ROCO, RYAN JERMON R.

CORPORATION LAW BLOCK B

G.R. No. 175188 July 15, 2015

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.

LA TONDENA DISTILLERS, INC. (LTDI [now GINEBRA SAN MIGUEL], Respondent.

FACTS:

La Tondena Distillers (LT) entered into a merger with three separate corporations (SBC, SMCJI
and MBWC). Whereas the assets and liabilities of the absorbed corporations were transferred the
surviving corporation. LT requested for a confirmation of the tax-free nature of the said merger
from the BIR. Hence BIR issued a ruling that pursuant to the Tax Code, no gain or loss shall be
recognized by the absorbed corporations as transferors of all assets and liabilities, but the transfer
of assets, such as real properties, shall be subject to Documentary Stamp Tax (DST). Respondent
paid the said DST but later on filed for an administrative claim for refund or tax credit claiming
that it is exempt from the DST and that the payment made were erroneously made on the
occasion of the merger.

ISSUE:

Whether or not the Transfer of Real Property to a surviving corporation is subject to

Documentary Stamp Tax (DST)?

HELD:

No. It is not subject to DST, the payment of DST on all transfers and conveyances of real
property for a valuable consideration does not include the transfer of real property from one
corporation to another pursuant to a merger.

In a merger, the real properties are not deemed "sold" to the surviving corporation and the latter
could not be considered as "purchaser" of realty since the real properties subject of the merger
were merely absorbed by the surviving corporation by operation of law and these properties are
deemed automatically transferred to and vested in the surviving corporation without further act
or deed.

Therefore, the transfer of real properties to the surviving corporation in pursuance of a merger is
not subject to DST.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

Opinion:

Whereas per Supreme Court ruling in the said case that such transfer of real property to a
surviving corporation pursuant to a merger is not subject to Documentary Stamp Tax (DST)” is
in consistent, with the provisions of the National Internal Revenue Code and The Corporation
Code and prevailing jurisprudence.

As such in a corporate merger, the surviving corporation shall not be considered as a purchaser
of the assets of the absorbed corporation but as an acquisition, hence done by operation of law.
Meaning that a surviving corporation steps into the shoes of the absorbed corporation in turn
acquiring all its assets, obligation, or liabilities. Exemption should be given to the surviving
corporation from liability of paying the DST, for what took place was not a conveyance for a
consideration, hence making the respondent not a purchaser.

In the case of CIR vs. Pilipinas Shell Petroleum Corp. In accordance to the principle of stare
decisis which states that when a court has reached a conclusion in one case, it should be applied
to those that follow if the facts are substantially the same, even though the parties may be
different.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

G.R. No. 164301 October 19, 2011

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.

BPI EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF UNIONS IN BPI

UNIBANK, Respondent.

FACTS:

BPI entered into a merger with Far East Bank and Trust Company (FEBTC) wherein the former
adsorbed the latter. The employees of FEBTC were absorbed by BPI pursuant to the merger.
However, the BPI Employees Union-Davao Chapter-Federation of Unions in BPI (the union)
contended that the absorbed employees are covered by the Union Shop Clause in the Collective
Bargaining Agreement (CBA). The union alleged that pursuant to the CBA, the absorbed
employees are considered as new employees and may be required to join the respondent union,
and if they fail to do so, the Union may request BPI to terminate their employment.

For the failure of the absorbed employees to do so, the union requested the BPI to terminate their
employment but the BPI refused to accede to their request. The case was submitted for voluntary
arbitration but the voluntary arbitrator ruled in favor of the BPI. On appeal, the Court of Appeals
reversed the ruling of the voluntary arbitrator and ruled in favor of the union. BPI elevated the
case to the Supreme Court which affirmed the decision of the appellate court.

Bangko Sentral ng Pilipinas approved the Articles of Merger executed by and between BPI,
herein petitioner, and Far East Bank and Trust Company (FEBTC) and was approved by the
Securities and Exchange Commission.  The Articles of Merger and Plan of Merger
did not contain any specific stipulation with respect to the employment contracts of existing
personnel of the non-surviving entity which is FEBTC. Pursuant to the said Article and Plan of
Merger, all the assets and liabilities of FEBTC were transferred to and absorbed by BPI as the
surviving corporation. FEBTC employees, including those in its different branches across the
country, were hired by petitioner as its own employees, with their status and tenure recognized
and salaries and benefits maintained.

Issue:

Whether or not the surviving corporation assumes the employment contracts of the employees of
the absorbed corporation pursuant to a merger.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

HELD:

Yes. Whereas the court agrees with Justice Brion's view that it is more in keeping with the
dictates of social justice and the State policy of according full protection to labor to deem
employment contracts as automatically assumed by the surviving corporation in a merger,
without break in the continuity of their employment, and even in the absence of an express
stipulation in the articles of merger or the merger plan.

By virtue of merger BPI steps into the shoes of FEBTC as a successor employer as if the former
had been the employer of the latters employees from the beginning it must be emphasized that, in
reality, the legal consequences of the merger only occur at a specific date,i.e.,upon its effectivity
which is the date of approval of the merger by the SEC.Thus, the court observed in the Decision
that BPI and FEBTC stipulated in the Articles of Merger that they will both continue their
respective business operations until the SEC issues the certificate of merger and in the event no
such certificate is issued, they shall hold each other blameless for the non-consummation of the
merger.

As consequence to such merger BPI shall be considered the employer of the former employees
of the FEBTC, hence respondent also acquires the obligation of the FEBTC to its employees.
Whereas all took place in the life in the existing and valid CBA between BPI and the Union
where they have mutually consented to include the union shop clause.

OPINION:

In light of promotion of social justice and security of tenure as mandated by the Constitution and
the Labor Code. We must consider the fact that such employees should not be forgotten for they
are that the affected parties who despite of new ownership still worked in the acquired assets;
they are the essential component of their corporation during its existence. Whereas it is there
constitutional right to have security of tenure even in merges. It would be of grave abuse to just
relentlessly just fire an employee without just cause. Responsibility is left with the surviving
corporation as such they must to take full responsibility for the affected employees and by
absorbing them into its workforce is not only following the pertinent provison of the law, but
also promoting social justice.

Where there are no provisions relative to the absorbed employees, the law assumes that
such employees as automatically absorbed by the surviving corporation as to give protection to
the employees as accorded to them by law pursuant to the Corporation Code which provides that
in a merger, the obligations and liabilities of the absorbed corporation is automatically assumed
by the surviving corporation upon approval by the SEC of such merger.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

G.R. No. 192398 September 29, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.

PILIPINAS SHELL PETROLEUM CORPORATION, Respondent.

FACTS:

Pilipinas Shell Petroleum Corporation (PSPC) entered into a merger with Shell Philippine
Petroleum Corporation (SPPC). In the merger, the exchange of land and improvements by SPPC
to PSPC for the latter’s shares of stock was subjected to documentary stamp tax (DST).
However, believing that it erroneously paid DST on its absorption of real property owned by
SPPC, respondent filed with petitioner a formal claim for refund or tax credit of the DST.

SPPC filed a petition for review with the Court of Tax Appeals (CTA) in order to suspend the
running of the two-year prescriptive period. Petitioner filed an Answer asserting that in tax
deferred exchanges, DST is imposed. Petitioner cited BIR Ruling No. 2-20018 which states that
the tax-deferred exchange of properties of a corporation, which is a party to a merger or
consolidation, solely for shares of stock in a corporation, which is also a party to the merger or
consolidation, is subject to the DST under Sec. 176 of the NIRC if the properties to be
transferred are shares of stock or even certificates of obligations, and also to the DST under Sec.
196, if the properties to be transferred are real properties, and that the original issuance of shares
of stock of the surviving corporation in favor of the stockholders of the absorbed corporation as a
result of the merger, is subject to the DST under Sec. 175 of the Tax Code of 1997.

The CTA ruled in favor of the respondent holding that DST is imposed only on all conveyances,
deeds, instruments, or writings where realty sold is be conveyed to the purchaser/s and not on
transfer of real property from the absorbed corporation to the surviving or consolidated
corporation pursuant to a merger or consolidation, since it occurs by operation of law inasmuch
as the real property is deemed transferred without further act or deed.

ISSUE:

Whether or not PSPC is a purchaser of the assets of the absorbed corporation (SPPC), whereby
making them subject to DST in accordance with the Tax Code.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

HELD:

No. In a merger, the occurrence of absorbing the real property was a consequence of the
merger hence done by operation of law as a default. It may not be considered as sold and the
latter may not be considered a purchaser since it was not the intent from the start to acquire the
real property alone but a byproduct of the merger, these properties are deemed automatically
transferred to and vested in the surviving corporation without further act or deed.

Documentary stamp tax should not be accorded to surviving corporation. Whereas documentary
stamp tax is imposed only on all conveyances, deeds, instruments or writing where realty sold
shall be conveyed to a purchaser. What occurred was neither sale or conveyance of real property
for a consideration contracted to be paid as contemplated under Section 196 of the Tax Code.
Hence, Section 196 of the Tax Code is inapplicable and respondent is not liable for documentary
stamp tax.

OPINION:

In a merger, the surviving corporation by operation of law acquires the properties, rights, and
liabilities of the absorbed corporation. As consequence to its acquisition the latter’s assets are
vested automatically to the former as such the surviving corporation cannot be considered as a
purchaser in nature as no sale took place.

DST may be imposed upon the transfer of real property if it involves a sale to a purchaser if it is
independent, separate, and voluntary deed. Being that merger automatically transfers all assets
and liabilities of the dissolved corporation, transfer cannot be considered as a separately executed
deed independent from the merger. As such cannot be subjected to DST.

RA 9243, entitled "An Act Rationalizing the Provisions of the Documentary Stamp Tax of the
National Internal Revenue Code of 1997", according to the Court, removes any doubt and had
made clear that the transfer of real properties as a consequence of merger or consolidation is not
subject to documentary stamp tax. However, the Court did not make any clarification relative to
the contention of the petitioner that the enactment of RA 9243 only admitted that prior to the
passing of the law, the transfer of assets relative to a merger is indeed subject to DST, and the
present case arose prior to the enactment of such law.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

G.R. No. 157479 November 24, 2010

PHILIP TURNER and ELNORA TURNER, Petitioners,

vs.

LORENZO SHIPPING CORPORATION, Respondent.

FACTS:

The Turner’s are stockholders of the Lorenzo shipping corporation (LSC). LSC decided to
amend its articles of incorporation to remove the stockholders’ pre-emptive rights to newly
issued shares of stock. Having assed that such corporate move would be prejudicial to their
interest as stockholders, they voted against the amendment and demanded payment of their
shares whereas as it their right to appraisal. As per demand by the Turner’s of the payment of
their share LSC found that it unacceptable. Whereas such disagreement led to get an appraisal
committee. (Sec. 82 Corporation Code)

Upon the appraisal of the committee the Turner’s demanded payment as basis to the committee’s
appraisal whereas they added 2% a month penalty from the date of the original demand for
payment, as well as the amounts for the professional fees of the appraisers.

LSC however refused the Turners demand, explaining that pursuant to the Corporation Code, the
dissenting stockholders exercising their appraisal rights could be paid only when the corporation
had unrestricted retained earnings to cover the fair value of the shares, but that it had no retained
earnings at the time of the petitioners demand.

ISSUE:

Whether or not a stockholder, exercising his right of appraisal, can compel the corporation to pay
the value of his shares despite that the corporation has no sufficient unrestricted retained
earnings.

HELD:
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

No. A stockholder who dissents in some corporate actions may demand payment of his share as a
matter of his legal right as long as it is within the fair market value. Whereas Sec.81 of the
corporation code the right of appraisal can be exercised during an occurrence of fundamental
change in the charter or articles of incorporation substantially prejudicing the rights of the
stockholders. It does not vest unless objectionable corporate action is taken. It serves the purpose
of enabling the dissenting stockholder to have his interests purchased and to retire from the
corporation.

The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund the
payment of the shares of stocks of the withdrawing stockholders. Under the doctrine, the capital
stock, property, and other assets of a corporation are regarded as equity in trust for the payment
of corporate creditors, who are preferred in the distribution of corporate assets. The creditors of a
corporation have the right to assume that the board of directors will not use the assets of the
corporation to purchase its own stock for as long as the corporation has outstanding debts and
liabilities. There can be no distribution of assets among the stockholders without first paying
corporate debts. Thus, any disposition of corporate funds and assets to the prejudice of creditors
is null and void.

no payment shall be made to any dissenting stockholder unless the corporation has unrestricted
retained earnings in its books to cover the payment. In case the corporation has no available
unrestricted retained earnings in its books, Section 83 of the Corporation Code provides that if
the dissenting stockholder is not paid the value of his shares within 30 days after the award, his
voting and dividend rights shall immediately be restored.

OPINION:

The present case is about a stockholder right to exercise their right of appraisal, whereas being
that the corporation does not have unrestricted retained earnings stockholders may not compel
the corporation to pay the fair market value of their shares.

In light of the current case the corporation did not have any unrestricted retained earnings
causing them not to pay the stockholder the fair market value of their shares, as such this does
not merit any cause of action against the corporation.

We must take note that in accordance with the trust fund doctrine which means that the capital
stock, property and other assets of a corporation are regarded as equity in trust for the payment of
corporate creditors. The reason is that creditors of a corporation are preferred over the
stockholders in the distribution of corporate assets. There can be no distribution of assets among
the stockholders without first paying corporate creditors, as such the stockholders may not rest
their claim their payment upon the capital stock, property and other assets.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

G.R. No. 185024 April 4, 2017

JOSELITO HERNAND M. BUSTOS, Petitioners

vs.

MILLIANS SHOE, INC., SPOUSES FERNANDO AND AMELIA CRUZ, and the REGISTER
OF DEEDS OF MARIKINA CITY, Respondents

FACTS:

Petitioner Hernand Bustos was the winning bidder from the levied property auctioned off by the
Government of Marikina for non-payment of real estate taxes by Spoueses Fernando and Amelia
Cruz. Bustos filed for an application to canel original TCT of the Spouses Cruz which the court
rendered final and executory. Meanwhile, notice of lis pendens were annotated on the TCT of the
property, indicated that in a SEC Corp. Case No. 036-04, which was filed before the RTC and
involved the rehabilitation proceedings for respondent Millians Shoe, Inc. (MSI), covered the
subject property and included it in the Stay Order issued by the RTC. Petitioner moved for the
exclusion of the subject property from the Stay Order. He claimed that the lot belonged to
Spouses Cruz who were mere stockholders and officers of MSI. He further argued that since he
had won the bidding of the property or before the annotation of the title the auctioned property
could no longer be part of the Stay Order. The RTC denied the entreaty of petitioner. It ruled that
because the period of redemption had not yet lapsed at the time of the issuance of the Stay Order,
the ownership thereof had not yet been transferred to petitioner. Petitioner moved for
reconsideration, but to no avail. He then filed an action for certiorari before the CA. He asserted
that the Stay Order undermined the taxing powers of the local government unit. He also
reiterated his arguments that Spouses Cruz owned the property, and that the lot had already been
auctioned to him. The CA brushed aside the claim that the suspension orders undermined the
power to tax. As regards Bustos’ main contention, the CA rationed that “The Cruz Spouses were
still the owners of the land at the time of the issuance of the stay order. The said parcel of land
which secured several mortgage liens for the account of MSI remains to be an asset of the Cruz
Spouses, who are the stockholders and/or officers of MSI, a close corporation. Incidentally, as an
exception to the general rule, in a close corporation, the stockholders and/or officers usually
manage the business of the corporation and are subject to all liabilities of directors, i.e.,
personally liable for corporate debts and obligations. Thus, the Cruz Spouses being stockholders
of MSI are personally liable for the latter’s debt and obligations.” Respondents did not contest
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

that Spouses Cruz own the subject property. Rather, respondents assert that as stockholders and
officers of a close corporation, they are personally liable for its debts and obligations.
Furthermore, they argue that since the Rehabilitation Plan of MSI has been approved, petitioner
can no longer assail the same.

ISSUE:

Whether or not the Spouses Cruz cannot be considered as stockholders of a close corporation and
thus not liable for the debts of MSI.

HELD:

Yes. Section 97 of the Corporation Code only specifies that “the stockholders of the corporation
shall be subject to all liabilities of directors.” No inference can be taken that stockholders of a
close corporation are automatically liable for corporate debts and obligations. Parenthetically,
only Section 100, paragraph 5, of the Corporation Code explicitly provides for personal liability
of stockholders of close corporation, Sec. 100. Agreements by stockholders 5. To the extent that
the stockholders are actively engaged in the management or operation of the business and affairs
of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and
among themselves. Said stockholders shall be personally liable for corporate torts unless the
corporation has obtained reasonably adequate liability insurance. As can be read in that
provision, several requisites must be present for its applicability. None of these were alleged in
the case of Spouses Cruz. Neither did the RTC or the CA explain the factual circumstances for
this Court to discuss the personally liability of respondents to their creditors because of
“corporate torts.” With this in mind, the general doctrine of separate juridical personality shall be
applied, which provides that a corporation has a legal personality separate and distinct from that
of people comprising it. By virtue of that doctrine, stockholders of a corporation enjoy the
principle of limited liability: the corporate debt is not the debt of the stockholder. Being an
officer or a stockholder of a corporation does not make one’s property the property also of the
corporation.

OPINION:

What is a closed corporation? 1.) The stockholders shall consist or not more than 20
persons; 2.) A preemption of shares is restricted in favor of any stockholder or of the
corporation; 3.) The listing of the corporate stocks in any stock exchange or making a public
offering of those stocks is prohibited. With out this underlying in the articles of incorporation
one can not be considered as a closed corporation.

As consequences to being a Closed Corporation, the stockholders are liable to the debts
and obligations of the corporation. Meaning that a creditor of a stockholder is also the creditor of
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

the corporation and the other way around. Hence a Closed Corporation may not avail of The
Doctrine of separate juridical personality, the separate juridical personality of the corporation
enables it to act as though it were a person. As an artificial being, it may own properties, transact
and commit acts expressly authorized by law or incidental to its existence. Having said that in a
closed corporation the stockholder and the corporation has no distinct personality of their own,
where there is bond to each other’s liabilities. If there be a deterrent in either to the stockholder
or the corporation the creditor may file an action on both.

As such in this particular case there was no examination if indeed, they are a closed
corporation, where such determinant can be observed in the articles of incorporation of a
company. Being that there is ambiguity to its state the corporation will still be considered as an
ordinary corporation so shall the Doctrine of separate juridical personality will be applied as
such. Stockholders liability shall be solely to it’s creditor and not of the corporation itself, It is in
observance the Doctrine of limited liability.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

G.R. No. 206038 January 25, 2017

MARY E. LIM, represented by her Attorney-in-fact, REYNALDO V. LIM, Petitioner,

vs.

MOLDEX LAND, INC., 1322 ROXAS BOULEVARD CONDOMINIUM CORPORATION,

and JEFFREY JAMINOLA, EDGARDO MACALINTAL, JOJI MILANES, and CLOTHILDA
ANNE ROMAN, in their capacity as purported MENDOZA, and LEONEN,JJ. members of the
Board of Directors of 1322 Golden Empire Corporation,, Respondents.

FACTS:

This case is a petition for review on certiorari assailing the Decision of the RTC which
dismissed the complaint against the respondents for the annulment of the general membership
meeting of 1322 Roxas Boulevard Condominium Corporation (Condocor), annulment of election
of Jeffrey Jaminola, Edgardo Macalintal, Joji Milanes, and Clothilda Roman, as members of the
BOD, and for accounting.

Mary E. Lim is a registered unit owner of 1322 Golden Empire Tower, a condominium project of
Moldex Land, Inc. (Moldex), a real estate company engaged in the construction and development
of high-end condominium projects and in the sale of the units thereof to the public. Condocor, a
non-stock and non-profit corporation, is the registered condominium corporation for the Golden
Empire Tower. Lim, as a unit owner of Golden Empire Tower, is a member of Condocor.

On July 21, 2012 Condocor held its annual general membership meeting. Moldex became a
member of Condocor on the basis of its ownership of the 220 unsold units in the Golden Empire
Tower. During the meeting, an existence of a quorum was declared even though only 29 of the
108 unit buyers were present. Lim objected to the validity of the meeting but was denied, and
Lim and all other unit owners, except for one, walked out of the meeting. Nonetheless, the
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

individual respondents and the other unit owners proceeded with the meeting and elected the new
members of the BOD. All four individual respondents (Jaminola, Macalintal, Milanes and
Roman) were voted as members of the board, together with other 3 members, whose election
was conditioned on their subsequent confirmation.

Lim filed an election protest before the RTC. The RTC ruled in favor of the respondents and held
that the presence or absence of a quorum in the subject meeting was determined on the basis of
the voting rights of all the units owned by the members in good standing.  Lim filed the present
petition claiming that the respondents, who are non-unit buyers, are not entitled to be members
of the BOD because they are non-unit buyers because a condominium corporation, being an
association of homeowners, must be composed of actual unit buyers or residents of the
condominium project. Lim further alleged that the ownership of Moldex was only in the nature
of an owner-developer and only for the sole purpose of selling the units.

ISSUE:

Whether or not there has been a quorum

Whether or not the resolutions and the election are valid.

HELD:

No. The July 21, 2012 membership meeting was not valid. 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. Sec. 52 of the Corporation Code provides that “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.”

Moldex is a member of Condocor. Respondents are correct asserting in that a registered owner of
a unit in a condominium project or the holders of duly issued condominium certificate of title,
automatically becomes a member of the condominium corporation, relying on Sections 2 and 10
of the Condominium Act, the Master Deed and Declaration of Restrictions and the By-Laws of
Condocor.

Nonetheless, the quorum during the meeting should have been majority of Condocor's members
in good standing. Accordingly, there was no quorum during the meeting considering that only 29
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

of the 108 unit buyers were present. As there was no quorum, any resolution passed during the
said meeting was null and void and, not binding upon the corporation or its members.

Yes. Moldex is a member of Condocor. Respondents are correct asserting in that a registered
owner of a unit in a condominium project or the holders of duly issued condominium certificate
of title, automatically becomes a member of the condominium corporation, relying on Sections 2
and 10 of the Condominium Act, the Master Deed and Declaration of Restrictions and the By-
Laws of Condocor.

In sum, the July 21, 2012 annual general membership meeting of Condocor being null and void,
all acts and resolutions emanating therefrom are likewise null and void.

OPINION:

What is quorum? 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.”
While in stock corporations, the quorum is based on the number of outstanding voting stocks
while for non-stock corporations, only those who are actual, living members with voting rights
shall be counted in determining the existence of a quorum. In the instant case said attendees
where 29 out of the 108-unit owners that very well does not compose the majority, hence such
meeting shall not be consider as valid from the start as per definition of a quorum, as such there
is no quorum any resolution passed within that meeting shall be considered null and void
therefore, as consequence of the said meeting anything that has been stated and concluded there
shall not be binding upon it’s members.

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 ByLaws 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.  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. In
relation thereto, Section 52 of the Corporation Code of the Philippines.

In the present case, since the corporation involved is a condominium corporation (non-stock), Hence the
applicale provisions of The Condominium Act shall be applied to the issue of when a person may be
considered a shareholder. As such it is enuciated in the condominium act the modes of acquiring
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

ownership. Thus, whether one becomes an owner of a condominium unit by virtue of sale or donation is
of no moment. It is erroneous to argue that the ownership must result from a sale transaction between
the owner-developer and the purchaser. As this would mean that those person who actually inherited
such unit or has been lawfully bought in their name the unit may not be a member of the corporation.
Thus being non-members, the respondents cannot be elected.

Representatives of Moldex who are non-members cannot be elected as a member of the

Board of Directors of Condocor. A corporation can act only through natural persons duly
authorized for the purpose or by a specific act of its board of directors.45 Thus, in order for
Moldex to exercise its membership rights and privileges, it necessarily has to appoint its
representatives. However, individual respondents who are non-members cannot be elected as
directors and officers of the Condocor. While Moldex may rightfully designate proxies or
representatives, the latter, however, cannot be elected as directors or trustees of Condocor. First,
the Corporation Code clearly provides that a director or trustee must be a member of record of
the corporation. Further, the power of the proxy is merely to vote. If said proxy is not a member
in his own right, he cannot be elected as a director or proxyndominium corporation.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

G.R. No. 153468 August 17, 2006

PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG, STEPHEN CO, JAMES TAN,
JUDITH TAN, ERNESTO TANCHI JR., EDWIN NGO, VIRGINIA KHOO, SABINO
PADILLA JR., EDUARDO P. LIZARES and GRACE CHRISTIAN HIGH SCHOOL,
Petitioners,

vs.

PAUL SYCIP and MERRITTO LIM, Respondents.

FACTS:

Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational

corporation with fifteen (15) regular members, who also constitute the board of trustees. During
the annual members’ meeting there were only eleven (11) living member-trustees, as four (4) had
already died. Out of the eleven, seven (7) attended the meeting through their respective proxies.
The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty.
Antonio C. Pacis, who argued that there was no quorum. In the meeting, Petitioners were voted
to replace the four deceased member-trustees.

The issue reached the Securities and Exchange Commission (SEC) where petitioners maintained
that the deceased member-trustees should not be counted in the computation of the quorum
because, upon their death, members automatically lost all their rights (including the right to vote)
and interests in the corporation.

The SEC declared the meeting null and void for lack of quorum. It held that the basis for
determining the quorum in a meeting of members should be their number as specified in the
articles of incorporation, not simply the number of living members. It explained that the
qualifying phrase "entitled to vote" in Section 24 9 of the Corporation Code, which provided the
basis for determining a quorum for the election of directors or trustees, should be read together
with Section 89. It also opined that Article III (2) 11 of the By-Laws of GCHS, insofar as it
prescribed the mode of filling vacancies in the board of trustees, must be interpreted in
conjunction with Section 29 of the Corporation Code. Petitioners appealed to the Court of
Appeals but the court did not give due course to the appeal on the basis of technicalities.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

ISSUE:

Whether in a non-stock corporation, the deceased members should still be counted or

included for the purpose of determining the existence of a quorum.

HELD:

No. For stock corporations, the "quorum" referred to in Section 52 of the Corporation
Code is based on the number of outstanding voting stocks. For non-stock 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.

In non-tock corporations, the voting rights attach to membership. Members vote as persons, in
accordance with the law and the bylaws of the corporation. Each member shall be entitled to one
vote unless so limited, broadened, or denied in the articles of incorporation or bylaws. The Court
held that when the principle for determining the quorum for stock corporations is applied by
analogy to non-stock corporations, only those who are actual members with voting rights should
be counted.

Under Section 52 (now Section 51) of the Corporation Code, the majority of the members
representing the actual number of voting rights, not the number or numerical constant that may
originally be specified in the articles of incorporation, constitutes the quorum.

Membership in and all rights arising from a non-stock corporation are personal and non-
transferable, unless the articles of incorporation or the bylaws of the corporation provide
otherwise. In other words, the determination of whether or not "dead members" are entitled to
exercise their voting rights (through their executor or administrator), depends on those articles of
incorporation or bylaws.

Under the By-Laws of GCHS, membership in the corporation shall be terminated by the death of
the member. Section 91 of the Corporation Code further provides that termination extinguishes
all the rights of a member of the corporation, unless otherwise provided in the articles of
incorporation or the bylaws.

Applying Section 91 to the present case, the Court held that dead members who are dropped
from the membership roster in the manner and for the cause provided for in the By-Laws of
GCHS are not to be counted in determining the requisite vote in corporate matters or the
requisite quorum for the annual members’ meeting. With 11 remaining members, the quorum in
the present case should be 6. Therefore, there being a quorum, the annual members’ meeting,
conducted with six members present, was valid.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

OPINION:

In the instant case the isssue is whether in a non-stock corporation, the deceased members
should still be counted or included for the purpose of determining the existence of a quorum. In
resolving the issue, the Court discussed the nature of a quorum in stock and non- stock
corporations.

As held by the Court, in stock corporations, shareholders may generally transfer their shares.
Thus, on the death of a shareholder, the executor or administrator duly appointed by the Court is
vested with the legal title to the stock and entitled to vote it. Until a settlement and division of the
estate is effected, the stocks of the decedent are held by the administrator or executor. On the
other hand, membership in and all rights arising from a non-stock corporation are personal and
non-transferable, unless the articles of incorporation or the bylaws of the corporation provide
otherwise. In other words, the determination of whether or not "dead members" are entitled to
exercise their voting rights (through their executor or administrator), depends on those articles of
incorporation or bylaws.

Under the By-Laws of GCHS, membership in the corporation shall be terminated by the death of
the member. Section 91 of the Corporation Code further provides that termination extinguishes
all the rights of a member of the corporation, unless otherwise provided in the articles of
incorporation or the bylaws.

Applying Section 91 to the present case, the Court held that dead members who are dropped
from the membership roster in the manner and for the cause provided for in the By-Laws of
GCHS are not to be counted in determining the requisite vote in corporate matters or the
requisite quorum for the annual members’ meeting. With 11 remaining members, the quorum in
the present case should be 6. Therefore, there being a quorum, the annual members’ meeting,
conducted with six 47 members present, was valid.

The Court also discussed the filling of vacancies in the board of trustees. It held that pursuant to
the Corporation Code, trustees may fill vacancies in the board, provided that those remaining still
constitute a quorum. 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. Corporations, therefore, may choose how vacancies in their respective boards
may be filled up -- either by the remaining directors constituting a quorum, or by the
stockholders or members in a regular or special meeting called for the purpose.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

It held that the By-Laws of GCHS prescribed the specific mode of filling up existing vacancies
in its board of directors; that is, by a majority vote of the remaining members of the board.

While a majority of the remaining corporate members were present, however, the "election" of
the four trustees cannot be legally upheld for the obvious reason that it was held in an annual
meeting of the members, not of the board of trustees. The Court recognized the fact that the
members of GCHS themselves also constitute the trustees, but it held that the GCHS bylaw
provision specifically prescribes that vacancies in the board must be filled up by the remaining
trustees. In other words, these remaining member-trustees must sit as a board in order to validly
elect the new ones.

Indeed, 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. On the other hand, in their annual
meeting, the members may be represented by their respective proxies, as in the contested annual
members’ meeting of GCHS.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

G.R. No. 158805 April 16, 2009

VALLEY GOLF & COUNTRY CLUB, INC., Petitioner,

vs.

ROSA O. VDA. DE CARAM, Respondent.

FACTS:

Valley Golf & Country Club (Valley Golf) is a duly constituted non-stock, non-profit
corporation which operates a golf course. The shareholders are assessed monthly membership
dues. In 1961, Fermin Z. Caram, Jr. (Caram), the husband of the respondent, subscribed to
purchased and paid for in full one share in the capital stock of Valley Golf. Valley Golf claimed
that Caram stopped paying his monthly dues, which were continually assessed until 31 June
1987. Valley Golf claims to have sent five (5) letters to Caram concerning his delinquent
account, however, Caram failed to respond prompting Valley Golf to sell the share at a public
auction. As it turned out, Caram had died on 6 October 1986. Respondent initiated intestate
proceedings before the Regional Trial Court (RTC, to settle her husband’s estate. Unaware of the
pending controversy over the Golf Share, the Caram family and the RTC included the same as
part of Caram’s estate. The Golf Share was adjudicated to respondent.

It was only later on that respondent learned of the sale of the share following an inquiry with
Valley Golf. The Caram heirs were subsequently informed that they were entitled to the refund
of ₱11,066.52 out of the proceeds of the sale of the Golf Share.

Respondent filed an action for reconveyance of the share with damages before the SEC against
Valley Golf. SEC rendered a decision in favor of respondent, ordering Valley Golf to convey
ownership of the Golf Share or in the alternative to issue one fully paid share of stock of Valley
Golf the same class as the Golf Share to respondent plus damages.

ISSUE:

Whether a non-stock corporation may validly seize and dispose of the membership share of a
fully-paid member on account of its unpaid debts to the corporation when it is authorized to do
so under the corporate by-laws but not by the Articles of Incorporation?
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

Held:

General Rule: Yes. The right of a non-stock corporation such as Valley Golf to expel a member
through the forfeiture of the Golf Share may be established in the by-laws alone, as is the
situation in this case. Thus, both the SEC and the appellate court are wrong in holding that the
establishment of a lien and the loss of the Golf Share consequent to the enforcement of the lien
should have been provided for in the articles of incorporation.

There is a specific provision under the Title XI, on Non-Stock Corporations of the Corporation
Code dealing with termination of membership. Section 91 of the Corporation Code provides:

SEC. 91. Termination of membership.—Membership shall be terminated in the manner and for
the causes provided in the articles of incorporation or the by-laws. Termination of membership
shall have the effect of extinguishing all rights of a member in the corporation or in its property,
unless otherwise provided in the articles of incorporation or the by-laws.

Former SEC Chairperson, Rosario Lopez, in her commentaries on the Corporation Code,
explains the import of Section 91 in a manner relevant to this case:

The prevailing rule is that the provisions of the articles of incorporation or by-laws of
termination of membership must be strictly complied with and applied to the letter. Thus, an
association whose member fails to pay his membership due and annual due as required in the by-
laws, and which provides for the termination or suspension of erring members as well as
prohibits the latter from intervening in any manner in the operational activities of the association,
must be observed because by-laws are self-imposed private laws binding on all members,
directors and officers of the corporation.

It may be conceded that the actions of Valley Golf were, technically speaking, in accord with the
provisions of its by-laws on termination of membership, vaguely defined as these are.

However, especially since the termination of membership in Valley Golf is inextricably linked to
the deprivation of property rights over the Golf Share, the emergence of such adverse
consequences make legal and equitable standards come to fore.

The commentaries of Lopez advert to an SEC Opinion dated 29 September 1987 which we can
cite with approval. Lopez cites:

In order that the action of a corporation in expelling a member for cause may be valid, it is
essential, in the absence of a waiver, that there shall be a hearing or trial of the charge against
him, with reasonable notice to him and a fair opportunity to be heard in his defense. (Fletcher
Cyc. Corp., supra) If the method of trial is not regulated by the by-laws of the association, it
should at least permit substantial justice. The hearing must be conducted fairly and openly and
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

the body of persons before whom it is heard or who are to decide the case must be unprejudiced.
(SEC opinion dated September 29, 1987, Bacalaran-Sucat Drivers Association).

It is unmistakably wise public policy to require that the termination of membership in a non-
stock corporation be done in accordance with substantial justice. No matter how one may
precisely define such term, it is evident in this case that the termination of Caram’s membership
betrayed the dictates of substantial justice.

Membership in Valley Golf entails the acquisition of a property right. In turn, the loss of such
property right could also involve the application of aspects of civil law, in addition to the
provisions of the Corporation Code. To put it simply, when the loss of membership in a non-
stock corporation also entails the loss of property rights, the manner of deprivation of such
property right should also be in accordance with the provisions of the Civil Code.

OPINION:

The ruling of the Supreme Court relative to the issue of forfeiture of the share in a non-
stock corporation for failure of a member to pay membership dues is rather illuminating. The
Court also discussed whether, in a non-stock corporation, it is the articles of incorporation or the
by-laws which prevails relative to the disposition of the share of a delinquent shareholder as well
as the proper procedure in the enforcement of the corporation’s claim in case of failure to pay
membership dues.

In this case, the Court ruled that absent any provision in the articles of incorporation, the
by-laws controls, citing Sec. 19 of the Corporation Code, to wit:

SEC. 91. Termination of membership.—Membership shall be terminated in the manner and for
the causes provided in the articles of incorporation or the by-laws. Termination of membership
shall have the effect of extinguishing all rights of a member in the corporation or in its property,
unless otherwise provided in the articles of incorporation or the by-laws.

In this case, the termination of membership under the by-laws of Valley Golf involves the
forfeiture of the share of a member who fails to pay membership dues. It is the member’s share
which will be made to answer for the arrears of the member. However, the Court was quick to
clarify that notwithstanding such provision, it must always be remembered that in this case since
termination of membership, and concurrent forfeiture of the member’s share due to failure to pay
membership dues, involves deprivation of property (share), the Constitutional fiat on due process
must be strictly observed, and the Civil Code principles must also be applied.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

The procedure on sufficient notice and an opportunity to be heard must be embodied in the by-
laws to give the delinquent member a chance to provide an alternative remedy to satisfy his
delinquency or settlement of his arrears, i.e. by direct payment, instead of automatic forfeiture of
his shares.

In the present case, the termination of membership in Valley Golf is inextricably linked to the
deprivation of property rights over the share, the emergence of such adverse consequences make
legal and equitable standards come to fore. Here, the Court held that the concepts under the Civil
Code relative to liens, pledge, or chattel mortgage (since a share is a movable property) must first
be applied to a member’s share, in case of failure to pay membership dues, and not automatic
forfeiture of the whole share since its by-laws failed to comply with the requirement of due
process before forfeiture of the share. The by-laws failed to provide the necessary provision to
observe due process, and therefore the automatic forfeiture of the share to answer for the
member’s arrears is void.

Hence in this case, the share of the diseased member who was delinquent in paying his
membership dues still properly pertains to his estate and not to Valley Golf.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

G.R. NO. 181455-56 and G.R. NO. 182008 December 4, 2009

SANTIAGO CUA, JR., SOLOMON S. CUA and EXEQUIEL D. ROBLES, in their capacity as
Directors of PHILIPPINE RACING CLUB, INC., Petitioners, v. MIGUEL OCAMPO TAN,
JEMIE U. TAN and ATTY. BRIGIDO J. DULAY, Respondents.

SANTIAGO CUA, SR., in his capacity as Director of PHILIPPINE RACING CLUB, INC.,
Petitioner, v. COURT OF APPEALS, MIGUEL OCAMPO TAN, JEMIE U. TAN, ATTY.
BRIGIDO J. DULAY, and HON. CESAR UNTALAN, Presiding Judge, Makati Regional Trial
Court, Br. 149, Respondents.

Facts:

PRCI is a corporation organized and established under Philippine laws to carry on the business
of a race course in all its branches and, in particular, to conduct horse races or races of any kind,
to accept bets on the results of the races, and to construct grand or other stands, booths, stablings,
paddocks, clubhouses, refreshment rooms and other erections, buildings, and conveniences, and
to conduct, hold and promote race meetings and other shows and exhibitions. PRCI owns only
two real properties, each covered by several transfer certificates of title. One is known as the Sta.
Ana Racetrack located in Makati City, and the other is located in the towns of Naic and Tanza,
Cavite. Following the trend in the development of properties in the same area, PRCI wished to
convert its Makati property from a racetrack to urban residential and commercial use. Given the
location and size of its Makati property, PRCI believed that said property was severely under-
utilized. Hence, PRCI management decided to transfer its racetrack from Makati to Cavite. Now
as to its Makati property, PRCI management decided that it was best to spin off the management
and development of the same to a wholly owned subsidiary, so that PRCI could continue to focus
its efforts on pursuing its core business competence of horse racing. Instead of organizing and
establishing a new corporation for the said purpose, PRCI management opted to acquire another
domestic corporation, JTH Davies Holdings, Inc. The Board agreed to acquire the stocks of latter
company through an exchange of their Makati property. Said move was made into a resolution
but was opposed by some stockholders. The Board and petitioners continued to acquire the
company, which was surrounded by fraud as alleged by the respondents. The petitioners
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

proceeded with the plan despite the demand by respondents to appraise the stocks of JTH Davies
Holdings. A case was filed by respondents and was granted by the RTC.

Issue: Whether the appraisal rights are available to respondents.

Held:

Yes The raison d etre for the grant of appraisal rights to minority stockholders has been
explained thus:

x x x [Appraisal right] means that a stockholder who dissented and voted against the proposed
corporate action, may choose to get out of the corporation by demanding payment of the fair
market value of his shares. When a person invests in the stocks of a corporation, he subjects his
investment to all the risks of the business and cannot just pull out such investment should the
business not come out as he expected. He will have to wait until the corporation is finally
dissolved before he can get back his investment, and even then, only if sufficient assets are left
after paying all corporate creditors. His only way out before dissolution is to sell his shares
should he find a willing buyer. If there is no buyer, then he has no recourse but to stay with the
corporation. However, in certain specified instances, the Code grants the stockholder the right to
get out of the corporation even before its dissolution because there has been a major change in
his contract of investment with which he does not agree and which the law presumes he did not
foresee when he bought his shares. Since the will of two-thirds of the stocks will have to prevail
over his objections, the law considers it only fair to allow him to get back his investment and
withdraw from the corporation. x x x,77 (Emphasis ours.)

The Corporation Code expressly made appraisal rights available to the dissenting stockholder in
the following instances:

Sec. 42. Power to invest corporate funds in another corporation or business or for any other
purpose. - Subject to the provisions of this Code, a private corporation may invest its funds in
any other corporation or business or for any purpose other than the primary purpose for which it
was organized when approved by a majority of the board of directors or trustees and ratified by
the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or by at
least two-thirds (2/3) of the members in case of non-stock corporations, at a stockholders' or
members' meeting duly called for the purpose. Written notice of the proposed investment and the
time and place of the meeting shall be addressed to each stockholder or member at his place of
residence as shown on the books of the corporation and deposited to the addressee in the post
office with postage prepaid, or served personally; Provided, That any dissenting stockholder
shall have appraisal right as provided in this Code: Provided, however, That where the
investment by the corporation is reasonably necessary to accomplish its primary purpose as
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

stated in the articles of incorporation, the approval of the stockholders or members shall not be
necessary.

Sec. 81. Instances of appraisal right. - Any stockholder of a corporation shall have the right to
dissent and demand payment of the fair value of his shares in the following instances:

1. In case any amendment to the articles of incorporation has the effect of changing or restricting
the rights of any stockholders or class of shares, or of authorizing preferences in any respect
superior to those of outstanding shares of any class, or of extending or shortening the term of
corporate existence;

2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets as provided in this Code; andcralawlibrary

3. In case of merger or consolidation. (Emphasis ours.)

Respondents Miguel, et al., themselves admitted that the property-for-shares exchange between
PRCI and JTH, approved by majority of the PRCI Board of Directors in the Resolution dated 11
May 2007, involved all or substantially all of the properties and assets of PRCI. They alleged in
their Complaint in Civil Case No. 07-610 that:

49. The Corporation's Makati Property, consisting of prime property in the heart of Makati City
worth billions of pesos in its current value constitutes substantially all of the assets of the
Corporation and is the sole and exclusive location on which it conducts its business of a race
course.

50. The exchange of the Corporation's property for JTH shares would therefore constitute a sale
of substantially all of the assets of the corporation. (Emphasis ours.)

Irrefragably, the property-for-shares exchange between PRCI and JTH, involving as it did
substantially all of the properties and assets of PRCI, qualified as one of the instances when
dissenting stockholders, such as respondents Miguel, et al., could have exercised their appraisal
rights.

The Court finds specious the averment of respondents Miguel, et al., that appraisal rights were
not available to them, because appraisal rights may only be exercised by stockholders who had
voted against the proposed corporate action; and that at the time respondents Miguel, et al.,
instituted Civil Case No. 07-610, PRCI stockholders had yet to vote on the intended property-
for-shares exchange between PRCI and JTH. Respondents Miguel, et al., themselves caused the
unavailability of appraisal rights by filing the Complaint in Civil Case No. 07-610, in which they
prayed that the 11 May 2007 Resolution of the Board of Directors approving the property-for-
shares exchange between PRCI and JTH be declared null and void, even before the said
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

Resolution could be presented to the PRCI stockholders for approval or rejection. More than
anything, the argument of respondents Miguel, et al., raises questions of whether their derivative
suit was prematurely filed for they had failed to exert all reasonable efforts to exhaust all other
remedies available under the articles of incorporation, by-laws, laws, or rules governing the
corporation or partnership, as required by Rule 8, Section 1(2) of the IRPICC. The obvious intent
behind the rule is to make the derivative suit the final recourse of the stockholder, after all other
remedies to obtain the relief sought have failed.

OPINION:

I agree with the ruling of the Supreme Court. As ruled by the Court, a derivative suit
should take the backseat unless the dissenting stockholder will be able to show that he has first
exhausted all available intra-corporate remedies. Being so in the present case, the respondent
prematurely filed the case by failing to observe the requisites before a derivative suit may be
filed. One of such requisites is that the dissenting stockholder must be able to show that a right of
appraisal is no longer available. In the present case, it was the respondent which caused such
right of appraisal to be lost by immediately filing the civil case. Hence, the case should be
properly dismissed.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

G.R. Nos. 134963-64 September 27, 2001

ALFREDO LONG and FELIX ALMERIA, petitioners,

vs.

LYDIA BASA, ANTHONY SAYHEELIAM and YAO CHEK, respondents.

Facts:

In 1973, a religious group known as "The Church In Quezon City (Church Assembly Hall),
Incorporated", was organized as "an entity of the brotherhood in Christ.'' It was registered in the
same year with the Securities and Exchange Commission (SEC) as a non-stock, non-profit
religious corporation for the administration of its temporalities or the management of its
properties. The Articles of Incorporation and By-laws of the CHURCH decree that its affairs and
operation shall be managed by a Board of Directors consisting of 6 members, 3 who shall be
members of the CHURCH. Zealous in upholding and guarding their Christian faith, and to
ensure unity and uninterrupted exercise of their religious belief, the members of the CHURCH
vested upon the Board of Directors the absolute power "(to preserve and protect their faith" and
to admit and expel a member of the CHURCH. Admission for membership in the CHURCH is
so exacting. Only "persons zealous of the Gospel, faithful in Church work and of sound
knowledge of the Truth, as the Board of Directors shall admit to membership, shall be members
of the (CHURCH)." Confronted with this situation, Lydia Basa, Anthony Sayheeliam and Yao
Chek, as members of the Board of Directors, and some responsible members of the CHURCH,
advised Long, et al. "to correct their ways" and warned them that if they persist in their highly
improper conduct, they will be dropped from the membership of the CHURCH; during Sunday
worship gatherings, "in small group meetings and even one-on-one personal talk with them."
Long et al. ignored these repeated admonitions. Alarmed that Long, et al.'s conduct will continue
to undermine the integrity of the Principles of Faith of the CHURCH, the Board of Directors,
removed from the said list certain names of members, including the names of Joseph Lim, Liu
Yek See, Alfredo Long and Felix Almeria. They were removed for espousing doctrines inimical
or injurious to the Principles of Faith of the CHURCH. The Board also updated the list by
removing the names of those who have migrated to other countries, those deceased and those
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

whom the CHURCH had lost contact with. All the then 6 members of the Board, namely,
Directors Lim Che Boon, Tan Hon Koc, Anthony Sayheeliam, Leandro Basa, Yao Chec and
Lydia L. Basa "were duly informed" of that meeting. However, Directors Lim Che Boon and Tan
Hon Koc did not appear. Thus, the resolution was signed only by Directors Anthony Sayheeliam,
Leandro Basa, Yao Chec and Lydia L. Basa who composed the majority of the Board.Lim Che
Boon, Tan Hon Koc, Joseph Lim, Liu Yek See and others questioned their expulsion in the SEC
but was denied. subsequently, the SEC conducted further proceedings to hear and decide the
permissive counterclaim and third-party complaint incorporated in Basa, et al.'s supplemental
answer, including their prayer for injunctive relief to prevent Long, Lim Che Boon, et al. from
interfering and usurping the functions of the Board of Directors. SEC declined to act on Basa, et
al.'s third-party complaint's prayer for injunctive relief since there is a case pending before
another Hearing Officer. SEC en banc, issued an order setting aside the expulsion of certain
members of the CHURCH approved by its Board of Directors for being void and ordering the
reinstatement of Long, et al. as members of the CHURCH. Promptly, Sayheeliam and Basa filed
a petition for review with the Court of Appeals. Court of Appeals granted Basa, et al.'s
consolidated petitions and reversed SEC en bancs order.

Issue:

Whether the Board of Directors of a religious corporation may validly expel certain members
thereof on purely spiritual or religious grounds for refusal to follow its teachings and doctrines.

Held:

Yes. The By-laws of the CHURCH, which the members have expressly adhered to, does not
require the Board of Directors to give prior notice to the erring or dissident members in cases of
expulsion. In the By-law provision, the only requirements before a member can be expelled or
removed from the membership of the CHURCH are: (a) the Board of Directors has been notified
that a member has failed to observe any regulations and By-laws of the CHURCH, or the
conduct of any member has been dishonorable or improper or otherwise injurious to the
character and interest of the CHURCH, and (b) a resolution is passed by the Board expelling the
member concerned, without assigning any reason therefore. Thus, a member who commits any
of the causes for expulsion enumerated in paragraph 4 of Article VII may be expelled by the
Board of Directors, through a resolution, without giving that erring member any notice prior to
his expulsion. The resolution need not even state the reason for such action. The CHURCH By-
law provision on expulsion, as phrased, may sound unusual and objectionable as there is no
requirement of prior notice to be given to an erring member before he can be expelled; but that is
how peculiar the nature of a religious corporation is visa-vis an ordinary corporation organized
for profit. It must be stressed that the basis of the relationship between a religious corporation
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

and its members is the latter's absolute adherence to a common religious or spiritual belief . Once
this basis ceases, membership in the religious corporation must also cease. Thus, generally, there
is no room for dissension in a religious corporation.

OPINION:

I agree with the ruling of the Supreme Court on many points. First, the ruling of the SEC
has attained finality before it was elevated to the SEC En Banc. The same having attained
finality can no longer be subjected to review. Second, the by-laws of the non-stock religious
corporation does not run contrary to the provisions of the Corporation Code, and in fact
specifically sanctioned by Sec. 91 of the Code which provides:

SEC. 91. Termination of membership.- Membership shall be terminated in the manner and for
the causes provided in the articles of incorporation or the by-laws. Termination of membership
shall have the effect of extinguishing all rights of a member in the corporation or in its property,
unless otherwise provided in the articles of incorporation or the by-laws.

Such provision is an express recognition of the peculiarity of religious corporations.

Thirdly, the due process clause in the Constitution can no longer be availed of by the expelled
member since by joining the Church, they have agreed with the rules of the religious corporation
in the form of its by-laws, and in effect waived such right. The by-laws even provided that any
member may be validly removed without notice, and by joining the Church, all the members
thereby agreed with such rule. It is a settled rule in law that a right granted to an individual may
be validly waived by him whether expressly or implied. One of such right is the right to due
process.

Fourth, the right to religion cannot be considered a property right. There is yet any provision of
law or any existing jurisprudence which mandates that the right to religion, like a property right,
may only be removed with the prior observance of due process.

Lastly, even assuming that indeed there was no prior notice strictly speaking before the involved
member was expelled, suffice it to say that the members where already forewarned five years
earlier on a repetitive occasions about their conducts which may merit expulsion. The due
process clause is not merely limited to a trial type hearing, as it is sufficient that the individual is
given an opportunity to clarify or rectify his alleged infraction.

This present case is an acknowledgement by the law and jurisprudence of the peculiar
nature of a non-stock religious corporation. Such recognition is but proper due to its peculiarity
and even on the basis of the doctrine of separation of church and state taken in a different angle.
ROCO, RYAN JERMON R. CORPORATION LAW BLOCK B

As much as possible, the state must not interfere with any religious matters especially if it would
have an adverse effect on the freedom of religion and when no vested rights are involved.