G.R. No. 233857 , March 18, 2021
Agapito A. Salido, Jr., Petitioner, vs. Aramaywan Metals Development Corporation, Cerlito San Juan, Corazon San Juan, Cristina Marie San Juan, Respondents.

FACTS

This is an intra-corporate dispute between two factions within Aramaywan Metals Development Corporation. In April 2005, Cerlito San Juan, Ernesto Mangune, Agapito Salido, Jr., and four others agreed to form Aramaywan and Narra Mining Corporation. They entered into an Agreement to Incorporate stipulating that San Juan would advance the paid-up subscription for Aramaywan amounting to P2,500,000.00 and assure payment for Narra Mining’s subscription. In exchange, San Juan would own 55% of Aramaywan’s stocks. San Juan advanced the P2,500,000.00, evidenced by a bank certificate showing the amount deposited in his name as treasurer, held in trust for the corporation. Aramaywan was incorporated with nine directors. San Juan’s 55% share (13,750 shares) was divided among himself (5,000 shares), his wife Corazon (5,000 shares), and his daughter Cristina Marie (3,750 shares). The other five directors (excluding Mangune) formed the Salido faction.
On November 25-26, 2005, during Aramaywan’s first Board Meeting, the Salido faction claimed San Juan delivered only P932,209.16 in cash, with the balance remaining under his name, and that Narra Mining was not yet registered. Salido proposed reducing San Juan’s shares from 55% to 15%. On February 5, 2006, a special board meeting was conducted by the Salido faction, wherein resolutions were passed, including: confirming the reduction of San Juan’s shares to 15%; changing the corporate address; cancelling the shares of Corazon and Cristina Marie; declaring that Narra Mining’s registration shall no longer proceed; authorizing Salido to negotiate on behalf of Aramaywan; appointing Atty. Roland Pay as corporate secretary; and appointing Teodora L. Plata as Treasurer. Both factions held separate meetings and submitted conflicting General Information Sheets to the SEC. The San Juan faction filed a complaint with the RTC to invalidate the Salido faction’s acts.
The RTC dismissed the complaint, upholding the validity of the reduction of San Juan’s shares, the appointment of Atty. Pay, the February 5, 2006 meeting and its resolutions (except Resolution No. 05-2006), and declaring the San Juan faction’s meetings null and void. The CA initially affirmed the RTC but, upon reconsideration, issued an Amended Decision reversing itself, declaring the board resolutions from the February 5, 2006 meeting void for lack of a validly constituted board and violation of the Corporation Code.

ISSUE

Whether the Court of Appeals erred in declaring void the board resolutions passed during the February 5, 2006 special meeting of Aramaywan’s Board of Directors.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Amended Decision of the Court of Appeals. The resolutions passed during the February 5, 2006 special board meeting were declared void.
The Court held that the special board meeting was invalid because it was not called by the corporate secretary or any proper officer, and no valid notice was sent to all directors as required by the Corporation Code. Atty. Roland Pay, who called the meeting, was not validly appointed as corporate secretary; his alleged appointment via minutes of a November 2005 meeting was ineffective since those minutes were not signed by the presiding officer and the corporate secretary, and no formal board resolution existed. Furthermore, the meeting lacked a quorum. A quorum is based on the number of directors, not shareholdings. The Articles of Incorporation listed nine directors. For the February 5, 2006 meeting, only four directors from the Salido faction were present, which did not constitute a majority (five) of the nine-member board. The purported reduction of San Juan’s shareholdings from 55% to 15% did not affect the board composition; all nine directors, including the three from the San Juan faction, remained entitled to notice and to be counted for quorum purposes until properly removed.
The resolutions themselves were also invalid. Resolution No. 01-2006, which confirmed the reduction of San Juan’s shares, constituted a decrease of corporate capital, which under the Corporation Code requires approval of at least two-thirds of the outstanding capital stock. This was not obtained. The reduction also effectively constituted a redemption of shares, for which there was no valid consideration, as San Juan’s obligation to pay the full P2,500,000.00 was not extinguished. The Court found that San Juan had fully complied by depositing the amount in trust for the corporation. The cancellation of the shares of Corazon and Cristina Marie (Resolution No. 03-2006) was likewise invalid as it was based on the invalid reduction. Since the special board meeting and the resolutions were void, all subsequent acts based on those resolutions were also invalid.