Jose A. Bernas, et al. vs. Jovencio F. Cinco, et al.

GR no. 163356-57; July 1, 2015; Perez, J

SUMMARY:
Petitioners in the first case, Bernas Group, were among the Members of the Board of Directors and Officers of
Makati Sports Club whose terms were to expire either in 1998 or 1999. Petitioners in the second case are the
Cinco Group, elected Members and Officers during the Special Stockholders Meeting. Alarmed by anomalies in
handling corporate funds, the MSC Oversight Committee (MSCOC), demanded from the Bernas Group, who
were then incumbent officers, to resign for the election of new officers. MSCOC called a Special Stockholders'
Meeting and sent notices to all stockholders and members. For failure of the Bernas Group to secure an
injunction from the SEC, the meeting proceeded where the Bernas group were removed and the Cinco group
were elected.

The Bernas Group sought the nullification of the Special Stockholders Meeting before the Securities
Investigation and Clearing Department (SICD) on the ground that it was improperly called. Citing Sec. 28 of
the Corporation Code, the Bernas Group argued that authority to call a meeting lies with the Secretary and
not with the MSCOC which functions merely as an oversight body and. For their part, the Cinco Group insisted
that MSC by-laws merely authorized the Secretary to issue notices of meetings and nowhere does it state that
such authority solely belongs to him, and that it would be useless to course the request to call a meeting
through the Secretary because he repeatedly refused to call a special stockholders' meeting despite demands.

After finding Bernas guilty of irregularities, the new Board resolved to expel him by selling his shares. Prior to
the resolution of the SEC Case an Annual Stockholders' Meeting was held pursuant to MSC bylaws. During the
meeting the majority resolved to ratify the Special Stockholders' Meeting, and acts adopted then, including
the removal of Bernas Group. The SEC En Banc supervised the holding of the 1999 Annual Stockholders'
Meeting. During the meeting, the stockholders ratified the holding of the Special Stockholders' Meeting. The
Special Stockholders' Meeting was likewise ratified during the 2000 Annual Stockholders' Meeting.

The SICD held that the Special Stockholders' Meeting and the 1998 and 1999 Annual Stockholders' Meetings
are invalid. On appeal, the SEC En Banc reversed the SICD and validated the Special Stockholders' Meeting. CA
held that the Special Stockholders' Meeting was invalid for being improperly called but affirmed the actions
taken during the Meetings of 1998, 1999 and 2000. The CA denied motions for reconsideration, so both
parties filed their respective Petitions for Review on Certiorari with the SC, which held the Special
Stockholders' Meeting null and void, and the resolution expelling the Bernas Group and authorizing the sale
of Bernas' shares as null and void. The subsequent Annual Stockholders' Meeting held on 1998, 1999 and
2000 were held as valid and binding except the ratification of the removal of the Bernas Group and the sale of
Bernas' shares.

DOCTRINE:

Nowhere in the Corporation Code or in MSC by-laws can it be found that the MSCOC is authorized to step in in
case of breach of fiduciary duty and call a special meeting for the purpose of removing the officers and
electing replacements even upon request of shareholders. Ratification did not cure this. Illegal corporate acts
are contrary to law, morals or public policy or public duty, and are void. They do not acquire validity by
performance, ratification or estoppel.

The by-laws are mandatory for every member to respect. They are the fundamental law of the corporation
with which the corporation and its officers and members must comply. That is why the subsequent annual
stockholders’ meetings are otherwise valid despite the invalidity of the Special Stockholders Meeting. The
1998 Meeting was valid because it was sanctioned by the MSC bylaws. Unlike in Special Stockholders Meeting
where MSC bylaws mandated that such shall be called by specific persons only, no such requirement was set
for annual stockholders meetings. The 1999 Meeting is likewise valid because in addition to the fact that it
was conducted in accordance to MSC bylaws, such meeting was supervised by the SEC in the exercise of its
regulatory and administrative powers to implement the Corporation Code.