Case Summary (G.R. No. 108905)
Key Dates
– By-laws initially registered January 16, 1969 (adopted December 17, 1968)
– Proposed by-law amendment drafted December 20, 1975
– Notice of re-examination of petitioner’s directorship February 13, 1990
– HIGC hearing officer decision June 20, 1990; appeals board resolution September 13, 1990
– Court of Appeals decision February 9, 1993
– Supreme Court decision October 23, 1997
Applicable Law
– 1987 Philippine Constitution (post-1990 benchmark)
– Corporation Code (Batas Pambansa Blg. 68, effective May 1, 1980)
– Revised Corporation Law (Act No. 1459) provisions on election and amendment of by-laws
– Registered by-laws of the association (Articles IV and XIX)
Procedural History
Petitioner sought a writ of mandamus from the Home Insurance and Guaranty Corporation (HIGC) to compel recognition of its representative as a permanent, unelected director. The hearing officer and HIGC appeals board dismissed the action. The Court of Appeals affirmed. Petitioner then elevated the case to the Supreme Court.
Factual Background
Under the 1968 by-laws (Article IV), members were to elect eleven directors annually by plurality vote. In 1975 a board-appointed committee drafted an amendment designating the fourteen highest-vote-getting candidates plus the “Grace Christian High School representative” as a permanent director (Article VI). The amendment was never ratified by the general membership or filed with the SEC. Nevertheless, petitioner’s representative sat on the board from 1975 through 1989.
Triggering Event and Petition
On February 13, 1990, the association’s election committee notified petitioner that automatic inclusion of an unelected director was undemocratic and contrary to the right of members to vote. The committee resolved to observe the 1968 by-laws for the upcoming elections. Petitioner’s request to revert to past practice was denied, prompting the mandamus petition.
Petitioner's Contentions
- A vested right had accrued to a permanent board seat through fifteen years of practice.
- The 1975 amended by-laws were valid and binding despite lack of formal ratification.
- No law prohibits a non-stock corporation from designating an unelected, ex officio director.
Respondents' Defenses and SEC Opinion
Respondents argued the proposed amendments were never approved by members nor by any competent authority (SEC or HIGC) and thus were not part of the registered by-laws. They cited an SEC opinion holding that unelected directors contravene both the existing by-laws and Section 23 of the Corporation Code (formerly A92 of B.P. Blg. 68).
HIGC and Appeals Board Rulings
The hearing officer concluded that the 1975 draft amendments remained mere proposals, void for lack of member ratification and proper registration. He rejected any vested right arising from past tolerance. The HIGC appeals board affirmed, noting that members could nominate as many representatives as they wished but that the long-standing practice lacked legal basis.
Court of Appeals Decision
The appellate court held that amendment of by-laws required majority approval at a regular or special meeting as prescribed by Article XIX of the by-laws and A22 of Act No. 1459. The 1975 draft had never obtained the necessary member vote and hence was invalid.
Supreme Court Issue
Whether petitioner’s representative had a lawful, permanent right to an unelected directorship by virtue of the unratified 1975 draft amendment and fifteen years of acquiescence.
Supreme Court Ruling and Reasoning
- By-law amendments not ratified by a majority of members and not filed with the
Case Syllabus (G.R. No. 108905)
Facts of the Case
- Petitioner Grace Christian High School operates preparatory, kindergarten, and secondary courses within Grace Village, Quezon City.
- Respondent Grace Village Association, Inc. is an organization of lot/building owners, lessees, and residents in Grace Village; respondents Beltran and Go were its president and election-committee chairman in 1990.
- The Association’s original 1968 by-laws provided for an eleven-member Board of Directors elected annually by secret ballot.
- On December 20, 1975, a board committee drafted an unratified amendment adding a fourteenth and fifteenth director, explicitly declaring “GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION.”
- From 1975 through 1989 the school’s representative sat on the Board without election, based solely on the unapproved draft amendment.
- On February 13, 1990, the Association’s election committee announced its intent to revert to the 1968 by-laws, deeming the permanent seat undemocratic and depriving members of voting rights.
- The Association refused the school’s request to preserve its automatic seat, prompting the school to file a petition for a writ of mandamus with the Home Insurance and Guaranty Corporation (HIGC).
Issues
- Whether the petitioner acquired a vested right to an unelected, permanent seat on the Board of Directors after fifteen years of practice.
- Whether the December 20, 1975 draft amendment to the by-laws became valid and binding absent membership ratification and government approval.
- Whether corporate law permits a nonstock corporation to tolerate or enact a provision for an unelected, permanent director.
Petitioner’s Contentions
- The 1975 amendment, once drafted by an authorized committee and consistently implemented, became part of the by-laws and binding on the Association.
- Fifteen years of uninterrupted practice constitutes ratification and gives rise to a vested right.
- No statutory prohibition exists ag