G.R. No. 108905 – 346 Phil. 114 – 281 SCRA 133 – Mercantile Law – Corporation Law – Members of the Corporate Board
Grace Christian High School (GCHS) is an educational institution in Grace Village, Quezon City. Grace Village Association, Inc. (GVAI) is the homeowners association in Grace Village. GVAI has an existing by-laws which was already in effect since 1968. But in 1975, the board of directors made a draft amending the by-laws whereby the representative of GCHS shall have a permanent seat in the 15-seat board. The draft however was never presented to the general membership for approval. But nevertheless, the representative of GCHS held a seat in the board for 15 years until in 1990 when a proposal was made to the board to reconsider the practice of allowing the GCHS representative in taking a permanent seat. Thereafter, an election was scheduled for the 15 seats in the board. GCHS opposed the election as it insists that the election should only be for 14 directors because it has a permanent seat. GVAI argued that GCHS claim has no basis because the 1975 proposed amendment was never ratified. GCHS averred that it was ratified when it was allowed to take the seat for 15 years and as such its right has already vested.
ISSUE: Whether or not the representative from Grace Christian High School should be allowed to have a permanent seat in the board of directors.
HELD: No. The Corporation Code is clear when it provides that members of the board of a corporation must be elected by the stockholders (stock corporation) or the members (non-stock corporation). Admittedly, there are corporations who allow some of their directors to sit in the board without being elected – but such practice cannot prevail over provisions of law. Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Further, there is no reason as to why a representative from GCHS should be given an automatic seat. It should therefore go through the process of election. It cannot also be argued that the draft of the by-laws in 1975 was ratified when GCHS was allowed to take its seat for 15 years without an election. In the first place, the proposal was merely a draft and even if passed and approved by the general membership, it cannot be given effect because it is void and contrary to the law. GCHS’ seat in the corporate board is at best merely tolerated by GVAI.
