Republic of the Philippines PEREZ, J.

:
SUPREME COURT
Manila Before us are two consolidated Petitions for Review on
Certiorari  assailing the 28 April 2003 Decision and the 27 April
1

FIRST DIVISION 2004 Resolution of the Court of Appeals in CA-G.R. SP No.

62683,  which declared the 17 December 1997 Special
2

G.R. Nos. 163356-57               July 10, 2015 Stockholders' Meeting of the Makati Sports Club invalid for having
been improperly called but affirmed the actions taken during the
JOSE A. BERNAS, CECILE H. CHENG, VICTOR AFRICA, Annual Stockholders' Meeting held on 20 April 1998, 19 April
JESUS B. MARAMARA, JOSE T. FRONDOSO, IGNACIO T. 1999 and 17 April 2000. The dispositive portion of the assailed
MACROHON, JR., AND PAULINO T. LIM, ACTING IN THEIR decision reads:
CAP A CITY AS INDIVIDUAL DIRECTORS OF MAKATI
SPORTS CLUB, INC., AND ON BEHALF OF THE BOARD OF WHEREFORE, foregoing considered, the instant petition for
DIRECTORS OF MAKATI SPORTS CLUB, Petitioners,  review is hereby GRANTED. The appealed Decision dated
vs. December 12, 2000 of the SEC en bane is SET ASIDE and the
JOVENCIO F. CINCO, VICENTE R. AYLLON, RICARDO G. Decision dated April 20, 1998 of the Hearing Officer is
LIBREA, SAMUEL L. ESGUERRA, ROLANDO P. DELA REINSTATED and AMENDED as follows:
CUESTA, RUBEN L. TORRES, ALEX Y. PARDO, MA.
CRISTINA SIM, ROGER T. AGUILING, JOSE B. QUIMSON, 1. The supposed Special Stockholders' Meeting of
CELESTINO L. ANG, ELISEO V. VILLAMOR, FELIPE L. December 17, 1997 was prematurely or invalidly called by
GOZON, CLAUDIO B. ALTURA, ROGELIO G. VILLAROSA, the [Cinco Group]. It therefore failed to produce any legal
MANUEL R. SANTIAGO, BENJAMIN A. CARANDANG, effects and did not effectively remove [the Bernas Group]
REGINA DE LEON-HERLIHY, CARLOS Y. RAMOS, JR., as directors of the Makati Sports Club, Inc.;
ALEJANDRO Z. BARIN, EFRENILO M. CAYANGA AND JOHN
DOES, Respondents. 2. The expulsion of petitioner Jose A. Bernas as well as
the public auction of his share[s] is hereby declared void
x-----------------------x and without legal effect;

G.R. Nos. 163368-69 3. The ratification of the removal of [the Bernas Group] as
directors, the expulsion of petitioner Bernas and the sale
JOVENCIO F. CINCO, RICARDO G. LIBREA AND ALEX Y. of his share by the defendants and by the stockholders
PARDO, Petitioners,  held in their Regular Stockholders' Meeting held in April of
vs. 1998, 1999 and 2000, is void and produces no effects as
JOSE A BERNAS, CECILE H. CHENG AND IGNACIO A. they were not the proper party to cause the ratification;
MACROHON, Respondents.
4. All other actions of the [Cinco Group] and stockholders
DECISION taken during the Regular Stockholders' Meetings held in

Page 1 of 10
 April 1998, 1999 and 2000, including the election of the stockholders meeting for the purpose of removing the sitting
[Cinco Group] as directors after the expiration of the term officers and electing new ones.  Pursuant to such request, the
5

of office of petitioners as directors, are hereby declared MSCOC called a Special Stockholders' Meeting and sent out
valid; notices  to all stockholders and members stating therein the time,
6

place and purpose of the meeting. For failure of the Bernas

5. No awards for damages and attorney's fees. 3 Group to secure an injunction before the Securities Commission
(SEC), the meeting proceeded wherein Jose A. Bernas, Cecile H.
The Facts Cheng, Victor Africa, Jesus Maramara, Jose T. Frondoso, Ignacio
T. Macrohon, Jr. and Paulino T. Lim were removed from office
and, in their place and stead, Jovencio F. Cinco, Ricardo G.
Makati Sports Club (MSC) is a domestic corporation duly
Librea, Alex Y. Pardo, Roger T. Aguiling, Rogelio G. · Villarosa,
organized and existing under Philippine laws for the primary
Armando David, Norberto Maronilla, Regina de Leon-Herlihy and
purpose of establishing, maintaining, and providing social,
Claudio B. Altura, were elected. 7

cultural, recreational and athletic . activities among its members.

Aggrieved by the turn of events, the Bernas Group initiated an
Petitioners in G.R. Nos. 163356-57, Jose A. Bernas (Bernas),
action before the Securities Investigation and Clearing
Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose T.
Department (SICD) of the SEC docketed as SEC Case No. 5840
Frondoso, Ignacio T. Macrohon and Paulino T. Lim (Bernas
seeking for the nullification of the 17 December 1997 Special
Group) were among the Members of the Board of Directors and
Stockholders Meeting on the ground that it was improperly called.
Officers of the corporation whose terms were to expire either in
Citing Section 28 of the Corporation Code, the Bernas Group
1998 or 1999.
argued that the authority to call a meeting lies with the
Corporate . Secretary and not with the MSCOC which functions
Petitioners in G.R. Nos. 163368-69 Jovencio Cinco, Ricardo merely as an oversight body and is not vested with the power to
Librea · and Alex Y. Pardo (Cinco Group) are the members and call corporate meetings. For being called by the persons not
stockholders of the corporation who were elected Members of the authorized to do so, the Bernas Group urged the SEC. to declare
Board of Directors and Officers of the club during the 17 the 17 December 1997 Special Stockholders' Meeting, including
December 1997 Special Stockholders Meeting. the removal of the sitting officers and the election of new ones, be
nullified.
The antecedent events of the meeting and its results, follow:
For their part, the Cinco Group insisted that the 17 December
Alarmed with the rumored anomalies in handling the corporate 1997 Special Stockholders' Meeting is sanctioned by the
funds, the MSC Oversight Committee (MSCOC), composed of Corporation Code and the MSC by-laws. In justifying the call
the past presidents of the club, demanded from the Bernas effected by the MSCOC, they reasoned that Section 25  of the
8

Group, who were then incumbent officers of the corporation, to MSC by-laws merely authorized the Corporate Secretary to issue
resign from their respective positions to pave the way for the notices of meetings and nowhere does it state that such authority
election of new set of officers. Resonating this clamor were the
4
solely belongs to him. It was further asseverated by the Cinco
stockholders of the corporation representing at least 100 shares Group that it would be useless to course the request to call a
who sought the assistance of the MSCOC to call for a special meeting thru the Corporate Secretary because he repeatedly

Page 2 of 10
refused to call a special stockholders' meeting despite demands Meeting conducted on 20 April 1998 and 19 April 1999 are
and even "filed a suit to restrain the holding of a special meeting. 9
invalid. The SICD likewise nullified the expulsion of Bernas from
the corporation and the sale of his share at the public auction.
Meanwhile, the newly elected directors initiated an investigation The dispositive portion of the said decision reads:
on the alleged anomalies in administering the corporate affairs
and after finding Bernas guilty of irregularities,  the Board
10
WHEREFORE, in view of the foregoing considerations this Office,
resolved to expel him from the club by selling his shares at public through the undersigned Hearing Officer, hereby declares as
auction.  After the notice  requirement was complied with,
11 12
follows:
Bernas' shares was accordingly sold for ₱902,000.00 to the
highest bidder: (1) The supposed Special Stockholders' Meeting of
December 17, 1997 was prematurely or invalidly called by
Prior to the resolution of SEC Case No. 5840, an Annual the [the Cinco Group]. It therefore failed to produce any
Stockholders' Meeting was held on 20 April 1998 pursuant to legal effects and did not effectively remove [the Bernas
Section 8 of the MSC bylaws.  During the said meeting, which
13
Group] as directors of the Makati Sports Club, Inc.
was attended by 1,017 stockholders representing 2/3 of the
outstanding shares, the majority resolved to approve, confirm and (2) The April 20, 1998 meeting was not attended by a
ratify, among others, the calling and · holding of 17 December sufficient number of valid proxies. No quorum could have
1997 Special Stockholders' Meeting, the acts and resolutions been present at the said meeting. No corporate business
adopted therein including the removal of Bernas Group from the could have been validly completed and/or transacted
Board and the election of their replacements. 14
during the said meeting. Further, it was not called by the
validly elected Corporate Secretary Victor Africa nor
Due to the filing of several petitions for and against the removal of presided over by the validly elected president Jose A.
the Bernas Group from the Board pending before the SEC Bernas. Even if the April 20, 1998 meeting was valid, it
resulting in the piling up of legal controversies involving MSC, the could not ratify the December 17, 1997 meeting because
SEC En Banc, in its Decision  dated 30 March 1999, resolved to
15
being a void meeting, the December 1 7, 1997 meeting
supervise the holding of the 1999 Annual Stockholders' Meeting. may not be ratified.
During the said meeting, the stockholders once again approved,
ratified and confirmed the holding of the 17 December 1997 (3) The April 1998 meeting was null and void and
Special Stockholders' Meeting. therefore produced no legal effect.

The conduct of the 17 December 1997 Special Stockholders' (4) The April 1999 meeting has not been raised as a
Meeting was likewise ratified by the stockholders during the 2000 defense in the Answer nor assailed in a supplemental
Annual Stockholders' Meeting which was held on 17 April 2000. 16
complaint. However, it has been raised by [the Cinco
Group] in a manifestation dated April 21, 1999 and in their
On 9 May 2000, the SICD rendered a Decision  in SEC Case No.
17
position paper dated April 8, 2000. Its legal effects must
12-. 97-5840 finding, among others, that the 17 December 1997 be the subject of this Decision in order to put an end to
Special Stockholders' Meeting and the Annual Stockholders' the controversy at hand. In the first place, by [the Cinco

Page 3 of 10
 Group's] own admission, the alleged attendance at the as well as the Annual Stockholders' Meeting held on 20 April
April 1999 meeting amounted to less than 2/3 of the 1998 and 19 April 1999.
stockholders entitled to vote, the minimum number
required to effect a removal. No removal or ratification of On 28 April 2003, the Court of Appeals rendered a
a removal may be effected by less than 2/3 vote of the Decision  declaring the 17 December 1997 Special Stockholders'
20

stockholders. Further, it cannot ratify the December 1997 Meeting invalid for being improperly called but affirmed the
meeting for failure to adhere to the requirement of the By- actions taken during the Annual Stockholders' Meeting held on 20
laws on notice as explained in paragraph (2) above, even April 1998, 19 April 1999 and 17 April 2000.
if it was accompanied by valid proxies, which it was not.
In a Resolution  dated 27 April 2004, the appellate court refused
21

(5) The [the Cinco Group], their agents, representatives to reconsider its earlier decision.
and all persons acting for and conspiring on their behalf,
are hereby permanently enjoined from carrying into effect Aggrieved by the disquisition of the Court of Appeals, both parties
the resolutions and actions adopted during the 17 elevated the case before this Court by filing their respective
December 1997 and April 20, 1998 meetings and of the Petitions for Review on Certiorari. While the Bernas Group
Board of Directors and/or other stockholders' meetings agrees with the disquisition of the appellate court that the Special
resulting therefrom, and from performing acts of control Stockholders' Meeting is invalid for being called by the persons
and management of the club. not authorized to do so, they urge the Court to likewise invalidate
the holding of the subsequent Annual Stockholders' Meetings
(6) The expulsion of complainant Jose A. Bernas as well invoking the application of the holdover principle. The Cinco
as the public auction of his share is hereby declared void Group, for its part, insists that the holding. of 17 December 1997
and without legal effect, as prayed for. While it is true that Special Stockholders' Meeting is valid and binding underscoring
[the Cinco Group] were no.t restrained from acting as the overwhelming ratification made by the stockholders during the
directors during the pendency of this case, their tenure as subsequent annual stockholders' meetings and the previous
directors prior to this Decision is in the nature of de facto refusal of the Corporate Secretary to call a special stockholders'
directors of a de facto Board. Only the ordinary acts of meeting despite demand. For the resolution of the Court are the
administration which [the Cinco Group] carried out de following issues:
facto in good faith are valid. Other acts, such as political
acts and the expulsion or other disciplinary acts imposed The Issues
on the [the Bernas Group] may not be appropriately taken
by de facto officers because the legality of their tenure as
I.
directors is not complete and subject to the outcome of
this case. (7) No awards for damages and attorney's
fees. 18 WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ERRED IN RULING THAT THE 17 DECEMBER 1997 SPECIAL
STOCKHOLDERS' MEETING IS INVALID; AND
On appeal, the SEC En Banc, in its 12 December 2000
Decision  reversed the findings of the SICD and validated the
19

holding of the 17 December 1997 Special Stockholders' Meeting II.

Page 4 of 10
WHETHER OR NOT THE HONORABLE COURT OF APPEALS members of the right of representation to which they may be
ERRED IN FAILING TO NULLIFY THE HOLDING OF THE entitled under Section 24 of this Code. (Emphasis supplied)
ANNUAL STOCKHOLDERS' MEETING ON 20 APRIL 1998, 19
APRIL 1999 AND 17 APRIL 2000. Corollarily, the pertinent provisions of MSC by-laws which govern
the manner of calling and sending of notices of the annual
The Court's Ruling stockholders' meeting and the special stockholders' meeting
provide:
The Corporation Code laid down the rules on the removal of the
Directors of the corporation by providing, inter alia, the persons SEC. 8. Annual Meetings. The annual meeting of stockholders
authorized to call the meeting and the number of votes required shall be held at the Clubhouse on the third Monday of April of
for the purpose of removal, thus: every year unless such day be a holiday in which case the annual
meeting shall be held on the next succeeding business day. At
Sec. 28. Removal of directors or trustees. -Any director or trustee such meeting, the President shall render a report to the
of a corporation may be removed from office by a vote of the stockholders of the clubs.
stockholders holding or representing at least two-thirds (2/3) of
the outstanding capital stock, or if the corporation be a non-stock xxxx
corporation, by a vote of at least two-thirds (2/3) of the members
entitled to vote: Provided, That such removal shall take place SEC. 10. Special Meetings. Special meetings of stockholders
either at a regular meeting of the corporation or at a special shall be held at the Clubhouse when called by the President or by
meeting called for the purpose, and in either case, after previous the Board of Directors or upon written request of the stockholders
notice to stockholders or members of the corporation of the representing not less than one hundred (100) shares. Only
intention to propose such removal at the meeting. A special matters specified in the notice and call will be taken up at special
meeting of the stockholders or members of a corporation for the meetings.
purpose of removal of directors or trustees, or any of them, must
be called by the secretary on order of the president or on the xxxx
written demand of the stockholders representing or holding at
least a majority of the outstanding capital stock, or, if it be a non-
SEC. 25. Secretary. The Secretary shall keep the stock and
stock corporation, on the written demand of a majority of the
transfer book and the corporate seal, which he shall stamp on all
members entitled to vote. Should the secretary fail or refuse to
documents requiring such seal, fill and sign together with the
call the special meeting upon such demand or fail or refuse to
President, all the certificates of stocks issued, give or caused to
give the notice, or if there is no secretary, the call for the meeting
be given all notices required by law of these By-laws as well as
may be addressed directly to the stockholders or members by
notices of all meeting of the Board and of the stockholders; shall
any stockholder or member of the corporation signing the
certify as to quorum at meetings; shall approve and sign all
demand. Notice of the time and place of such meeting, as well as
correspondence pertaining to the Office of the Secretary; shall
of the intention to propose such removal, must be given by
keep the minutes of all meetings of the stockholders, the Board of
publication or by written notice prescribed in this Code. Removal
Directors and of all committees in a book or books kept for that
may be with or without cause: Provided, That removal without
purpose; and shall be acting President in the absence of the
cause may not be used to deprive minority stockholders or

Page 5 of 10
President and Vice-:President. The Secretary must be a citizen critical to the theory that legitimizes the exercise of power by the
and a resident of the Philippines. The Secretary shall keep a directors or officers over the properties that they do not own. 24

record of all the addresses and telephone numbers of all

stockholders. 22
Even the Corporation Code is categorical in stating that a
corporation exercises its powers through its board of directors
Textually, only the President and the Board of Directors are and/or its duly authorized officers and agents, except in instances
authorized by the by-laws to call a special meeting. In cases where the Corporation Code requires stockholders' approval for
where the person authorized to call a meeting refuses, fails or certain specific acts:
neglects to call a meeting, then the stockholders representing at
least 100 shares, upon written request, may file a petition to call a SEC. 23. The Board of Directors or Trustees. - Unless otherwise
special stockholder's meeting. provided in this Code, the corporate powers of all the
corporations formed under this Code shall be exercised, all
In the instant case, there is no dispute that the 17 December business conducted and all property of such corporations
1997 Special Stockholders' Meeting was called neither by the controlled and held by the board of directors and trustees x x x.
President nor by the Board of Directors but by the MSCOC. While
the MSCOC, as its name suggests, is created for the purpose of A corporation's board of directors is understood to be that body
overseeing the affairs of the corporation, nowhere in the by-laws which (1) exercises all powers provided for under the Corporation
does it state that it is authorized to exercise corporate powers, Code; (2) conducts all business of the corporation; and (3)
such as the power to call a special meeting, solely vested by law controls and holds all the property of the corporation. Its members
and the MSC by-laws on the President or the Board of Directors. have been characterized as trustees or directors clothed with
fiduciary character.25

The board of directors is the directing and controlling body of the

corporation. It is a creation of the stockholders and derives its It is ineluctably clear that the fiduciary relation is between the
power to control and direct the affairs of the corporation from stockholders and the board of directors and who are vested with
them. The board of directors, in drawing to itself the power of the the power to manage the affairs of the corporation. The ordinary
corporation, occupies a position of trusteeship in relation to the trust relationship of · directors of a corporation and stockholders
stockholders, in the sense that the board should exercise not only is not a matter of statutory or technical law.  It springs from the
26

care and diligence, but utmost good faith in the management of fact that directors have the control and guidance of corporate
the corporate affairs.
23
affairs and property and hence of the property interests of the
stockholders.  Equity recognizes that stockholders are the
27

The underlying policy of the Corporation Code is that the proprietors of the corporate interests and are ultimately the only
business and affairs of a corporation must be governed by a beneficiaries thereof.  Should the board fail to perform its
28

board of directors whose members have stood for election, and fiduciary duty to safeguard the interest of the stockholders or
who have actually been elected by the stockholders, on an commit acts prejudicial to their interest, the law and the by-laws
annual basis. Only in that way can the continued accountability to provide mechanisms to remove and replace the erring director. 29

shareholders, and the legitimacy of their decisions that bind the

corporation's stockholders, be assured. The shareholder vote is

Page 6 of 10
Relative to the powers of the Board of Directors, nowhere in the effected by the assembly in that improperly called meeting is void,
Corporation Code or in the MSC by-laws can it be gathered that and since the Cinco Group has no legal right to sit in the board,
the Oversight Committee is authorized to step in wherever there their subsequent acts of expelling Bernas from the club and the
is breach of fiduciary duty and call a special meeting for the selling of his shares. at the public auction, are likewise invalid.
purpose of removing the existing officers and electing their
replacements even if such call was made upon the request of The Cinco Group cannot invoke the application of de facto
shareholders. Needless to say, the MSCOC is neither · officership doctrine to justify the actions taken after the invalid
empowered by law nor the MSC by-laws to call a meeting and the election since the operation of the principle is limited to third
subsequent ratification made by the stockholders did not cure the persons who were originally not part of the corporation but
substantive infirmity, the defect having set in at the time the void became such by reason of voting of government-sequestered
act was done. The defect goes into the very authority of the shares.  In Cojuangco v. Roxas,  the Court deemed the directors
33 34

persons who made the call for the meeting. It is apt to recall that who were elected through the voting of government of
illegal acts of a corporation which contemplate the doing of an act sequestered shares who assumed office in good faith as de facto
which is contrary to law, morals or public order, or contravenes officers, viz:
some rules of public policy or public duty, are, like similar
transactions between individuals, void.  They cannot serve as
30
In the light of the foregoing discussion, the Court finds and so
basis for a court action, nor acquire validity by performance, holds that the PCGG has no right to vote the sequestered shares
ratification or estoppel.  The same principle can apply in the
31
of petitioners including the sequestered corporate shares. Only
present case. The void election of 17 December 1997 cannot be their owners, duly authorized representatives or proxies may vote
ratified by the subsequent Annual Stockholders' Meeting. the said shares. Consequently, the election of private
respondents Adolfo Azcuna, Edison Coseteng and Patricio
A distinction should be made between corporate acts or contracts Pineda as members of the board of directors of SMC for 1990-
which are illegal and those which are merely ultra vires. The 1991 should be set aside. However, petitioners cannot be
former contemplates the doing of an act which are contrary to declared as duly elected members of the board of directors
law, morals or public policy or public duty, and are, like similar thereby. An election for the purpose should be held where the
transactions between individuals, void: They cannot serve as questioned shares may be voted by their owners and/or their
basis of a court action nor acquire validity by performance, proxies. Such election may be held at the next shareholders'
ratification or estoppel. Mere ultra vires acts, on the other hand, meeting in April 1991 or at such date as may be set under the by-
or those which are not illegal or void ab initio, but are not merely laws of SMC.
within the scope of the articles of incorporation, are merely
voidable and may become binding and enforceable when ratified Private respondents in both cases are hereby declared to be de
by the stockholders.  The 1 7 December 1997 Meeting belongs to
32
facto officers who in good faith assumed their duties and
the category of the latter, that is, it is void ab initio and cannot be responsibilities as duly elected members of the board of directors
validated. of the SMC. They are thereby legally entitled to emoluments of
the office including salary, fees and other compensation attached
Consequently, such Special Stockholders' Meeting called by the to the office until they vacate the same. (Emphasis supplied)
Oversight Committee cannot have any legal effect. The removal
of the Bernas Group, as well as the election of the Cinco Group,

Page 7 of 10
Apparently, the assumption of office of the Cinco Group did not upon petition of the stockholder or member and upon showing of
bear parallelism with the factual milieu in Cojuangco and as such good cause, thus:
they cannot be considered as de facto officers and thus, they are
without colorable authority to authorize the removal of Bernas and On the showing of good cause therefore, the court may authorize
the sale of his shares at the public auction. They cannot bind the a stockholder to call a meeting and to preside thereat until the
corporation to third persons who acquired the shares of Bernas majority stockholders representing a majority of the stock present
and such third persons cannot be deemed as buyer in good and permitted to be voted shall have chosen one among them to
faith.
35
preside it. And this showing of good cause therefor exists when
the court is apprised of the fact that the by-laws of the corporation
The case would have been different if the petitioning stockholders require the calling of a general meeting of the stockholders to
went directly to the SEC and sought its assistance to call a elect the board of directors but the call for such meeting has not
special stockholders' meeting citing the previous refusal of the been done. 39

Corporate Secretary to call a meeting. Where there is an officer

authorized to call a meeting and that officer refuses, fails, or The same jurisprudential rule resonates in Philippine National
neglects to call a meeting, the SEC can assume jurisdiction and Construction Corporation v. Pabion,  where the Court validated
40

issue an order to the petitioning stockholder to call a meeting the order of the SEC to compel the corporation to conduct a
pursuant to its regulatory and administrative powers to implement stockholders' meeting in the exercise of its regulatory and
the Corporation Code.  This is clearly provided for by Section 50
36
administrative powers to implement the Corporation Code:
of the Corporation Code which we quote:
SEC's assumption of jurisdiction over this case is proper, as the
Sec. 50. Regular and special meetings of stockholders or controversy involves the election of PNCC's directors. Petitioner
members. - x x x does not really contradict the nature of the question presented
and agrees that there is an intra-corporate question involved.
xxxx
xxxx
Whenever, for any cause, there is no person authorized to call a
meeting, the Securities and Exchange Commission, upon petition Prescinding from the above premises, it necessarily follows that
of a stockholder or member, and on a showing of good cause SEC can compel PNCC to hold a stockholders' meeting for the
therefore, may issue an order to the petitioning stockholder or purpose of electing members of the latter's board of directors.
member directing him to call a meeting of the corporation by
giving proper notice required by this Code or by the by-laws. The xxxx
petitioning stockholder or member shall preside thereat until at
least majority of the stockholders or members present have
As respondents point out, the SEC's action is also justified by its
chosen one of their member[s] as presiding officer.
regulatory and administrative powers to implement the
Corporation Code, specifically to compel the PNCC to hold a
As early as Ponce v. Encarnacion, etc. and Gapol,  the Court of
37
stockholders' meeting for election purposes. 41

First Instance (now the SEC)  is empowered to call a meeting

38

Page 8 of 10
Given the broad administrative and regulatory powers of the SEC First, the 20 April 1998 Annual Stockholders Meeting was valid
outlined under Section 50 of the Corporation Code and Section 6 because it was sanctioned by Section 8  of the MSC bylaws.
45

of Presidential Decree (PD) No. 902-A, the Cinco Group cannot Unlike in Special Stockholders Meeting  wherein the bylaws
46

claim that if was left without recourse after the Corporate mandated that such meeting shall be called by specific persons
Secretary previously refused to heed its demand to call a special only, no such specific requirement can be obtained under Section
stockholders' meeting. If it be true that the Corporate Secretary 8.
refused to call a meeting despite fervent demand from the
MSCOC, the remedy of the stockholders would have been to file Second, the 19 April 1999 Annual Stockholders Meeting is
a petition to the SEC to direct him to call a meeting by giving likewise valid because in addition to the fact that it was conducted
proper notice required under the Code. To rule otherwise would in accordance to Section 8 of the MSC bylaws, such meeting was
open the floodgates to abuse where any stockholder, who supervised by the SEC in the exercise of its regulatory and
consider himself aggrieved by certain corporate actions, could administrative powers to implement the Corporation Code. 47

call a special stockholders' meeting for the purpose of removing

the sitting officers in direct violation of the rules pertaining to the Needless to say, the conduct of SEC supervised Annual
call of meeting laid down in the by-laws. Stockholders Meeting gave rise to the presumption that the
corporate officers who won the election were duly elected to their
Every corporation has the inherent power to adopt by-laws for its positions and therefore can be rightfully considered as de jure
internal government, and to regulate the conduct and prescribe officers. As de jure officials, they can lawfully exercise functions
the rights and duties of its members towards itself and among and legally perform such acts that are within the scope of the
themselves in reference to the management of its affairs.  The42
business of the corporation except ratification of actions that are
by-laws of a corporation are its own private laws which deemed void from the beginning.
substantially have the same effect as the laws of the corporation.
They are in effect written into the charter. In this sense they Considering that a new set of officers were already duly elected in
become part of the fundamental law of the corporation with which 1998 and 1999 Annual Stockholders Meetings, the Bernas Group
the corporation and its directors and officers must comply.  The 43
cannot be permitted to use the holdover principle as a shield to
general rule is that a corporation, through its board of directors, perpetuate in office. Members of the group had no right to
should act in the manner and within the formalities, if any, continue as directors of the corporation unless reelected by the
prescribed in its charter or by the general law. Thus, directors stockholders in a meeting called for that purpose every
must act as a body in a meeting called pursuant to the law or the year.  They had no right to hold-over brought about by the failure
48

corporation's by-laws, otherwise, any action taken therein may be to perform the duty incumbent upon them.  If they were sure to
49

questioned by the objecting director or shareholder. 44

be reelected, why did they fail, neglect, or refuse to call the
meeting to elect the members of the board? 50

Certainly, the rules set in the by-laws are mandatory for every
member of the corporation to respect.  They are the fundamental
1âwphi1

Moreover, it is fundamental rule that factual findings of quasi-

law of the corporation with which the corporation and its officers judicial agencies like the SEC, if supported by substantial
and members must comply. It is on this score that we cannot evidence, are generally accorded not only great respect but even
upon the other hand sustain the Bernas Group's stance that the finality, and are binding upon this Court unless it was shown that
subsequent annual stockholders' meetings were invalid. the quasi-judicial agencies had arbitrarily disregarded evidence

Page 9 of 10
before it had misapprehended evidence to such an extent as to (4) All other actions of the [Cinco Group] and stockholders
compel a contrary conclusion if such evidence had been properly taken during the Regular Stockholders' Meetings held in
appreciated.  It is not the function of this Court to analyze or
51
April 1998, 1999 and 2000, including the election of the
weigh all over again the evidence and credibility of witnesses [Cinco Group] as directors after the expiration of the term
presented before the lower court, tribunal, or office, as we are not of office of [Bernas Group] as directors, are hereby
trier of facts.  Our jurisdiction is limited to reviewing and revising
52
declared valid.55

errors of law imputed to the lower court, the latter's finding of facts
being conclusive and not reviewable by this Court.  However,
53
In fine, we hold that 17 December 1997 Special Stockholders'
when it can be shown that administrative bodies grossly Meeting is null and void and produces no effect; the resolution
misappreciated evidence of such nature as to compel a contrary expelling the Bernas Group from the corporation and authorizing
conclusion, the Court will not hesitate to reverse its factual the sale of Bernas' shares at the public auction is likewise null
findings.  In the case at bar, the incongruent findings of the SEC
54
and void. The subsequent Annual Stockholders' Meeting held on
on the one hand, and the Court of Appeals on the other, 20 April 1998, 19 April 1999 and 17 April 2000 are valid and
constrained the Court to review the records to ascertain which binding except the ratification of the removal of the Bernas Group
body correctly appreciated the facts vis-a-vis the standing and the sale of Bernas' shares at the public auction effected by
statutory and jurisprudential principles. the body during the said meetings. The expulsion of the Bernas
Group and the subsequent auction of Bernas' shares are void
After finding that the ruling of the appellate court was in from the very beginning and therefore the ratifications effected
accordance with the existing laws and jurisprudence as during the subsequent meetings cannot be sustained. A void act
exhaustively discussed above, we hereby quote with approval its cannot be the subject of ratification.
56

disquisition: (1) The supposed Special Stockholders' Meeting of 1

7 December 1997 was prematurely or invalidly called by the WHEREFORE, premises considered, the petitions of Jose A.
[Cinco Group]. It therefore failed to produce any legal effects and Bernas, Cecile. H. Cheng, Victor Africa, Jesus B. Maramara, Jose
did not effectively remove [the Bernas Group] as directors of the T. Frondoso, Ignacio A. Macrohon and Paulino T. Lim in G.R.
Makati Sports Club, Inc.; Nos. 163356-57 and of Jovencio Cinco, Ricardo Librea and Alex
Y. Pardo in G.R. Nos. 163368-69 are hereby DEN~ED. The
(2) The expulsion of [Bernas] as well as the public auction assailed Decision dated 28 April 2003 and Resolution dated 27
of his shares is hereby declared void and without legal April 2004 of the Court of Appeals are hereby AFFIRMED.
effect;
SO ORDERED.
(3) The ratification of the removal of [the Bernas Group]
as directors, the expulsion of Bernas and the sale of his
share by the [Cinco Group] and by the stockholders held
in their Regular Stockholders' Meeting held in April of
1998, 1999 and 2000, is void and produces no effects as
they were not the proper party to cause the ratification;

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