Lopez Realty, Inc. vs. Tanjangco

A board resolution authorizing the sale of corporate property, though initially defective due to lack of notice to a director as required by Section 53 of the Corporation Code, may be cured by subsequent express ratification by stockholders representing the majority of the outstanding capital stock in a joint stockholders and directors' meeting; furthermore, in the absence of certification by the corporate secretary, only those directors or stockholders whose signatures appear on the minutes can be deemed to have ratified the corporate action.

Lopez Realty, Inc. (LRI) was the registered co-owner of the Trade Center Building together with Jose Tanjangco. Internal disputes arose among LRI's stockholders—primarily between Asuncion Lopez-Gonzales (Corporate Secretary and majority stockholder) and Arturo F. Lopez (brother and co-stockholder)—regarding the proper management and disposition of corporate assets, specifically the proposed sale of LRI's one-half interest in the property to the Tanjangcos. The dispute centered on the authority of the Board of Directors to sell corporate assets without proper notice to all directors, and the subsequent ratification of such actions by the stockholders.

• Lopez Realty, Inc. (LRI) and Jose Tanjangco were registered co-owners of the Trade Center Building, covered by TCT Nos. 127778, 127779, and 127780. Jose's one-half share was later transferred to his son Reynaldo Tanjangco and daughter-in-law Maria Luisa Arguelles-Tanjangco (spouses Tanjangco).
• At the time material to the case, LRI's stockholders of record were: Asuncion Lopez-Gonzales (7,831 shares), Arturo F. Lopez (7,830 shares), Teresita Lopez-Marquez (7,830 shares), Rosendo de Leon (5 shares), Benjamin Bernardino (1 share), Augusto de Leon (1 share), and Leo Rivera (1 share). Asuncion served as Corporate Secretary.
• On July 27, 1981, a special stockholders' meeting was held where the sale of LRI's one-half share in the Trade Center Building was discussed. The Tanjangcos offered P3.8 million. Asuncion was given a 10-day option to match the offer, with the resolution stating that failure to act would deem the offer accepted.
• On July 28, 1981, Teresita Lopez-Marquez died. Asuncion failed to exercise her option within the 10-day period.
• On August 17, 1981, while Asuncion was abroad, a special meeting of the Board of Directors was held without notice to her. The remaining directors (Rosendo de Leon, Benjamin Bernardino, and Leo Rivera) passed a resolution authorizing Arturo Lopez to "immediately negotiate with the Tanjangcos" and granting him "full power and authority... to carry out the complete termination of the sale" and to sign the deed on behalf of LRI.
• On August 25, 1981, relying on the August 17 resolution, Arturo executed a Deed of Sale in favor of Jose Tanjangco (represented by Manuel Tanjangco). Upon learning this, Asuncion sent cablegrams opposing the sale.
• On September 1, 1981, the Board passed a resolution postponing final action on the sale pending Asuncion's return. On September 16, 1981, the Board deferred action on Asuncion's motion to repeal the August 17 resolution until Arturo and Asuncion could confer.
• On October 5, 1981, Arturo executed another Deed of Sale in favor of the spouses Tanjangco. The spouses paid P1,800,000.00, which LRI accepted, and they subsequently registered the deed, causing the cancellation of the old TCTs and issuance of new ones in their names.
• On July 30, 1982, a joint meeting of stockholders and directors was held. Juanito L. Santos, executor of Teresita's estate, represented the estate's 7,830 shares. The minutes reflected that Leo Rivera, Rosendo de Leon, Juanito Santos, and Benjamin Bernardino voted to ratify and confirm the sale. Asuncion refused to prepare or sign the minutes.
• Asuncion claimed that Juanito Santos was not qualified to vote as he was not a director and did not own shares, and that Leo Rivera actually voted against the ratification, contrary to what was stated in the minutes.

• The August 17, 1981 Board Resolution was illegal and void for lack of prior notice to Asuncion as required under Section 53 of the Corporation Code, rendering any action taken therein invalid.
• The prior case of Lopez Realty, Inc. v. Fontecha did not constitute res judicata regarding the validity of the resolution authorizing the sale, as that case only involved the resolution on gratuity pay.
• Arturo Lopez was only authorized to "negotiate," not to conclude a contract of sale, and the terms of the actual sale substantially departed from the July 27, 1981 Board Resolution.
• The July 30, 1982 ratification was invalid for lack of required votes because Juanito Santos was not qualified to vote (not being a director or shareholder) and Leo Rivera actually voted against the ratification.
• A perfected compromise agreement existed between the parties, and the spouses Tanjangco should be compelled to honor it and pay damages for backing out.

• The sale was perfected when Asuncion failed to match the Tanjangcos' offer within the 10-day period as provided in the July 27, 1981 resolution.
• Reading the August 17, 1981 resolution in conjunction with the July 27, 1981 resolution, Arturo Lopez had full authority not merely to negotiate but to execute the sale.
• The sale was validly ratified by the majority of the board of directors and stockholders representing at least two-thirds of the outstanding capital stock during the July 30, 1982 meeting.
• The spouses Tanjangco were buyers in good faith and for value, and they relied on the board resolutions which appeared regular on their face; the doctrine of apparent authority bars petitioners from questioning the sale.
• No perfected compromise agreement existed as the parties never went beyond the negotiation phase.

• Procedural:
  • N/A
• Substantive Issues:
  • Whether the August 17, 1981 Board Resolution was valid despite the lack of notice to Asuncion Lopez-Gonzales.
  • Whether the sale of LRI's interest in the Trade Center Building was validly ratified by the stockholders and board of directors in the July 30, 1982 meeting.
  • Whether a perfected compromise agreement existed between the parties entitling petitioners to specific performance and damages.

• Procedural:
  • N/A
• Substantive:
  • The August 17, 1981 Board Resolution was defective and legally infirm due to the failure to give notice to Asuncion as required by Section 53 of the Corporation Code; any action taken therein was subject to challenge.
  • However, the defect was cured by express ratification through the July 30, 1982 resolution. The meeting was a joint stockholders and directors' meeting, and the power to ratify the previous unauthorized acts of the board lay with the stockholders.
  • Juanito Santos, as the duly appointed executor of Teresita Lopez-Marquez's estate, was vested with the legal title to the shares and entitled to vote them on behalf of the estate until settlement and division thereof, pursuant to Tan v. Sycip.
  • In the absence of the corporate secretary's certification (as Asuncion refused to prepare or sign the minutes), only those directors/stockholders whose signatures appeared on the minutes (Juanito Santos, Benjamin Bernardino, and Rosendo de Leon) could be considered to have voted in favor of the ratification.
  • Even excluding Leo Rivera's vote, the votes in favor of ratification (7,831 shares for Arturo, 7,830 shares for Teresita's estate, 5 shares for Rosendo de Leon, and 1 share for Benjamin Bernardino) constituted approximately 67% of the outstanding capital stock, satisfying the two-thirds requirement under Section 40 of the Corporation Code for the sale of substantially all corporate assets.
  • By ratification, the unauthorized acts of the board became the authorized acts of the corporation, binding upon LRI.
  • No perfected compromise agreement existed between the parties; the evidence showed only negotiations that never culminated in a meeting of the minds or a binding contract.

• Ratification of Defective Corporate Acts — Unauthorized acts of directors or agents may be ratified either expressly or impliedly by the corporation. Ratification means the principal voluntarily adopts, confirms, and gives sanction to the unauthorized act, transforming it into an authorized act that binds the corporation.
• Voting Rights of Estate Administrator — Upon the death of a shareholder, the executor or administrator duly appointed by the court is vested with the legal title to the stock and entitled to vote it until the settlement and division of the estate.
• Role of the Corporate Secretary in Board Minutes — While the signature of the corporate secretary is not strictly required for the validity of board resolutions, it is the corporate secretary's signature that gives the minutes probative value and credibility. In the absence of such certification, only those directors or stockholders whose signatures appear on the minutes can be confirmed to have ratified the action.
• Sale of Substantially All Corporate Assets — Under Section 40 of the Corporation Code, the sale of substantially all corporate assets requires authorization by a majority vote of the board of directors and the affirmative vote of stockholders representing at least two-thirds of the outstanding capital stock.

• "Ratification means that the principal voluntarily adopts, confirms and gives sanction to some unauthorized act of its agent on its behalf."
• "In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a shareholder, the executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it."
• "It is the signature of the corporate secretary, as the one who is tasked to prepare and record the minutes, that gives the minutes of the meeting probative value and credibility."
• "By ratification, even an unauthorized act of an agent becomes the authorized act of the principal."

• Lopez Realty, Inc. v. Fontecha (247 SCRA 183) — Distinguished; the earlier case involved implied ratification of a resolution granting gratuity pay, whereas the instant case involved express ratification of a sale of property.
• Tan v. Sycip (530 Phil. 609) — Cited for the rule that the executor or administrator of a deceased stockholder's estate is entitled to vote the shares of the decedent.
• People v. Dumlao (599 Phil. 565) — Distinguished; in Dumlao, the corporate secretary recorded, prepared, and certified the minutes despite the lack of signatures by all directors, whereas in the instant case, the corporate secretary refused to prepare or certify the minutes.
• Cua, Jr. v. Tan (622 Phil. 661) — Cited for the principle that by ratification, an unauthorized act of an agent becomes the authorized act of the principal, and the acts of the board become the acts of the stockholders themselves.
• Zamboanga Transportation Co. v. Bachrach Motor Co. (52 Phil. 244) — Cited by the Court of Appeals regarding tacit approval by directors constituting ratification.

• Section 53 of the Corporation Code (B.P. Blg. 68) — Governs the notice requirements for regular and special meetings of directors or trustees; requires at least one day prior notice unless waived.
• Section 40 of the Corporation Code — Governs the sale or other disposition of all or substantially all corporate property and assets, requiring majority vote of the board and approval by two-thirds of the outstanding capital stock.
• Section 5(b) of P.D. No. 902-A — Discussed regarding the jurisdiction of the Securities and Exchange Commission over intra-corporate controversies; held inapplicable as the principal defendants were not stockholders or members of the corporation.