G.R. Nos. 163356-57 and 163368-69. July 10, 2015.
JOSE A. BERNAS, CECILE H. CHENG, VICTOR AFRICA, JESUS B. MARAMARA, JOSE T. FRONDOSO, IGNACIO T. MACROHON, JR., AND PAULINO T. LIM, ACTING IN THEIR CAPACITY AS INDIVIDUAL DIRECTORS OF MAKATI SPORTS CLUB, INC., AND ON BEHALF OF THE BOARD OF DIRECTORS OF MAKATI SPORTS CLUB, Petitioners, vs. JOVENCIO F. CINCO, VICENTE R. AYLLON, RICARDO G. LIBREA, SAMUEL L. ESGUERRA, ROLANDO P. DELA CUESTA, RUBEN L. TORRES, ALEX Y. PARDO, MA. CRISTINA SIM, ROGER T. AGUILING, JOSE B. QUIMSON, CELESTINO L. ANG, ELISEO V. VILLAMOR, FELIPE L. GOZON, CLAUDIO B. ALTURA, ROGELIO G. VILLAROSA, MANUEL R. SANTIAGO, BENJAMIN A. CARANDANG, REGINA DE LEON-HERLIHY, CARLOS Y. RAMOS, JR., ALEJANDRO Z. BARIN, EFRENILO M. CAYANGA AND JOHN DOES, Respondents. (Consolidated with G.R. Nos. 163368-69: JOVENCIO F. CINCO, RICARDO G. LIBREA AND ALEX Y. PARDO, Petitioners, vs. JOSE A BERNAS, CECILE H. CHENG AND IGNACIO A. MACROHON, Respondents.)

FACTS

Makati Sports Club (MSC) is a domestic corporation. The petitioners in G.R. Nos. 163356-57 (Bernas Group) were members of the Board of Directors. The respondents in G.R. Nos. 163356-57 (Cinco Group) were members and stockholders. Alarmed by rumored anomalies, the MSC Oversight Committee (MSCOC), composed of past presidents, demanded the Bernas Group’s resignation. Stockholders representing at least 100 shares requested the MSCOC to call a special stockholders’ meeting to remove the officers. The MSCOC called and sent notices for a Special Stockholders’ Meeting on December 17, 1997. During this meeting, the Bernas Group was removed from office, and the Cinco Group was elected. The Bernas Group filed SEC Case No. 5840, seeking nullification of the December 17, 1997 meeting, arguing it was improperly called by the MSCOC, not the Corporate Secretary as required by Section 28 of the Corporation Code. The Cinco Group defended the call, citing the by-laws and the Corporate Secretary’s refusal to act. Subsequently, the new Board expelled Jose A. Bernas and sold his shares at public auction. Annual Stockholders’ Meetings were held on April 20, 1998, April 19, 1999, and April 17, 2000. During the 1998 meeting, the stockholders ratified the December 17, 1997 meeting and the actions taken therein. The 1999 and 2000 meetings also ratified these actions. The SEC Hearing Officer initially declared the December 1997 and April 1998 meetings invalid and nullified Bernas’s expulsion. The SEC En Banc reversed, upholding the validity of the December 1997 meeting and the subsequent ratifications. The Court of Appeals then ruled that the December 17, 1997 meeting was invalidly called but affirmed the validity of the actions taken during the Annual Stockholders’ Meetings in April 1998, 1999, and 2000, including the election of the Cinco Group as directors after the expiration of the Bernas Group’s terms.

ISSUE

The primary issue is the validity of the December 17, 1997 Special Stockholders’ Meeting and the legal effects of the subsequent ratifications of the actions taken therein during the Annual Stockholders’ Meetings.

RULING

The Supreme Court DENIED the petitions and AFFIRMED the Decision of the Court of Appeals. The Court held:
1. The December 17, 1997 Special Stockholders’ Meeting was invalidly called. The power to call a special stockholders’ meeting under Section 50 of the Corporation Code resides in the President, the Board of Directors, or stockholders representing at least a majority of the outstanding capital stock. The MSC By-laws (Section 10) provide that special meetings shall be held when called by the President, the Board of Directors, or upon written request of stockholders representing not less than one hundred (100) shares. The MSCOC, not being among the authorized entities under the law or the by-laws, had no authority to call the meeting. The Corporate Secretary’s role is merely to give notice as directed by the authorized callers. Therefore, the meeting was void.
2. However, the void acts from the December 1997 meeting were subsequently ratified by the stockholders during the validly held Annual Stockholders’ Meetings on April 20, 1998, April 19, 1999, and April 17, 2000. The Court distinguished between voidable and void corporate acts. While a void act cannot be ratified, the doctrine of ratification applies to intra-corporate matters where the act is within the corporation’s power but is defective due to the manner of its execution. The removal of directors and election of new ones are corporate powers. The ratification by the stockholders during the annual meetings, which were properly called and had a quorum, cured the defects of the improperly called special meeting. The stockholders, as the corporation’s owners, expressly approved the actions.
3. The expulsion of Jose A. Bernas and the sale of his shares were also ratified during these annual meetings. The Court found that the expulsion and sale, being corporate acts, were within the matters that could be ratified by the stockholders.
4. The election of the Cinco Group as directors during the annual meetings, after the expiration of the terms of the Bernas Group, was declared valid. The Court emphasized that the annual meetings themselves were validly convened, and the elections held therein were proper.
5. The Court of Appeals correctly declared the December 1997 meeting invalid but upheld the subsequent ratifications and the valid actions taken during the annual meetings. The Supreme Court found no reversible error in this disposition.