In the Matter of PSMAQ Transport Association, Inc. v. Tañala

June 7, 2012 SEC EN BANC CASE NO. 08-11-243 (SEC CRMD Case No. 09-98) IN THE MATTER OF PSMAQ TRANSPORT ASSOCIATION, INC.,represented by Mr. RONALDO BONIFACIO , complainant-appellant , vs. ROMEL H. TAALA, MILO D. LEDESMA, ROLAND ALLAN CORPUZ, RAMERO P. BEDURAL, ARCHIE S. AVILES, MICHAEL A. SANTIAGO , respondents-appellees . FOR : Cancellation of Fraudulent Amended Articles of Incorporation and By-Laws; Reinstatement of Amended Articles of Incorporation and By-Laws DECISION Before the Commission is the assailed Decision of the Company Registration and Monitoring Department ("CRMD") of the Commission dated 5 August 2011, the dispositive portion of which states as follows: EDIHSC "WHEREFORE, premises considered, the instant case is hereby DISMISSED. The parties are advised to bring the intra-corporate controversy before the appropriate Regional Trial Court." Complainant-appellant PSMAQ TRANSPORT ASSOCIATION, INC. (hereinafter referred to as "Bonifacio group", for clarity) filed its Memorandum of Appeal dated 25 August 2011 assailing the Decision issued by CRMD. The Commission issued an Order dated 5 September 2011 requiring Respondents-Appellees Romel H. Taala, Milo D. Ledesma, Roland Allan Corpuz, Ramero P. Bedural, Archie S. Aviles and Michael A. Santiago (hereinafter referred to as "Taala group", for clarity) to file their Reply-Memorandum to which they complied. The facts, as alleged by the parties to the case, are as follows: The Bonifacio group is composed of the original incorporators of P-MAQ (PSMAQ) 1 Transport Association, Inc., an association plying the Pasig, Market-Market, Ayala and Quiapo route 2 whose Articles of Incorporation and By-Laws were approved on 16 February 2005. 3 In their Reply-Memorandum, the Taala group 4 claimed that the Bonifacio group never conducted elections from 2005-2008. The group initiated a Petition for Calling of Meeting 5 before the Office of the General Counsel of the Commission. The case was later dismissed 6 as moot in view of the elections 7 conducted by the Taala group on 18 May 2008. 8 The Bonifacio group sought to have the 18 May 2008 election nullified before the Regional Trial Court ("RTC"),Branch 158, Pasig City, but their complaint was dismissed for being filed out of time. 9 Meanwhile, the Bonifacio group submitted two sets of GIS dated 23 May 2008 10 and 15 August 2008 11 to the Commission reflecting two dates of special meetings conducted, namely 01 April 2008 and 12 August 2008, respectively. The Bonifacio group's application for Amendment of Articles of Incorporation 12 and By-Laws 13 was approved on 9 February 2009. One of these amendments include the change of name from P-MAQ to PSMAQ Transport Association. Having learned of the amendments undertaken by the Bonifacio group, 14 the Taala group filed an application for Amendment of Articles of Incorporation 15 and By-Laws. 16 In view thereof, the Bonifacio group wrote the CRMD twice, first on 12 February 2009, 17 and second on 12 March 2009, 18 requesting the Department not to entertain or accept any submissions by the Taala group. The application for amendment of the Articles of Incorporation and By-Laws filed by the Taala group was approved on 6 March 2009. The amendment included that of changing the name of the association from PSMAQ to P-MAQ, its original name, which remains the corporate name of the association at present. The CRMD responded 19 to the second letter, advising the Bonifacio group to file a petition for cancellation of the amendments to the Articles of Incorporation and By-Laws. Meanwhile, the Taala group conducted its second election on 24 May 2009. The Bonifacio group sought to have the election nullified before the RTC in Pasig City. The Bonifacio group impleaded CRMD, and prayed for the RTC to order the CRMD to revoke the Certificates of Filing of Amended Articles of Incorporation ("AAI") and Amended By-Laws ("ABL") filed by the Taala group based on the "alleged illegal acts of the SEC in approving the Amended Articles of Incorporation and By-Laws filed by the individual defendants." 20 The CRMD, represented by the Office of the Solicitor General, asserted that the RTC had "no jurisdiction to order the revocation and/or cancellation of the certificate of filing of amended articles and by-laws of plaintiff corporation." 21 The Bonifacio group was successful in having the 24 May 2009 election conducted by the Taala group nullified by the RTC. In its Decision dated 22 September 2009, the RTC nullified the said election for failure to provide all its members a Notice of Meeting for the election of trustees and for failure of the said Notice to state the place of the meeting, among others. However, the RTC, for lack of jurisdiction, dismissed the complaint for the cancellation of the certificates of filing of amended articles of incorporation and by-laws dated 06 March 2009. 22 Citing Section 5 of Presidential Decree 902-A, the RTC stated: "Nowhere in this enumeration of adjudicative functions is the revocation of amended Articles of Incorporation or By-Laws found . . . In sum, therefore, actions for revocation of Amended Articles of Incorporation or By-Laws, like the instant case, must still be filed before the SEC and this Court has no jurisdiction over them." 23 (emphasis supplied) The Taala group, nonetheless, planned the holding of a special election to be conducted on 05 December 2009 which the Bonifacio group tried to prevent, but without success. 24 The Taala group alleged that it was able to conduct the election 05 December 2009 25 and that the members of the group were reelected. On 15 March 2009, the Bonifacio group filed a Complaint before the Corporate Filings and Records Division ("CFRD") of the CRMD for the cancellation of the AAI and ABL dated 06 March 2009 filed by the Taala group. The complaint was dismissed on 13 May 2010 on the ground that the subject case is intra-corporate in nature. An appeal was filed with the Commission En Banc but it decided to remand the case to the CRMD. The Commission En Banc held that before it can rule on the propriety of revoking the Amended Articles of Incorporation and By-Laws of the PSMAQ, the CRMD should determine whether or not these amendments were, indeed, fraudulently procured so as to justify the revocation of these amendments. 26 In herein assailed Decision dated 5 August 2011, the CRMD again dismissed the complaint and reiterated its earlier decision. Hence, the instant appeal. ISSUE The issue to be resolved is whether or not the Amended Articles of Incorporation and the Amended By-Laws approved on 06 March 2009 alleged to have been fraudulently procured should be revoked. RULING The requirements for the amendment of articles of incorporation under the Corporation Code are clear: acHDTE "Sec. 16. Amendment of Articles of Incorporation. Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Such articles, as amended shall be indicated by underscoring the change or changes made, and a copy thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Securities and Exchange Commission ...." (Emphasis ours) On the other hand, the requirements for the amendments to by-laws under the Corporation Code provide: "Sec. 48. Amendments to by-laws . The board of directors or trustees, by a majority vote thereof, and the owners of at least a majority of the outstanding capital stock, or at least a majority of the members of a non-stock corporation, at a regular or special meeting duly called for the purpose, may amend or repeal any by-laws or adopt new by-laws. ..." (Emphasis ours) To reiterate, the Commission En Banc remanded the case to the CRMD to determine whether the AAI and ABL were fraudulently procured since a serious allegation of fraud requires a careful and exhaustive review of the factual circumstances surrounding the said amendments that is well within the competence of the said Department. The CRMD, in its assailed Decision, stated that based on the face, and without going beyond the four corners of the documents submitted to support the applications, it can be said that the same appear to have complied with the above-cited requirements for amendments, to wit: (1) amended Articles of Incorporation and Amended By-Laws; (2) Name Verification Slip; (3) Affidavit of a trustee or officer undertaking to change corporate name; and (4) Trustees' Certificate. 27 This is exactly the reason why the AAI and ABL applications, after undergoing the usual processing procedures by the CRMD, were approved on 06 March 2009. In applications for amendments of the articles of incorporation and by-laws, the CRMD is constrained to rely on the sworn certificates of the trustees and corporate secretary as to the corporation's compliance with the provisions of the Corporation Code on amendments. Once all the required information had been set out in the sworn certification, the CRMD proceeds to approve the application. Absent any indication to the contrary, the documents presented to support the amendments are presumed to be regular; much in the same way as all other applications filed before the CRMD are presumed to be regular until proven otherwise. 28 As the CRMD had already determined that the corporation has satisfactorily met the requirements for the amendments under the law, it had no other recourse but to pass upon these documents. This is part of its ministerial duty, especially since these documents enjoy a presumption of regularity. The Supreme Court held: "to contradict facts in a notarial document and the presumption of regularity in its favor, the evidence must be clear, convincing and more than merely preponderant." 29 The allegations made by the Bonifacio group fail to overcome the presumption of regularity. Such allegations include the following: (1) that the Joint Affidavit of Undertaking to Change Name states that the Taala group are Board of Trustees of P-MAQ; 30 (2) that the statement made under oath that P-MAQ is in the process of registration with the Commission is a lie, the truth being that the Association had already been registered as far back as February 2005; 31 (3) that the Taala group is entirely different from the ones who caused the AAI and ABL; 32 (4) that the Taala group has no authority to cause amendments; 33 (5) that six persons signed the Trustees' Certificate when there are only five Trustees in the Association; 34 and (6) that the Taala group included drivers. 35 As to the first, third, fourth and sixth allegations, they do not establish fraud but point to an intra-corporate or association controversy which is outside the jurisdiction of the Commission. As to the second allegation, it may not necessarily constitute fraud as any application, such as an application for amendment, may be considered as a registration matter. Lastly, as to the fifth allegation, the Trustees Certificate was not falsified since the first sentence clearly states that "We, undersigned majority of the trustees AND the Corporate Secretary of PSMAQ TRANSPORTATION ASSOCIATION, Inc. do hereby certify ...." Obviously, it is clearly indicated in the first sentence that the undersigned in the Trustees' Certificate would include the corporate secretary and the five (5) trustees. The signature of the corporate secretary at the bottom of the Trustees' Certificate could not raise an inference that he was a trustee. Thus, these allegations could not have indicated any doubt so as to warrant the CRMD to go beyond what appears on the face of the documents. To support its prayer for the nullification of the 6 March 2009 AAI and ABL, the Bonifacio group argues that there was fraud in procuring the Commission's approval of such amendments. The fraud consists in the filing of these applications by the Taala group without being the legitimate members, trustees and/or officers of the Association. aETADI However, these arguments refer to an intra-corporate or association controversy, a matter outside the jurisdiction of the Commission. The Commission had jurisdiction over controversies arising out of intra-corporate or association relations between and among members, and controversies in the election or appointment of trustees and officers of a corporation prior to the enactment of Securities Regulation Code ("SRC"). 36 However, the Commission's jurisdiction over these controversies has since been transferred to the courts of general jurisdiction, i.e. ,RTC. 37 The Bonifacio group, however, claims that the matter is not an intra-corporate controversy because the case does not involve a dispute between and among members since the members of the Taala group are no longer members. This contention is misplaced since it has not been established before the RTC that the Taala group are not members. Such matter is still in issue and is an intra-corporate controversy that is still to be determined by the RTC. The Taala group, likewise, claims that the Bonifacio group is guilty of fraud, misrepresentation and bad faith when they surreptitiously made the amendments to the Articles of Incorporation and By-Laws approved on 9 February 2009 arguing that the latter are no longer officers of the association. In which case, only the Taala group can make the proper amendments to the Articles of Incorporation and By-Laws. 38 Such a contention is also an intra-corporate controversy. To reiterate, the determination of the legitimate members, trustees and/or officers of the association is a matter outside the Commission's jurisdiction. It must be emphasized that the Commission has the jurisdiction to order the nullification or revocation of the Amended Articles of Incorporation and By-Laws, pursuant to the Corporation Code and the SRC based on the grounds enumerated therein. However, when the ground relied upon is tainted with an intra-corporate matter, or requires the resolution of an intra-corporate controversy, the matter has to be resolved FIRST before the Commission can assume jurisdiction over the nullification of the AAI or ABL. Thus, only in the event that the RTC will finally decide that the respondents are not members, trustees nor officers of the association, shall the nullification or proceeding against the approved AAI and ABL of 6 March 2009 prosper. WHEREFORE, premises considered, the instant appeal is hereby DENIED for lack of merit. SO ORDERED. Mandaluyong City, June 7, 2012. * (SGD.) TERESITA J. HERBOSA Chairperson (SGD.) MA. JUANITA E. CUETO Commissioner (SGD.) RAUL J. PALABRICA Commissioner (SGD.) MANUEL HUBERTO B. GAITE Commissioner (SGD.) ELADIO M. JALA Commissioner Footnotes 1. Complainant initiated the amendment of the Articles of Incorporation and By-Laws of the association, which included, among others, a change of name to PSMAQ Transport Association, Inc. which was approved by the Commission on 06 February 2009. However, respondents subsequently filed their application for amendment of the Articles of Incorporation and By-Laws of the association, which included among others, a reversion from the PSMAQ to the original name of the association to P-MAQ. The amendment was approved on 06 March 2009 and P-MAQ remains as the current name of the association. 2. The type of vehicle is left blank in the Articles of Incorporation dated 15 February 2005. 3. Memorandum on Appeal, Certificate of Incorporation, dated 16 February 2005 ,Annex "B". 4. Complainants assert that respondents were expelled from the association during their special meeting held on 18 August 2008 ( Memorandum on Appeal, par. 16, p. 17). 5. SEC Case No. 04-08-200. 6. Reply-Memorandum (Order dated 19 June 2008) ,Annex "13". 7. Among others: Minutes of the Proceedings (Annex "12") ,Letter to SEC Respondents dated 19 May 2008 informing SEC of the election conducted on 18 May 2008 (Annex "9") and GIS dated 19 May 2008 (Annex "10").Moreover, both parties admitted that an election was indeed held on the said date. 8. Respondents claim that as a result, the management of Market! Market! Issued a certificate of recognition to the Taala-led group, as well as I.D. Cards (Annexes "14" and "15"). 9. Reply-Memorandum (RTC Order dated 17 November 2008) ,Annex "18". 10. Annex "16", Reply Memorandum. 11. Annex "17", Id. 12. Certificate of Filing of Amended Articles of Incorporation ,Annex "D" of Memorandum on Appeal. 13. Certificate of Filing of Amended By-Laws ,Annex "E" of Memorandum on Appeal. 14. Reply Memorandum ,Pars. 20-21, pp. 9-10. 15. Certificate of Filing of Amended Articles of Incorporation (Annex "H") of Memorandum on Appeal and Annex "19" of Reply-Memorandum. 16. Ibid. ,(Annex "I") and Ibid. ,(Annex "20"). 17. Ibid. ,(Annex "G"). 18. Ibid. ,(Annex "J"). 19. Memorandum on Appeal (Letter dated 25 March 2009) ,Annex "K". 20. PSMAQ Transport Association, and its members represented by Mr. Ronaldo C. Bonifacio vs. Romeo H. Taala, Milo D. Ledesma, et al. (SEC Case No. 09-120),Regional Trial Court-Pasig City, Branch 158, 22 September 2009, p. 2. 21. Memorandum on Appeal ( Answer in SEC Case No. 09-120 dated 06 July 2009 ,Par. 38),Annex "L". 22. Ibid. ( Decision of RTC dated 22 September 2009),Annex "M". 23. Ibid. 24. Reply Memorandum (Order of the RTC Branch 158 of Pasig City dated 03 December 2009) ,Annex "27". 25. Ibid. (GIS dated 05 December 2009) ,Annex " 30". 26. Decision of Commission En Banc dated 25 March 2011, p. 5. 27. Trustees' Certificate is a notarized document signed by a majority of the trustees and the corporate secretary, certifying the amendment of the Articles of Incorporation and By-Laws, indicating the amended provisions, the vote of the trustees and members, the date and place of the members' meeting. 28. Decision of CRMD dated 5 August 2011 ,p. 3. 29. P.T. Cerna Corporation vs. Court of Appeals ,G.R. No. 91622, April 6, 1993. 30. Memorandum on Appeal ,par. 11, p. 15. 31. Ibid. 32. Ibid. ,par. 13, p. 17. 33. Ibid. ,par. 22, p. 20. 34. Ibid. ,par. 23, p. 20. 35. Ibid. ,pp. 27-29. 36. R.A. 8799 took effect 9 August 2000. 37. SRC, Section 5.2. 38. Reply Memorandum dated 12 September 2011, p. 14. * Approved and signed by the Commission En banc on June 14, 2012.