The Supreme Court ruled that for nonstock corporations, determining a quorum for members’ meetings involves counting only living members with voting rights. Dead members should not be included. This ensures that decisions are made by the actual, active participants of the corporation, aligning with the principle that membership rights are personal and non-transferable.

Dead or Alive: Who Counts When Deciding a Nonstock Corporation’s Meeting Quorum?

Grace Christian High School (GCHS), a nonstock, non-profit educational corporation, faced a quorum challenge after four of its fifteen members died. During the annual members’ meeting, the issue arose whether these deceased members should still be counted for quorum purposes. The Securities and Exchange Commission (SEC) initially declared the meeting invalid, but the Supreme Court ultimately clarified that only living members with voting rights should be counted to determine the quorum. This ruling hinged on the interpretation of Section 52 of the Corporation Code and the unique nature of membership in nonstock corporations.

The central question revolved around interpreting Section 52 of the Corporation Code, which defines a quorum as a majority of the members in nonstock corporations. The petitioners argued that the rights of membership are personal and non-transferable, as outlined in Sections 90 and 91 of the Corporation Code. Thus, upon a member’s death, their rights, including voting rights, should cease. This interpretation would mean deceased members should not be counted when determining whether a quorum exists. This position was contrasted by the SEC’s reliance on a 1989 opinion that did not specifically address nonstock corporations, leading to conflicting views on the matter.

The Supreme Court addressed the procedural issue regarding the Verification and Certification of Non-Forum Shopping. While initially flawed due to being signed by only one petitioner without proper authorization, the subsequent submission of a Special Power of Attorney cured this defect. The Court emphasized that procedural lapses should not overshadow the pursuit of substantial justice, especially when a purely legal question is involved. The Court highlighted the need to ensure truthfulness and discourage forum shopping, but it also recognized that strict compliance can be relaxed in the interest of resolving cases on their merits.

Regarding the main issue, the Court differentiated between stock and nonstock corporations. In stock corporations, a quorum is based on the outstanding capital stock, meaning shares issued to subscribers or stockholders, excluding treasury shares. The right to vote is tied to stock ownership, with each share generally entitled to one vote, unless otherwise provided. For nonstock corporations, the voting rights are attached to membership. The Supreme Court emphasized that the principle for determining a quorum for stock corporations can be applied by analogy to nonstock corporations; only actual members with voting rights should be counted.

The Court then addressed the effect of a member’s death. In stock corporations, shares are generally transferable, and upon death, the executor or administrator of the estate is vested with the legal title to the stock and entitled to vote it. However, in nonstock corporations, membership and all rights arising from it are personal and non-transferable unless otherwise stated in the corporation’s articles of incorporation or bylaws. In this case, GCHS’s bylaws specified that membership terminates upon death. According to Section 91 of the Corporation Code, termination extinguishes all rights of a member unless otherwise provided. Therefore, the Supreme Court held that deceased members of GCHS should not be counted in determining the quorum.

Finally, the Court addressed the filling of vacancies on the board of trustees. According to Section 29 of the Corporation Code, trustees can fill vacancies if those remaining still constitute a quorum. The Court also clarified that while a majority of the remaining corporate members were present, the “election” of the four trustees could not be legally upheld. They could not simply perform an annual meeting, the remaining members were obligated to sit as a board of trustees. Consequently, the Court directed the remaining members of the board of trustees of GCHS to convene and fill up the vacancies on the board of trustees as per the GCHS By-Laws.

FAQs

What was the key issue in this case?	The central issue was whether deceased members of a nonstock corporation should be counted when determining the quorum for members’ meetings. The Court ultimately ruled that only living, voting members should be counted.
What is a quorum in a nonstock corporation?	A quorum in a nonstock corporation, according to this ruling, is a majority of the actual, living members with voting rights. This contrasts with stock corporations, where quorum is based on outstanding capital stock.
What happens to membership rights in a nonstock corporation upon death?	Membership rights in a nonstock corporation are generally personal and non-transferable, unless the articles of incorporation or bylaws provide otherwise. In the case of GCHS, membership terminates upon death, extinguishing all rights.
How are vacancies on the board of trustees filled in GCHS?	The By-Laws of GCHS require that vacancies on the board of trustees be filled by a majority vote of the remaining members of the board, acting as a board of trustees.
What is the significance of Section 52 of the Corporation Code?	Section 52 defines the quorum in meetings of corporations, stating that it consists of a majority of the outstanding capital stock in stock corporations or a majority of the members in nonstock corporations. This section was central to the Court’s interpretation.
How does this ruling affect other nonstock corporations?	This ruling provides a clear guideline for determining quorum in nonstock corporations. It emphasizes the importance of bylaws and articles of incorporation in defining membership rights and termination.
Can non-voting members be counted for the quorum?	No, based on the Court’s ruling, only members with voting rights should be counted to make a quorum for holding an annual meeting. This guarantees that those participating in decision-making actively maintain a stake.
Who has the right to vote?	Actual members are the ones with the right to vote in the affairs of the corporation and how they can vote. Each member shall have the right to vote unless it is explicitly limited, broadened, or denied.

In conclusion, the Supreme Court’s decision clarifies the method to determining a quorum in nonstock corporations, underscoring the personal and non-transferable nature of membership rights. This provides guidance to nonstock corporations, aligning with the current interpretation of the Corporation Code to improve corporate governance.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Paul Lee Tan, et al. vs. Paul Sycip, et al., G.R. No. 153468, August 17, 2006