Rafael H. Suarez II, et al. vs. Michael Osmeña, et al.

[SEC-SICD * CASE NO. 09-98-6100. October 15, 1998.] RAFAEL H. SUAREZ II and DENIS C. HERNANDEZ , petitioners , vs . MICHAEL OSMEA, NARCISO C. MONTEIRO, JUAN G. DE OCAMPO, GERARDO M. HANDOG AND VICENTE L. GUZMAN , respondents . For Quo Warranto with prayer for Issuance of a Writ of Preliminary Injunction and Temporary Restraining Order . D E C I S I O N Before Us is a Petition for Quo Warranto with Prayer for the Issuance of a Writ of Preliminary Injunction and Temporary Restraining Order. Petitioners pray that this hearing panel render judgment declaring as invalid the following: (a) proceedings subsequent to the allegedly valid adjournment of the special meeting of the Board of Directors of the Club held on September 8, 1998; (b) unjustifiable removal without just cause of herein petitioners from their duly elected corporate officers, and (c) election and assumption of offices of respondents. As prayed for and after due hearing, the Commission issued on September 23, 1998 a temporary restraining order for a period of 72 hours from the date of issuance, which was extended to another 17 days in an Order dated September 25, 1998. During the hearing on the issuance of the preliminary injunction on October 9, 1998, the petitioners adopted the evidence adduced in the summary hearing on September 24, 1998, while respondents presented documentary and testimonial evidence. Upon agreement of the parties, the instant petition was deemed submitted for resolution on the merits, since the issues were sufficiently argued and there being no other causes of action to be heard. The facts of the case are as follows: Petitioners and respondents are members of the Board of Directors of the Alabang Country Club, Inc., a domestic corporation hereinafter referred to as the "ACCI". During the fourth regular Board Meeting of the ACCI on August 27, 1998, the members of the board unanimously approved a resolution to hold a special board meeting to be held on September 8, 1998, with the sole agenda being; the reorganization of the officers of the Club for the year 1998-1999 (Board Resolution No. 282-27-98; p. 17, Annex "F" of the petition). All the members of the Board were present during the special meeting, and they discussed the reorganization and election of a new set of officers pursuant to the abovementioned resolution. In the middle of the discussion, respondent Osmea moved to declare all the positions held by the officers vacant. Petitioner Suarez, the then presiding officer, declared the meeting adjourned on the ground that it was a "delicate issue" and that legal opinion is needed, inspite of an objection and a call for a vote by Osmea (pp. 22, 25, 31-35 Transcript of the September 8, 1998 Special Board Meeting of the ACCI Board, Annex "G" of the petition). Afterwards, petitioner Suarez together with two other directors left the meeting without calling the house to vote regarding, the pending objection to adjourn the meeting, and believing that the meeting was adjourned by his declaration. Thereafter, five (5) out of the remaining six (6) members of the Board voted to overrule the decision of the presiding officer to adjourn the meeting, and they continued the reorganization in accordance with the agenda (pp. 38-39, and pp. 47-50, ibid.), Five out of the six remaining members constituting a quorum declared all positions of the officers vacant (pp. 56-57, ibid.), and elected the following: Narciso Monteiro, as Chairman of the Board; Michael Osmea, as President; Salvador Lacson, as Vice-President, Rolando Carlos Treasurer and Vicente Guzman as Assistant Treasurer (pp. 59- 61, ibid.). Petitioner Hernandez, one of the six directors who remained in the meeting, resigned as director despite opposition of the other directors. Hence this petition filed on September 21, 1998, questioning the validity of the said removal of petitioners and the assumption to office of the respondents. The issues raised in this case may be summarized as follows: 1) Was there a valid adjournment of the special meeting on September 8, 1998? 2) Does the Board of Directors have the power to remove the officers even without cause? 3) Can the Commission enjoin the newly elected officers from assuming their positions in the ACCI? According to the petitioners, there was a valid adjournment; and assuming that it was invalid, nonetheless the officers may not be removed without just cause since according to the by-laws of the ACCI, they have a fixed term of one year. Petitioners alleged that the respondents adopted a highly fraudulent. irregular and questionable procedure in order that the matter of corporate reorganization was made the sole agenda in the said special meeting; and that petitioner Suarez has the vested power and discretion to adjourn the special meeting if warranted in accordance with Sec. 2, Art. VIII of the by-laws wherein he has the power to "preside" over meetings of the Board. According to them, petitioner Suarez has the vested power and discretion to adjourn the Special Board meeting, especially if warranted by the attendant circumstances". They maintain that petitioner Suarez was justified when he deferred the matter of reorganization for further deliberation in spite of an unfounded objection from respondent Osmea. Consequently, since there was a valid adjournment, formalities as to the call of a subsequent meeting whether regular or special should be strictly followed, invoking Sec. 4, Art. VII of the by-laws. Therefore, the failure of the respondents to comply with the formalities prescribed by the by-laws relative to a call for a board meeting, rendered the continuation of the meeting and all the incidents taken thereafter invalid. LLpr Moreover, assuming arguendo that the continuation of the meeting was valid, the removal of herein petitioners as officers without sufficient and just cause is still illegal according to Sec. 1, Art. VIII of the by-laws: "Every officer shall hold office for a term of one year or until his successor is duly elected and has qualified, unless sooner removed from office or otherwise disqualified by the Board of Directors and all vacancies occurring among such officers, however arising, shall be filled by the Board forthwith. . ." Since there is a fixed term of office of one year, the officers may only be removed for cause (citing SEC Opinion dated September 29, 1987; Lopez, R. N. The Corporation Code of the Philippines, Annotated, 1994, p. 442; Fletcher Cyc. Corp., Sec. 352). According to them if an officer of a corporation is serving under a contract with the corporation for a fixed term, he cannot be lawfully removed at pleasure, either by the stockholders or by the directors or other superior officers, except for incompetency or violation of the contract between him and the corporation (Citing Fletcher Cyc. Corp., supra, Sec. 352). Thus, Sec. 3, Article VII which gives the Board the power to appoint and remove at pleasure all officers and agents of the Club, to fix and change their compensation is inapplicable in this case since they were not appointed but elected, and they were not entitled to receive compensation. They claim that the declaration of vacancy of corporate positions without sufficient and just cause should be declared illegal being contrary to ACCI's by-laws, existing laws, public order and public policy. On the other hand, respondents assert that the unilateral decision to adjourn the meeting over the objections of the majority members is invalid and ineffective. Respondents claim that the petitioners are asking this Commission to disregard one of the most revered precept in corporation law, that "a board can only act as a body." in order that the presiding officer can easily frustrate the collective will of the majority. They state that petitioner Suarez sought this situation when he unilaterally declared the adjournment of the meeting despite the objections of the majority members of the Board. Respondents maintain that for this Commission to confer absolute powers to a presiding officer to unilaterally declare an adjournment over and above the objections of the majority members of the Board would not only create chaos, but the Commission would also find itself deluged with numerous litigations. They support this position by citing the following: "An adjournment of the meeting of the Board of Directors by the presiding officer may be overruled by the majority of the members of the Board, and the meeting continued (citing Fletcher Cyc. Corp, perm ed., Sec. 2015)." "A majority of the members of a board of corporation have the right to control a meeting of the board, and may remove a presiding officer who refuses to entertain or put motions, or refuses to permit the expression of the majority will" (citing, American Aberdeen-Angus Breeders' Association v. Fullerton, 325, 156 N.E. 314) Respondents add that when a quorum is present, it is not broken by the subsequent withdrawal of a part or faction of those present (citing Fletcher Cyc. Corp., Sec. 2113.17; Phil. White House Auto Supply Inc. v. Manolo Ting, et al. SEC AC No. 300, April 1, 1991 ). On the second issue, respondents assert that the Board can remove petitioners from their office even without cause. Referring to Sec. 1, Art. VIII of the aforestated by-law provision, the respondents claim that the said section does not expressly state that the officers should be removed for a just cause. The absence of such qualification shows the clear intent of the framers that the Board is empowered to remove an officer even without cause, since it is a basic rule in the construction and interpretation of statutes, that if the law does not qualify, one should not qualify. If it was the intention of the framers that the removal should be for valid grounds, they would have enumerated the grounds and this is bolstered by Sec. 3(b), Art. VII, which provides: "SECTION 3. Powers . . . . the Board of Directors shall have full power; xxx xxx xxx b. to appoint and remove at pleasure all officers and agents of the club, to determine, fix and change their compensations and to require from them security for faithful service; . . ." Respondents maintain that when petitioners were elected they are deemed to have accepted the fact that they can be removed even without cause. According to them, persons who enter the employment of a corporation with actual or constructive knowledge of the existence of a by-law authorizing removal of an officer, agent or employee are bound thereby even though the employment purports to be for a specific period (citing Darrah v. Wheeling Ice and Storage Co. 50 W Va 417, 40 SE 373; 19 Am Jur 2d, p 549; Fowler v. Great Southern tel. Co. 104 La 751. 29 So 271). They conclude that the purported one year term of office of the petitioners is qualified by Sec. 3(b), Art VII of the ACCI by-laws. In view of this, they aver that the requirement of the existence; of a right violated as a pre-requisite of an injunction is absent in this instance. Moreover, they alleged that the petitioners failed to allege irreparable injury in their petition; and that the acts complained of have already been consummated After a careful and judicious analysis of the facts before us and the applicable law, We decide to deny the petition. On the issue of whether or not there was a valid adjournment of the special board meeting, We find that there was none. Where the president adjourns a stated meeting for the election of officers the proper course for those who object may be to appeal from that ruling and put the matter to a vote, and if an adjournment has been attempted and the majority has overruled the chair and continued in meeting, it is not adjourned (Fletcher Cyc. Corp., Perm. Ed. Sec. 2015, 1987, p. 111). A perusal of the transcript of the special meeting shows that the presiding officer ignored the objection and did not call for a vote to decide the adjournment of the meeting. Thus, there was no valid adjournment and the remaining directors who undisputedly formed a quorum can continue the meeting and elect among themselves a presiding officer. Anent the second issue, We find that the Board of Directors can remove the petitioners as officers of the corporation even without cause in accordance with the ACCI's by-laws. The contention of the petitioners that the officers cannot be removed from their positions without cause presupposes that there is an existing and separate contract either in the by-laws or a private contract and that the by-laws itself is silent on the power of the Board to remove officers without cause. In determining the intention of the framers, courts should resort first to intrinsic aids before resorting to extrinsic aids. The intention must primarily be determined from the language such as words phrases and sentences used. The meaning of the law should, however, be taken from the general consideration of the act as a whole and not from any single part, portion or section or from isolated words and phrases (Suarez Statutory Construction, 1993, pp. 10-11) An examination of the by-laws reveals that the Board is empowered "to appoint and remove at pleasure all officers" of the corporation as contained in Sec. 3(b), Art. VII which should be read in relation to Sec. 1, Art. VIII, which provides that "Every officer shall hold office for a term of one year or until his successor is duly elected and has qualified, unless sooner removed from office or otherwise disqualified by the Board of Directors." Thus, the grant of office for a term of one year is qualified by the proviso "unless sooner removed from office or otherwise disqualified by the Board of Directors." As to the issue of whether they can be removed without cause Sec. 3(b), Art. VII, states that the Board can remove at pleasure all officers." Therefore, before resorting to extrinsic aids like judicial or legislative interpretation in determining whether or not the officers may be removed for cause, the aids found in the law or agreement itself must be utilized. In this case, it is clear from the by-laws of the corporation that an officer may be removed from office at the pleasure of the Board of Directors. Moreover, under general law, directors are charged with the control and management of their corporation. They may appoint officers and agents and may elect the president when the situation demands it; and as incident to this power of appointment, they may discharge those appointed. (Myers v. United States as cited in Campos, The Corporation Code, Comments Notes and Selected Cases, Vol. 1, 1990, p. 373). In one case, the Supreme Court upheld the right of the appointing power to replace an officer pursuant to a reorganizational meeting. The Court has occasion to expound that an appointment held at the pleasure of the appointing power is in essence temporary. It is co-extensive with the desire of the Board of Directors. Hence, when the Board opts to replace the incumbent, technically there is no removal but only an expiration of term and in an expiration of term, there is no need of prior notice, due hearing or sufficient grounds before the incumbent can be separated from office. In the case at bar, the Code of By-Laws of the Society contains a specific provision governing the term of office of petitioner. The same necessarily limits her rights under the New Civil Code and the New Constitution. (Mita Pardo de Tavera v. Philippine Tuberculosis Society, Inc., et al., G.R. No. L-48928, February 25, 1982). In view of this, We find that the majority of the Board of Directors elected the new officers in a valid special board meeting for that purpose. WHEREFORE, premises considered, the petition for quo warranto with prayer for issuance of a writ of preliminary injunction is hereby DISMISSED. SO ORDERED. (SGD.) JAMES K. ABUGAN Hearing Officer (SGD.) MYRA-LYN B. SOLANO (SGD.) SUZETTE A. NER Hearing Officer Hearing Officer