[ G.R. No. 215280, November 27, 2019 ]
FRANCISCO C. EIZMENDI, JR., JOSE S. TAYAG, JR., JOAQUIN L. SAN AGUSTIN, EDUARDO V. FRANCISCO, EDMIDIO V. RAMOS, JR., ALBERT G. BLANCAFLOR, REY NATHANIEL C. IFURUNG, MANUEL H. ACOSTA, JR., AND VALLE VERDE COUNTRY CLUB, INC., PETITIONERS, V. TEODORICO P. FERNANDEZ, RESPONDENT.
DISSENTING OPINION
A. REYES, JR., J.:
After a thorough review of the records and all previous dispositions, I am convinced that Teodorico P. Fernandez's (respondent) Motion for Reconsideration1 (MR) of the Court's September 5, 2018 Decision,2 with respect to the contention that his Complaint3 filed before the Regional Trial Court (RTC) of Pasig City, Branch 158, in Commercial Case No. 13-202 does not constitute an election contest, is meritorious.
To recall, the instant controversy stems from a Complaint4 filed by respondent on November 28, 2013 for Invalidation of Corporate Acts and Resolutions with Application for Writ of Preliminary Injunction against the individual petitioners in herein case, namely: 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.5
The complaint was filed as a response to the incidents surrounding the February 23, 2013 annual membership meeting of Vaile Verde Country Club, Inc. (VVCCI) and respondent's ensuing six (6)-month suspension as a member of it. Respondent alleges that on February 23, 2013, VVCCI held its scheduled annual membership meeting through its hold-over Board of Directors (BoD), but the same had to be adjourned for lack of quorum. Immediately thereafter, the individual petitioners took over the proceedings, declared a quorum, and elected themselves as the new BoD of VVCCI.6
Afterwards, on October 18, 2013, the individual petitioners, acting for and in behalf of VVCCI as members of its BoD, passed a resolution finding respondent guilty of violating its by-laws. As punishment, respondent was suspended from the sports club for six (6) months.7
Respondent argues that the corporate acts done by private petitioners, insofar as the office of the BoD of VVCCI is concerned, are without any authority. He argues that since the annual membership meeting, wherein private petitioners were "constituted" as the BoD of VVCCI, was held despite lack of quorum, then the same is void. As such, any subsequent meetings of the BoD that were held thereafter, including all the resolutions and measures that were approved thereat, are likewise void and could produce no legal effect.8
In fact, during the hearing9 for the application of the writ of preliminary injunction, respondent was adamant that the Complaint he filed before the trial court assailed the very legitimacy of the February 23, 2013 annual membership meeting, to wit:
COURT:
Before you testify, we are in agreement that the remaining issue ... we will not touch on the election aspect because that is not proper for the instant case. I have already said it's too late in the day to file an election contest. So, the only issue before the Court is the suspension.
ATTY. FERNANDEZ:
Yes, your Honor, but with due respect, if your Honor please, our case is not an election contest because this is a suit precisely questioning the legal authority of the board who suspended me[.]
COURT:
Yes, even if you do not say that it is an election contest, that will especially, the issue will still be whether or not the board of directors' composition is legitimate because, in essence, it was still an election contest. I will not touch on that, as I had continuously said. The only reason I'm still entertaining this complaint is with respect to your suspension. So, your suspension, it cannot be based ... whether or not your suspension is legitimate will not be anchored on the composition of the board of directors but on issues like due process, if you were duly notified, if the grounds for your suspension were valid, etcetera.
x x x x
ATTY. FERNANDEZ:
But, Your Honor, may we be allowed to present evidence in relation to the fact that... I have two allegations, if your Honor please. No. 1, is the fact that they have no legal authority to suspend me because when they convened as a board, when they elected themselves as board of directors after the declaration of no quorum, your Honor, they used 1,500 as basis and therefore …10 (Emphasis supplied)
For their part, private petitioners dispute the allegation that no quorum was achieved during the February 23, 2013 meeting. They insist that a meeting was validly called and that their election as the new BoD was legal and binding. Being valid, they claim that they properly managed the affairs of VVCCI and all acts done in connection with their duties as officers of VVCCI, including the suspension of respondent for violation of its by-laws, were valid.11
The ponencia resolves the case by considering respondent's complaint as an election contest within the purview of the Interim Rules of Procedure Governing Intra-Corporate Controversies (Interim Rules), to wit:
Fernandez's complaint disputes the election of petitioners as members of the BOD of VVCCI on the ground of lack of 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 Rule., 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, 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."12 (Emphasis supplied)
The present ponencia exists on the premise that the complaint falls under the definition of an election contest because it clearly raises an issue on the manner and validity of the individual petitioners' election. As such, the dismissal of respondent's complaint was justified because it was filed well beyond the fifteen (15)-day reglementary period pursuant to Section 3, Rule 6 of the Interim Rules.13
I cannot agree with this premise.
While the complaint touches on the issue of private petitioners' authority as VVCCI's BoD, a closer scrutiny will show that the primordial focus of respondent's complaint deals with the very legitimacy of the meeting itself.
Section 4, Rule 2 of the Interim Rules provides that a complaint involving intra-corporate controversies must state or contain all the facts and materials relevant to a plaintiff's cause of action. Moreover, it must contain the law relied upon and the relief sought.14 Furthermore, well-settled is the principle that material averments in the complaint and the character of the relief prayed for determine its cause of action.15 Otherwise stated, the true nature of the action can be ascertained from the ultimate facts averred in the complaint and the relief sought.16
The majority believe that the relevant allegations in respondent's complaint and the character of the relief sought by him qualify the action as an election contest. It believes that since respondent seeks to nullify the claim of the individual petitioners as members of the BoD of VVCCI, then the same falls under the definition of an election contest.17
Contrary to the majority opinion however, it is my view that a more holistic reading of respondent's complaint readily reveals it as an action which is primarily aimed at questioning the very legitimacy of the February 23, 2013 VVCCI annual membership meeting. In fact, the manner in which respondent assails the subject meeting clearly propounds that there was a failure to achieve quorum. The pertinent portions of respondent's complaint read:
2.12. At the annual members' meeting set on February 23, 2013, VVCCI through the hold-over BOD adjourned the same for lack of quorum.
2.13. Despite the adjournment of the annual members' meeting set on February 23, 2013 for lack of quorum, the individual defendants, conspiring and confederating with each other, held a supposed annual members' meeting by illicitly using the original 1,500 membership certificates as the base for purposes of quorum and declaring the presence of a quorum based on the attendance at the most of only 790 or 793 members in person or by proxy.
2.14. Despite the fatal lack of quorum at the supposed election meeting, the individual defendants proceeded with it to have themselves constituted as the new members of the BOD of VVCCI.
2.15. Claiming themselves to be the newly constituted BOD of VVCCI, on October 18, 2013, the individual defendants held a meeting, at which they, purportedly acting for and in behalf of VVCCI, found plaintiff, among others, "guilty of less serious violations of the Bylaws" and imposed on him the penalty of suspension (of membership in VVCCI) for six (6) months from September 21, 2013 or until March 21, 2014, as shown in the Memorandum dated October 21 , 2013 of defendant Ifurung to the General Manager of VVCCI. A photocopy of the Memorandum is hereto attached as Annex "H".18 (Emphasis supplied; citations omitted)
RELIEF
x x x x
2. After hearing on the merits, to render judgment in favor of plaintiff and against the defendants.
x x x x
c) Nullifying the so-called annual members' meeting of February 23, 2013, as well as subsequent so-called board meetings similarly held and conducted by the individual defendants, such as but not limited to the so-called board meeting of October 18, 2013, including all resolutions and measures approved thereat, particularly those which relate to the suspension of plaintiff from VVCCI[.]19 (Emphasis supplied)
Admittedly, while the complaint does delve into the authority of private petitioners as the newly elected BoD of VVCCI, it is apparent that the same is not its primary purpose. A review of the ultimate facts averred and the nature of the relief show that its primary purpose is the annulment of the February 23, 2013 annual membership meeting for lack of quorum. The complaint detailed how the meeting was initially adjourned because no quorum was achieved and how private petitioners ignored the announcement. It went on to recount how private petitioners proceeded to hold another meeting, this time using a different basis to compute quorum.20
The mere fact that the complaint contains a prayer relating to the issue of the validity of the individual petitioners' title as BoD of VVCCI should not be treated as a conclusive indication of the complaint's primary purpose.21 The prayer to invalidate the claims of the individual petitioners will merely be a consequence of having the February 23, 2013 annual membership meeting annulled.
Now, a distinction must be made between a suit whose primary purpose is the challenge of an individual's claim to an elective office within a corporation and one which seeks the nullification of any regular or special meeting called pursuant to Title VI of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines.22 Accordingly, an election contest is defined under the Interim Rules as:
SEC. 2. Definition. - An election contest 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, including the proclamation of winners, to the office of director, trustee or other officer directly elected by the stockholders in a close corporation or by members of a non-stock corporation where the articles of incorporation or by-laws so provide.
Thus, an election contest is any controversy whose primary issue deals with: (a) title or claim to any elective office within the corporation; (b) the validation of proxies; (c) the manner or how elections are conducted and its ensuing validity; (d) the qualifications of candidates; or (e) the proclamation of winners as officers.23
In contrast, an action assailing the inherent validity of a meeting involves an entirely distinct issue: the determination of whether it was called pursuant to the company's by-laws and in accordance with the Corporation Code. The relevant provision of law is Section 50 in relation to Section 52, under Title VI of the Corporation Code. These provisions provide for when such meetings shall be held and under what circumstances a quorum shall be achieved in order for them to be valid. They provide:
SEC. 50. Regular and special meetings of stockholders or members. - Regular meetings of stockholders or members shall be held annually on a date fixed in the by-laws, 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 members of record at least two (2) weeks prior to the meeting, unless a different period is required by the by-laws.
Special meetings of stockholders or members shall be held at any time deemed necessary or as provided in the by-laws: Provided, however, [t]hat at least one (1) week written notice shall be sent to all stockholders or members, unless otherwise provided in the by-laws.
x x x x
SEC. 52. Quorum in meetings. - Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders representing a majority of the outstanding capital stock or a majority of the members in the case of non-stock corporations. (n)
The difference between the two actions can be seen in Bernas v. Cinco24 (Bernas) wherein the Court, in resolving an action which sought the nullification of a special stockholders' meeting, declared said meeting null and void for being improperly called.25
The dispute therein involved two separate groups of members which comprised the BoD of the Makati Sports Club (MSC): the Bernas group, and the Cinco group. The former formed part of the incumbent members of MSC's BoD whose terms were set to expire either in 1998 or 1999. The latter were stockholders of MSC who were elected to replace the Bernas group during a special stockholders' meeting held in 1997.26
The special meeting was called by MSC's oversight committee in order to address rumored anomalies in the handling of corporate funds. During the meeting, the Bernas group was removed from office and, in their place, the Cinco group was elected. Aggrieved, the Bernas group initiated an action before the Securities and Exchange Commission seeking the nullification of the special stockholders meeting on the ground that it was improperly called.27
Finding that the 1997 special stockholder's meeting was improperly called, the Court declared the same null and void. Consequently, the subsequent acts and issued resolutions of the Cinco group were likewise declared void from the very beginning.28
Similarly, in Lim v. Moldex Land,29 (Lim) the Court was presented with the issue regarding the validity of a non-stock corporation's annual general membership meeting. In this particular case, Condocor, a non-stock, non-profit corporation, was the registered condominium corporation for the Golden Empire Tower, a condominium project of Moldex Land. During Condocor's 2012 annual general membership meeting, its corporate secretary and chairman declared the existence of a quorum even though only twenty nine (29) of the one hundred eight (108) unit owners were present. Petitioner therein Lim objected to the validity of the meeting and she, along with most of the unit owners present, walked out and left.30
Despite the walkout, the individual respondents therein proceeded with the meeting and elected new members of Condocor's BoD. Consequently, Lim filed a case with the RTC assailing the validity of Condocor's 2012 annual general membership meeting on the basis of lack of quorum.31
In resolving the case, the Court discussed the requisites for a stockholders' or members' meeting to be valid and the importance of the presence of quorum, to wit:
In corporate parlance, the term "meeting" applies to every duly convened assembly either of stockholders, members, directors, trustees, or managers for any legal purpose, or the transaction of business of a common interest. Under Philippine corporate laws, meetings may either be regular or special. A stockholders' or members' meeting must comply with the following requisites to be valid.
1. The meeting must be held on the date fixed in the By-Laws or in accordance with law;
2. Prior written notice of such meeting must be sent to all stockholders/members of record:
3. It must be called by the proper party;
4. It must be held at the proper place; and
5. Quorum and voting requirements must be met.
Of these five (5) requirements, the existence of a quorum is crucial. Any act or transaction made during a meeting without quorum is rendered of no force and effect, thus, not binding on the corporation or parties concerned.32 (Citations omitted and emphasis supplied)
Ultimately, the Court found that the 2012 annual general membership meeting was convened despite the lack of quorum. As a result, the subject meeting was declared null and void and the subsequent election of Condocor's new BoD was nullified. It further declared that the succeeding meetings of the new BoD, as well as any resolutions it issued, were of no force and could produce no legal effect.33
In Bernas and Lim, despite the presence of issues which touch upon the validity of a group's election as part of a company's BoD, the Court did not hesitate to declare a special stockholders' and a regular members' meeting inherently invalid for being improperly called. In doing so, the Court acknowledged that the mere presence of such issues does not automatically qualify a case as an election contest. It effectively held that if the primary issue of the intra-corporate controversy is the annulment of a stockholders' or members' meeting on the basis of lack of quorum, then the same should be treated as an entirely distinct action from that of an election contest.
Having determined the true nature of respondent's Complaint34 as one which assails the very validity of a members' meeting and delineating its difference from an election contest under the Interim Rules, the question which must be answered now is how the annulment of the February 23, 2013 VVCCI annual membership meeting would affect respondent's suspension from the club.
In Bernas, when the Court declared the December 17, 1997 special stockholders' meeting therein as void, it likewise declared the election of the Cinco group as having no binding force and effect Consequently, all other actions of the Cinco group before the expiration of the term of office of the Bernas group were also declared void. As succinctly put by the Court, "the expulsion of the Bernas Group and the subsequent auction of Bernas' shares are void from the very beginning and therefore the ratifications effected during the subsequent meetings cannot be sustained. A void act cannot be the subject of ratification"35
Likewise, the Court in Lim made a similar pronouncement when it declared the July 21, 2012 general membership meeting of Condocor as invalid for being called despite the lack of quorum. The Court ruled that any resolution or disposition of other legal issues stemming from the void meeting would have no binding effect on the corporation or any of its members, to wit:
As there was no quorum, any resolution passed during the July 21, 2012 annual membership meeting was null and void and, therefore, not binding upon the corporation or its members. The meeting being null and void, the resolution and disposition of other legal issues emanating from the null and void July 21, 2012 membership meeting has been rendered unnecessary.36 (Emphasis supplied)
Given the foregoing, I submit that the annulment of the February 23, 2013 VVCCI annual members' meeting would likewise void the subsequent resolution which suspended respondent for six (6) months from the club for violation of the company's by-laws.
In fine, I must disagree with the majority opinion which treats respondent's complaint as "partly an election contest.”37 The mere presence of an issue regarding private petitioners' authority as VVCCI's BoD as a result of the company's February 23, 2013 annual membership meeting does not ipso facto make it an election contest as defined under the Interim Rules. Respondent's complaint must be read in its entirety and not hastily pigeonholed into a particular type of action.
Respondent's Complaint38 was filed for the very purpose of questioning the inherent validity of the February 23, 2013 VVCCI annual membership meeting, an action completely distinct from an election protest. To automatically qualify an action seeking to annul a stockholders' or members' meeting as an election contest for the mere reason of the presence of an issue relating to a group's title as members of the BoD of a company would set a troublesome precedent. To do so would effectively ignore the innate differences of the two actions and subject one to the procedural requirements of the other, much like in this case.
Thus, it is my opinion that it was a mistake for the trial court to have dismissed respondent's first cause of action on the basis of it being filed beyond the fifteen (15)-day reglementary period as provided for under the Interim Rules on the erroneous premise that the same is an election contest. The trial court should have allowed reception of evidence regarding the circumstances surrounding the February 23, 2013 VVCCI annual membership meeting in order to fully resolve the issue regarding the inherent validity of said meeting and the succeeding legality of respondent's suspension as a member of the club.
For these reasons, I dissent.
ACCORDINGLY, I vote to:
(a) GRANT the Motion for Reconsideration dated October 29, 2018 filed by respondent Teodorico P. Fernandez;
(b) SET ASIDE the Court's Decision dated September 5, 2018; and
(c) REINSTATE the Court of Appeals Decision dated June 30, 2014 in CA-G.R. SP No. 134704.
Footnotes
1 Rollo, pp. 322-347.
2 Id. at 278-294.
3 Id. at 85-95.
4 Id.
5 Id.
6 Id. at 43-44.
7 Id. at 45.
8 Id. at 44.
9 Id. at 96-105.
10 Id. at 98-100.
11 Id. at 45.
12 Id. at 287.
13 SEC. 3. Complaint. - In addition to the requirements in section 4, Rule 2 of these Rules, the complaint in an election contest must state the following:
1. The case was filed within fifteen (15) days from the date of the election if the by-laws of the corporation do not provide for a procedure for resolution or the controversy, or within fifteen (15) days from the resolution of the controversy by the corporation as provided in its by-laws[.]
14 SEC. 4. Complaint. - The complaint shall state or contain:
1. the names, addresses, and other relevant personal or juridical circumstances of the parties;
2. all facts material and relevant to the plaintiff's cause or causes of action, which shall be supported by affidavits of the plaintiff or his witnesses and copies of documentary and other evidence supportive of such cause or causes of action;
3. the law, rule, or regulation relied upon, violated, or sought to be enforced;
4. a certification that (a) the plaintiff has not theretofore commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency, and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other action or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that fact within five(5) days therefrom to the court; and
5. the relief sought.
15 First Sarmiento Property Holdings, Inc. v. Philippine Bank of Communications, G.R. No. 202836, June 19, 2018, 886 SCRA 438, 458; Bulao v. CA, 291-A Phil. 349, 355-356 (1993); and Sps. Abrin v. Campos, 280 Phil. 454, 459 (1991).
16 Jimenez, Jr. v. Jordana, 486 Phil. 452, 465 (2004).
17 Rollo, pp. 286-287.
18 Id. at 89.
19 Id. at 92-93.
20 Id. at 88-90.
21 Id. at 92.
22 The Corporation Code of the Philippines.
23 Section 2, Rule 6 of the Interim Rules.
24 762 Phil. 387 (2015).
25 Id. at 395.
26 Id. at 395-396.
27 Id. at 396.
28 Id. at 414.
29 804 Phil. 341 (2017).
30 Id. at 347.
31 Id. at 347-348.
32 Id. at 354.
33 Id. at 364.
34 Rollo, pp. 85-89.
35 Supra note 24, at 414.
36 Supra note 29, at 356-357.
37 Id. at 292.
38 Id. at 85-89.
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