Title
Clark vs. Teng
Case
G.R. No. 277015
Decision Date
Feb 17, 2025
Alvin Clark Teng's appeal against the CA's dismissal of his petition regarding the validity of directors' elections and business operations of MECI, seeking permanent injunction.
corporate governance
board of directors
injunction

Case Summary (G.R. No. 277015)

Factual Background

Mabuhay Educational Center, Inc. (MECI) owned a 1,400‑sq.m. lot with an eight‑story building located at No. 3 Agno Street, Barangay Dona Josefa, Quezon City (the subject property). Alvin alleged that from 2002 to 2017 he served on MECI’s board, acted as corporate secretary, and managed daily operations. He alleged that on December 20, 2017 respondents held a special stockholders’ and organizational meeting in which they purportedly elected themselves as directors and officers, that they removed him as signatory to MECI’s bank account, and that they planned MECI’s closure and sale of the subject property. Alvin further alleged that notices for subsequent meetings were deficient and that respondents employed fraudulent schemes to effect a power grab and prepare MECI for sale. Respondents countered that MECI was a family corporation whose majority stock remained with Custodios, Sofronio, and Patricio; that Alvin owned only two percent of the shares; that Alvin had acted unilaterally in August 2017; that Alvin made inadequate offers to purchase shares and the property; that certain purported transfers were spurious; and that respondents and other majority stockholders validly discussed liquidation and pro‑rata distribution of assets. Respondents stated that annual and special meetings were subsequently held, and that they and Sofronio were re‑elected as directors at the annual stockholders’ meeting on April 16, 2018.

Procedural History

Alvin filed an intra‑corporate complaint on April 13, 2018, praying for damages and for a Temporary Restraining Order and preliminary and permanent injunctions to enjoin respondents from terminating MECI’s operations, holding further board meetings, and selling the subject property. The RTC, in a Decision dated August 15, 2022, dismissed Alvin’s complaint and dismissed respondents’ counterclaim. Alvin filed a petition for review with the Court of Appeals, which, in a Decision dated February 26, 2024, affirmed the RTC in toto and denied the prayer for permanent injunction. Alvin’s motion for reconsideration at the CA was denied in a Resolution dated October 21, 2024. Alvin then filed a Petition for Review under Rule 45, Rules of Court before the Supreme Court.

Trial Court Ruling

The RTC found that Alvin’s factual allegations did not establish fraud by clear and convincing evidence and that his pleadings contained mere assertions rather than ultimate facts. The RTC held that Alvin had waived his right to question the December 20, 2017 meeting because he participated in actions taken at that meeting. The court concluded that MECI’s by‑laws did not prohibit the election of fewer than five directors, and that the by‑laws and the Corporation Code address mailing or sending of notice and not the stockholder’s actual receipt, so Alvin’s contention regarding late receipt of notice did not establish fraud. The RTC further accepted that corporate officers and directors enjoy discretion under the Old Corporation Code in management matters, including cessation of operations and sale of assets, subject to statutory voting requirements, and invoked the business judgment rule in declining to substitute judicial judgment for corporate management decisions. The RTC therefore dismissed the complaint and counterclaim.

Court of Appeals Ruling

The CA affirmed the RTC’s findings. The appellate court held that Alvin failed to adduce clear and convincing evidence of fraud. The CA ruled that Alvin was estopped from contesting the December 20, 2017 meeting because of his active participation, including nominating his mother for director, and deemed that any defect in that meeting rendered it voidable rather than void. The CA found that the supposed irregularities were effectively ratified by subsequent corporate action, and that the elections of respondents and the decision to cease MECI’s operations fell within powers inherent in corporate governance under the Old Corporation Code. Accordingly, the CA denied Alvin’s prayer for a permanent injunction.

Issues Presented to the Supreme Court

The Supreme Court framed the controversy as whether the CA erred: first, in ruling that the December 20, 2017 special stockholders’ and organizational meeting was ratified at a March 1, 2018 special board meeting; second, in holding that Alvin’s allegations of fraud lacked clear and convincing proof; and third, in denying Alvin’s prayer for a permanent injunction restraining respondents from corporate acts.

Supreme Court Disposition

The Supreme Court denied the petition for lack of merit and affirmed the Decision dated February 26, 2024, and the Resolution dated October 21, 2024, of the Court of Appeals in CA‑G.R. SP No. 175036. The application for issuance of a permanent injunction was denied.

Legal Basis and Reasoning

The Court applied the Old Corporation Code as the governing law. It reiterated the settled rule that fraud is never presumed and must be proved by clear and convincing evidence. The Court found that the acts complained of—removal of Alvin as corporate secretary, cessation of operations, and decisions concerning sale of corporate property—are within the ambit of corporate management under the Old Corporation Code when taken in accordance with applicable voting requirements. The Court noted that MECI’s by‑laws expressly provided that the corporate secretary “shall serve at the pleasure of the board of directors,” and therefore Alvin’s replacement as corporate secretary did not constitute fraud. The Court observed that respondents and allied stockholders held sixty‑eight percent of the shares while Alvin held two percent, undermining any inference of motive to perpetrate a fraud on the corporation. The Court further concluded that Elena was not qualified to be a director under Section 23 because she was not a stockholder, which justified the election of only four directors at the December 20 meeting. The Court found no reversible error in the courts below in rejecting Alvin’s claim of fraudulent scheme.

Election Contest Prescription and Ratification

The Court accepted Alvin’s contention that a board meeting cannot itself ratify a stockholders’ election, but it held that any defect in the December 20, 2017 election was rendered moot by MECI’s subsequent annual stockholders’ meeting on April 16, 2018, where respondents and Sofronio were re‑elected. The Court further held that Alvin’s attempt to annul the December 20 election constituted an election contest subject to the fifteen‑day prescriptive period under Rule 6, Section 3 of the Interim Rules of Procedure Governing Intra‑Corporate Controversies under Republic Act No. 8799. Because Alvin filed his action on April 1

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