Tan vs. Sycip

In nonstock corporations, the quorum for members' meetings is based on the actual number of living members entitled to vote, not the numerical constant specified in the articles of incorporation. Dead members, whose membership and rights are extinguished upon death under Section 91 of the Corporation Code, shall not be counted. Furthermore, vacancies in the board of trustees must be filled by the remaining trustees acting as a body in a lawful board meeting, not by the members in an annual members' meeting.

Grace Christian High School (GCHS) is a nonstock, nonprofit educational corporation organized under Philippine law. Under its Amended By-Laws, the corporation has fifteen regular members who simultaneously constitute the board of trustees. The dispute arose when four members died, reducing the actual living membership to eleven. During the annual members' meeting held on April 6, 1998, the remaining members attempted to elect replacements for the deceased trustees, leading to conflicting claims regarding the existence of a quorum and the proper procedure for filling vacancies in nonstock corporations.

• Grace Christian High School (GCHS) is a nonstock, nonprofit educational corporation with fifteen regular members who also constitute the board of trustees under Article II (1) of its Amended By-Laws.
• As of April 6, 1998, only eleven member-trustees were living, as four had already died.
• During the annual members' meeting held on April 6, 1998, seven of the eleven living members attended through their respective proxies.
• Atty. Sabino Padilla Jr. convened and chaired the meeting over the objection of Atty. Antonio C. Pacis, who argued that there was no quorum because the four deceased members should still be counted in the computation.
• During the meeting, petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four deceased member-trustees.
• The SEC Hearing Officer ruled that the meeting was null and void for lack of quorum, holding that the basis for determining quorum should be the number of members specified in the articles of incorporation, not merely the number of living members.
• The SEC en banc affirmed the Hearing Officer's decision, rejecting petitioners' argument that the term "members" in Section 52 of the Corporation Code referred only to living members.
• The Court of Appeals dismissed petitioners' appeal on the ground that the Verification and Certification of Non-Forum Shopping were signed only by Atty. Padilla without showing authority to sign for the other petitioners, and no Special Power of Attorney was initially attached.

• Dead members should not be counted in computing quorum because members' rights are personal and non-transferable under Sections 90 and 91 of the Corporation Code.
• The SEC erred in relying on a 1989 SEC Opinion that did not involve a nonstock corporation, rendering the opinion inapplicable to the present case.
• The Court of Appeals erred in dismissing the petition on a technicality regarding the Verification and Certification of Non-Forum Shopping when the defect was subsequently cured by submission of a Special Power of Attorney.
• The actions of both the SEC and the Court of Appeals are not in accord with law and jurisprudence, particularly Escorpizo v. University of Baguio, Robern Development Corporation v. Quitain, and MC Engineering, Inc. v. NLRC.

• Procedural Issues: Whether the Court of Appeals erred in dismissing the petition for review based on a defective Verification and Certification of Non-Forum Shopping signed by only one petitioner without showing proper authorization from the other petitioners.
• Substantive Issues:
  • Whether dead members should be counted in determining the quorum for purposes of conducting the annual members' meeting in a nonstock corporation.
  • Whether the remaining members validly filled the vacancies in the board of trustees during the annual members' meeting.

• Procedural: The Court held that while the petition before the CA was initially flawed due to the lack of proper authorization for the signatory, the subsequent submission of a Special Power of Attorney attesting that Atty. Padilla was authorized to file the action on behalf of the other petitioners cured the defect. In the interest of substantial justice, the initial procedural lapse was excused because there was no intention to circumvent the verification requirements, and the substantial merits of the case involving purely legal questions justified an exception to strict compliance.
• Substantive:
  • The Court ruled that for nonstock corporations, only actual living members with voting rights should be counted in determining quorum under Section 52 of the Corporation Code. Dead members, whose membership and rights are extinguished upon death under Section 91 of the Corporation Code (unless the articles or bylaws provide otherwise), shall not be counted. With eleven remaining members, the quorum was six (majority), making the annual members' meeting valid.
  • However, the election of new trustees to fill vacancies during the members' meeting was invalid. Under Section 29 of the Corporation Code and Article III (2) of the GCHS By-Laws, vacancies must be filled by a majority vote of the remaining trustees acting as a board in a lawful meeting, not by members in an annual meeting. The remaining member-trustees must sit as a board to validly elect new ones, as there is a well-defined distinction between corporate acts to be done by the board and those by the constituent members.

• Quorum in Nonstock Corporations — The quorum for members' meetings in nonstock corporations is based on the actual number of living members entitled to vote, not the numerical constant originally specified in the articles of incorporation. This is analogous to the principle in stock corporations where quorum is based on outstanding voting stocks actually issued, not authorized capital stock.
• Personal and Non-transferable Nature of Membership — Membership in nonstock corporations is personal and non-transferable unless the articles or bylaws provide otherwise. Upon death, membership terminates and all rights are extinguished under Section 91 of the Corporation Code, unlike in stock corporations where shares are transferable and may be voted by executors or administrators.
• Distinction Between Board and Members' Meetings — There is a well-defined distinction between corporate acts to be done by the board and those by the constituent members. The board of trustees must act as a body in a lawful meeting, not individually or separately. While members may act through proxies in annual meetings, trustees must convene specifically as a board to fill vacancies.

• "For stock corporations, the 'quorum' referred to in Section 52 of the Corporation Code is based on the number of outstanding voting stocks. For nonstock corporations, only those who are actual, living members with voting rights shall be counted in determining the existence of a quorum during members' meetings. Dead members shall not be counted."
• "Membership in and all rights arising from a nonstock corporation are personal and non-transferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise."
• "There is a well-defined distinction between a corporate act to be done by the board and that by the constituent members of the corporation. The board of trustees must act, not individually or separately, but as a body in a lawful meeting."
• "The phrase 'may be filled' in Section 29 shows that the filling of vacancies in the board by the remaining directors or trustees constituting a quorum is merely permissive, not mandatory."

• Escorpizo v. University of Baguio — Cited by petitioners as supporting their position on the non-transferability of membership rights in nonstock corporations.
• Robern Development Corporation v. Quitain — Cited by petitioners as relevant precedent regarding corporate governance.
• MC Engineering, Inc. v. NLRC — Cited by petitioners as relevant precedent.
• Avelino v. Cuenca — Used by analogy to distinguish between "majority of all the members" and "majority of the members," supporting the interpretation that the latter requires a lesser number than the former.
• Noremac, Inc. v. Centre Hill Court, Inc. — Cited to support the principle that quorum is based on actual number of members (or lots), not the original fixed number specified in the articles.

• Section 52 of the Corporation Code — Defines quorum as majority of outstanding capital stock for stock corporations or majority of members for nonstock corporations; interpreted to mean actual living members with voting rights for nonstock corporations.
• Section 24 of the Corporation Code — Requires majority of outstanding capital stock or majority of members entitled to vote for election of directors or trustees.
• Section 29 of the Corporation Code — Governs vacancies in the office of director or trustee; provides that vacancies may be filled by majority of remaining directors/trustees if still constituting a quorum, otherwise by stockholders or members in a special meeting.
• Section 89 of the Corporation Code — Provides that right of members to vote may be limited in articles or bylaws; each member entitled to one vote unless otherwise provided.
• Section 90 of the Corporation Code — States that membership in nonstock corporations is personal and non-transferable unless articles or bylaws provide otherwise.
• Section 91 of the Corporation Code — Provides that termination of membership extinguishes all rights of a member unless articles or bylaws provide otherwise.
• Section 137 of the Corporation Code — Defines outstanding capital stock as basis for quorum in stock corporations.
• Section 6 of the Corporation Code — Classification of shares and voting rights; provides that only outstanding shares may be voted.
• Section 23 of the Corporation Code — Corporate powers exercised by board of directors or trustees.