RE : Philippine Canine Club, Inc. (PCCI)

May 15, 2003 SEC OPINION NO. 22-03 Flores Ladia Bacalla Law Firm 2108 Antel Global Corporate Center Doa Julia Vargas Ave.,Ortigas Center Pasig, City Attention: Atty. Marciano S. Bacalla, Jr. RE : Philippine Canine Club, Inc. (PCCI) Gentlemen : This refers to your letter dated 27 January 2003 posing the query on whether or not a member who has committed an act prejudicial to the Club and/or dog sport in the Philippines in 1996 is eligible for election as director of PCCI. You further request for confirmation of your opinion that the disqualification under Section 27 of the Corporation Code no longer exists considering that estoppel might have set in since more than five (5) years had elapsed when the act prejudicial to the interest of the club was committed and that subject-member was even elected as director of PCCI in 2001. You disclosed the following antecedent facts. In 1996 the concerned member sat as a judge in one of PCCI's dog sports event and judged a dog which he bred. PCCI considered his action as an act prejudicial to the interest and welfare of the Club and/or dog sport. After investigation, his judging license was suspended in 1997, without however, being either terminated or suspended as a PCCI member. Said suspension of his judging license contained no period. In 2001, during PCCI's Regular General Membership Meeting, he was nominated for directorship. His disqualification was raised as an issue which was then referred to the general membership for decision. The body ruled in his favor and he was eventually elected as a director A perusal of Article IV, Section 2 of PCCI's By-laws would indicate that a member found guilty of any offense or charged of conduct prejudicial to the best interest of the corporation is not eligible for candidacy or for election to the Board of Directors. Said provision presupposes due process, as contemplated in Article II, Section 3, par. (b) of PCCI's By-laws. In the instant case, there is no showing that subject-member was accorded procedural due process. You merely stated that there was only an investigation which resulted to the suspension of his judging license. When subject-member's alleged disqualification was raised as an issue in the 2001 election of PCCI directors, the opposing members could have invoked the subject-By-laws provision, but they did not, and instead, allowed said issue be referred to and decided by the general membership body. There is apparently a waiver of by-laws in the instant case. "A by-law may be waived by a stockholder or member when it is he whose individual rights are advanced or protected by its provisions. If a corporation acts or contracts in disregard of a by-laws with the consent or acquiescence of the stockholders or members, there is a waiver of the by-laws, at least pro hac vice , whether it is afterwards sought to set up the by-laws against strangers or as against its stockholders or members." (De Leon, The Corporation C od e of the Philippines Annotated, 1989 Ed., p. 354 citing 8 Fletcher, pp. 768-774 and 18 C.J.S. 593-594) Furthermore, if the now opposing members are also the then opposing members or were part of the membership body which resolved subject-member's disqualification issue in 2001, then the principle of estoppel applies. Article 1431 of the Civil Code provides that through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. Estoppel arises when one by his acts, representations or admissions, or by his silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist, and such other rightfully relies and acts on such belief, so that he would be prejudiced if the former is permitted to deny the existence of such facts ( 31 Corpus Juris Secundum 237 ).It takes place in a situation where because of a party's action or omission, he is denied the right to plead or prove a fact otherwise important. ( 19 Am. Jur. 634 ) After having impliedly waived their right to invoke subject-By-laws provision, the opposing members are now estopped from doing the same. CDAcIT Section 27 of the Corporation Code is not applicable in this case. It provides for a total disqualification of directors, trustees or officers on the following grounds: 1. conviction by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years; and 2. commission of the violation of the Corporation Code within five (5) years prior to the date of his election. The situation at hand does not fall under the first ground and neither does it fall under the second ground. The second ground for such disqualification refers to the violation of the Corporation Code and not to the violation of the By-laws of a corporation. There is nothing in your letter indicative of any violation of the Code for which we can apply said Section 27. Please be informed, however, that administrative opinions rendered herein shall not control judicial constructions or interpretations in the event that the issues raised are litigated in court. Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel