Mendoza v. Rodriguez, Jr.

[SEC-SICD * CASE NO. 05-95-5066. December 4, 1996.] RIZALINO L. MENDOZA, ET AL. , petitioners , vs . ISIDRO RODRIGUEZ, JR., ET AL. , respondents . D E C I S I O N This is a case for the declaration of a stockholders' meeting, that was held on 11 May 1995, as null and void. In their petition filed on May 26, 1995, petitioners allege, inter alia, that they are stockholders of Luzon Insurance and Surety Company Inc. ("Luzco" for brevity); that they, except for petitioners Federico Macale, Romeo Lasam, Afrodisio Antonio and Raymundo Escuadro, who are nominees of the petitioners to the board, duly authorized petitioner Macale as their common proxy to attend and vote in their behalf in the meeting; that Luzco is a stock corporation with an outstanding capital stock of P10 Million divided into 10,000 shares, out of which 37.6082% is owned by the petitioners; that the total number of shares held by petitioners is sufficient to elect at least three (3) of the nine (a) members of the Board; that respondents railroaded the meeting by depriving petitioners of their right to vote and to be represented to the Board by unlawfully deferring and dispensing with the other agenda, illegally giving their proxies the right to vote when they are clearly not entitled thereto; and that respondents unlawfully arrogated unto themselves the corporate offices in order to lay the ground for controlling the proceedings of the meeting. Aside from the nullification of the May 11, 1995 meeting with respect to the election of the members of the Board and for the members of the Board elected in 1994 to continue exercising their functions in hold-over capacities until a legally called election is held by order and under the auspices of this Commission, petitioners are also asking for moral and exemplary damages as well as for attorney's fees and expenses of litigation. Petitioners likewise pray for the issuance of a Temporary Restraining Order for the respondents to be enjoined from acting as directors of Luzco and after due notice and hearing, the said order be converted into a writ of preliminary injunction. In their answer filed on June 22, 1995, respondents claim, inter alia, that the common proxy granted by the other petitioners to petitioner Federico C. Macale is legally defective for failure to comply with the National Internal Revenue Code (NIRC); that petitioner Macale has no board resolution or certification to support his purported proxy for BMI Holdings Corporation; that there was no "rail roading" of the meeting as even petitioner Macale and Lasam asked for the discussion of certain items in the agenda to be held in abeyance; that respondent Isidro Rodriguez, Jr. is the proxy for the estate of Isidro Rodriguez, Sr. which has undergone extra judicial partition; and that the proxy for Oscar Rodriguez was signed by Oscar Rodriguez, Jr. the duly assigned administrator of the estate. The facts of the case are not controverted. Petitioners are stockholders of Luzco owning altogether a total of 3,760.82 shares or about 37.61% thereof. In preparation for the meeting during which members of the board of directors would be elected, petitioners, except for Macale, Lasam, Antonio and Escuadro, authorized petitioner Macale as their common proxy to represent, attend and vote in their behalf in the said meeting. For this purpose, they accomplished the proxy forms and duly submitted them to the corporate secretary. The same proxy forms did not bear documentary stamps. The questioned meeting proceeded as scheduled and was presided over by respondent Isidro Rodriguez, Jr. During the board the following were nominated: 1. Isidro Rodriguez, Jr. 2. Eulogio Rodriguez, III 3. Ruperto Rodriguez, Jr. 4. Constancio B. Rodriguez, Jr. 5. Melinda Zalamea 6. Adeline R. Zaldariaga 7. Elena Rodriguez 8. Cynthia Rodriguez 9. Diana Rodriguez 10. Romeo Lasam 11. Afrodisio Antonio 12. Raymundo Escuadro and 13. Federico Macale Prior to the casting of votes, the validity of the proxies representing the shares of deceased stockholders Oscar Rodriguez and Isidro Rodriguez, Sr. totaling to 291.31 shares were questioned by petitioner Macale, who argued that since there were no court appointed administrators for the estate of the deceased stockholders and their shares have not been transferred in the names of their legal heirs, their proxies could not be allowed to vote. However, respondents Isidro Rodriguez, Jr. and Ruperto Rodriguez Jr., the president and secretary, respectively, who presided over the stockholders' meeting, ruled therein that those shares were in order. These respondents explained that the proxy covering the shares of deceased stockholder Isidro Rodriguez Sr. was signed by all the members of his family, while the proxy for the shares of deceased stockholder Oscar Rodriguez, on the other hand, was signed by Oscar Rodriguez, Sr. the duly assigned administrator of the estate. Consequently these questioned 291.31 shares were allowed to be voted by the secretary and the chairman of the meeting. During the same stockholders' meeting, despite objections from him, petitioner Macale was not allowed by respondents Isidro Rodriguez Jr. and Ruperto Rodriguez Jr. to vote for the 3,756.82 he represented by virtue of the proxies he was holding only because the same proxies did not bear documentary stamps. According to respondents Isidro Rodriguez, Jr. and Ruperto Rodriguez, Jr., the failure to affix the documentary stamps on the proxies violated the NIRC, for which reason, the shares represented by the same proxies could not be allowed to vote. Consequently, not even one of the petitioners' nominees was elected as member of the Board while all nine nominees of the respondents were elected consisting of the first nine of the above enumerated nominees. Petitioners are now seeking to nullify the said elections on the ground that respondents illegally allowed their proxies to vote and unlawfully deprived petitioners of their right to vote. Additionally, petitioners claim that respondents maliciously railroaded the stockholders' meeting to have themselves elected as directors for which respondents are denying. LLphil Hearings were then conducted for the reception of evidence for petitioners' application for issuance of a writ of preliminary injunction. Petitioners presented Atty. Jose Roberto Mamuric and Atty. Federico Macale as their witnesses. Respondents, on the other hand, presented Mr. Isidro S. Rodriguez, Jr. and Ruperto P. Rodriguez, Jr. as their witnesses. Thereafter, the parties formally offered their respective documentary evidence. On 18 January 1996, then Hearing Officer Manuel P. Perea directed the parties to submit their respective memorandum. The parties complied with this directive. The parties likewise submitted their respective draft decision pursuant to the order of the same Hearing Officer of 11 April 1996. On May 20, 1996, Hearing Officer Perea, issued an order denying petitioners' application for issuance of a writ of preliminary injunction. The preliminary conference was held on 3 July 1996 and was continued on July 8, 1996. The parties adopted as their evidence in the main case all the evidence they presented during the hearing on the application for the issuance of a writ of preliminary injunction. In addition, petitioners presented Mr. Vicente Mendoza as witness and offered other documentary exhibits. Then the case was submitted for resolution. Section 55 of the Corporation Code of the Philippines provides: "Executors, administrators, receivers, and other legal representatives duly appointed by the court may attend and vote in behalf of the stockholders or members without need of written proxy (emphasis supplied). Pursuant thereto, it is a requirement of the same law that before a person can represent the estate of a deceased individual, validly attend and vote in behalf of the estate in a stockholders' meeting, such person, acting as a representative of the estate must be duly appointed by a competent court. It follows that respondents Isidro Rodriguez, Jr. and Ruperto Rodriguez, Jr. grievously erred in allowing the alleged proxies of the deceased stockholders to vote in as much as said proxies were not issued by a court-appointed administrator or designated executor. As such, the signatories to the proxies were not the legal representatives recognized by law and, therefore, they could not validly vote the shares of the deceased stockholders. Further, respondents themselves admitted that as of 27 April 1995, the cut-off date set by the Corporate Secretary for closing the corporate books to determine the stockholders of record entitled to vote, and even until the scheduled elections on 11 May 1995, the 291.31 shares of deceased stockholders Isidro Rodriguez, Sr. and Oscar Rodriguez remained to be registered in the corporate books under their own respective names. This means that the heirs of the deceased stockholders had no right to execute the proxy forms because their ownership of the shares were not duly registered in the corporation's Stock and Transfer Book. LLjur It is elementary that only stockholders of record are entitled to all the rights of a stockholder including the right to appoint a proxy (1 Lopez, The Corporation Code of the Philippines, 81 [1994 ed.]. As a matter of fact, the amended By-Laws of LUZCO (Art II, Sec. 5 therein) requires that the stockholder himself should execute the proxy form. Hence, insofar as Luzco and the other stockholders are concerned, the heirs of the deceased stockholders are mere strangers or intruders in the affairs or business of the corporation and therefore had no right whatsoever to deal with the questioned shares. Thus, as correctly charged by petitioners, respondents illegally gave their proxies the right to vote when they are clearly not entitled thereto. Despite these issues, the Secretary and the Chairman of the meeting ruled that all items being questioned were in order (Minutes of the May 11, 1995 annual stockholders' meeting). Respondents likewise illegally deprived petitioners of their right to vote. Section 58 of the Corporation Code which reads: "SECTION 58. Proxies . Stockholders and members may vote in person or by proxy in all meetings of stockholders or members. Proxies shall be in writing, signed by the stockholder or member and filed before the scheduled meeting with the corporate secretary. Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is intended. No proxy shall be valid and effective for a period longer than five (5) years at any one time." and Section 5, Art. II of LUZCO's Amended By-Laws, which reads: "Any stockholder can be represented in any ordinary or extraordinary Stockholders' Meeting through an authorized number ( sic ) who will have to be the owner of at least one stock of the corporation. The authorization will be done by written ( sic ) and signed by the stockholder. The papers of authorization for the ordinary meetings will have to be submitted to the secretary of the corporation not less than fifteen days before the date of the meeting and will be utilized ( sic ), without which requirement will not be admitted the representation of the empowered ( sic ). LLphil do not require that documentary stamp taxes be paid first before proxies may be allowed to vote. More importantly, this Commission has opined that a proxy is valid even if it has no documentary stamp for so long as said proxy authorizes the person to whom it is given to act as agent for in behalf of the stockholders and members executing the same ( SEC Opinions dated 11 August 1972 and 9 July 1975 ). Noteworthy are the new rules on the validation of proxies contained in Memorandum Circular No. 5 series of 1996 issued by this Commission on August 6, 1996 which confirms the aforecited opinion, thus: "2. Failure to affix documentary shall not affect the validity of the proxy. The only adverse effect of such failure is that the same can not be recorded as public document and can not be admitted or used as evidence in court until the required documentary stamp as affixed and cancelled. (Emphasis supplied) While the said Circular specifically pertains to all publicly listed companies, there would be no reason why the same rules it promulgated on validation of proxies can not be applied to companies (like Luzco) there being no rules on similar nature for companies which are not publicly listed. This Circular, which was issued only on August 1996, serves to prove the consistent policy of this Commission that documentary stamp is not an indispensable requirement for the validity of proxy. The provisions of the NIRC cited by respondents as bases for denying petitioners' proxies the right to vote can not amend the Corporation Code and impose additional requirements for the validity of proxies. Said provisions could not also override the settled opinion of the very administrative agency tasked to enforce compliance with the Corporation Code. At any rate it now appears that the necessary documentary stamps have been duly paid as per testimony of Atty. Federico C. Macale. (TSN July 11, 1995 pp. 7-9). llcd It would not be amiss to add that the right to vote is a stockholder's most basic and fundamental right. It is a right inherent in and incidental to the ownership of corporate shares of stocks. This right should not be denied on tenuous and shallow grounds. Consequently, unlawful denial of this right constitutes gross violation of a stockholder's basic right and this Commission must not hesitate to rectify the wrong committed. Respondents' illegal acts of allowing their proxies to vote and disallowing those of petitioners' can not but invalidate the elections held on 11 May 1995. Indeed, had the proxies of petitioners in favor of petitioner Macale been allowed to vote, petitioners would have elected at least three (3) directors. The erroneous rulings of respondents Isidro Rodriguez, Jr. and Ruperto Rodriguez, Jr. materially altered the results of the elections. In the process, petitioners were denied of their rightful representation to the board. Meanwhile, respondents are discharging the functions which they have no right to discharge. The evidence on record indicates that respondents rushed or went in a hurry with the proceedings of the stockholders' meeting that was held on May 11, 1995. This is supported by the testimony of Atty. Federico C. Macale taken on July 11, 1995 (TSN July 11, 1995 starting on page 16), to wit: ATTY. AMOR: "xxx xxx xxx Q. At what time did that meeting convene, if you recall? A The notice of meeting stated that the meeting would start at 12:00 noon. Q. At what time did you arrive? A. Due to some traffic problems we actually arrived at the said meeting about 12:10 in the afternoon. Q. When you arrived, was the meeting already proceeding? A When we arrived, the meeting was already in progress. xxx xxx xxx Q. You mentioned in paragraph 4 that at around 12:10 the floor was opened for nominations for members of the Board of Directors, is that correct? A. Yes. Q. Are you saying that when you arrived, the meeting at 12: 10; you were at the stage where they read the nominations? A. Yes. xxx xxx xxx" Initially, respondents caused the election in 24 February 1995 of respondents Isidro S. Rodriguez, Jr. as president and Ruperto R. Rodriguez, Jr. as secretary of Luzco. (Exh. I). Thus, respondents accomplished what they failed to do in SEC Case No. 06-94-4784 entitled "Isidro S. Rodriguez, Jr. et al., vs. Leonor R. Lontoc, et al.," wherein the Honorable Commission En Banc nullified the earlier election of said respondents to the same positions. There are a lot of matters that are supposed to be discussed during a stockholders' meeting. In this particular case, among the agenda for LUZCO's stockholders' meeting are: determination of quorum' approval of the minutes of the previous stockholders' meeting, approval of annual financial report, approval and ratification of all acts and resolution of the board during the preceding year, and election of the members of the Board of Directors. As can be concluded, in just ten minutes all the agenda were discussed except for the election of the members of the Board. The inescapable conclusion is that respondents effectively controlled the proceedings of the May 11, 1995 stockholders' meeting without considering the plight of the minority stockholders. One can not help but think that the payment of documentary stamp tax was designed to deprive petitioners of their right to vote. During the trial, it was established that: 1. As a practice, LUZCO does not require the payment of documentary stamp taxes to allow proxies to vote. Such requirement was imposed only for the first time during the meeting. In all the previous elections, payment of documentary stamp tax was not required (TSN; August 29, 1995 pp. 16-17). LibLex 2. Respondent Ruperto Rodriguez, Jr. informed the respondents long before the deadline for submission of proxies and of course before the meeting that the proxies should bear documentary stamps. Petitioners, on the other hand, were not so informed. (TSN Sept. 6, 1995 pp. 61-62). 3. Only the proxies held by all petitioners do not bear documentary stamps, while all the proxies held by respondents contained such stamps. (ibid, p. 60). On the basis of these evidence and other reasons herein adverted to, the respondents maliciously and oppressively disenfranchised petitioners' right to vote and in gross and evident bad faith, elected themselves as members of the Board of LUZCO. Respondents' election on May 11, 1995 as members of the Board of Directors of LUZCO should therefore be declared as null and void. These issues could have been mooted by calling another stockholders' meeting. However, the sincerity of the herein respondents is belied by the fact that inspite of three (3) subsequently scheduled meeting (May 9, 1996, August 9, 1996 and November 8, 1996) there had always been no quorum as reported by the representative of this Commission who acted as observer thereat thru a memorandum dated November 20, 1996. Because of the foregoing, it would necessary follow that respondents should be held liable jointly and severally to petitioners for moral damages in the amount of P50,000.00 and for attorney's fees and expenses of litigation in the amount of P100,000.00 as prayed for, which was duly proven to have been incurred by petitioners as a result of respondents' unjust and illegal acts. WHEREFORE, premises considered, it is hereby declared that the election of the respondents on May 11, 1995 as members of the Board of Directors of LUZCO is NULL and VOID. Accordingly, the members of the Board of Directors duly elected in 1994 are hereby ordered to continue exercising their functions on a hold-over capacity until such time that a legally called election is held by order and under the supervision of this Commission. The corporate secretary, by this Order, is hereby directed to call a special stockholders' meeting to elect the nine (9) members of the board within sixty (60) days from receipt hereof as well as to prepare and send the necessary notice of meeting to all stockholders of record as of 27 April 1995 to this effect. Likewise, respondents are directed to jointly and severally pay petitioners the amount of P50,000.00 by way of moral damages and P100,000.00 by way of attorney's fees and expenses of litigation. SO ORDERED. (SGD.) MANOLITO S. SOLLER Hearing Officer