Paul Sycip and Meritto Lim vs. Wang Ta Peng, et al.

[SEC-SICD * CASE NO. 08-98-6065. June 21, 2000.] PAUL SYCIP and MERITTO LIM , petitioners , vs .WANG TA PENG, ET AL. , respondents . Corporation Code ; quorum . It is well settled that where the number necessary to constitute a quorum is prescribed by the statute, the same prevails over a by-law provision requiring less than the proportion required by the particular legislation. ...In this regard, this Commission has stated that for the election of the members of the board of a non-stock corporation, it is mandatory that at least a majority of all members entitled to vote must be present either in person or by proxy at the meeting held for the purpose. Thus, in the absence of the required quorum, there cannot be a valid election of the board. CIHTac Same ; Right to vote ; The SEC has opined that the authority granted by the Corporation Code to corporations to provide in their by-laws regulations on the right to vote is merely to make "conditions upon which members of non-stock corporations shall be entitled to vote".. . . No provision is made to the voting rights of the stockholders or members because this is already regulated by the special provision of Section 24 of the same law. Vacancy in the board of trustees ; mode of filling vacancies . Where by-laws prescribe the mode of filling vacancies, said mode must be followed. Any alternative procedure on filling vacancies not stipulated in the by-laws are amended accordingly to include said alternative. Otherwise, one would be contrary to the internal rules of the corporation. D E C I S I O N This is an action for the declaration of the nullity of the Annual Meeting of the Members of Grace Christian High School ("GCHS") held on 6 April 1998 ("the 1998 Meeting"),due to its having been convened despite the absence of a quorum. It is well-settled that to constitute a valid corporate meeting a quorum must be present, and action of the stockholders or members at a meeting at which less than the required number of members are present or less than the required amount of stock is represented is void (18 CJS, Corporations & 370 [1990]). GCHS is a non-stock, non-profit private educational institution duly organized and existing under and by virtue of the laws of the Philippines. Its Articles and By-Laws provide for fifteen (15) voting members, who, by virtue of their membership, are automatically members of the 15-man Board of Trustees, thus: "The regular members of the corporation shall be fifteen (15) in number and they shall constitute the Board of Trustees. Associate, non-voting members may be admitted upon such terms as the Board of Trustees may determine." [Article II (1),GCHS By-Laws]. At the time of the 1998 Meeting there were four (4) vacancies in the membership of GCHS and/or its Board of Trustees resulting from the deaths of the last four above mentioned members; namely, Isidro Ong, Mary Dee, Julia Tan, and Manuel Yao. The following seven (7) members, all of whom were represented by proxy, registered their attendance: (1) Wang Ta Peng, represented by Sabino Padilla Jr.; (2) Paul Lee Tan, represented by Eduardo P. Lizares; (3) Anita So, represented by Antonio C. Pacis; (4) Andrew Liuson, represented by Eduardo P. Lizares; (5) Esther Tan Wong, represented by Sabino Padilla Jr.; (6) Stephen Co, represented by Sabino Padilla Jr.;and (7) James L. Tan, represented by Sabino Padilla Jr. The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty. A.C. Pacis, proxy for Anita So. Thus, the Respondents admit that Atty. Padilla as chairman of the meeting ruled that there was a quorum which was to be determined on the basis of the members who are still alive excluding members who are already dead. Since four (4) of the fifteen (15) members have died, Atty. Padilla ruled that the quorum consists of a majority of the eleven (11) members who are still alive. Since there was present or represented seven (7) members including Anita So, or at the very least six (6) members excluding Anita So, there was a quorum for the meeting (par. 3.10, Respondents' Answer with Compulsory Counterclaims). cESDCa The above extract summarizes the issue involved in the instant case. Respondents also admit that at the 1998 Meeting, the following four (4) Respondents were elected to take the place of the four members/Trustees who had passed away: (1) Ernesto Tanchi; (2) Edwin Ngo; (3) Virginia Khoo; and (4) Judith Tan. (Ibid.,par. 3.12.) Thus, the issue of this case is whether or not the basis for determining the existence of a quorum in the 1998 meeting is the number of members as provided in the articles of incorporation, or the number of remaining members who are still alive. It is well-settled that where the number necessary to constitute a quorum is prescribed by statute, the same prevails over a by-law provision requiring less than the proportion required by the particular legislation (2 Lopez [1944]). Section 52 and 24 of the Corporation Code of the Philippines provide the basis for determining a quorum, to wit: SEC. 24. 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 . SEC. 24. Election of directors or trustees .At all elections of directors or trustees, there must be present, either in person or by representative authorized to act by written proxy, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote ....any meeting of the stockholders or members called for an election may adjourn from day to day or from time to time but not sine die or indefinitely if, for any reason, no election is held, or if there are not present or represented by proxy, at the meeting, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote (emphasis supplied). In this regard, this Commission has stated that for the election of the members of the Board of a non-stock corporation, it is mandatory that at least a majority of all members entitled to vote must be present either in person or by proxy at the meeting held for the purpose. Thus, in the absence of the required quorum there cannot be a valid election of the Board. [Rosario N. Lopez, letter-opinion to Rodolfo Valdez, Wack-Wack Golf and Country Club dated 3 September 1992]. In an analogous case wherein the phrase "majority of the members" appearing in the by-laws of a non-stock corporation was interpreted to mean fifty percent of the registered members of the association plus one, it was held that "(t)his view also finds support in the cardinal rule of statutory construction that when the language of a statute is plain and free from ambiguity and expresses a single, definite and sensible meaning, it must be interpreted literally and given effect as the legislature has presumably provided for. "A verba legia, non est recedundum." (Gonzaga, Statutes and their Construction, p. 87, cited by Julio A. Sulit, Jr. in a letter-opinion to Fernando Ma. Alberto, 3 March 1986.) STIHaE Where the law does not distinguish, we should not distinguish. Respondents argue that "(m)embers" as used in the aforecited provision of law only refers to the living members of the non-stock corporation and this finds full support in Section 90 and 91 of the Corporation Code, providing for the non-transferable character of membership rights in non-stock corporations and the automatic termination of rights and interests of deceased members upon their death." (par. 4.02), Respondents Memorandum). Respondents' reasoning revolves around the notion that since the death of a member deprives him of the right to vote, the basis for determining a quorum is the number of members who are still alive. "Respondents submit that since nothing in respondent-corporation's By-laws or Articles of Incorporation provide for the contrary of the submission that (I) membership rights are personal and intransferable and (II) members' rights and interests are extinguished upon the termination of membership, the deceased members of respondent-corporation, therefore, no longer have interests and rights that should still be counted and considered in computing quorum for the corporation's annual membership meeting. The four (4) deceased members ceased to hold any interest in the respondent-corporation, hence, quorum is properly computed on the basis of eleven (11) which is the number of the corporation's living members ." (par. 4.03, Respondents' Memorandum, emphasis ours). The issue at bar does not however involve the personal rights of the individual member-trustees of GCHS. The issue involves the basis for determining the numerical constant for a quorum to conduct business. To do so, let us examine that qualifying phrase "entitled to vote" in Section 24 of the Corporation Code. This Section should be read in conjunction with Section 89 of the Corporation Code which provides: SEC. 89. Right to Vote .The rights of the members of any class or classes to vote may be limited, broadened or denied to the extent specified in the articles of incorporation or they by-laws. Unless so limited, broadened or denied, each member, regardless of class, shall be entitled to one vote." Thus, the phrase "entitled to vote" actually refers to whether or not the by-laws of a corporation have placed voting restrictions on any particular classification of members, in the case of non-stock corporations. By express provision of law, a member may be denied of his voting power to the extent specified in the articles of incorporation or by-laws. This would justify a provision in a corporate by-law of, for instance, restraining proxies from participating directly in the election of directors. (Julio A. Sulit Jr., letter-opinion to Mr. James Vinzon, 25 August 1987). In this regard, the SEC has opined that "(t)he authority granted (by the Corporation Code) to corporations to provide it their by-laws regulations on the right to vote is merely to make "conditions upon which members of non-stock corporations shall be entitled to vote, . . .." No provision is made to the voting rights of the stockholders or members because this is already regulated by the special provision of Section 31 (now 24) of the same law which provides it part for the following: "At all elections of directors, there must be present, either in person or by representative authorized to act by written proxy, ...,or, if there be no capital stock, then a majority of the members entitled to vote ..." [Julio A. Sulit, Jr.,letter-opinion to Col. Ciriaco P. Hoson, PARA Commission on elections, 1 March 1976.] The articles and by-laws of GCHS do not in any manner limit, broaden nor deny the fifteen member-trustees' right to vote. In fact, it was clearly the intention of the founding members of GCHS to grant the fifteen member-trustees unlimited and unqualified voting rights, as borne out by Article II (1) of the By-laws which states that: "The regular members of the Corporation shall be fifteen (15) in number and they shall constitute the Board of Trustees. Associate, non-voting members may be admitted upon such terms as the Board of Trustees may determine." (emphasis supplied). Having determined that the basis for a quorum should be the number of members provided in the articles of incorporation, what then is the proper procedure to fill in vacancies in the board of trustee? Where by-laws prescribe the mode of filing vacancies, said mode must be followed. Any alternative procedure on filling vacancies not stipulated in the by-laws is valid only when said by-laws are amended accordingly to include said alternative. Otherwise, one would be acting contrary to the internal rules of the corporation. (Julio A. Sulit, Jr., letter-opinion to Placido G. Lazaro, 17 June 1982). The By-laws of GCHS provide the manner for filling vacancies in the Board of Trustees. "2. Vacancies . Any vacancy in the Board of Trustees shall be filled by a majority vote of the remaining members of the Board. (Article III (2),By-laws of GCHS.) DHTECc This By-law provision should be read in conjunction with Sec. 29 of the Corporation code that states: "SEC. 29. Vacancies in the office directors or trustees . Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders, or members or by expiration of term may be filled by the vote of at least a majority of the remaining directors of trustees; if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders 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 unexpired terms of his predecessor in office." (emphasis ours.) It is the first requisite of validity that by-laws must be consistent with, and not repugnant to or in contravention of the laws of the land. (8 Fletcher Sec. 4185, cited by Rosario N. Lopez in a letter-opinion addressed to Rodolfo Valdez, Wack-Wack Golf and Country Club, 3 September 1992.) The by-laws are subordinate to the articles of incorporation as well as the Corporation Code and related statutes and should therefore not be inconsistent with any of these. Otherwise, they would have no binding effect. (Campos and Lopez-Campos, Corporation Code, using Fleischer v. Botica Nolasco, 47 Phil. 584 [1925], cited by Ms. Lopez, ibid .) Therefore, while the By-laws of GCHS insofar as they prescribe the mode of filling vacancies in the Board of Trustees should be followed, it is likewise imperative that the remaining members of the Board still constitute a quorum to conduct business. Thus, it has been stated that " (t)he disqualification of ineligible directors would not render the Board incapable of transacting business, for as long as the remaining directors still constitute a quorum . Such a situation would merely give rise to vacancy in the Board that may be filled up in accordance with the provisions of the Corporation Code and By-Laws of the Corporation. It is well settled that the power of a board of directors is not suspended by vacancies in the board unless the number be reduced below a quorum, and that, under a by-law which provides that a majority of the directors shall be necessary and sufficient to constitute a quorum, the number necessary is a majority of the entire board, notwithstanding the fact that there may be vacancies in the board at the time, and this rule also applies where there are fewer directors than are legally qualified to act as such." (Armando Z. Gonzales, letter-opinion to Antonio V. Navarro, 23 September 1991.) As such, the members of GCHS could only have elected the four member-trustees if any of the following stipulations obtained: (a) removal by the members or expiration of term of the subject trustees; (b) the remaining trustees do not constitute a quorum; and (c) increase in the number of trustees resulting from the amendment of the Articles of Incorporation. (I Lopez 459 [1994].) None of the foregoing exceptions applied during the 1998 Meeting. Thus, the filling of the four vacancies is a Board of Trustees matter which is mandatorily governed by Article III (2) of the By-laws of GCHS in conjunction with Section 29 of the Corporation Code. In this regard, it bears emphasizing that the requisite quorum is a majority of the entire board, as it would be constituted if all the vacancies were filled, and not a majority of the board as it remains with the vacancies unfilled. (19 CJC, sec. 749 subd. b, p. 94; Fletcher, Cyclopedia Corporations, Vol. 2, sec. 421; Currie v. Matson, 33 F. Supp. 454, cited by Rosario N. Lopez in a letter opinion to Atty. Alejandro Balbuena, 12 February 1980, in response to the following query: "If the charter and By-Laws of a corporation provide that the number of directors is ten, may five (5) constitute a quorum at directors' meeting taking into account that of the ten elected directors two already died and whose vacated positions were unfilled?" IcHSCT WHEREFORE, premises considered, judgment is hereby rendered in favor of the Petitioners and against the Respondents. A. Declaring the Meeting of the Members of Grace Christian High School held on April 6, 1998, participated by the Respondents, as null and void ab initio; B. Declaring the election of Respondents Ernesto Tanchi Jr.,Edwin Ngo, Virginia Khoo and Judith Tan as member-trustees of Grace Christian High School as null and void ab initio. C. Ordering Respondents Ernesto Tanchi Jr.,Edwin Ngo, Virginia Khoo and Judith Tan to refrain from representing themselves as members and/or Trustees of Grace Christian High School; D. Ordering that an election to fill the four vacancies in the Board of Trustee be conducted in accordance with the By-Laws of Grace Christian High School and the Corporation code; and E. Ordering the Respondents to grant the Petitioners' demand (well within the latter's statutory right) to inspect, and thereafter make copies of: (1) the Minutes of the 6 April 1998 Annual Meeting of the Members of the Grace Christian High School; (2) the Minutes of the Organizational Meeting of Board of Trustees of Grace Christian High School on that same date; and (3) any other corporate books and records as would afford the Petitioners appropriate relief under the premises. TAIcaD SO ORDERED. City of Mandaluyong, Philippines. 21 June 2000 (SGD.) MALTHIE G. MILITAR Hearing Officer