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Bernas v.

Cinco
G.R. 163356-57 & 163368-69 – July 1, 2015
J. Perez

Topic: Limitation on By-Laws – Not contrary to law, public policy, or charter


Doctrine: It is apt to recall that illegal acts of a corporation which contemplate the doing of an act which is contrary to law,
morals or public order, or contravenes some rules of public policy or public duty, are, like similar transactions between
individuals, void. They cannot serve as basis for a court action, nor acquire validity by performance, ratification or estoppel.

G.R. 163356-57
Petitioner: Jose A. Bernas and many many more
Respondents: Jovencio F. Cinco and many many more

G.R. 163368-69
Petitioner: Jovencio F. Cinco, Ricardo G. Librea and Alex Y. Pardo
Respondents: Jose A. Bernas, Cecile H. Cheng, and Ignacio A. Maacrohon

Case Summary: Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight Committee
(MSCOC), composed of the past presidents of the club, demanded from the Bernas Group, who were then incumbent
officers of the corporation, to resign from their respective positions. They asked the stockholders of the corporation
representing at least 100 shares who sought the assistance of the MSCOC to call for a special stockholder meeting for the
purpose of removing the sitting officers and electing new ones. For failure of the Bernas Group to secure an injunction
before the Securities Commission (SEC), the meeting proceeded and they were removed from office. The Bernas Group
then initiated an action before the Securities Investigation and Clearing Department (SICD) of the SEC seeking for the
nullification of the 17 December 1997 Special Stockholders Meeting on the ground that it was improperly called. Citing
Section 28 of the Corporation Code, the Bernas Group argued that the authority to call a meeting lies with the Corporate
Secretary and not with the MSCOC which functions merely as an oversight body and is not vested with the power to call
corporate meetings. The Cinco Group insisted that the 17 December 1997 Special Stockholders’ Meeting is sanctioned by
the Corporation Code and the MSC by-laws.

ISSUE: W/N the December 17, 1997 Special Stockholder’s Meeting is invalid – YES

In the instant case, there is no dispute that the 17 December 1997 Special Stockholders’ Meeting was called neither by the
President nor by the Board of Directors but by the MSCOC. While the MSCOC, as its name suggests, is created for the
purpose of overseeing the affairs of the corporation, nowhere in the by-laws does it state that it is authorized to exercise
corporate powers, such as the power to call a special meeting, solely vested by law and the MSC by-laws on the President or
the Board of Directors. The underlying policy of the Corporation Code is that the business and affairs of a corporation must
be governed by a board of directors whose members have stood for election, and who have actually been elected by the
stockholders, on an annual basis. Only in that way can the continued accountability to shareholders, and the legitimacy of
their decisions that bind the corporation’s stockholders, be assured. The shareholder vote is critical to the theory that
legitimizes the exercise of power by the directors or officers over the properties that they do not own. Needless to say, the
MSCOC is neither empowered by law nor the MSC by-laws to call a meeting and the subsequent ratification made by the
stockholders did not cure the substantive infirmity, the defect having set in at the time the void act was done. The defect
goes into the very authority of the persons who made the call for the meeting. It is apt to recall that illegal acts of a
corporation which contemplate the doing of an act which is contrary to law, morals or public order, or contravenes some
rules of public policy or public duty, are, like similar transactions between individuals, void. They cannot serve as basis for
a court action, nor acquire validity by performance, ratification or estoppel. The same principle can apply in the present
case. The void election of 17 December 1997 cannot be ratified by the subsequent Annual Stockholders’ Meeting.

Facts:
 Petitioners Jose A. Bernas (Bernas), Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose T. Frondoso, Ignacio T.
Macrohon and Paulino T. Lim (Bernas Group)were among the Members of the Board of Directors and Officers of
the corporation
o Their terms were to expire either in 1998 or 1999
o Jovencio Cinco, Ricardo Librea and Alex Y. Pardo (Cinco Group) are the members and stockholders of the
corporation who were elected Members of the Board of Directors and Officers of the club during the 17
December 1997 Special Stockholders Meeting
 Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight Committee (MSCOC),
composed of the past presidents of the club, demanded from the Bernas Group, who were then incumbent officers of
the corporation, to resign from their respective positions
o They asked the stockholders of the corporation representing at least 100 shares who sought the assistance
of the MSCOC to call for a special stockholders meeting for the purpose of removing the sitting officers
and electing new ones
o For failure of the Bernas Group to secure an injunction before the Securities Commission (SEC), the
meeting proceeded and they were removed from office
 In their place, F. Cinco, Ricardo G. Librea, Alex Y. Pardo, Roger T. Aguiling, Rogelio G.
Villarosa, Armando David, Norberto Maronilla, Regina de Leon-Herlihy and Claudio B. Altura,
were elected.
 The Bernas Group then initiated an action before the Securities Investigation and Clearing Department (SICD) of
the SEC seeking for the nullification of the 17 December 1997 Special Stockholders Meeting on the ground that it
was improperly called
o Citing Section 28 of the Corporation Code, the Bernas Group argued that the authority to call a meeting
lies with the Corporate Secretary and not with the MSCOC which functions merely as an oversight body
and is not vested with the power to call corporate meetings.
o The Cinco Group insisted that the 17 December 1997 Special Stockholders’ Meeting is sanctioned by the
Corporation Code and the MSC by-laws.
o Meanwhile, the newly elected directors initiated an investigation on the alleged anomalies in administering
the corporate affairs and after finding Bernas guilty of irregularities
 The Board resolved to expel him from the club by selling his shares at public auction.
o Thereafter, an Annual Stockholders’ Meeting was held
 During the said meeting, which was attended by 1,017 stockholders representing 2/3 of the
outstanding shares, the majority resolved to approve, confirm and ratify, among others, (1) the
calling and holding of 17 December 1997 Special Stockholders’ Meeting, (2) the acts and
resolutions adopted therein including the removal of Bernas Group from the Board and the
election of their replacements.
 March 30, 1999: The SEC En Banc, in its Decision, resolved to supervise the holding of the 1999 Annual
Stockholders’ Meeting
o During said meeting, the stockholders once again approved, ratified and confirmed the holding of the 17
December 1997 Special Stockholders’ Meeting.
o The same topics were likewise ratified by the stockholders during the 2000 Annual Stockholders’ Meeting
which was held on 17 April 2000.
 SICD rendered a Decision
 17 December 1997 Special Stockholders’ Meeting and the Annual Stockholders’ Meeting conducted on 20 April
1998 and 19 April 1999 are invalid.
 Aggrieved by the turn of events, the Bernas Group initiated an action before the Securities Investigation and
Clearing Department (SICD) of the SEC seeking the nullification of the December 17, 1997 Special Stockholders
Meeting on the ground that it was improperly called
o Bernas Group legal basis: Section 28 of the Corporation Code

Issues + Held:
1. W/N the December 17, 1997 Special Stockholder’s Meeting is invalid – YES
 Textually, only the President and the Board of Directors are authorized by the by-laws to call a special meeting. 
o In cases where the person authorized to call a meeting refuses, fails or neglects to call a meeting, then the
stockholders representing at least 100 shares upon written request, may file a petition to call a special
stockholder’s meeting.
o In the instant case, there is no dispute that the 17 December 1997 Special Stockholders’ Meeting was called
neither by the President nor by the Board of Directors but by the MSCOC
 While the MSCOC, as its name suggests, is created for the purpose of overseeing the affairs of the
corporation, nowhere in the by-laws does it state that it is authorized to exercise corporate
powers, such as the power to call a special meeting, solely vested by law and the MSC by-
laws on the President or the Board of Directors.
o The board of directors is the directing and controlling body of the corporation. 
 It is a creation of the stockholders and derives its power to control and direct the affairs of the
corporation from them. 
 The board of directors, in drawing to itself the power of the corporation, occupies a position of
trusteeship in relation to the stockholders, in the sense that the board should exercise not only care
and diligence, but utmost good faith in the management of the corporate affairs.
o The underlying policy of the Corporation Code is that the business and affairs of a corporation must be
governed by a board of directors whose members have stood for election, and who have actually been
elected by the stockholders, on an annual basis. 
 Only in that way can the continued accountability to shareholders, and the legitimacy of their
decisions that bind the corporation’s stockholders, be assured. 
 The shareholder vote is critical to the theory that legitimizes the exercise of power by the directors
or officers over the properties that they do not own.
o Relative to the powers of the Board of Directors, nowhere in the Corporation Code or in the MSC by-laws
can it be gathered that the Oversight Committee is authorized to step in wherever there is breach of
fiduciary duty and call a special meeting for the purpose of removing the existing officers and electing their
replacements even if such call was made upon the request of shareholders. 
o Needless to say, the MSCOC is neither empowered by law nor the MSC by-laws to call a meeting and the
subsequent ratification made by the stockholders did not cure the substantive infirmity, the defect having
set in at the time the void act was done. 
 The defect goes into the very authority of the persons who made the call for the meeting. 
 It is apt to recall that illegal acts of a corporation which contemplate the doing of an act
which is contrary to law, morals or public order, or contravenes some rules of public policy
or public duty, are, like similar transactions between individuals, void.
 They cannot serve as basis for a court action, nor acquire validity by performance, ratification
or estoppel.
 The same principle can apply in the present case. The void election of 17 December
1997 cannot be ratified by the subsequent Annual Stockholders’ Meeting.
 This means that the Special Stockholders’ Meeting called by the Oversight Committee cannot
have any legal effect. 
 The removal of the Bernas Group, as well as the election of the Cinco Group, effected by the
assembly in that improperly called meeting is void
 Since Cinco Group has no legal right to sit in the board, their subsequent acts of expelling Bernas from the club and
the selling of his shares at the public auction, are likewise invalid.
o The Cinco Group cannot invoke the application of de facto officership doctrine to justify the actions taken
after the invalid election since the operation of the principle is limited to third persons who were originally
not part of the corporation but became such by reason of voting of government- sequestered shares.
o The case would have been different if the petitioning stockholders went directly to the SEC and sought its
assistance to call a special stockholders’ meeting citing the previous refusal of the Corporate Secretary to
call a meeting.  Where there is an officer authorized to... call a meeting and that officer refuses, fails, or
neglects to call a meeting, the SEC can assume jurisdiction and issue an order to the petitioning stockholder
to call a meeting pursuant to its regulatory and administrative powers to implement the Corporation Code.
[36]  This is clearly provided for by Section 50 of the Corporation Code
 Given the broad administrative and regulatory powers of the SEC outlined under Section 50 of the Corporation
Code and Section 6 of Presidential Decree (PD) No. 902-A, the Cinco Group cannot claim that if was left without
recourse after the Corporate Secretary previously refused to heed its demand to call a special stockholders’ meeting.
o If it be true that the Corporate Secretary refused to call a meeting despite fervent demand from the
MSCOC, the remedy of the stockholders would have been to file a petition to the SEC to direct him to call
a meeting by giving proper notice required under the Code. 
o To rule otherwise would open the floodgates to abuse where any stockholder, who consider himself
aggrieved by certain corporate actions, could call a special stockholders’ meeting for the purpose of
removing the sitting officers in direct violation of the rules pertaining to the call of meeting laid down in
the by-laws.
o The conduct of SEC supervised Annual Stockholders Meeting gave rise to the presumption that the
corporate officers who won the election were duly elected to their positions and therefore can be rightfully
considered as de jure officers. 
 As de jure officials, they can lawfully exercise functions and legally perform such acts that are
within the scope of the business of the corporation except ratification of actions that are deemed
void from the beginning.
o Considering that a new set of officers were already duly elected in 1998 and 1999 Annual Stockholders
Meetings, the Bernas Group cannot be permitted to use the holdover principle as a shield to perpetuate in
office. 
o Members of the group had no right to continue as directors of the corporation unless reelected by the
stockholders in a meeting called for that purpose every year.
o They had no right to hold-over brought about by the failure to perform the duty incumbent upon them.
 If they were sure to be reelected, why did they fail, neglect, or refuse to call the meeting to elect
the members of the board?
 In fine, we hold that 17 December 1997 Special Stockholders’ Meeting is null and void and produces no
effect; the resolution expelling the Bernas Group from the corporation and authorizing the sale of Bernas’
shares at the public auction is likewise null and void. 
o The subsequent Annual Stockholders’ Meeting held on 20 April 1998, 19 April 1999 and 17 April 2000 are
valid and binding except the ratification of the removal of the Bernas Group and the sale of Bernas’ shares
at the public auction effected by the body during the said meetings. 
o The expulsion of the Bernas Group and the subsequent auction of Bernas’ shares are void from the very
beginning and therefore the ratifications effected during the subsequent meetings cannot be sustained.  A
void act cannot be the subject of ratification.
Ruling: WHEREFORE, the petition for review is DENIED for lack of merit.

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