Jovencio Y. Karaan, et al. vs. Cesar C. Rosales, et al.

[SEC CASE NO. 3190. July 10, 1987.] JOVENCIO Y. KARAAN, ET AL. , petitioners , vs . CESAR C. ROSALES, ET AL. , respondents . O R D E R This treats of petitioners' application for the issuance of a writ of preliminary injunction to enjoin the respondents from representing and conducting themselves to be members of the Board of Directors or Officers of Carousel Children's Wear, Inc., from disbursing corporate funds or disposing of its assets or entering into any contract and from removing or disposing of corporate books and records. Finding the petition to be sufficient in form and substance, a temporary restraining order was issued by this Commission on June 19, 1987. Respondents subsequently filed an urgent motion to lift temporary restraining order alleging, among others, as follows: (a) there is no basis for the issuance and continuation of the temporary restraining order; there is similarly no basis for the issuance of the writ of preliminary injunction; (b) the temporary restraining order was improperly issued; (c) the implementation of the temporary restraining order by the respondents exceeded the terms and intent of the temporary restraining order; and (d) that grave and irreparable injury over and far greater than the alleged injuries of petitioners will result if the temporary restraining order is not immediately lifted. ACETIa In support of their claim that there is no basis for the issuance and continuation of a temporary restraining order, respondents pointed out that the ultimate issue to be resolved in this case is as follows: which of the two groups hold and represent the majority shares, or , for purposes of the pending incident, who or which group if to be presumed to hold the majority shares of the corporation? Respondents admitted that before February 25, 1981, the stockholders of the corporation and their respective shareholdings were as follows: NAME NO. OF SHARES MARCELO P. KARAAN 3,000 CESAR C. ROSALES 750 TERESITA K. ROSALES 3,500 VIKKIE K. R. CANLAS 1 CESAR K. ROSALES, JR. 2,749 TOTAL 10,000 It was also admitted that on February 25, 1981, the authorized capital stock of the corporation was increased, with the following stockholders subscribing to the increase to wit: NAME NO. OF SHARES AMOUNT MARCELO P. KARAAN 3,500 P300,000.00 CESAR ROSALES 3,700 377,000.00 TERESITA K. ROSALES 1,500 100,000.00 VIKKIE K. R. CANLAS 576 57,600.00 CESAR K. ROSALES, JR. 577 57,700.00 MARGARET K. ROSALES 577 57,700.00 TOTAL 10,000 P1,000,000.00 Thus, as of February 25, 1981, the combined shareholdings of the stockholders would be as follows: NAME NO. OF SHARES MARCELO P. KARAAN 6,000 CESAR C. ROSALES 4,520 TERESITA K. ROSALES 5,000 VIKKIE K. R. CANLAS 577 CESAR K. ROSALES, JR. 3,326 MARGARET R. ROSALES 577 Respondents further contend that on February 10, 1986, the Board of Directors of Carousel Children's Wear, Inc. held a meeting where a call was made for the payment of the unpaid balance of the subscription of the stockholders and notice of said call was given to the stockholders. In the same meeting, the board offered the unissued and unsubscribed portion of the capital stock for subscription; and that within the date fixed by the board, respondents paid their subscription in full while both petitioners Teresita K. Rosales and the other petitioners alleged predecessor-in-interest failed to pay the unpaid portion of their subscriptions. Pursuant to the offer for subscription approved by the board during its meeting on February 10, 1986, respondent Rosales subscribed to an additional 10,500 shares out of the remaining 30,000 voting shares then unissued and unsubscribed. Thus, as of March 9, 1986, and until May 21, 1987, the date of the annual stockholders meeting, the shares of stocks held by the two groups, were as follows: RESPONDENTS PETITIONERS 19,500 11,000 However, out of the 11,000 shares held by the petitioners, 4,500 shares are delinquent, by virtue of the call made by the Board of Directors in its meeting held on February 10, 1986, and thus are not entitled to vote. Out of the 6,500 voting shares, the 3,000 shares of Marcelo P. Karaan may not be voted since the legal requirement for their transfer were not complied with. Upon the other hand, petitioners claim that their combined shareholdings constitute 65% of the total outstanding shares of the corporation. They claim that the total subscribed capital stock of the corporation as of May 21, 1987, the date of the stockholders meeting was only 20,000 shares. To prove that they own the majority of the shares, petitioners presented a certified true copy of the Decision rendered by the Regional Trial Court of Makati, Branch 137, in the case entitled "In the matter of the Dissolution of the Conjugal Partnership, Cesar C. Rosales, Sr., Teresita Rosales, petitioners, CASE NO. M-592." In that decision, (Exh. "C") the spouses Cesar C. Rosales and Teresita K. Rosales admitted that their conjugal partnership own 70% of the total outstanding shares of Carousel Children's Wear, Inc., and that each of them is entitled to receive 35% of the said shareholding pursuant to their agreement to dissolve their conjugal partnership. During her testimony, Teresita K. Rosales likewise stated that aside from the 35% shareholdings in Carousel Children's Wear, Inc., which she acquired by virtue of the dissolution of the conjugal partnership, she also inherited from her father 500 shares and another 500 shares were sold to her by her father. Petitioner Jovencio Karaan also testified that the original subscription of their late father, Dr. Marcelo P. Karaan, were sold to them and his five other brothers and sisters, namely, Rodolfo Y. Karaan, Visitacion K. Buendia, Marcelo K. Karaan, Jr., Carmencita K. Mapa, and Teresita K. Rosales, each of them acquiring by way of sale, 500 shares each. Exhibits "I" to "N" which are the stock certificates were submitted in evidence. Apart from this, petitioner Jovencio Karaan further testified that they also acquired, by way of inheritance, the additional 3,000 shares of their late father, Dr. Marcelo P. Karaan, and submitted in evidence the "Extrajudicial Partition of the Estate of Marcelo P. Karaan, Deceased", which was marked as Exh. "F". Both petitioners testified that they only became aware of the minutes of the Board of Directors' meeting of Carousel Children's Wear, Inc., held on February 10, 1986 during the stockholders meeting of May 21, 1987. They also testified that on May 21, 1987, their group elected the directors of the corporation, and that on the same day, the board held an organizational meeting and elected the officers of the corporation. For a writ of preliminary injunction to issue in their case, there must be a clear showing on the part of the petitioners of a right to be protected, specifically the right to occupy the position of directors and officers of the corporation by virtue of a valid election. It need also be clearly shown that the respondents are committing acts which are violative of such right. CTDacA After a careful study of all the facts so adduced and the evidences presented during the hearing, both in support of the respective positions of the parties, this Commission believes that the propriety of issuing a writ of preliminary injunction could be determined upon the resolution of the following issues, namely: (1) What was the total outstanding shares of the corporation as of May 21, 1987? (2) Was there a valid call which resulted in the delivery of 3,000 shares pertaining to the late Dr. Marcelo P. Karaan, and which petitioners claim were subsequently acquired by them? and (3) Which group owns and controls the majority of the shares of the corporation as of May 21, 1987? 1. In their urgent motion to lift restraining order, respondents claimed that the total outstanding shares of the corporation as of May 21, 1987 was 30,500 shares out of which 19,500 shares were owned by the respondents and 11,000 shares pertain to the petitioners. Upon the other hand, petitioners claim that the total outstanding shares of the corporation as of May 21, 1987 was 20,000 shares only. Surprisingly, the Secretary's Certificate signed by the respondent Fiorelio Balitaan and filed with this Commission on May 21, 1987 shows that the total outstanding shares of the corporation as of that date was 26,000 shares (Exh. "B"). Anyhow, respondents admitted that before the February 10, 1986 Board of Directors meeting, the total subscribed capital stock of the corporation was 20,000 shares worth P2,000,000.00. However, respondent Cesar Rosales, Sr., pursuant to the offer made by the corporation during the February 10, 1986 meeting purchased additional 10,500 shares. Petitioners, on the other hand, contested the validity of respondent Rosales' acquisition of additional 10,500 shares on the ground that the meeting of the board held on February 10, 1986 did not take place. This contention was bolstered by no less than Cesar K. Rosales, Jr., who admitted during his direct examination in the hearing held on July 2, 1987 that he was abroad on the date of the alleged meeting of the board. However, his father consulted with him over the phone regarding the matters to be decided on that meeting. This admission apparently rendered the meeting of February 10, 1986 improper for lack of quorum. Moreover, petitioner Teresita K. Rosales claimed, and which respondents failed to refute, that she was not notified of the alleged February 10, 1986 meeting. In the fact of these uncontroverted facts, it would appear that the meeting held on February 10, 1986 as well as the issuance of additional 10,500 shares, pursuant thereto, are both tainted with serious irregularities. Besides, despite respondent Rosales' claim that he acquired additional 10,500 shares, the records of the corporation in the files of this Commission failed to reveal any application for exemption for the issuance of additional 10,500 shares. Again, the certification issued by Fiorelio Balitaan that the total outstanding shares of the corporation was 26,000 was not properly substantiated. 2. Respondents' claim that the 3,000 shares belonging to the predecessor-in-interest, Marcelo P. Karaan, became delinquent by virtue of the call made during the February 10, 1986, to our mind, cannot be given weight. As earlier stated, the February 10, 1986 meeting was improperly convened as only two (2) out of the five (5) directors appear to be present during that meeting. The claim of Cesar K. Rosales, Jr. that the matters taken up during that meeting were discussed with him over the phone by respondent Rosales, Sr. could not be considered to have validated the meeting. Board meeting, as a rule, should be personally attended by the directors, as the board can only act as a collective, consultative body. Acts or decisions reached by the directors individually and separately cannot be considered as a valid corporate act. 3. Respondents admitted that before the February 10, 1986 meeting, the stockholders of the corporation and their corresponding shares were as follows: NAME NO. OF SHARES MARCELO P. KARAAN 6,000 TERESITA K. ROSALES 4,520 CESAR C. ROSALES, SR. 5,000 CESAR K. ROSALES, JR. 3,326 VIKKIE R. CANLAS 577 MARGARET R. ROSALES 577 TOTAL 20,000 Petitioner Teresita K. Rosales claimed that their conjugal partnership of Cesar Rosales, Sr., own seventy (70%) per cent of the total shares of Carousel Children's Wear, Inc. and to support her claim, she presented a decree of dissolution of conjugal partnership (Exh. "C") wherein this fact was shown. She also testified that the 70% include the shares issued in the name of their children, namely, Cesar K. Rosales, Jr., Vikkie R. Canlas and Margaret K. Rosales. This claim was impliedly admitted by respondent Cesar K. Rosales, Jr. when he testified that his 3,324 shares were given to him by his father. Respondents failed to introduce evidence to refute Teresita Rosales' claim that she acquired 35% of the total outstanding shares or a total of 7,000 shares. Jovencio Karaan also testified that the six petitioners including himself bought 500 shares each or a total of 1,000 shares for each of them and a combined total of 6,000 shares. It would appear that from the evidence thus presented, the combined shareholdings of the petitioners were 13,000 shares out of the total outstanding shares of 20,000. In the light of the above-findings, we are constrained, for reasons indicated therein, to uphold petitioners' right to the injunctive relief being prayed for. WHEREFORE, let a writ of preliminary injunction be issued upon payment by the petitioners of a bond in the amount of FIFTY THOUSAND (P50,000.00) PESOS to answer for damages, if any, that respondents may suffer should the Commission later on decide that petitioners are not entitled thereto, enjoining the respondents from representing and conducting themselves to be members of the Board of Directors of Carousel Children's Wear, Inc., from disbursing corporate funds or disposing of its assets or entering into any contract and from removing or disposing of corporate books and records until further orders from this Commission. aCcADT SO ORDERED. (SGD.) ALBERTO P. ATAS Hearing Officer