1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

number of votes required for the purpose of removal.—The Corporation

Code laid down the rules on the removal of the Directors of the corporation
by providing, inter alia, the persons authorized to call the meeting and the
number of votes required for the purpose of removal.
Corporations; Special Stockholders’ Meeting; In cases where the
person authorized to call a meeting refuses, fails or neglects to call a
meeting, then the stockholders representing at least one hundred (100)
shares, upon written request, may file a petition to call a special
stockholder’s meeting.—Textually, only the President and the Board of
G.R. Nos. 163356-57. July 1, 2015.* Directors are authorized by the bylaws to call a special meeting. In cases
where the person authorized to call a meeting refuses, fails or neglects to
JOSE A. BERNAS, CECILE H. CHENG, VICTOR AFRICA, call a meeting, then the stockholders representing at least 100 shares, upon
JESUS B. MARAMARA, JOSE T. FRONDOSO, IGNACIO T. written request, may file a petition to call a special stockholder’s meeting.
MACROHON, JR., and PAULINO T. LIM, acting in their capacity Same; Board of Directors; The board of directors is the directing and
as individual Directors of MAKATI SPORTS CLUB, INC., and on controlling body of the corporation.—The board of directors is the directing
behalf of the Board of Directors of MAKATI SPORTS CLUB, and controlling body of the corporation. It is a creation of the stockholders
petitioners, vs. JOVENCIO F. CINCO, VICENTE R. AYLLON, and derives its power to control and direct the affairs of the corporation
RICARDO G. LIBREA, SAMUEL L. ESGUERRA, ROLANDO P. from them. The board of directors, in drawing to itself the power of the
DELA CUESTA, RUBEN L. TORRES, ALEX Y. PARDO, MA. corporation, occupies a position of trusteeship in relation to the
CRISTINA SIM, ROGER T. AGUILING, JOSE B. QUIMSON, stockholders, in the sense that the board should exercise not only care and
CELESTINO L. ANG, ELISEO V. VILLAMOR, FELIPE L. diligence, but utmost good faith in the management of the corporate affairs.
GOZON, CLAUDIO B.
106
_______________

* FIRST DIVISION.
106 SUPREME COURT REPORTS ANNOTATED
Bernas vs. Cinco
105

Same; Same; The underlying policy of the Corporation Code is that the
VOL. 761, JULY 1, 2015 105
business and affairs of a corporation must be governed by a board of
Bernas vs. Cinco directors whose members have stood for election, and who have actually
been elected by the stockholders, on an annual basis.—The underlying
policy of the Corporation Code is that the business and affairs of a
ALTURA, ROGELIO G. VILLAROSA, MANUEL R. SANTIAGO, corporation must be governed by a board of directors whose members have
BENJAMIN A. CARANDANG, REGINA DE LEON-HERLIHY, stood for election, and who have actually been elected by the stockholders,
CARLOS Y. RAMOS, JR., ALEJANDRO Z. BARIN, EFRENILO on an annual basis. Only in that way can the continued accountability to
M. CAYANGA and JOHN DOES, respondents. shareholders, and the legitimacy of their decisions that bind the
corporation’s stockholders, be assured. The shareholder vote is critical to the
G.R. Nos. 163368-69. July 1, 2015.* theory that legitimizes the exercise of power by the directors or officers over
the properties that they do not own.
JOVENCIO F. CINCO, RICARDO G. LIBREA and ALEX Y. Same; Same; A corporation’s board of directors is understood to be
PARDO, petitioners, vs. JOSE A. BERNAS, CECILE H. CHENG that body which (1) exercises all powers provided for under the Corporation
and IGNACIO A. MACROHON, respondents. Code; (2) conducts all business of the corporation; and (3) controls and
holds all the property of the corporation.—A corporation’s board of
Corporation Law; Board of Directors; The Corporation Code laid directors is understood to be that body which (1) exercises all powers
down the rules on the removal of the Directors of the corporation by provided for under the Corporation Code; (2) conducts all business of the
providing, inter alia, the persons authorized to call the meeting and the corporation; and (3) controls and holds all the property of the corporation.

www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 1/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 2/32

1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

Its members have been characterized as trustees or directors clothed with its internal government, and to regulate the conduct and prescribe the rights
fiduciary character. and duties of its members towards itself and among themselves in reference
Same; “Illegal Corporate Acts” and “Ultra Vires Acts,” Distinguished. to the management of its affairs. The bylaws of a corporation are its own
—A distinction should be made between corporate acts or contracts which private laws which substantially have the same effect as the laws of the
are illegal and those which are merely ultra vires. The former contemplates corporation. They are in effect written into the charter. In this sense they
the doing of an act which are contrary to law, morals or public policy or become part of the fundamental law of the corporation with which the
public duty, and are, like similar transactions between individuals, void. corporation and its directors and officers must comply. The general rule is
They cannot serve as basis of a court action nor acquire validity by that a corporation, through its board of directors, should act in the manner
performance, ratification or estoppel. Mere ultra vires acts, on the other and within the formalities, if any, prescribed in its charter or by the general
hand, or those which are not illegal or void ab initio, but are not merely law. Thus, directors must act as a body in a meeting called pursuant to the
within the scope of the articles of incorporation, are merely voidable and law or the corporation’s bylaws, otherwise, any action taken therein may be
may become binding and enforceable when ratified by the stockholders. The questioned by the objecting director or shareholder.
17 December 1997 Meeting belongs to the category of the latter, that is, it is 108
void ab initio and cannot be validated.
Same; Where there is an officer authorized to call a meeting and that
108 SUPREME COURT REPORTS ANNOTATED
officer refuses, fails, or neglects to call a meeting, the Securities and
Exchange Commission (SEC) can assume jurisdiction and issue Bernas vs. Cinco

107
Same; Bylaws; The rules set in the bylaws are mandatory for every
member of the corporation to respect.—Certainly, the rules set in the bylaws
VOL. 761, JULY 1, 2015 107 are mandatory for every member of the corporation to respect. They are the
Bernas vs. Cinco fundamental law of the corporation with which the corporation and its
officers and members must comply. It is on this score that we cannot upon
the other hand sustain the Bernas Group’s stance that the subsequent annual
an order to the petitioning stockholder to call a meeting pursuant to its stockholders’ meetings were invalid.
regulatory and administrative powers to implement the Corporation Code.
—The case would have been different if the petitioning stockholders went Remedial Law; Civil Procedure; Appeals; Substantial Evidence; It is
directly to the SEC and sought its assistance to call a special stockholders’ fundamental rule that factual findings of quasi-judicial agencies like the
meeting citing the previous refusal of the Corporate Secretary to call a Securities and Exchange Commission (SEC), if supported by substantial
meeting. Where there is an officer authorized to call a meeting and that evidence, are generally accorded not only great respect but even finality,
officer refuses, fails, or neglects to call a meeting, the SEC can assume and are binding upon the Supreme Court (SC) unless it was shown that the
jurisdiction and issue an order to the petitioning stockholder to call a quasi-judicial agencies had arbitrarily disregarded evidence before it had
meeting pursuant to its regulatory and administrative powers to implement misapprehended evidence to such an extent as to compel a contrary
the Corporation Code. This is clearly provided for by Section 50 of the conclusion if such evidence had been properly appreciated.—It is
Corporation Code which we quote: Sec. 50. Regular and special meetings of fundamental rule that factual findings of quasi-judicial agencies like the
stockholders or members.—x x x x x x x Whenever, for any cause, there is SEC, if supported by substantial evidence, are generally accorded not only
no person authorized to call a meeting, the Securities and Exchange great respect but even finality, and are binding upon this Court unless it was
Commission, upon petition of a stockholder or member, and on a showing shown that the quasi-judicial agencies had arbitrarily disregarded evidence
of good cause therefore, may issue an order to the petitioning stockholder or before it had misapprehended evidence to such an extent as to compel a
member directing him to call a meeting of the corporation by giving proper contrary conclusion if such evidence had been properly appreciated. It is not
notice required by this Code or by the bylaws. The petitioning stockholder the function of this Court to analyze or weigh all over again the evidence
or member shall preside thereat until at least majority of the stockholders or and credibility of witnesses presented before the lower court, tribunal, or
members present have chosen one of their member[s] as presiding officer. office, as we are not trier of facts. Our jurisdiction is limited to reviewing
and revising errors of law imputed to the lower court, the latter’s finding of
Same; Board of Directors; Directors must act as a body in a meeting facts being conclusive and not reviewable by this Court. However, when it
called pursuant to the law or the corporation’s bylaws, otherwise, any can be shown that administrative bodies grossly misappreciated evidence of
action taken therein may be questioned by the objecting director or such nature as to compel a contrary conclusion, the Court will not hesitate to
shareholder.—Every corporation has the inherent power to adopt bylaws for reverse its factual findings. In the case at bar, the incongruent findings of the
www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 3/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 4/32
1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

SEC on the one hand, and the Court of Appeals on the other, constrained the Bernas vs. Cinco
Court to review the records to ascertain which· body correctly appreciated
the facts vis-à-vis the standing statutory and jurisprudential principles.
Same; De Facto Officers; View that a de facto officer is one who acts
109 as such under color of an election or appointment, but fails being a de jure
officer by some irregularity or failure to qualify as required by law.—As
aptly observed by the ponencia, the Cinco Group cannot invoke the de facto
VOL. 761, JULY 1, 2015 109 officership doctrine to justify its actions after their invalid election in the
Bernas vs. Cinco December 17, 1997 Meeting, particularly, the expulsion of Bernas from
MSC and the sale of his shares. A de facto officer is one who acts as such
Perlas-Bernabe, J., Separate Concurring Opinion: under color of an election or appointment, but fails being a de jure officer by
some irregularity or failure to qualify as required by law. Having ruled out
Corporations; Ultra Vires Acts; View that in Pirovano v. De la Rama the validity of their election either through the December 17, 1997 Meeting
Steamship (Pirovano), 96 Phil. 335 (1954), the Supreme Court (SC) held or through the ratifications in the April 20, 1998 and April 19, 1999
that corporate acts which are illegal for being contrary to law are incapable Meetings, the Cinco Group cannot be considered as de facto directors of
of ratification, as opposed to acts which are merely ultra vires, i.e., acts MSC. As such, they could not have validly expelled Bernas from MSC and
which are not within the powers of the corporation.—In Pirovano v. De la sold his shares of stock. More significantly, since the de facto doctrine rests
Rama Steamship Co. (Pirovano), 96 Phil. 335 (1954), the Court held that on public policy and justice, the official dealings of directors de facto with
corporate acts which are illegal for being contrary to law are incapable of third persons being sustained as rightful and valid on the ground of the
ratification, as opposed to acts which are merely ultra vires, i.e., acts which corporation’s continuous acquiescence to the officers holding themselves
are not within the powers of the corporation, to wit: x x x [A] distinction out as having such authority, it is only available to third persons dealing
should be made between corporate acts or contracts which are illegal and with corporations. No such third person invoked the doctrine here.
those which are merely ultra vires. The former contemplates the doing of an
PETITIONS for review on certiorari of the decision and resolution
act which is contrary to law, morals, or public policy or public duty, and are,
of the Court of Appeals.
like similar transactions between public order, or contravene some rules of
The facts are stated in the opinion of the Court.
individuals, void. They cannot serve as basis of a court action, nor acquire
Bernas Law Office for Jose Bernas.
validity by performance, ratification, or estoppel. Mere ultra vires acts, on
Platon, Martinez, Flores, San Pedro & Leaño for Cecille Cheng
the other hand, or those which are not illegal and void ab initio, but are not
and Ignacio A. Macrohon.
merely within the scope of the articles of incorporation, are merely voidable
De Mesa, Zaballero & Partners for Jovencio F. Cinco, et al.
and may become binding and enforceable when ratified by the stockholders.
Same; View that the procedure in ratifying acts approved or taken PEREZ, J.:
during prior meetings is different from the procedure in electing directors.—
While Section 51 of the Corporation Code states that a meeting shall be Before us are two consolidated Petitions for Review on
valid even if improperly called if all the stockholders are present or duly Certiorari1 assailing the 28 April 2003 Decision and the 27 April
represented at the meeting, it has not been shown that this is the case here.
Neither can the ratifications done during the April 20, 1998 and April 19, _______________
1999 Meetings be equated to the valid election of the Cinco Group, enough
to accord them with de jure status. Clearly, these meetings were specifically 1 Rollo (G.R. Nos. 163368-69), pp. 38-78. Rollo (G.R. Nos. 163356-57), pp. 44-
called for the ratification of acts taken during the void December 17, 1997 99.
Meeting, and not for the actual election of directors anew; to reiterate, the
111
ratification of void acts is strictly prohibited under the doctrine enunciated
in Pirovano. Besides, the procedure in ratifying acts approved or taken
during prior meetings is different from the procedure in electing directors, VOL. 761, JULY 1, 2015 111
which was not shown to have been complied with in any of those meetings. Bernas vs. Cinco
110
2004 Resolution of the Court of Appeals in C.A.-G.R. S.P. No.
62683,2 which declared the 17 December 1997 Special
110 SUPREME COURT REPORTS ANNOTATED Stockholders’ Meeting of the Makati Sports Club invalid for having
www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 5/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 6/32
1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

been improperly called but affirmed the actions taken during the Petitioners in G.R. Nos. 163368-69 Jovencio Cinco, Ricardo
Annual Stockholders’ Meeting held on 20 April 1998, 19 April 1999 Librea and Alex Y. Pardo (Cinco Group) are the members and
and 17 April 2000. The dispositive portion of the assailed decision stockholders of the corporation who were elected Members of the
reads: Board of Directors and Officers of the club during the 17 December
1997 Special Stockholders Meeting.
WHEREFORE, foregoing considered, the instant petition for review is The antecedent events of the meeting and its results, follow:
hereby GRANTED. The appealed Decision dated December 12, 2000 of Alarmed with the rumored anomalies in handling the corporate
the SEC en banc is SET ASIDE and the Decision dated April 20, 1998 of funds, the MSC Oversight Committee (MSCOC), composed of the
the Hearing Officer is REINSTATED and AMENDED as follows: past presidents of the club, demanded from the
1. The supposed Special Stockholders’ Meeting of December 17, 1997
was prematurely or invalidly called by the [Cinco Group]. It therefore failed
_______________
to produce any legal effects and did not effectively remove [the Bernas
Group] as directors of the Makati Sports Club, Inc.; 3 Id., at pp. 23-24.
2. The expulsion of petitioner Jose A. Bernas as well as the public
auction of his share[s] is hereby declared void and without legal effect; 113
3. The ratification of the removal of [the Bernas Group] as directors, the
expulsion of petitioner Bernas and the sale of his share by the defendants VOL. 761, JULY 1, 2015 113
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 Bernas vs. Cinco
not the proper party to cause the ratification;
Bernas Group, who were then incumbent officers of the
_______________ corporation, to resign from their respective positions to pave the way
for the election of new set of officers.4 Resonating this clamor were
2 Id., at pp. 10-35; penned by Associate Justice Eugenio S. Labitoria, with the stockholders of the corporation representing at least 100 shares
Associate Justices Andres B. Reyes, Jr. and Regalado E. Maambong, concurring. who sought the assistance of the MSCOC to call for a special
stockholders meeting for the purpose of removing the sitting officers
112
and electing new ones.5 Pursuant to such request, the MSCOC called
a Special Stockholders’ Meeting and sent out notices6 to all
112 SUPREME COURT REPORTS ANNOTATED stockholders and members stating therein the time, place and
purpose of the meeting. For failure of the Bernas Group to secure an
Bernas vs. Cinco
injunction before the Securities and Exchange Commission (SEC),
the meeting proceeded wherein Jose A. Bernas, Cecile H. Cheng,
4. All other actions of the [Cinco Group] and stockholders taken during Victor Africa, Jesus Maramara, Jose T. Frondoso, Ignacio T.
the Regular Stockholders’ Meetings held in April 1998, 1999 and 2000, Macrohon, Jr. and Paulino T. Lim were removed from office and, in
including the election of the [Cinco Group] as directors after the expiration their place and stead, Jovencio F. Cinco, Ricardo G. Librea, Alex Y.
of the term of office of petitioners as directors, are hereby declared valid; Pardo, Roger T. Aguiling, Rogelio G. Villarosa, Armando David,
5. No awards for damages and attorney’s fees.3 Norberto Maronilla, Regina de Leon-Herlihy and Claudio B. Altura,
were elected.7
The Facts
Aggrieved by the turn of events, the Bernas Group initiated an
action before the Securities Investigation and Clearing Department
Makati Sports Club (MSC) is a domestic corporation duly
(SICD) of the SEC docketed as SEC Case No. 5840 seeking for the
organized and existing under Philippine laws for the primary
nullification of the 17 December 1997 Special Stockholders Meeting
purpose of establishing, maintaining, and providing social, cultural,
on the ground that it was improperly called. Citing Section 28 of the
recreational and athletic activities among its members.
Corporation Code, the Bernas Group argued that the authority to call
Petitioners in G.R. Nos. 163356-57, Jose A. Bernas (Bernas),
a meeting lies with the Corporate Secretary and not with the
Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose T. Frondoso,
MSCOC which functions merely as an oversight body and is not
Ignacio T. Macrohon and Paulino T. Lim (Bernas Group) were
vested with the power to call corporate meetings. For being called
among the Members of the Board of Directors and Officers of the
by the persons not authorized to do so, the Bernas Group urged the
corporation whose terms were to expire either in 1998 or 1999.
SEC to declare the 17 December 1997 Special Stockholders’
www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 7/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 8/32
1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

_______________ VOL. 761, JULY 1, 2015 115

4 Id., at pp. 129-130. Bernas vs. Cinco

5 Id., at pp. 120-127.
6 Id., at p. 150. shares at public auction.11 After the notice12 requirement was
7 Id., at pp. 175-179. complied with, Bernas’ shares was accordingly sold for P902,000.00
to the highest bidder.
114 Prior to the resolution of SEC Case No. 5840, an Annual
Stockholders’ Meeting was held on 20 April 1998 pursuant to
114 SUPREME COURT REPORTS ANNOTATED Section 8 of the MSC bylaws.13 During the said meeting, which was
attended by 1,017 stockholders representing 2/3 of the outstanding
Bernas vs. Cinco
shares, the majority resolved to approve, confirm and ratify, among
others, the calling and holding of 17 December 1997 Special
Meeting, including the removal of the sitting officers and the Stockholders’ Meeting, the acts and resolutions adopted therein
election of new ones, be nullified. including the removal of Bernas Group from the Board and the
For their part, the Cinco Group insisted that the 17 December election of their replacements.14
1997 Special Stockholders’ Meeting is sanctioned by the Due to the filing of several petitions for and against the removal
Corporation Code and the MSC bylaws. In justifying the call of the Bernas Group from the Board pending before the SEC
effected by the MSCOC, they reasoned that Section 258 of the MSC resulting in the piling up of legal controversies involving MSC, the
bylaws merely authorized the Corporate Secretary to issue notices of SEC En Banc, in its Decision15 dated 30 March 1999, resolved to
meetings and nowhere does it state that such authority solely supervise the holding of the 1999 Annual Stockholders’ Meeting.
belongs to him. It was further asseverated by the Cinco Group that it During the said meeting, the stockholders once again approved,
would be useless to course the request to call a meeting thru the ratified and confirmed the holding of the 17 December 1997 Special
Corporate Secretary because he repeatedly refused to call a special Stockholders’ Meeting.
stockholders’ meeting despite demands and even filed a suit to The conduct of the 17 December 1997 Special Stockholders’
restrain the holding of a special meeting.9 Meeting was likewise ratified by the stockholders during the
Meanwhile, the newly elected directors initiated an investigation
on the alleged anomalies in administering the corporate affairs and
_______________
after finding Bernas guilty of irregularities,10 the Board resolved to
expel him from the club by selling his 11 Id., at pp. 201-203.
12 Id., at p. 204.
_______________ 13 Id., at p. 112; Amended By-Laws of the MSC.
SEC. 8. Annual Meetings.—The annual meeting of stockholders shall be held at
8 Id., at p. 115; Amended By-Laws of the MSC. the Clubhouse on the third Monday of April of every year unless such day be a
SEC. 25. Secretary.—The Secretary shall keep the stock and transfer book and holiday in which case the annual meeting shall be held on the next succeeding
the corporate seal, which he shall stamp on all documents requiring such seal; fill and business day. At such meeting, the President shall render a report to the stockholders
sign together with the President, all the certificates of stocks issued, give or caused to of the clubs.
be given all notices required by law of these Bylaws as well as notices of all meeting 14 Id., at pp. 83-84.
of the Board and of the stockholders; shall certify as to quorum at meetings; shall 15 Rollo (G.R. Nos. 163356-57), pp. 114-146.
approve and sign all correspondence pertaining to the Office of the Secretary; shall
keep the minutes of all meetings of the stockholders, the Board of Directors and of all 116
committees in a book or books kept for that purpose; and shall be acting President in
the absence of the President and Vice President. The Secretary must be a citizen and a
116 SUPREME COURT REPORTS ANNOTATED
resident of the Philippines. The Secretary shall keep a record of all the addresses and
telephone numbers of all stockholders. Bernas vs. Cinco
9 Id., at pp. 245-310.
10 Id., at pp. 185-200. 2000 Annual Stockholders’ Meeting which was held on 17 April
2000.16
115

www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 9/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 10/32

1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

On 9 May 2000, the SICD rendered a decision17 in SEC Case No. (5) The [the Cinco Group], their agents, representatives and all persons
12-97-5840 finding, among others, that the 17 December 1997 acting for and conspiring on their behalf, are hereby permanently enjoined
Special Stockholders’ Meeting and the Annual Stockholders’ from carrying into effect the resolutions and actions adopted during the 17
Meeting conducted on 20 April 1998 and 19 April 1999 are invalid. December 1997 and April 20, 1998 meetings and of the Board of Directors
The SICD likewise nullified the expulsion of Bernas from the and/or other stockholders’ meetings resulting therefrom, and from
corporation and the sale of his share at the public auction. The performing acts of control and management of the club.
dispositive portion of the said decision reads: (6) The expulsion of complainant Jose A. Bernas as well as the public
auction of his share is hereby declared void and without legal effect, as
WHEREFORE, in view of the foregoing considerations this Office, prayed for. While it is true that [the Cinco Group] were not restrained from
through the undersigned Hearing Officer, hereby declares as follows: acting as directors during the pendency of
(1) The supposed Special Stockholders’ Meeting of December 17,
1997 was prematurely or invalidly called by the [the Cinco Group]. It 118
therefore failed to produce any legal effects and did not effectively remove
[the Bernas Group] as directors of the Makati Sports Club, Inc.
118 SUPREME COURT REPORTS ANNOTATED
(2) The April 20, 1998 meeting was not attended by a sufficient
number of valid proxies. No quorum could have been present at the said Bernas vs. Cinco
meeting. No corporate business could have been validly completed and/or
transacted during the said meeting. Further, it was not called by the validly this case, their tenure as directors prior to this Decision is in the nature of
elected Corporate Secretary Victor Africa nor presided over by the validly de facto directors of a de facto Board. Only the ordinary acts of
elected president Jose A. Bernas. Even if the April 20, 1998 meeting was administration which [the Cinco Group] carried out de facto in good faith
valid, it could not ratify the December 17, 1997 meeting because being a are valid. Other acts, such as political acts and the expulsion or other
void meeting, the December 17, 1997 meeting may not be ratified. disciplinary acts imposed on the [the Bernas Group] may not be
appropriately taken by de facto officers because the legality of their tenure
_______________ as directors is not complete and subject to the outcome of this case.
(7) No awards for damages and attorney’s fees.18
16 Rollo (G.R. Nos. 163368-69), pp. 233-239.
17 Id., at pp. 311-322.
On appeal, the SEC En Banc, in its 12 December 2000
117 Decision19 reversed the findings of the SICD and validated the
holding of the 17 December 1997 Special Stockholders’ Meeting as
VOL. 761, JULY 1, 2015 117 well as the Annual Stockholders’ Meeting held on 20 April 1998
and 19 April 1999.
Bernas vs. Cinco
On 28 April 2003, the Court of Appeals rendered a Decision20
declaring the 17 December 1997 Special Stockholders’ Meeting
(3) The April 1998 meeting was null and void and therefore produced invalid for being improperly called but affirmed the actions taken
no legal effect. during the Annual Stockholders’ Meeting held on 20 April 1998, 19
(4) The April 1999 meeting has not been raised as a defense in the April 1999 and 17 April 2000.
Answer nor assailed in a supplemental complaint. However, it has been In a Resolution21 dated 27 April 2004, the appellate court refused
raised by [the Cinco Group] in a manifestation dated April 21, 1999 and in to reconsider its earlier decision.
their position paper dated April 8, 2000. Its legal effects must be the subject Aggrieved by the disquisition of the Court of Appeals, both
of this Decision in order to put an end to the controversy at hand. In the first parties elevated the case before this Court by filing their respective
place, by [the Cinco Group’s] own admission, the alleged attendance at the Petitions for Review on Certiorari. While the Bernas Group agrees
April 1999 meeting amounted to less than 2/3 of the stockholders entitled to with the disquisition of the appellate court that the Special
vote, the minimum number required to effect a removal. No removal or Stockholders’ Meeting is invalid for being
ratification of a removal may be effected by less than 2/3 vote of the
stockholders. Further, it cannot ratify the December 1997 meeting for failure
_______________
to adhere to the requirement of the Bylaws on notice as explained in
paragraph (2) above, even if it was accompanied by valid proxies, which it 18 Id., at pp. 321-322.
was not. 19 Id., at pp. 323-345.

www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 11/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 12/32

1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

20 Id., at pp. 10-26. ing at least two-thirds (2/3) of the outstanding capital stock, or if the
21 Id., at pp. 27-35. corporation be a non-stock corporation, by a vote of at least two-thirds (2/3)
of the members entitled to vote: Provided, That such removal shall take
119
place either at a regular meeting of the corporation or at a special meeting
called for the purpose, and in either case, after previous notice to
VOL. 761, JULY 1, 2015 119 stockholders or members of the corporation of the intention to propose such
removal at the meeting. A special meeting of the stockholders or
Bernas vs. Cinco
members of a corporation for the purpose of removal of directors or
trustees, or any of them, must be called by the secretary on order of the
called by the persons not authorized to do so, they urge the Court president or on the written demand of the stockholders representing or
to likewise invalidate the holding of the subsequent Annual holding at least a majority of the outstanding capital stock, or, if it be a
Stockholders’ Meetings invoking the application of the holdover non-stock corporation, on the written demand of a majority of the members
principle. The Cinco Group, for its part, insists that the holding of 17 entitled to vote. Should the secretary fail or refuse to call the special
December 1997 Special Stockholders’ Meeting is valid and binding meeting upon such demand or fail or refuse to give the notice, or if there is
underscoring the overwhelming ratification made by the no secretary, the call for the meeting may be addressed directly to the
stockholders during the subsequent annual stockholders’ meetings stockholders or members by any stockholder or member of the corporation
and the previous refusal of the Corporate Secretary to call a special signing the demand. Notice of the time and place of such meeting, as well as
stockholders’ meeting despite demand. For the resolution of the of the intention to propose such removal, must be given by publication or by
Court are the following issues: written notice prescribed in this Code. Removal may be with or without
cause: Provided, That removal without cause may not be used to deprive
The Issues minority stockholders or members of the right of representation to which
they may be entitled under Section 24 of this Code. (Emphasis supplied)

I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS Corollarily, the pertinent provisions of MSC bylaws which
ERRED IN RULING THAT THE 17 DECEMBER 1997 SPECIAL govern the manner of calling and sending of notices of the annual
STOCKHOLDERS’ MEETING IS INVALID; AND stockholders’ meeting and the special stockholders’ meeting
II. provide:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ERRED IN FAILING TO NULLIFY THE HOLDING OF THE ANNUAL SEC. 8. Annual Meetings.—The annual meeting of stockholders shall
STOCKHOLDERS’ MEETING ON 20 APRIL 1998, 19 APRIL 1999 AND be held at the Clubhouse on the third Monday of April of every year unless
17 APRIL 2000. such day be a holiday in which case the annual meeting shall be held

121
The Court’s Ruling
VOL. 761, JULY 1, 2015 121
The Corporation Code laid down the rules on the removal of the
Directors of the corporation by providing, inter alia, the persons Bernas vs. Cinco
authorized to call the meeting and the number of votes required for
the purpose of removal, thus: on the next succeeding business day. At such meeting, the President shall
render a report to the stockholders of the clubs.
Sec. 28. Removal of directors or trustees.—Any director or trustee of xxxx
a corporation may be removed from office by a vote of the stockholders SEC. 10. Special Meetings.—Special meetings of stockholders shall
holding or represent- be held at the Clubhouse when called by the President or by the Board of
120
Directors or upon written request of the stockholders representing not less
than one hundred (100) shares. Only matters specified in the notice and call
will be taken up at special meetings.
120 SUPREME COURT REPORTS ANNOTATED xxxx
Bernas vs. Cinco
www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 13/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 14/32
1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

SEC. 25. Secretary.—The Secretary shall keep the stock and transfer directors whose members have stood for election, and who have
book and the corporate seal, which he shall stamp on all documents actually been elected by the stockholders, on an annual basis. Only
requiring such seal, fill and sign together with the President, all the in that way can the continued accountability to shareholders, and the
certificates of stocks issued, give or caused to be given all notices required legitimacy of their decisions that bind the corporation’s
by law of these Bylaws as well as notices of all meeting of the Board and of stockholders, be assured. The shareholder vote is critical to the
the stockholders; shall certify as to quorum at meetings; shall approve and theory that legitimizes the exercise of power by the directors or
sign all correspondence pertaining to the Office of the Secretary; shall keep officers over the properties that they do not own.24
the minutes of all meetings of the stockholders, the Board of Directors and Even the Corporation Code is categorical in stating that a
of all committees in a book or books kept for that purpose; and shall be corporation exercises its powers through its board of directors and/or
acting President in the absence of the President and Vice President. The its duly authorized officers and agents, except in instances where the
Secretary must be a citizen and a resident of the Philippines. The Secretary Corporation Code requires stockholders’ approval for certain
shall keep a record of all the addresses and telephone numbers of all specific acts:
stockholders.22
_______________

Textually, only the President and the Board of Directors are 23 Valle Verde Country Club, Inc. v. Africa, 614 Phil. 391, 399-400; 598 SCRA
authorized by the bylaws to call a special meeting. In cases where 195, 213 (2009).
the person authorized to call a meeting refuses, fails or neglects to 24 Id., at p. 400; p. 213.
call a meeting, then the stockholders representing at least 100 shares,
upon written request, may file a petition to call a special 123
stockholder’s meeting.
VOL. 761, JULY 1, 2015 123
_______________
Bernas vs. Cinco
22 Id., at pp. 112 and 115; Amended By-Laws of the Makati Sports Club.
SEC. 23. The Board of Directors or Trustees.—Unless otherwise
122
provided in this Code, the corporate powers of all the corporations formed
under this Code shall be exercised, all business conducted and all property
122 SUPREME COURT REPORTS ANNOTATED of such corporations controlled and held by the board of directors and
trustees x x x.
Bernas vs. Cinco

In the instant case, there is no dispute that the 17 December 1997 A corporation’s board of directors is understood to be that body
Special Stockholders’ Meeting was called neither by the President which (1) exercises all powers provided for under the Corporation
nor by the Board of Directors but by the MSCOC. While the Code; (2) conducts all business of the corporation; and (3) controls
MSCOC, as its name suggests, is created for the purpose of and holds all the property of the corporation. Its members have been
overseeing the affairs of the corporation, nowhere in the bylaws does characterized as trustees or directors clothed with fiduciary
it state that it is authorized to exercise corporate powers, such as the character.25
power to call a special meeting, solely vested by law and the MSC It is ineluctably clear that the fiduciary relation is between the
bylaws on the President or the Board of Directors. stockholders and the board of directors and who are vested with the
The board of directors is the directing and controlling body of the power to manage the affairs of the corporation. The ordinary trust
corporation. It is a creation of the stockholders and derives its power relationship of directors of a corporation and stockholders is not a
to control and direct the affairs of the corporation from them. The matter of statutory or technical law.26 It springs from the fact that
board of directors, in drawing to itself the power of the corporation, directors have the control and guidance of corporate affairs and
occupies a position of trusteeship in relation to the stockholders, in property and hence of the property interests of the stockholders.27
the sense that the board should exercise not only care and diligence, Equity recognizes that stockholders are the proprietors of the
but utmost good faith in the management of the corporate affairs.23 corporate interests and are ultimately the only beneficiaries
The underlying policy of the Corporation Code is that the thereof.28 Should the board fail to perform its fiduciary duty to
business and affairs of a corporation must be governed by a board of safeguard the interest of the stockholders or commit acts prejudicial

www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 15/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 16/32

1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

to their interest, the law and the bylaws provide mechanisms to December 1997 Meeting belongs to the category of the latter, that is,
remove and replace the erring director.29 it is void ab initio and cannot be validated.
Relative to the powers of the Board of Directors, nowhere in the
Corporation Code or in the MSC bylaws can it be gathered that the _______________
Oversight Committee is authorized to step in
30 Pirovano v. De la Rama Steamship Co., 96 Phil. 335, 360 (1954).
31 Id.
_______________
32 Id.
25 Raniel v. Jochico, 546 Phil. 54, 60; 517 SCRA 221, 228 (2007).
26 Gokongwei, Jr. v. Securities and Exchange Commission, 178 Phil. 266, 299; 89 125

SCRA 336, 367 (1979).

27 Id. VOL. 761, JULY 1, 2015 125
28 Id.
Bernas vs. Cinco
29 Id.

124 Consequently, such Special Stockholders’ Meeting called by the

Oversight Committee cannot have any legal effect. The removal of
the Bernas Group, as well as the election of the Cinco Group,
124 SUPREME COURT REPORTS ANNOTATED
effected by the assembly in that improperly called meeting is void,
Bernas vs. Cinco and since the Cinco Group has no legal right to sit in the board, their
subsequent acts of expelling Bernas from the club and the selling of
wherever there is breach of fiduciary duty and call a special his shares at the public auction, are likewise invalid.
meeting for the purpose of removing the existing officers and The Cinco Group cannot invoke the application of de facto
electing their replacements even if such call was made upon the officership doctrine to justify the actions taken after the invalid
request of shareholders. Needless to say, the MSCOC is neither election since the operation of the principle is limited to third
empowered by law nor the MSC bylaws to call a meeting and the persons who were originally not part of the corporation but became
subsequent ratification made by the stockholders did not cure the such by reason of voting of governmentsequestered shares.33 In
substantive infirmity, the defect having set in at the time the void act Cojuangco, Jr. v. Roxas,34 the Court deemed the directors who were
was done. The defect goes into the very authority of the persons who elected through the voting of government of sequestered shares who
made the call for the meeting. It is apt to recall that illegal acts of a assumed office in good faith as de facto officers, viz.:
corporation which contemplate the doing of an act which is contrary
to law, morals or public order, or contravenes some rules of public In the light of the foregoing discussion, the Court finds and so holds that
policy or public duty, are, like similar transactions between the PCGG has no right to vote the sequestered shares of petitioners
individuals, void.30 They cannot serve as basis for a court action, nor including the sequestered corporate shares. Only their owners, duly
acquire validity by performance, ratification or estoppel.31 The same authorized representatives or proxies may vote the said shares.
principle can apply in the present case. The void election of 17 Consequently, the election of private respondents Adolfo Azcuna, Edison
December 1997 cannot be ratified by the subsequent Annual Coseteng and Patricio Pineda as members of the board of directors of SMC
Stockholders’ Meeting. for 1990-1991 should be set aside.
A distinction should be made between corporate acts or contracts However, petitioners cannot be declared as duly elected members of the
which are illegal and those which are merely ultra vires. The former board of directors thereby. An election for the purpose should be held where
contemplates the doing of an act which are contrary to law, morals the questioned shares may be voted by their owners and/or their proxies.
or public policy or public duty, and are, like similar transactions Such election may be held at the next shareholders’ meeting in April 1991
between individuals, void. They cannot serve as basis of a court or at such date as may be set under the bylaws of SMC.
action nor acquire validity by performance, ratification or estoppel.
Mere ultra vires acts, on the other hand, or those which are not _______________
illegal or void ab initio, but are not merely within the scope of the
33 Cojuangco, Jr. v. Roxas, 273 Phil. 168; 195 SCRA 797 (1991).
articles of incorporation, are merely voidable and may become
34 Id., at p. 187; p. 814.
binding and enforceable when ratified by the stockholders.32 The 17
126
www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 17/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 18/32
1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

Sec. 50. Regular and special meetings of stockholders or members.—

xxx
126 SUPREME COURT REPORTS ANNOTATED
xxxx
Bernas vs. Cinco Whenever, for any cause, there is no person authorized to call a meeting,
the Securities and Exchange Commission, upon petition of a stockholder or
Private respondents in both cases are hereby declared to be de facto member, and on a showing of good cause therefore, may issue an order to
officers who in good faith assumed their duties and responsibilities as the petitioning stockholder or member directing him to call a meeting of the
duly elected members of the board of directors of the SMC. They are corporation by giving proper notice required by this Code or by the bylaws.
thereby legally entitled to emoluments of the office including salary, fees The petitioning stockholder or member shall preside thereat until at least
and other compensation attached to the office until they vacate the same. majority of the stockholders or members present have chosen one of their
(Emphasis supplied) member[s] as presiding officer.

Apparently, the assumption of office of the Cinco Group did not As early as Ponce v. Encarnacion, etc. and Gapol,37 the Court of
bear parallelism with the factual milieu in Cojuangco and as such First Instance (now the SEC)38 is empowered to call a
they cannot be considered as de facto officers and thus, they are
without colorable authority to authorize the removal of Bernas and _______________
the sale of his shares at the public auction. They cannot bind the
corporation to third persons who acquired the shares of Bernas and (c) To compel the officers of any corporation or association registered by it to
such third persons cannot be deemed as buyer in good faith.35 call meetings of stockholders or members thereof under its supervision.
The case would have been different if the petitioning 37 94 Phil. 81 (1953).
stockholders went directly to the SEC and sought its assistance to 38 Under the provisions of Republic Act No. 296 (Judiciary Act of 1948) which
call a special stockholders’ meeting citing the previous refusal of the took effect on 17 June 1948, the Court of First Instance have original jurisdiction to
Corporate Secretary to call a meeting. Where there is an officer entertain “all cases which the demand, exclusive of interests, or the value of the
authorized to call a meeting and that officer refuses, fails, or neglects property in controversy amounts to more than P2,000.00.” Likewise they have the
to call a meeting, the SEC can assume jurisdiction and issue an order power to issue writs of injunction, certiorari, mandamus, prohibition, quo warranto
to the petitioning stockholder to call a meeting pursuant to its and habeas corpus in their respective provinces and districts in the manner provided
regulatory and administrative powers to implement the Corporation for in the Rules of Court.
Code.36 This is clearly provided for by Section 50 of the Corporation On the other hand, Presidential Decree No. 902-A (SEC Reorganization Act) on
Code which we quote: 11 March 1976, confers upon the SEC, “in addition to (its) regulatory and
administrative functions, original and exclusive jurisdiction to hear and decide cases
involving fraudulent devices or schemes, intra-corporate or partnership disputes, and
_______________
controversies n elections and appointments of directors and officers.” Thus, in Philex
35 A purchaser in good faith and for value is one who buys the property of Mining Corporation v. Reyes, (No. L-57707, 19 November 1982, 118 SCRA 602,
another without notice that some other person has a right to or interest in it, and who 607), the Court held “the controversy between the parties being clearly an intra-
pays therefor a full and fair price at the time of the purchase or before receiving such corporate one, it is the SEC, as held by it and not respondent Court of First Instance,
notice. (Potenciano v. Reynoso, 449 Phil. 396, 410; 401 SCRA 391, 401-402 [2003]) that has original exclusive jurisdiction, by express mandate of law.”
36 Section 6 of Presidential Decree No. 902-A provides:
SECTION 6. In order to effectively exercise such jurisdiction [referring to 128

Section 5], the Commission shall possess the following powers:

xxxx 128 SUPREME COURT REPORTS ANNOTATED
127 Bernas vs. Cinco

meeting upon petition of the stockholder or member and upon

VOL. 761, JULY 1, 2015 127
showing of good cause, thus:
Bernas vs. Cinco
On the showing of good cause therefore, the court may authorize a
stockholder to call a meeting and to preside thereat until the majority

www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 19/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 20/32

1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

stockholders representing a majority of the stock present and permitted to be Presidential Decree (PD) No. 902-A, the Cinco Group cannot claim
voted shall have chosen one among them to preside it. And this showing of that if was left without recourse after the Corporate Secretary
good cause therefor exists when the court is apprised of the fact that the previously refused to heed its demand to call a special stockholders’
bylaws of the corporation require the calling of a general meeting of the meeting. If it be true that the Corporate Secretary refused to call a
stockholders to elect the board of directors but the call for such meeting has meeting despite fervent demand from the MSCOC, the remedy of
not been done.39 the stockholders would have been to file a petition to the SEC to
direct him to call a meeting by giving proper notice required under
the Code. To rule otherwise would open the floodgates to abuse
The same jurisprudential rule resonates in Philippine National where any stockholder, who consider himself aggrieved by certain
Construction Corporation v. Pabion,40 where the Court validated the corporate actions, could call a special stockholders’ meeting for the
order of the SEC to compel the corporation to conduct a purpose of removing the sitting officers in direct violation of the
stockholders’ meeting in the exercise of its regulatory and rules pertaining to the call of meeting laid down in the bylaws.
administrative powers to implement the Corporation Code: Every corporation has the inherent power to adopt bylaws for its
internal government, and to regulate the conduct and prescribe the
SEC’s assumption of jurisdiction over this case is proper, as the
rights and duties of its members towards itself and among
controversy involves the election of PNCC’s directors. Petitioner does not
themselves in reference to the management of its affairs.42 The
really contradict the nature of the question presented and agrees that there is
bylaws of a corporation are its own private laws which substantially
an intra-corporate question involved.
have the same effect as the laws of the corporation. They are in
xxxx
effect written into the charter. In this sense they become part of the
Prescinding from the above premises, it necessarily follows that SEC can
fundamental law of the corpo-
compel PNCC to hold a stockhold-

_______________
_______________
41 Id., at pp. 1040-1041; pp. 206-207.
Pursuant to Republic Act No. 8799 (Securities Regulation Code of 2001) which
42 Supra note 26 at p. 296; p. 365.
took effect on 8 August 2000, the jurisdiction of the SEC to decide cases involving
intra-corporate dispute was transferred to the courts of general jurisdiction and, in 130
accordance therewith, all cases of this nature, with the exception only of those
submitted for decision, were transferred to the regular courts. See Pascual v. Court of
Appeals, 393 Phil. 497; 339 SCRA 117 (2000). 130 SUPREME COURT REPORTS ANNOTATED
39 Ponce v. Encarnacion, supra note 37 at p. 85. Bernas vs. Cinco
40 377 Phil. 1019; 320 SCRA 188 (1999).

129
ration with which the corporation and its directors and officers
must comply.43 The general rule is that a corporation, through its
board of directors, should act in the manner and within the
VOL. 761, JULY 1, 2015 129 formalities, if any, prescribed in its charter or by the general law.
Bernas vs. Cinco Thus, directors must act as a body in a meeting called pursuant to
the law or the corporation’s bylaws, otherwise, any action taken
therein may be questioned by the objecting director or shareholder.44
ers’ meeting for the purpose of electing members of the latter’s board of
Certainly, the rules set in the bylaws are mandatory for every
directors.
member of the corporation to respect. They are the fundamental law
xxxx
of the corporation with which the corporation and its officers and
As respondents point out, the SEC’s action is also justified by its
members must comply. It is on this score that we cannot upon the
regulatory and administrative powers to implement the Corporation Code,
other hand sustain the Bernas Group’s stance that the subsequent
specifically to compel the PNCC to hold a stockholders’ meeting for
annual stockholders’ meetings were invalid.
election purposes.41
First, the 20 April 1998 Annual Stockholders Meeting was valid
because it was sanctioned by Section 845 of the MSC bylaws. Unlike
Given the broad administrative and regulatory powers of the SEC in Special Stockholders Meeting46 wherein the bylaws mandated
outlined under Section 50 of the Corporation Code and Section 6 of
www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 21/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 22/32
1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

that such meeting shall be called by specific persons only, no such 47 Sec. 50. Regular and special meetings of stockholders or members.—x x x
specific requirement can be obtained under Section 8. Whenever, for any cause, there is no person authorized to call a meeting, the
Securities and Exchange Commission, upon petition of a stockholder or member, and

_______________ on showing of good cause therefore, may issue an order to the petitioning stockholder
or member directing him to call a meeting of the corporation by giving proper notice
43 Peña v. Court of Appeals, 271 Phil. 751, 765; 193 SCRA 717, 729 (1991). required by this Code or by the bylaws. The petitioning stockholder or member shall
44 Lopez Realty, Inc. v. Fontecha, 317 Phil. 216, 226; 247 SCRA 183, 191 (1995). preside thereat until at least majority of the stockholders or members present have
45 SEC. 8. Annual Meetings.—The annual meeting of stockholders shall be chosen one of their member[s] as presiding officer.
held at the Clubhouse on the third Monday of April of every year unless such day be a 48 Ponce v. Encarnacion, supra note 37 at p. 87.
holiday in which case the annual meeting shall be held on the next succeeding 49 Id.
business day. At such meeting, the President shall render a report to the stockholders
of the clubs. (Rollo [G.R. Nos. 1663368-69], p. 112) 132
46 SEC. 10. Special Meetings.—Special meetings of stockholders shall be held
at the clubhouse when called by the President pr by the Board of Directors or upon 132 SUPREME COURT REPORTS ANNOTATED
written request of the stockholders representing not less than one hundred (100)
shares. Only matters specified in the notice and call will be taken up at special Bernas vs. Cinco
meetings. (Id.)
neglect, or refuse to call the meeting to elect the members of the
131 board?50
Moreover, it is fundamental rule that factual findings of quasi-
VOL. 761, JULY 1, 2015 131 judicial agencies like the SEC, if supported by substantial evidence,
are generally accorded not only great respect but even finality, and
Bernas vs. Cinco are binding upon this Court unless it was shown that the quasi-
judicial agencies had arbitrarily disregarded evidence before it had
Second, the 19 April 1999 Annual Stockholders Meeting is misapprehended evidence to such an extent as to compel a contrary
likewise valid because in addition to the fact that it was conducted in conclusion if such evidence had been properly appreciated.51 It is
accordance to Section 8 of the MSC bylaws, such meeting was not the function of this Court to analyze or weigh all over again the
supervised by the SEC in the exercise of its regulatory and evidence and credibility of witnesses presented before the lower
administrative powers to implement the Corporation Code.47 court, tribunal, or office, as we are not trier of facts.52 Our
Needless to say, the conduct of SEC supervised Annual jurisdiction is limited to reviewing and revising errors of law
Stockholders Meeting gave rise to the presumption that the imputed to the lower court, the latter’s finding of facts being
corporate officers who won the election were duly elected to their conclusive and not reviewable by this Court.53 However, when it can
positions and therefore can be rightfully considered as de jure be shown that administrative bodies grossly misappreciated
officers. As de jure officials, they can lawfully exercise functions evidence of such nature as to compel a contrary conclusion, the
and legally perform such acts that are within the scope of the Court will not hesitate to reverse its factual findings.54 In the case at
business of the corporation except ratification of actions that are bar, the incongruent findings of the SEC on the one hand, and the
deemed void from the beginning. Court of Appeals on the other, constrained the Court to review the
Considering that a new set of officers were already duly elected records to ascertain which· body correctly appreciated the facts vis-
in 1998 and 1999 Annual Stockholders Meetings, the Bernas Group à-vis the standing statutory and jurisprudential principles.
cannot be permitted to use the holdover principle as a shield to After finding that the ruling of the appellate court was in
perpetuate in office. Members of the group had no right to continue accordance with the existing laws and jurisprudence as exhaustively
as directors of the corporation unless reelected by the stockholders discussed above, we hereby quote with approval its disquisition:
in a meeting called for that purpose every year.48 They had no right
to holdover brought about by the failure to perform the duty _______________
incumbent upon them.49 If they were sure to be reelected, why did
they fail, 50 Id.
51 Batangas Laguna Tayabas Bus Company, Inc. v. Bitanga, 415 Phil. 43, 59; 362

_______________ SCRA 635, 650 (2001).

52 Cuenca v. Atas, 561 Phil. 186, 220; 535 SCRA 48, 84-85 (2007).

www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 23/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 24/32

1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

53 Id. 134 SUPREME COURT REPORTS ANNOTATED

54 Fujitsu Computer Products Corporation of the Philippines v. Court of Appeals,
Bernas vs. Cinco
494 Phil. 697, 716; 454 SCRA 737, 758 (2005).

133 WHEREFORE, premises considered, the petitions of Jose A.

Bernas, Cecile H. Cheng, Victor Africa, Jesus B. Maramara, Jose T.
Frondoso, Ignacio A. Macrohon and Paulino T. Lim in G.R. Nos.
VOL. 761, JULY 1, 2015 133
163356-57 and of Jovencio Cinco, Ricardo Librea and Alex Y.
Bernas vs. Cinco Pardo in G.R. Nos. 163368-69 are hereby DENIED. The assailed
Decision dated 28 April 2003 and Resolution dated 27 April 2004 of
(1) The supposed Special Stockholders’ Meeting of 17 December 1997 the Court of Appeals are hereby AFFIRMED.
was prematurely or invalidly called by the [Cinco Group]. It therefore failed SO ORDERED.
to produce any legal effects and did not effectively remove [the Bernas
Group] as directors of the Makati Sports Club, Inc.; Sereno (CJ., Chairperson), Leonardo-De Castro and Bersamin,
(2) The expulsion of [Bernas] as well as the public auction of his JJ., concur.
shares is hereby declared void and without legal effect; Perlas-Bernabe, J., Please see Separate Concurring Opinion.
(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
SEPARATE CONCURRING OPINION
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
PERLAS-BERNABE, J.:
not the proper party to cause the ratification;
(4) All other actions of the [Cinco Group] and stockholders taken
I.
during the Regular Stockholders’ Meetings held in April 1998, 1999 and
2000, including the election of the [Cinco Group] as directors after the
I agree with the ponencia that the December 17, 1997 Special
expiration of the term of office of [Bernas Group] as directors, are hereby
Stockholders’ Meeting is void because it was improperly called.
declared valid.55
However, I find that a reliance1 on Section 50 of the Corporation
Code2 or Section 10 of the bylaws is misplaced.
In fine, we hold that 17 December 1997 Special Stockholders’ To recount, the December 17, 1997 Special Stockholders’
Meeting is null and void and produces no effect; the resolution Meeting was called by the Makati Sports Club, Inc. (MSC)
expelling the Bernas Group from the corporation and authorizing the Oversight Committee (MSCOC), at the instance of certain
sale of Bernas’ shares at the public auction is likewise null and void. stockholders, to remove the members of the Bernas Group who were
The subsequent Annual Stockholders’ Meeting held on 20 April sitting as directors at that time. During the said meeting, the Bernas
1998, 19 April 1999 and 17 April 2000 are valid and binding except Group was removed from office and the Cinco Group was elected as
the ratification of the removal of the Bernas Group and the sale of directors of MSC.
Bernas’ shares at the public auction effected by the body during the
said meetings. The expulsion of the Bernas Group and the _______________
subsequent auction of Bernas’ shares are void from the very
1 See ponencia, pp. 126-129 and 121, respectively.
beginning and therefore the ratifications effected during the
2 Batas Pambansa Bilang 68.
subsequent meetings cannot be sustained. A void act cannot be the
subject of ratification.56 135

_______________
VOL. 761, JULY 1, 2015 135
55 Rollo (G.R. Nos. 163368-69), p. 24.
Bernas vs. Cinco
56 Supra note 30 at p. 361.

134 The correct provision to be applied is Section 28 of the

Corporation Code as it specifically governs the procedure for
removing directors or trustees, to wit:
www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 25/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 26/32
1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

SEC. 28. Removal of directors or trustees.—Any director or trustee until at least a majority of the stockholders or members present have chosen
of a corporation may be removed from office by a vote of the stockholders one of their number as presiding officer. (Emphasis supplied)
holding or representing at least two-thirds (2/3) of the outstanding capital
stock, or if the corporation be a non-stock corporation, by a vote of at least
two-thirds (2/3) of the members entitled to vote: Provided, That such Neither would Section 10 of MSC’s bylaws apply since, similar
removal shall take place either at a regular meeting of the corporation or at a to Section 50 of the Corporation Code, it applies to special
special meeting called for the purpose, and in either case, after previous stockholders’ meetings in general:
notice to stockholders or members of the corporation of the intention to
SEC. 10. Special Meetings.—Special meetings of stockholders shall
propose such removal at the meeting. A special meeting of the
be held at the Clubhouse when called by the President or by the Board of
stockholders or members of a corporation for the purpose of removal of
Directors or upon written request of stockholders representing not less than
directors or trustees, or any of them, must be called by the secretary on
one hundred (100) shares. Only matters specified in the notice and call will
order of the president or on the written demand of the stockholders
be taken up at special meetings.3
representing or holding at least a majority of the outstanding capital
stock, or, if it be a non-stock corporation, on the written demand of a
_______________
majority of the members entitled to vote. Should the secretary fail or
refuse to call the special meeting upon such demand or fail or refuse to 3 Rollo (G.R. Nos. 163368-69), p. 112.
give the notice, or if there is no secretary, the call for the meeting may
be addressed directly to the stockholders or members by any 137
stockholder or member of the corporation signing the demand. Notice
of the time and place of such meeting, as well as of the intention to propose
VOL. 761, JULY 1, 2015 137
such removal, must be given by publication or by written notice prescribed
in this Code. Removal may be with or without cause: Provided, That Bernas vs. Cinco
removal without cause may not be used to deprive minority stockholders or
members of the right or representation to which they may be entitled under Following the doctrine that specific provisions must prevail over
Section 24 of this Code. (Emphases supplied) general ones,4 the procedure, as prescribed in Section 28 of the
Corporation Code, should have therefore governed the conduct of
136
the December 17, 1997 Meeting which was particularly intended for
the removal of the Bernas Group from the MSC’s Board of
136 SUPREME COURT REPORTS ANNOTATED Directors, viz.:
Bernas vs. Cinco (a) the special meeting must have been called by the secretary;
(b) the same should have been made upon the order of the president or
Section 50 of the Corporation Code is inapplicable since it on written demand of the stockholders representing at least a majority or the
governs the conduct of special stockholders’ meetings in general: outstanding capital stock; and
(c) in case the secretary failed or refused to give such notice, or if there
SEC. 50. Regular and special meetings of stockholders or members. was no secretary, the call may have been be made directly by any
—Regular meetings of stockholders or members shall be held annually on a stockholder signing the demand.
date fixed in the bylaws, or if not so fixed, on any date in April of every
year as determined by the board of directors or trustees: Provided, That
written notice of regular meetings shall be sent to all stockholders or Alternatively, an MSC stockholder could have filed a petition
members of record at least two (2) weeks prior to the meeting, unless a before the Securities and Exchange Commission (SEC) to compel
different period is required by the bylaws. either the president or a majority of the stockholders of the
xxxx corporation to order the call, or the corporate secretary to make such
Whenever, for any cause, there is no person authorized to call a call, for good cause shown, in view of the SEC’s broad regulatory
meeting, the Securities and Exchange Commission, upon petition of a powers5 under Presidential Decree No. (PD) 902-A.6
stockholder or member on a showing of good cause therefor, may issue an In these cases, the procedure outlined in Section 28 of the
order to the petitioning stockholder or member directing him to call a Corporation Code was not complied with. Neither was a petition to
meeting of the corporation by giving proper notice required by this Code or the SEC, as above mentioned, filed by an MSC stockholder. The
by the bylaws. The petitioning stockholder or member shall preside thereat records show that certain MSC stockholders —
www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 27/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 28/32
1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

_______________ _______________

4 Metropolitan Bank & Trust Company v. Absolute Management Corporation, 7 96 Phil. 335 (1954).
G.R. No. 170498, January 9, 2013, 638 SCRA 225, 232. 8 Id., at p. 360.
5 See Section 6 of PD 902-A.
6 Entitled “Reorganization of the Securities and Exchange Commission with 139

Additional Power and Placing the Said Agency under the Administrative Supervision
of the Office of the President” (March 11, 1976). VOL. 761, JULY 1, 2015 139
138 Bernas vs. Cinco

138 SUPREME COURT REPORTS ANNOTATED

20, 1998 and April 19, 1999 Meetings were called in compliance
with the MSC bylaws,9 I differ in that the removal of the Bernas
Bernas vs. Cinco Group and election of the Cinco Group — which are mere incidents
resulting from the void December 17, 1997 Meeting — could not
who were not shown to constitute a majority of the outstanding have been ratified, notwithstanding the fact that the latter April 19,
capital stock of the corporation at that — unduly caused the 1999 Meeting was held under the supervision of the SEC. The SEC,
MSCOC to make the call for the December 17, 1997 Meeting being a mere regulatory body, cannot lend validity to otherwise
despite the latter’s lack of authority to do so under the Corporation invalid acts. Further, the presumption of regularity10 cannot apply
Code and/or the MSC bylaws. Thus, the December 17, 1997 for the purpose of validating an internal action of a private
Meeting, which suffers from a substantive and not a mere formal corporation.
defect given that its improper call goes against the mandated While Section 51 of the Corporation Code states that a meeting
statutory authority to effectuate such corporate action, is contrary to shall be valid even if improperly called if all the stockholders are
law and, therefore, void ab initio. present or duly represented at the meeting, it has not been shown
that this is the case here.
II. Neither can the ratifications done during the April 20, 1998 and
April 19, 1999 Meetings be equated to the valid election of the
In Pirovano v. De la Rama Steamship Co. (Pirovano),7 the Court Cinco Group, enough to accord them with de jure status.11 Clearly,
held that corporate acts which are illegal for being contrary to law these meetings were specifically called for the ratification of acts
are incapable of ratification, as opposed to acts which are merely taken during the void December 17, 1997 Meeting, and not for the
ultra vires, i.e., acts which are not within the powers of the actual election of directors anew; to reiterate, the ratification of void
corporation, to wit: acts is strictly prohibited under the doctrine enunciated in Pirovano.
Besides, the procedure in ratifying acts approved or taken during
x x x [A] distinction should be made between corporate acts or contracts prior meetings is different from the procedure in electing directors,12
which are illegal and those which are merely ultra vires. The former which was not shown to have been complied with in any of those
contemplates the doing of an act which is contrary to law, morals, or public meetings.
policy or public duty, and are, like similar transactions between public order, Ultimately, however, it should be pointed out that the issue of
or contravene some rules of individuals, void. They cannot serve as basis of directorship has been rendered moot and academic by the lapse of
a court action, nor acquire validity by performance, ratification, or estoppel. the three (3)-year staggered term prescribed by the
Mere ultra vires acts, on the other hand, or those which are not illegal and
void ab initio, but are not merely within the scope of the articles of
_______________
incorporation, are merely voidable and may become binding and
enforceable when ratified by the stockholders.8 9 Rollo (G.R. Nos. 163368-69), pp. 111-119.
10 As argued in the ponencia, p. 132.
11 Id.
As earlier mentioned, the December 17, 1997 Meeting is void ab
12 See Section 24 of the Corporation Code.
initio for contravening Section 28 of the Corporation Code. Hence,
while I agree with the ponencia that the April 140

www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 29/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 30/32

1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761 1/19/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 761

140 SUPREME COURT REPORTS ANNOTATED facto doctrine rests on public policy and justice, the official dealings
Bernas vs. Cinco
of directors de facto with third persons being sustained as rightful
and valid on the ground of the corporation’s continuous
acquiescence to the officers holding themselves out as having such
MSC’s bylaws.13 In fact, the MSC’s own website14 states that the authority, it is only available to third persons dealing with
corporation has a new set of directors which does not include any of
corporations.18 No such third person invoked the doctrine here.
the herein parties. Thus, the only actual issue left to be resolved is ACCORDINGLY, subject to the qualifications herein made, I
the validity of the expulsion of Bernas from MSC and the
vote to DENY the consolidated petitions.
subsequent sale of his shares, all effected in the February 27, 1998
Meeting. On this score, I join the ponencia in ruling that both Petitions denied, judgment and resolution affirmed.
actions are void and without legal effect.15
Notes.—Concomitant to the power of the RTC to hear and decide
III. intra-corporate controversies is the authority to issue necessary or
incidental to the carrying out of the powers expressly granted to it,
Under the MSC bylaws,16 a member may be suspended or including in appropriate cases, the holding of a special stockholders’
expelled with the two-thirds (2/3) vote of the Board of Directors. meeting. (Yujuico vs. Quiambao, 513 SCRA 243 [2007])
As aptly observed by the ponencia, the Cinco Group cannot The plea of “ultra vires” will not be allowed to prevail, whether
invoke the de facto officership doctrine to justify its actions after interposed for or against a corporation, when it will not advance
their invalid election in the December I7, 1997 Meeting, particularly, justice but, on the contrary, will accomplish a legal wrong to the
the expulsion of Bernas from MSC and the sale of his shares. A de prejudice of another who acted in good faith. (Zomer Development
facto officer is one who acts as such under color of an election or Corporation vs. International Exchange Bank, 581 SCRA 115
appointment, but fails being a de jure officer by some irregularity or [2009])
failure to qualify as required by law.17 Having ruled out the validity ——o0o——
of their election either through the December 17, 1997 Meeting or
through the ratifications in the April 20, 1998 and April 19, 1999 _______________
Meetings, the Cinco Group cannot be considered as de facto
directors of 18 Id.

_______________

13 MSC’s directors each have a term of three (3) years only, expiring on a
staggered basis. See Section 14 of the MSC bylaws: Rollo (G.R. Nos. 163368-69), p.
113.
14 Makati Sports Club, Inc. Board of Directors, 2015 <www. © Copyright 2021 Central Book Supply, Inc. All rights reserved.
makatisportsclub.com/AboutUs/BOD.html> (visited June 25, 2015).
15 See ponencia, p. 133.
16 See Section 34(a) of the MSC bylaws; Rollo (G.R. Nos. 163368-69), p. 118.
17 Villanueva, Philippine Corporate Law, p. 316, 2010 edition. See also General
Manager, Philippine Ports Authority (PPA) v. Monserate, 430 Phil. 832, 846; 381
SCRA 200, 213 (2002).

141

VOL. 761, JULY 1, 2015 141

Bernas vs. Cinco

MSC. As such, they could not have validly expelled Bernas from
MSC and sold his shares of stock. More significantly, since the de

www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 31/32 www.central.com.ph/sfsreader/session/0000017716513f03ba60f254003600fb002c009e/t/?o=False 32/32