation, or fraud, with the latter two situations already implying bad faith. If the
Court upholds the position of respondents Miguel, et al. – that the existence of
mismanagement, misrepresentation, fraud, and/or bad faith renders the right of appraisal
unavailable – it would give rise to an absurd situation. Inevitably, appraisal rights would be
unavailable in any derivative suit. This renders the requirement in Rule 8, Section 1(3) of the
IPRICC superfluous and effectively inoperative; and in contravention of an elementary rule
of legal hermeneutics that effect must be given to every word, clause, and sentence of the
statute, and that a statute should be so interpreted that no part thereof becomes inoperative or
superfluous.

The import of establishing the availability or unavailability of appraisal rights to the minority
stockholder is further highlighted by the fact that it is one of the factors in determining
whether or not a complaint involving an intra-corporate controversy is a nuisance and
harassment suit.

In case of nuisance or harassment suits, the court may, motu proprio or upon motion,
forthwith dismiss the case.

The availability or unavailability of appraisal rights should be objectively based on the

subject matter of the complaint, i.e., the specific act or acts performed by the board of
directors, without regard to the subjective conclusion of the minority stockholder instituting
the derivative suit that such act constituted mismanagement, misrepresentation, fraud, or bad
faith.
G.R. No. 172843 September 24, 2014

ALFREDO L. VILLAMOR, JR. vs. JOHN S. UMALE, in substitution of HERNANDO

F. BALMORES

x-----------------------x

G.R. No. 172881

ODIVAL E. REYES, HANS M. PALMA and DOROTEO M. PANGILINAN vs.

HERNANDO F. BALMORES

FACTS

In 2004, Pasig Printing Corp. (PPC) obtained an option to lease portions of MidPasig Devt.
Corp.'s property, including Rockland where MC Home Depot was located. In November of
the same year, PPC’s board of directors issued a resolution waiving all its rights, interests,
and participation in the option to lease contract in favor of the law firm of Atty. Alfredo
Villamor, Jr. PPC received no consideration for this waiver in favor of Villamor’s law firm.

Thereafter, PPC, represented by Villamor, entered into a memorandum of agreement (MOA)

with MC Home Depot. Under the MOA, MC Home Depot would continue to occupy the area
as PPC’s sublessee for four (4) years, renewable for another four (4) years, at a monthly
rental of P4.5M plus goodwill of P18M.

In compliance with the terms of the MOA, MC Home Depot issued 20 post-dated checks
representing rental payments for one year and the goodwill money. The checks were given to
Villamor who did not turn these or the equivalent amount over to PPC, upon encashment.

Hernando Balmores, a stockholder and director of PPC, wrote a letter addressed to PPC’s
directors, informing them that Villamor should be made to deliver to PPC and account for
MC Home Depot’s checks or their equivalent value.

Due to the alleged inaction of the directors, Balmores filed with the RTC an intra-corporate
controversy complaint under Rule 1, Section 1(a)(1) of the Interim Rules for Intra-Corporate
Controversies (Interim Rules) against PPC's directors for their alleged devices or schemes
amounting to fraud or misrepresentation "detrimental to the interest of the corporation and its
stockholders." Balmores alleged in his complaint that because of petitioners’ actions, PPC’s
assets were ". . . not only in imminent danger, but have actually been dissipated,lost, wasted
and destroyed."

Balmores prayed that a receiver be appointed from his list of nominees. He also prayed for
PPC's directors to be prohibited from "selling, encumbering, transferring or disposing in any
manner any of PPC’s properties, including the MC Home Depot checks and/or their
proceeds." He also prayed for the accounting and remittance to PPC of the MC Home Depot
checks or their proceeds and for the annulment of the board’s resolution waiving PPC’s rights
in favor of Villamor’s law firm.

RTC ruling: Appointment of a receiver and the creation of a Management Committee applied
for by Balmores were DENIED. The resolution issued by PPC’s board of directors, waiving
its rights to the option to lease contract infavor of Villamor’s law firm, must be accorded
prima facie validity. Too, a separate pending case filed against Villamor involving the same
MC Depot weakened Balmores’ claim that the checks were properties of PPC.

And finally, the RTC found that there was "no clear and positive showing of dissipation, loss,
wastage, or destruction of PPC’s assets that was prejudicial to the interestof the minority
stockholders, parties-litigants or the general public." The board’s failure to recover the
disputed amounts was not an indication of mismanagement resulting in the dissipation of
assets.

CA ruling: RTC ruling reversed. PPC is to be placed under receivership, and an interim
management committee is to be created to take custody and control of all assets and
properties owned and possessed by PPC, and stop and prevent any disposal, in any manner,
of any of the properties of PPC, among other tasks.

The CA ruled that the case filed by Balmores with the RTC was a derivative suit because
there were allegations of fraud or ultra vires acts by PPC’s directors.

The CA added that the PPC board’s waiver of PPC’s rights in favor ofVillamor’s law firm
without any consideration and its inaction on Villamor’s failure to turn over the proceeds of
rental payments to PPC warranted the creation of a management committee, and that the
circumstances resulted in the imminent danger of loss, waste, or dissipation of PPC’s assets.

Hence, the instant petition.

RULING

Petition granted. CA ruling reversed.

Whether Balmores' action is a derivative suit. – NO.

A derivative suit is an action filed by stockholders to enforce a corporate action. It is an

exception to the general rule that the corporation’s power to sue is exercised only by the
board of directors or trustees. Individual stockholders may be allowed to sue on behalf of the
corporation whenever the directors or officers of the corporation refuse to sue to vindicate the
rights of the corporation or are the ones to be sued and are in control of the corporation. It is
allowed when the "directors [or officers] are guilty of breach of . . . trust, [and] not of mere
error of judgment." In derivative suits, the real party in interest is the corporation, and the
suing stockholder is a mere nominal party.

A stockholder or member may bring an action in the name of a corporation or association, as

the case may be, provided, that:

• He was a stockholder or member at the time the acts or transactions subject of the
action occurred and at the time the action was filed;

• He exerted all reasonable efforts, and alleges the same with particularity in the
complaint, toexhaust all remedies available under the articles of incorporation, by-
laws, laws or rules governing the corporation or partnership to obtain the relief he
desires;

• No appraisal rights are available for the act or acts complained of;

• The suit is not a nuisance or harassment suit; and

• The action brought by the stockholder or member must be in the name of the
corporation or association.

Balmores’ action in the trial court failed to satisfy all the requisites of a derivative suit
because: (1) though he tried to communicate with PPC’s directors about the checks in
Villamor’s possession before he filed an action with the trial court, Balmores was not able to
show that this comprised all the remedies available under the articles of incorporation,
bylaws, laws, or rules governing PPC; and (b) neither did respondent Balmores implead PPC
as party in the case nor did he allege that he was filing on behalf of the corporation..

Whether Balmores' action is an individual or class suit. – INDIVIDUAL.

Stockholder/s’ suits based on fraudulent or wrongful acts of directors, associates, or officers

may be individual suits or class suits. Individual suits are filed when the cause of action
belongs to the individual stockholder personally, and not to the stockholders as a group or to
the corporation, e.g., denial of right to inspection and denial of dividends to a stockholder. If
the cause of action belongs to a group of stockholders, such as when the rights violated
belong to preferred stockholders, a class or representative suit may be filed to protect the
stockholders in the group.

In this case, Balmores filed an individual suit. His intent was very clear from his manner of
describing the nature of his action. did not bring the action for the benefit of the corporation.
H ewas alleging that the acts of PPC’s directors, specifically the waiver of rights in favor of
Villamor’s law firm and their failure to take back the MC Home Depot checks from
Villamor, were detrimental to his individual interest as a stockholder. In filing an action,
therefore, his intention was to vindicate his individual interest and not PPC’s or a group of
stockholders.

Whether Balmores has a cause of action. – NO.

Corporations have a personality that is separate and distinct from their stockholders and
directors. A wrong tothe corporation does not necessarily create an individual cause of action

Balmores did not allege any cause of action that is personal to him. His allegations are
limited to the facts that PPC’s directors waived their rights to rental income in favor of
Villamor’s law firm without consideration and that they failed to take action when Villamor
refused to turn over the amounts to PPC. These are wrongs that pertain to PPC.

Therefore, the cause of action belongs to PPC — not to Balmores or any stockholders as
individuals.

Whether the CA erred in placing PPC under receivership. – YES.

PPC should not be bound by a decision granting the application for the appointment of a
receiver or management committee for three reasons:

• PPC was not impleaded in the complaint, so the courts did not acquire jurisdiction
over it;

• Balmores failed to allege a cause of action that pertains personally to him; and

• the CA has no power to appoint a receiver or management committee because such

power is lodged in the RTC, which has original and exclusive jurisdiction to hear and
decide intra-corporate controversies, including incidents of such controversies, such
as applications for the appointment of receivers or management committees.

G.R. No. 146807. May 9, 2002.

PADCOM CONDOMINIUM CORPORATION v. ORTIGAS CENTER

ASSOCIATION, INC.

FACTS:

Petitioner Padcom Condominium Corporation owns and manage the Padilla Office
Condominium Building (PADCOM BUILDING). The land on which the building stands was
originally acquired from the Ortigas & Company, Limited Partnership, by Tierra
Development Corporation (TDC) under a Deed of Sale with a condition that the transferee
and its successor-in-interest must become members of an association for realty owners and
long-term lessees in the area later known as the Ortigas Center. Subsequently, the said lot,
together with the improvements thereon, was conveyed by TDC in favor of PADCOM in a
Deed of Transfer. Respondent Ortigas Center Association, Inc. was organized to advance the
interests and promote the general welfare of the real estate owners and long-term lessees of
the lots in the Ortigas Center and sought the collection of membership dues from PADCOM.
PADCOM’S refusal to pay its arrears in monthly dues prompted the Association to file a
complaint for collection of sum of money before the trial court, but the same was dismissed.
On appeal, the Court of Appeals reversed and set aside the trial court’s dismissal.

ISSUE:

Whether or not PADCOM is unjustly enriched by the improvements made by the

Association, thus requiring the former to pay dues to the latter.

RULING:

Yes. The Supreme Court held that as resident and lot owner in the Ortigas area, PADCOM
was definitely benefited by the Association’s acts and activities to promote the interests and
welfare of those who acquire property therein or benefit from the acts or activities of the
Association. Generally, it may be said that a quasi-contract is based on the presumed will or
intent of the obligor dictated by equity and by the principles of absolute justice. Examples of
these principles are: (1) it is presumed that a person agrees to that which will benefit him; (2)
nobody wants to enrich himself unjustly at the expense of another; or (3) one must do unto
others what he would want others to do unto him under the same circumstances.

Finally, PADCOM’s argument that the collection of monthly dues has no basis since there
was no board resolution defining how much fees are to be imposed deserves scant
consideration. Suffice it is to say that PADCOM never protested upon receipt of the earlier
demands for payment of membership dues. In fact, by proposing a scheme to pay its
obligation, PADCOM cannot belatedly question the Association’s authority to assess and
collect the fees in accordance with the total land area owned or occupied by the members,
which finds support in a resolution dated 6 November 1982 of the Association’s
incorporating directors and Section 2 of its By-laws.
G.R. No. 141961 : January 23, 2002

STA. CLARA HOMEOWNERS ASSOCIATION thru its Board of Directors composed

of ARNEIL CHUA, LUIS SARROSA, JOCELYN GARCIA, MA. MILAGROS
VARGAS, LORENZO LACSON, ERNESTO PICCIO, DINDO ILAGAN, DANILO
GAMBOA JR. and RIZZA DE LA RAMA; SECURITY GUARD CAPILLO; JOHN
DOE; and SANTA CLARA ESTATE, INC. v. Spouses VICTOR MA. GASTON and
LYDIA GASTON

Facts: Spouses Gaston were residents of Sta. Clara Subdivision, Bacolod City. They
purchased their lots in the said subdivision sometime in 1974, and at the time of purchase,
there was no mention or requirement of membership in any homeowners' association. From
that time on, they have remained non-members of SCHA. They also stated that an
arrangement was made wherein homeowners who were non-members of the association were
issued "non-member" gate pass stickers for their vehicles for identification by the security
guards manning the subdivision's entrances and exits. This arrangement remained
undisturbed until sometime in the middle of March 1998, when SCHA disseminated a board
resolution which decreed that only its members in good standing were to be issued stickers
for use in their vehicles. Thereafter, on three separate incidents, The son of respondents who
lives with them, was required by the guards to show his driver's license as a prerequisite to
his entrance to the subdivision and to his residence therein despite their knowing him
personally and the exact location of his residence. Victor Ma. Gaston was himself prevented
from entering the subdivision and proceeding to his residential abode when security guards
lowered the steel bar of the KAMETAL gate of the subdivision and demanded from him his
driver's license for identification.

A case for moral damages was filed by respondents but the petitioners moved to dismiss the
same, alleging that the RTC had no jurisdiction over the case it being an intra-corporate
dispute. The lower court resolved to deny SCHA et al.'s motion to dismiss, finding that there
existed no intra-corporate controversy since the Spouses Gaston alleged that they had never
joined the association. The Court of appeals sustained RTC’s decision hence this case.

Issue: Whether or not the Spouses Gaston are members of the SCHA.

Held: No. The constitutionally guaranteed freedom of association includes the freedom not to
associate. The right to choose with whom one will associate oneself is the very foundation
and essence of that partnership. Further, the Spouses Gaston cannot be compelled to become
members of the SCHA by the simple expedient of including them in its Articles of
Incorporation and By-laws without their express or implied consent. True, it may be to the
mutual advantage of lot owners in a subdivision to band themselves together to promote their
common welfare, but that is possible only if the owners voluntarily agree, directly or
indirectly, to become members of the association. True also, memberships in homeowners'
associations may be acquired in various ways — often through deeds of sale, Torrens
certificates or other forms of evidence of property ownership. Herein, however, other than the
said Articles of Incorporation and By-laws, there is no showing that the Spouses Gaston have
agreed to be SCHA members.

The approval by the SEC of the said documents is not an operative act which bestows
membership on the Spouses Gaston because the right to associate partakes of the nature of
freedom of contract which can be exercised by and between the homeowners amongst
themselves, the homeowners' association and a homeowner, and the subdivision owner and a
homeowner/lot buyer. Clearly, there is no privity of contract exists between SCHA and
Spouses Gaston.

When the Spouses Gaston purchased their property in 1974 and obtained Transfer
Certificates of Titles T-126542 and T-127462 for Lots 11 and 12 of Block 37 along San Jose
Avenue in Sta. Clara Subdivision, there was no annotation showing their automatic
membership in the SCHA. Furthermore, the records are bereft of any evidence that would
indicate that the Spouses Gaston intended to become members of the SCHA. Prior to the
implementation of the aforesaid Resolution, they and the other homeowners who were not
members of the association were issued non-member gate pass stickers for their vehicles; a
fact not disputed by SCHA. Thus, the SCHA recognized that there were subdivision
landowners who were not members thereof, notwithstanding the provisions of its Articles of
Incorporation and By-laws.

G.R. Nos. 134963-64 September 27, 2001

ALFREDO LONG and FELIX ALMERIA vs. LYDIA BASA, ANTHONY

SAYHEELIAM and YAO CHEK

Facts:

The petitioners were members of the “The Church in Quezon City, Incorporated”, a
registered corporation with the Securities and Exchange Commission.

The by-laws of the Church provide that the members have vested upon the Board of Directors
the absolute power to admit/expel a member. The said by-laws merely require that the Board
of Directors be informed that a member has failed to observe any of the regulations and by-
laws or has conducted himself in any manner dishonorable to the Church; and they shall issue
the corresponding resolution for his expulsion. No prior notice was required.

In 1988, the Board observed that the petitioners exhibited conduct 
that is contrary to the
teachings and doctrines of the Church by introducing (to other members) teachings which
were NOT based on the Holy Bible. Several warnings to the petitioners were given but the
latter ignored such.

Alarmed that the petitioner’s actions will continue to undermine the integrity of the principles
of the Church, the Board, during its 30 August 1993 regular meeting removed from the said
list certain names of members, including the names of Joseph Lim, Liu Yek See, Alfredo
Long and Felix Almeria.

The petitioners contested their expulsion before the SEC, stating that the expulsion was made
WITHOUT proper notice and hearing.

The SEC en banc initially ruled that the expulsions were valid but further investigations after
a motion for reconsideration lead to the SEC en banc reversing the decision and stated that
the expulsions are void.

The defendants appealed the SEC decision before the Court of Appeals. The CA reversed the
SEC decision.

Issue: Whether or the expulsion of the petitioners from the list of members of the Church is
lawful?

Held/Ratio:

Yes. The expulsion of the petitioners by the Church is lawful.

The Church’s by-laws clearly state that the members have given the Board of Directors the
absolute power to expel/admit their members. The by-laws do NOT require a prior notice and
hearing for an expulsion to be valid.

“The only requirements before a member can be expelled or removed from the membership
of the CHURCH are:

(a) The Board of Directors has been notified a conduct of any member has been dishonorable
or improper or otherwise injurious to the character and interest of the Church, and

(b) A resolution is passed by the Board expelling the member concerned.

The nature of a religious organization is different from an ordinary organization as the basis
of the relationship in the former is the adherence to a common religious belief.

Laws, such as the Corporation Code, recognize this peculiarity of religious organizations by
declaring that the expulsion of a member of such shall be terminated in the manner provided
in its by-laws.

There is no room for dissension in religious corporations. The internal rules of churches and
other denominations may be peculiar, but decisions of church authorities pertaining to such
internal matters are conclusive upon the civil courts.

In matters purely ecclesiastical, the decisions of the proper church tribunals are conclusive
upon the civil tribunals. A church member who is expelled from the membership by the
church authorities, or a priest or minister who is by them deprived of his sacred office, is
without remedy in the civil courts, which will not inquire into the correctness of the decisions
of the ecclesiastical tribunals.
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 vs. PAUL SYCIP and MERRITTO LIM

Facts: Petitioner Grace Christian High School (GCHS) is a non-stock, 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. She explained that the
qualifying phrase entitled to vote in Section 24 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. The hearing officer also opined that Article III (2) 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 of the Corporation Code. The SEC en banc
denied the appeal of petitioners and affirmed the Decision of the hearing officer in toto. It
found to be untenable their contention that the word members, as used in Section 52 of the
Corporation Code, referred only to the living members of a non-stock corporation.

Issue: Whether or not the only the living members for non-stock corporations should be
considered in determining the quorum.

Held: Yes. Section 52 of the corporation code provides for 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.

In non-stock 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

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.

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.

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.

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.