Rosita Pea vs Court of Appeals (1991)

193 SCRA 717 Business Organization Corporation Law By-laws are binding Board resolutions may be questioned by third persons Board Meetings Quorum

In 1962, the Pampanga Bus Company (PAMBUSCO) took out a loan from the Development Bank of the Philippines (DBP). PAMBUSCO used the parcels of land it owned to secure the loan.

In October 1974, due to PAMBUSCOs nonpayment, DBP foreclosed the parcels of la nd. Rosita Pea was the highest bidder.

Meanwhile, in November 1974, the Board of Directors of PAMBUSCO had a meeting. The meeting was attended by only 3 out of the 5 Directors. In the said meeting, the Board, through a resolution, authorized one of the directors, Atty. Joaquin Briones, to assign the properties of PAMBUSCO.

Pursuant to the resolution, Briones assigned PAMBUSCOs assets to Marcelino Enriquez. Enriquez, knowing that the properties were previously mortgaged and foreclosed, exercised PAMBUSCO s right to redeem. So in August 1975, he redeemed the said properties and thereafter he sold them to Rising Yap.

Yap then registered the properties under his name. He then demanded Pea to vacate the properties. Pea refused to do and so Yap filed a complaint.

In her defense, Pea averred that Yap acquired no legal title over the property because the board resolution issued by PAMBUSCO in November 1974 was void because the resolution was issued without a quorum; that there was no quorum because under the by-laws of PAMBUSCO, a quorum requires the presence of 4 out of 5 directors and yet the meeting was only attended by three directors. Thus, the authority granted to Briones to assign the properties was void; that the subsequent assignment by Briones to Enriquez was void; that Enriquez acquired no title and hence thus Yap acquired no title.

Yap insisted that Pea has no legal standing to question the board resolution because she was not a stockholder.

ISSUE: Whether or not the board resolution is valid.

HELD: No, the board resolution is void.

The by-laws are the laws of the corporation. PAMBUSCOs by-laws provide that a quorum consists of at least four directors. The meeting was attended by only three directors did not comply with the required quorum. Thus, the three directors were not able to come up with a valid resolution which could bind the corporation. Anent the issue of Pea being a third person, she can question the board resolution. The resolution here is likened to a contract. Under the law, a person who is not a party obliged principally or subsidiarity in a contract may exercise an action for nullity of the contract if he or she is prejudiced in his or her rights with respect to one of the contracting parties, and can show the detriment which would positively result to him or her from the contract in which he or she had no intervention.

Other findings:
Furthermore, the sale of the properties of PAMBUSCO did not comply with the procedure laid down by the Corporation Law. Under the law, the sale or disposition of an and/or substantially all properties of the corporation requires, in addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose. No doubt, the questioned resolution was not confirmed at a subsequent stockholders meeting duly called for the purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation. Further still, the Supreme Court discovers a few other anomalies with PAMBUSCO. One is that PAMBUSCO has been inactive since 1949 as per the records provided by the Securities and Exchange Commission. Its general information sheet with the SEC has not been updated regularly even. And the three directors present were not even listed as current directors of PAMBUSCO.