Case Summary (G.R. No. 261125)
Background and Corporate Structure
The Spouses Cesar and Luz Marasigan acquired several properties and had 14 children, who became stockholders of Ganco. Luz was the majority shareholder with 3,000 out of 5,600 subscribed shares; the other shares were distributed equally among her children. Ganco was incorporated as a close corporation in 2013, with its principal office at the Mabini Street property. The AOI provided that the corporation’s business would be managed by the board of directors, who are also the stockholders. The by-laws reiterated this governance structure, reflecting a merger of stock ownership and management. In 2017, Luz was the Chairperson, and Peter was President of Ganco.
Events Leading to Dispute
Peter took a six-week leave in August 2017 but returned prematurely upon Luz’s death on November 3, 2017. On November 6, 2017, some Marasigan siblings, acting as stockholders and directors, convened a meeting to elect officers, purportedly without proper notice. A quorum was declared with eight stockholders/directors present (five physically, three via video conference). Benito declared himself Interim President, replacing Peter. Subsequently, other meetings occurred, including one on November 12, 2017 after Luz’s burial, and an annual stockholders’ meeting on May 15, 2018, which elected a different slate of officers. The respondents refused to acknowledge the legitimacy of the May 15 officers and continued unauthorized control over corporate assets, leading to the freezing of Ganco’s bank accounts.
Procedural History
The respondents filed a complaint to nullify the disputed meetings and officer elections. The Regional Trial Court (RTC), Branch 159, Pasig City, dismissed the complaint on February 3, 2021, holding that the meetings lacked quorum due to the unsettled estate of Luz, which prevented the automatic transfer or exercise of stockholder rights. It reinstated the officers elected before Luz’s death. The Court of Appeals (CA) reversed the RTC decision on December 28, 2021, finding the November 2017 meetings valid as directors' meetings with a proper quorum and ratified the election of officers therein, while invalidating the May 15, 2018 meeting due to lack of proper notice and quorum. The CA denied Peter’s motion for reconsideration. Peter thereafter sought review before the Supreme Court.
Nature and Characteristics of Ganco as a Close Corporation
The Supreme Court affirmed that Ganco qualifies as a close corporation under Section 96, Old Corporation Code, given its limited number of stockholders (14) and transfer restrictions in its AOI, including prohibition on public offering or stock exchange listing. Close corporations are distinguished by the merger of ownership and management, often functioning more like partnerships where stockholders actively manage the business. The law provides specific privileges and exemptions for close corporations, including potential absence or modification in how directors and officers are elected and how meetings are conducted.
Management Structure Under Ganco’s AOI and By-Laws
Ganco’s AOI expressly provides for management by the board of directors, who are also the stockholders, eliminating the need for separate election of directors. The by-laws only mention “meetings of stockholders” but clarify that stockholders “being themselves the board of directors” conduct meetings and corporate business. Consequently, each stockholder is a director with corporate powers and entitled to one vote, regardless of the number of shares held. This structure requires the maintenance of director meeting requirements even though the board consists of the same persons as the stockholders.
Characterization of the November 6 and 12, 2017 Meetings
The Court ruled that the disputed November meetings were properly directors’ meetings because the stockholders were exercising management functions reserved for the board, specifically the election of corporate officers. This aligns with Section 25 of the Old Corporation Code, which confers authority upon the board of directors to elect officers. The meetings effectively involved stockholders acting as directors, validating their character as board meetings subject to the rules for directors' meetings.
Quorum Requirements for Directors’ Meetings and Officer Elections
Section 25 of the Old Corporation Code mandates that a majority of the directors fixed in the AOI constitute a quorum for directors’ meetings, and the election of officers requires a majority vote of all members of the board. Conversely, stockholders’ meeting quorum is based on majority of the outstanding capital stock (Section 52). Ganco’s AOI and by-laws attempt to impose a uniform quorum of a majority of outstanding capital stock for all meetings but the Court held that this constitutes a material and impermissible modification of the statutory quorum under Section 25, which requires a quorum based on number of directors, not shares. The Court applied the plain meaning rule, emphasizing that a greater majority means “more than a majority” of the same quorum category, not a change to a different category entirely.
Inapplicability of AOI and By-Laws Provisions Permitting Officer Election by Stockholders
Though Section 97 of the Old Corporation Code allows close corporations to provide in their AOI that the stockholders rather than the board elect or appoint officers, this privilege must be expressly indicated in the AOI. In Ganco’s case, that provision appears only in the by-laws, which is insufficient. Therefore, the default rule prevails requiring officers to be elected by the board of directors.
Invalidity of the May 15, 2018 Meeting
Despite being labeled a stockholders’ meeting, the May 15 meeting was a directors’ meeting because it focused on officer elections, a management act. The meeting failed due to lack of proper notice and quorum, as well as due to objections by some directors, including the Corporate Secretary. The objections prevent ratification under Section 101 of the Old Corporation Code, which requires the absence of prompt written objections for validation of irregular meetings. Additionally, the votes did not meet the requirement
Case Syllabus (G.R. No. 261125)
Background and Procedural History
- Peter Paul G. Marasigan (Peter) filed a Petition for Review on Certiorari under Rule 45 assailing the Court of Appeals (CA) Decision (CA-G.R. SP No. 168189) dated December 28, 2021, and Resolution dated May 24, 2022.
- The CA reversed the Regional Trial Court (RTC), Branch 159, Pasig City Decision dated February 3, 2021, which had declared that the meetings of Ganco Resorts & Recreation Incorporated (Ganco) held on November 6, November 12, 2017, and May 15, 2018, lacked quorum due to the death of the majority stockholder Luz Marasigan.
- The controversy centers on the validity of these corporate meetings, the election of Ganco officers, and the interpretation of close corporation rules under the Old Corporation Code.
Facts of the Case
- The Marasigan family, including Luz Marasigan and her 13 children, owned Ganco, a close corporation managing family properties including La Luz Beach Resort and Mabini Street property.
- Luz subscribed to 3,000 of the 5,600 total shares; her children collectively held 2,600 shares.
- In 2017, Luz was Chairman and Peter was President of Ganco.
- Luz died on November 3, 2017, while Peter was on a six-week leave, which he cut short upon hearing of her death.
- On November 6, 2017, eight of thirteen stockholders (also directors) convened via a combination of physical presence and video conference and elected new officers without prior notice or agenda, declaring Peter removed for absence without leave.
- A subsequent meeting on November 12, 2017, took place after Luz’s burial regarding estate matters.
- An Annual Stockholders’ Meeting was scheduled for May 15, 2018; a prior notice of cancellation was issued by the Corporate Secretary due to the unsettled estate.
- Despite this, the May 15 meeting proceeded with some directors physically present and others by video conference; a new set of officers was elected.
- The respondents refused to recognize the newly elected officers and contested the validity of the meetings and elections by filing a Complaint for nullity of meetings and resolutions.
RTC Ruling
- The RTC denied the Temporary Restraining Order (TRO) and Preliminary Injunction sought by respondents.
- The RTC held that since Luz’s estate was unsettled, her shares could not be exercised by either party for quorum or election purposes.
- It declared the meetings invalid for lack of quorum and reinstated the officers elected before Luz’s death to hold over their positions.
- As such, the complaint for nullity was dismissed for failure to establish a valid meeting.
CA Ruling
- The CA reversed and set aside the RTC decision.
- The CA held that while neither party automatically acquired ownership of Luz’s shares, the November 6 and 12, 2017 meetings were valid directors’ meetings as per Section 25 of the Old Corporation Code.
- It ruled that quorum for the election of officers is based on a majority of the board of directors, not majority of outstanding capital stock.
- The CA found eight of thirteen directors constituted a quorum and ratified the election of new officers at the November meetings.
- The May 15, 2018 meeting was declared void for lack of quorum and due to procedural defects (lack of notice and cancellation).
- The CA denied Peter’s subsequent Motion for Reconsideration.
Issues Presented to the Supreme Court
- Whether the CA erred in holding the special meetings and elections on November 6 and 12, 2017 as valid directors’ meetings with proper quorum.
- Whether respondents made duplicitous statements in a related criminal case, undermining their position before the CA.
- Interpretation of applicable quorum and voting requirements in a close corporation’s stockholders’ and directors’ meetings under the Old Corporation Code.
Legal Framework: Close Corporation under the Old Corporation Code
- A close corporation is defined in Section 96 by:
- A maximum of 20 stockholders
- R
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