Transmed (Manila) Corp. v. John Does

[SEC-SICD * CASE NO. 04-95-5040. June 22, 1995.] TRANSMED (MANILA) CORPORATION , petitioner , vs .JOHN DOES/HOLDERS OF SHARES OF STOCK CERTIFICATES NOS. 001 TO 009 , respondents . D E C I S I O N This is an action to cancel and declare the shares of stock covered by Certificates of Stock Nos. 001 to 009 as watered stocks. LLphil In support thereof, petitioner alleges that it is a corporation duly organized and existing under the laws of the Philippines; that it is engaged principally in the operation of general services contractor, promotion and development of employment opportunities, local and overseas and recruitment entity or manning agency; that it is a 100% Filipino corporation with an authorized capital stock of 2 Million Pesos and subscribed as well as paid up capital of P500,000.00 with a par value of P1,000 per share. It appears that upon the registration of the corporation on March 1, 1988, petitioner through its then President Capt. Leonardo Abad, issued certificate of stock nos. 001 to Edilberto C. Ellema for 450 shares; 002 to Leonardo Abad for 13 shares; 003 to Antonia R. Tiangco for 11 shares; 004 to Maria Alberece for 11 shares; 005 to Floreta M. Ellema for 11 shares; 006 to Leonardo V. Abad for 1 share; 007 to Antonia R. Tiangco for 1 share; 008 to Mario Alberece for 1 share and 009 to Florita M. Ellema for 1 share. On March 17, 1988, it entered into a manning agreement with special Power of Attorney, with Great Lake Navigation Co.,Ltd.,General Agents as its duly authorized representative in the Philippines, to act for and in behalf of said general agents in securing qualified Filipino licensed officers and crews competent and skillful, necessary for navigation and performance of the vessels of its foreign principals. In the course of its operation from 1988 to the present, its paid up capital including its added P500,000.00 stocks in cash, has been used in the operation, such that it needs anew fresh new capital for its continued operation; that its foreign principal and general agents promised to help and induced petitioner to cause the indorsement in blank, all its stock certificates under pretext that said foreign principal will remit new and fresh capital for its operation corresponding to the value of each shares; that it turned out however that not a single centavo was even remitted, thus making absolutely no consideration thereof for the endorsements and delivery of the said certificate of stocks, hence, a ground under the law to cancel and declare certificate of stocks nos. 001 to 009 as watered stock. Conformably, the certificate of stocks nos. 001 to 009 were not only issued and indorsed without consideration but the issuance thereof constitute ultra vires act of the corporation and in violation of the provision in the articles of incorporation prohibiting the transfer of share which would limit the ownership of Filipino citizens under the law. LexLib On April 24, 1995, an Order was issued containing the summons by publication directing the respondents to file their answer with the Docket and Process Division, Securities Investigations and Clearing Department not less than thirty (30) days from date of last publication. Likewise, the petitioner was directed to publish a copy of the said Order as well as the verified petition in a newspaper of general circulation once a week for three (3) consecutive weeks at the expense of the petitioner. On June 7, 1995, petitioner filed a manifestation and motion attesting to the fact that it complied with the Order dated 24 April 1995 regarding the publication; that despite such publication, nobody appeared and filed an answer within the reglementary period. Thus, petitioner moved that respondents be declared in default. On June 9, 1995, an Order was issued declaring the respondents in default. The presentation of petitioner's evidence ex-parte was set on June 15, 1995. In compliance with the jurisdictional requirements during the hearing ex-parte, petitioner marked in evidence a copy of the petition and the Order dated 24 April 1995 published in the newspaper of general circulation for three (3) consecutive weeks as Exhibits B-1, B-2 and B-3. Likewise an affidavit of publication was marked as Exhibit B. Petitioner presented two (2) witness namely, Capt. Edilberto C. Ellema and Eduardo C. Tiangco and their joint affidavit marked as Exhibits A, A-1 and A-2. From the evidence on record petitioner was able to prove the material averments in the petition. On the other hand, since the respondents were declared in default, for all legal intents and purposes, respondents has no evidence at all and the evidence of the petitioner remain unrebutted. Under the law, whenever a corporation issues shares, it must receive a consideration equal to at least their par or issued value. In the instant case, the questioned shares of stock appears to have been issued without a consideration in violation of Section 62 of the Corporation Code. Ballantine points out the evils of stock watering. It injures the corporation because it is deprived of needed capital and of the opportunity to sell its securities at more advantageous prices. It prejudices the other stockholders, existing as well as the future because it dilutes their proportionate interest in the corporation. It also injures present and future creditors because it reduces the value of corporate assets which stand as a substitute for the stockholders' personal liability to them. LLphil WHEREFORE, judgment is hereby rendered cancelling and declaring the shares of stock covered by certificate of stock nos. 001 to 009 of Transmed (Manila) Corporation as watered stocks and allowing the said corporation to issue new certificate of stocks corresponding thereto and have it entered in its Stock and Transfer Book. SO ORDERED. No costs. (SGD.) ENRIQUE L. FLORES, JR. Hearing Officer