Marasigan vs. Marasigan

In a close corporation whose Articles of Incorporation provide that its business shall be managed by a board of directors composed of its stockholders, the quorum for a directors' meeting, including for the election of corporate officers, is a majority of the number of directors as fixed in the Articles, pursuant to Section 25 of the Old Corporation Code, unless a greater majority is specified therein.

Ganco Resorts & Recreation Incorporated was incorporated in 2013 as a close corporation by Luz Marasigan and her 13 children. Luz held the majority of shares (3,000 out of 5,600). The corporation's Articles of Incorporation stated that its business "shall be managed by the board of directors who are the stockholders." Following Luz's death in November 2017, a dispute arose over the validity of corporate meetings and the election of officers. The petitioner, Peter Paul Marasigan (formerly President), challenged meetings held by the respondents (his siblings) in November 2017, while the respondents challenged a meeting held by the petitioner's group in May 2018.

• Parties and Incorporation: All parties are children or grandchildren of the late Spouses Cesar and Luz Marasigan. In 2013, Luz and her 13 children incorporated Ganco as a close corporation. Luz held 3,000 of 5,600 subscribed shares. The Articles of Incorporation (AOI) stated the business "shall be managed by the board of directors who are the stockholders."
• Pre-Death Management: In 2017, Luz was Chairman, and Peter was President. In August 2017, Peter took a vacation leave authorized by Luz.
• November 6, 2017 Meeting: Luz died on November 3, 2017. On November 6, while Peter was returning from vacation, eight stockholders (five physically present, three via video conference) met. They declared a quorum, removed Peter as President, and elected Benito as Interim President.
• November 12, 2017 Meeting: After Luz's burial, nine family members met to discuss estate settlement.
• May 15, 2018 Meeting: Despite the Corporate Secretary issuing a notice that the Annual Stockholders' Meeting would not proceed pending settlement of Luz's estate, a meeting was held on May 15, 2018. Nine individuals were present (eight stockholders/directors plus a grandson representing his deceased father). A new set of officers was elected, with Regina as President.
• Aftermath: The respondents refused to recognize the new officers, leading to frozen bank accounts. The respondents then filed the complaint seeking to nullify the meetings and elections.

• Nature of Meetings and Quorum: Petitioner argued that Ganco, as a close corporation, is governed by Title XII of the Old Corporation Code. The meetings were stockholders' meetings, and the quorum should be based on the majority of outstanding capital stock as per the AOI and by-laws, not the rules for directors' meetings under Section 25.
• Application of Revised Corporation Code: Petitioner contended that the new Section 25 of the Revised Corporation Code (RA 11232) provides that shares represented at a meeting constitute a quorum for election, irrespective of AOI or by-law provisions.
• Ratification Inapplicable: Petitioner challenged the CA's reliance on Section 101 (ratification of defective meetings), asserting that provision applies to directors' meetings, whereas the November meetings were stockholders' meetings.
• Duplicitous Statements: Petitioner alleged that respondents made contradictory statements in a related criminal case, asserting Ganco had no functioning board after Luz's death.

• Validity of November Meetings: Respondents countered that the November 2017 meetings were valid directors' meetings. With Luz's death, the remaining 13 stockholders/directors constituted a quorum (8 present) for a directors' meeting to elect officers under Section 25 of the Old Corporation Code.
• Invalidity of May 2018 Meeting: Respondents argued the May 2018 meeting was invalid due to lack of proper notice (the Corporate Secretary had cancelled it) and timely written objections, violating the by-laws and Section 101.
• Ratification: Respondents maintained that the acts in the November meetings were ratified due to the lack of prompt written objection from all directors.

• Quorum and Meeting Validity: Whether the CA erred in ruling that the special meetings on November 6 and 12, 2017, were valid directors' meetings with a proper quorum under Section 25 of the Old Corporation Code, and that the May 15, 2018 meeting was invalid.
• Duplicitous Statements: Whether the respondents made duplicitous statements in a related criminal case.

• Quorum and Meeting Validity: The CA committed no reversible error. The November 2017 meetings were directors' meetings. Ganco's AOI designated the stockholders as the board of directors. Therefore, the quorum for a directors' meeting, including for electing officers, is governed by Section 25 of the Old Corporation Code—a majority of the number of directors (8 of 14). This quorum was met. The AOI's single quorum requirement ("majority of outstanding capital stock") could not validly alter the statutory quorum for directors' meetings, as Section 97 only permits a "greater majority" (a quantitative increase), not a change in the composition of the quorum. The May 2018 meeting was invalid because it lacked proper notice (the Corporate Secretary had cancelled it) and was met with timely written objections from some directors, precluding ratification under Section 101.
• Duplicitous Statements: The Court found no need to delve into this ancillary issue given the resolution of the primary corporate law issues.

• Close Corporation Management and Quorum Requirements — A close corporation may provide in its Articles of Incorporation that its business shall be managed by its stockholders rather than a board of directors. If it does, the stockholders are deemed directors for applying the Corporation Code. However, the privileges under Section 97 (like direct stockholder management or officer election) must be expressly invoked in the Articles. The quorum for directors' meetings is a majority of the number of directors fixed in the Articles, unless a "greater majority" (e.g., two-thirds) is specified. A corporation cannot change the substance of the quorum requirement (e.g., from number of directors to outstanding capital stock) under the guise of imposing a "greater majority."

• "A close corporation seeking to have its business managed by its stockholders must clearly indicate such intention in its AOI. The mere constitution of the corporation as a close corporation does not automatically make its stockholders the board directors or allow stockholders to directly elect or appoint the corporation's board officers."
• "The phrase 'greater majority' can only mean more than the majority referred to. It depicts a quantitative and not a qualitative change. Necessarily, while Section 97 allows close corporations... to adopt a 'greater majority'... it does not authorize close corporations to altogether change what comprises such majority."
• "The election of board officers clearly pertains to the prerogative of the board of directors... Thus, when its stockholders are electing their President, Vice President, Treasurer, and Secretary, who are their board officers, the Marasigan siblings are clearly acting as directors and not as stockholders."

• San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 357 Phil. 631 (1998) — Cited to illustrate the strict requirements for classifying a corporation as a close corporation under Section 96 of the Corporation Code; the AOI must contain the specified restrictions.
• Gala v. Ellice Agro-Industrial Corporation, 463 Phil. 846 (2003) — Cited to highlight the importance and nature of close corporations as a hybrid between partnerships and corporations, where ownership and management often merge.
• Citibank N.A. v. Chua, 292-A Phil. 167 (1993) and Tan v. Sycip, 530 Phil. 609 (2006) — Cited to explain the three levels of corporate control (stockholders, board of directors, officers) and the distinction between ownership rights of stockholders and management powers of the board.

• Section 96, Batas Pambansa Blg. 68 (Old Corporation Code) — Defines a close corporation and sets the requirements for its Articles of Incorporation.
• Section 97, Batas Pambansa Blg. 68 (Old Corporation Code) — Allows a close corporation's Articles to provide that the business shall be managed by stockholders and for greater quorum or voting requirements.
• Section 25, Batas Pambansa Blg. 68 (Old Corporation Code) — Provides that a majority of the number of directors fixed in the Articles constitutes a quorum for directors' meetings, and the election of officers requires the vote of a majority of all board members.
• Section 52, Batas Pambansa Blg. 68 (Old Corporation Code) — Provides that the quorum for stockholders' meetings is the stockholders representing a majority of the outstanding capital stock.
• Section 101, Batas Pambansa Blg. 68 (Old Corporation Code) — Provides that actions at improperly held meetings may be ratified if all directors have knowledge and make no prompt written objection.

• Justice Inting (Acting Chairperson)
• Justice Gaerlan
• Justice Caguioa was on leave.
• Justice Dimaampao was on official travel.