FACTS:

The case revolves around the validity of the redemption of a foreclosed real property. Pampanga Bus Co. (PAMBUSCO) mortgaged three lots to the Development Bank of the Philippines (DBP) in 1962. The mortgage was foreclosed, and the properties were awarded to Rosita Peña in a foreclosure sale in 1974. Peña paid P128,000.00 to the Office of the Provincial Sheriff and a certificate of sale was issued in her favor. PAMBUSCO's board of directors then resolved to assign its right of redemption to any interested party and authorized Atty. Joaquin Briones to execute a Deed of Assignment. Briones assigned PAMBUSCO's redemption right to Marcelino Enriquez, who redeemed the properties by paying P140,474.00 to the Office of the Provincial Sheriff. Enriquez then sold the properties to the spouses Yap. However, a levy on attachment in favor of Capitol Allied Trading was entered, and the registrability of the properties in the name of the spouses Yap was sought to be resolved in a case entitled Dante Gutierrez, et al. vs. PAMBUSCO. Peña later claimed that the redemption was not valid and requested its recall. The court ordered the Register of Deeds to desist from registering certain documents until further orders. The Land Registration Commission opined that the levy on attachment should be carried over to the new title to be issued in the name of the spouses Yap. The properties were eventually registered in the spouses Yap's name, with an annotation of the levy on attachment in favor of Capitol Allied Trading.

The spouses Rising T. Yap and Catalina Lugue are the registered owners of lots covered by Transfer Certificate of Title (TCT) Nos. 148983-R, 148984-R, and 148985-R. They filed a complaint seeking to recover possession of the subject lands from defendants Rosita Peña and Washington Distillery, alleging that the defendants have been unlawfully in possession since October 1974. The plaintiffs claimed damages based on unpaid rentals from October 1974 up to December 1978, as well as monthly sums until the defendants vacate the premises. The defendants denied the allegations and asserted that Peña is now the legitimate owner of the properties through a foreclosure proceeding initiated by the DBP against PAMBUSCO. They argued that the plaintiffs could not have acquired ownership through a void deed of assignment or a subsequent deed of absolute sale. Defendant Washington Distillery denied occupying the subject lots. A third-party complaint was also filed against PAMBUSCO, Marcelino Enriquez, and Deputy Sheriff Edgardo Zabat. After trial, the court rendered a decision in favor of the defendants, declaring null and void the resolution, deed of assignment, certificate of redemption, deed of absolute sale, and the TCTs in the name of plaintiffs.

This case involves the disputed auction sale of parcels of land. Petitioner and third-party plaintiff, Editha Ang, bought the said parcels in an auction sale conducted on October 25, 1974, for which a certificate of sale was issued to her. However, private respondents, spouses Cresencio and Elizabeth Regalado, filed a complaint with the Regional Trial Court, alleging that they are the rightful owners of the properties and that they were unlawfully deprived of possession by petitioner.

The trial court issued a judgment in favor of the Regalados, declaring the auction sale null and void and ordering petitioner to return the parcels to the respondents. The court also ordered third-party defendants, except Deputy Sheriff Edgardo Zabat, to pay petitioner and third-party plaintiffs the sum of P10,000 as attorney's fees.

Private respondents appealed the decision to the Court of Appeals, which eventually reversed the trial court's judgment. The Court of Appeals rendered a decision on June 20, 1989, ruling in favor of the petitioner and third-party plaintiffs.

ISSUES:

1. Whether or not the trial court had jurisdiction to rule on the validity of the questioned resolution and transfers.

2. Whether or not the petitioner has legal standing to question the validity of the questioned resolution and the series of succeeding transactions.

3. Whether or not the resolution of respondent PAMBUSCO, assigning its right of redemption, is void.

4. Whether or not the deed of assignment in favor of respondent Enriquez is void or voidable.

5. Whether or not the questioned deed of assignment was void for failure to comply with the formalities required under the law for donations.

6. Whether or not respondents Yap are purchasers in good faith.

7. Whether or not the respondent court erred in reversing the decision of the trial court.

8. Whether the plaintiff has legal standing to question the validity of the deed of sale.

9. Whether the board resolution of respondent PAMBUSCO is valid.

10. Whether the special meeting of the board of directors of PAMBUSCO, attended by only three out of five directors, constituted a valid quorum.

11. Whether the resolution disposing of PAMBUSCO's only remaining asset in favor of a former corporate officer is valid.

12. Whether the deed of assignment, which conveyed PAMBUSCO's right of redemption, is valid despite lack of acceptance in a separate instrument.

RULING:

1. The trial court has jurisdiction to rule on the validity of the questioned resolution and transfers since the controversy does not fall within the jurisdiction of the Securities and Exchange Commission (SEC).

2. The petitioner, being a stranger to the questioned resolution and transactions, has legal standing to question their validity.

3. The resolution of respondent PAMBUSCO, assigning its right of redemption, is not void or legally defective.

4. The deed of assignment in favor of respondent Enriquez is not void or voidable.

5. The questioned deed of assignment was not void ab initio for failing to comply with the formalities required for donations.

6. Respondents Yap are not purchasers in good faith.

7. The respondent court erred in reversing the decision of the trial court.

8. The plaintiff has legal standing to question the validity of the deed of sale. A person who is not a party to a contract may exercise an action for nullity if they are prejudiced in their rights with respect to one of the contracting parties and can show the detriment that would result from the contract in which they had no intervention.

9. The board resolution of respondent PAMBUSCO is invalid. The resolution was approved in a meeting attended by only 3 out of the 5 members of the Board of Directors, which is short of the number required by the corporation's by-laws. The provision in the by-laws requiring notice of meetings and a quorum of the Board is present is to be followed, and the failure to comply with these requirements renders the resolution null and void.

10. No, the special meeting of the board of directors of PAMBUSCO, attended by only three directors, did not constitute a valid quorum. According to the by-laws of PAMBUSCO, at least four members must be present to constitute a quorum for a special board meeting. Any act taken without a valid quorum would not bind the corporation.

11. No, the resolution disposing of PAMBUSCO's only remaining asset in favor of a former corporate officer is not valid. The resolution was passed by a group of individuals claiming to be directors of PAMBUSCO who were not listed as directors in the latest general information sheet filed with the SEC. Furthermore, the disposition of all or substantially all properties of the corporation requires not only a proper board resolution but also the affirmative votes of stockholders holding at least two-thirds of the voting power in a meeting duly called for that purpose. The questioned resolution was not confirmed by the required number of stockholders, making it null and void.

12. No, the deed of assignment conveying PAMBUSCO's right of redemption is void. The deed of assignment was not made in a public document and the acceptance of the donation was not made in the same or in a separate instrument as required by law. Non-compliance with this requirement renders the donation void. Since the deed of assignment did not show a separate acceptance of the donation, it is void ab initio and of no force and effect.

PRINCIPLES:

• The jurisdiction of the SEC in intra-corporate disputes is limited to controversies involving stockholders and officers of the corporation.

• Parties who are not stockholders or officers of the corporation may seek resolution of disputes involving the validity of transactions through the regular courts.

• A stranger to a transaction has legal standing to question its validity.

• A deed of assignment is not void or voidable unless there are legal grounds to declare it as such.

• The formalities required for donations must be complied with for a donation to be valid.

• Good faith is a defense in cases involving the validity of transactions.

• The appellate court should not reverse the decision of the trial court unless there is clear error or grave abuse of discretion.

• A person who is not a party obliged principally or subsidiarily in a contract may exercise an action for nullity of the contract if they are prejudiced in their rights with respect to one of the contracting parties and can show the detriment that would result from the contract in which they had no intervention.

• The by-laws of a corporation are its own private laws and are part of the fundamental law of the corporation. Compliance with the provisions of the by-laws is necessary for the validity of the actions and resolutions of the corporation.

• The articles of incorporation or by-laws of a corporation may fix a greater number than the majority of the number of board members to constitute a quorum necessary for the valid transaction of business.

• Any number less than the number provided in the articles or by-laws cannot constitute a quorum and any act taken without a valid quorum would not bind the corporation.

• The disposition of all or substantially all properties of a corporation requires not only a proper board resolution but also the affirmative votes of stockholders holding at least two-thirds of the voting power in a meeting duly called for that purpose.

• A donation must be made in a public document and the acceptance must be made in the same or in a separate instrument. Non-compliance with this requirement renders the donation void.