Case Summary (G.R. No. 163356-57)
Procedural History
- The Bernas Group sought nullification of the December 17, 1997 special meeting before the SEC’s Securities Investigation and Clearing Department (SICD), arguing it was improperly called.
- SICD (May 9, 2000) declared the special meeting and subsequent 1998 and 1999 annual meetings invalid and voided Bernas’s expulsion and share auction.
- SEC En Banc (December 12, 2000) reversed SICD, validating the special meeting and the April 1998 and 1999 annual meetings.
- Court of Appeals (April 28, 2003) held the special meeting invalid but upheld all actions in the April 1998, 1999, and 2000 annual meetings except ratification of Bernas’s removal and share sale.
- Both groups filed petitions for review on certiorari before the Supreme Court.
Issues Presented
I. Was the December 17, 1997 special stockholders’ meeting invalidly called?
II. Should the Court invalidate the annual stockholders’ meetings of April 20, 1998; April 19, 1999; and April 17, 2000?
Applicable Law
– 1987 Philippine Constitution (post-1990 decisions)
– Corporation Code (B.P. Blg. 68):
• Section 28 – Procedure for removal of directors (meeting called by secretary upon order of president or written demand of majority shareholders; if secretary refuses or none, any shareholder making demand may call).
• Section 50 – SEC power to order meeting when no one authorized calls it.
– MSC By-laws:
• Sec. 8 – Annual meetings held every third Monday of April (no specific caller requirement).
• Sec. 10 – Special meetings called by president, board, or upon written request of shareholders holding ≥ 100 shares.
• Sec. 25 – Secretary’s duties include giving notices of meetings.
Legal Framework on Removal of Directors
Section 28 of the Corporation Code requires that a special meeting for removal of directors be called by the corporate secretary on the president’s order or upon written demand of shareholders representing a majority of outstanding capital stock. In the secretary’s refusal or absence, any shareholder signing the demand may call the meeting, but no other body may assume that power.
Improper Call of the Special Meeting
The December 17, 1997 meeting was convened by the MSCOC, an oversight body with no authority under the Code or MSC by-laws to call stockholders’ meetings. Neither the president nor the board nor the corporate secretary called or authorized the meeting. This defect in the meeting’s inception rendered all actions taken therein void ab initio.
Void Acts and Ratification
Acts that are contrary to mandatory statutory requirements are illegal and void ab initio; they cannot be validated by ratification or estoppel. The removal of the Bernas Group and the election of the Cinco Group in the improperly called December 1997 meeting are void from the start, and subsequent stockholders’ ratifications cannot confer validity on those void acts.
Powers and Fiduciary Duty of the Board
The board of directors is the corporation’s directing and controlling body, vested with fiduciary duties toward shareholders. Only duly elected directors may manage corporate affairs. Unauthorized assumption of corporate powers by any other group undermines the legitimacy and accountability mandated by the Corporation Code and the 1987 Constitution’s principle of shareholder participation in governance.
SEC’s Authority to Call Meetings
Under Section 50 of the Corporation Code and Section 6(c) of PD 902-A, the SEC may, upon petition and showing of good cause, order a stockholder or member to call a meeting when no one authorized by law or by-laws calls it. The Cinco Group’s remedy, had the corporate secretary refused its requests, was to petition the SEC—not to enlist the MSCOC.
Validity of Subsequent Annual Stockholders’ Meetings
– April 20, 1998 Meeting: Held in strict compliance with Sec. 8 of the MSC by-laws; notice requirements met and quorum present.
– April 19, 1999 Meeting: Similarly regular under Sec. 8 and supervised by the SEC exercising its regulatory powers.
– April 17, 2000 Meeting: Followed the same lawful pattern.
All corporate acts and el
Case Syllabus (G.R. No. 163356-57)
Facts
- Makati Sports Club, Inc. (MSC) is a domestic corporation organized to provide social, cultural, recreational, and athletic activities for its members.
- The Bernas Group (Jose A. Bernas et al.) were incumbent directors and officers of MSC with terms expiring in 1998 or 1999.
- The Oversight Committee of MSC (MSCOC), composed of past presidents, acted on demands by stockholders representing at least 100 shares to call a special stockholders’ meeting.
- On 17 December 1997, the MSCOC issued notices and convened a Special Stockholders’ Meeting, purportedly removing the Bernas Group and electing the Cinco Group (Jovencio F. Cinco et al.) as directors.
- The Cinco Group’s board then investigated alleged anomalies, expelled Jose A. Bernas, and sold his shares at public auction for ₱902,000.00.
- Annual meetings were held on 20 April 1998, 19 April 1999 (under SEC supervision), and 17 April 2000, where stockholders ratified the December 1997 meeting and related corporate acts.
Procedural History
- The Bernas Group filed SEC Case No. 5840 before the Securities Investigation and Clearing Department (SICD) seeking nullification of the December 1997 meeting as improperly called.
- On 9 May 2000, the SICD declared the December 1997 Special Stockholders’ Meeting and the April 1998 and 1999 annual meetings invalid, and voided Bernas’s expulsion and share sale.
- On 12 December 2000, the SEC En Banc reversed the SICD, validating the December 1997 meeting and the 1998 and 1999 annual meetings.
- On 28 April 2003, the Court of Appeals held the December 1997 meeting invalid but upheld the actions taken in the 1998, 1999, and 2000 annual meetings.
- The C