Eizmendi Jr. vs. Fernandez

A complaint that seeks to nullify the election of board members on the ground of lack of quorum, even if framed as an action for invalidation of corporate acts and resolutions, is partly an election contest under Section 2, Rule 6 of the Interim Rules of Procedure Governing Intra-Corporate Controversies and must be filed within the 15-day reglementary period from the date of election; what cannot be legally done directly cannot be done indirectly.

Valle Verde Country Club, Inc. (VVCCI) is a duly organized non-stock corporation engaged in promoting sports, recreational, and social activities and the operation and maintenance of a sports and clubhouse. Teodorico P. Fernandez is a proprietary member in good standing of VVCCI. The individual petitioners — Francisco C. Eizmendi Jr., Jose S. Tayag Jr., Joaquin San Agustin, Eduardo Francisco, Edmidio Ramos Jr., Albert Blancaflor, Rey Nathaniel Ifurung, and Manuel Acosta Jr. — allegedly constituted themselves as the new Board of Directors of VVCCI during the annual members' meeting on February 23, 2013, notwithstanding an alleged lack of quorum that caused the adjournment of that meeting. A prior case, G.R. No. 209120 (Valle Verde Country Club, Inc. vs. Eizmendi, Jr.), was filed by VVCCI against the individual petitioners for misrepresentation of corporate office, arising from the same February 23, 2013 election; that complaint was dismissed with finality for lack of cause of action and for being essentially an election contest filed by a corporation that was not the real party-in-interest.

On November 28, 2013, respondent Teodorico P. Fernandez filed a Complaint for Invalidation of Corporate Acts and Resolutions with Application for Writ of Preliminary Injunction against the individual petitioners before the Regional Trial Court of Pasig City, Branch 158, docketed as Commercial Case No. 13-202. Fernandez, a proprietary member in good standing of Valle Verde Country Club, Inc. (VVCCI), alleged that the individual petitioners constituted themselves as the new Board of Directors of VVCCI during the annual members' meeting on February 23, 2013, despite a lack of quorum that caused the adjournment of that meeting. Fernandez asserted that because the petitioners were not validly constituted as the new BOD, they had no legal authority to act as such, to find him guilty of violations of the by-laws, or to suspend him.

According to Fernandez, the individual petitioners held a board meeting on October 18, 2013, during which they purportedly acted for and on behalf of VVCCI, found him guilty of less serious violations of the by-laws, and imposed on him the penalty of suspension of membership for six months from September 21, 2013 until March 21, 2014. Fernandez claimed he was not accorded due process, as the petitioners failed to notify him of the charge and the verdict against him. Not having been notified of his suspension, Fernandez went to the VVCCI Complex on October 26, 2013 to avail of its facilities, where a security guard directed a waiter not to serve the food he had ordered in the presence of several members, causing him deep pain and severe embarrassment. Fernandez prayed for the invalidation of the petitioners' claims to the office of director, nullification of the February 23, 2013 annual members' meeting and subsequent board meetings, and the award of attorney's fees, exemplary damages, and moral damages.

On January 14, 2014, during the hearing of Fernandez's application for a writ of preliminary injunction, Presiding Judge Maria Rowena Modesto San Pedro explicitly stated that she would not touch on the election contest aspect of the complaint, limiting the proceedings to the issue of the legality of Fernandez's suspension. Fernandez's counsel objected, arguing that the authority of the board to suspend him depended on the validity of their election, but the judge insisted that any challenge to the composition of the BOD was in essence an election contest that could not be entertained. On January 28, 2014, the RTC issued an Order noting that the injunction application had been rendered moot because the petitioners agreed to reinstate Fernandez, and reiterating that it would not entertain any issue respecting the February 23, 2013 elections. On February 3, 2014, the RTC denied Fernandez's Urgent Motion or Request for Production/Copying of Documents, finding the requested corporate documents immaterial to the remaining issue of due process in the suspension.

Fernandez elevated the matter to the CA via a petition for certiorari. The CA granted the petition, ruling that to fully resolve the legality of Fernandez's suspension, the trial court needed to admit evidence relating to the composition of the BOD at the time the suspension was imposed, since Fernandez was suspended precisely for acts connected to the alleged illegitimacy of the petitioners' election. The CA relied on Yu vs. Court of Appeals and Prats & Co. vs. Phoenix Insurance Co. for the proposition that trial courts should avoid excluding evidence on doubtful objections to materiality during the early stages of proof. Petitioners moved for reconsideration, which the CA denied on October 24, 2014, prompting the present petition for review on certiorari.

• Election Contest Barred by Reglementary Period: Petitioners argued that Fernandez's complaint was partly an election contest filed beyond the 15-day reglementary period under the Interim Rules, and that the RTC correctly prevented him from presenting evidence on the validity of their election. They contended that allowing such evidence would be tantamount to reopening the first case between the hold-over BOD and the petitioners in G.R. No. 209120.
• Conclusiveness of Prior Resolution: Petitioners submitted that the Court's Resolution in G.R. No. 209120, which dismissed the complaint for misrepresentation of corporate office with finality, is conclusive upon the status of the petitioners as duly-elected members of the BOD. They invoked the principle of stare decisis and the "law of the case" doctrine, asserting that Fernandez, as a party in G.R. No. 209120, should have filed an election contest within 15 days of the February 23, 2013 election or intervened in Commercial Case No. 13-190.
• Mootness: Petitioners stated that their term as members of the BOD of VVCCI already expired on April 5, 2014, rendering the issue on the validity of their election moot.

• Cause of Action is Wrongful Suspension: Fernandez countered that his cause of action was his wrongful suspension as a member of VVCCI, and that he may question the petitioners' authority as a board to order his suspension. He insisted that the case before the RTC was not an election contest as defined by the Interim Rules.
• No Bar by Prior Adjudication: Fernandez maintained that his complaint was not barred by res judicata, nor bound by the Resolution in G.R. No. 209120 under the doctrine of stare decisis, because the parties, causes of action, and reliefs sought were different.

• Nature of the Complaint: Whether Fernandez's complaint may be considered an election contest within the purview of the Interim Rules.
• Authority to Question the Board: Whether Fernandez may question the authority of the petitioners to act as the BOD of VVCCI and approve the board resolution suspending his club membership.
• Effect of Prior Adjudication: Whether the final resolution in Valle Verde Country Club, Inc. vs. Eizmendi, et al., G.R. No. 209120, bars Fernandez's complaint under the principles of res judicata, law of the case, and stare decisis.

• Nature of the Complaint: Yes. Fernandez's complaint is partly an election contest under Section 2, Rule 6 of the Interim Rules, as it raises the issue of the validity of the election of the individual petitioners as members of the BOD on the ground of lack of quorum during the February 23, 2013 annual meeting.
• Authority to Question the Board: No. To allow Fernandez to indirectly question the validity of the February 23, 2013 election would violate the 15-day reglementary period to file an election contest under the Interim Rules; what cannot be legally done directly cannot be done indirectly.
• Effect of Prior Adjudication: Only the principle of stare decisis applies, to the extent that Valle Verde held that a complaint raising issues of validation of proxies and the manner and validity of elections falls under the definition of election contest, and that the real parties-in-interest in an election contest are the contenders, not the corporation. Res judicata and law of the case do not apply due to absence of identity of parties, causes of action, and reliefs sought.

• Nature of the Complaint: The Court applied the definition of election contest under Section 2, Rule 6 of the Interim Rules, which refers to any controversy or dispute involving title or claim to any elective office in a stock or non-stock corporation, the validation of proxies, the manner and validity of elections, and the qualifications of candidates. A plain reading of the prayers in Fernandez's complaint — specifically his prayer to invalidate the claims of the individual petitioners to the office of director and to nullify the February 23, 2013 annual members' meeting — demonstrated that the complaint disputed the election of the petitioners as members of the BOD on the ground of lack of quorum. The Court relied on its prior ruling in Valle Verde, where it held that a complaint seeking nullification of an election on the ground that it was unlawfully conducted due to adjournment for lack of quorum falls under the definition of election contest. The CA's own decision acknowledged that resolving the legality of Fernandez's suspension necessarily required examining the composition of the BOD, thereby confirming the election-contest character of the first cause of action.

• Authority to Question the Board: The Court agreed with Fernandez that the 15-day reglementary period was intended to hasten the resolution of corporate election controversies and settle uncertainty in corporate leadership, not to block suits questioning unlawful acts of winning directors. Nevertheless, entertaining a cause of action that was partly an election contest filed beyond that period would render the salutary purposes of the Interim Rules futile and open the floodgates to election contests, to the detriment of efficient and stable corporate governance. The RTC committed no grave abuse of discretion in disallowing evidence on the petitioners' lack of authority, because such evidence would inevitably question the validity of the February 23, 2013 election. The RTC's action was consistent with Section 3, Rule 1 of the Interim Rules (promoting just, summary, speedy and inexpensive determination) and Section 4, Rule 6 (authorizing outright dismissal of insufficient complaints), as well as the inherent power of courts under Section 5, Rule 135 of the Rules of Court. The CA erroneously relied on Yu vs. Court of Appeals and Prats & Co. vs. Phoenix Insurance Co., because those cases addressed the exclusion of evidence on doubtful objections to materiality; here, there was no doubt as to the materiality or relevancy of the evidence — the RTC correctly dismissed the first cause of action as an election contest filed beyond the reglementary period and limited the case to the second cause of action (damages for lack of due process in the suspension). Fernandez's reliance on Valley Golf Club, Inc. vs. Vda. De Caram was misplaced, because no election contest was involved in that case; the board's authority to expel a member was undisputed, whereas here Fernandez challenged the very authority of the BOD to suspend him.

• Effect of Prior Adjudication: Res judicata did not apply because there was no identity of parties, causes of action, or reliefs sought between the complaint in Valle Verde (filed by VVCCI against the individual petitioners) and Fernandez's complaint (filed by Fernandez as a proprietary member). In Valle Verde, the plaintiff was VVCCI, which the Court found had no cause of action because it was not the real party-in-interest; in this case, the plaintiff was Fernandez himself. The causes of action were also distinct: Valle Verde involved misrepresentation of corporate office, while this case involved invalidation of corporate acts relating to Fernandez's suspension. The law of the case doctrine was inapplicable because it applies only to the same case involving the same parties, and Valle Verde was a separate and distinct case. However, stare decisis applied to the extent that Valle Verde established two principles: (1) a complaint raising issues of validation of proxies and manner and validity of elections falls under the definition of election contest under the Interim Rules; and (2) the real parties-in-interest in an election contest are the contenders, not the corporation. The Court noted, however, that Valle Verde cannot be invoked to sustain the position that an election contest filed beyond the 15-day period is prescribed, because the Court did not definitively rule on that point in Valle Verde — and a review of the factual antecedents showed that the complaint in Valle Verde was actually filed on March 1, 2013, within the 15-day period from the February 23, 2013 election.

• Election Contest Under the Interim Rules — Section 2, Rule 6 of the Interim Rules of Procedure Governing Intra-Corporate Controversies defines an election contest as "any controversy or dispute involving title or claim to any elective office in a stock or non-stock corporation, the validation of proxies, the manner and validity of elections, and the qualifications of candidates, including proclamation of winners, to the office of director, trustees or other officer directly elected by the stockholders in a close corporation or by members of a non-stock corporation where the article of incorporation so provide." The Court applied this definition to hold that Fernandez's complaint, which sought to nullify the election of the individual petitioners on the ground of lack of quorum, was partly an election contest.

• What Cannot Be Legally Done Directly Cannot Be Done Indirectly — This basic rule of statutory construction prohibits circumvention of procedural bars through alternative pleading formulations. The Court applied it to hold that Fernandez could not indirectly question the validity of the February 23, 2013 election by framing his complaint as one for invalidation of corporate acts, when the substance of his challenge was to the legitimacy of the petitioners' election as BOD members.

• Res Judicata — For res judicata to serve as an absolute bar to a subsequent action, the following requisites must be present: (1) the former judgment or order must be final; (2) the judgment or order must be on the merits; (3) it must have been rendered by a court having jurisdiction over the subject matter and the parties; and (4) there must be between the first and second actions, identity of parties, of subject matter, and causes of action. The Court found this doctrine inapplicable due to the absence of identity of parties (VVCCI was plaintiff in Valle Verde; Fernandez was plaintiff here), causes of action (misrepresentation of corporate office vs. invalidation of corporate acts relating to suspension), and reliefs sought.

• Law of the Case — Law of the case has been defined as the opinion delivered on a former appeal, meaning that whatever is once irrevocably established as the controlling legal rule of decision between the same parties in the same case continues to be the law of the case whether correct on general principles or not, so long as the facts on which such decision was predicated continue to be the facts of the case. It applies only to the same case, whereas res judicata forecloses parties or privies in one case by what has been done in another case. The Court found this inapplicable because Valle Verde was a separate and distinct case.

• Stare Decisis — Under the doctrine of stare decisis, once a court has laid down a principle of law as applicable to a certain state of facts, it will adhere to that principle and apply it to all future cases where the facts are substantially the same, even though the parties may be different. The Court applied this doctrine to the extent that Valle Verde established that a complaint raising issues of validation of proxies and manner and validity of elections falls under the definition of election contest, and that the real parties-in-interest in an election contest are the contenders, not the corporation.

• "What cannot be legally done directly cannot be done indirectly. This rule is basic and, to a reasonable mind, does not need explanation; if acts that cannot be legally done directly can be done indirectly, then all laws would be illusory." — This passage articulates the controlling rationale for barring indirect challenges to corporate elections through alternative pleading formulations, and is the doctrinal anchor for the Court's holding that Fernandez could not circumvent the 15-day reglementary period.

• "Fernandez's complaint disputes the election of petitioners as members of the BOD of VVCCI on the ground of lack quorum during the February 23, 2013 annual meeting. Verily, his complaint is partly an 'election contest' as defined under Section 2, Rule 6 of the Interim Rules." — This passage states the ratio decidendi on the first issue, applying the statutory definition of election contest to the allegations and prayers in Fernandez's complaint.

• "While the doctrines of res judicata and 'the law of the case' are not applicable, the principle of stare decisis et non quieta movere [stand by the decision and disturb not what is settled] applies to this case, but only to the extent that Valle Verde held that (1) if the allegations and prayers in the complaint raise the issues of validation of proxies, and the manner and validity of elections, such as the nullification of election was unlawfully conducted due to lack of quorum, then such complaint falls under the definition of election contest under the Interim Rules; and (2) the real parties-in-interest in an election contest are the contenders, and not the corporation." — This passage delineates the precise scope of stare decisis as applied, carefully distinguishing it from res judicata and law of the case, and limiting its applicability to the two specific propositions established in Valle Verde.

• Valle Verde Country Club, Inc. vs. Eizmendi Jr., et al., G.R. No. 209120, October 14, 2013 — Controlling precedent for the definition of election contest and the identity of real parties-in-interest. The Court applied stare decisis to the two propositions established in this resolution, while clarifying that it did not definitively rule on the effect of filing an election contest beyond the 15-day period, as the complaint in that case was actually filed within the reglementary period.

• Yu vs. Court of Appeals, 512 Phil. 802 (2005) — Cited by the CA for the proposition that trial courts should avoid excluding evidence on doubtful objections to materiality during early stages of proof. The Supreme Court distinguished this case, finding it inapplicable because there was no doubt as to the materiality of the evidence — the RTC correctly dismissed the first cause of action as a time-barred election contest.

• Prats & Co. vs. Phoenix Insurance Co., 52 Phil. 807 (1929) — Cited by the CA for the proposition that erroneous exclusion of proof can result in retrial. The Supreme Court found the CA's reliance erroneous, as the case addressed doubtful objections to materiality, not a situation where the evidence was clearly directed at a time-barred cause of action.

• Valley Golf Club, Inc. vs. Vda. De Caram, 603 Phil. 219 (2009) — Distinguished. The Court found Fernandez's reliance misplaced because no election contest was involved in Caram; the board's authority to expel a member was undisputed, unlike here where the very authority of the BOD was challenged.

• Spouses Sy vs. Young, 711 Phil. 444 (2013) — Cited for the definition and scope of the law of the case doctrine, explaining that it applies only to the same case involving the same parties and relates entirely to questions of law.

• Abaria vs. National Labor Relations Commission, 678 Phil. 64 (2011) — Cited for the definition and scope of stare decisis, explaining that the doctrine requires adherence to principles laid down in prior cases where the facts are substantially the same, even though the parties may be different.

• Tawang Multi-Purpose Cooperative vs. La Trinidad Water District, 661 Phil. 390 (2011) — Cited for the principle that what cannot be legally done directly cannot be done indirectly.

• Section 2, Rule 6, Interim Rules of Procedure Governing Intra-Corporate Controversies — Defines an election contest as any controversy or dispute involving title or claim to any elective office in a stock or non-stock corporation, the validation of proxies, the manner and validity of elections, and the qualifications of candidates. Applied to hold that Fernandez's complaint was partly an election contest.

• Section 3, Rule 6, Interim Rules — Provides the 15-day reglementary period within which to file an election contest from the date of election. Applied to hold that Fernandez's first cause of action, being partly an election contest, was filed beyond this period.

• Section 3, Rule 1, Interim Rules — Promotes the objective of securing a just, summary, speedy and inexpensive determination of every action or proceeding. The RTC's dismissal of the first cause of action was found consistent with this provision.

• Section 4, Rule 6, Interim Rules — Authorizes the court to dismiss outright a complaint if the allegations thereof are not sufficient in form and substance. The RTC's action of virtually dismissing the first cause of action was found consistent with this provision.

• Section 5, Rule 135, Rules of Court — Recognizes the inherent power of courts to amend and control their process and orders so as to make them conformable to law and justice. The RTC's action was found consistent with this inherent power.

• Rule 27, Rules of Court — Mode of discovery cited by Fernandez in his Urgent Motion or Request for Production/Copying of Documents. The RTC denied the motion, finding the requested documents immaterial to the remaining issue of due process in the suspension.

Leonen, Gesmundo, Reyes, A., Jr., and Reyes, J., Jr., JJ., concurred. (Reyes, A., Jr. was designated as an additional member per Special Order No. 2588 dated August 28, 2018.)