Romeo M. Maano, et al. vs. Federico Tanada

[SEC-SICD * CASE NO. 2060. March 16, 1982.] ROMEO M. MAANO, JESUS DECENA and FRANCISCO A. REMOLONA , complainants , vs .FEDERICO TANADA, EPITACIO OLIVEROS, JR.,ROLANDO RAMOS, FLORINDO SALVINA, ET AL. , respondents . D E C I S I O N The Lucena GSIS Village Homeowners Association, as the name indicates, is an association of residents of the GSIS Village in Lucena. It was primarily organized for the promotion of unity, unselfish cooperation and mutual understanding among its members. But despite this guiding principle, a controversy arose among its members, hence, the filing of the complaint by Francisco A. Remolona and his companions against respondents who are purportedly elected members of the Board of Directors on March 15, 1981. During the pre-trial conference, respondents failed to appear despite notice, for which reason and on motion of petitioners, they were declared in default, thus, the presentation of evidence ex-parte . prcd The evidence adduced by petitioners showed that: petitioners were incumbent members of the Board of Directors of the association; that on March 15, 1981, a general election was held in which respondents were elected; that the holding of the election was by notice of only one day (Exhibit "B");that respondents Federico Tanada, Florindo Salvania and Nilo Magsino, although they are living in the village, are not registered members of the association; and that as per the by-laws there are only nine members of the Board of Directors. The sole issue in this case is whether or not the election of respondents is legal. The by-laws of the association provides that the election of the members of the Board of Directors shall be "on the second Saturday of December or any day set by the Board of Directors". (Article III, Section 3). A cursory reading of the by-laws however does not provide for the time and manner of calling of a meeting for that purpose hence, the period for the sending of notices provided for in the Corporation Code must be followed, thus: "SECTION 50. Regular and Special Meetings of Stockholders or Members . Regular meetings of stockholders or members shall be held annually on a date fixed in the by-laws, or if not so fixed, on any date in April of every year as determined by the board of directors or trustees: Provided, That written notice of regular meetings shall be sent to all stockholders or members of record at least two (2) weeks prior to the meeting, unless a different period is required by the by-laws. Special meetings of stockholders or members shall be held at any time deemed necessary or as provided in the by-laws: Provided, however, that at least one (1) week written notice shall be sent to all stockholders or members, unless otherwise provided in the by-laws." There being no period provided for in the by-laws for the sending out of notices to the members for the contested election of the members of the Board of Directors, the notice should have been sent at least one (1) week prior to the meeting. Hence, the election held on March 15, 1981, suffers from this formal defect in the sending out of notices. The by-laws of the association also provides that "the association shall be managed by a Board of nine directors who shall be elected by the members entitled to vote at the annual general assembly." (Article III, Section 1).The members of the association who participated in the March 15, 1981 proceedings elected eleven persons to sit as members of the Board of Directors which exceeded the number of the members of the board of directors authorized to be elected under the by-laws of the association. Evidently, from the above findings, there is a failure of an election. Thus, it has been ruled: "Election of five directors of a corporation where the certificate of incorporation provides for and allows but three is irregular and voidable on the application of any person aggrieved thereby".(In re Election of Directors of Hammond Light and Power Co.,Inc.,131 Misc. 747, 228 N.Y. Supp. 70, Aff'd. 224 App. Div. 684, 229 N.Y. Supp. 865, cited in 2 Fletcher, pp. 74-75, 1954 Rev. Ed.) Petitioner, in one of the reliefs asked for, prayed to declare "null and void and without force and effect all the acts done, businesses transacted and resolution of whatever kind and nature that might have been adopted by respondents whether acting severally as a Board or individually acting by reason of a position derived from having been elected in the general election herein questioned, ..." The facts of this case, which show that there was a failure of an election, the members of the Board of Directors, who assumed their office, are de facto officers. Being de facto officers, the acts done by them are legal. Thus: "A corporation "may act by means of an officer de facto as fully and effectually, as regards the public and third persons, as by an officer de jure," in all matters within the scope of the corporate business." The principle sustaining the acts of de facto officers is designed as a means for the protection of the public and all persons who are not cognizant of the true state of the officers' titles to office and who are not required by law to inquire into their title. In order to protect third persons transacting business with the corporation through such officers under such circumstances as to induce in them the belief that they are dealing with the corporation's duly authorized representatives, the law has adopted the principle that public policy requires that the acts of officers de facto shall be considered valid." (2 Fletcher 217, 1954 Rev. Vol.) ...And the validity of their acts is not in any way affected by the fact that a court afterwards declares the election or appointment void, and ousts them from the office. Furthermore, so far as third persons are concerned, the rule that the acts of de facto officers are binding in their form is ordinarily merely another way of stating that the corporation is bound; and if a contract between de facto officers and third persons is binding on the latter then of course it cannot be attacked by the corporation as the act of de facto officers. This rule seems to be based on the principle of estoppel. (2 Fletcher 219). LibLex WHEREFORE, judgment is hereby rendered as follows: 1) The proceedings on March 15, 1981 are declared null and void; consequently, the election of respondents on the said date and the appointment of Jose Laca, Jr.,Manuel Marasigan, Maximiano Taguinod and Raymundo Marcaida as additional members of the Board of Directors, are rendered without force and effect. However, the corporate acts performed by them from the time they assumed office up to the time their election is declared null and void, are considered valid, they being de facto officers. 2) The President, petitioner Francisco A. Remolona and the members of the Board of Directors of the association prior to the controversy are ordered to call a special meeting of the members of the association for the election of nine (9) members of the board of directors within ten (10) days from finality thereof, and to hold the election not later than thirty (30) days from said finality. No pronouncements as to costs. SO ORDERED. (SGD.) NATIVIDAD P. QUERIJERO Hearing Officer