FIRST DIVISION

PAUL LEE TAN, ANDREWcralawcralawG.R. No. 153468

LIUSON, ESTHER WONG,
STEPHEN CO, JAMES TAN, Present:
JUDITH TAN, ERNESTO
TANCHI JR., EDWIN NGO,cralawcralawPANGANIBAN, CJ.,Chairperson,
VIRGINIA KHOO, SABINO cralawcralawYNARES-SANTIAGO,
PADILLA JR., EDUARDO P. AUSTRIA-MARTINEZ,cralaw
LIZARES and GRACE CALLEJO, SR., and
CHRISTIANHIGH SCHOOL,CHICO-NAZARIO, JJ.cralaw
cralawPetitioners,
- versus -
PAUL SYCIP and MERRITTO
LIM,Promulgated:cralaw
Respondents.August 17, 2006
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 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 the Court 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.
cralaw
The Facts

cralawPetitioner GraceChristianHigh 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.

cralawWhen 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.

cralawSEC 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

cralawPetitioners state the issues as follows:

cralawPetitioners
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.

cralawPetitioners
have maintained before the courts belowthat
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.

cralawTheSEC 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.
cralaw
 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.

cralawPetitionershumbly 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]

cralawIn 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]

cralaw

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]

cralaw
Main Issue:
Basis for Quorum

cralawGenerally, 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.

cralaw

cralawUnder 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.

cralaw

cralawWhile 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]chanroblesvirtuallawlibrary

cralaw

cralawConformably 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.

cralawIn 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]chanroblesvirtuallawlibrary

cralawSection 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.

cralawIn 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

cralawThe 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.

cralawNeither 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 passed from the corporation, and that may be voted.

[37]chanroblesvirtuallawlibrary

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 xx x xx 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; and
8. 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 in

Nonstock Corporations

cralawIn 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

registeredmembers 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]chanroblesvirtuallawlibrary

cralawSection 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.

cralaw

cralawIn 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]
 cralawOn 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.

cralawUnder 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.

cralawApplying 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 the
Board of Trustees

cralawAs regards the filling of vacancies in the board of trustees, Section 29

of the Corporation Code provides:

cralaw
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]

cralawThe 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.
cralaw

cralawIndeed, 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.