PHILIPPINE STOCK EXCHANGE, INC. vs. COURT OF APPEALS G.R. No. 125469 Octo !

" 2#, 199# F$cts% The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in order to raise funds allegedly to develop its properties and pay its loans ith several ban!ing institutions. In "anuary, #$$%, PALI as issued a Permit to &ell its shares to the public by the &ecurities and '(change )ommission (&')). To facilitate the trading of its shares among investors, PALI sought to course the trading of its shares through the Philippine &toc! '(change, Inc. (P&'), for hich purpose it filed ith the said stoc! e(change an application to list its shares, ith supporting documents attached. *n +ebruary ,, #$$-, the Listing )ommittee of the P&', upon a perusal of PALI.s application, recommended to the P&'.s /oard of 0overnors the approval of PALI.s listing application. *n +ebruary #1, #$$-, before it could act upon PALI.s application, the /oard of 0overnors of the P&' received a letter from the heirs of +erdinand '. 2arcos, claiming that the late President 2arcos as the legal and beneficial o ner of certain properties forming part of the Puerto Azul /each 3otel and 4esort )omple( hich PALI claims to be among its assets and that the Ternate 5evelopment )orporation, hich is among the stoc!holders of PALI, li!e ise appears to have been held and continue to be held in trust by one 4ebecco Panlilio for then President 2arcos and no , effectively for his estate, and re6uested PALI.s application to be deferred. PALI as re6uested to comment upon the said letter. PALI.s ans er stated that the properties forming part of the Puerto Azul /each 3otel and 4esort )omple( ere not claimed by PALI as its assets. *n the contrary, the resort is actually o ned by +antasia +ilipina 4esort, Inc. and the Puerto Azul )ountry )lub, entities distinct from PALI. +urthermore, the Ternate 5evelopment )orporation o ns only #.789 of PALI. The 2arcoses responded that their claim is not confined to the facilities forming part of the Puerto Azul 3otel and 4esort )omple(, thereby implying that they are also asserting legal and beneficial o nership of other properties titled under the name of PALI. *n +ebruary 78, #$$-, the P&' rote )hairman 2agtanggol 0unigundo of the Presidential )ommission on 0ood 0overnment (P)00) re6uesting for comments on the letters of the PALI and the 2arcoses. *n 2arch 1, #$$-, the P&' as informed that the 2arcoses received a Temporary 4estraining *rder on the same date, en:oining the 2arcoses from, among others, ;further impeding, obstructing, delaying or interfering in any manner by or any means ith the consideration, processing and approval by the P&' of the initial public offering of PALI.; The T4* as issued by "udge 2artin &. <illarama, '(ecutive "udge of the 4T) of Pasig )ity in )ivil )ase =o. -%%-#, pending in /ranch -$ thereof. In its regular meeting held on 2arch 7>, #$$-, the /oard of 0overnors of the P&' reached its decision to re:ect PALI.s application, citing the e(istence of serious claims, issues and circumstances surrounding PALI.s o nership over its assets that adversely affect the suitability of listing PALI.s shares in the stoc! e(change.

*n April ##, #$$-, PALI rote a letter to the &') addressed to the then Acting )hairman, Perfecto 4. ?asay, "r., bringing to the &').s attention the action ta!en by the P&' in the application of PALI for the listing of its shares ith the P&', and re6uesting that the &'), in the e(ercise of its supervisory and regulatory po ers over stoc! e(changes under &ection -(:) of P.5. =o. $87@A, revie the P&'.s action on PALI.s listing application and institute such measures as are :ust and proper under the circumstances. *n the same date, or on April ##, #$$-, the &') rote to the P&', attaching thereto the letter of PALI and directing the P&' to file its comments thereto ithin five days from its receipt and for its authorized representative to appear for an ;in6uiry; on the matter. *n April 77, #$$-, the P&' submitted a letter to the &') containing its comments to the April ##, #$$- letter of PALI. *n April 71, #$$-, the &') rendered its *rder, reversing the P&'.s decision. Iss&!% Ahether or not &') has the po er or :urisdiction to reverse the ruling of Philippine &toc! '(change in this case. H!'(% =o. The role of the &') in our national economy cannot be minimized. The legislature, through the 4evised &ecurities Act, Presidential 5ecree =o. $87@A, and other pertinent la s, has entrusted to it the serious responsibility of enforcing all la s affecting corporations and other forms of associations not other ise vested in some other government office. This is not to say, ho ever, that the P&'.s management prerogatives are under the absolute control of the &'). The P&' is, alter all, a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. *ne of the P&'.s main concerns, as such, is still the generation of profit for its stoc!holders. 2oreover, the P&' has all the rights pertaining to corporations, including the right to sue and be sued, to hold property in its o n name, to enter (or not to enter) into contracts ith third persons, and to perform all other legal acts ithin its allocated e(press or implied po ers. A corporation is but an association of individuals, allo ed to transact under an assumed corporate name, and ith a distinct legal personality. In organizing itself as a collective body, it aives no constitutional immunities and per6uisites appropriate to such a body. 11 As to its corporate and management decisions, therefore, the state ill generally not interfere ith the same. Buestions of policy and of management are left to the honest decision of the officers and directors of a corporation, and the courts are ithout authority to substitute their :udgment for the :udgment of the board of directors. The board is the business manager of the corporation, and so long as it acts in good faith, its orders are not revie able by the courts. Thus, not ithstanding the regulatory po er of the &') over the P&', and the resultant authority to reverse the P&'.s decision in matters of application for listing in the mar!et, the &') may e(ercise such po er only if the P&'.s :udgment is attended by bad faith. In /oard of Li6uidators vs. Cala , 1) it as held that bad faith does not simply connote bad :udgment or negligence. It imports a dishonest purpose or some moral obli6uity and conscious doing of rong. It means a breach of a

!no n duty through some motive or interest of ill fraud.

ill, parta!ing of the nature of

In reaching its decision to deny the application for listing of PALI, the P&' considered important facts, hich, in the general scheme, brings to serious 6uestion the 6ualification of PALI to sell its shares to the public through the stoc! e(change. 5uring the time for receiving ob:ections to the application, the P&' heard from the representative of the late President +erdinand '. 2arcos and his family ho claim the properties of the private respondent to be part of the 2arcos estate. In time, the P)00 confirmed this claim. In fact, an order of se6uestration has been issued covering the properties of PALI, and suit for reconveyance to the state has been filed in the &andiganbayan )ourt. 3o the properties ere effectively transferred, despite the se6uestration order, from the T5) and 2&5) to 4ebecco Panlilio, and to the private respondent PALI, in only a short span of time, are not yet e(plained to the )ourt, but it is clear that such circumstances give rise to serious doubt as to the integrity of PALI as a stoc! issuer. The petitioner as in the right hen it refused application of PALI, for a contrary ruling as not to the best interest of the general public. The purpose of the 4evised &ecurities Act, after all, is to give ade6uate and effective protection to the investing public against fraudulent representations, or false promises, and the imposition of orthless ventures. Also, as the primary mar!et for securities, the P&' has established its name and good ill, and it has the right to protect such good ill by maintaining a reasonable standard of propriety in the entities ho choose to transact through its facilities. It as reasonable for the P&', therefore, to e(ercise its :udgment in the manner it deems appropriate for its business identity, as long as no rights are trampled upon, and public elfare is safeguarded. In this connection, it is proper to observe that the concept of government absolutism is a thing of the past, and should remain so. In any case, for the purpose of determining hether P&' acted correctly in refusing the application of PALI, the true o nership of the properties of PALI need not be determined as an absolute fact. Ahat is material is that the uncertainty of the properties. o nership and alienability e(ists, and this puts to 6uestion the 6ualification of PALI.s public offering. In sum, the )ourt finds that the &') had acted arbitrarily in arrogating unto itself the discretion of approving the application for listing in the P&' of the private respondent PALI, since this is a matter addressed to the sound discretion of the P&', a corporation entity, hose business :udgments are respected in the absence of bad faith. The 6uestion as to hat policy is, or should be relied upon in approving the registration and sale of securities in the &') is not for the )ourt to determine, but is left to the sound discretion of the &ecurities and '(change )ommission. In mandating the &') to administer the 4evised &ecurities Act, and in performing its other functions under pertinent la s, the 4evised &ecurities Act, under &ection D

thereof, gives the &') the po er to promulgate such rules and regulations as it may consider appropriate in the public interest for the enforcement of the said la s. The second paragraph of &ection 1 of the said la , on the other hand, provides that no security, unless e(empt by la , shall be issued, endorsed, sold, transferred or in any other manner conveyed to the public, unless registered in accordance ith the rules and regulations that shall be promulgated in the public interest and for the protection of investors by the )ommission. Presidential 5ecree =o. $87@A, on the other hand, provides that the &'), as regulatory agency, has supervision and control over all corporations and over the securities mar!et as a hole, and as such, is given ample authority in determining appropriate policies. Pursuant to this regulatory authority, the &') has manifested that it has adopted the policy of ;full material disclosure; here all companies, listed or applying for listing, are re6uired to divulge truthfully and accurately, all material information about themselves and the securities they sell, for the protection of the investing public, and under pain of administrative, criminal and civil sanctions. In connection ith this, a fact is deemed material if it tends to induce or other ise effect the sale or purchase of its securities. 15 Ahile the employment of this policy is recognized and sanctioned by the la s, nonetheless, the 4evised &ecurities Act sets substantial and procedural standards hich a proposed issuer of securities must satisfy. A reading of the foregoing grounds reveals the intention of the la ma!ers to ma!e the registration and issuance of securities dependent, to a certain e(tent, on the merits of the securities themselves, and of the issuer, to be determined by the &ecurities and '(change )ommission. This measure as meant to protect the interests of the investing public against fraudulent and orthless securities, and the &') is mandated by la to safeguard these interests, follo ing the policies and rules therefore provided. The absolute reliance on the full disclosure method in the registration of securities is, therefore, untenable. As it is, the )ourt finds that the private respondent PALI, on at least t o points (nos. # and %) has failed to support the propriety of the issue of its shares ith unfailing clarity, thereby lending support to the conclusion that the P&' acted correctly in refusing the listing of PALI in its stoc! e(change. This does not discount the effectivity of hatever method the &'), in the e(ercise of its vested authority, chooses in setting the standard for public offerings of corporations ishing to do so. 3o ever, the &') must recognize and implement the mandate of the la , particularly the 4evised &ecurities Act, the provisions of hich cannot be amended or supplanted by mere administrative issuance. In resume, the )ourt finds that the P&' has acted ith :ustified circumspection, discounting, therefore, any imputation of arbitrariness and himsical animation on its part. Its action in refusing to allo the listing of PALI in the stoc! e(change is :ustified by the la and by the circumstances attendant to this case. A*S+C*N ,S. CA AN- ,I,A FIL.S

G.R. No. 12/690 1$2&$"3 21, 1999 F$cts% In #$$8, A/&@)/= and <iva e(ecuted a +ilm '(hibition Agreement hereby A/&@)/= as given the right of first refusal to the ne(t t enty@four (71) <iva films for T< telecast under such terms as may be agreed upon by the parties hereto, provided, ho ever, that such right shall be e(ercised by A/&@)/= from the actual offer in riting. )onse6uently, <iva, through defendant 5el 4osario, offered A/&@)/=, through its vice@president )haro &antos@)oncio, a list of three(D) film pac!ages (D- titles) from hich A/&@)/= may e(ercise its right of first refusal under the afore@said agreement. A/& )/= re:ected said list. *n +ebruary 7>, #$$7, 5el 4osario approached 2s. )oncio, ith a list consisting of %7 original movie titles, as ell as #81 re@runs from hich A/&@)/= may choose another %7 titles, or a total of #%- titles, proposing to sell to A/&@)/= airing rights over this pac!age of %7 originals and %7 re@runs for P-8,888,888.88. The pac!age as re:ected by A/&@ )/=. *n April 8-, #$$7, 5el 4osario and 2r. 0raciano 0ozon of 4/& discussed the terms and conditions of <ivaEs offer to sell the #81 films. *n April 8>, #$$7, defendant 5el 4osario received through his secretary, a hand ritten note from 2s. )oncio hich readsF G3ereEs the draft of the contract. I hope you find everything in order,H to hich as attached a draft e(hibition agreement, a counter@proposal covering %D films for a consideration of PD% million. The said counter@proposal as ho ever re:ected by <ivaEs /oard of 5irectors. *n April 7$, #$$7, <iva granted 4/& the e(clusive right to air #81 <iva@produced andIor ac6uired films including the fourteen (#1) films sub:ect of the present case. A/&@)/= then filed a a complaint for specific performance. 4T) rendered a decision in favor of 4/& and <I<A and against A/&@)/=, ruling that there as no meeting of minds on the price and terms of the offer. +urthermore, the right of first refusal under the #$$8 +ilm '(hibition Agreement had previously been e(ercised per 2s. )oncioEs letter to 5el 4osario tic!ing off ten titles acceptable to them, hich ould have made the #$$7 agreement an entirely ne contract. The )ourt of Appeals affirmed the decision of the 4T). 3ence, this petition. ISSUES% #. A3'T3'4 T3' )*=T4A)T /'TA''= L*P'J A=5 5'L 4*&A4I* AA& P'4+')T'5 7. A3'T3'4 T3' 4'&P*=5'=T 4/& I& '=TITL'5 T* 2*4AL 5A2A0'& HEL-%

1. )ontracts that are consensual in nature are perfected upon mere meeting of
the minds, once there is concurrence bet een the offer and the acceptance upon the sub:ect matter, consideration, and terms of payment a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not 6ualify the terms of the offerK it must be plain, une6uivocal, unconditional, and ithout variance of any sort from the proposal. A 6ualified acceptance, or one that involves a ne proposal, constitutes a counter@offer and is a re:ection of the original offer. )onse6uently, hen something is desired hich is not e(actly hat is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer. Lnder )orporation )ode, unless other ise provided by said )ode, corporate po ers, such as the po erK to enter into contractsK are e(ercised by the /oard of 5irectors. 3o ever, the /oard may delegate such po ers to either an e(ecutive committee or officials or contracted managers. The delegation, e(cept for the e(ecutive committee, must be for specific purposes, 5elegation to officers ma!es the latter agents of the corporationK accordingly, the general rules of agency as to the bindings effects of their acts ould apply. +or such officers to be deemed fully clothed by the corporation to e(ercise a po er of the /oard, the latter must specially authorize them to do so. That 5el 4osario did not have the authority to accept A/&@)/=.s counter@offer as best evidenced by his submission of the draft contract to <I<A.s /oard of 5irectors for the latter.s approval. In any event, there as bet een 5el 4osario and Lopez III no meeting of minds. 2oral damages are in the category of an a ard designed to compensate the claimant for actual in:ury suffered. And not to impose a penalty on the rongdoer. The a ard is not meant to enrich the complainant at the e(pense of the defendant, but to enable the in:ured party to obtain means, diversion, or amusements that ill serve to obviate then moral suffering he has undergone. It is aimed at the restoration, ithin the limits of the possible, of the spiritual status 6uo ante, and should be proportionate to the suffering inflicted. Trial courts must then guard against the a ard of e(orbitant damagesK they should e(ercise balanced restrained and measured ob:ectivity to avoid suspicion that it as due to passion, pre:udice, or corruption on the part of the trial court. The a ard of moral damages cannot be granted in favor of a corporation because, being an artificial person and having e(istence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, e(perience physical suffering and mental anguish, hich call be e(perienced only by one having a nervous system. The statement in People v. 2anero and 2ambulao Lumber

)o. v. P=/ that a corporation may recover moral damages if it ;has a good reputation that is debased, resulting in social humiliation; is an obiter dictum. *n this score alone the a ard for damages must be set aside, since 4/& is a corporation. ONG 4ONG vs. -A,I- S. TIU G.R. No. 1444#6 A5"6' /, 200) F$cts% The construction of the 2asagana )itimall as threatened ith stoppage and incompletion hen its o ner, the +irst Landlin! Asia 5evelopment )orporation (+LA5)), hich as o ned by the Tius, encountered dire financial difficulties. To prevent foreclosure of the mortgage on the t o lots here the mall as being built, the Tius invited the *ngs, to invest in +LA5) through a Pre@&ubscription Agrrement. Tius committed to contribute a four@storey building and t o parcels of land to cover their additional stoc! subscription. The Tuis subse6uently rescinded the Pre@ &ubscription Agreement.and alleged that the *ngs refused to give them the shares corresponding to their property contributions of a four@story building, a #,$87.D8 s6uare@meter lot and a #%# s6uare@meter lot. 3ence, they felt they ere :ustified in setting aside their Pre@&ubscription Agreement ith the *ngs ho allegedly refused to comply ith their underta!ings. The *ngs later on discovered that +LA5) had in reality o ned the property all along, even before their Pre@&ubscription Agreement as e(ecuted. This meant that the #%# s6uare@meter property as at that time already the corporate property of +LA5) for hich the Tius ere not entitled to the issuance of ne shares of stoc!. Iss&!% Ahether the Tuis ere correct in choosing rescission as remedy. H!'(% The parties. Pre@&ubscription Agreement as in fact a subscription contract as defined under &ection -8, Title <II of the )orporation )odeF Any contract for the ac6uisition of unissued stoc! in an e(isting corporation or a corporation still to be formed shall be

deemed a subscription ithin the meaning of this Title, not ithstanding the fact that the parties refer to it as a purchase or some other contract. A subscription contract necessarily involves the corporation as one of the contracting parties since the sub:ect matter of the transaction is property o ned by the corporation M its shares of stoc!. )onsidering therefore that the real contracting parties to the subscription agreement ere +LA5) and the *ngs alone, a civil case for rescission on the ground of breach of contract filed by the Tius in their personal capacities ill not prosper. Assuming it had valid reasons to do so, only +LA5) had the legal personality to file suit rescinding the subscription agreement ith the *ngs inasmuch as it as the real party in interest therein. 0ranting that the Tius possess the legal standing to sue for rescission based on breach of contract, said action ill still not prosper since rescission ill violate the Trust +und 5octrine and the procedures for the valid distribution of assets and property under the )orporation )ode. In the instant case, the rescission of the Pre@ &ubscription Agreement ill effectively result in the unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust +und 5octrine and the )orporation )ode, since rescission of a subscription agreement is not one of the instances hen distribution of capital assets and property of the corporation is allo ed. LEE ,S. COURT OF APPEALS GR 9)695 4 F! "&$"3 1992 F$cts% *n #% =ovember #$,%, a complainant for sum of money as filed by the International )orporate /an!, Inc. against &acoba 2anufacturing )orp., Pablo 0onzales "r., and Tomas 0onzales ho, in turn, filed a third party complaint against Alfa Integrated Te(tile 2ills (AL+A), 4amon ). Lee (AL+A.s president) and Antonio 52. Lacdao (AL+A.s vice president) on #> 2arch #$,-. *n #> &eptember #$,>, Lee and Lacdao filed a motion to dismiss the third party complaint hich the 4egional Trial )ourt of 2a!ati, /ranch %, denied in an *rder dated 7> "une #$,,. *n #, "uly #$,,, Lee and Lacdao filed their ans er to the third party complaint. 2ean hile, on #7 "uly #$,,, the trial issued an order re6uiring the issuance of an alias summons upon AL+A through the 5/P as a conse6uence of Lee and Lacdao.s letter informing the court that the summons for AL+A as erroneously served upon them considering that the management of AL+A had been transferred to the 5/P. In

a manifestation dated 77 "uly #$,,, the 5/P claimed that it as not authorized to receive summons on behalf of AL+A since the 5/P had not ta!en over the company hich has a separate and distinct corporate personality and e(istence. *n 1 August #$,,, the trial court issued an order advising &acoba 2anufacturing, et. al. to ta!e the appropriate steps to serve the summons to AL+A. *n #- August #$,,, &acoba 2anufacturing, et. al. filed a 2anifestation and 2otion for the 5eclaration of Proper &ervice of &ummons hich the trial court granted on #> August #$,,. *n #7 &eptember #$,,, Lee and Lacdao filed a motion for reconsideration submitting that the 4ule #1, section #D of the 4evised 4ules of )ourt is not applicable since they ere no longer officers of AL+A and &acoba 2anufacturing, et. al. should have availed of another mode of service under 4ule #1, &ection #- of the said 4ules, i.e., through publication to effect proper service upon AL+A. *n 7 "anuary #$,$, the trial court upheld the validity of the service of summons on AL+A through Lee and Lacdao, thus, denying the latter.s motion for reconsideration and re6uiring AL+A to file its ans er through Lee and Lacdao as its corporate officers. *n #$ "anuary #$,$, a second motion for reconsideration as filed by Lee and Lacdao reiterating their stand that by virtue of the voting trust agreement they ceased to be officers and directors of AL+A, hence, they could no longer receive summons or any court processes for or on behalf of AL+A. In support of their second motion for reconsideration, Lee and Lacdao attached thereto a copy of the voting trust agreement bet een all the stoc!holders of AL+A (Lee and Lacdao included), on the one hand, and the 5/P, on the other hand, hereby the management and control of AL+A became vested upon the 5/P. *n 7% April #$,$, the trial court reversed itself by setting aside its previous *rder dated 7 "anuary #$,$ and declared that service upon Lee and Lacdao ho ere no longer corporate officers of AL+A cannot be considered as proper service of summons on AL+A. *n #% 2ay #$,$, &acoba 2anufacturing, et. al. moved for a reconsideration of the *rder hich as affirmed by the court in is *rder dated #1 August #$,$ denying &acoba 2anufacturing, et. al..s motion for reconsideration. *n #, &eptember #$,$, a petition for certiorari as belatedly submitted by &acoba 2anufacturing, et. al. before the )ourt of Appeals hich, nonetheless, resolved to give due course thereto on 7# &eptember #$,$. *n #> *ctober #$,$, the trial court, not having been notified of the pending petition for certiorari ith the appellate court issued an *rder declaring as final the *rder dated 7% April #$,$. &acoba 2anufacturing, et. al. in the said *rder ere re6uired to ta!e positive steps in prosecuting the third party complaint in order that the court ould not be constrained to dismiss the same for failure to prosecute. &ubse6uently, on 7% *ctober #$,$ &acoba 2anufacturing, et. al. filed a motion for reconsideration on hich the trial court too! no further action. *n #$ 2arch #$$8, after Lee and Lacdao filed their ans er to &acoba 2anufacturing, et. al..s petition for certiorari, the appellate court rendered its decision, setting aside the orders of trial court :udge

dated 7% April #$,$ and #1 August #$,$. *n ## April #$$8, Lee and Lacdao moved for a reconsideration of the decision of the appellate court hich resolved to deny the same on #8 2ay #$$8. Lee and Lacdao filed the petition for certiorari. In the meantime, the appellate court inadvertently made an entry of :udgment on #- "uly #$$8 erroneously applying the rule that the period during hich a motion for reconsideration has been pending must be deducted from the #%@day period to appeal. 3o ever, in its 4esolution dated D "anuary #$$#, the appellate court set aside the aforestated entry of :udgment after further considering that the rule it relied on applies to appeals from decisions of the 4egional Trial )ourts to the )ourt of Appeals, not to appeals from its decision to the &upreme )ourt pursuant to the &upreme )ourt.s ruling in the case of 4efractories )orporation of the Philippines v. Intermediate Appellate )ourt, #>- &)4A %D$ N#$,$O. Issue: (#) Ahether the e(ecution of the voting trust agreement by Lee and Lacdao hereby all their shares to the corporation have been transferred to the trustee deprives the stoc!holder of their positions as directors of the corporation. Ahether the five@year period of the voting trust agreement in 6uestion had lapsed in #$,- so that the legal title to the stoc!s covered by the said voting trust agreement ipso facto reverted to Lee and Lacdao as beneficial o ners pursuant to the -th paragraph of section %$ of the ne )orporation )ode.

(7)

H!'(% 718 Lee and Lacdao, by virtue of the voting trust agreement e(ecuted in #$,# disposed of all their shares through assignment and delivery in favor of the 5/P, as trustee. )onse6uently, Lee and Lacdao ceased to o n at least one share standing in their names on the boo!s of AL+A as re6uired under &ection 7D of the ne )orporation )ode. They also ceased to have anything to do ith the management of the enterprise. Lee and Lacdao ceased to be directors. 3ence, the transfer of their shares to the 5/P created vacancies in their respective positions as directors of AL+A. The transfer of shares from the stoc!holders of AL+A to the 5/P is the essence of the sub:ect voting trust agreement. )onsidering that the voting trust agreement bet een AL+A and the 5/P transferred legal o nership of the stoc!s covered by the agreement to the 5/P as trustee, the latter because the stoc!holder of record ith respect to the said shares of stoc!s. In the absence of a sho ing that the 5/P had caused to be transferred in their names one share of stoc! for the purpose of 6ualifying as directors of AL+A, Lee and Lacdao can no

longer be deemed to have retained their status as officers of AL+A hich as the case before the e(ecution of the sub:ect voting trust agreement. There is no dispute from the records that 5/P has ta!en over full control and management of the firm. 728 The -th paragraph of section %$ of the ne )orporation )ode reads that ;Lnless e(pressly rene ed, all rights granted in a voting trust agreement shall automatically e(pire at the end of the agreed period, and the voting trust certificates as ell as the certificates of stoc! in the name of the trustee or trustees shall thereby be deemed cancelled and ne certificates of stoc! shall be reissued in the name of the transferors.; 3o ever, it is manifestly clear from the terms of the voting trust agreement bet een AL+A and the 5/P that the duration of the agreement is contingent upon the fulfillment of certain obligations of AL+A ith the 5/P. 3ad the five@year period of the voting trust agreement e(pired in #$,-, the 5/P ould not have transferred an its rights, titles and interests in AL+A ;effective "une D8, #$,-; to the national government through the Asset Privatization Trust (APT) as attested to in a )ertification dated 71 "anuary #$,$ of the <ice President of the 5/P.s &pecial Accounts 5epartment II. In the same certification, it is stated that the 5/P, from #$,> until #$,$, had handled s account hich included AL+A.s assets pursuant to a management agreement by and bet een the 5/P and APT. 3ence, there is evidence on record that at the time of the service of summons on AL+A through Lee and Lacdao on 7# August #$,>, the voting trust agreement in 6uestion as not yet terminated so that the legal title to the stoc!s of AL+A, then, still belonged to the 5/P. GOKONG9EI ,S. SECURITIES AN- EXCHANGE CO..ISSION GR L+45911 11 A5"6' 19#9 Facts: N&') )ase #D>%O *n 77 *ctober #$>-, "ohn 0o!ong ei "r., as stoc!holder of &an 2iguel )orporation, filed ith the &ecurities and '(change )ommission (&')) a petition for ;declaration of nullity of amended by@la s, cancellation of certificate of filing of amended by@la s, in:unction and damages ith prayer for a preliminary in:unction; against the ma:ority of the members of the /oard of 5irectors and &an 2iguel )orporation as an un illing petitioner. As a first cause of action, 0o!ong ei alleged that on #, &eptember #$>-, Andres &oriano, "r., "ose 2. &oriano, 'nri6ue Jobel, Antonio 4o(as, 'meterio /uPao, Aalthrode /. )onde, 2iguel *rtigas, and Antonio Prieto amended by byla s of the corporation, basing

their authority to do so on a resolution of the stoc!holders adopted on #D 2arch #$-#, hen the outstanding capital stoc! of the corporation as only P>8,#D$.>18.88, divided into %,%#D,$>1 common shares at P#8.88 per share and #%8,888 preferred shares at P#88.88 per share. At the time of the amendment, the outstanding and paid up shares totalled D8,#7>,81D, ith a total par value of PD8#,7>8,1D8.88. It as contended that according to section 77 of the )orporation La and Article <III of the by@la s of the corporation, the po er to amend, modify, repeal or adopt ne by@la s may be delegated to the /oard of 5irectors only by the affirmative vote of stoc!holders representing not less than 7ID of the subscribed and paid up capital stoc! of the corporation, hich 7ID should have been computed on the basis of the capitalization at the time of the amendment. &ince the amendment as based on the #$-# authorization, 0o!ong ei contended that the /oard acted ithout authority and in usurpation of the po er of the stoc!holders. As a second cause of action, it as alleged that the authority granted in #$-# had already been e(ercised in #$-7 and #$-D, after hich the authority of the /oard ceased to e(ist. As a third cause of action, 0o!ong ei averred that the membership of the /oard of 5irectors had changed since the authority as given in #$-#, there being - ne directors. As a fourth cause of action, it as claimed that prior to the 6uestioned amendment, 0o!og ei had all the 6ualifications to be a director of the corporation, being a substantial stoc!holder thereofK that as a stoc!holder, 0o!ong ei had ac6uired rights inherent in stoc! o nership, such as the rights to vote and to be voted upon in the election of directorsK and that in amending the by@la s, &oriano, et. al. purposely provided for 0o!ong ei.s dis6ualification and deprived him of his vested right as afore@mentioned, hence the amended by@la s are null and void. As additional causes of action, it as alleged that corporations have no inherent po er to dis6ualify a stoc!holder from being elected as a director and, therefore, the 6uestioned act is ultra vires and voidK that Andres 2. &oriano, "r. andIor "ose 2. &oriano, hile representing other corporations, entered into contracts (specifically a management contract) ith the corporation, hich as avo ed because the 6uestioned amendment gave the /oard itself the prerogative of determining hether they or other persons are engaged in competitive or antagonistic businessK that the portion of the amended by@la s hich states that in determining hether or not a person is engaged in competitive business, the /oard may consider such factors as business and family relationship, is unreasonable and oppressive and, therefore, voidK and that the portion of the amended by@la s hich re6uires that ;all nominations for election of directors shall be submitted in riting to the /oard of 5irectors at least five (%) or!ing days before the date of the Annual 2eeting; is li!e ise unreasonable and oppressive. It as, therefore, prayed that the amended by@la s be declared null and void and the certificate of filing thereof be cancelled, and that &oriano, et. al. be made to pay damages, in specified amounts, to 0o!ong ei. *n 7,

*ctober #$>-, in connection ith the same case, 0o!ong ei filed ith the &ecurities and '(change )ommission an ;Lrgent 2otion for Production and Inspection of 5ocuments;, alleging that the &ecretary of the corporation refused to allo him to inspect its records despite re6uest made by 0o!ong ei for production of certain documents enumerated in the re6uest, and that the corporation had been attempting to suppress information from its stoc!holders despite a negative reply by the &') to its 6uery regarding their authority to do so. The motion as opposed by &oriano, et. al. The )orporation, &oriano, et. al. filed their ans er, and their opposition to the petition, respectively. 2ean hile, on #8 5ecember #$>-, hile the petition as yet to be heard, the corporation issued a notice of special stoc!holders. meeting for the purpose of ;ratification and confirmation of the amendment to the /y@la s;, setting such meeting for #8 +ebruary #$>>. This prompted 0o!ong ei to as! the &') for a summary :udgment insofar as the first cause of action is concerned, for the alleged reason that by calling a special stoc!holders. meeting for the aforesaid purpose, &oriano, et. al. admitted the invalidity of the amendments of #, &eptember #$>-. The motion for summary :udgment as opposed by &oriano, et. al. Pending action on the motion, 0o!ong ei filed an ;Lrgent 2otion for the Issuance of a Temporary 4estraining *rder;, praying that pending the determination of 0o!ong ei.s application for the issuance of a preliminary in:unction and or 0o!ong ei.s motion for summary :udgment, a temporary restraining order be issued, restraining &oriano, et. al. from holding the special stoc!holders. meeting as scheduled. This motion as duly opposed by &oriano, et. al. *n #8 +ebruary #$>>, )remation issued an order denying the motion for issuance of temporary restraining order. After receipt of the order of denial, &oriano, et. al. conducted the special stoc!holders. meeting herein the amendments to the by@la s ere ratified. *n #1 +ebruary #$>>, 0o!ong ei filed a consolidated motion for contempt and for nullification of the special stoc!holders. meeting. A motion for reconsideration of the order denying 0o!ong ei.s motion for summary :udgment as filed by 0o!ong ei before the &') on #8 2arch #$>>. N&') )ase #17DO 0o!ong ei alleged that, having discovered that the corporation has been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the corporation, in violation of section #>@ #I7 of the )orporation La , he filed ith &'), on 78 "anuary #$>>, a petition see!ing to have Andres 2. &oriano, "r. and "ose 2. &oriano, as ell as the corporation declared guilty of such violation, and ordered to account for such investments and to ans er for damages. *n 1 +ebruary #$>>, motions to dismiss ere filed by &oriano, et. al., to hich a consolidated motion to stri!e and to declare &oriano, et. al. in default and an opposition ad abundantiorem cautelam ere filed by 0o!ong ei. 5espite the fact that said motions ere filed as early as 1 +ebruary #$>>, the )ommission acted thereon only on 7% April #$>>, hen it denied &oriano,

et. al..s motions to dismiss and gave them t o (7) days ithin hich to file their ans er, and set the case for hearing on April 7$ and 2ay D, #$>>. &oriano, et. al. issued notices of the annual stoc!holders. meeting, including in the Agenda thereof, the ;reaffirmation of the authorization to the /oard of 5irectors by the stoc!holders at the meeting on 78 2arch #$>7 to invest corporate funds in other companies or businesses or for purposes other than the main purpose for hich the )orporation has been organized, and ratification of the investments thereafter made pursuant thereto.; /y reason of the foregoing, on 7, April #$>>, 0o!ong ei filed ith the &') an urgent motion for the issuance of a rit of preliminary in:unction to restrain &oriano, et. al. from ta!ing up Item - of the Agenda at the annual stoc!holders. meeting, re6uesting that the same be set for hearing on D 2ay #$>>, the date set for the second hearing of the case on the merits. The &'), ho ever, cancelled the dates of hearing originally scheduled and reset the same to 2ay #- and #>, #$>>, or after the scheduled annual stoc!holders. meeting. +or the purpose of urging the )ommission to act, 0o!ong ei filed an urgent manifestation on D 2ay #$>>, but this not ithstanding, no action has been ta!en up to the date of the filing of the instant petition. 0o!ong ei filed a petition for petition for certiorari, mandamus and in:unction, ith prayer for issuance of rit of preliminary in:unction, ith the &upreme )ourt, alleging that there appears a deliberate and concerted inability on the part of the &') to act. Issue: Ahether the corporation has the po er to provide for the (additional) 6ualifications of its directors. Held: It is recognized by all authorities that ;every corporation has the inherent po er to adopt by@la s .for its internal government, and to regulate the conduct and prescribe the rights and duties of its members to ards itself and among themselves in reference to the management of its affairs..; In this :urisdiction under section 7# of the )orporation La , a corporation may prescribe in its by@la s ;the 6ualifications, duties and compensation of directors, officers and employees.; This must necessarily refer to a 6ualification in addition to that specified by section D8 of the )orporation La , hich provides that ;every director must o n in his right at least one share of the capital stoc! of the stoc! corporation of hich he is a director.; Any person ; ho buys stoc! in a corporation does so ith the !no ledge that its affairs are dominated

by a ma:ority of the stoc!holders and that he impliedly contracts that the ill of the ma:ority shall govern in all matters ithin the limits of the act of incorporation and la fully enacted by@la s and not forbidden by la .; To this e(tent, therefore, the stoc!holder may be considered to have ;parted ith his personal right or privilege to regulate the disposition of his property hich he has invested in the capital stoc! of the corporation, and surrendered it to the ill of the ma:ority of his fello incorporators. It can not therefore be :ustly said that the contract, e(press or implied, bet een the corporation and the stoc!holders is infringed by any act of the former hich is authorized by a ma:ority.; Pursuant to section #, of the )orporation La , any corporation may amend its articles of incorporation by a vote or ritten assent of the stoc!holders representing at least t o@thirds of the subscribed capital stoc! of the corporation. If the amendment changes, diminishes or restricts the rights of the e(isting shareholders, then the dissenting minority has only one right, viz.F ;to ob:ect thereto in riting and demand payment for his share.; Lnder section 77 of the same la , the o ners of the ma:ority of the subscribed capital stoc! may amend or repeal any by@la or adopt ne by@la s. It cannot be said, therefore, that 0o!ong ei has a vested right to be elected director, in the face of the fact that the la at the time such right as stoc!holder as ac6uired contained the prescription that the corporate charter and the by@la shall be sub:ect to amendment, alteration and modification. Issue [2]: Ahether the dis6ualification of a competitor from being elected to the /oard of 5irectors is a reasonable e(ercise of corporate authority. Held[2]: Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the stoc!holders as a body are concerned. As agents entrusted ith the management of the corporation for the collective benefit of the stoc!holders, ;they occupy a fiduciary relation, and in this sense the relation is one of trust.; ;The ordinary trust relationship of directors of a corporation and stoc!holders is not a matter of statutory or technical la . It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stoc!holders. '6uity recognizes that stoc!holders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof.; A director is a fiduciary. Their po ers are po ers in trust. 3e ho is in such fiduciary position cannot serve himself first and his cestuis second. 3e cannot manipulate the affairs of his corporation to their detriment and in disregard of the

standards of common decency. 3e cannot by the intervention of a corporate entity violate the ancient precept against serving t o masters. 3e cannot utilize his inside information and strategic position for his o n preferment. 3e cannot violate rules of fair play by doing indirectly through the corporation hat he could not do so directly. 3e cannot violate rules of fair play by doing indirectly through the corporation hat he could not do so directly. 3e cannot use his po er for his personal advantage and to the detriment of the stoc!holders and creditors no matter ho absolute in terms that po er may be and no matter ho meticulous he is to satisfy technical re6uirements. +or that po er is at all times sub:ect to the e6uitable limitation that it may not be e(ercised for the aggrandizement, preference, or advantage of the fiduciary to the e(clusion or detriment of the cestuis. The doctrine of ;corporate opportunity; is precisely a recognition by the courts that the fiduciary standards could not be upheld here the fiduciary as acting for t o entities ith competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director ta!ing advantage of an opportunity for his o n personal profit hen the interest of the corporation :ustly calls for protection. It is not denied that a member of the /oard of 5irectors of the &an 2iguel )orporation has access to sensitive and highly confidential information, such asF (a) mar!eting strategies and pricing structureK (b) budget for e(pansion and diversificationK (c) research and developmentK and (d) sources of funding, availability of personnel, proposals of mergers or tie@ups ith other firms. It is obviously to prevent the creation of an opportunity for an officer or director of &an 2iguel )orporation, ho is also the officer or o ner of a competing corporation, from ta!ing advantage of the information hich he ac6uires as director to promote his individual or corporate interests to the pre:udice of &an 2iguel )orporation and its stoc!holders, that the 6uestioned amendment of the by@la s as made. )ertainly, here t o corporations are competitive in a substantial sense, it ould seem improbable, if not impossible, for the director, if he ere to discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns. The offer and assurance of 0o!ong ei that to avoid any possibility of his ta!ing unfair advantage of his position as director of &an 2iguel )orporation, he ould absent himself from meetings at hich confidential matters ould be discussed, ould not detract from the validity and reasonableness of the by@la s involved. Apart from the impractical results that ould ensue from such arrangement, it ould be inconsistent ith 0o!ong ei.s primary motive in running for board membership Q hich is to protect his investments in &an 2iguel )orporation. 2ore important, such a proposed norm of conduct ould be against all accepted principles underlying a director.s duty of fidelity to the corporation, for the policy of the la is to encourage and enforce responsible corporate management.

Issue [3]: Ahether the &') gravely abused its discretion in denying 0o!ong ei.s re6uest for an e(amination of the records of &an 2iguel International, Inc., a fully o ned subsidiary of &an 2iguel )orporation. Held [3]: Pursuant to the second paragraph of section %# of the )orporation La , ;(t)he record of all business transactions of the corporation and minutes of any meeting shall be open to the inspection of any director, member or stoc!holder of the corporation at reasonable hours.; The stoc!holder.s right of inspection of the corporation.s boo!s and records is based upon their o nership of the assets and property of the corporation. It is, therefore, an incident of o nership of the corporate property, hether this o nership or interest be termed an e6uitable o nership, a beneficial o nership, or a 6uasi@o nership. This right is predicated upon the necessity of self@protection. It is generally held by ma:ority of the courts that here the right is granted by statute to the stoc!holder, it is given to him as such and must be e(ercised by him ith respect to his interest as a stoc!holder and for some purpose germane thereto or in the interest of the corporation. In other ords, the inspection has to be germane to the petitioner.s interest as a stoc!holder, and has to be proper and la ful in character and not inimical to the interest of the corporation. The ;general rule that stoc!holders are entitled to full information as to the management of the corporation and the manner of e(penditure of its funds, and to inspection to obtain such information, especially here it appears that the company is being mismanaged or that it is being managed for the personal benefit of officers or directors or certain of the stoc!holders to the e(clusion of others.; Ahile the right of a stoc!holder to e(amine the boo!s and records of a corporation for a la ful purpose is a matter of la , the right of such stoc!holder to e(amine the boo!s and records of a holly@o ned subsidiary of the corporation in hich he is a stoc!holder is a different thing. &toc!holders are entitled to inspect the boo!s and records of a corporation in order to investigate the conduct of the management, determine the financial condition of the corporation, and generally ta!e an account of the ste ardship of the officers and directors. herein, considering that the foreign subsidiary is holly o ned by &an 2iguel )orporation and, therefore, under Its control, it ould be more in accord ith e6uity, good faith and fair dealing to construe the statutory right of petitioner as stoc!holder to inspect the boo!s and records of the corporation as e(tending to boo!s and records of such holly o ned subsidiary hich are in the corporation.s possession and control. Issue [4]: Ahether the &') gravely abused its discretion in allo ing the stoc!holders of &an 2iguel )orporation to ratify the investment of corporate funds in a foreign corporation. Held [4]: &ection #>@#I7 of the )orporation La allo s a corporation to ;invest its funds in any other corporation or business or for any purpose other than the main purpose for hich it as organized; provided that its /oard of 5irectors has been so authorized by the affirmative vote of stoc!holders holding shares entitling them to e(ercise at least t o@thirds of the voting po er. If the investment is made in pursuance of the corporate purpose, it does not need the approval of the stoc!holders. It is only hen the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stoc!holders holding shares entitling them to e(ercise at least t o@thirds of the voting po er is necessary. As stated by the corporation, the purchase of beer manufacturing facilities by &2) as an investment in the same business stated as its main purpose in its Articles of Incorporation, hich is to manufacture and mar!et beer. It appears that the original investment as made in #$1>@#$1,, hen &2), then &an 2iguel /re ery, Inc., purchased a beer bre ery in 3ong!ong (3ong!ong /re ery R 5istillery, Ltd.) for the manufacture and mar!eting of &an 2iguel beer thereat. 4estructuring of the investment as made in #$>8@#$># thru the organization of &2I in /ermuda as a ta( free reorganization. Assuming arguendo that the /oard of 5irectors of &2) had no authority to ma!e the assailed investment, there is no 6uestion that a corporation, li!e an individual, may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other agents. This is true because the 6uestioned investment is neither contrary to la , morals, public order or public policy. It is a corporate transaction or contract hich is ithin the corporate po ers, but hich is defective from a purported failure to observe in its e(ecution the re6uirement of the la that the investment must be authorized by the affirmative vote of the stoc!holders holding t o@thirds of the voting po er. This re6uirement is for the benefit of the stoc!holders. The stoc!holders for hose benefit the re6uirement as enacted may, therefore, ratify the investment and its ratification by said stoc!holders obliterates any defect hich it may have had at the outset. /esides, the investment as for the purchase of beer manufacturing and mar!eting facilities hich is apparently relevant to the corporate purpose. The mere fact that the corporation submitted the assailed investment to the stoc!holders for ratification

at the annual meeting of #8 2ay #$>> cannot be construed as an admission that the corporation had committed an ultra vires act, considering the common practice of corporations of periodically submitting for the ratification of their stoc!holders the acts of their directors, officers and managers.

As a result of the denial of 0race Association of its re6uest, 0race &chool brought suit for mandamus in the 3ome Insurance and 0uaranty )orporation to compel the board of directors of the association to recognize its right to a permanent seat in the board. The officer of the 3ome Insurance and 0uaranty )orporation dismissed the action filed by 0race school stating among others that the by@la s of #$>% as merely a proposal although implemented in the past, had not yet been ratified by the members of the association nor approved by competent authority. In #$$8, the /oard of 5irectors of 0race Association declared the said proposed by@la s as null and void. Iss&!% Ahether or not 0race &chool has ac6uired a vested right to a permanent seat in the /oard of 5irectors. H!'(% The present )orporation )ode (/.P. /lg. -,), hich too! effect on 2ay #, #$,8, similarly providesF G7D. The /oard of 5irectors or Trustees. @ Lnless other ise provided in this )ode, the corporate po ers of all corporations formed under this )ode shall be e(ercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stoc!s, or here there is no stoc!, from among the members of the corporation, ho shall hold office for one (#) year and until their successors are elected and 6ualified.H These provisions of the former and present corporation la leave no room for doubt as to their meaningF the board of directors of corporations must be elected from among the stoc!holders or members. There may be corporations in hich there are unelected members in the board but it is clear that in the e(amples cited by petitioner the unelected members sit as e( officio members, i.e., by virtue of and for as long as they hold a particular office. /ut in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. =or does petitioner claim a right to such seat by virtue of an office held. In fact it as not given such seat in the beginning. It as only in #$>% that a proposed amendment to the by@la s sought to give it one. &ince the provision in 6uestion is contrary to la , the fact that for fifteen years it has not been 6uestioned or challenged but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. =either can it attain validity through ac6uiescence because,

GRACE CHRISTIAN HIGH SCHOOL vs. COURT OF APPEALS, GRACE ,ILLAGE ASSOCIATION, INC., ALE1AN-RO G. *ELTRAN, $2( ERNESTO L. GO G.R. No. 10/905 Octo !" 2), 199# 2/1 SCRA 1)) F$cts% 0race )hristian 3igh &chool (0race &chool, for brevity) is an educational institution located in Buezon )ity hile 0race <illage Association, Inc. (0race Association, for short) on the other hand, is an organization of lot andIor building o ners, lessees and residents at 0race <illage, hile private respondents Ale:andro 0. /eltran and 'rnesto L. 0o ere its president and chairman of the committee on election, respectively, in #$$8, hen this suit as brought. &ometime in #$-,, the by@la s of 0race Association provided that the /oard of 5irectors ere composed of ## members to serve for # year until their successors are duly elected. 3o ever, in #$>%, the board of directors prepared a draft of an amendment to the by@la s, hich granted 0race &chool representative to be a permanent director of 0race Association.The said draft as never presented to the general membership for approval but it as presumably submitted to the board. Lntil the year #$$8, 0race &chool as given a permanent seat in the board of directors of the association. 3o ever, on +ebruary #D, #$$8, 0race AssociationEs committed on election informed the principal of 0race &chool that to ma!e an entity a permanent 5irector ould deprive the right of the voters to vote for #% members of the /oard and it is undemocratic for an entity to hold office in perpetuity. 0race &chool made a re6uest on the committee on election that the latter should follo the procedures in the previous elections claiming that the notice issued for the #$$8 elections ill run counter to the practice in the previous years and as in violation of the by@la s of #$>%. It further claimed that the proposal of the committee on election ould unla fully deprive 0race &chool of its vested right to a permanent seat in the /oard.

if it is contrary to la , it is beyond the po er of the members of the association to aive its invalidity. +or that matter the members of the association may have formally adopted the provision in 6uestion, but their action ould be of no avail because no provision of the by@la s can be adopted if it is contrary to la . It is probable that, in allo ing petitionerEs representative to sit on the board, the members of the association ere not a are that this as contrary to la . It should be noted that they did not actually implement the provision in 6uestion e(cept perhaps insofar as it increased the number of directors from ## to #%, but certainly not the allo ance of petitionerEs representative as an unelected member of the board of directors. It is more accurate to say that the members merely tolerated petitionerEs representative and tolerance cannot be considered ratification. =or can petitioner claim a vested right to sit in the board on the basis of Gpractice.H Practice, no matter ho long continued, cannot give rise to any vested right if it is contrary to la . 'ven less tenable is petitionerEs claim that its right is Gcoterminus ith the e(istence of the association.H TAN ,S. S4CIP G.R. No. 15)46/ A&:&st 1#, 2006 F$cts% 0race )hristian 3igh &chool (0)3&) is a non@stoc! non@profit educational corporation ith #% regular members, ho also constitute the board of trustees. 5uring the annual membersE meeting, there ere only ## living member@trustees as 1 had already died. > attended the meeting through their respective pro(ies. The meeting as convened and chaired by Atty. &abino Padilla "r. over the ob:ection of Atty. Antonio ). Pacis ho argued that there as no 6uorum. In the meeting, Petitioners 'rnesto Tanchi, 'd in =go, <irgin Choo, and "udith Tan ere voted to replace the 1 deceased member@trustees. According to the &'), the meeting as void due to lac! of 6uorum based on the AI), also applying &ection 71 and &ection ,$ of the )orporation )ode. Ahen it reached the )A, the latter dismissed the case due to technicalities. Iss&!% H!'(% /ased on the /y@La s of the corporation, the remaining members of the board of trustees of the 0)3& may convene and fill up the vacancies in the board. Ahether or not the dead members should still be counted in the 6uorum.

'(cept as provided, the vote necessary to approve a particular corporate act as provided in this )ode shall be deemed to refer only to stoc!s ith voting rightsF (#) Amendment of the articles of incorporationK (7) Adoption and amendment of by@ la sK (D) &ale, lease, e(change, mortgage, pledge or other disposition of all or substantially all of the corporation propertyK (1) Incurring, creating or increasing bonded indebtednessK (%) Increase or decrease of capital stoc!K (-) 2erger or consolidation of the corporation ith another corporation or other corporationsK (>) Investment of corporate funds in another corporation or business in accordance ith this )odeK and (,) 5issolution of the corporation. A 6uorum in a membersE meeting is to be rec!oned as the actual number of members of the corporation. In stoc! corporations, the shareholders may generally transfer their shares on the death of a shareholder, the e(ecutor or administrator duly appointed by the )ourt is vested ith the legal title to the stoc! and entitled to vote it. Lntil a settlement and division of the estate is effected, the stoc!s of the decedent are held by the administrator or e(ecutor. As to non@stoc! corporations, the same is personal and non@transferable unless the articles of incorporation or the byla s of the corporation provide other ise. Lnder &ection $# of the )orporation )ode, termination e(tinguishes all the rights of a member of the corporation, unless other ise provided in the articles of incorporation or the byla s. Ahether or not ;dead members; are entitled to e(ercise their voting rights (through their e(ecutor or administrator), depends on those articles of incorporation or byla s. Lnder the /y@La s of 0)3&, membership in the corporation shall be terminated by the death of the member. 3ence, ith ## remaining members, the 6uorum is -. Lnder &ection 7$, vacancies in the office of the director or trustee is to be filled by a ma:ority vote of the remaining directors or trustees if still constituting a 6uorum. *ther ise, said vacancies must be filled by the stoc!holders 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 une(pired term of his predecessor in office. The filling of vacancies in the board by the remaining directors or trustees constituting a 6uorum is merely permissive, not mandatoryK either by the remaining directors constituting a 6uorum, or by the stoc!holders or members in a regular or special meeting called for the purpose. The /y@La s of 0)3& prescribed the specific mode of filling up e(isting vacancies in its board of directorsK that is, by a ma:ority vote of the remaining members of the board. The said remaining member@

trustees must sit as a board (as a body in a la ful meeting) in order to validly elect the ne ones.