SANTIAGO CUA, JR., SOLOMON S. CUA and EXEQUIEL D. ROBLES, in their capacity as Directors of PHILIPPINE RACING CLUB, INC.,                           Petitioners,  

-  versus  -  MIGUEL OCAMPO TAN,JEMIE U. TAN and ATTY. BRIGIDO J. DULAY,                         Respondents.

x -------------------------------------- xSANTIAGO CUA, SR., in his capacity as Director of PHILIPPINE RACING CLUB, INC.,                           Petitioner,  

-  versus  -  COURT OF APPEALS, MIGUEL OCAMPO TAN, JEMIE U. TAN, ATTY. BRIGIDO J. DULAY, and HON. CESAR UNTALAN, Presiding Judge, Makati Regional Trial Court, Br. 149,                         Respondents.

  G.R. No.  181455-56                 G.R. No.  182008  Present: CORONA, J.,       Chairperson,CHICO-NAZARIO,VELASCO, JR.,NACHURA, andPERALTA, JJ.    Promulgated: December 4, 2009

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - - - - - - - - - - - - - - - - - - -x  

D E C I S I O N

  CHICO-NAZARIO, J.:  

Before this Court are two Petitions: (1) a Petition for Review on Certiorari [1] under Rule 45 of the Rules of Court filed by petitioners Santiago Cua, Jr. (Santiago Jr.), Solomon S. Cua

(Solomon), and Exequiel D. Robles (Robles), in their capacity as directors of the Philippine Racing Club, Inc. (PRCI), with Miguel Ocampo Tan (Miguel), Jemie U. Tan (Jemie) and Atty. Brigido J. Dulay (Dulay) as respondents, docketed as G.R. No. 181455-56; and (2) a Petition for Certiorari and Prohibition[2] under Rule 65 of the Rules of Court filed by petitioner Santiago Cua, Sr. (Santiago Sr.), also in his capacity as PRCI director, likewise naming Miguel, Jemie, and Dulay as respondents, together with the Court of Appeals and Presiding Judge Cesar Untalan

(Judge Untalan) of the Regional Trial Court (RTC), Branch 149 of Makati City, docketed as G.R. No. 182008.

 Both Petitions assail the Decision[3] dated 6 September 2007 and Resolution[4] dated 22

January 2008 of the Court of Appeals in the consolidated cases CA-G.R. SP No. 99769 and No. 99780.  In its 6 September 2007 Decision, the Court of Appeals dismissed for lack of merit, mootness, and prematurity, the Petition for Certiorari of petitioners Santiago Jr., Solomon, and Robles (Santiago Jr., et al.); and the Petition for Certiorari and Prohibition of petitioner Santiago Sr., which sought the nullification of the Resolution[5] dated 16 July 2007 of the RTC in Civil Case No. 07-610 granting the Temporary Restraining Order (TRO) prayed for by respondents Miguel, Jemie, and Dulay (Miguel, et al.).  In its 22 January 2008 Resolution, the appellate court denied the Motions for Reconsideration of petitioners and the Motion to Admit Supplemental Petition for Certiorari of petitioner Santiago Jr, et al.  The same Resolution did not consider the Supplemental Petition forCertiorari and Prohibition filed by petitioner Santiago Sr. for the latter’s failure to seek leave of court for its filing and admittance.  Petitioners would have wanted to challenge in their Supplemental Petitions the Resolution[6] dated 8 October 2007 of the RTC in Civil Case No. 07-610 granting the issuance of a “permanent injunction” against petitioners and the other PRCI directors until the said case was resolved. 

IFACTUAL AND PROCEDURAL ANTECEDENTS

 PRCI is a corporation organized and established under Philippine laws to: (1) carry on the

business of a race course in all its branches and, in particular, to conduct horse races or races of

any kind, to accept bets on the results of the races, and to construct grand or other stands, booths, stablings, paddocks, clubhouses, refreshment rooms and other erections, buildings, and conveniences, and to conduct, hold and promote race meetings and other shows and exhibitions; and (2) promote the breeding of better horses in the Philippines, lend all possible aid in the development of sports, and uphold the principles of good sportsmanship and fair play.[7]  To pursue its avowed purposes, PRCI holds a franchise granted under Republic Act No. 6632, as amended by Republic Act No. 7953, to operate a horse racetrack and manage betting stations.  Under its franchise, PRCI may operate only one racetrack. 

 In 1999, the Articles of Incorporation of PRCI was amended to include a secondary

purpose,viz: 

To acquire real properties and/or develop real properties into mix-use realty projects including but not limited to leisure, recreational and memorial parks and to own, operate, manage and/or sell these real estate projects.[8]

  

PRCI is publicly listed with the Philippine Stock Exchange (PSE).  In 2006, PRCI had an authorized capital stock of P1,000,000,000.00 divided into 1,000,000,000 shares, with a par value ofP1.00 each; of which a total of P569,857,749.00, representing 569,857,749 shares, had been subscribed and paid up.[9]    

 PRCI owns only two real properties, each covered by several transfer certificates of

title.  One is known as the Sta. Ana Racetrack, located along A. P. Reyes Avenue, Makati

City (Makati property), measuring around 21.2 hectares; and the other is located in the towns of

Naic and Tanza in the province of Cavite (Cavite property).  Following the trend in the development of properties in the same area,[10] PRCI wished to

convert its Makati property from a racetrack to urban residential and commercial use.  Given the location and size of its Makati property, PRCI believed that said property was severely under-utilized.  Hence, PRCI management decided to transfer its racetrack from Makati to Cavite.  PRCI began developing its Cavite property as a racetrack, scheduled to be completed by April 2008.

 Now as to its Makati property, PRCI management decided that it was best to spin off the

management and development of the same to a wholly owned subsidiary, so that PRCI could continue to focus its efforts on pursuing its core business competence of horse racing.  Instead of organizing and establishing a new corporation for the said purpose, PRCI management opted to acquire another domestic corporation, JTH Davies Holdings, Inc. (JTH).[11]

 JTH was then owned by Jardine Matheson Europe B.V. (JME). [12]  It had an authorized

capital stock of P25,000,000.00, divided into 50,000,000 common shares with a par value of P0.50 each.  JTH was publicly listed with the PSE.  Its tangible assets substantially consisted of cash.  To determine the value of JTH, PRCI engaged the services of the accounting firm Sycip Gorres Velayo & Co. (SGV) to conduct a due diligence study.[13] 

 Using the results of the SGV study, PRCI management determined that PRCI could

initially acquire 41,928,290 shares, or 95.55% of the outstanding capital stock of JTH, for the price of P10.71 per share, or for a total of P449,250,000.00; in this case, PRCI would be paying a premium ofP42,410,450.00 for the said JTH shares, computed as follows:    

 Total price for all of the issued and subscribed JTH    shares (at P10.71/share) P  470,418,848.00Less: Unaudited net worth of JTH (purely cash) - 426,010,000.00Total premium for 100% of JTH 44,408,848.00Multiply: Interest in JTH to be initially acquired by    PRCI  (95.5%) x 0.955Premium for the 95.5% interest in JTH to be acquired    by PRCI P    42,410,450.00

 The PRCI Board of Directors held a meeting on 26 September 2006.  Among the

directors present were petitioners Santiago Sr., Santiago Jr., and Solomon, as well as respondent Dulay.  After discussing and deliberating on the matter of the acquisition of JTH by PRCI, all the directors present, except respondent Dulay, voted affirmatively to pass and approve the following resolutions:

 1.                    Declaration of Intention to Acquire and Purchase Shares of

Stock of Another Company - 

             RESOLVED, as it is hereby resolved, that the Corporation intends to acquire up to one hundred percent (100%) of the common shares of stock of JTH Davies Holdings, Inc. by way of negotiated sale;

              RESOLVED FURTHER, That Management and the Corporate Secretary shall prepare and submit the Tender Offer, as well as, to file all the necessary

disclosures and notices in compliance with the Securities Regulation Code, its implementing rules, and other prevailing regulations;

              RESOLVED FURTHERMORE, That the Corporation authorizes its President, Mr. Solomon S. Cua, to sign and execute any purchase agreements, memoranda, and such other deeds, and to deliver any documents and papers, perform any acts, necessary and incidental to implement the foregoing, as well as to source the funds to implement the same.

 2.         Special Stockholders’ Meeting -              RESOLVED, That a Special Stockholders’ Meeting of PRCI shall be held on October 26, 2006 at 10:00 A.M., or at such later date as may be practicable under the circumstances, in the principal place of business of PRCI at Santa Ana Park, A.P. Reyes Avenue, Makati City;              RESOLVED FURTHER, That only those stockholders of record as of end of business day of October 11, 2006 shall be entitled to notice, to vote and/or to be voted upon, in accordance with the laws, regulations and by-laws of PRCI;              RESOLVED FURTHERMORE, That the Corporate Secretary shall be authorized to issue the required notices, set the time for the submission of, and to receive and validate proxies, as well as, to order publication of notices and undertake such appropriate and necessary steps, including the filing of the required disclosures to the regulating agencies, to effect the foregoing. 3.         Authorized Attorney-In-Fact and Proxy - 

In the event of a successful acquisition of the shares of JTH Davies Holdings, Inc., the Board passed and approved the following resolutions:

 RESOLVED, that the Corporation shall hereby authorize SANTIAGO

CUA, or in his absence, EXEQUIEL ROBLES, or in his absence, SOLOMON S. CUA, or in his absence,SANTIAGO CUA, JR., or in his absence, DATUK SURIN UPATKOON, or in his absence, Laurence Lim Swee Lim, or in his absence, LIM TEONG LEONG, to act as its attorney-in-fact/proxy and to vote all shares as may be registered in the name of the Corporation/lodged with the PCD System, and to exercise all rights appurtenant thereto during the Annual Stockholders’ Meeting/s and all regular/special meeting/s of JTH DAVIES HOLDINGS, INC. (formerly JARDINE DAVIES, INC.);

 RESOLVED FURTHER, That these Directors, in the said order of

priority, shall have full power and authority and discretion to nominate, appoint, and/or vote into office such directors and/or officers during the said Annual Stockholders’ Meeting/s and regular/special meeting/s of JTH HOLDINGS, INC. (formerly JARDINE DAVIES, INC.);

 RESOLVED FINALLY, That these Directors be, as they are hereby

granted full power and authority whatsoever requisite or necessary or proper to be done in these matters.[14]

  The next day, 27 September 2006, PRCI entered into a Sale and Purchase Agreement

for the acquisition from JME of 41,928,290 common shares or 95.55% of the outstanding capital stock of JTH.  Among the principal terms of the Sale and Purchase Agreement were:

 (a)     The consideration for the acquisition was P10.71 per share

or P449,250,000.00; 

(b)    Upon the signing of the [A]greement, the [PRCI] shall pay P20 Million to an Escrow Agent as deposit; and

 (c)     The sale and purchase transaction contemplated in the Agreement shall be

consummated at a closing not later than November 30, 2006 or the 50th day from the start of the JTH Offer or such date which shall in no case be later than December 11, 2006.[15]

  

PRCI also made a tender offer for the remaining 4.45% or 1,954,883 issued and outstanding common shares of JTH at P10.71 each. 

 In the Special Stockholders’ Meeting held on 7 November 2006, attended by stockholders

with 481,045,887 shares or 84.42% of the outstanding capital stock of PRCI, the acquisition by PRCI of JTH was presented for approval.  The events during said meeting were duly recorded in the Minutes, to wit:

 V.        APPROVAL OF THE ACQUISITION OF THE SHARES OF STOCK OF

JTH DAVIES HOLDINGS, INC. 

Thereafter, the Corporate Secretary informed that the President will present to the stockholders the rationale for the acquisition of the shares of JTH Davies Holdings, Inc. According to the President PRCI is intending to acquire up to 100% of the shares of JTH Davies Holdings, Inc. another listed company in the PSE.  For reference, the President informed that the latest Annual Report of JTH has been appended to the Information Statement for guidance.  Also copies of the Board’s resolution presented for approval and ratification by the stockholders has been posted in the room for convenient reading of the stockholders. The President explained that JTH is one of the oldest holdings company and the name JTH Davies is an internationally acclaimed name with a reputation for solid and sound financial standing.  With PRCI’s acquisition of JTH, it gives PRCI the necessary vehicle within which to enlarge and broaden the business and operational alternatives or options of our company.  PRCI believes that this JTH will complement the direction of PRCI in fast tracking the development of PRCI’s plans and provide it investment opportunities.  It is for this reason that we call this special meeting so you may know soonest the present opportunity faced by PRCI without need for you to wait until next year’s annual meeting.  The Vice-Chairman then informed that the resolution approving the purchase of JTH Davies Holdings, Inc. as presented in the Information Statement which were furnished to the stockholders is presented for approval to the body.  A stockholder thereafter moved that the the (sic) resolution be approved which was duly seconded by another stockholder.  The Vice-Chairman declared the resolution approved.  Thereafter, Atty. Pagunsan took the floor and informed that he is the proxy of various stockholders (10%) and would like to manifest

his vote as “NO” which the Vice-Chairman duly noted.  Notwithstanding the objection of Atty. Pagunsan, considering the more than 2/3 of the outstanding capital stock of PRCI has approved and ratified the resolution, (74%) the Corporate Secretary declared the resolution as duly approved and ratified. Thereafter, another stockholder, Mr. Ngo, asked the President what are the plans of PRCI on the assets of JTH.  The President informed that as of now, JTH has no material hard assets other than its retained earnings.  Mr. Ngo asked again what will be the direction of PRCI on the substantial retained earnings of JTH to which the President replied that there are several options being considered once the purchase is complete one of which is the declaration of cash dividend. Another stockholder took the floor and informed the Management that he is happy with the transaction of PRCI and the purchase by PRCI of the JTH shares is a good deal since the value of the goodwill of JTH is substantial by his estimate.  He proceeded to thank the President and shook hands with him.[16]

  

By 22 November 2006, PRCI was able to additionally acquire 1,160,137 common shares of JTH from the minority stockholders of the latter, giving PRCI ownership of 98.19% of the outstanding capital stock of JTH.

 PRCI prepared consolidated financial statements for itself and for JTH for the fiscal year

ending 31 December 2006.  The financial statements were audited by the accounting firm Punongbayan & Araullo which gave the following unqualified opinion of the same: “In our opinion, based on our audit and the report of other auditors, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Philippine Racing Club, Inc. and Subsidiary as of December 31, 2006, and their consolidated financial performance and their cash flows for the year then ended in accordance with Philippine Financial Reporting Standards.”  The audited financial statements of PRCI and JTH for 2006 were presented to the stockholders of PRCI and submitted to the Securities and Exchange Commission (SEC), the Bureau of Internal Revenue (BIR), and the Philippine Stock Exchange (PSE). 

 Thereafter, PRCI again engaged the assistance of SGV in executing its intended spin-off

to JTH of the management and development of PRCI’s Makati property.  It was then determined that the Makati property, with a total zonal value of P3,817,242,000.00, could be transferred to JTH in exchange for the unissued portion of the latter’s recently increase authorized capital stock,[17]amounting to P397,908,894.50, divided into 795,817,789 shares with a par value of P0.50 per share. The difference of P3,419,333,105.50 between the total zonal value of the Makati property and the aggregate par value of the JTH shares to be issued in exchange for the same, would be reflected as additional paid-in capital of PRCI in JTH.                           The matter of the proposed exchange was taken up and approved by the PRCI Board of Directors in its meeting held on 11 May 2007, again with the lone dissent of respondent Dulay. According to the Minutes of the said meeting, the following occurred: 

A.        Exchange of the Corporation’s Makati Property with Shares of JTH Davies Holdings, Inc.

 

President Cua reported on certain essential matters regarding the Corporation’s Makati Property.  After doing so, President Cua proposed the exchange of this Property with shares of JTH Davies Holdings, Inc.  He then presented to the Board financial facts and figures heavily favoring the transaction.

 After due discussion and deliberation, all the Directors present approved

and passed the following resolution, except Director Brigido Dulay who registered a negative vote:

 RESOLVED, That the Corporation hereby approves and

authorizes the exchange of its Makati property with shares of JTH Davies Holdings, Inc.;

 RESOLVED FURTHER, That, for this purpose, the

Corporation hereby authorizes its Executive Committee to determine and approve the terms and conditions governing the exchange as it shall consider for the best interest of the Corporation subject to approval by the stockholders in compliance with the Corporation Code;

 RESOLVED FURTHER, That the Executive Committee,

be, as it is hereby granted full power and authority whatsoever requisite or necessary or proper to accomplish these;

 RESOLVED FINALLY, That SOLOMON CUA,

President & CEO, be, as he is hereby authorized to negotiate with JTH Davies Holdings, Inc. and to execute, sign, and/or deliver any and all documents covering the exchange in accordance with the terms and conditions of the Executive Committee.[18]

  

Subsequently, the Annual Stockholders’ Meeting of PRCI was scheduled on 17 July 2007, the Agenda for which is reproduced below:

 I.                   Call to Order;

 II.                Proof of Notice;

 III.             Certification of Quorum;

 IV.            Approval of the Minutes of the Annual Stockholders’ Meeting held last

June 19, 2006 and of the Special Stockholders’ Meeting held last November 7, 2006;

 V.               Report of the President;

 VI.            Approval of the Audited Financial Statement for the year

ended December 31, 2006; 

VII.         Approval and Ratification of the acts of the Board of Directors, the Executive Committee and the Management of the Corporation for the Fiscal Year 2006;

 

VIII.      Approval of the Planned Exchange of PRCI’s Makati property for shares of stock;

 IX.            Approval of the Amendments of the By-Laws to conform with the

Manual of Corporate Governance; 

X.               Election of the members of the Board of Directors; 

XI.            Appointment of Independent External Auditors; 

XII.         Other Matters; 

XIII.      Adjournment.[19]

  

The 11 May 2007 Resolution of the PRCI Board of Directors on the property-for-shares exchange between PRCI and JTH was supposed to be presented for approval by the stockholders under the afore-quoted Items No. VII and No. VIII of the Agenda. 

 However, on 10 July 2007, respondents Miguel, et al., as minority stockholders of PRCI,

with the following shareholdings: 

Stockholder No. of Shares PercentageMiguel Ocampo-Tan 16,380,000 2.87Jemie U. Tan 15,972,720 2.80Atty. Brigido J. Dulay[20] 1 0.00Total 32,352,721 5.67 

filed before the RTC a Complaint, denominated as a Derivative Suit with prayer for Issuance of TRO/Preliminary Injunction, against the rest of the directors of PRCI and/or JTH.  The Complaint

was docketed as Civil Case No. 07-610. The Complaint was based on three causes of action: (1) the approval by the majority

directors of PRCI of the Board Resolutions dated 26 September 2006 and 11 May 2007 -- with undue haste and deliberate speed, despite the absence of any disclosure and information -- was not only anomalous and fraudulent, but also extremely prejudicial and inimical to interest of PRCI, committed in violation of their fiduciary duty as directors of the said corporation; (2) respondent Solomon, as PRCI President, with the acquiescence of the majority directors of PRCI, maliciously refused and resisted the request of respondents Miguel, et al., for complete and adequate information relative to the disputed Board Resolutions, brazenly and unlawfully violating the rights of the minority stockholders to information and to inspect corporate books and records; and (3) without being officially and formally nominated, the majority directors of PRCI illegally and unlawfully constituted themselves as members of the Board of Directors and/or Executive Officers of JTH, rendering all the actions they have taken as such null and void ab initio.  In the end,

respondents Miguel, et al., prayed to the RTC, after notice and hearing, that: 

1.         A temporary restraining orde r  and/or writ of preliminary injunction be issued restraining and enjoining the holding of the Annual Stockholders’ Meeting scheduled on 17 July 2007 and restraining and enjoining the defendants

[PRCI directors] from enforcing, implementing, “railroading”, or taking any further action in reliance upon or in substitution or in furtherance of the Disputed Resolutions, which would inflict grave and irreparable injury in fraud of the Corporation.

 2.         A receiver and/or management committee be constituted and

appointed to undertake the management and operations of the Corporation and to take over its assets to prevent its further loss, wastage and dissipation.

 3.         To compel the defendant Majority Directors to render a complete

and adequate disclosure of all documents and information relating to the subject matter of the Disputed Resolutions as well as the business and affairs of the Corporation and its wholly-owned subsidiary from the time of the latter’s acquisition until final judgment.

 4.         After trial on the merits, that judgment be rendered in favor of the

plaintiffs and against the defendants, as follows: (a)        Permanently enjoining and prohibiting defendants from enforcing,

implementing, or taking any action in reliance upon the Disputed Resolutions. (b)        Declaring the Disputed Resolutions dated 26 September 2006

and 11 May 2007 and the approval by the Executive Committee of the exchange of the Corporation’s Makati Property for JTH shares, as well as any and all actions taken in reliance upon or pursuant to or in furtherance of the Disputed Resolutions and/or approval of the Executive Committee, as null and void ab initio.

 (c)        Declaring the assumption by defendant Majority Directors as

Directors and/or officers of JTH, including all acts done by defendant Majority Directors as such Directors and/or officers of JTH, as null and void ab initio.

 (d)       Ordering defendants to pay plaintiffs the sum of P500,000.00, and

by way of attorney’s fees, plus P10,000.00 per court appearance, plus costs of suit.

 Other reliefs just and equitable under the premises are likewise prayed

for.[21]

  

After conducting hearings on the prayer for the issuance of a TRO, RTC Judge Untalan

issued a Resolution on 16 July 2007, the dispositive portion of which reads: 

WHEREFORE, premises considered, this court hereby partially grants the prayer of PRCI for the issuance of Temporary Restraining Order upon the herein defendants subject to the posting of Php100,000.00 bond on condition that such bond shall answer to any damage that the Defendants may sustain by reason of this TRO if the court should finally decide that the applicants are not entitled thereto.  This TRO shall be effective for TWENTY (20) DAYS only from service of the same upon the Defendants after posting of the bond.

 

Therefore, the Defendants, their agents, proxies and representatives are hereby enjoined, prohibited and forbidden to present to, discuss, much more to approve the same, at the 2007 Annual Stockholders’ Meeting of PRCI to be held on July 17, 2007 at 8:00 A.M. at the VIP Room, Santa Ana Park, A.P. Reyes Ave., Makati City, the following Agenda included in the Notice of said stockholders’ meeting:

 1.        Agenda Roman No. IV – Approval of the Minutes of the

Annual Stockholders’ Meeting held last June 19, 2006 and the Special Stockholders’ meeting held last November 7, 2006.

 2.       Agenda Roman No. VII – Approval and Ratification of

the acts of the Board of Directors, the Executive Committee and the Management of the Corporation for the Fiscal Year 2006.

 3.       Agenda Roman No. VIII – Approval of the Planned

Exchange of PRCI’s Makati property for shares of stock. 

Thus, in order that these subject matters and items of the Agenda of the aforesaid Stockholders’ Meeting shall not be taken up, the herein Defendants, their agents, proxies and representatives, jointly and severally, are hereby ordered to delete and remove from the Agenda said three (3) above stated items of the Agenda before the start and conduct of the said stockholders’ meeting.  Therefore, in case herein Defendants, their agents, proxies and representatives defy and disobey this mandate, they have committed already four (4) distinct contemptuous acts: delete, present, discuss and approve.

 This Court appealed to the Corporate Secretary as Officer of the Court,

to please make sure that this mandate is obeyed and observed by the Defendants, their agents, proxies and representatives, before and during the conduct of said stockholders’ meeting.

 Let the hearing of the main injunction be set on July 23 and 24, 2007

and August 2, 2007, all attwo o’clock in the afternoon.[22]

  

The Annual Stockholders’ Meeting of PRCI scheduled the next day, 17 July 2007, failed

to push through for lack of quorum. On 19 July 2007, petitioners Santiago Jr., et al., as PRCI directors filed a Petition

forCertiorari with the Court of Appeals, docketed as CA-G.R. SP No. 99769.  On 20 July 2007,

Santiago Sr., also as PRCI director, filed his own Petition for Certiorari and Prohibition, docketed

as CA-G.R. SP No. 99780.  Both Petitions assailed the RTC Resolution dated 16 July 2007,

granting the issuance of a TRO, for being rendered with grave abuse of discretion amounting to lack or excess of jurisdiction.  CA-G.R. SP No. 99769 and No. 99780 were subsequently

consolidated. 

 The Court of Appeals promulgated its Decision on 6 September 2007 dismissing the

Petitions in CA-G.R. SP No. 99769 and No. 99780 for lack of merit, mootness, and prematurity. According to the Court of Appeals, the TRO issued by the RTC enjoined the presentation,

discussion, and approval of only three of the 13 items on the Agenda of the 2007 Annual Stockholders’ Meeting.  There is no evidence that the TRO issued by the RTC legally impaired the holding of the scheduled stockholders’ meeting.  Indeed, the lack of quorum during the said meeting was due to the absence of petitioners themselves who comprised the majority interest in

PRCI. Consequently, the appellate cour t  found no grave abuse of discretion in the issuance by

the RTC of the TRO. The Court of Appeals also noted that the Petitions in CA-G.R. SP No. 99769 and No.

99780 as regards the issuance of the TRO already became moot when the 20-day period of

effectivity of said restraining order expired on 5 August 2007, even before the Petitions were

submitted for resolution. Lastly, the Court of Appeals held that the issues raised by petitioners were factual and

evidentiary in nature which must be threshed out before the RTC as the designated commercial

court in Makati.  The appellate court would not interfere with the proceedings a quo considering

that Civil Case No. 07-610 had not yet gone to trial and had not yet been resolved or terminated by the RTC. Therefore, for being premature, the Court of Appeals could not prohibit the

continuance of the RTC proceedings in Civil Case No. 07-610.      The Court of Appeals ruled that there was no reason to dismiss the Complaint in Civil

Case No. 07-610.  Although the Complaint contained mere allegations, which had yet to be supported by evidence, it was sufficient in form and substance, and the RTC properly took

cognizance of the same. The Court of Appeals reasoned that: 

Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies (Interim Rules) provides:

 “SECTION 1.  Derivative action. – A stockholder or

member may bring an action in the name of a corporation or association, as the case may be, provided, that:

 (1)        He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed; (2)        He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the

corporation or partnership to obtain the relief he desires; (3)        No appraisal rights are available for the act or acts complained of; and (4)        The suit is not a nuisance or harassment suit. 

In case of nuisance or harassment suit, the court shall forthwith dismiss the case.” A reading of the Complaint reveals that the same sufficiently alleges the

foregoing requirements.  Complainants essentially allege that they are PRCI stockholders, that they have opposed the issuance and approval of the questioned resolutions during the board stockholders’ (sic) meetings, that prior resort to intra-corporate remedies are futile, that nevertheless, they have asked for copies of the pertinent documents pertaining to the questioned transactions which the board has declined to furnish, that they have instituted the derivative suit in the name of the corporation, that they are questioning the acts of the majority of the board of directors believing that the herein petitioners have committed a wrong against the corporation and seeking a nullification of the questioned board resolutions on the ground of wastage of the corporate assets.

 Thus, contrary to petitioners’ averment, the Complaint does state a

cause of action.[23]

  

Petitioners in CA-G.R. SP No. 99769 and No. 99780 filed their respective Motions for

Reconsideration of the foregoing Decision of the Court of Appeals. In the meantime, upon the expiration of the TRO issued by RTC Judge Untalan in Civil

Case No. 07-610, the Annual Stockholders’ Meeting of PRCI was again scheduled on 10 October

2007. However, Judge Untalan issued on 8 October 2007 a Resolution with the following decree: 

WHEREFORE, premises considered, this court hereby GRANTS the issuance ofPERMANENT INJUNCTION against the defendants until the instant case is finally resolved, subject to the posting by plaintiffs of a Php 100,000.00 bond, on condition that such bond shall answer to any damage that the Defendants may sustain by reason of this injunction if the court should finally decide that the applicants are not entitled thereto.  This injunction shall be effective from service of the same upon the Defendants after posting of the bond.

 Therefore, the Defendants, their agents, proxies and representatives are

hereby enjoined, prohibited and forbidden to present to, discuss, much more to approve the same, at any stockholders’ meeting, whatsoever kind and nature, of PRCI of the following Agenda:

 1.      Approval of the Minutes of the Annual Stockholders’

Meeting held last June 19, 2006 and the Special

Stockholders’ meeting held last November 7, 2006 of PRCI.

 2.       Approval and Ratification of the acts of the Board of

Directors, the Executive Committee and the Management of PRCI for the Fiscal Year 2006, as far as the acquisition of JTH and the planned exchange of PRCI’s Makati property for shares of stock of JTH are concerned.

 3.      Approval of the Planned Exchange of

PRCI’s Makati property for shares of stock of JTH.[24]

  

As a result, the Annual Stockholders’ Meeting of PRCI proceeded as scheduled on 10

October 2007 without taking up the matters covered by the permanent injunction issued by the

RTC. Petitioners Santiago Jr., et al. filed in CA-G.R. SP No. 99769 their Motion to Admit

Supplemental Petition for Certiorari with the attached Supplemental Petition for Certiorari;[25] and petitioner Santiago Sr. filed in CA-G.R. SP No. 99780 a Supplemental Petition for Certiorari and Prohibition,[26] to be followed shortly thereafter by a Motion to Admit (Supplemental Petition).[27] Petitioners intended to additionally assail in their Supplemental Petitions the 8 October

2007Resolution of the RTC granting the issuance of the permanent injunction. In its Resolution dated 22 January 2008, the Court of Appeals denied the Motions for

Reconsideration of petitioners and the Motion to Admit Supplemental Petition for Certiorari of

petitioners Santiago Jr., et al.  The Court of Appeals found that petitioners’ Motions for Reconsideration merely

reiterated the issues and arguments which were raised in the Petitions and/or which the appellate court already discussed and passed upon.  The Court of Appeals reiterated its ruling that it was premature to prohibit the continuance of the proceedings in Civil Case No. 07-610 before the

RTC; and that the Complaint therein sufficiently stated a cause of action.  The Court of Appeals likewise refused to admit petitioners’ Supplemental Petitions

forCertiorari.  It noted that Santiago Sr. filed his Supplemental Petition without asking for leave to file the same.  Apparently, the appellate court disregarded the Motion to Admit (Supplemental

Petition) which petitioner Santiago filed separately from and at a later date than his Supplemental

Petition.  In addition, the Court of Appeals adjudged that the Supplemental Petitions which petitioners hoped to be admitted involved a subject matter not covered in their original Petitions.  Although the TRO and the permanent injunction were both issued by the RTC in Civil Case No. 07-610, the two issuances were independent of each other, and only the TRO was the subject of the original Petitions.  Hence, the Supplemental Petitions assailing the permanent injunction granted by the RTC could not be considered as merely augmenting the matters, issues,

and causes of action of the original Petitions; and should be challenged in a separate petition

for certiorari.        Failing to obtain any relief from the Court of Appeals, petitioners turned to this Court. Petitioners Santiago Jr., et al., filed a Petition for Review on Certiorari under Rule 45 of

the Rules of Court, docketed as G.R. No. 181455-56; while petitioner Santiago Sr. filed a Petition forCertiorari under Rule 65 of the Rules of Court, docketed as G.R. No. 182008.  According to petitioners, the appellate court committed reversible errors of law and grave abuse of discretion in

its Decision dated 6 September 2007 and Resolution dated 22 January 2008 in CA-G.R. SP No.

99769 and No. 99780.  Petitioners insisted that Civil Case No. 07-610 pending before the RTC did not constitute

a valid derivative suit.  Respondents Miguel, et al., failed to allege in their Complaint that they had no appraisal rights for the acts they were complaining of.  In fact, the very allegations made by respondents Miguel, et al. in their Complaint supported the availability of appraisal rights to them. The Complaint in Civil Case No. 07-610 was nothing more than a nuisance or harassment

suit against petitioners and the other PRCI directors.  Petitioners averred that, by finding no grave abuse of discretion on the part of the RTC in

issuing the TRO against petitioners and the other PRCI directors, the Court of Appeals substituted its own judgment for that of the PRCI Board of Directors, arbitrarily and capriciously disregarding the business judgment made by the said Board and approved by PRCI stockholders.  The TRO issued by the RTC was not for the benefit of the PRCI stockholders.  Furthermore, the expiration of the 20-day TRO did not make their Petitions for Certiorari in CA-GR SP No. 99769 and No. 99780 moot.  Said Petitions included the prayer that the RTC be restrained from proceeding with Civil Case No. 07-610 in view of the fatally defective Complaint, the grant or denial of which the

appellate court should have still determined despite the expiration of the TRO. Petitioners also challenged the refusal by the Court of Appeals to admit their

Supplemental Petitions in CA-GR SP No. 99769 and No. 99780.  They asserted that the issues in

their Supplemental Petitions were closely intertwined with those in their original Petitions. The prayer of petitioners Santiago Jr., et al., in their Petition in G.R. No. 181455-56

reads: 

PRAYER 

WHEREFORE, in view of the foregoing and in the interest of justice, it is most respectfully prayed of the Honorable Supreme Court that:

 A.    The Decision of the Court of Appeals dated 06 September 2007 (Annex

“I”) and the Resolution of the Court of Appeals dated 22 January 2008 (Annex “M”) be NULLIFIED, REVERSED and SET ASIDE for having been issued on the basis of reversible error of law and with grave abuse of discretion amounting to lack of jurisdiction.

 B.     The Resolutions of Judge Cesar Untalan of Makati Regional Trial Court,

Branch 149 dated 16 July 2007 (Annex “F”) and 08 October 2007 (Annex “G”) be accordingly NULLIFIED, REVERSED and SET ASIDE for having been issued with grave abuse of discretion amounting to lack of jurisdiction.

 C.     The complaint of Respondents be DISMISSED outright for lack of

jurisdiction and cause of action. D.    Such further reliefs just and equitable under the circumstances be

GRANTED.[28]

  

Petitioners Santiago Jr., et al., subsequently filed in G.R. No. 181455-56 an Urgent Motion for Issuance of a Temporary Restraining Order (Status Quo Ante) and/or Writ of Preliminary Injunction, in which they additionally asked the Court that “a Temporary Restraining Order (Status Quo Ante) and/or Writ of Preliminary Injunction be immediately issued restraining the implementation (sic) Judge Cesar Untalan’s Resolutions dated 16 July 2007 and 08 October 2007 so as not to render inutile this Most Honorable Court’s exercise of jurisdiction over this action and to prevent the decision on this case from being rendered ineffectual and academic.”[29] 

 Meanwhile, petitioner Santiago Sr. sought the following reliefs

from this Court in his Petition in G.R. No. 182008:  

PRAYER 

WHEREFORE, premises considered, it is respectfully prayed that the petition be given due course, and that:

 1.         Upon the filing of this petition, a temporary restraining order

and/or writ of preliminary injunction be immediately issued restraining and enjoining the enforcement or execution of the assailed Court of Appeals’ Decision and Resolution, and the assailed trial court’s resolutions, particularly that which mandates the continued enforcement of the Writ of PERMANENT Injunction issued by the trial, which prevents the stockholders of the corporation from acting on matters that have to be submitted to them for approval and/ratification at the regular annual stockholders’ meetings.

 2.         Thereafter, a writ of prohibition be issued and/or the preliminary

injunction be made permanent and continuing, during the pendency of the instant case before the Honorable court.

 3.         After due hearing, that the Honorable Court:

             (a)        Declare null and void the Honorable Court of Appeals’ 06

September 2007 Decision and 22 January 2008 Resolution, in CA-G.R. SP No. 99780, as well as the Trial Court’s 16 July 2007 and 8 October 2007 Resolutions in Civil Case No. 07-610 of the Makati Regional Trial Court, and

             (b)        Order the dismissal of the Complaint filed by the private

respondents against petitioner, et al., docketed as Civil Case No. 07-610 of the RTC of Makati City. Other reliefs just and equitable in the premises are likewise prayed for.[30]

  

In a Resolution dated 9 April 2008 in G.R. No. 182008, the Court granted petitioner

Santiago Sr.’s prayer for the issuance of a TRO, to wit: 

Acting on the prayer for the issuance of a temporary restraining order and/or a writ of preliminary injunction dated 24 March 2008, the Court likewise resolves to ISSUE a TEMPORARY RESTRAINING ORDER enjoining respondents from enforcing or executing the assailed Court of Appeals’ decision and resolution and the assailed trial court’s resolutions  particularly that which mandates the continued enforcement of the writ of permanent injunction issued by the trial court, until further orders from this Court, and to require petitioner to POST a CASH BOND or a SURETY BOND from a reputable bonding company of indubitable solvency with terms and conditions acceptable to the Court, in the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00), within five (5) days from notice, otherwise, the temporary restraining order herein issued shall automatically be lifted.  Unless and until the Court directs otherwise, the bond shall be effective from its approval by the Court until this case is finally decided, resolved or terminated.[31]

  

Accordingly, the Court issued the TRO[32] on even date, directed against the respondents of G.R.

No. 182008, namely, respondents Miguel, et al., and Judge Untalan. On 21 April 2008, respondents Miguel, et al. filed with the Court their Comment with

Prayer for the Immediate Lifting or Dissolution of the Temporary Restraining Order in G.R. No.

182008. Respondents Miguel, et al., argued that the Petition for Certiorari in G.R. No. 182008 was

dismissible due to several procedural errors. Petitioner Solomon, who signed the Petition in G.R. No. 182008 on behalf of Santiago Sr., was guilty of forum shopping for failing to inform the Court of the Petition for Review in G.R. No. 181455-56, of which he was one of the petitioners.  Both Petitions involved the same transactions, essential facts, and circumstances, as well as identical causes of action, subject matter, and issues.  The Petition for Certiorari in G.R. No. 182008 was also not personally verified by petitioner Santiago Sr. as required by rules and jurisprudence.  Moreover, the Petition for Certiorari was not a proper remedy, since it was only proper when there was no other plain, speedy, and adequate remedy in the ordinary course of

law.  Petitioner Cua himself admitted the availability of other remedies, except that he was “avoiding the tortuous manner offered by other remedies.”  In fact, petitioners Santiago Jr., et al., filed a Petition for Review in G.R. No. 181455-56. Lastly, errors of judgment could not be remedied by a Petition for Certiorari.  Petitioner Santiago Sr.’s Petition in G.R. No. 182008 raised

issues that were factual and evidentiary in nature, on which the RTC has yet to make finding. On substantial grounds, respondents Miguel, et al., explained that their Complaint in Civil

Case No. 07-610 was comprised of several causes of action.  It was not merely a derivative suit, but was also an intra-corporate action arising from devices or schemes employed by the PRCI Board of Directors amounting to fraud or misrepresentation and were detrimental to the interest of the PRCI stockholders.  Additionally, the fraudulent acts and breach of fiduciary duties by the PRCI directors had already been established by prima facie factual evidence, which warranted the continuation of the proceedings in Civil Case No. 07-610 before the RTC for adjudication on the merits.  It was also established that there were no appraisal rights available for the acts complained of, since (1) the PRCI directors were being charged with mismanagement, misrepresentation, fraud, and breach of fiduciary duties, which were not subject to appraisal rights; (2) appraisal rights would only obtain for acts of the Board of Directors in good faith; and (3) appraisal rights may be exercised by a stockholder who had voted against the proposed corporate action, and no corporate action had yet been taken herein by PRCI stockholders, who still had not voted on the intended property-for-shares exchange between PRCI and JTH.  Furthermore, the Court of Appeals correctly denied admission of the Supplemental Petitions in CA-GR SP No. 99769 and No. 99780.  A new and independent cause of action could not be set by supplemental complaint.  The issues raised in the original Petitions pertain to the grave abuse of discretion committed by the RTC in issuing the TRO and in taking cognizance of Civil Case No. 07-610, by setting the same for hearing on the main injunction; in contrast, the issues in the Supplemental

Petitions referred to the issuance of the Writ of Preliminary Injunction. In support of their prayer for the immediate lifting or dissolution of the TRO issued by this

Court, respondents Miguel, et al., contended that:             I 

THE TEMPORARY RESTRAINING ORDER ISSUED BY THIS HONORABLE COURT HAS IMPELLED HEREIN PETITIONER AND HIS CO-MAJORITY DIRECTORS TO SCHEDULE A STOCKHOLDERS’ MEETING WITH THE VIEW TO RENDER MOOT AND ACADEMIC THE ACTION AND PROCEEDINGS BEFORE THE REGIONAL TRIAL COURT OF MAKATI, BRANCH 149.

 II

 THE PETITIONER HEREIN, HAVING BEEN IMPLEADED AS DIRECTOR AND FIDUCIARY OF PRCI, DOES NOT STAND TO SUFFER ANY IRREPARABLE INJURY. 

III 

TO THE CONTRARY, IT IS PRCI WHO STAND TO SUFFER GRAVE AND IRREPARABLE INJURY IF THE TRO IS NOT LIFTED AND/OR DISSOLVED.

 IV

 THE PETITIONER HEREIN HAS FAILED TO ESTABLISH ANY CLEAR LEGAL RIGHT THAT ENTITLES HIM TO THE ISSUANCE OF A TRO AND/OR WRIT OF PRELIMINARY INJUNCTION. 

V 

THE TRO WAS IMPROPERLY ISSUED AS PETITIONER HAS FAILED TO SHOW ANY EXTREME URGENCY TO NECESSITATE THE ISSUANCE THEREOF.[33]

  In the end, respondents Miguel, et al., prayed:

 PRAYER

             WHEREFORE, premises considered, it is respectfully prayed of this Honorable Supreme Court that the Temporary Restraining Order be LIFTED or DISSOLVED IMMEDIATELY, and that the instant Petition be DISMISSED.             Other just and equitable reliefs are likewise prayed for.[34]

  Only two days later, on 23 April 2008, respondents Miguel, et al., again urgently

moved[35]for the lifting and/or dissolution of the TRO issued by this Court.  They informed the Court

that the PRCI Board of Directors passed and approved on 22 April 2008 a Resolution setting the

Annual Stockholders’ Meeting of PRCI on 18 June 2008, including in the proposed Agenda

therefor the following items: (d)       Approval of the Minutes of the Special Stockholders’

Meeting held on 7 November 2006, and the Minutes of the Annual Stockholders’ Meeting held on 10 October 2007;

            x x x x (g)       Approval and ratification of the acts of the Board of

Directors, the Executive Committee, and Management of the Corporation for Fiscal Years 2006 and 2007;

 (h)       Approval of the Planned Exchange of PRCI’s Makati

Property for shares of stock of JTH Davies Holdings, Inc.[36]

  

On the same day, 23 April 2008, the Court issued a Resolution[37] consolidating G.R. No.

181455-56 and No. 182008. Thereafter, on 16 June 2008, Aris Prime Resources, Inc. (APRI), a minority stockholder

of PRCI – with 5,000,000.00 shares or 0.88% of the outstanding capital stock of PRCI – filed a Very Respectful Motion for Leave to Intervene as Co-Respondent in the Petition with the attached Very Respectful Urgent Motion to Lift Restraining Order.[38]  It relayed to the Court that it received

Notice of the Annual Stockholders’ Meeting of PRCI set on 18 June 2008, where the items on the

property-for-shares exchange between PRCI and JTH were included in the Agenda.  Considering that the validity of the acts of the PRCI Board of Directors concerning the

property-for-shares exchange are the very issues raised in the Petitions presently before the Court, while the factual issues relating to the same are still being litigated before the RTC in Civil Case No. 07-610, the submission of the exchange to the PRCI stockholders for their approval will render the aforementioned proceedings before this Court and the RTC moot and academic.  It will amount to a denial of the right of APRI and of respondents Miguel, et al., to be heard before the RTC where they are still to present their evidence on the factual issues.  It will likewise unduly pave the way for the validation of the abuse committed by the majority directors of PRCI in denying the right of the minority directors and stockholders of the corporation to information, and for the sanction of the blatant disregard by the majority directors of their duties of fidelity and transparency.  Unless the TRO is lifted forthwith, APRI, respondents Miguel, et al., and all other minority stockholders stand to suffer prejudice.  Expectedly, petitioners seek the dismissal, while

respondents Miguel, et al., pray for the grant of the motion to intervene of APRI.      Pending action on the foregoing incidents, petitioners Santiago Jr., et al., filed before the

Court a Manifestation and Motion to Set Case for Oral Arguments.[39]

 In their Manifestation, petitioners Santiago Jr., et al., admitted that the PRCI Board of

Directors had already called and set the Annual Stockholders’ Meeting on 18 June 2008, and

among the items on the Agenda for confirmation and approval by the stockholders was the

property-for-shares exchange between PRCI and JTH.  Petitioners Santiago Jr., et al., brought to the attention of the Court the fact that on 5 June

2008, another set of minority stockholders of PRCI, namely, Jalane Christie U. Tan, Marilou U. Pua, Aristeo G. Puyat, and Ricardo S. Parreno (Jalane, et al.) filed with the RTC of Makati a Complaint against petitioners and the other directors of PRCI and/or JTH, docketed as Civil Case

No. 08-458. Jalane, et al., have the following shareholdings in PRCI: 

Stockholder No. of Shares PercentageJalane Christie U. Tan 16,927,560 2.97Marilou U. Pua 3,884,400 0.68Artisteo G. Puyat 1,633,666 0.29Ricardo S. Pareño 5,850 0.00Total 22,451,476 3.94 

 Jalane, et al., claimed in their Complaint in Civil Case No. 08-458 that “[a]part from being

a derivative suit, this suit is also filed based on devices or schemes employed by the Board of Directors amounting to fraud or misrepresentation which is detrimental to the interest of the corporation, the public and/or stockholders as provided for under Section 1(a)(1) of the Interim Rules of Procedure for Intra-Corporate Controversies (A.M. No. 01-2-04-SC).”[40]  The Complaint was based on four causes of action: (1) the acquisition of JTH by PRCI; (2) sale of 29.92% of JTH

shares by PRCI;[41](3)  exchange of the Makati property of PRCI for JTH shares; and (4)

interlocking of Directors of PRCI and JTH.  The Complaint of Jalane, et al., contained the following

prayer: 

PRAYER 

WHEREFORE, it is respectfully prayed of this Honorable Court, after due notice and hearing, that:

 1.   A Temporary Restraining Order and/or Writ of Preliminary Mandatory

Injunction be issued enjoining the presentation, discussion and ratification of portions of the Agenda of the Annual Stockholders Meeting of PRCI scheduled on June 18, 2008, particularly items IV, VII and VIII;

 2.   An order be issued nullifying the Sale and Purchase Agreement

dated September 27, 2006 for the acquisition of JTH Davies Holdings, Inc. 3.   An order be issued nullifying the sale of PRCI shares in JTH in April 2007

and May 7, 2007; [Paragraph crossed-out.] 5.   An order be issued directing defendants to pay plaintiffs the sum

of P500,000.00 as and by way of attorney’s fees, plus cost of suit. 

Other reliefs, just and equitable under the premises are likewise prayed for.[42]

  

Acting on the Complaint of Jalane, et al. in Civil Case No. 08-458, Executive Judge Winlove Dumayas (Executive Judge Dumayas) of the Makati City RTC issued a 72-hour TRO, enjoining PRCI directors from presenting, discussing, and ratifying the items in the Agenda for the Annual Stockholders’ Meeting set on 18 June 2008 related to the property-for-shares exchange between PRCI and JTH.  However, upon being apprised of the TRO issued by this Court on 9 April 2008 in G.R. No. 182008, in relation to Civil Case No. 07-610 pending before the Makati City RTC, Branch 149, Executive Judge Dumayas gave verbal advice that the Annual Stockholders’ Meeting of PRCI should proceed on 18 June 2008 as if the 72-hour TRO had not been

issued.  Consequently, the Annual Stockholders’ Meeting of PRCI proceeded on 18 June 2008. 

The Annual Stockholders’ Meeting of PRCI, held on 18 June 2008, was attended by

stockholders with a total of 493,017,509 shares or 86.52% of the outstanding capital stock of PRCI, more than the necessary 2/3 to constitute a quorum.  Discussed in the meeting were the same items, whose presentation to the stockholders was sought to be enjoined by respondents Miguel, et al., in Civil Case No. 07-610 and by Jalane, et al., in Civil Case No. 08-458.  The actions taken by the stockholders on the controversial items were duly recorded in the Minutes of

the meeting, as follows: IV.      APPROVAL OF THE MINUTES OF THE PREVIOUS

STOCKHOLDERS’ MEETINGS            Before the next agenda was tackled in the meeting, a

stockholder, Atty. Benjamin Santos asked to be recognized on the floor.  The Chairman gave Atty. Santos permission to speak.  Atty. Santos inquired from the Corporate Secretary if there has already been official notice of service on him regarding a 72-hour temporary restraining order which was issued by the Executive Judge of the Makati Regional Trial Court (RTC). The Corporation (sic) Secretary answered in the negative.

 For the information of the stockholders present, Atty. Santos mentioned that a case has been filed by certain minority shareholders, namely, Jalane Christie U. Tan, Marilou U. Pua, Aristeo G. Puyat and Ricardo S. Parreno, against the Board of Directors of PRCI (Civil Case No. 08-458, Makati RTC), and a 72-hour TRO was issued on 17 June 2008 “enjoining defendants (directors of PRCI), their representatives, employees and/or all those acting for and in their behalf to refrain from the presentation, discussion and ratification of portions of the Agenda of the Annual Stockholders’ Meeting of PRCI scheduled on June 18, 2008 particularly items IV, VII and VIII.” x x x. x x x x           According to Atty. Santos, the TRO enjoins them in their capacity as Directors of PRCI.  He further stated that the attendance of all the directors present in the stockholders’ meeting, is in their capacity as stockholders of PRCI and not as directors of PRCI.  The Chairman is present merely to preside over the meeting, and the Corporate Secretary is not a member of the Board of Directors.  Atty. Santos likewise informed the stockholders present of the existence of atemporary restraining order issued by the Supreme Court dated 09 April 2008 (in SC G.R. No. 182008) which “enjoin(ed) respondents from enforcing or executing the assailed Court of Appeals’ decision and resolution, and the assailed trial court’s resolutions particularly that which mandates the continued enforcement of the writ of permanent injunction issued by the trial court, until further orders from this Court.”  Thereafter, Atty. Santos moved that Agenda Item IV as well as the rest of the items to be taken up since the TRO of the Makati RTC is defective and should not prevail over the TRO of the Supreme Court.

 Atty. Santos added that the case recently filed by the abovementioned minority shareholders is a duplicate of another pending case filed by other minority shareholders also in the Makati RTC. It was pointed out that the shareholders in the recent case are guilty of forum shopping since they primarily have the same interests as those who had earlier filed a suit against PRCI.  Atty. Santos clarified that the pending case is currently the subject of a Petition to the Supreme Court wherein the aforementioned TRO was issued.  With this Comment, the Corporate Secretary took note of the Petition filed with the Supreme Court and the TRO issued by the Supreme Court. x x x x x x x With all the foregoing comments, Atty. Santos moved that the stockholders proceed with the meeting and that the item under Agenda IV be approved, which are the following: the Minutes of the Annual Stockholders’ Meeting held on June 19, 2006, the Minutes of the Special Stockholders’ Meeting held on November 7, 2006 and the Minutes of the Annual Stockholders’ Meeting held on October 10, 2007. Thereafter, Atty. Alexander Carandang asked to be given permission to speak.  The Chairman asked Atty. Carandang his name and authority to speak, to which, he answered his name and said he was stockholder of record and a proxy of Aristeo Puyat and Jose L. Santos.  After Atty. Carandang was recognized, he stated that, contrary to Atty. Santos’ earlier actuations, the recent complaint filed is different from the complaint earlier filed by the Dulay group.  He also mentioned that the case which Puyat earlier filed is different because it is a case for inspection and photocopying of PRCI documents.  He thereafter warned against the tackling of Agenda Item No. 4. Atty. Brigido Dulay, as a stockholder and proxy to the Tan group (Miguel Ocampo Tan, Jemie U. Tan, JUT Holdings, Inc., Jalane Christie U. Tan, etc.) likewise took the floor to manifest his continuing objection to the proceedings. Atty. Amado Paolo Dimayuga also took the floor as a proxy to Marilou Pua and manifested that the complainants in the recent case filed are not guilty of forum shopping and also manifested his objection to the taking up of Item IV in the agenda and the continuance of the proceedings in the stockholders’ meeting.  Atty. Pelagio Ricalde also took the floor as proxy for Aries Prime Resources, Inc. and also manifested objection to the proceedings.  Both Atty. Dimayuga and Atty. Ricalde manifested continuing objections. Atty. Dimayuga also mentioned that he received word that a Motion to Lift was just filed by the PRCI Directors regarding the recent TRO issued by the Makati RTC.  As a reply, the Corporate Secretary asked that the counsel for the PRCI directors be allowed to explain such allegations. Atty. Garbriel Q. Enriquez, the counsel for PRCI Directors Cua, Cua, Jr., De Villa and Robles informed the stockholders of the wrong information being given by Atty. Dimayuga.  They had filed a

manifestation before the Executive Judge of the RTC which issued the TRO and informed him of the facts mentioned by Atty. Santos.  The Executive Judge said that today’s meeting should proceed because the plaintiffs therein suppressed the existing TRO in the Supreme Court, and the TRO of the RTC cannot rise above the Supreme Court TRO.  There is therefore no legal obstacle to holding the Annual Stockholders’ Meeting, which should proceed so as not to prejudice the stockholders.

 The Corporate Secretary stated that all the objections are duly noted.  There being an earlier motion for the approval of the Minutes, a stockholder seconded said motion.  The motion having been duly seconded, the Chairman declared all the minutes for approval as duly approved.

            x x x x VI.      RATIFICATION OF THE ACTS OF THE BOARD OF

DIRECTORS, THE EXECUTIVE COMMITTEE AND THE MANAGEMENT OF THE CORPORATION FOR FISCAL YEARS 2006 AND 2007

 The Chairman then proceeded by stating that the next item on the agenda is the ratification by the Stockholders of the acts of the Board of Directors, the Executive Committee, and the Management during the last fiscal years 2006 and 2007.  The Chairman then explained that as to all other matters and action affecting the operations, financial performance and strategic posture of the Corporation, all have been subsumed and discussed in the Annual Report of the President and likewise reflected in the Information Statement sent to all stockholders of record and to the SEC. Once more, Atty. Dulay, Atty. Carandang, Atty. Dimayuga and Atty. Ricalde all took the floor successively and objected to this item in the agenda and the Corporate Secretary duly noted these objections. A stockholder later moved that all the acts of the Board of Directors, the Executive Committee, and the corporate management be confirmed, ratified and approved by the stockholders. The said motion was duly seconded, thus, the stockholders thereafter approved and ratified all the said acts. At this juncture, Atty. Dulay requested that the stockholders who moved and seconded the aforementioned acts be named and their authority to speak be made known.  Atty. Carandang likewise inquired about the same information about a lady stockholder who earlier seconded the motion.  With this, Atty. Jose Miguel Manalo stated his name and said he was a stockholder of record.  The other stockholders stated that they were proxies of Mr. Santiago Cualoping III. 

VII.    APPROVAL OF THE EXCHANGE OF PRCI’S MAKATI PROPERTY FOR SHARES OF STOCK OF JTH DAVIES HOLDINGS, INC. When asked by the Chairman as to the next item in the agenda, the Corporate Secretary informed all present that the next item is the approval of the exchange of PRCI’s Makatiproperty for shares of stock of JTH Davies Holdings which was duly approved by the Board of Directors during its 11 May 2007 meeting.  The exchange was duly reported and disclosed to the SEC and the information thereof was included in the Information Statements mailed to all stockholders of PRCI. Yet again, Atty. Dulay, Atty. Carandang, Atty. Dimayuga and Atty. Ricalde all took the floor successively and objected to this item in the agenda which were duly noted by the Corporate Secretary.  The Chairman then called the President of PRCI, Mr. Solomon Cua to officiate on this matter. At this point, one stockholder moved that the exchange of PRCI’s Makati property for JTH shares be approved by the stockholders, which was duly seconded by another stockholder. President Cua then asked that the total percentage of those who are in favor of the exchange be taken.  Mr. Santiago Cua, Jr., a stockholder and a proxy of approximately 31.39% of the shareholdings voted in favor of the exchange.  Then, Mr. Lawrence Lim Swee Lin, representing Magnum Investment Ltd. and Leisure Management Ltd. who own 39.15% of the shareholdings, also voted in favor of the exchange.  Mr. Exequiel D. Robles also voted in favor of the exchange, as proxy of Sta. Lucia Realty & Development, Inc. owning 4.19% of the shares. Lastly, Atty. Santos also wanted his vote of approval be counted whi his shares of stock of 117 shares. With 75.23% of the outstanding capital stock of PRCI voting in favor of the exchange of itsMakati property for shares of stock of JTH Davies, the Chairman then declared said motion as carried and approved.[43]

  

Hence, at their annual meeting on 18 June 2008, the PRCI stockholders had already confirmed and approved the actions and resolutions of the PRCI Board of Directors, which were to subject matters of Civil Cases No. 07-610 and No. 08-458.  Resultantly, on 7 July 2008, PRCI and JTH duly signed and executed a Deed of Transfer with Subscription Agreement, covering the exchange of theMakati property of PRCI for shares of stock of JTH.  Paragraph 4 of said Deed expressly provides:

 

4.         The parties understand, acknowledge and agree that this Deed is executed with the intention of availing of the benefits of Sections 40(C)(2) of the National Internal Revenue Code of 1997 (NIRC), as amended, where, upon subscription of shares hereunder, the Subscriber shall gain further control of the Company.  The parties obtained a ruling from the Bureau of Internal Revenue to the effect that no gain or loss will be recognized on the part of each of the parties, pursuant to this Deed, in accordance with Sections 40(C)(2) of the NIRC, as amended.  The ruling confirmed that the transfer of the Subscriber’s parcels of land to the Company in exchange for the shares of stock of the latter is not subject to income tax, capital gains tax, donor’s tax, value-added tax and documentary stamp tax, except for documentary stamp tax on the original issuance of the Company’s shares of stock to the Subscriber. [44] (Emphases ours.)

  

However, in a letter dated 15 July 2008, the BIR reversed/revoked its earlier ruling that the property-for-shares exchange between PRCI and JTH was a tax-free transaction under Section 40(C)(2) of the National Internal Revenue Code of 1997; and subjected the exchange to value-added tax.  As a result, PRCI and JTH executed on 22 August 2008 a Disengagement Agreement,[45] by virtue of which, effective immediately, PRCI and JTH would disengaged and would no longer implement the Deed of Transfer with Subscription Agreement dated 7 July 2008.  For all intents and purposes, the said Deed of Transfer with Subscription Agreement was

rescinded.  PRCI disclosed the Disengagement Agreement to the SEC on 26 August 2008.      Civil Case No. 08-458 was eventually also assigned to the only commercial court of

Makati City, i.e., RTC, Branch 149, presided over by Judge Untalan.  Petitioners Santiago Jr., et al. averred that Judge Untalan refused to dismiss Civil Case No. 08-458 on the ground of forum shopping, even when it was no different from Civil Case No. 07-610.  They further asserted that Judge Untalan showed evident partiality in favor of Jalane, et al., during the hearings in Civil Case No. 08-458, openly making hasty conclusions as to certain marked exhibits and demonstrating his pre-judgment of the case.  On 25 September 2008 and 30 September 2008, the PRCI directors filed before the RTC a Motion to Inhibit[46] and a Supplemental Motion to Inhibit,[47] respectively, urging Judge Untalan to inhibit himself from Civil Case No. 08-458, since he had revealed in several instances his utter bias and prejudice against the PRCI directors and admitted his being a relative by affinity of Atty. Amado Paulo Dimayuga,[48] the initial counsel of Jalane, et al.  Judge

Untalan has yet to act on such motions.  At the end of their Manifestation, petitioners Santiago Jr., et al., asked that this Court

grant them the following reliefs: 

PRAYER 

WHEREFORE, it is respectfully prayed that the foregoing Manifestation be noted, and that the First Suit [Civil Case No. 07-

610] as well as the Second Suit [Civil Case No. 08-458] should now be dismissed for being moot and academic, without need of remand to the trial (sic) Court for further proceedings.

 It is further respectfully prayed that should the Honorable

Court find it proper and necessary, the instant cases be set for oral arguments on such date and time as it may deem convenient to its calendar.

 Herein petitioners furthermore pray for such other reliefs as

may be just and equitable in the premises.[49]

  

Petitioner Santiago Sr. also filed his own Manifestation (To Update the Honorable Court on Relevant Supervening Proceedings and Incidents) with Motion to Resolve Merits of Petition and of the Case in the Lower Court (In View of Supervening Proceedings and Incidents),[50] essentially recounting the same events in the Manifestation of petitioners Santiago Jr., et

al.  The prayer of Santiago Sr. in his Manifestation and Motion reads: 

P R A Y E R 

WHEREFORE, it is respectfully prayed that the Honorable Court: 1.         TAKE COGNIZANCE of the instant Manifestation on relevant

supervening proceedings and incidents in this case, especially and specifically, after the issuance by the Honorable Court on 09 April 2008 of a temporary restraining order, addressed to the Court of Appeals, the presiding judge of the Regional Trial Court, Branch 149, Makati City, and the private respondents, and their agents, representatives and/or any person or persons acting upon their orders or in their place of stead, who are:

 “ENJOINED from enforcing or executing the assailed Court of Appeals’ decision and resolution, and the assailed trial court’s resolutions particularly that which mandates the continued enforcement of the writ of permanent injunction issued by the trial court, until further orders from this Court.” 2.         ORDER the dismissal of the complaint below on the ground that

the same is not a legitimate and valid derivative suit. 3.         ORDER the dismissal of the complaint below, in any case, on the

ground that the issues raised in the complaint, specifically with respect to the so-called “disputed” resolutions, have been mooted and/or no longer subsist.

 4.         ORDER the private respondents to explain why they should not

be cited for contempt of court for violation of the temporary restraining order issued by the Court on 09 April 2008.

 5.         ORDER the private respondents to explain why they should not

be cited for contempt of court for engaging in forum-shopping. 6.         ORDER that the temporary restraining order issued by the Court

on 09 April 2008 be made PERMANENT. Other reliefs just and equitable in the premises are likewise prayed for.[51]

  

IIISSUES

           The Court identifies the following fundamental issues for its resolution in the Petitions at

bar:           (1)     Whether the Petition of Santiago Sr. in G.R. No. 180028 should be dismissed for its

procedural infirmities?          (2)     Whether Civil Case No. 07-610 instituted by respondents Miguel, et al. before the

RTC should be ordered dismissed?          (3)     Whether Civil Case No. 08-458 instituted by Jalane, et al., before the RTC should be

ordered dismissed?          (4)     Whether APRI should be allowed to intervene in the instant Petitions? 

IIIRULING OF THE COURT

 Procedural infirmities of Petition in G.R. No. 18002 8

           Respondents Miguel, et al., call attention to two procedural infirmities of the Petition forCertiorari of petitioner Santiago Sr. in G.R. No. 180028: (1) the failure to inform the Court of the pendency of the Petition in G.R. No. 181455-56, thus, violating the rule against forum-shopping;

and (2) its being the wrong mode of appeal.         

The Verification and Certification of Non-Forum Shopping attached to the Petition forCertiorari of petitioner Santiago Sr. in G.R. No. 180028 was actually signed by his attorney-in-fact, Solomon,[52] who is also a petitioner in G.R. No. 181455-56.  It contains the following paragraph:

 4.         In compliance with the 1997 Rules of Civil Procedure, I hereby

certify that the petitioner, by himself personally and/or acting through his attorneys-in fact, has not heretofore commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or

different Divisions thereof, or any other tribunal or agency, and that to the best of my knowledge, no such action or proceeding is pending in the Supreme Court, the Court of Appeals, or different Divisions thereof, or any other tribunal or agency.  If I should learn that a similar action or proceeding has been filed or is pending before the Supreme Court, Court of Appeals, or different Divisions thereof, or any other tribunal or agency, I undertake to promptly inform this Honorable Court, the aforesaid courts and other tribunal or agency within five (5) days therefrom.[53]

  

          Respondents Miguel, et al., maintain that the failure of Solomon, as petitioner Santiago Sr.’s attorney-in-fact, to inform the Court as regards the pendency of the Petition for Review in G.R. No. 181455-56, of which Solomon is one of the petitioners, is in violation of the rule against forum-

shopping and warrants the summary dismissal of the Petition in G.R. No. 182008.  

Forum shopping is the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the other court would make a favorable disposition. It is an act of malpractice and is prohibited and condemned as trifling with courts and abusing their processes. In determining whether or not there is forum shopping, what is important is the vexation caused the courts and parties-litigants by a party who asks different courts and/or administrative bodies to rule on the same or related causes and/or grant the same or substantially the same reliefs and in the process creates the possibility of conflicting decisions being rendered by the different bodies upon the same issues.[54]

 Forum shopping is present when, in two or more cases

pending, there is identity of (1) parties (2) rights or causes of action and reliefs prayed for, and (3) the two preceding particulars, such that any judgment rendered in the other action will, regardless of which party is successful, amount to res judicata in the action under consideration.[55]

           It is evident that Santiago Sr., the petitioner in G.R. No. 182008, is not a party to G.R. No. 181455-56.  Even though Solomon is admittedly a petitioner in G.R. No. 181455-56, he is only acting in G.R. No. 182008 as the attorney-in-fact of Santiago Sr., the actual petitioner in the latter

case.  Thus, the very first element for forum shopping, identity of parties, is lacking.  

Respondents Miguel, et al., cannot insist on identity of interests between petitioner Santiago Sr. in G.R. No. 182008 and petitioners Santiago Jr., et al., in G.R. No. 181455-56, when the Complaint itself of respondents Miguel, et al., before the RTC, docketed as Civil Case

No. 07-610, impleads the petitioners Santiago Sr. and Santiago Jr., et al., as defendants a quo in their individual capacities as PRCI directors, and not collectively as the PRCI Board of Directors.  Each individual PRCI director, therefore, is not precluded from hiring his own counsel, presenting his own arguments and defenses, and resorting to his own procedural remedies, apart and independent from the other PRCI directors.  In addition, the consolidation of G.R. No. 181455-56 and G.R. No. 182008 has already eliminated the danger of conflicting decisions being issued in said cases.                                 Assuming arguendo that Solomon did have the legal obligation to inform the Court in G.R. No. 182008 of the pendency of G.R. No. 181455-56, his failure to do so does not necessarily result in the dismissal of the former.  Although the submission of a certificate against forum shopping is deemed obligatory, it is not jurisdictional.[56]  Hence, in this case in which such a certification was in fact submitted – only, it was defective -- the Court may still refuse to dismiss and may, instead, give due course to the Petition in light of attendant exceptional circumstances.[57]            Santiago Sr. committed another procedural faux pas by filing before this Court a Petition

forCertiorari under Rule 65 of the Rules of Court to assail the Decision dated 6 September

2007 and Resolution dated 22 January 2008 of the Court of Appeals in CA-G.R. SP No. 99769

and No. 99780.  

The proper remedy of a party aggrieved by a decision of the Court of Appeals is a petition for review under Rule 45, which is not similar to a petition for certiorari under Rule 65 of the Rules of Court.  As provided in Rule 45 of the Rules of Court, decisions, final orders or resolutions of the Court of Appeals in any case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to this Court by filing a petition for review, which would be but a continuation of the appellate process over the original case.  On the other hand, a special civil action under Rule 65 is an independent action based on the specific grounds therein provided and, as a general rule, cannot be availed of as a substitute for the lost remedy of an ordinary appeal, including that under Rule 45.[58]

 Accordingly, when a party adopts an improper remedy, as in this

case, his Petition may be dismissed outright.  However, in the interest of substantial justice, the strict application of procedural technicalities should not hinder the speedy disposition of this case on the merits.  Thus, while the instant Petition is one for certiorari under Rule

65 of the Rules of Court, the assigned errors are more properly addressed in a petition for review under Rule 45.[59]

                   The merits of the Petitions in both G.R. No. 181455-56 and No. 182008 compel this Court to give more weight to substantive justice, instead of technical rules.  Indeed, where, as here, there is a strong showing that a grave miscarriage of justice would result from the strict application of the Rules, the Court will not hesitate to relax the same in the interest of substantial justice.  It bears stressing that the rules of procedure are merely tools designed to facilitate the attainment of justice.  They were conceived and promulgated to effectively aid the court in the dispensation of justice.  Courts are not slaves to or robots of technical rules, shorn of judicial discretion.  In rendering justice, courts have always been, as they ought to be, conscientiously guided by the norm that, on the balance, technicalities take a backseat against substantive rights, and not the other way around.  Thus, if the application of the Rules would tend to frustrate rather than promote justice, it is always within the power of the Court to suspend the Rules, or except a particular case from its operation.[60]

 Derivative suits, in genera l          

A corporation, such as PRCI, is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal personality.  In organizing itself as a collective body, it waives no constitutional immunities and perquisites appropriate to such body.  As to its corporate and management decisions, therefore, the State will generally not interfere with the same. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to substitute their judgment for the judgment of the board of directors.  The board is the business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts.[61]

 The governing body of a corporation is its board of

directors.  Section 23 of the Corporation Code provides that “[u]nless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees x x x.”  The concentration in the board of the powers of control of corporate business and of appointment of corporate officers and managers is necessary for efficiency in any large organization. Stockholders are too numerous, scattered and unfamiliar with the business of a corporation to conduct its business directly. And so the plan of corporate organization is for

the stockholders to choose the directors who shall control and supervise the conduct of corporate business.[62]

           The following discourse on the corporate powers of the board of directors under Section 23

of the Corporation Code establishes the extent thereof: Under the above provision, it is quite clear that, except in the instances

where the Code expressly grants a specific power to the stockholders or member, the board has the sole power and responsibility to decide whether a corporation should sue, purchase and sell property, enter into any contract, or perform any act.  Stockholders’ or members’ resolutions dealing with matters other than the exceptions are not legally effective nor binding on the board, and may be treated by it as merely advisory, or may even be completely disregarded.  Since the law has vested the responsibility of managing the corporate affairs on the board, the stockholders must abide by its decisions.  If they do not agree with the policies of the board, their remedy is to wait for the next election of the directors and choose new ones to take their place.  The theory of the law is that although stockholders are to have all the profit, the complete management of the enterprise shall be with the board.[63]

  

          The board of directors of a corporation is a creation of the stockholders.  The board of directors, or the majority thereof, controls and directs the affairs of the corporation; but in drawing to itself the power of the corporation, it occupies a position of trusteeship in relation to the minority of the stock. The board shall exercise good faith, care, and diligence in the administration of the affairs of the corporation, and protect not only the interest of the majority but also that of the minority of the stock. Where the majority of the board of directors wastes or dissipates the funds of the corporation or fraudulently disposes of its properties, or performs ultra vires acts, the court, in the exercise of its equity jurisdiction, and upon showing that intracorporate remedy is unavailing, will entertain a suit filed by the minority members of the board of directors, for and in behalf of the corporation, to prevent waste and dissipation and the commission of illegal acts and otherwise redress the injuries of the minority stockholders against the wrongdoing of the majority. The action in such a case is said to be brought derivatively in behalf of the corporation to protect the rights of the minority stockholders thereof.[64]

 It is well settled in this jurisdiction that where corporate directors

are guilty of a breach of trust — not of mere error of judgment or abuse of discretion — and intracorporate remedy is futile or useless, a

stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders.[65]

           A derivative suit must be differentiated from individual and representative or class suits,

thus:         

Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors or other persons may be classified into individual suits, class suits, and derivative suits. Where a stockholder or member is denied the right of inspection, his suit would be individual because the wrong is done to him personally and not to the other stockholders or the corporation.  Where the wrong is done to a group of stockholders, as where preferred stockholders’ rights are violated, a class or representative suit will be proper for the protection of all stockholders belonging to the same group.  But where the acts complained of constitute a wrong to the corporation itself, the cause of action belongs to the corporation and not to the individual stockholder or member.  Although in most every case of wrong to the corporation, each stockholder is necessarily affected because the value of his interest therein would be impaired, this fact of itself is not sufficient to give him an individual cause of action since the corporation is a person distinct and separate from him, and can and should itself sue the wrongdoer.  Otherwise, not only would the theory of separate entity be violated, but there would be multiplicity of suits as well as a violation of the priority rights of creditors.  Furthermore, there is the difficulty of determining the amount of damages that should be paid to each individual stockholder.

 However, in cases of mismanagement where the wrongful acts are

committed by the directors or trustees themselves, a stockholder or member may find that he has no redress because the former are vested by law with the right to decide whether or not the corporation should sue, and they will never be willing to sue themselves.  The corporation would thus be helpless to seek remedy.  Because of the frequent occurrence of such a situation, the common law gradually recognized the right of a stockholder to sue on behalf of a corporation in what eventually became known as a “derivative suit.” It has been proven to be an effective remedy of the minority against the abuses of management.  Thus, an individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever officials of the corporation refuse to sue or are the ones to be sued or hold the control of the corporation.  In such actions, the suing stockholder is regarded as the nominal party, with the corporation as the party in interest.[66]

  

The afore-quoted exposition is relevant considering the claim of respondents Miguel, et al., that its Complaint in Civil Case No. 07-610 is not just a derivative suit, but also an intracorporate action arising from devices or schemes employed by the PRCI Board of Directors amounting to fraud or misrepresentation.[67]  A thorough study of the said Complaint, however, reveals that the distinction is

deceptive.  The supposed devices and schemes employed by the PRCI Board of Directors amounting to fraud or misrepresentation are the very same bases for the derivative suit.  They are the very same acts of the PRCI Board of Directors that have supposedly caused injury to the corporation. From the very beginning of their Complaint, respondents have alleged that they are filing the same “as shareholders, for and in behalf of the Corporation, in order to redress the wrongs committed against the Corporation and to protect or vindicate corporate rights, and to prevent wastage and dissipation of corporate funds and assets and the further commission of illegal acts by the Board of Directors.” Although respondents Miguel, et al., also aver that they are seeking “redress for the injuries of the minority stockholders against the wrongdoings of the majority,” the rest of the Complaint does not bear this out, and is utterly lacking any allegation of injury personal to them or a certain class of stockholders to which they belong.[68]

 Indeed, the Court notes American jurisprudence to the effect

that a derivative suit, on one hand, and individual and class suits, on the other, are mutually exclusive, viz:

 As the Supreme Court has explained: “A shareholder's derivative suit

seeks to recover for the benefit of the corporation and its whole body of shareholders when injury is caused to the corporation that may not otherwise be redressed because of failure of the corporation to act. Thus, ‘the action is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock and property without any severance or distribution among individual holders, or it seeks to recover assets for the corporation or to prevent the dissipation of its assets.’ [Citations.]” (Jones, supra, 1 Cal.3d 93, 106, 81 Cal.Rptr. 592, 460 P.2d 464.)  In contrast, “a directaction [is one] filed by the shareholder individually (or on behalf of a class of shareholders to which he or she belongs) for injury to his or her interest as a shareholder. ... [¶] ... [T]he two actions are mutually exclusive: i.e., the right of action and recovery belongs to either the shareholders(direct action) *651 or the corporation (derivative action).” (Friedman, Cal. Practice Guide: Corporations, supra, ¶ 6:598, p. 6-127.)

 Thus, in Nelson v. Anderson (1999) 72 Cal.App.4th 111, 84 Cal.Rptr.2d

753, the **289minority shareholder alleged that the other shareholder of the corporation negligently managed the business, resulting in its total failure. (Id. at p. 125, 84 Cal.Rptr.2d 753) The appellate court concluded that the plaintiff could not maintain the suit as a direct action: “Because the gravamen of the complaint is injury to the whole body of its stockholders, it was for the corporation to institute and maintain a remedial action. [Citation.] A derivative action would have been appropriate if its responsible officials had refused or failed to act.” (Id. at pp. 125-126, 84 Cal.Rptr.2d 753)  The court went on to note that the damages shown at trial were the loss of corporate profits. (Id. at p. 126, 84 Cal.Rptr.2d

753)  Since “[s]hareholders own neither the property nor the earnings of the corporation,” any damages that the plaintiff alleged that resulted from such loss of corporate profits “were incidental to the injury to the corporation.”[69]

  

Based on allegations in the Complaint of Miguel, et al., in Civil Case No. 07-610, the Court determines that there is only a derivative suit, based on the devices and schemes employed by the PRCI Board of Directors that amounts to mismanagement, misrepresentation, fraud, and bad faith. 

 At the crux of the Complaint of respondents Miguel, et al., in

Civil Case No. 07-610 is their dissent from the passage by the majority of the PRCI Board of Directors of the “disputed resolutions,” particularly: (1) the Resolution dated 26 September 2006, authorizing the acquisition by PRCI of up to 100% of the common shares of JTH; and (2) the Resolution dated 11 May 2007, approving the property-for-shares exchange between PRCI and JTH. Derivative suit (re: acquisition of JTH )            It is important for the Court to mention that the 26 September 2006 Resolution of the PRCI Board of Directors not only authorized the acquisition by PRCI of up to 100% of the common stock of JTH, but it also specifically appointed petitioner Santiago Sr.[70] to act as attorney-in-fact and proxy who could vote all the shares of PRCI in JTH, as well as nominate, appoint, and vote into office directors and/or officers during regular and special stockholders’ meetings of JTH.  It was by this authority that PRCI directors were able to constitute the JTH Board of Directors.  Thus, the protest of respondents Miguel, et al., against the interlocking directors of PRCI and JTH is also

rooted in the 26 September 2006 Resolution of the PRCI Board of Directors.  

After a careful study of the allegations concerning this derivative suit, the Court rules that it is dismissible for being moot and academic. 

 That a court will not sit for the purpose of trying moot cases and

spend its time in deciding questions, the resolution of which cannot in any way affect the rights of the person or persons presenting them, is well settled.  Where the issues have become moot and academic, there is no justiciable controversy, thereby rendering the resolution of the same of no practical use or value.[71]           

          The Resolution dated 26 September 2006 of the PRCI Board of Directors was approved

and ratified by the stockholders, holding 74% of the outstanding capital stock in PRCI, during the

Special Stockholders’ Meeting held on 7 November 2006.[72]    

Respondents Miguel, et al., instituted Civil Case No. 07-610 only on 10 July 2007, against herein petitioners Santiago Sr., Santiago Jr., Solomon, and Robles, together with Renato de Villa, Lim Teong Leong, Lawrence Lim Swee Lin, Tham Ka Hon, and Dato Surin Upatkoon, in their capacity as directors of PRCI and/or JTH.  Clearly, the acquisition by PRCI of JTH and the constitution of the JTH Board of Directors are no longer just the acts of the majority of the PRCI Board of Directors, but also of the majority of the PRCI stockholders.  By ratification, even an unauthorized act of an agent becomes the authorized act of the principal.[73]  To declare the Resolution dated 26 September 2006 of the PRCI Board of Directors null and void will serve no practical use or value, or affect any of the rights of the parties, because the Resolution dated 7 November 2006 of the PRCI stockholders -- approving and ratifying said acquisition and the manner in which PRCI shall constitute the JTH Board of Directors -- will still remain valid and binding.  

In fact, if the derivative suit, insofar as it concerns the Resolution dated 26 September 2006 of the PRCI Board of Directors, is not dismissible for mootness, it is still vulnerable to dismissal for failure to implead indispensable parties, namely, the majority of the PRCI stockholders. 

 Under Rule 3, Section 7 of the Rules of Court, an indispensable

party is a party-in-interest, without whom there can be no final determination of an action.  The interests of such indispensable party in the subject matter of the suit and the relief are so bound with those of the other parties that his legal presence as a party to the proceeding is an absolute necessity.  As a rule, an indispensable party’s interest in the subject matter is such that a complete and efficient determination of the equities and rights of the parties is not possible if he is not joined.[74] 

 The majority of the stockholders of PRCI are indispensable

parties to Civil Case No. 07-610, for they have approved and ratified, during the Special Stockholders’ Meeting on 7 November 2006, the

Resolution dated 26 September 2006 of the PRCI Board of Directors.  Obviously, no final determination of the validity of the acquisition by PRCI of JTH or of the constitution of the JTH Board of Directors can be had without consideration of the effect of the approval and ratification thereof by the majority stockholders.

 Respondents Miguel, et al., cannot simply assert that the

majority of the PRCI Board of Directors named as defendants in Civil Case No. 07-610 are also the PRCI majority stockholders, because respondents Miguel, et al., explicitly impleaded said defendants in their capacity as directors of PRCI and/or JTH, not as stockholders.                  Derivative suit (re: property-for-shares exchange )            The derivative suit, with respect to the Resolution dated 11 May 2007 of the PRCI Board of

Directors, is similarly dismissible for lack of cause of action.                The Court has recognized that a stockholder’s right to institute a derivative suit is not based on any express provision of the Corporation Code, or even the Securities Regulation Code, but is impliedly recognized when the said laws make corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties.  In effect, the suit is an action for specific performance of an obligation, owed by the corporation to the stockholders, to assist its rights of action when the corporation has been put in default by the wrongful refusal of the directors or management to adopt suitable measures for its protection. The basis of a stockholder’s suit is always one of equity. However, it cannot prosper without first complying with the legal requisites for its institution.[75]

 Rule 8, Section 1 of the Interim Rules of Procedure for Intra-

Corporate Controversies (IRPICC) lays down the following requirements which a stockholder must comply with in filing a derivative suit:

 Sec. 1. Derivative action. – A stockholder or member

may bring an action in the name of a corporation or association, as the case may be, provided, that:

(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; and

(4) The suit is not a nuisance or harassment suit. (Emphasis ours.)

  

In their Complaint before the RTC in Civil Case No. 07-610, respondents Miguel, et al., made no mention at all of appraisal rights, which could or could not have been available to them.  In their Comment on the Petitions at bar, respondents Miguel, et al., contend that there are no appraisal rights available for the acts complained of, since (1) the PRCI directors are being charged with mismanagement, misrepresentation, fraud, and breach of fiduciary duties, which are not subject to appraisal rights; (2) appraisal rights will only obtain for acts of the Board of Directors in good faith; and (3) appraisal rights may be exercised by a stockholder who shall have voted against the proposed corporate action, and no corporate action has yet been taken herein by PRCI stockholders, who still have not voted on the intended property-for-shares exchange between PRCI and JTH.                   The Court disagrees. 

It bears to point out that every derivative suit is necessarily grounded on an alleged violation by the board of directors of its fiduciary duties, committed by mismanagement, misrepresentation, or fraud, with the latter two situations already implying bad faith.  If the Court upholds the position of respondents Miguel, et al. – that the existence of mismanagement, misrepresentation, fraud, and/or bad faith renders the right of appraisal unavailable – it would give rise to

an absurd situation. Inevitably, appraisal rights would be unavailable in any derivative suit.  This renders the requirement in Rule 8, Section 1(3) of the IPRICC superfluous and effectively inoperative; and in contravention of an elementary rule of legal hermeneutics that effect must be given to every word, clause, and sentence of the statute, and that a statute should be so interpreted that no part thereof becomes inoperative or superfluous.[76]

 The import of establishing the availability or unavailability of

appraisal rights to the minority stockholder is further highlighted by the fact that it is one of the factors in determining whether or not a complaint involving an intra-corporate controversy is a nuisance and harassment suit.  Section 1(b), Rule 1 of IRPICC provides:

  (b) Prohibition against nuisance and harassment suits. - Nuisance and

harassment suits are prohibited. In determining whether a suit is a nuisance or harassment suit, the court shall consider, among others, the following:

 (1) The extent of the shareholding or interest of the initiating stockholder

or member; (2) Subject matter of the suit; (3) Legal and factual basis of the complaint; (4) Availability of appraisal rights for the act or

acts complained of; and (5) Prejudice or damage to the corporation,

partnership, or association in relation to the relief sought. [Emphasis ours.]

 In case of nuisance or harassment suits, the court may, motu proprio or

upon motion, forthwith dismiss the case.  

The availability or unavailability of appraisal rights should be objectively based on the subject matter of the complaint, i.e., the specific act or acts performed by the board of directors, without regard to the subjective conclusion of the minority stockholder instituting the derivative suit that such act constituted mismanagement, misrepresentation, fraud, or bad faith.  

 The raison d’etre for the grant of appraisal rights to minority

stockholders has been explained thus: x x x [Appraisal right] means that a stockholder who dissented and voted

against the proposed corporate action, may choose to get out of the corporation by demanding payment of the fair market value of his shares.  When a person invests in the stocks of a corporation, he subjects his investment to all the risks of the business and cannot just pull out such investment should the business not come out as he expected.  He will have to wait until the corporation is finally dissolved before he can get back his investment, and even then, only if sufficient assets are left after paying all corporate creditors.  His only way out before dissolution is to sell his shares should he find a willing buyer.  If there is no buyer, then he has no recourse but to stay with the corporation.  However, in certain specified instances, the Code grants the stockholder the right to get out of the corporation even before its dissolution because there has been a major change in his contract of investment with which he does not agree and which the law presumes he did not foresee when he bought his shares.  Since the will of two-thirds of the stocks will have to prevail over his objections, the law considers it only fair to allow him to get back his investment and withdraw from the corporation. x x x,[77] (Emphasis ours.)

  

The Corporation Code expressly made appraisal rights available to the dissenting stockholder in the following instances:

 Sec. 42.  Power to invest corporate funds in another corporation or

business or for any other purpose. – Subject to the provisions of this Code, a private corporation may invest its funds in any other corporation or business or for any purpose other than the primary purpose for which it was organized when approved by a majority of the board of directors or trustees and ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or by at least two-thirds (2/3) of the members in case of non-stock corporations, at a stockholders’ or members’ meeting duly called for the purpose.  Written notice of the proposed investment and the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally; Provided, That any dissenting stockholder shall have appraisal right as provided in this Code: Provided, however, That where the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles of incorporation, the approval of the stockholders or members shall not be necessary.

 Sec. 81.  Instances of appraisal right. – Any stockholder of a corporation

shall have the right to dissent and demand payment of the fair value of his shares in the following instances:

 1.   In case any amendment to the articles of incorporation has the effect

of changing or restricting the rights of any stockholders or class of shares, or of

authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence;

 2.   In case of sale, lease, exchange, transfer, mortgage, pledge or other

disposition of all or substantially all of the corporate property and assets as provided in this Code; and

 3.   In case of merger or consolidation. (Emphasis ours.)  

Respondents Miguel, et al., themselves admitted that the property-for-shares exchange between PRCI and JTH, approved by majority of the PRCI Board of Directors in the Resolution dated 11 May 2007, involved all or substantially all of the properties and assets of PRCI.  They alleged in their Complaint in Civil Case No. 07-610 that:

 49.       The Corporation’s Makati Property, consisting of prime property

in the heart of MakatiCity worth billions of pesos in its current value constitutes substantially all of the assets of the Corporation and is the sole and exclusive location on which it conducts its business of a race course.

 50.       The exchange of the Corporation’s property for JTH shares would

therefore constitute a sale of substantially all of the assets of the corporation. (Emphasis ours.)

  

          Irrefragably, the property-for-shares exchange between PRCI and JTH, involving as it did substantially all of the properties and assets of PRCI, qualified as one of the instances when dissenting stockholders, such as respondents Miguel, et al., could have exercised their appraisal

rights.  

The Court finds specious the averment of respondents Miguel, et al., that appraisal rights were not available to them, because appraisal rights may only be exercised by stockholders who had voted against the proposed corporate action; and that at the time respondents Miguel, et al., instituted Civil Case No. 07-610, PRCI stockholders had yet to vote on the intended property-for-shares exchange between PRCI and JTH.  Respondents Miguel, et al., themselves caused the unavailability of appraisal rights by filing the Complaint in Civil Case No. 07-610, in which they prayed that the 11 May 2007 Resolution of the Board of Directors approving the property-for-shares exchange between PRCI and JTH be declared null and void, even before the said Resolution could be presented to

the PRCI stockholders for approval or rejection.  More than anything, the argument of respondents Miguel, et al., raises questions of whether their derivative suit was prematurely filed for they had failed to exert all reasonable efforts to exhaust all other remedies available under the articles of incorporation, by-laws, laws, or rules governing the corporation or partnership, as required by Rule 8, Section 1(2) of the IRPICC.  The obvious intent behind the rule is to make the derivative suit the final recourse of the stockholder, after all other remedies to obtain the relief sought have failed.[78]       Personal action     for inspection of corporate books and record s

           Respondents Miguel, et al., allege another cause of action, other than the derivative suit -- the violation of their right to information relative to the disputed Resolutions, i.e., the Resolutions

dated16 September 2006 and 11 May 2007 of the PRCI Board of Directors.  

Rule 7 of the IRPICC shall apply to disputes exclusively involving the rights of stockholders or members to inspect the books and records and/or to be furnished with the financial statements of a corporation, under Sections 74[79] and 75[80] of the Corporation Code.[81]

 Rule 7, Section 2 of IRPICC enumerates the requirements

particular to a complaint for inspection of corporate books and records:

 Sec. 2. Complaint. - In addition to the requirements in

section 4, Rule 2 of these Rules, the complaint must state the following:

 (1) The case is for the enforcement of plaintiff's right of inspection of

corporate orders or records and/or to be furnished with financial statements under Sections 74 and 75 of the Corporation Code of the Philippines;

 (2) A demand for inspection and copying of books

and records and/or to be furnished with financial statements made by the plaintiff upon defendant;

 (3) The refusal of defendant to grant the demands of

the plaintiff and the reasons given for such refusals, if any; and

 (4) The reasons why the refusal of defendant to grant

the demands of the plaintiff is unjustified and illegal, stating the law and jurisprudence in support thereof. (Emphasis ours.) 

          As has already been previously established herein, the right to information, which includes the right to inspect corporate books and records, is a right personal to each stockholder.  After a closer reading of the Complaint in Civil Case No. 07-610, the Court observes that only respondent Dulay actually made a demand for a copy of “all the records, documents, contracts, and agreements, emails, letters, correspondences, relative to the acquisition of JTH x x x.”  There is no allegation that his co-respondents (who are his co-plaintiffs in Civil Case No. 07-610) made similar demands for the inspection or copying of corporate books and records.  Only respondent

Dulay complied then with the requirement under Rule 7, Section 2(2) of IRPICC.           Even so, respondent Dulay’s Complaint should be dismissed for lack of cause of action, for his demand for copies of pertinent documents relative to the acquisition of JTH shares was not denied by any of the defendants named in the Complaint in Civil Case No. 07-610, but by Atty. Jesulito A. Manalo (Manalo), the Corporate Secretary of PRCI, in a letter dated 17 January 2006.  Section 74 of the Corporation Code, the substantive law on which respondent Dulay’s

Complaint for inspection and copying of corporate books and records is based, states that:                   

Sec. 74.  Books to be kept; stock transfer agent. – x x x x Any officer or agent of the corporation who shall refuse to allow any

director, trustees, stockholder or member of the corporation to examine and copy excerpts from its records or minutes, in accordance with the provisions of this Code, shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided, That if such refusal is pursuant to a resolution or order of the Board of Directors or Trustees, the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal: x x x (Emphasis ours.)

  

          Based on the foregoing, it is Corporate Secretary Manalo who should be held liable for the supposedly wrongful and unreasonable denial of respondent Dulay’s demand for inspection and copying of corporate books and records; but, as previously mentioned, Corporate Secretary Manalo is not among the defendants named in the Complaint in Civil Case No. 07-610.  There is also utter lack of any allegation in the Complaint that Corporate Secretary Manalo denied respondent Dulay’s demand pursuant to a resolution or order of the PRCI Directors, so that the latter (who are actually named defendants in the Complaint) could also be held liable for the

denial.      Supervening event s

         

          During the pendency of the cases at bar, supervening events took place that further justified

the dismissal of Civil Case No. 07-610 for already being moot and academic. First, during the 2008 Annual Stockholders’ Meeting of PRCI,

held on 18 June 2008, the following agenda items were finally presented to the stockholders, who approved and ratified the same by a majority vote: (1) the Minutes of the Special Stockholders’ Meeting dated 7 November 2006, during which the majority of the stockholders approved and ratified the acquisition of JTH by PRCI; (2) the acts of the Board of Directors, the Executive Committee, and the Management of PRCI for 2006, which included the acquisition of JTH by PRCI; and (3) the planned property-for-shares exchange between PRCI and JTH.  Even respondents Miguel, et al., themselves admitted in their Comment with Prayer for the Immediate Lifting or Dissolution of the Temporary Restraining Order in G.R. No. 182008 that:

 12.       Indeed, the approval and/or ratification of the transfer of PRCI’s

Sta. Ana racetrack property to JTH during the upcoming stockholders’ meeting would render nugatory, moot and academic the action and proceedings before the Regional Trial Court of Makati, Branch 149, inasmuch as the acts assailed by private respondents would have already been consummated by such approval and/or ratification.

 13.       In the same vein, such approval and/or ratification during the

forthcoming PRCI stockholder’s (sic) meeting would likewise render moot and academic the proceedings before this Honorable Court in that it would have effectively granted the reliefs sought by herein petitioner even before this Honorable Court  could finally rule on the propriety of the Court of Appeals’ Decision/Resolution by herein petitioners.[82]

  

Second, although already approved and ratified by majority vote of the PRCI stockholders, and PRCI and JTH executed a Deed of Transfer with Subscription Agreement on 7 July 2008 to effect the property-for-shares exchange between the two corporations, the controversial transaction will no longer push through.  A major consideration for the exchange is that it will be tax-free; but the BIR ruled that such transaction shall be subject to VAT.  Resultantly, PRCI and JTH executed on 22 August 2008 a Disengagement Agreement, by virtue of which, both corporations rescinded the Deed of Transfer with Subscription Agreement dated 7 July 2008 and immediately disengaged from implementing the said Deed. 

 Civil Case No. 08-45 8

         The very nature of Civil Case No. 07-610 as a derivative suit

bars Civil Case No. 08-458 and warrants the latter’s dismissal.  In Chua v. Court of Appeals,[83] the Court stresses that the

corporation is the real party in interest in a derivative suit, and the suing stockholder is only a nominal party:

 An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest.             x x x x

 x x x For a derivative suit to prosper, it is required that the minority

stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit.  It is a condition sine qua non that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served with process.  The judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring subsequent suit against the same defendants for the same cause of action.  In other words, the corporation must be joined as party because it is its cause of action that is being litigated and because judgment must be a res adjudicata against it. (Emphases ours.)

  

          The more extensive discussion by the Court of the nature of a derivative suit in Asset

Privatization Trust v. Court of Appeals[84] is presented below: Settled is the doctrine that in a derivative suit, the corporation is the real

party in interest while the stockholder filing suit for the corporation’s behalf is only a nominal party.  The corporation should be included as a party in the suit.

 An individual stockholder is permitted to institute a

derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation.  In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest.  x x x. 

It is a condition sine qua non that the corporation be impleaded as a party because-

 x x x.  Not only is the corporation an indispensable party,

but it is also the present rule that it must be served with process.  The reason given is that the judgment must be made binding upon the corporation and in order that the corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for the same cause of action.  In other words the corporations must be joined as party because it is its cause of action that is being litigated and because judgment must be ares ajudicata against it. The reasons given for not allowing direct individual suit are: 

(1) x x x “the universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the corporate property; that both of these are in the corporation itself for the benefit of the stockholders.”  In other words, to allow shareholders to sue separately would conflict with the separate corporate entity principle;

 (2) x x x that the prior rights of the creditors may be

prejudiced.  Thus, our Supreme Court held in the case of Evangelista v. Santos, that “the stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the distribution among them of part of the corporate assets before the dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be legally done in view of Section 16 of the Corporation Law xxx;”

 (3) the filing of such suits would conflict with the duty of

the management to sue for the protection of all concerned; (4) it would produce wasteful multiplicity of suits; and (5) it would involve confusion in ascertaining the effect of

partial recovery by an individual on the damages recoverable by the corporation for the same act.

  

          As established in the foregoing jurisprudence, in a derivative suit, it is the corporation that is the indispensable party, while the suing stockholder is just a nominal party.  Under Rule 7, Section 3 of the Rules of Court, an indispensable party is a party-in-interest, without whom no final determination can be had of an action without that party being impleaded.  Indispensable parties are those with such an interest in the controversy that a final decree would necessarily affect their rights, so that the court cannot proceed without their presence. “Interest,” within the meaning of this rule, should be material, directly in issue, and to be affected by the decree, as distinguished from a mere incidental interest in the question involved.  On the other hand, a nominal or pro forma party is one who is joined as a plaintiff or defendant, not because such party has any real

interest in the subject matter or because any relief is demanded, but merely because the technical

rules of pleadings require the presence of such party on the record.[85]            With the corporation as the real party-in-interest and the indispensable party, any ruling in one of the derivative suits should already bind the corporation as res judicata in the other.  Allowing two different minority stockholders to institute separate derivative suits arising from the same factual background, alleging the same causes of action, and praying for the same reliefs, is tantamount to allowing the corporation, the real party-in-interest, to file the same suit twice, resulting in the violation of the rules against a multiplicity of suits and even forum-shopping.  It is also in disregard of the separate-corporate-entity principle, because it is to look beyond the corporation and to give recognition to the different identities of the stockholders

instituting the derivative suits.                        It is for these reasons that the derivative suit, Civil Case No. 08-458, although filed by a different set of minority stockholders from those in Civil Case No. 07-610, should still not be

allowed to proceed.  

Furthermore, the highly suspicious circumstances surrounding the institution of Civil Case No. 08-458 are not lost upon the Court.  To recall, on 9 April 2008, the Court already issued in G.R. No. 182008 a TRO enjoining the execution and enforcement of the writ of permanent injunction issued by the RTC in Civil Case No. 07-610, which prevented the PRCI Board of Directors from presenting to the PRCI stockholders at the Annual Stockholders’ Meeting, for approval and ratification, the agenda items on the acquisition by PRCI of JTH shares and the property-for-shares exchange between PRCI and JTH.  The Complaint in Civil Case No. 08-458 was filed with the RTC on 16 June 2008, just two days before the scheduled Annual Stockholders’ Meeting on 18 June 2008, where the items subject of the permanent injunction were again included in the agenda.  The 72-hour TRO issued by the RTC in Civil Case No. 08-458 enjoined the very same acts covered by the writ of permanent injunction issued by the RTC in Civil Case No. 07-610, the execution and enforcement of which, in turn, was already enjoined by the TRO dated 9 April 2008 of this Court.  Considering that it is PRCI which is the real party-in-interest in both Civil Cases No. 07-610 and No. 08-458, then its acquisition in the latter of a TRO exactly similar to the writ of permanent injunction in the former is but an obvious attempt to circumvent the TRO of this Court enjoining the execution and enforcement of the permanent injunction.   Intervention of APR I

         It is also the nature of a derivative suit that prompts the Court to

deny the intervention by APRI in Civil Case No. 07-610.  Once more, the Court emphasizes that PRCI is the real party-in-interest in Civil Case No. 07-610, not respondents Miguel, et al., whose participation therein is deemed nominal.  APRI, moreover, merely echoes the position of respondents Miguel, et al., and, hence, renders the participation of APRI in Civil Case No. 07-610 redundant.     

  Also, the main concern of APRI was the lifting of the TRO

issued by this Court on 9 April 2008 and the execution and enforcement of the permanent injunction issued by the RTC, enjoining the presentation by the PRCI Board of Directors -- at the Annual Stockholders’ Meeting scheduled on 18 June 2008, for approval and ratification by the stockholders – of the agenda items on the acquisition by PRCI of JTH shares and the property-for-shares exchange between PRCI and JTH.  Given that the Annual Stockholders’ Meeting already took place on 18 June 2008, during which the subject agenda items were presented to and approved and ratified by the stockholders, the intervention of APRI is already moot.             As a final note, respondent Miguel, et al. made repeated allegations that foreigners were taking over PRCI, and that this must be stopped to protect the Filipino stockholders.  They even invoked the ruling of this Court in Manila Prince Hotel v. Government Service Insurance System

(GSIS).[86]      

Respondents Miguel, et al., however, cannot rely on Manila Prince Hotel as judicial precedent, for the facts therein are far different from those in the cases at bar.  The Government, through GSIS, owned Manila Hotel Corporation (MHC), which, in turn, owned the historic Manila Hotel.  The case arose from the efforts of GSIS at privatizing MHC by holding a public bidding for 30-51% of the issued and outstanding shares of MHC.  The Court ruled that since the Filipino corporation was able to match the higher bid made by a foreign corporation, then preference should be given to the former, considering that Manila Hotel had become a landmark, a living testimonial to Philippine heritage, and part of Philippine economy and patrimony.  This was in accord with the Filipino-first policy in the 1987 Constitution.

 

In contrast, PRCI is a publicly listed corporation.  Its shares can be freely sold and traded to the public, subject to regulation by the PSE and the SEC.  Without any legal basis therefor, the Court cannot be expected to allocate or impose limitations on ownership of PRCI shares by foreigners. What is more, PRCI, which operates and maintains a horse racetrack and conducts horse racing and betting, can hardly claim to be “a living testimonial of Philippine heritage,” like Manila Hotel, that would justify judicial intervention to protect the interests of Filipino stockholders as against foreign stockholders.                    

WHEREFORE, the Court renders the following judgment: (1)     The Court GRANTS the Petitions of petitioners Santiago, et al., and petitioner

Santiago Sr. in G.R. No. 181455-56 and G.R. No. 182008, respectively.  It REVERSES and SETS

ASIDEthe Decision dated 6 September 2007 and Resolution dated 22 January 2008 of the Court

of Appeals in CA-G.R. SP No. 99769 and No. 99780;  (2)     The Court LIFTS the TRO issued on 9 April 2008 in G.R. No. 180028

and CANCELSand RETURNS the cash bond posted by petitioner Santiago Sr.  The permanent injunction issued by the RTC on 8 October 2007, the execution and enforcement of which the TRO dated 9 April 2008 of this Court enjoins, has been rendered moot, since the agenda items subject of said permanent injunction were already presented to, and approved and ratified by a

majority of the PRCI stockholders at the Annual Stockholders’ Meeting held on 18 June 2008;  (3)     The Court ORDERS the DISMISSAL of the Complaint of respondents Miguel, et

al.,in Civil Case No. 07-610 before the RTC for lack of cause of action, failure to implead

indispensable parties, and mootness; (4)     The Court ORDERS the DISMISSAL of the Complaint of Jalane, et al., in Civil

Case No. 08-458, for being in violation of the rules on the multiplicity of suits and forum shopping;

and (5)     The Court DENIES the Very Respectful Motion for Leave to Intervene as Co-

Respondent in the Petition with the attached Very Respectful Urgent Motion to Lift Restraining

Order of APRI, for redundancy and mootness.         

No costs.  SO ORDERED.

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-12719 May 31, 1962

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs.THE CLUB FILIPINO, INC. DE CEBU, respondent.

Office of the Solicitor General for petitioner.V. Jaime and L. E. Petilla for respondent.

PAREDES, J.:

This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the Collector of Internal Revenue, assessing against and demanding from the "Club Filipino, Inc. de Cebu", the sum of P12,068.84 as fixed and percentage taxes, surcharge and compromise penalty, allegedly due from it as a keeper of bar and restaurant.

As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic corporation organized under the laws of the Philippines with an original authorized capital stock of P22,000.00, which was subsequently increased to P200,000.00, among others, to it "proporcionar, operar, y mantener un campo de golf, tenis, gimnesio (gymnasiums), juego de bolos (bowling alleys), mesas de billar y pool, y toda clase de juegos no prohibidos por leyes generales y ordenanzas generales; y desarollar y cultivar deportes de toda clase y denominacion cualquiera para el recreo y entrenamiento saludable de sus miembros y accionistas" (sec. 2, Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles or by-laws is there a provision relative to dividends and their distribution, although it is covenanted that upon its dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu (Art. 27, Estatutos del Club, Exh. A-a.).

The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to its members and their guests. The bar-restaurant was a necessary incident to the operation of the club and its golf-course. The club is operated mainly with funds derived from membership fees and dues. Whatever profits it had, were used to defray its overhead expenses and to improve its golf-course. In 1951. as a result of a capital surplus, arising from the re-valuation of its real properties, the value or price of which increased, the Club declared stock dividends; but no actual cash dividends were distributed to the stockholders. In 1952, a BIR agent discovered that the Club has never

paid percentage tax on the gross receipts of its bar and restaurant, although it secured B-4, B-9(a) and B-7 licenses. In a letter dated December 22, 1852, the Collector of Internal Revenue assessed against and demanded from the Club, the following sums: —

As percentage tax on its gross receipts during the tax years 1946 to 1951 P9,599.07Surcharge therein 2,399.77As fixed tax for the years 1946 to 1952 70.00Compromise penalty 500.00The Club wrote the Collector, requesting for the cancellation of the assessment. The request having been denied, the Club filed the instant petition for review.

The dominant issues involved in this case are twofold:

1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed and percentage taxes and surcharges prescribed in sections 182, 183 and 191 of the Tax Code, under which the assessment was made, in connection with the operation of its bar and restaurant, during the periods mentioned above; and

2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty.

Section 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a business on which the percentage tax is imposed shall pay in full a fixed annual tax of ten pesos for each calendar year or fraction thereof in which such person shall engage in said business." Section 183 provides in general that "the percentage taxes on business shall be payable at the end of each calendar quarter in the amount lawfully due on the business transacted during each quarter; etc." And section 191, same Tax Code, provides "Percentage tax . . . Keepers of restaurants, refreshment parlors and other eating places shall pay a tax three per centum, and keepers of bar and cafes where wines or liquors are served five per centum of their gross receipts . . .". It has been held that the liability for fixed and percentage taxes, as provided by these sections, does not ipso facto attach by mere reason of the operation of a bar and restaurant. For the liability to attach, the operator thereof must be engaged in the business as a barkeeper and restaurateur. The plain and ordinary meaning of business is restricted to activities or affairs where profit is the purpose or livelihood is the motive, and the term business when used without qualification, should be construed in its plain and ordinary meaning, restricted to activities for profit or livelihood (The Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE [Manila Elks Club] & Court of Tax Appeals, G.R. No. L-11176, June 29, 1959, giving full definitions of the word "business"; Coll. of Int. Rev. v. Sweeney, et al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which are similar to the ones at bar; Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27, 1960).

Having found as a fact that the Club was organized to develop and cultivate sports of all class and denomination, for the healthful recreation and entertainment of its stockholders and members; that upon its dissolution, its remaining assets, after paying debts, shall be

donated to a charitable Philippine Institution in Cebu; that it is operated mainly with funds derived from membership fees and dues; that the Club's bar and restaurant catered only to its members and their guests; that there was in fact no cash dividend distribution to its stockholders and that whatever was derived on retail from its bar and restaurant was used to defray its overall overhead expenses and to improve its golf-course (cost-plus-expenses-basis), it stands to reason that the Club is not engaged in the business of an operator of bar and restaurant (same authorities, cited above).

It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts of the Club to foster its purposes and the profits derived therefrom are necessarily incidental to the primary object of developing and cultivating sports for the healthful recreation and entertainment of the stockholders and members. That a Club makes some profit, does not make it a profit-making Club. As has been remarked a club should always strive, whenever possible, to have surplus (Jesus Sacred Heart College v. Collector of Int. Rev., G.R. No. L-6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational Corp., G.R. No. L-9276, Oct. 23, 1956).1äwphï1.ñët

It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock corporation. This is unmeritorious. The facts that the capital stock of the respondent Club is divided into shares, does not detract from the finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What is determinative of whether or not the Club is engaged in such business is its object or purpose, as stated in its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the corporate form or by the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence, including the by-laws and the method of operation. From the extrinsic evidence adduced, the Tax Court concluded that the Club is not engaged in the business as a barkeeper and restaurateur.

Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock divided into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the contemplation of the corporation law.

A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock organizations, unless the intent to the contrary is manifest and patent" (Collector v. BPOE Elks Club, et al., supra), which is not the case in the present appeal.

Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a bar and restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable for any penalty, much less of a compromise penalty.

WHEREFORE, the decision appealed from is affirmed without costs.

Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera and Dizon, JJ., concur.Bengzon, C.J., is on leave.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. Nos. 134963-64            September 27, 2001

ALFREDO LONG and FELIX ALMERIA, petitioners, vs.LYDIA BASA, ANTHONY SAYHEELIAM and YAO CHEK, respondents.

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G.R. NOS. 135152-53 September 27, 2001

LIM CHE BOON, TAN HON KOC, JOSEPH LIM and LIU YEK SEE, petitioners, vs.LYDIA BASA, ANTHONY SAYHEELIAM and YAO CHEK, respondents.

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G.R. NO. 137135 September 27, 2001

LIM CHE BOON, TAN HON KOC, JOSEPH LIM and LIU YEK SEE, petitioners, vs.LYDIA BASA, ANTHONY SAYHEELIAM and YAO CHEK, respondents.

SANDOVAL-GUTIERREZ, J.:

These are consolidated cases involving a religious corporation whose Board of Directors had expelled certain members thereof on purely spiritual or religious grounds since they refused to follow its teachings and doctrines. The controversy here centers on the legality of the expulsion.

The facts, as found by the Court of Appeals and as culled from the voluminous records of these cases, may be stated as follows:In 1973, a religious group known as "The Church In Quezon City (Church Assembly Hall), Incorporated" ("CHURCH" for brevity), located at 140 Talayan St., Talayan Village, Quezon City, was organized as "an entity of the brotherhood in Christ."1

It was registered in the same year with the Securities and Exchange Commission (SEC) as a non-stock, non-profit religious corporation for the administration of its temporalities or the management of its properties.2

The Articles of Incorporation and By-laws of the CHURCH decree that its affairs and operation shall be managed by a Board of Directors consisting of six (6) members,3 who shall be members of the CHURCH.4

As a "brotherhood in Christ," the CHURCH embraced the "Principles of Faith" that "every member or officer" thereof "shall, without mental reservation, adhere strictly to the doctrine, teaching and faith being observed by the (CHURCH) in proclaiming the Gospel of Christ, to save lost souls, to lead men in worshipping the true God, in accordance with the Holy Bible and to believe:

(a) The Old and the New Testaments comprising the Holy Bible as inspired by God;

(b) The Trinity of the God-Head, which is God the Father, God the Son and God the Holy Spirit.

(c) That Jesus Christ, the only begotten Son of the Living God, conceived by the Virgin Mary through the Holy Spirit, and possessing the nature of both God and man, and who died on the cross to save mankind, was buried, rose again on the third day, has ascended up to heaven, and will come back to reign as King someday.

(d) That the only way to salvation is solely by trusting on the shed blood of Jesus and the conviction of the Holy Spirit."5

Zealous in upholding and guarding their Christian faith, and to ensure unity and uninterrupted exercise of their religious belief, the members of the CHURCH vested upon the Board of Directors the absolute power "(to preserve and protect the(ir) faith"6 and to admit7 and expel8 a member of the CHURCH.

Admission for membership in the CHURCH is so exacting. Only "persons zealous of the Gospel, faithful in Church work and of sound knowledge of the Truth, as the Board of Directors shall admit to membership, shall be members of the (CHURCH)."9

The procedure for the expulsion of an erring or dissident member is prescribed in Article VII (paragraph 4) of the CHURCH By-laws, which provides that "If it is brought to the notice of the Board of Directors that any memberhas failed to observe any regulations and By-laws of the Institution (CHURCH) or the conduct of any member has been dishonorable or improper or otherwise injurious to the character and interest of the Institution, the Board of Directors may b(y) resolution without assigning any reason therefor expel such member from such Institution and he shall then forfeit his interest, rights and privileges in the Institution."

As early as 1988, the Board of Directors observed that certain members of the CHURCH, including petitioners herein, exhibited "conduct which was dishonorable, improper and injurious to the character and interest of the (CHURCH)"10 by "introducing (to the members) doctrines and teachings which were not based on the Holy Bible" and the Principles of Faith embraced by the CHURCH.11

Confronted with this situation, the respondents, as members of the Board of Directors, and some responsible members of the CHURCH, advised the petitioners "to correct their ways"12 and reminded them "that under the By-laws, this organization is only for worshipping the true God, not to worship Buddha or men."13 The respondents also warned them that if they persist in their highly improper conduct, they will be dropped from the membership of the CHURCH.14

These exhortations and warnings to the erring members were made during Sunday worship gatherings, "in small group meetings and even one-on-one personal talk with them."15 Since 1988,16 these warnings were announced by the members of the Board "(s)ometimes once a week (when they) meet together."17

But petitioners ignored these repeated admonitions.

Alarmed that petitioners' conduct will continue to undermine the integrity of the Principles of Faith of the CHURCH, the Board of Directors, during its August 30, 1993 regular meeting18 held for the purpose of reviewing and updating the membership list of the CHURCH, removed from the said list certain names of members, including the names of herein petitioners Joseph Lim, Liu Yek See, Alfredo Long and Felix Almeria.19 They were removed for espousing doctrines inimical or injurious to the Principles of Faith of the CHURCH. The Board also updated the list by removing the names of those who have migrated to other countries, those deceased and those whom the CHURCH had lost contact with.20 The resolution adopted by the Board in that August 30, 1993 meeting reads in part:

"Director Anthony Sayheeliam announced that the regular meeting is to review, update and approve the list of corporate membership. After due deliberation and upon motion duly made and seconded, the following resolutions were approved and adopted:

"RESOLVED, AS IT IS HEREBY RESOLVED, that the list of corporate membership of this Institution as shown on Annex "A" is hereby reviewed, updated and approved by the Board.

"RESOLVED, FURTHER, AS IT IS HEREBY FURTHER RESOLVED, that the Board approved that those who are not included in the said list of corporate membership of this Institution are no longer considered as a corporate member of this Institution.

"RESOLVED, FINALLY, AS IT IS HEREBY RESOLVED, that any or all previous lists of membership are hereby superseded, revoked and/or rendered null, void and of no effect..

"There being no further business and no other matter to transact, the meeting was thereupon adjourned."21

All the then six (6) members of the Board, namely, Directors Lim Che Boon, Tan Hon Koc (herein petitioners), Anthony Sayheeliam, Leandro Basa, Yao Chec and Lydia L. Basa (herein respondents) "were duly informed" of that meeting.22 However, Directors Lim Che Boon and Tan Hon Koc did not appear.23 Thus, the above-quoted resolution was signed only by Directors Anthony Sayheeliam, Leandro Basa, Yao Chec and Lydia L. Basa who composed the majority of the Board.

The updated membership list approved by the Board on August 30, 1993, together with the minutes of the meeting, were duly filed with the SEC on September 13, 1993.24

On September 29, 1993, petitioners Lim Che Boon, Tan Hon Koc, Joseph Lim, Liu Yek See and others questioned their expulsion by filing with the SEC Securities Investigation and Clearing Department a petition,25docketed as SEC Case No. 09-93-4581 (and later a supplemental petition) against Directors Yao Chek, Leandro Basa, Lydia Basa and Anthony Sayheeliam. It sought mainly the annulment of the August 30, 1993 membership list and the reinstatement of the original list on the ground that the expulsion was made without prior notice and hearing. The case was assigned to SEC Hearing Officer Manuel Perea (the "Perea case").

The petition also prayed for the issuance of a temporary restraining order (TRO) and a writ of preliminary injunction principally to enjoin the Board of Directors from holding any election of a new set of directors among the members named in the August 30, 1993 list of corporate membership.

After conducting a hearing on the application for a writ of preliminary injunction, SEC Hearing Officer Manuel Perea denied the same in an order dated February 22, 1994.26 Perea ruled inter alia that the expulsion was in accordance with the aforequoted provisions of paragraph 4, Article VII of the CHURCH By-laws, reasoning that "the notice referred to (in par. 4) is notice to the Board of Directors of the grounds for expulsion enumerated therein and not notice to the (erring) members…."27

Perea's order further stated: "It is also clear (from par. 4) that the resolution of expulsion need not state the reason for expelling a member."28

Petitioners elevated Perea's order of February 22, 1994 to the SEC en banc via a petition for certiorari, docketed as SEC EB Case No. 389.29 The SEC, in an en banc decision dated July 11, 1994,30 affirmed the Perea rulingand "dismissed for lack of merit" the petition.

Petitioners did not appeal from the decision of the SEC en banc.31

Since the said SEC en banc decision pertains only to the preliminary injunction incident, the SEC, through a hearing panel, conducted further proceedings to hear and decide the permissive

counterclaim and third-party complaint incorporated in respondents' supplemental answer, including their prayer for injunctive relief to prevent petitioners from interfering and usurping the functions of the Board of Directors.32

Petitioners subsequently filed motions to dismiss/strike out the counterclaim and third-party complaint. But the motions were denied by the hearing panel in its omnibus order dated October 2, 1995. The said order also declined to act on respondents’ third-party complaint’s prayer for injunctive relief since "there is a case pending before another Hearing Officer in SEC Case No. 4994 for the declaration of nullity of the general membership meeting held on February 12, 1995."33

Upon denial of the separate motions for reconsideration of both parties, the respondents filed with the SEC en banc a petition for review on certiorari, docketed as SEC EB Case No. 484. A review of the records show that the issue posed in this case is also the validity of the questioned expulsion already resolved by the SEC en banc in its decision dated July 11, 1994 in SEC EB Case No. 389 which had attained finality.

On July 31, 1996, the SEC en banc, by a vote of two to one, with one Commissioner abstaining, issued an orderin SEC EB Case No. 484, setting aside the expulsion of certain members of the CHURCH approved by its Board of Directors on August 30, 1993 for being void and ordering the reinstatement of petitioners as members of the CHURCH.

Promptly, herein respondents Anthony Sayheeliam and Lydia Basa filed a petition for review with the Court of Appeals, docketed as CA-G.R. SP No. 41551,34 assailing the July 31, 1996 order.

Respondent Yao Check, for his part, filed a motion for reconsideration of the order of July 31, 1996. Upon denial of his motion, he also filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP No. 43389. This case was consolidated with CA-G.R. SP No. 41551.35

On May 29, 1998, the Court of Appeals promulgated its now assailed decision granting respondents’ consolidated petitions and reversing the July 31, 1996 order of the SEC en banc in SEC EB Case No. 484.

Petitioners filed a motion for reconsideration but was denied by the appellate court in a resolution dated August 18, 1998.36

Hence, the present consolidated petitions for review by Certiorari (G.R. Nos. 134963-64 and G.R. Nos. 135152-53) under Rule 45 of the 1997 Rules of Civil Procedure, as amended.

The pith issue in the instant cases, as correctly defined by the Court of Appeals in its challenged decision and resolution, is whether the expulsion of petitioners Joseph Lim, Liu Yek See, Alfredo Long and Felix Almeria from the membership of the CHURCH by its Board of Directors through a resolution issued on August 30, 1993 is in accordance with law.

Petitioners insist that the expulsion is void since it was rendered without prior notice to them or, in a constitutional context, without due process.

On the other hand, respondents assert that the expulsion is in accordance with the By-laws of the CHURCH.

We rule against the petitioners.

It must be emphasized that the issue of the validity of the expulsion had long been resolved and declared valid by the SEC en banc in its decision dated July 11, 1994 in SEC EB Case No. 389. The decision affirmed the order dated February 22, 1994 of SEC Hearing Officer Manuel Perea in SEC Case No. 09-93-4581. The petitioners themselves admitted in their present petition that they did not

appeal anymore from the July 11, 1994 decision of the SEC en banc,37 thereby rendering the same final and conclusive. As such, the expulsion order is now inextricably binding on the parties concerned and can no longer be modified, much less reversed.

What was definitely resolved in the Perea decision and in SEC EB Case No. 389 was the validity of the expulsion proceedings conducted by the Board of Directors in its meeting on August 30, 1993 wherein a Resolution updating the membership list of the CHURCH was approved. On the other hand, the SEC hearing panel conducted further proceedings only to decide the permissive counterclaim and third-party complaintincorporated in respondents’ supplemental answer, including their prayer for injunctive relief to prevent petitioners from interfering and usurping the functions of the Board of Directors.

Thus, we find accurate the following findings and conclusion of the Court of Appeals on this matter:

"….It ought to be recalled that when Hearing Officer Perea denied the herein respondents’ (now petitioners’) prayer for injunctive relief in SEC Case No. 09-93-4581 to stop the herein petitioners (now respondents) from calling a membership meeting on the basis of the expurgated list of membership dated August 30, 1993, they interposed in SEC EB Case No. 389 a petition to review the order of denial. Then and there, the SEC en banc rendered its decision dated July 11, 1994 sustaining Hearing Officer Perea on the ratiocination that the expulsion of members effected on August 30, 1993 by the board of directors was valid having been done in accordance with the bay-laws of the CHURCH, and although the herein respondents (now petitioners) subsequently sought the dismissal of SEC Case No. 09-93-4581, the order of dismissal explicitly stated that it did not encompass the herein petitioners’ (now respondents’) permissive counterclaim and third-party complaint. Thus, further proceedings were conducted which culminated in the issuance of the Hearing Panel’s Omnibus Orders dated October 2, 1995 and January 19, 1996, which were elevated, this time by the herein petitioners (now respondents), to the SEC en banc in a petition for review on certiorari docketed as SEC EB Case No. 484. It was in this latter case that the SEC en banc handed down its assailed order of July 31, 1996 in violation of the law of the case that was earlier laid down with finality in SEC EB Case No. 389.

x x x           x x x           x x x

"Thusly, the question on the validity of the expulsion of some of the members of the CHURCH was squarely raised and frontally resolved in the decision rendered in SEC EB Case No. 389."38(Emphasis ours)

Clearly, the issuance by the SEC en banc of its July 31, 1996 order in SEC EB Case No. 484, which reopenedthe very same issue of the validity of the expulsion proceedings, completely reversing its final and executory en banc decision of July 11, 1994 (SEC EB Case No. 389), is certainly in gross disregard of the rules and basic legal precept that accord finality to administrative, quasi-judicial and judicial determinations.

The Court of Appeals is, therefore, correct in voiding the SEC en banc orders dated July 31, 1996 and January 29, 1997 in SEC EB Case No. 484, thereby upholding the expulsion of petitioners and others by the Board of Directors on August 30, 1993.

In this regard, what we said in Fortich vs. Corona, et al.39 bears repeating: "The orderly administration of justice requires that the judgments/resolutions of a court or quasi-judicial body must reach a point of finality set by the law, rules and regulations. The noble purpose is to write finis to disputes once and for all. This is a fundamental principle in our justice system, without which there would be no end to litigations. Utmost respect and adherence to this principle must always be maintained by those who wield the power of adjudication. Any act which violates such principle must immediately be struck down."40

Let it not be said that the denial of the present petitions, even on this ground alone, is a mere technicality. In the aforecited case of Fortich vs. Corona, we held that once a case had been resolved with finality, vested rights were acquired by the winning party.41 Consequently, the rule on finality of decisions, orders or resolutions of a judicial, quasi-judicial or administrative body is "not a question of technicality but of substance and merit,"42 the underlying consideration therefor being the protection of the substantive rights of the winning party.43 In the succinct words of Mr. Justice Artemio V. Panganiban in the case of Videogram Regulatory Board vs. Court of Appeals, et al.,44 "Just as a losing party has the right to file an appeal within the prescribed period, the winning party also has the correlative right to enjoy the finality of the resolution of his/her case.’’

Be that as it may, we find baseless petitioners’ claim that their expulsion was executed without prior notice or due process.

In the first place, the By-laws of the CHURCH, which the members have expressly adhered to, does not require the Board of Directors to give prior notice to the erring or dissident members in cases of expulsion. This is evident from the procedure for expulsion prescribed in Article VII (paragraph 4) of the By-laws, which reads:

"4. If it is brought to the notice of the Board of Directors that any member has failed to observe any regulations and By-laws of the Institution (CHURCH) or the conduct of any member has been dishonorable or improper or otherwise injurious to the character and interest of the Institution, the Board of Directors may b(y) resolution without assigning any reason therefor expel such member from such Institution and he shall then forfeit his interest, rights and privileges in the Institution." (Emphasis ours)

From the above-quoted By-law provision, the only requirements before a member can be expelled or removed from the membership of the CHURCH are: (a) the Board of Directors has been notified that a member has failed to observe any regulations and By-laws of the CHURCH, or the conduct of any member has been dishonorable or improper or otherwise injurious to the character and interest of the CHURCH, and (b) a resolution is passed by the Board expelling the member concerned, without assigning any reason therefor.

It is thus clear that a member who commits any of the causes for expulsion enumerated in paragraph 4 of Article VII may be expelled by the Board of Directors, through a resolution, without giving that erring member any notice prior to his expulsion. The resolution need not even state the reason for such action.

The CHURCH By-law provision on expulsion, as phrased, may sound unusual and objectionable to petitioners as there is no requirement of prior notice to be given to an erring member before he can be expelled. But that is how peculiar the nature of a religious corporation is vis-à-vis an ordinary corporation organized for profit. It must be stressed that the basis of the relationship between a religious corporation and its members is the latter’s absolute adherence to a common religious or spiritual belief. Once this basis ceases, membership in the religious corporation must also cease. Thus, generally, there is no room for dissension in a religious corporation. And where, as here, any member of a religious corporation is expelled from the membership for espousing doctrines and teachings contrary to that of his church, the established doctrine in this jurisdiction is that such action from the church authorities is conclusive upon the civil courts. As far back in 1918, we held in United States vs. Canete45 that:

"…in matters purely ecclesiastical the decisions of the proper church tribunals are conclusive upon the civil tribunals. A church member who is expelled from the membership by the church authorities, or a priest or minister who is by them deprived of his sacred office, is without remedy in the civil courts, which will not inquire into the correctness of the decisions of the ecclesiastical tribunals."46 (Emphasis ours)

Obviously recognizing the peculiarity of a religious corporation, the Corporation Code leaves the matter of ecclesiastical discipline to the religious group concerned.

Section 91 of the Corporation Code, which has been made explicitly applicable to religious corporations by the second paragraph of Section 109 of the same Code, states:

"SEC. 91. Termination of membership.- Membership shall be terminated in the manner and for the causes provided in the articles of incorporation or the by-laws. Termination of membership shall have the effect of extinguishing all rights of a member in the corporation or in its property, unless otherwise provided in the articles of incorporation or the by-laws." (Emphasis ours)

Moreover, the petitioners really have no reason to bewail the lack of prior notice in the By-laws. As correctly observed by the Court of Appeals, they have waived such notice by adhering to those By-laws. They became members of the CHURCH voluntarily. They entered into its covenant and subscribed to its rules. By doing so, they are bound by their consent.47

Even assuming that petitioners' expulsion falls within the Constitutional provisions on "prior notice" or "due process," still we can not conclude that respondents committed a constitutional infraction. It bears emphasis that petitioners were given more than sufficient notice of their impending expulsion, as shown by the records.

We have narrated earlier the events which led to the questioned expulsion. From the undisputed testimony of Director Anthony Sayheeliam (now respondent), it is clear that, as early as 1988, the respondents-Board of Directors patiently and persistently reminded, advised and exhorted the erring members, including herein petitioners, to stop espousing doctrines, teachings and religious belief diametrically opposed to the Principles of Faith embraced by the CHURCH. The respondents-Board of Directors further warned them during Sunday worship gatherings, in small group meetings and one-on-one talk, that they would face disciplinary action and be dropped from the membership roll should they continue to exhibit acts inimical and injurious to the teachings of the Holy Bible which the CHURCH so zealously upholds.

When they ignored petitioners’ exhortations and warnings, the erring members should not now complain about their expulsion from the membership of the CHURCH by the Board of Directors on August 30, 9193.

The Court of Appeals, whose findings of fact is accorded great respect as the same is conclusive on us, made a precise observation on this matter:

"….the petitioners (now respondents) further state that the Board of Directors, before deciding to purge their list of membership, gave the erring members sufficient warning of their impending ouster. Thus:

‘… the records of the instant case indisputably show that the erring members of the corporation, including respondents (now petitioners) Lim Che Boon, Joseph Lim, Tan Hon Joc, Liu Yek See, Felix Almeria and Alfredo Long, were given more than sufficient notice that the perpetration of acts inimical to and inconsistent with the Articles of Faith of the Corporation will be subject to disciplinary authority of the Board of Directors:

(Testimony of Anthony Sayheeliam, member of the Board of Directors)

Q.         You mentioned that former members of the Corporation were dropped or expelled due to violations of the principles of faith under the Articles of Incorporation and the By-laws, as well as for conduct which was dishonorable, improper and injurious to the character and interest of the corporation. When did the Board first note or observe these violations?

A.         The Board noticed that since 1988.

Q.         As a member of the Board of Directors, what actions did you take after the board observed these violations?

A.         We warned them and advised them to correct their ways of doing these things.

Q.         As a member of the Board of Directors, what did you say or do in order to convince these former members to correct their ways?

A.         We told them that under the By-laws this organization is only for worshipping the true God, not to worship Buddha or men.

Q.         You also mentioned that you gave warnings to these errant members. As a member of the Board of Directors, what did you do or say to warn these former members of the consequences of their acts?

A.         Especially to the members of the organization, they should take all the consequences. Otherwise, they will be dropped.

Q.         These warnings and statements advising them to correct their way, on what occasion were these statements made?

A.         In a general service, Sunday, and also in small group meetings and even one-on-one, personally talking with them.

Q.         How often were these warnings or advise to correct made?

A.         Sometimes once a week we meet together.

Q.         Since when?

A.         Since 1988." (TSN, December 1, 1993, Perea Case, pp. 9-12).

From the foregoing testimony of petitioner (now respondent) Anthony Sayheeliam during the hearing in the Perea Case on 01 December 1993, it remains undisputed that as early as 1988 private respondents (now petitioners) and their cohorts knew that their acts and conduct would be subject to disciplinary action. In fact, private respondents (now petitioners) never specifically denied or disputed the testimony of petitioner (now respondent) Anthony Sayheeliam, whether on the witness stand or in any pleading in the Perea Case or in the other cases between the parties, that they have been repeatedly admonished by the members of the Board of Directors that the introduction of teachings and doctrines inconsistent with the Principles of Faith of the Corporation is punishable with their expulsion (Rollo, CA-G.R. SP No. 41551, pp. 46-48.

"We find the stance of the petitioners (now respondents) more persuasive as it is more in accord with Section 91 of the Corporation Code which mandates that membership in a no-stock corporation and, for that matter, in a religious corporation ‘shall be terminated in the manner and for the causes enumerated in the articles of incorporation or by-laws.’ The respondents (now petitioners) make no protestation that the CHURCH’s by-law provision on expulsion has not been complied with…."48 (Emphasis ours)

Consequently, the expulsion was not tainted with any arbitrary treatment from the members of the Board of Directors who, since 1988 up to August 30, 1993, or approximately five (5) years, have patiently exhorted and warned the dissident members. This long period of time is more than adequate an opportunity for the erring members and their followers to contemplate upon their covenant with the CHURCH on their duty to protect and promote its Principles of Faith and not to violate them. It is a

well-settled principle in law that what due process contemplates is freedom from arbitrariness; what it requires is fairness and justice; substance, rather than the form, being paramount. What it prohibits is not the absence of previous notice but the absolute absence thereof.49 A formal or trial type hearing is not at all times and in all instances essential.50

Clearly, although the By-laws of the CHURCH do not require the Board of Directors to give notice to the dissident petitioners of their impending expulsion, more than sufficient notice was given to them before they were expelled by the Board on August 30, 1993.

Petitioners, however, contend that the expelled members were not actually notified and warned of their impending expulsion. In support of this, they also cited the following testimony of Anthony Sayheeliam:

"ATTY. PAULITE:

Q.         Did you go through the list one by one?

A.         Yes.

Q.         So do you remember how many were expelled because of conduct dishonorable, improper, injurious to the corporation?

A.         At the time we did not count the number. We just talked it one by one, discussed …

Q.         Okey, Did you notify them of the grounds for their expulsion?

A.         No.

Q.         You did not. Did you give them an opportunity to defend themselves?

A.         No."51 (Emphasis ours)

Petitioners’ interpretation of the above-quoted testimony of Anthony Sayheeliam was out of context. The question and answer focused on what the Board of Directors did during its meeting on August 30, 1993 wherein it evaluated each member’s standing and conduct in the light of the grounds for disciplinary action as provided in the CHURCH By-laws. This is plain from the underscored portions of Sayheeliam’s testimony. Thus, what Sayheeliam was saying is that on that very day of the expulsion, the Board of Directors did not notify the expelled members anymore. Obviously, such notice was not made by the Board of Directors simply because the By-laws of the CHURCH does not require the same, as already discussed earlier.

Incidentally, during the pendency of these cases in this Court, petitioners filed an application for a TRO/writ of preliminary injunction dated November 10, 1998, claiming therein that respondents are denying them access to the premises of the CHURCH for purposes of exercising their right of worship. Acting on the application, this Court required the respondents to comment thereon. In the meantime, it issued a Special Order on December 18, 1998 enjoining the respondents from enforcing the Court of Appeals’ decision "insofar as petitioners’ rights and privileges as members of the CHURCH are concerned." Accordingly, petitioners were allowed "entry into the CHURCH building of worship and participate in its religious and social activities."

On January 29, 1999, petitioners Lim Che Boon, Tan Hon Koc, Joseph Lim and Liu Yek See filed a petition to cite respondents in contempt for refusing to comply with the Special Order of this Court. This was docketed as G.R. No. 137135. Petitioners averred therein that respondents denied them access to the worship halls for their special conference involving the spiritual training of some 1, 800 college students from Regions I to VI.

In their comment, respondents opposed the petition, claiming that their refusal to lend the worship halls was due to the fact that the intended special conference is not a religious service/activity of the CHURCH and the participants are not members of the CHURCH. Thus, respondents assert that they did not violate the Special Order of this Court.

We agree with the respondents. The Special Order allows petitioners entry into the CHURCH building to "participate in worship or other religious activities" "as members of the CHURCH". Clearly, the Special Order does not allow petitioners unlimited or unrestrained access or use of the premises and properties of the CHURCH. The intended special conference to be conducted by petitioners is not a CHURCH activity and the participants therein are not members of the CHURCH.

WHEREFORE, the present consolidated petitions are DENIED. The assailed decision of the Court of Appeals dated May 29, 1998 and its resolution dated August 18, 1998 are AFFIRMED. Costs against petitioners.

The Special Order dated December 18, 1998 issued by this Court is LIFTED.

SO ORDERED.

Vitug, and Panganiban, JJ., concur.Melo, J., please see dissenting opinion.

DISSENTING OPINION

MELO, J.:

Customarily and generally, the civil courts would not interfere in matters involving disputes within a religious corporation, not only because the question may be essentially ecclesiatical in nature but more importantly because of the fundamental principle of separation church and State provided in our Constitution. This general rule, however, is admittedly subject to certain exceptions, and I submit that the instant case is one such instance.

In Romero vs. De los Reyes (14 Phil. 115 [1965]), we upheld the general rule that:

The amendment of the constitution, restatement of articles of religion and abandonment of faith or abjuration alleged by appellant, having to do with faith, practice, doctrine, from or worship, ecclesiastical law, custom and rule of a church and having reference to the power of excluding from the church those allegedly unworthy of membership, are unquestionably ecclesiatical matters which are outside the province of civil courts.

(p.128.)

But, in Lions Club International vs. Amores (121 SCRA 621 [1983]), we defined certain exceptions to this general rule, holding thus:

... the courts will not interfere with the internal affairs of an unincorporated association so as to settle disputes between the members or questions of policy, discipline or internal government, so long as the government of the society is fairly and honestly administered in conformity with its laws and the laws of the land, and no property or civil rights are invaded.

Under such circumstances, the decision of the association is binding and conclusive and is not subject to review or collateral attacks in the courts.

The general rule of non-interference in the internal affairs of associations is, however, subject to exceptions, but the power of review is extremely limited. Accordingly, the courts have and will exercise the power to interfere in the internal affairs of an association where law and justice so require, and the proceedings of the association are subject to judicial review where there is fraud, oppression, or bad faith, or where the action complained of is capricious, arbitrary, or unjustly discriminatory. Also, the courts will usually entertain jurisdiction to grant relief in case property or civil rights are invaded, although it has also been held that the involvement of property rights does not necessarily authorize judicial intervention, in the absence of arbitrariness, fraud or collusion. Moreover, the courts will intervene where the proceedings in question are violative of the laws of the society, or the law of the land, as by depriving a person of due process of law. Similarly, judicial intervention is warranted where there is lack of jurisdiction on the part of the tribunal conducting the proceedings, where the organization exceeds its powers, or where the proceedings are otherwise illegal.

(p.628)

What is in issue in the present consolidated petitions is whether or not the expulsion of some of the members of the religious community called "The Church in Quezon City" (CQC), contravene the laws of the land or are violative of the civil rights of the members thereof.

I vote in the affirmative.

As clearly stated in Lions Club International, the general rule of non-interference admits of certain exception: The civil courts can review proceedings undertaken by religious organizations and may interfere, so to speak, with the internal affairs thereof, as law and justice so require, when the acts complained of contravene the basic law of the land and violate the civil rights of its members. More specifically, where there is fraud, oppression, or bad faith, and where the action of the leaders of the organization is capricious, arbitrary, and unjustly discriminatory, the civil courts may exercise judicial power. The courts will likewise exercise jurisdiction to grant relief in case property or civil rights are invaded, although it has also been held that involvement of property rights does not necessarily authorize judicial intervention, in the absence of arbitrariness, fraud, and collusion. Another specific instance when intervention by the courts becomes warranted is when the proceedings in question are violative of either the by-laws of the society itself or the basic law of the land, such as when there is a violation of the fundamental right to due process of law. Similarly, judicial intervention is warranted where there is lack of jurisdiction on the part of the tribunal conducting the proceedings, where the organization exceeds its powers, or where the proceedings are otherwise illegal.

The factual antecedents of the present case bring it squarely within the exception to the general rule of non-interference or non-intervention. It must be underscored that the issue does not merely involve the right to use the property of CQC in the present case, but more importantly that the expulsion from CQC does constitute a serious emotional deprivation on the part of each of petitioners which, when compared to losses of property or contractual rights, can be far more damaging and prejudicial. Further, the loss of the opportunity to worship in familiar surroundings is a valuable right, which deserves the protection of the law where no constitutional barrier exists (Baugh v. Thomas, 265 A. 2d 675).

In this regard, I do not think that it would be proper for the Court to dismiss the issue on mere technicalities, ruling that the Securities and Exchange Commission (SEC) erred in re-opening the case which had previously become final and executory. The Perea case had indeed become final and executory but it pertained only to the preliminary remedy sought by petitioners. As correctly pointed out in the majority opinion, the hearing panel conducted further proceedings to decide the permissive counterclaim and third-party complaint incorporated in respondents’ supplemental answer, including

their prayer for injunctive relief to prevent petitioners from interfering and usurping functions of the Board of Directors. Petitioners filed motions to dismiss/strike out the counterclaim and third-party complaint. These motions were denied by the hearing panel in an Omnibus Order date October 2, 1995.

The motions for reconsideration of both parties were subsequently denied. Thereafter, respondents (not petitioners), filed a petition for review with the SEC En Banc which was docketed therein as SEC EB Case No. 484. This certiorari proceeding where the SEC En Banc issued the Order dated July 31, 1996 gave rise to the instant review. In other words, respondents were the ones who invoked the certiorari powers of the SEC En Banc which took cognizance of the issue if the propriety of the expulsion of the complaining members of the CQC. It would not be fair for respondents to now turn around and say that the SEC is guilty of gross disregard of the rules and basic legal precepts that accord finality to administrative, quasi-judicial, and judicial determination, or res judicata.

It is, thus, essential for us to determine whether respondents complied with the requirements of CQC’s By-Laws before they expelled petitioners. The applicable provision reads:

4. If it is brought to the notice of the Board of Directors that any member has failed to observe any regulations and By-Laws of the Institution or the conduct of any member has been dishonorable or improper or otherwise injurious to the character and interest of the Institution, the Board of Directors may by resolution, without assigning any reason therefore, expel such member from the Institution and he shall then forfeit his interest, rights and privileges in the Institution.

(Article VII, By-Laws)

This particular provision was explained by the incorporators during the hearing on the registration of CQC with the SEC, as intended to give the member a chance to explain:

Q.         May we know from what are the discipline imposed by the proposed church to the members, if any?

MR. ONG:

A.         We have here the Rules and Regulations of the CHURCH IN QUEZON CITY (CHURCHASSEMBLY HALL), INC., which for purposes of identification we request that the same be marked as Exhibit "C," consisting of 2 pages, dated May 2, 1973.

ATTY. TANINGCO:

Let the document mentioned be marked accordingly.

Q.         Now, on the second page of this Rules and Regulations that is previously marked Exhibit "C", there appears above the typewritten name Lydia Lao a signature. Will you please take a look at this signature and tell us whose signature is this?

MISS LAO:

A.         This is my signature, your honor.

Q.         Also, in the second page of this Rules and Regulations, there appears as one of the provisions, entitled "Punishment", will you please explain to this Commission the meaning of this? It says that "any member found to be inimical to or unfaithful to the teaching or doctrines

of the brotherhood of the Church in Quezon City (Church Assembly Hall), Inc., will be removed from membership.

A.         Any member who acts or believes contrary to our doctrine stated in the bible or the faith that we are adhering, then he will be requested to leave.

Q.         Who decides that a member should be requested to leave when found guilty?

A.         Our responsible brothers and sisters.

Q.         Is he not given a chance to explain his acts?

A.         He is given a chance to explain.

(tsn, August 8, 1973)

It was indeed reversible error for the Court of Appeals to ignore the clear intent of the CQC that its members be accorded due process of law by giving them a chance to explain prior to expulsion.

Of course, respondents insist that petitioners were in fact accorded due process despite the fact that it was not necessary under their By-Laws. The record, however, shows otherwise. During the hearing conducted on November 15, 1993, Anthony Sayheeliam admitted that the expelled members were not notified of the grounds for their expulsion, and were not given the opportunity to defend themselves.

ATTY. PAULITE:

Q.         Did you go through the list one by one?

ANTHONY SAYHEELIAM:

A.         Yes.

Q.         So do you remember how many were expelled because of conduct dishonorable, improper, injurious to the corporation?

A.         At the time we did not count the number. We just talked it one by one, discussed...

Q.         Okey, Did your notify them of the grounds for their expulsion?

A.         No.

Q.         You did not. Did you give them an opportunity to defend themselves?

A.         No.

(tsn, November 15, 1993, pp. 51-52.)

The procedural requirement spelled out in their By-Laws was evidently not met at all.

I, therefore, agree with the SEC when it ruled that a member could be expelled only after notice and hearing. Petitioners correctly assert that the Court of Appeals erred in holding that no prior notice or hearing is required as the By-Laws were silent on the matter. It has been held that the right to be advised in advance of the charges is a fundamental right to which the member is entitled even without a by-law provision. (Namentra, Inc. v. American Society of Travel Agents, Inc, 28 Misc 2d 291, 211 NY S2d 655 cited in Fletcher Cyclopedia Corporation, Vol. 12 A, 803, 810). This is in accord with the principles established in Article 19 of the Civil Code, enjoining every person to act with justice, to give every one his due, and to observe honesty and good faith.

As specifically applied to religious organizations, we have ruled in United States vs. Cañete (38 Phil. 253 [1918]):

... Thus the general cause of public morality which under lies all good government, an which every good citizen, be he priest or layman, is bound to promote, is affected by the fidelity with which ministers of the gospel discharge the high trust of their appointment. In order to be successful public teachers of morality, they must be unspotted public exemplars of it. Hence, if it be suspected that a wolf in sheep’s clothing has invaded their rank, and sits at their counsel board, it is not only for the interest of all the members of the association to know the fact, but it is their imperative duty to make inquiry and ascertain the fact. They owe such duty to the plaintiff as a brother member, if he is charged with scandalous conduct, to the end that his innocence may be established. They owe it to themselves, lest by indifference they give apparent approval to his conduct. Their intimate official relation to the plaintiff in the cause of their common work leaves them no alternative; and if, in making such inquiry and in acting upon the subject matter of it, they proceed with honesty of purpose and act from a sense of duty, the law protects them.

(p. 263.)

It is a matter of public policy that the charges against the members of the CQC be investigated with a specific obligation to the member that he be given an opportunity to establish his innocence. And this can only be done if he is given "a chance to be heard." The due process clause of the Constitution requires notice and opportunity to be heard before any person can lawfully be deprived of his rights.

In addition to the foregoing, I also believe that the resolution of respondents approving the August 30, 1993 list of membership in the Church is void. Respondents failed to comply with Section 53 of the Corporation Code that requires that notices of meetings of the board of directors should be given at least one day prior to the meeting. Respondents failed to establish that petitioners Lim Che Boon and Tan Hon Koc were duly notified of the meeting of the Board of Directors during which the August 30, 1993 list of members was adopted. There was no "duly assembled" quorum at the time the resolution was discussed and voted upon as required under Article IV, Paragraph E of the CQC’s By-Laws.

In view of the foregoing, I believe that the Court of Appeals erred in dismissing petitioners’ petition in SEC Case No. 02-95-49949. The exclusion of petitioners being null and void, their standing as bona fide members of the CQC continues. Thus, the election among the majority of the members of the CQC, including petitioners herein who are deemed not to have been excluded therefrom, conducted on June 20, 1994 was in accordance with the By-Laws and should be considered valid, together with all other acts emanating therefrom. The list of members indicated in the Church’s Membership Book (Annex Q in G.R. No. 134963-64) should be the complete list of the membership of the CQC.

It is unrebutted that respondents’ group comprises merely the minority in the CQC. The meeting called by private respondents on February 12, 1995, which excluded petitioners’ group, was not valid considering that it was called by a person who is not a member of the CQC or a director thereof. The acts then of respondents as a result of their meeting are void as they were conducted without notice to or in the absence of the other members of the CQC. The members of the Board, duly elected by the majority as determined from the Membership Book are deemed valid.

Finally, the charges between the parties that the other has diverted from the faith and principles of their organization are purely ecclesiastical matters and the Court should refrain from ruling thereon. It may be noted, however, that it is undisputed that the CQC was founded by Witness Lee. It is thus a matter to be resolved by the members of the institution whether those who continue to look at Witness Lee should be deemed to have diverted from their faith (as claimed by respondents), or it is respondents who have diverted their faith by their denial of the role of Witness Lee in the CQC (as claimed by petitioners).

Under the foregoing premises, I, therefore, register my dissent and vote to grant the petition for certiorari. The decision of the Court of Appeals dated May 29, 1998 in C.A. G.R. SP No. 31551 and 43389, and their Resolution dated August 18, 1998, which denied petitioners Almeri’s and Long’s motion for reconsideration, should be REVERSED and SET ASIDE, and the Order of the SEC dated July 31, 1996, be REINSTATED.

[G.R. No. 141961.  January 23, 2002]

STA. CLARA HOMEOWNERS’ ASSOCIATION thru its Board of Directors composed of ARNEIL CHUA, LUIS SARROSA, JOCELYN GARCIA, MA. MILAGROS VARGAS, LORENZO LACSON, ERNESTO PICCIO, DINDO ILAGAN, DANILO GAMBOA JR. and RIZZA DE LA RAMA; SECURITY GUARD CAPILLO; “JOHN DOE”; and SANTA CLARA ESTATE, INC., petitioners, vs. Spouses VICTOR MA. GASTON and LYDIA GASTON, respondents.

D E C I S I O N

PANGANIBAN, J.:

A motion to dismiss based on lack of jurisdiction and lack of cause of action hypothetically admits the truth of the allegations in the complaint.  It is not dependent on the pleas or the theories set forth in the answer or the motion to dismiss.  Membership in a homeowners’ association is voluntary and cannot be unilaterally forced by a provision in the association’s articles of incorporation or by-laws, which the alleged member did not agree to be bound to.

Statement of the Case

The Petition for Review before us assails the August 31, 1999 Decision[1] and the February 11, 2000Resolution[2] of the Court of Appeals (CA) in CA-GR SP No. 49130.  The decretal portion of the challenged Decision reads as follows:

“WHEREFORE, the petition is DISMISSED for lack of merit. The assailed Orders of the trial court are AFFIRMED. No costs.”[3]

The assailed Resolution denied petitioner’s Motion for Reconsideration.

The CA[4] affirmed the Orders[5] of the Regional Trial Court (RTC) of Bacolod City (Branch 49) in Civil Case No. 98-10217, which had

refused to dismiss herein respondents’ Complaint for alleged lack of jurisdiction and lack of cause of action.

The Facts

The factual antecedents of the case are summarized by the Court of Appeals in this wise:

“On 1 April 1998, Spouses Victor Ma. Gaston and Lydia M. Gaston, private respondents herein, filed a complaint for damages with preliminary injunction/preliminary mandatory injunction and temporary restraining order before the Regional Trial Court in Negros Occidental at Bacolod City against petitioners Santa Clara Homeowners Association(SCHA for brevity) thru its Board of Directors, namely: Arneil Chua, Luis Sarrosa, Jocelyn Garcia, Ma. Milagros Vargas, Lorenzo Lacson, Ernesto Piccio, Dindo Ilagan, Danilo Gamboa, Jr., Rizza de la Rama and Security GuardCapillo and ‘John Doe’, and Santa Clara Estate, Incorporated. The case was docketed as Civil Case No 98-10217 and raffled to RTC-Branch 49, Bacolod City.“The complaint alleged that private respondents herein [were] residents of San Jose Avenue, Sta. Clara Subdivision,Mandalagan, Bacolod City.  They purchased their lots in the said subdivision sometime in 1974, and at the time of purchase, there was no mention or requirement of membership in any homeowners’ association. From that time on, they have remained non-members of SCHA. They also stated that an arrangement was made wherein homeowners who [were] non-members of the association were issued ‘non-member’ gatepass stickers for their vehicles for identification by the security guards manning the subdivision’s entrances and exits. This arrangement remained undisturbed until sometime in the middle of March, 1998, when SCHA disseminated a board resolution which decreed that only its members in good standing were to be issued stickers for use in their vehicles. Thereafter, on three separate incidents, Victor M. Gaston, the son of the private respondents herein who lives with them, was required by the guards on duty employed by SCHA to show his driver’s license as a prerequisite to his entrance to the subdivision and to his residence therein despite their knowing him personally and the exact location of his residence.  On 29 March 1998, private respondent herein Victor Ma. Gaston was himself prevented from entering the subdivision and proceeding to his residential abode when petitioner herein security guards Roger Capillo and a ‘John Doe’ lowered the steel bar of the KAMETAL gate of the subdivision and demanded from him his driver’s

license for identification. The complaint further alleged that these acts of the petitioners herein done in the presence of other subdivision owners had caused private respondents to suffer moral damage.

“On 3 April 1998, during the hearing of the private respondents’ application for the issuance of a temporary restraining order before the lower court, counsel for the petitioners informed the court that he would be filing a motion to dismiss the case and made assurance that pending the issuance of a temporary restraining order, the private respondents would be granted unrestricted access to and from their place of residence.

“On 8 April 1998, petitioners herein filed a motion to dismiss arguing that the trial court ha[d] no jurisdiction over the case as it involve[d] an intra-corporate dispute between SCHA and its members pursuant to Republic Act No. 580, as amended by Executive Order Nos. 535 and 90, much [less], to declare as null and void the subject resolution of the board of directors of SCHA, the proper forum being the Home Insurance (and Guaranty) Corporation (HIGC). To support their claim of intra-corporate controversy, petitioners stated that the Articles of Incorporation of SCHA, which was duly approved by the Securities and Exchange Commission (SEC) on 4 October 1973, provides ‘that the association shall be a non-stock corporation with all homeowners of Sta. Clara constituting its membership’. Also, its by-laws contains a provision that ‘all real estate owners in Sta. Clara Subdivision automatically become members of the association’.  The private respondents, having become lot owners of Sta. Clara Subdivision in 1974 after the approval by the SEC of SCHA’s articles of incorporation and by-laws, became members automatically in 1974 of SCHA argued the petitioners. Moreover, the private respondents allegedly enjoyed the privileges and benefits of membership in and abided by the rules of the association, and even attended the general special meeting of the association members on 24 March 1998. Their non-payment of the association yearly dues [did] not make them non-members of SCHA continued the petitioners. And even granting that the private respondents [were] not members of the association, the petitioners opined that the HIGC still ha[d] jurisdiction over the case pursuant to Section 1 (a), Rule II of the Rules of Procedure of the HIGC.

“On 6 July 1998, the lower court, after having received private respondents opposition to petitioners’ motion to dismiss and other subsequent pleadings filed by the parties, resolved to deny petitioners’ motion to dismiss, finding that there existed no intra-corporate controversy since the private respondents alleged that they ha[d] never joined the association; and, thus, the HIGC had no jurisdiction to hear the case.  On 18 July 1998, petitioners submitted a Motion

for Reconsideration, adding lack of cause of action as ground for the dismissal of the case.  This additional ground was anchored on the principle of damnum absque injuria as allegedly there [was] no allegation in the complaint that the private respondents were actually prevented from entering the subdivision and from having access to their residential abode.  On 17 August 1998, the court a quo, taking into consideration the comment filed by the private respondents[,] on petitioners’ motion for reconsideration and the pleadings thereafter submitted by the parties, denied the said motion without however ruling on the additional ground of lack of cause of action x x x.

x x x                                                                        x xx                                                                 x x x

“On 18 August 1998, petitioners filed a motion to resolve defendants’ motion to dismiss on ground of lack of cause of action.  On 8 September 1998, after the petitioners and the private respondents submitted their pleadings in support of or in opposition thereto, as the case may be, the trial court issued an order denying the motion, x x x.”[6]

On September 24, 1998, petitioners elevated the matter to the Court of Appeals via a Petition forCertiorari.[7]

Ruling of the Court of Appeals

The Court of Appeals dismissed the Petition and ruled that the RTC had jurisdiction over the dispute. It debunked petitioners’ contention that an intra-corporate controversy existed between the SCHA and respondents.  The CA held that the Complaint had stated a cause of action.  It likewise opined that jurisdiction and cause of action were determined by the allegations in the complaint and not by the defenses and theories set up in the answer or the motion to dismiss.

Hence, this Petition.[8]

Issues

In their Memorandum, petitioners raise the following issues for the Court’s consideration:

I

“Whether or not Respondent Court of Appeals erred in upholding the jurisdiction of the court a quo, ‘to declare as null and void the resolution of the Board of SCHA, decreeing that only members [in] good standing of the said association, were to be issued stickers for use in their vehicles.

II

“Whether or not private respondents are members of SCHA.

III

“Whether or not Respondent Court of Appeals erred in not ordering the dismissal of the Complaint in Civil Case No. 98-10217 for lack of cause of action.”[9]

In sum, the issues boil down to two:  (1) Did the RTC have jurisdiction over the Complaint? and (2) Did the Complaint state a cause of action?

This Court’s Rulings

The Petition has no merit.

First Issue:   Jurisdiction

Petitioners contend that the CA erred in upholding the trial court’s jurisdiction to declare as null and void the SCHA Resolution decreeing that only members in good standing would be issued vehicle stickers.

The RTC did not void the SCHA Resolution; it merely resolved the Motion to Dismiss filed by petitioners by holding that it was the RTC, not the Home Insurance and Guaranty Corporation (HIGC), that had jurisdiction over the dispute.

HIGC’s   Jurisdiction

HIGC[10] was created pursuant to Republic Act 580.[11] Originally, administrative supervision over homeowners’ associations was vested by law in the Securities and Exchange Commission (SEC).[12]

Pursuant to Executive Order (EO) No. 535, however,[13] the HIGC assumed the regulatory and adjudicative functions of the SEC over homeowners’ associations.  Explicitly vesting such powers in the HIGC is paragraph 2 of EO 535, which we quote hereunder:

“2.            In addition to the powers and functions vested under the Home Financing Act, the Corporation, shall have among others, the following additional powers:

(a) x x x; and exercise all the powers, authorities and responsibilities that are vested in the Securities and Exchange Commission with respect to home owners associations, the provision of Act 1459, as amended by P.D. 902-A, to the contrary nothwithstanding;

(b)            To regulate and supervise the activities and operations of all houseowners associations registered in accordance therewith.”

Moreover, by virtue of the aforequoted provision, the HIGC also assumed the SEC’s original and exclusive jurisdiction to hear and decide cases involving controversies arising from intra-corporate or partnership relations.[14]

In December 1994, the HIGC adopted the Revised Rules of Procedure in the Hearing of Homeowners’ Disputes, pertinent portions of which are reproduced below:

“RULE II 

Disputes Triable by HIGC/Nature of Proceedings

Section 1. Types of Disputes. - The HIGC or any person, officer, body, board or committee duly designated or created by it shall have jurisdiction to hear and decide cases involving the following:

a)  Devices or schemes employed by or any acts of the Board of Directors or officers of the association amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the members of the association or the association registered with HIGC

b)  Controversies arising out of intra-corporate relations between and among members of the association, between any or all of them and the association of which they are members; and between such association and the state/general public or other entity in so far as it concerns its right to exist as a corporate entity.

x x x                                                                        x x                                                                  x x x.”

The aforesaid powers and responsibilities, which had been vested in the HIGC with respect to homeowners’ associations, were later transferred to the Housing and Land Use Regulatory Board (HLURB) pursuant to Republic Act  8763.[15]

Are Private Respondents SCHA Members?

In order to determine if the HIGC has jurisdiction over the dispute, it is necessary to resolve preliminarily -- on the basis of the allegations in the Complaint -- whether private respondents are members of the SCHA.

Petitioners contend that because the Complaint arose from intra-corporate relations between the SCHA and its members, the HIGC therefore has no jurisdiction over the dispute.  To support their contention that private respondents are members of the association, petitioners cite the SCHA’s Articles of Incorporation[16] and By-laws[17] which provide that all landowners of the Sta. Clara Subdivision are automatically members of the SCHA.

We are not persuaded. The constitutionally guaranteed freedom of association[18] includes the freedomnot to associate.[19] The right to choose with whom one will associate oneself is the very foundation and essence of that partnership.[20] It should be noted that the provision guarantees the right to form an association.  It does not include the right to compel others to form or join one.[21]

More to the point, private respondents cannot be compelled to become members of the SCHA by the simple expedient of including them in its Articles of Incorporation and By-laws without their express or implied consent.  True, it may be to the mutual advantage of lot owners in a subdivision to band themselves together to promote their common welfare.  But that is possible only if the owners voluntarily agree, directly or indirectly, to become members of the association.  True also, memberships in homeowners’ associations may be acquired in various ways -- often through deeds of sale, Torrenscertificates or other forms of evidence of property ownership.  In the present case, however, other than the said Articles of Incorporation and By-laws, there is no showing that private respondents have agreed to be SCHA members.

As correctly observed by the CA:

“x x x.  The approval by the SEC of the said documents is not an operative act which bestows membership on the private respondents because the right to associate partakes of the nature of freedom of contract which can be exercised by and between the homeowners amongst themselves, the homeowners’ association and a homeowner, and the subdivision owner and a homeowner/lot buyer x x x.”[22]

No   Privity   of Contract

Clearly then, no privity of contract exists between petitioners and private respondents.  As a general rule, a contract is a meeting of minds between two persons.[23] The Civil Code upholds the spirit over the form; thus, it deems an agreement to exist, provided the essential requisites are present.  A contract is upheld as long as there is proof of consent, subject matter and cause. Moreover, it is generally obligatory in whatever form it may have been entered into.  From the moment there is a meeting of minds between the parties, it is perfected.[24]

As already adverted to, there are cases in which a party who enters into a contract of sale is also bound by a lien annotated on the certificate of title.  We recognized this in Bel Air Village Association, Inc. v. Dionisio,[25] in which we ruled:

“There is no dispute that Transfer Certificate of Title No. 81136 covering the subject parcel of land issued in the name of the petitioner contains an annotation to the effect that the lot owner becomes an automatic member of the respondent Bel-Air Association and must abide by such rules and regulations laid down by the Association in the interest of the sanitation, security and the general welfare of the community. It is likewise not disputed that the provision on automatic membership was expressly annotated on the petitioner’s Transfer Certificate of Title and on the title of his predecessor-in-interest.

”The question, therefore, boils down to whether or not the petitioner is bound by such annotation.

“Section 39 of Art. 496 (The Land Registration Act) states:

‘Sec. 39. Every person receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land who takes a

certificate of title for value in good faith shall hold the same free of all encumbrances except those noted on said certificate x x x.’” (Italics supplied)

The above ruling, however, does not apply to the case at bar. When private respondents purchased their property in 1974 and obtained Transfer Certificates of Title Nos. T-126542 and T-127462 for Lots 11 and 12 of Block 37 along San Jose Avenue in Sta. Clara Subdivision, there was no annotation showing their automatic membership in the SCHA.  Thus, no privity of contract arising from the title certificate exists between petitioners and private respondents.

Further, the records are bereft of any evidence that would indicate that private respondents intended to become members of the SCHA.  Prior to the implementation of the aforesaid Resolution, they and the other homeowners who were not members of the association were issued non-member gate pass stickers for their vehicles.  This fact has not been disputed by petitioners.  Thus, the SCHA recognized that there were subdivision landowners who were not members thereof, notwithstanding the provisions of its Articles of Incorporation and By-laws.

Jurisdiction Determined by Allegations in the Complaint

It is a settled rule that jurisdiction over the subject matter is determined by the allegations in the complaint.  Jurisdiction is not affected by the pleas or the theories set up by the defendant in an answer or a motion to dismiss.  Otherwise, jurisdiction would become dependent almost entirely upon the whims of the defendant.[26]

The Complaint does not allege that private respondents are members of the SCHA.  In point of fact, they deny such membership.  Thus, the HIGC has no jurisdiction over the dispute.

Petitioners likewise contend that even if private respondents are not members of the SCHA, an intra-corporate controversy under the third type of dispute provided in Section 1(b) of Rule II of the HIGC Rules exists.  Petitioners posit that private respondents fall within the meaning of “general public.”  We are not convinced.

First, the third type of dispute refers only to cases wherein an  association’s right to exist as a corporate entity is at issue.  In the present case, the Complaint filed by private respondents refers to

theSCHA’s acts allegedly amounting to an impairment of their free access to their place of residence inside the Sta. Clara Subdivision.[27] The existence of SCHA as a corporate entity is clearly not at issue in the instant case.

Second, in United BF Homeowners’ Association v. BF Homes, Inc.,[28] we held that Section 1(b), Rule II of HIGC’s “Revised Rules of Procedure in the Hearing of Homeowners’ Disputes” was void.  The HIGC went beyond its lawful authority provided by law when it promulgated its revised rules of procedure. There was a clear attempt to unduly expand the provisions of Presidential Decree 902-A.  As provided by the law, it is only the State -- not the “general public or other entity” -- that can question an association’s franchise or corporate existence.[29]

To reiterate, the HIGC exercises limited jurisdiction over homeowners’ disputes.  The law confines its authority to controversies that arise from any of the following intra-corporate relations: (1) between and among members of the association; (2) between any and/or all of them and the association of which they are members; and (3) between the association and the state insofar as the controversy concerns its right to exist as a corporate entity.[30]

It should be stressed that the Complaint here is for damages. It does not assert membership in the SCHA as its basis. Rather, it is based on an alleged violation of their alleged right of access through the subdivision and on the alleged embarrassment and humiliation suffered by the plaintiffs.

Second Issue:   Sufficiency of Cause of Action

Petitioners claim that the CA erred in not ordering the dismissal of the Complaint for lack of cause of action.  They argue that there was no allegation therein that private respondents were actually prevented from entering the subdivision and gaining access to their residential abode.

This contention is untenable. A defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded as having hypothetically admitted all the factual averments in the complaint. The test of the sufficiency of the allegations constituting the cause of action is whether, admitting the facts alleged, the court can render a valid judgment on the prayers.[31] This test implies that the issue must be

passed upon on the basis of the bare allegations in the complaint. The court does not inquire into the truth of such allegations and declare them to be false.  To do so would constitute a procedural error and a denial of the plaintiff’s right to due process.[32]

A complaint states a cause of action when it contains these three essential elements: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the defendant in violation of the said legal right.[33]

In the instant case, the records sufficiently establish a cause of action.  First, the Complaint alleged that, under the Constitution, respondents had a right of free access to and from their residential abode.Second, under the law, petitioners have the obligation to respect this right.  Third, such right was impaired by petitioners when private respondents were refused access through the Sta. Clara Subdivision, unless they showed their driver’s license for identification.

Given these hypothetically admitted facts, the RTC, in the exercise of its original and exclusive jurisdiction,[34] could have rendered judgment over the dispute.

We stress that, in rendering this Decision, this Court is not prejudging the main issue of whether, in truth and in fact, private respondents are entitled to a favorable decision by the RTC.  That will be made only after the proper proceedings therein.  Later on, if it is proven during the trial that they are indeed members of the SCHA, then the case may be dismissed on the ground of lack of jurisdiction.  We are merely holding that, on the basis of the allegations in the Complaint, (1) the RTC has jurisdiction over the controversy and (2) the Complaint sufficiently alleges a cause of action. Therefore, it is not subject to attack by a motion to dismiss on these grounds.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED.  Costs against petitioners.

SO ORDERED. 

Melo, (Chairman), Sandoval-Gutierrez, and Carpio, JJ., concur.Vitug, J., I concur although I might call attention to Article 2174 of

the Civil Code as and when pertinent.

[G.R. No. 146807.  May 9, 2002]

PADCOM CONDOMINIUM CORPORATION, petitioner, vs. ORTIGAS CENTER ASSOCIATION, INC., respondent.

D E C I S I O N

DAVIDE, JR., C.J.:

Challenged in this case is the 30 June 2000 decision[1] of the Court of Appeals in CA-G.R. CV No. 60099, reversing and setting aside the 1 September 1997 decision[2] of the Regional Trial Court of Pasig City, Branch 264, in Civil Case No. 63801.[3]

Petitioner Padcom Condominium Corporation (hereafter PADCOM) owns and manages the Padilla Office Condominium Building (PADCOM Building) located at Emerald Avenue, Ortigas Center, Pasig City.  The land on which the building stands was originally acquired from the Ortigas & Company, Limited Partnership (OCLP), by Tierra Development Corporation (TDC) under a Deed of Sale dated 4 September 1974.  Among the terms and conditions in the deed of sale was the requirement that the transferee and its successor-in-interest must become members of an association for realty owners and long-term lessees in the area later known as the Ortigas Center. Subsequently, the said lot, together with improvements thereon, was conveyed by TDC in favor of PADCOM in a Deed of Transfer dated 25 February 1975.[4]

In 1982, respondent Ortigas Center Association, Inc. (hereafter the Association) was organized to advance the interests and promote the general welfare of the real estate owners and long-term lessees of lots in the Ortigas Center. It sought the collection of membership dues in the amount of two thousand seven hundred twenty-four pesos and forty centavos (P2,724.40) per month from PADCOM.  The corporate books showed that PADCOM owed the AssociationP639,961.47, representing membership dues, interests and penalty charges from April 1983 to June 1993.[5] The letters exchanged between the parties through the years showed repeated demands for payment, requests for extensions of payment, and even a settlement scheme proposed by PADCOM in September 1990.

In view of PADCOM’s failure and refusal to pay its arrears in monthly dues, including interests and penalties thereon, the Association filed a complaint for collection of sum of money before the trial court below, which was docketed as Civil Case No. 63801.  The Association averred that purchasers of lands within the Ortigas Center complex from OCLP are obligated under their contracts of sale to become members of the Association.  This obligation was allegedly passed on to PADCOM when it bought the lot from TDC, its predecessor-in-interest.[6]

In its answer, PADCOM contended that it is a non-stock, non-profit association, and for it to become a special member of the Association, it should first apply for and be accepted for membership by the latter’s Board of Directors.  No automatic membership was apparently contemplated in the Association’s By-laws.  PADCOM added that it could not be compelled to become a member without violating its right to freedom of association.  And since it was not a member of the Association, it was not liable for membership dues, interests and penalties.[7]

During the trial, the Association presented its accountant as lone witness to prove that PADCOM was, indeed, one of its members and, as such, did not pay its membership dues.

PADCOM, on the other hand, did not present its evidence; instead it filed a motion to dismiss by way of demurrer to evidence.  It alleged that the facts established by the Association showed no right to the relief prayed for.  It claimed that the provisions of the Association’s By-laws and the Deed of Transfer did not contemplate automatic membership. Rather, the owner or long-term lessee becomes a member of the Association only after applying with and being accepted by its Board of Directors.  Assuming further that PADCOM was a member of the Association, the latter failed to show that the collection of monthly dues was a valid corporate act duly authorized by a proper resolution of the Association’s Board of Directors.[8]

After due consideration of the issues raised in the motion to dismiss, the trial court rendered a decision dismissing the complaint.[9]

The Association appealed the case to the Court of Appeals, which docketed the appeal as CA-G.R. CV No. 60099.  In its decision[10] of 30 June 2000, the Court of Appeals reversed and set aside the trial court’s dismissal of Civil Case No. 63801, and decreed as follows:

WHEREFORE, the appealed decision dated September 1, 1997 is REVERSED and SET ASIDE and, in lieu thereof, a new one is entered ordering the appellee (PADCOM) to pay the appellant (the Association) the following:

1)  P639,961.47 as and for membership dues in arrears inclusive of earned interests and penalties; and 

2)  P25,000.00 as and for attorney’s fees.

Costs against the appellees.

SO ORDERED.

The Court of Appeals justified its ruling by declaring that PADCOM automatically became a member of the Association when the land was sold to TDC.  The intent to pass the obligation to prospective transferees was evident from the annotation of the same clause at the back of the Transfer Certificate of Title covering the lot.  Despite disavowal of membership, PADCOM’s membership in the Association was evident from these facts: (1) PADCOM was included in the Association’s list of bona fide members as of 30 March 1995; (2) Narciso Padilla, PADCOM’s President, was one of the Association’s incorporators; and (3) having received the demands for payment, PADCOM not only acknowledged them, but asked for and was granted repeated extensions, and even proposed a scheme for the settlement of its obligation.  The Court of Appeals also ruled that PADCOM cannot evade payment of its obligation to the Association without violating equitable principles underlying quasi-contracts.  Being covered by the Association’s avowed purpose to promote the interests and welfare of its members, PADCOM cannot be allowed to expediently deny and avoid the obligation arising from such membership.

Dissatisfied with the adverse judgment of the Court of Appeals, PADCOM filed the petition for review in this case.  It raises the sole issue of whether it can be compelled to join the association pursuant to the provision onautomatic membership appearing as a condition in the Deed of Sale of 04 September 1974 and the annotation thereof on Transfer Certificate of Title No. 457308.

PADCOM contends that it cannot be compelled to be a member of the Association solely by virtue of the “automatic membership” clause that appears on the title of the property and the Deed of Transfer.  In 1975, when it bought the land, the Association was still inexistent.  Therefore, the provision on automatic membership was anticipatory in nature, subject to the actual formation of the Association and the subsequent formulation of its implementing rules.

PADCOM likewise maintains that the Association’s By-laws requires an application for membership.  Since it never sought membership, the Court of Appeals erred in concluding that it was a member of the Association by implication.  Aside from the lack of evidence proving such membership, the Association has no basis to collect monthly dues since there is no board resolution defining and prescribing how much should be paid.

For its part, the Association claims that the Deed of Sale between OCLP and TDC clearly stipulates automatic membership for the owners of lots in the

Ortigas Center, including their successors-in-interest.  The filing of applications and acceptance thereof by the Board of Directors of the Association are, therefore, mere formalities that can be dispensed with or waived.  The provisions of the Association’s By-laws cannot in any manner alter or modify the automatic membership clause imposed on a property owner by virtue of an annotation of encumbrance on his title.

The Association likewise asserts that membership therein requires the payment of certain amounts for its operations and activities, as may be authorized by its Board of Directors.  The membership dues are for the common expenses of the homeowners for necessary services.

After a careful examination of the records of this case, the Court sees no reason to disturb the assailed decision. The petition should be denied.

Section 44 of Presidential Decree No. 1529[11] mandates that:

SEC. 44. Statutory liens affecting title. – Every registered owner receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land taking a certificate of title for value and in good faith, shall hold the same free from all encumbrances except those noted on said certificate and any of the following encumbrances which may be subsisting, namely: xxx

Under the Torrens system of registration, claims and liens of whatever character, except those mentioned by law, existing against the land binds the holder of the title and the whole world.[12]

It is undisputed that when the land in question was bought by PADCOM’s predecessor-in-interest, TDC, from OCLP, the sale bound TDC to comply with paragraph (G) of the covenants, conditions and restrictions of the Deed of Sale, which reads as follows:[13]

G.  AUTOMATIC MEMBERSHIP WITH THE ASSOCIATION:

The owner of this lot, its successor-in-interest hereby binds himself to become a member of the ASSOCIATION which will be formed by and among purchasers, fully paid up Lot BUYERS, Building Owners and the COMPANY in respect to COMPANY OWNED LOTS.

The OWNER of this lot shall abide by such rules and regulations that shall be laid down by the ASSOCIATION in the interest of security, maintenance, beautification and general welfare of the OFFICE BUILDING zone.  The ASSOCIATION when organized shall also, among others, provide for and

collect assessments which shall constitute a lien on the property, junior only to liens of the Government for taxes.

Evidently, it was agreed by the parties that dues shall be collected from an automatic member and such fees or assessments shall be a lien on the property.

This stipulation was likewise annotated at the back of Transfer Certificate of Title No. 457308 issued to TDC.[14]And when the latter sold the lot to PADCOM on 25 February 1975, the Deed of Transfer expressly stated:[15]

NOW, THEREFORE, for and in consideration of the foregoing premises, the DEVELOPER, by these presents, cedes, transfers and conveys unto the CORPORATION the above-described parcel of land evidenced by Transfer Certificate of Title No. 457308, as well as the Common and Limited Common Areas of the Condominium project mentioned and described in the Master Deed with Declaration of Restrictions  (Annex “A” hereof), free from all liens and encumbrances, except those already annotated at the back of  said Transfer Certificate of Title  No. 457308, xxx

This is so because any lien annotated on previous certificates of title should be incorporated in or carried over to the new transfer certificates of title.  Such lien is inseparable from the property as it is a right in rem, a burden on the property whoever its owner may be.  It subsists notwithstanding a change in ownership; in short, the personality of the owner is disregarded. [16] As emphasized earlier, the provision on automatic membership was annotated in the Certificate of Title and made a condition in the Deed of Transfer in favor of PADCOM.  Consequently, it is bound by and must comply with the covenant.

Moreover, Article 1311 of the Civil Code provides that contracts take effect between the parties, their assigns and heirs.  Since PADCOM is the successor-in-interest of TDC, it follows that the stipulation on automatic membership with the Association is also binding on the former.

We are not persuaded by PADCOM’s contention that the By-laws of the Association requires application for membership and acceptance thereof by the Board of Directors.  Section 2 of the By-laws[17] reads:

Section 2. Regular Members. – Upon acceptance by the Board of Directors of Ortigas Center Association, Inc., all realestate owners, or long-term lessees of lots within the boundaries of the Association as defined in the Articles of Incorporation become regular members, provided, however that the long-term lessees of a lot or lots in said area shall be considered as the regular members in lieu of the owners of the same. Likewise, regular membership in the

Association automatically ceases upon the cessation of a member to be an owner or long-term lessee of real estate in the area.

A lessee shall be considered a long-term lessee if his lease is in writing and for a period of two (2) years or more. Membership of a long-term lessee in the Association shall be co-terminus with his legal possession (or his lease) of the lot/s in the area.  Upon the lessee’s cessation of membership in the Association, the owner shall automatically succeed the lessee as member thereat.

As lot owner, PADCOM is a regular member of the Association.  No application for membership is necessary.  If at all, acceptance by the Board of Directors is a ministerial function considering that PADCOM is deemed to be a regular member upon the acquisition of the lot pursuant to the automatic membership clause annotated in the Certificate of Title of the property and the Deed of Transfer.

Neither are we convinced by PADCOM’s contention that the automatic membership clause is a violation of its freedom of association.  PADCOM was never forced to join the association.  It could have avoided such membership by not buying the land from TDC.  Nobody forced it to buy the land when it bought the building with the annotation of the condition or lien on the Certificate of Title thereof and accepted the Deed.  PADCOM voluntarily agreed to be bound by and respect the condition, and thus to join the Association.

In addition, under the principle of estoppel, PADCOM is barred from disclaiming membership in the Association.  In estoppel, a person, who by his act or conduct has induced another to act in a particular manner, is barred from adopting an inconsistent position, attitude or course of conduct that thereby causes loss or injury to another.[18]

We agree with the Court of Appeals’ conclusion from the facts or circumstances it enumerated in its decision and enumerated above that PADCOM is, indeed, a regular member of the Association.  These facts and circumstances are sufficient grounds to apply the doctrine of estoppel against PADCOM.

Having ruled that PADCOM is a member of the Association, it is obligated to pay its dues incidental thereto. Article 1159 of the Civil Code mandates:

Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

Assuming in gratis argumenti that PADCOM is not a member of the Association, it cannot evade payment without violating the equitable principles underlying quasi-contracts.  Article 2142 of the Civil Code provides:

Art. 2142.  Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another.

Generally, it may be said that a quasi-contract is based on the presumed will or intent of the obligor dictated by equity and by the principles of absolute justice.  Examples of these principles are: (1) it is presumed that a person agrees to that which will benefit him; (2) nobody wants to enrich himself unjustly at the expense of another; or (3) one must do unto others what he would want others to do unto him under the same circumstances.[19]

As resident and lot owner in the Ortigas area, PADCOM was definitely benefited by the Association’s acts and activities to promote the interests and welfare of those who acquire property therein or benefit from the acts or activities of the Association.

Finally, PADCOM’s argument that the collection of monthly dues has no basis since there was no board resolution defining how much fees are to be imposed deserves scant consideration.  Suffice it is to say that PADCOM never protested upon receipt of the earlier demands for payment of membership dues.  In fact, by proposing a scheme to pay its obligation, PADCOM cannot belatedly question the Association’s authority to assess and collect the fees in accordance with the total land area owned or occupied by the members, which finds support in a resolution dated 6 November 1982 of the Association’s incorporating directors[20] and Section 2 of its By-laws.[21]

WHEREFORE, the petition is hereby DENIED for lack of merit.

Costs against petitioner.

SO ORDERED.

Puno, Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concur.

PAUL LEE TAN, ANDREW            G.R. No. 153468LIUSON, ESTHER WONG,

STEPHEN CO, JAMES TAN,          Present:JUDITH TAN, ERNESTOTANCHI JR., EDWIN NGO,                      PANGANIBAN, CJ.,Chairperson,VIRGINIA KHOO, SABINO                      YNARES-SANTIAGO,         PADILLA JR., EDUARDO P.           AUSTRIA-MARTINEZ,        LIZARES and GRACE                                CALLEJO, SR., and            CHRISTIAN HIGH SCHOOL,             CHICO-NAZARIO, JJ.     

                  Petitioners,                                                                                                

         - versus -                                                                                                                                                   

PAUL SYCIP and MERRITTO   LIM,                                                     Promulgated:                                Respondents.                August 17, 2006x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x 

 DECISION

 

PANGANIBAN, CJ.:  

For stock corporations, the “quorum” referred to in Section 52

of the Corporation Code is based on the number of outstanding

voting stocks.  For nonstock corporations, only those who are actual,

living members with voting rights shall be counted in determining

the existence of a quorum during members’ meetings.  Dead

members shall not be counted.

The Case 

The present Petition for Review on Certiorari[1] under Rule 45

of the Rules of Court seeks the reversal of the January 23[2] and

May 7, 2002,[3] Resolutions of theCourt of Appeals (CA) in CA-

GR SP No. 68202.  The first assailed Resolution dismissed the

appeal filed by petitioners with the CA.  Allegedly, without the

proper authorization of the other petitioners, the Verification and

Certification of Non-Forum Shopping were signed by only one of

them -- Atty. Sabino Padilla Jr.  The second Resolution denied

reconsideration.               

The Facts 

 

          Petitioner Grace Christian High School (GCHS) is a

nonstock, non-profit educational corporation with fifteen (15)

regular members, who also constitute the board of trustees.[4]  During the annual members’ meeting held on April 6, 1998,

there were only eleven (11)[5] living member-trustees, as four (4)

had already died.  Out of the eleven, seven (7)[6] attended the

meeting through their respective proxies.  The meeting was

convened and chaired by Atty. Sabino Padilla Jr. over the objection

of Atty. Antonio C. Pacis, who argued that there was no quorum.[7]  In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia

Khoo, and Judith Tan were voted to replace the four deceased

member-trustees.

 

          When the controversy reached the Securities and

Exchange Commission (SEC), petitioners maintained that the

deceased member-trustees should not be counted in the

computation of the quorum because, upon their death, members

automatically lost all their rights (including the right to vote) and

interests in the corporation.

          SEC Hearing Officer Malthie G. Militar declared the April

6, 1998 meeting null and void for lack of quorum.  She held that

the basis for determining the quorum in a meeting of members

should be their number as specified in the articles of incorporation,

not simply the number of living members.[8]  She explained that the

qualifying phrase “entitled to vote” in Section 24[9] of the

Corporation Code, which provided the basis for determining a

quorum for the election of directors or trustees, should be read

together with Section 89.[10]

The hearing officer also opined that Article III (2)[11] of the

By-Laws of GCHS, insofar as it prescribed the mode of filling

vacancies in the board of trustees, must be interpreted in

conjunction with Section 29[12] of the Corporation Code.  The SEC

en banc denied the appeal of petitioners and affirmed the Decision

of the hearing officer in toto.[13]  It found to be untenable their

contention that the word “members,” as used in Section 52[14] of

the Corporation Code, referred only to the living members of a

nonstock corporation.[15]

 

As earlier stated, the CA dismissed the appeal of petitioners,

because the Verification and Certification of Non-Forum Shopping

had been signed only by Atty. Sabino Padilla Jr.  No Special Power

of Attorney had been attached to show his authority to sign for the

rest of the petitioners.

 

Hence, this Petition.[16]

 

Issues

 

          Petitioners state the issues as follows:              “Petitioners principally pray for the resolution of the legal question of whether or not in NON-STOCK corporations, dead members should still be counted in determination of quorum for purposed of conducting the Annual Members’ Meeting.             “Petitioners have maintained before the courts below  that the DEAD members should no longer be counted in computing quorum primarily on the ground that members’ rights are ‘personal and non-transferable’ as provided in Sections 90 and 91 of the Corporation Code of the Philippines.             “The SEC ruled against the petitioners solely on the basis of a 1989 SEC Opinion that did not even involve a non-stock corporation as petitioner GCHS.           

“The Honorable Court of Appeals on the other hand simply refused to resolve this question and instead dismissed the petition for review on a technicality – the failure to timely submit an SPA from the petitioners authorizing their co-petitioner Padilla, their counsel and also a petitioner before the Court of Appeals, to sign the petition on behalf of the rest of the petitioners.             “Petitioners humbly submit that the action of both the SEC and the Court of Appeals are not in accord with law particularly the pronouncements of this Honorable Court in Escorpizo v. University of Baguio (306 SCRA 497), Robern Development Corporation v. Quitain (315 SCRA 150,) and MC Engineering, Inc. v. NLRC, (360 SCRA 183).  Due course should have been given the petition below and the merits of the case decided in petitioners’ favor.”[17]

 

 

          In sum, the issues may be stated simply in this wise:  1)

whether the CA erred in denying the Petition below, on the basis of

a defective Verification and Certification; and 2) whether dead

members should still be counted in the determination of the

quorum, for purposes of conducting the annual members’

meeting.  

                  

The Court’s Ruling

 

The present Petition is partly meritorious.

 Procedural Issue:

 Verification and Certification

of Non-Forum Shopping

  

The Petition before the CA was initially flawed, because the

Verification and Certification of Non-Forum Shopping were

signed by only one, not by all, of the petitioners; further, it failed

to show proof that the signatory was authorized to sign on behalf

of all of them.  Subsequently, however, petitioners submitted a

Special Power of Attorney, attesting that Atty. Padilla was

authorized to file the action on their behalf.[18] 

                                                                

In the interest of substantial justice, this initial procedural

lapse may be excused. [19]There appears to be no intention to

circumvent the need for proper verification and certification, which

are aimed at assuring the truthfulness and correctness of the

allegations in the Petition for Review and at discouraging forum

shopping.[20]  More important, the substantial merits of petitioners’

case and the purely legal question involved in the Petition should

be considered special circumstances[21] or compelling reasons that

justify an exception to the strict requirements of the verification

and the certification of non-forum shopping.[22] 

         Main Issue:

Basis for Quorum

 

 

          Generally, stockholders’ or members’ meetings are called

for the purpose of electing directors or trustees[23] and transacting

some other business calling for or requiring the action or consent

of the shareholders or members,[24] such as the amendment of the

articles of incorporation and bylaws, sale or disposition of all or

substantially all corporate assets, consolidation and merger and the

like, or any other business that may properly come before the

meeting.

         

          Under the Corporation Code, stockholders or members

periodically elect the board of directors or trustees, who are

charged with the management of the corporation.[25] The board, in

turn, periodically elects officers to carry out management functions

on a day-to-day basis.  As owners, though, the stockholders or

members have residual powers over fundamental and major

corporate changes. 

         

          While stockholders and members (in some instances) are

entitled to receive profits, the management and direction of the

corporation are lodged with their representatives and agents -- the

board of directors or trustees.[26]  In other words, acts of

management pertain to the board; and those of ownership, to the

stockholders or members.  In the latter case, the board cannot act

alone, but must seek approval of the stockholders or members.[27]

         

          Conformably with the foregoing principles, one of the most

important rights of a qualified shareholder or member is the right 

to vote -- either personally or by proxy -- for the directors or

trustees who are to manage the corporate affairs.[28]  The right to

choose the persons who will direct, manage and operate the

corporation is significant, because it is the main way in which a

stockholder can have a voice in the management of corporate

affairs, or in which a member in a nonstock corporation can have a

say on how the purposes and goals of the corporation may be

achieved.[29]  Once the directors or trustees are elected, the

stockholders or members relinquish corporate powers to the board

in accordance with law.

 

          In the absence of an express charter or statutory provision to

the contrary, the general rule is that every member of a nonstock

corporation, and every legal owner of shares in a stock corporation,

has a right to be present and to vote in all corporate meetings.

Conversely, those who are not stockholders or members have

no right to vote.[30]  Voting may be expressed personally, or

through proxies who vote in their representative capacities.[31]  Generally, the right to be present and to vote in a meeting is

determined by the time in which the meeting is held.[32]

 

          Section 52 of the Corporation Code states: 

“Section 52. 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.”

 

 

          In stock corporations, the presence of a quorum is

ascertained and counted on the basis of the outstanding capital

stock, as defined by the Code thus: 

                        “SECTION 137.  Outstanding capital stock defined. – The term ‘outstanding capital stock’ as used in this Code, means the total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares.” (Underscoring supplied)

  

 The Right to Vote in

Stock Corporations 

          The right to vote is inherent in and incidental to the

ownership of corporate stocks.[33]  It is settled that unissued stocks

may not be voted or considered in determining whether a quorum

is present in a stockholders’ meeting, or whether a requisite

proportion of the stock of the corporation is voted to adopt a

certain measure or act.  Only stock actually issued and outstanding

may be voted.[34]  Under Section 6 of the Corporation Code, each

share of stock is entitled to vote, unless otherwise provided in the

articles of incorporation or declared delinquent[35] under Section 67

of the Code. 

 

          Neither the stockholders nor the corporation can vote or

represent shares that have never passed to the ownership of

stockholders; or, having so passed, have again been purchased by

the corporation.[36]  These shares are not to be taken into

consideration in determining majorities.  When the law speaks of a 

given proportion of the stock, it must be construed to mean

the shares that have passedfrom the corporation, and that may be

voted.[37]

 

Section 6 of the Corporation Code, in part, provides:                         “Section 6.  Classification of shares. – The shares of stock

of stock corporations may be divided into classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation: Provided, That no share may be deprived of voting rights except those classified and issued as “preferred” or “redeemable” shares, unless otherwise provided in this Code:  Provided, further, that there shall always be a class or series of shares which have complete voting rights.

 x x x                            x x x                            x x x

                         “Where the articles of incorporation provide for non-voting

shares in the cases allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the following matters:

 1.      Amendment of the articles of incorporation;2.      Adoption and amendment of by-laws;3.      Sale, lease, exchange, mortgage, pledge or other

disposition of all or substantially all of the corporation property;

4.      Incurring, creating or increasing bonded indebtedness;5.      Increase or decrease of capital stock;6.      Merger or consolidation of the corporation with another

corporation or other corporations;7.      Investment of corporate funds in another corporation or

business in accordance with this Code; and8.      Dissolution of the corporation.

                         “Except as provided in the immediately preceding

paragraph, the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights.”

 

Taken in conjunction with Section 137, the last paragraph of

Section 6 shows that the intention of the lawmakers was to base the

quorum mentioned in Section 52 on the number

of outstanding voting stocks.[38] 

 The Right to Vote inNonstock Corporations  

          In nonstock corporations, the voting rights attach to

membership.[39]  Members vote as persons, in accordance with the

law and the bylaws of the corporation.  Each member shall be

entitled to one vote unless so limited, broadened, or denied in the

articles of incorporation or bylaws.[40]  We hold that when the

principle for determining the quorum for stock corporations is

applied by analogy to nonstock corporations, only those who

are actual members with voting rights should be counted.

 

Under Section 52 of the Corporation Code, the majority of

the members representing the actual number of voting rights, not 

the number or numerical constant that may originally be

specified in the articles of incorporation, constitutes the quorum.[41] 

 

The March 3, 1986 SEC Opinion[42] cited by the hearing

officer uses the phrase “majority vote of the members”; likewise

Section 48 of the Corporation Code refers to 50 percent of 94

(the number of registered members of the association mentioned

therein) plus one.  The best evidence of who are

the present members of the corporation is the “membership book”;

in the case of stock corporations, it is the stock and transfer book.[43]

 

            Section 25 of the Code specifically provides that a majority of

the directors or trustees, as fixed in the articles of

incorporation, shall constitute a quorum for the transaction of

corporate business (unless the articles of incorporation or the

bylaws provide for a greater majority).  If the intention of the

lawmakers was to base the quorum in the meetings of stockholders

or members on their absolute number as fixed in the articles of

incorporation, it would have expressly specified so.  Otherwise,

the only logical conclusion is that the legislature did not have that

intention.

 

  Effect of the Death

of a Member or Shareholder 

Having thus determined that the quorum in a members’

meeting is to be reckoned as the actual number of members of the

corporation, the next question to resolve is what happens in the

event of the death of one of them.

         

          In stock corporations, shareholders may generally transfer

their shares.  Thus, on the death of a shareholder, the executor or

administrator duly appointed by the Court is vested with the legal

title to the stock and entitled to vote it.  Until a settlement and

division of the estate is effected, the stocks of the decedent are held

by the administrator or executor.[44] 

 

          On the other hand, membership in and all rights arising from

a nonstock corporation are personal and non-transferable, unless

the articles of incorporation or the bylaws of the corporation

provide otherwise.[45]  In other words, the determination of whether

or not “dead members” are entitled to exercise their voting rights

(through their executor or administrator), depends on those articles

of incorporation or bylaws. 

 

          Under the By-Laws of GCHS, membership in the

corporation shall, among others, be terminated by the death of the

member.[46]  Section 91 of the Corporation Code further provides

that termination extinguishes all the rights of a member of the

corporation, unless otherwise provided in the articles of

incorporation or the bylaws. 

 

          Applying Section 91 to the present case, we hold that dead

members who are dropped from the membership roster in the

manner and for the cause provided for in the By-Laws of GCHS

are not to be counted in determining the requisite vote in corporate

matters or the requisite quorum for the annual members’

meeting.  With 11 remaining members, the quorum in the present

case should be 6.  Therefore, there being a quorum, the annual

members’ meeting, conducted with six[47] members present, was

valid. 

 Vacancy in theBoard of Trustees              As regards the filling of vacancies in the board of trustees,

Section 29 of the Corporation Code provides:         

“SECTION 29.  Vacancies in the office of director or trustee. -- 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 or 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 term of his predecessor in office.”    

Undoubtedly, trustees may fill vacancies in the board,

provided that those remaining still constitute a quorum.  The

phrase “may be filled” in Section 29 shows that the filling of

vacancies in the board by the remaining directors or trustees

constituting a quorum is merely permissive, not mandatory.[48]  Corporations, therefore, may choose how vacancies in their

respective boards may be filled up -- either by the remaining

directors constituting a quorum, or by the stockholders or members

in a regular or special meeting called for the purpose.[49]

 

          The By-Laws of GCHS prescribed the specific mode of

filling up existing vacancies in its board of directors; that is, by a

majority vote of the remaining members of the board.[50] 

 

While a majority of the remaining corporate members were

present, however, the “election” of the four trustees cannot be

legally upheld for the obvious reason that it was held in an annual

meeting of the members, not of the board of trustees.  We are not

unmindful of the fact that the members of GCHS themselves also

constitute the trustees, but we cannot ignore the GCHS bylaw

provision, which specifically prescribes that vacancies in the board

must be filled up by the remaining trustees.  In other words, these

remaining member-trustees must sit as a board in order to validly

elect the new ones.

         

          Indeed, there is a well-defined distinction between a

corporate act to be done by the board and that by the constituent

members of the corporation.  The board of trustees must act, not

individually or separately, but as a body in a lawful meeting.  On

the other hand, in their annual meeting, the members may be

represented by their respective proxies, as in the contested annual

members’ meeting of GCHS.

 

WHEREFORE, the Petition is partly GRANTED. The

assailed Resolutions of the Court of Appeals are

hereby REVERSED AND SET ASIDE.  The remaining members

of the board of trustees of Grace Christian High School (GCHS)

may convene and fill up the vacancies in the board, in accordance

with this Decision.  No pronouncement as to costs in this instance.

 

SO ORDERED.