Grace Christian High School v. CA (KEN) computed on a ratio of TEN (P10.00) PESOS for one vote.
Oct. 23, 1997| Mendoza, J.| Board of Trustees/Directors
PETITIONER: Grace Christian High School
RESPONDENTS: Court of Appeals, Grace Village Association, Inc, Alejandro G.
Beltran and Ernesto L. Go
SUMMARY:
For 15 years, Grace High School’s representative has been recognized as a permanent
director in the Grace Village Association, Inc. by virtue of a provision in the
association’s bylaws which was never presented to the general membership for approval
but was nonetheless submitted to the board. The committee on election for the
association notified Grace High School that it was reexamining the right of the high
school to continue as an unelected member of the board and later on denied the high
school’s request to be allowed representation without election. The high school mainly
contends that even though the amended bylaws were never submitted to the general
membership, the bylaws should be considered as ratified since it has already been
practiced for 15 years without question, and hence, it already vested a right to the high
school that it may have a permanent seat in the association. Issue: Won the High School
has a right to permanently sit in the board of the association despite being an unelected
member of the said association? NO. According to the Revised Corporation Code, the
board of directors of corporations must be elected from among the stockholders or
members. Hence, the adoption of the amended bylaws is contrary to law. Since the
provision in question is contrary to law, the fact that for fifteen years it has not been
questioned or challenged does not effectively ratify it. A provision that is contrary to law
can never be adopted nor ratified. The fact that the members of the association may have
adopted the questioned provision is of no significance because the bylaws are contrary to
law. Also, it is probable that, in allowing petitioner’s representative to sit on the board,
the members of the association were not aware that this was contrary to law
DOCTRINE
1. Sec. 22 of the Revised Corporation Code mandates that the board of directors
of corporations be elected from among the stockholders or members and any
provisions of the by-laws contrary to such is considered ineffective.
2. A provision that is contrary to law can never be adopted nor ratified.
3. Practice, no matter how long continued, cannot give rise to any vested
right if it is contrary to law.
FACTS:
1. Parties involved:
a. Grace Christian High School is an educational institution offering
primary and secondary courses at the Grace Village in Quezon City.
b. Grace Village Association, Inc. (the association) is an organization of lot,
building owners, lessees and residents at Grace Village.
c. Alejandro G. Beltran and Ernesto L. Go were its president and
chairman of the committee on election.
2. On December 20, 1975, a committee of the board of directors prepared a draft of an
amendment to the bylaws as follows:
a. The Annual Meeting of the members of the Association shall be held on
the second Thursday of January of each year. Each Charter or Associate
Member of the Association is entitled to vote. He shall be entitled to as
many votes as he has acquired thru his monthly membership fees only
The Charter and Associate Members shall elect the Directors of the
Association. The candidates receiving the first fourteen (14) highest
number of votes shall be declared and proclaimed elected until their
successors are elected and qualified. GRACE CHRISTIAN HIGH
SCHOOL representative is a permanent Director of the ASSOCIATION.
3. However, the draft was never presented to the general membership for approval but
was nevertheless submitted to the board which gave petitioner a permanent seat
in the Board of Directors of the association.
4. On February 13, 1990, the association’s committee on election in a letter informed
the principal of the school, that it was the sentiment that all directors should be
elected by members of the association because to make a person or entity a
permanent Director would deprive the right of voters to vote for fifteen (15)
members of the Board, and it is undemocratic for a person or entity to hold office in
perpetuity. The proposal to make the Grace Christian High School representative as
a permanent director of the association, although previously tolerated in the past
elections should be reexamined.
5. Hence, notices were sent to the members of the association that the provision on
election of directors of the unamended bylaws of the association would be observed.
6. However, petitioner contended that the 1975 bylaw (see fact 2a) should be followed
because it has already been a vested right of the Grace Christian School to enjoy a
permanent seat in the board.
7. The Association denied its request, which prompted the school to bring the suit for
mandamus in the Home Insurance and Guaranty Corporation (HIGC) to compel the
board to recognize its right to a permanent seat in the board.
8. The opinion of the SEC was sought for to which it opined that the practice of
allowing unelected members in the board was contrary to the existing by-laws of the
association and to §91 of the (Revised) Corporation Code.
9. After several meetings, the hearing officer held that the amended by-laws, although
implemented in the past, had not yet been ratified by the members of the association
nor approved by competent authority. Furthermore, the contention of Grace High
School that it had acquired a vested right to a permanent seat in the board of the
directors was denied because such right effectively deprived the members of the
association the right to be elected or to be voted into office.
10. In the Court of Appeals, the CA denied the petition of Grace High School and held
that there was no valid amendment of the association’s by-laws because of failure to
comply with the requirement of its existing by-laws, prescribing the affirmative vote
of the majority of the members of the association at a regular or special meeting
called for the adoption of amendment to the by-laws. The proposed amendment to
the by-laws was never approved by the majority of the members of the association
as required by these provisions of the law and by-laws.
ISSUE:
1. Whether the proposed by-laws have been duly amended and approved by the
majority of the members? NO.
2. Whether or not Grace High School was required to be a duly elected member of the
Board? Yes, the board of directors must be elected from among the members.
3. Whether or not Grace High School has acquired a vested right to permanently sit in
the board of directors of Grace Village Association. NO.
4. Whether the bylaws have been ratified by the members since it has been
implemented for 15 years? NO.
(Simply stated: Won the High School has a right to permanently sit in the board of the
association despite being an unelected member of the said association?)

RULING:
WHEREFORE, the decision of the Court of Appeals is AFFIRMED. SO ORDERED.

RATIO:
ISSUE 1
4. The Supreme Court adopted the ruling of the CA and held that the proposed
amendment to the by-laws was never approved by the majority of the members of
the association as required by these provisions of the law and the association’s own
by-laws which provides that:
a. Sec. 22 of bylaws: The owners of a majority of the subscribed capital
stock, or a majority of the members if there be no capital stock, may, at a
regular or special meeting duly called for the purpose, amend or repeal
any by-law or adopt new by-laws.
ISSUE 2:
5. Grace High School contends that the proposed amendment is not contrary to law
because there is really no law prohibiting unelected members of boards of directors
of corporations.
6. However, the Supreme Court cited now Sec. 22 of the Revised Corporation Code
which mandates that the board of directors of corporations be elected from among
the stockholders or members.
7. Grace High School never had a seat in the beginning. It was only by virtue of the
amendment of the bylaws that it was given a seat in the board.
ISSUE 3 and 4:

8. Since the provision of the bylaws is contrary to law, the fact that for fifteen years it
has not been questioned or challenged but, on the contrary, appears to have been
implemented by the members of the association cannot forestall a later challenge to
its validity.
9. It cannot also be attained through acquiescence because the bylaws are
contrary to law and hence, it is beyond the power of the association to waive its
invalidity. A provision that is contrary to law can never be adopted nor ratified.
10. The fact that the members of the association may have adopted the questioned
provision is of no significance because the bylaws are contrary to law. Also, it is
probable that, in allowing petitioner’s representative to sit on the board, the
members of the association were not aware that this was contrary to law.
11. Furthermore, tolerance cannot be considered as ratification.
12. Neither can “practice” be the basis of a claim for a vested right. Practice, no matter
how long continued, cannot give rise to any vested right if it is contrary to law.