Grace Christian High School v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioner Grace Christian High School (GCHS) had a representative sitting as a permanent director on the board of respondent Grace Village Association, Inc. (GVAI) for fifteen years (1975-1989). This practice stemmed from a proposed amendment to the by-laws drafted in 1975, which included a provision stating, "GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION." This proposed amendment was never formally presented to the general membership for approval. Procedural History: In 1990, GVAI's committee on election decided to reexamine GCHS's right to a permanent seat, citing that all directors should be elected and that a permanent, unelected member deprives voters of their right and is undemocratic. GCHS's request to maintain its permanent seat was denied, leading to the observation that the 1968 by-laws would be followed. GCHS filed a petition for mandamus with the Home Insurance and Guaranty Corporation (HIGC) to compel GVAI to recognize its right to a permanent seat. The HIGC hearing officer dismissed the action, finding the 1975 amendment invalid for lack of ratification and declaring the 1968 by-laws as prevailing. The HIGC appeals board affirmed this decision, citing an SEC opinion that the practice was contrary to Section 92 of the Corporation Code. The Court of Appeals also upheld the HIGC's decision, emphasizing the lack of formal approval of the by-laws amendment by the majority of the members as required by Article XIX of the by-laws and Section 22 of the Corporation Law. The Petition: GCHS elevated the case to the Supreme Court, contending that it had acquired a vested right to a permanent seat, that the 1975 amended by-laws were valid and binding, and that the practice of automatic inclusion was allowed by law.
Issue(s)
Whether petitioner Grace Christian High School acquired a vested right to a permanent seat in the board of directors of Grace Village Association, Inc., and whether the amended by-laws of the Association drafted on December 20, 1975, are valid and binding. Whether the practice of allowing the automatic inclusion of petitioner's representative as a permanent member of the board of directors, without election, is allowed under the law.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals, upholding the dismissal of petitioner's action for mandamus. The Court ruled that petitioner Grace Christian High School did not acquire a vested right to a permanent seat in the board of directors of Grace Village Association, Inc. The Court found that the proposed amendment to the by-laws, which would have granted such a seat, was never validly adopted in accordance with the required procedures for amending by-laws, and therefore, it was contrary to law.
Ratio Decidendi
On the validity of the amended by-laws, the existence of a vested right, the effect of past practice, and ratification: The Court held that the proposed amendment to the by-laws, which sought to grant petitioner a permanent seat on the board, was never validly enacted. The by-laws of the association, specifically Article XIX, and Section 22 of the Corporation Law (Act No. 1459) require an affirmative vote of the majority of the members at a regular or special meeting for any alteration, amendment, change, or adoption of new by-laws. The draft amendment of December 20, 1975, was never presented to the general membership for approval, nor was it ratified by them. Consequently, it did not become part of the binding by-laws of the association. The Court emphasized that past practice, even if tolerated for fifteen years, cannot give rise to a vested right if it is contrary to law. Therefore, petitioner could not claim a vested right to a permanent seat based on this invalid amendment or the preceding practice. The Court reiterated that practice, no matter how long continued, cannot create a vested right if it contravenes the law. The fifteen-year implementation of the provision was deemed mere tolerance, not ratification, and it could not validate an act that was contrary to law. The Court noted that the members might not have been aware that the practice was illegal. Therefore, the association was not estopped from questioning the validity of the provision, and the members could not waive its invalidity if it was contrary to law. On whether the practice is allowed under the law: The Court found that the practice of allowing an unelected representative to sit permanently on the board is contrary to law. Section 28 and 29 of the Corporation Law (Act No. 1459) and Section 23 of the present Corporation Code (B.P. Blg. 68) mandate that the board of directors of corporations shall be elected from among the stockholders or members. While petitioner cited examples of ex officio members in other corporations, it was noted that these instances were based on holding a specific office, unlike petitioner's claim which lacked such basis. The Court clarified that even if the members of the association had formally adopted the provision, their action would be of no avail because a provision contrary to law cannot be validated. The Court rejected the argument that the SEC lacked jurisdiction, stating that the HIGC, which had jurisdiction, merely cited the SEC opinion as authority for its ruling.
Main Doctrine
A practice, no matter how long continued, cannot give rise to a vested right if it is contrary to law. Similarly, a provision in the by-laws that is contrary to law cannot be validated through acquiescence or ratification by the members of the association, as such action would be of no avail.