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PAUL LEE TAN v. PAUL SYCIP

FACTS:

The petition for review seeks the reversal of the resolutions of the Court of Appeals (CA) in CA-GR SP No. 68202. Petitioners, Grace Christian High School (GCHS), argue that dead members should not be counted in determining the quorum for annual members' meetings in nonstock corporations. GCHS is a nonstock, nonprofit educational corporation with fifteen regular members who also serve as the board of trustees. During the annual members' meeting on April 6, 1998, there were only eleven living member-trustees, as four had already died. Out of the eleven, seven attended the meeting through their proxies. Atty. Sabino Padilla Jr. chaired the meeting over the objection of Atty. Antonio C. Pacis, who argued that there was no quorum. Petitioners argue that upon the death of members, they automatically lose all their rights, including the right to vote and participate in the corporation. The Securities and Exchange Commission (SEC) Hearing Officer declared the meeting null and void for lack of quorum. The CA dismissed the appeal of petitioners due to a defective Verification and Certification. The issues to be resolved are whether the CA erred in denying the petition based on the defective Verification and Certification and whether dead members should still be counted in determining the quorum for annual members' meetings.

ISSUES:

  1. Procedural Issue: The Petition before the CA initially lacked proper verification and certification of non-forum shopping. Was this initial procedural lapse excusable?

  2. Main Issue: What is the basis for quorum in stock corporations?

  3. Whether the quorum in a members' meeting of a nonstock corporation should be based on the actual number of members with voting rights.

  4. Whether dead members who have been dropped from the membership roster are to be counted in determining the requisite vote in corporate matters or the requisite quorum for the annual members' meeting.

  5. Whether the filling of vacancies in the board of directors is mandatory or permissive.

  6. Whether the vacancies in the board of trustees of Grace Christian High School (GCHS) can be filled up by the members in an annual meeting.

RULING:

  1. The initial procedural lapse regarding the verification and certification of non-forum shopping may be excused in the interest of substantial justice. The substantial merits of the case and the purely legal question involved justify an exception to the strict requirements of verification and certification.

  2. In stock corporations, the presence of a quorum is determined by the stockholders representing a majority of the outstanding capital stock. The right to vote is inherent in and incidental to the ownership of corporate stocks. Unissued stocks may not be voted or considered in determining the presence of a quorum. Only issued and outstanding stocks may be voted.

  3. Yes, the quorum in a members' meeting of a nonstock corporation should be based on the actual number of members with voting rights. When applying the principle for determining the quorum in stock corporations by analogy to nonstock corporations, only those who are actual members with voting rights should be counted. The majority of the members representing the actual number of voting rights, and not the number originally specified in the articles of incorporation, constitutes the quorum.

  4. No, dead members who have been dropped from the membership roster are not to be counted in determining the requisite vote in corporate matters or the requisite quorum for the annual members' meeting. Membership in a nonstock corporation, unless otherwise provided in the articles of incorporation or bylaws, is personal and non-transferable, and termination of membership extinguishes all the rights of the member. Therefore, dead members who have been dropped from the membership roster are not entitled to exercise their voting rights through their executor or administrator. In this case, the quorum for the annual members' meeting should be based on the 11 remaining members, and thus a quorum of 6 was present, making the meeting valid.

  5. The filling of vacancies in the board of directors is permissive. Corporations have the discretion to choose how vacancies in their board may be filled, either by the remaining directors constituting a quorum or by the stockholders/members in a regular or special meeting.

  6. The vacancies in the board of trustees of GCHS cannot be filled up by the members in an annual meeting. According to the GCHS by-laws, vacancies in the board must be filled up by the remaining trustees in a board meeting. The "election" of the trustees held in the annual meeting of members cannot be legally upheld. The remaining member-trustees must convene as a board in order to validly elect the new ones.

PRINCIPLES:

  • Verification and Certification of Non-Forum Shopping aim to assure the truthfulness and correctness of allegations in a petition and to discourage forum shopping.

  • Stockholders or members have residual powers over fundamental and major corporate changes, while acts of management pertain to the board of directors or trustees.

  • Stockholders or members have the right to vote for the directors or trustees who will manage the corporation's affairs.

  • In nonstock corporations, every member and legal owner of shares has the right to be present and vote in corporate meetings.

  • Quorum in stock corporations is determined by the stockholders representing a majority of the outstanding capital stock.

  • Only issued and outstanding stocks may be voted in determining the presence of a quorum. Unissued stocks are not considered.

  • In nonstock corporations, the quorum for a members' meeting should be based on the actual number of members with voting rights.

  • Dead members who have been dropped from the membership roster are not to be counted in determining the requisite vote in corporate matters or the requisite quorum for the annual members' meeting of a nonstock corporation.

  • Membership in a nonstock corporation is personal and non-transferable, unless otherwise provided in the articles of incorporation or bylaws.

  • Vacancies in the board of directors/trustees can be filled up by the remaining directors/trustees constituting a quorum or by the stockholders/members in a meeting, depending on the corporation's choice.

  • There is a distinction between corporate acts to be done by the board and those to be done by the constituent members of the corporation. The board of trustees must act as a body in a lawful meeting, while members may be represented by proxies in their annual meeting.