Rodolfo M. Cuenca vs. Philippine National Construction Corporation, et al.

[SEC-SICD * CASE NO. 05-96-5357. July 10, 2000.] RODOLFO M. CUENCA , plaintiff, vs . PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, ASSET PRIVATIZATION TRUST, PHILIPPINE NATIONAL BANK, DEVELOPMENT BANK OF THE PHILIPPINES, NATIONAL DEVELOPMENT COMPANY, PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, AND GOVERNMENT SERVICE INSURANCE SYSTEM , defendants . Corporation Code ; Section 62 ; watered shares ; case at bar . It has been proven that LOI No. 1295 was implemented through the conversion of the GFI's loan receivables from PNCC into equity of the latter. By said conversion, PNCC issued shares to the GFI's in consideration for the extinguishments of PNCC's loan obligations to the GFI's in the amount equivalent to the value of the shares issued by PNCC to said GFI's. Hence, the shares issued to the GFI's can not be considered "watered". Section 62 of the Corporation Code expressly allows the issuance of shares of stock in consideration for the previously incurred indebtedness of the issuer. HESCcA D E C I S I O N This is a complaint to annul certain shares of the capital stock issued by Philippine National Construction Corporation ("PNCC") to defendants government financial institutions ("GFI's") pursuant to a conversion of the credits held by the GFI's against PNCC into shares of stock of the latter as mandated by Letter of Instruction ("LOI") No. 1295 issued by then President Ferdinand E. Marcos on February 23, 1983. Plaintiff also seeks to enjoin the defendant GFI's from voting the shares of stock in PNCC issued to them in or after 1983, and defendant PNCC from recognizing the voting or other exercise of stockholders' right by the GFI's with respect to said shares as well as to compel PNCC to call a stockholders' meeting for the purpose of electing the members of its board of directors. Plaintiff initially filed his "Complaint" dated May 29, 1996 on June 5, 1996 against PNCC, Asset Privatization Trust ("APT"), Philippine National Bank ("PNB"), Development Bank of the Philippines ("DBP"), Philippine Export and Foreign Loan Guarantee ("PEFLGC"), and Government Service Insurance System ("GSIS"). In a "Motion to Dismiss" dated July 15, 1996 of GSIS, and "Motion to Dismiss" dated July 31, 1996 of PNB, defendants assailed this Commission's assumption of jurisdiction over this case on the ground that this case involves a government-owned or controlled corporation ("GOCC") and that plaintiff was guilty of forum shopping. In an Omnibus Order dated October 16, 1996, we denied the motions to dismiss for lack of merit. Thereafter, the defendants filed their respective answer to the complaint. In the meantime, PNCC scheduled a special meeting of the stockholders on April 14, 1998 at 3:00 o'clock in the afternoon. On March 31, 1998, plaintiff filed an "Urgent Application for Temporary Restraining Order and Writ of Preliminary Injunction" dated March 30, 1998 seeking to enjoin the GFI's from voting or exercising any right to their shares of stock in PNCC issued or subscribed to in or after 1983 and PNCC from allowing the GFIs to exercise such rights. After conducting a summary hearing of plaintiff's application for temporary restraining order (TRO), we issued the Temporary relief (TRO) prayed for by the plaintiff. After receiving the parties' respective evidence in support of, and in opposition to, plaintiff's application for preliminary injunction, we also granted the preliminary injunction in an Order dated September 8, 1998. In an "Amended Complaint" (dated March 20, 1998, plaintiff sought to implead LandBank of the Philippines ("LBP") as an additional defendant. Again, in an "Amended Complaint" dated May 19, 1999, plaintiff sought to amend his original complaint alleging that the shares issued to the GFI' were watered stock and void for having been issued without consideration. Defendants filed their respective answers to the amended complaint. In the "Amended Complaint" dated May 19, 1999, plaintiff alleges that 1) he was and still a registered stockholder of PNCC; 2) while some of his shares in PNCC have been sequestered by the Presidential Commission on Good Government ("PCGG"), his other shares have not been sequestered; 3) in 1982, the following were the holders of common shares in PNCC, then known as Construction & Development Corporation of the Philippines ("CDCP"), with their respective shareholdings: Stockholders Number of Shares Percentage NDC 18,514,879 28.30% Rodolfo Cuenca and Cuenca Investment Corp. 3,254,148 4.98% Universal Holdings Corp. 24,780,746 37.88% Other Private Shareholders 18,864,235 28.84% Total 65,414,008 100.00% 4) in 1982, he controlled the management of PNCC and was its President and Chairman; 5) at that time, the only government entity with voting shares in PNCC was NDC with 28.3% of the voting stock; 6) in 1982, PNB held 15,000,000 class "B" preferred shares while NDC held 6,485,121 class "C" preferred shares, all of which were non-voting shares; 7) in 1982, PNB, DBP, NDC, PEFLGC, LBP and GSIS held substantial loan credits owed by PNCC; 8) under date of February 23, 1983, President Ferdinand E. Marcos issued LOI No. 1295 directing PNB, DBP, NDC, FEFLGC, LBP and GSIS to convert their outstanding loans to PNCC as of December 31, 1982 into shares of common stock in PNCC; 9) the shares of stock issued to the GFIs pursuant to the conversion of (a) PNB's loan of P255,000,000.00 into 25,500,000 shares of Preferred Class "D" voting stock; (b) DBP's loan of P269,874,470.00 into 26,987,447 shares of common stock; (c) PEFLGC's loan of P375,845,770.00 into 37,584,577 shares of common stock; (d) NDC's loan of P6,578,360.00 into 657,836 shares of common stock (e) LBP's loan of P146,990,000.00 into 14,699,000 shares of common stock; and (f) GSIS loan of P474,903,830.00 into 47,490,383 shares of common stock, were invalid on the following grounds: a) the shares were issued without consideration and are watered stock; b) the GFIs did not recognize the conversion; c) there were no subscription agreements to the shares; d) the entries in the stock and ledger cards were written in pencil; e) no stock certificate was issued for the shares; f) if there was a stock certificate issued, the issuance was late; and g) in the case of PNB, the shares issued were preferred shares in violation of the directive in LOI No. 1295 that the shares be common shares. AHDaET In its "Answer" dated September 7, 1999, PNCC averred that; (i) the complaint does not state a cause of action in that conversion of PNCC's debt into equity is fait accompli; (ii) plaintiff is guilty of forum shopping, having filed a complaint denominated as "Third Amended Complaint" dated May 5, 1998 with the Regional Trial Court, Makati City, wherein plaintiff impleaded APT, GSIS, PNB; DBP, NDC, PEFLGC and LBP as defendants to require them to comply with LOI No. 1295 and convert their loan credits with PNCC outstanding as of December 31, 1982 into shares of stock therein; (iii) plaintiff failed to make a prior demand upon PNCC concerning the matters raised in his complaint which is a condition precedent before he could file the complaint; and (iv) plaintiff's demand is barred by estoppel and laches, plaintiff having orchestrated the conversion of the loans into equity by persuading then President Marcos to issue LOI No. 1295 which paved the way to implement the same. In its "Amended Answer" dated May 5, 2000, PNCC further averred that issuance of the shares of stock to the GFIs in consideration of the extinguishment of their loans to the extent of P1,382,202,430.00 was ratified and confirmed by the GFIs. APT, in its "Answer to Amended Complaint" dated May 19, 1999 averred that: 1) the complaint state no cause of action; 2) the SEC has no jurisdiction over APT, the latter being a public trust created for the benefit of the Government and, hence, has no personality separate from the Government; 3) this is a complaint against the state which has not given its consent thereto; 4) plaintiff is guilty of forum shopping; 5) the conversion is fait accompli; 6) plaintiff failed to exhaust intracorporate remedies; 7) PNCC, being a GOCC, cannot be compelled to call a stockholders' meeting in the light of paragraph 1, Section 16, Article IV of Administrative Order No. 59 (1988; and 8) plaintiff has no legal capacity to sue on his shareholdings in PNCC since all his shareholdings were sequestered by the PCGG. DBP, in its "Answer to Amended Complaint with Compulsory Counterclaim" dated July 19, 1999, averred that: 1) plaintiff failed to exhaust intracorporate remedies; 2) plaintiff has no legal capacity to sue on the ground that his shareholdings were sequestered by the PCGG; 3) plaintiff is guilty of forum shopping, and 4) PNCC cannot be compelled to call a shareholders' meeting for the purpose of electing directors. PEFLGC, in its "Answer to Amended Complaint" dated August 16, 1999, averred that: 1) the SEC has no jurisdiction over the subject matter and nature of the action; 2) PNCC cannot be compelled to call a shareholders' meeting for the election of directors; 3) the debt-to-equity conversion is fait accompli; the GFIs having taken over the management of PNCC as shareholders and not as creditors; 4) it has no more interest in the case, having transferred its shares in PNCC to APT; and 5) plaintiff is guilty of forum-shopping. PNB, in its "Answer to Amended Complaint" dated October 18, 1999, averred that: 1) it has converted its receivables from PNCC into equity in the latter by subscribing to its capital stock; and 2) plaintiff is guilty of forum-shopping. GSIS, in its "Answer Ex-Abundancia Ad Cautelam with Affirmative Defense" dated March 16, 1998, averred that the SEC has no jurisdiction over the action. From the pleadings submitted by the parties, the issues may be stated as follows: 1. Whether or not this Commission has jurisdiction over PNCC. 2. Whether or not this Commission has jurisdiction over the subject matter of the complaint. 3. Whether or not plaintiff has a cause of action against the defendants. CcaASE 4. Whether or not plaintiff's "Amended Complaint" dated May 19, 1999 states a cause of action. 5. Whether or not plaintiff is guilty of forum shopping. 6. Assuming that plaintiff has a cause of action, whether or not he is guilty of splitting of his cause of action. 7. Whether or not plaintiff's cause of action is premature for his failure to exhaust intracorporate remedies. 8. Whether or not plaintiff's demand is barred by estoppel and laches. 9. Whether or not PNCC is a GOCC. 10. Whether or not PNB, DBP, PEFLGC, APT, GSIS and LBP are or were stockholders of PNCC. At the outset, we resolve the issue raised by the defendants whether this Commission has jurisdiction over the complaint. The jurisdiction of this Commission, which is quasi-judicial in nature, extends to all cases involving controversies arising out of intracorporate relations between and among stockholders, as regards plaintiff, and the GFIs and APT, and between stockholders and the corporation, as regards plaintiff and PNCC (Section 5, P.D. 902-A). The Supreme Court, in Philex Mining Corporation vs. Reyes, 118 SCRA 602, 605 (1982), held that an intracorporate dispute as defined in Section 5 has "no distinction, qualification nor any exemption" and "the provision is broad and covers all kinds of controversies between stockholders and corporation". Hence, we rule that this Commission has jurisdiction over the case. It can be gleaned from the pleadings and evidence adduced by the parties that in 1982, the GFIs held substantial loan credits owed by PNCC, ("Amended Complaint" dated March 20, 1998, par. 5). These loans were exerting pressure on the cash flow of PNCC and threatened its continued viability (Exh. "34-PNCC"). It was thought that the best solution to this problem was the conversion of most of these liabilities into equity which could save the company about P800 million in annual interest charges (Exh. "34-PNCC"). On February 23, 1983, President Marcos issued LOI No. 1295, directing the GFIs to convert "all of the direct obligations of CDCP and those of its wholly-owned subsidiaries to such government financial institutions including, but not limited to, loan credits, accrued interest, fees and advances in any currency outstanding as of December 31, 1982 into shares of Common Stock of CDCP at par value". The LOI specifically stated that it was issued by President Marcos "pursuant to the Governments' decision to extend all the necessary assistance in the financial rehabilitation program of CDCP" (Exh. "17-PNCC"). As soon as LOI No. 1295 was issued, CDCP's board of directors immediately moved to increase its authorized capital stock from P1.6 billion to P2.7 billion to accommodate the debt-to-equity conversion mandated under LOI No. 1295 (Exh. "35-PNCC"). The amounts expected to be converted were as follows: PNB-P1.79 billion; NDC-P685 million; DBP-P621 million; GSIS-P475 million; FELGC-P332 million; and LBP-P6.5 million (Exh. "34-PNCC"). The proposal to increase the authorized capital stock was submitted to the stockholders for ratification at a special meeting called for the purpose (Exh. "34-PNCC"). At the stockholders' meeting held by CDCP on April 25, 1983, stockholders owning or representing more than 2/3 of the outstanding capital stock of CDCP approved the increase of its capital stock (Exh. "34-PNCC"). Plaintiff, then the President and Chairman of CDCP, himself presided over this meeting (Exh. "34-PNCC"). ECaITc To reflect the change in composition of the stockholdings as a result of the conversion, the stockholders also resolved to authorized the Board of Directors of CDCP to adopt a new name for the corporation (Exh. "34-PNCC"'). CDCP's name was amended to its present name, PNCC, which is a reflective of its government identity (Exh. "34-PNCC"). As a consequence of the conversion, PNCC no longer made any payments to the GFIs on the loans (TSN, Herman Cimafranca, January 30, 1998, par. 45). Its audited financial statements for the years 1982 and 1983 showed that its liabilities was decreased by P1,382.202 million from 1982 to 1983. This decrease was explained by Note 11 of the financial statements (Exh. "57-PNCC") which states: "Pursuant to the Government of the Philippines financial assistance program, the company's obligation to certain government financial institutions shall be converted into Company's shares of stock. As of December 31, 1983, total obligations already converted into equity amounted to P1,382.202 million." As a result of LOI No. 1295, pursuant to which GSIS converted its loan credits under revenue bonds to equity in PNCC, GSIS became the owner of 47,490,383 shares of stock in PNCC, (Exh. "25-PNCC"). As evidence thereof, CDCP issued to GSIS Certificate of Stock No. 40271 dated December 1983 for said number of shares (Exh. "2-PNCC"). As shareholder, GSIS has been nominating its representatives to the Board of Directors of PNCC (Exhs. "3", "4", "44", and "52" PNCC") GSIS started being represented in the board of PNCC since 1982 or 1983 (TSN, Daniel Mijares, May 6, 1998 p. 112). Mr. Mijares, Senior Vice President of GSIS, likewise testified that PNCC has not made direct payments to GSIS on the loan (TSN, May 6, 1998, pp. 145-146). He further testified that in April 1998, the Board of Trustees of GSIS finally decided on its position as a stockholder of PNCC, after it adopted an ambivalent position on the loan (TSN, May 6, 1998 pp. 68-71). In its Resolution No. 155 dated April 7, 1998 (Exh. "56-PNCC"), GSIS, officially confirmed its position on its P475 million investment in PNCC as that of an equity holder. Consistent with its position as shareholder, the Board of Trustees of GSIS resolved to authorize Mr. Fernando Gaite, Jr. to represent GSIS and vote its shares at the special stockholders' meeting of PNCC on April 14, 1998 (Exhs. "3" and "52"-PNCC"). DBP became the owner of 26,987,447 shares of stock in PNCC as a result of the conversion. On account of the conversion of the loans and consistent with its position as shareholder, DBP did not make any demands on PNCC for the payments of the loans (TSN, Juliana N. Gamilla, May 20, 1998, pp. 33-34). As proof of ownership of said shares, PNCC issued Certificate of Stock No. 40269 dated December 1983 (Exh. "10-PNCC") to DBP for the same number of shares. The Board of Directors of DBP approved on March 16, 1983, in Board Resolution No. 0768, the conversion of PNCC's loan obligations into equity therein (Exhs. "28" to "28-c" PNCC); Exh. "5"-PNCC; TSN Juliana N. Gamilla, May 20, 1998 pp. 19-21). In 1987, DBP conveyed all its rights and interest in PNCC, including its shares of stock, to the Republic of the Philippines, pursuant to Administrative Order (A.O.) No. 14 (Exh. "11-PNCC"). Attached to the AO was a list of the "loans, equity investments, accrued interest receivables, acquired assets and other assets of DBP" that were identified for transfer to the National Government. The AO provided that the list may be revised by DBP in consultation with APT "if some errors in the listing are discovered (Exh. "11-A-PNCC"). PEFLGC became the owner of 37,684,577 shares of stock in PNCC as a result of the conversion. As proof of ownership of said shares, CDCP issued to PEFLGC Certificate of Stock No. 40270 dated December 1983 for the same number of shares (Exh, "6-PNCC"). PNCC's Stock Ledger Card in the name of PEFLGC (Exh. "19" and "19-A-PNCC") indicate such number of shares were issued to PEFLGC by PNCC. In PNCC's "Schedule of Subscriptions" dated September 15, 1987 (Exh. "25-PNCC") prepared by Caval Securities Registry, Inc., PEFLGC had 37,584,577 shares in its name. Likewise, in the "Certification dated November 6, 1996 (Exh. "26-PNCC") of Mrs. Leonor M. Robles, Vice-President for Operation of Professional Stock Transfer, Inc., the stock transfer agent which replaced Caval Securities Registry, Inc., PEFLGC has the same number of shares in PNCC. CAHaST In the same manner as DBP, PEFLGC conveyed all its right and interest in PNCC, including its shares of stock, to the Republic of the Philippines pursuant to A.O. No. 64. Like A.O. No. 14, A.O. 64 listed the "loans, equity investments, advances, acquired assets and other assets" of PEFLGC that were identified for transfer to the National Government. It also provides that the listing may be revised, "if some errors in the listing are discovered". In the implementation of the AOs, DBP and PEFLGC separately executed with the National Government Deeds of Transfer (Exh. "8" and "4-PNCC") whereby they "assigned, transferred, and conveyed unto and in favor of the GOVERNMENT all (their) rights, title and interest" in and to their respective assets in PNCC. In turn, the National Government and APT executed trust agreements (Exhs. "7" and "9-PNCC") covering DBP's and FEPLGC's assets that were transferred to the National Government under the deeds of transfer adverted to above. LBP became a shareholder of PNCC by virtue of the conversion of its P6,578,360.00 in loan receivables into 657,836 shares of PNCC. PNCC issued to LBP Certificate of Stock No. 40272 dated December 1983 for 657,836 shares (Exh. "EEE-2") and delivered the same to LBP on August 14, 1995 (Exh. "66-A-PNCC"). LBP accepted said conversion (TSN, Dionisio Macanaya, June 8, 1998 p. 69). It requested the stock certificate from PNCC because LBP's "Treasury Department need(ed) the same for the booking of its investment (Exh. "66-PNCC"). Consistent with its status as shareholder, the Board of Directors of LBP resolved to vote its shares in PNCC at the special stockholders' meeting of PNCC on April 14, 1998 (Exh. "51-PNCC" and "51-A-PNCC"). PNB became the registered owner of 25,500,000.00 shares of stock of PNCC after the conversion. In a "Memorandum of Agreement" dated November 1983, PNB, NDC, and CDCP (Exh. "29-PNCC"), PNB agreed to convert the loan obligations of PNCC with PNB maturing in 1983 to the extent of P27.8 million, into equity in PNCC, pursuant to LOI No. 1295. This Commission recognized the issuance by PNCC of 27,800,000 Preferred Class "D" shares in a "certificate of Filing of Certificate of Increase of Capital Stock" dated December 7, 1983 (Exh. "38-A-PNCC"). The grant of the application for capital increase was made on the basis of the "Memorandum for the Director" dated December 5, 1983, Examiners and Appraisers Department of this Commission (Exh. "58" and "58-A-PNCC") which recommended the approval of the application. The Directors' Certificate for the Increase of Authorized Capital Stock" dated April 28, 1983, among the signatories of which was plaintiff himself in his capacity as Vice-Chairman of the Board and Chairman of the shareholders meeting held on April 25, 1983 (Exh. "35-PNCC"), certified that, of the increase of P1,100,000,000.00 worth of shares, P278,000,000.00 in Preferred Class "D" shares have been subscribed and fully paid for by PNB. The "Treasurer's Affidavit" dated June 8, 1983 of CDCP's Treasurer, Nora O. Vinluan, indicates that PNB's subscription to CDCP capital stock was paid in full (Exhs. "36" and "36-A-PNCC"), The subscription, however, was reduced from P278 million to P255 million pursuant to the Central Bank's approval of PNB's investment in PNCC, subject to the ceilings prescribed by law (Exhs. "32", "32-A" and "32-B-PNCC"). We cannot, therefore, subscribe to view that PNB's subscription to Preferred "D" shares was invalid as being contrary to LOI No. 1295 since its subscription although mandated by LOI No. 1295, could have been validly made even without the imprimatur of LOI No. 1295. Further, plaintiff is estopped from questioning PNB's subscription to preferred "D" shares of PNCC since he himself consented to the subscription based on the evidence in this case and the records of this Commission. TIDaCE It appears that as a result of the conversion of PNCC's debt with PNB, DBP, PEFLGC, GSIS and LBP into equity pursuant to LOI No. 1295, PNCC's liabilities were reduced. This is evident from Note 11 of PNCC's Comparative Financial Statements for December 31, 1983 and 1982 on "Conversion of Liabilities in Equity" (Exh. "57-PNCC") wherein the creditors stated: "Pursuant to the Government of the Philippines' financial assistance program, the Company's obligation to certain government financial institutions shall be converted into Company's shares of stocks. As at December 31, 1983, total obligations already converted into equity amounted to P1,382.202 million." The breakdown of the P1,405.202 million reduction as a result of conversion was explained in the "Memorandum" dated July 20, 1984 of Arsenio P. Macalit and Rafael Simpao, Jr. to Minister Roberto V. Ongpin (Exhs. "65" to "65-D-PNCC") as follows: SHAREHOLDERS CLASS SUBSCRIPTION PNB Preferred "D" P278,000 million DBP Common P269,874 million PEFLGC Common P375,846 million GSIS Common P474,904 million LBP Common 6,578 million Total P1,405.202 million While Exhibit "65-PNCC" state that the total amount of loan obligations converted was P1,405.202, whereas Note 11 of PNCC's Comparative Financial Statements for December 31, 1983 and 1982 indicates an amount of P1,382,202, the difference is accounted by the reduction of PNB shares by P23 million pursuant to the Bangko Sentral directive. Not to be given lesser weight are the stock ledger cards of PNCC for each of the GFIs which indicate the following shareholdings: Date Shareholder Certificate No. No. of issued Shares Feb. 23, 1983 DBP 40269 26,987,447 (Exh. 18-PNCC) Feb. 23, 1983 PEFLGC 40270 37,584,577 (Exh. 19-PNCC) Aug. 19, 1987 NDC 43032 14,699,000 (Exh. 20-PNCC) July 19, 1987 NDC 1 6,485,121 (Exh. 21-PNCC) Feb. 23, 1983 GSIS 40271 47,490,383 (Exh. 22-PNCC) Feb. 23, 1983 LBP 40272 6,578,360 (Exh. 23-PNCC) Likewise, PNCC's "Schedule of Subscription" dated September 15, 1987 prepared by Caval Securities Registry, Inc. (Exh. "25-PNCC") reflects the following entries: SHAREHOLDER NO. OF SHARES CLASS OF SHARES SUBSCRIBED PNB 15,000,000 Preferred "B" PNB 27,800,000 Preferred "D" NDC 6,485,121 Preferred "C" DBP 26,987,447 Common GSIS 47,490,383 Common PEFLGC 37,584,577 Common LBP 657,836 Common NDC 14,699,000 Common Prior to the filing of the complaint, the GFIs have been nominating their representatives to the Board of Directors of PNCC. Representation in the board of directors of a corporation is one of the attributes of ownership of shares of stock in said corporation. In a letter dated August 24, 1992 of GSIS President and General Manager Cesar N. Sarino to PNCC's Corporate Secretary (Exh. "1-B"), the GSIS designated Mr. Lino L. Illera as its representative to the PNCC Board replacing Mr. Benigno L. Zialzita III. Again in a letter dated September 15, 1994 of Mr. Sarino to PNCC's Corporate Secretary (Exh. "1-A"), GSIS designated Mr. Oscar A. Inocentes as its representative in place of Mr. Andres S. Bautista. Exhibits "40" to "50" PNCC and Exhibits "1" to "1-B-PNCC" indicate that GSIS nominated its representatives to the PNCC board. This practice finds basis on Paragraph 1, Section 15, Article IV of Administrative Order No. 59 issued by then President Corazon C. Aquino on February 16, 1988, which provides that the President shall appoint the Members and Chairman of the Board of Directors of PNCC. The foregoing constitute substantial evidence that LOI No. 1295 had been implemented and that the conversion of PNCC's debt to equity therein was for a consideration. DIcTEC Finally, erasing all doubts as to whether LOI No. 1295 was implemented, in a "Deed of Confirmation" dated April 14, 2000, GSIS, DBP, PNB, PEFLGC (now Trade and Investment Development Corporation of the Philippines ("TIDCORP") and LBP, with the conformity of APT and PNCC, confirmed, ratified, recognized and acknowledged, effective the issuance date in December, 1983, (a) the issuance by PNCC of its shares of stock in favor of the said GFIs pursuant to the conversion into equity of PNCC's loans to the said GFIs as mandated by LOI No. 1295 and (b) the assignment by PNB, PEFLGC and DBP of their rights and interest in the shares to APT pursuant to A.O. No. 14 (1987), A.O. No. 64 (1988) and Proclamation #50 (Exh. "70-PNCC"). In a "Supplement To Deed of Confirmation" dated June 7, 2000, the said GFIs, APT and PNCC also confirmed, ratified, affirmed and acknowledged the subscription of GSIS, DBP, PNB, TIDCORP and LBP by operation of law to the shares of stock issued by PNCC pursuant to LOI No. 1295, in consideration for the payment and extinguishment of the previously incurred indebtedness of PNCC to the said GFIs to the extent of the amount equivalent to the par value of the shares issued to the GFIs (Exh. "71-PNCC"). The "Supplement to Deed of Confirmation" also authorized PNCC's Corporate Secretary and Stock Transfer Agent to cancel the shares assigned by DBP, PNB and TIDCORP to APT and issue new ones in favor of APT. The foregoing substantially prove that LOI No. 1295 was implemented through the conversion of the GFI's (DBP, PEFLGC, LBP, GSIS and PNB) loan receivables from PNCC into equity of the latter. By said conversion, PNCC issued shares to the GFIs in consideration for the extinguishment of PNCC's loan obligations to the GFIs in the amount equivalent to the value of the shares issued by PNCC to said GFIs. Hence, the shares issued to the GFIs cannot be considered "watered". Section 62 of the Corporation Code expressly allows the issuance of shares of stock in consideration for the previously incurred indebtedness of the issuer. The evidence presented by defendants constitute substantial proof of the implementation of LOI No. 1295. We would like to stress that our findings of fact need only to be supported by substantial evidence (Benito vs. SEC, 123 SCRA 722, 727 (1983). Substantial evidence has been defined to be such relevant evidence as a reasonable mind might accept as adequate to support a conclusion (Manuel vs. N. C. Construction Supply, 282 SCRA 326, 334 (1997). Plaintiff presented documents, most of which were the same documents introduced by defendants, in an attempt to show that there was no conversion of PNCC's debt to equity. However, we find the evidence presented by plaintiff inconsequential and insufficient to be able to overthrow the weight of the evidence presented by the defendants that a conversion of PNCC's debt into equity was implemented. cEHSTC To prove that there was no conversion, plaintiff offered the stock certificates issued by PNCC to DBP (Stock Certificate No. 40269) and GSIS (Stock Certificate No. 40271) stressing that they were unusually dated December 1983, the signatures CDCP's President thereon were mere rubberstamps and the date of their issuance was not consistent with the date of issuance on the stock ledger cards. According to plaintiff, the foregoing are "badges of fraud" in the issuance of the shares of stock to the GFIs. We dismiss this contention of plaintiff since there is nothing unusual about the fact that the stock certificates were dated December, 1983. The date thereon can be explained by the fact that this Commission approved the increase in PNCC's authorized capital stock only in December, 1983, while the seemingly inconsistent dates in the stock certificates (December 1983) and the ledger cards (February 23, 1983) by the fact that LOI No. 1295 was issued on February 23, 1983. As regards the signature of PNCC's President as being a rubberstamp, we take notice of the fact that PNCC is a corporation whose shares of stock are listed and traded in the stock exchange. Thus, its president cannot be expected to sign each and every stock certificate issued by the corporation. Moreover, plaintiff failed to present evidence of the alleged "badges of fraud" attending the issuance of the stock certificates. Allegations of fraud cannot be taken lightly, it must be proved by clear and convincing evidence (Fige vs. Court of Appeals, 233 SCRA 586, 591 (1994), which is wanting on the part of the plaintiff. Similarly, plaintiff presented the stock ledger cards of DBP (Exh. "2"), PEFLGC (Exh. "FF"), GSIS (Exh. "II"), LBP (Exh. "JJ") and PNB (Exh. "KK") and the computer print out attached to each ledger cards (Exhs. "Z-1", "FF-1", "II-1", "JJ-1", and KK") as proof of the "badges of frauds" in the issuance of the shares. We cannot give weight to these documents to prove the purpose for which they were offered by plaintiff. The fact that the entries in the ledger cards were written in pencil is not by itself fraudulent or improper. We agree with defendants that there is no requirement that entries in the ledger cards can be made by the use of a marking device other than pencil. The entry of the date "February 23, 1983" on the ledger card is even more relevant in the sense that it is the date of issuance of LOI No. 1295 which mandated the conversion of PNCC's debt into equity, which in turn culminated in the issuance of the stock certificates to the GFIs, among others. Again we note the absence of clear and convincing evidence presented by plaintiff to prove the alleged "badges of fraud". Allegations cannot take the place of proof. We do not subscribe to plaintiff's view that since no subscription agreements were executed by the GFIs (except NDC), the shares issued to them were "watered" shares. While a subscription agreement can make a subscriber a shareholder in a corporation, the lack of it is not proof that a person is not a stockholder/shareholder therein because it may be proved by other records such as the stock ledger cards (See Fletcher Cys. Corp. Sec. 1975 (Perm. Ed.). Nevertheless, under the circumstances in which the GFIs became shareholders in PNCC, the requirement of subscription agreement, assuming such a requirement exists, becomes even more irrelevant. By the issuance of LOI No. 1295, which was an issuance of then President Marcos in the exercise of his legislative powers, the GFIs were practically compelled to become stockholders of PNCC, the legislative fiat substituting for their consent to the subscription. LOI No. 1295 directed their loan credits in PNCC to be converted into equity therein by operation of law. Since the office of a subscription agreement is to make known the consent of the parties to the agreement and the terms embodied therein, a subscription agreement under the circumstances would not be necessary since the conversion was a legal imposition upon the GFIs which the latter had no power to contest or oppose. We believe that LOI No. 1295 took the place and function of a subscription agreement. Therefore, there is no need for the GFIs to execute individual subscription agreements with PNCC. At any rate, it was plaintiff himself who orchestrated the whole transaction and he cannot now be allowed to question it. HEITAD This lack of subscription agreement was also cured by the "Deed of Confirmation" dated April 14, 2000 (Exh. "70-PNCC") and the "Supplement to Deed of Confirmation" dated June 7, 2000 (Exh. "71-PNCC"), whereby defendant GFIs ratified, confirmed, affirmed and acknowledged their subscription by operation of law to the shares of stock issued by PNCC in consideration for the payment and extinguishment of the previously incurred indebtedness of PNCC to the said GFIs to the extent of the amount equivalent to the par value of the said shares issued to' the GFIs. Thus, any doubt created in the mind of this Commission has been removed by such ratification of the GFI's subscription to the issuance of PNCC's shares of stock. We likewise do not subscribe to plaintiff's argument that since the stub of the stock certificates issued to the GFIs (Exh. "LL" and "MM") did not contain the acknowledgment of receipt thereof by the GFIs, then the stock certificates could not have been issued to them. The fact that there has no acknowledgment in the stub does not necessarily mean that the stock certificates were not received by the GFIs because such receipt may be proved through other means. What should not be lost sight here is that the issue is not so much as, the physical delivery of the stock certificates to the GFIs as the issuance of the shares of stock as a result of the conversion pursuant to LOI No. 1295. We wish to clarify the matter regarding the confusion between issuance of shares and issuance of stock certificates. The confusion arose from plaintiff's argument that PNCC's claim that it had issued 25,000,000 shares to PNB is not true since there was no stock certificate issued to PNB. Plaintiff confuses the entry in PNCC's Balance Sheet as of December 31, 1982 and 1983 (Exh. "NN-1"), which refers to "Issued and Outstanding 25,000,000 shares" of Preferred "D" stock in 1983 of PNB, with the non-issuance of stock certificates. This Commission has clarified that a stock certificate is mere evidence of the holder's ownership of stock and is not necessary to render one a stockholder (SEC Opinion dated March 25, 1992 addressed to Lincoln Tan, Jr.). A person may be the owner of shares of stock without possessing a stock certificate. Contrary to the claim of plaintiff that there was no valid issuance of the shares to the GFIs since there was no reduction in PNCC's liabilities (and that the liabilities even increased by more than P600 million), the evidence presented by defendants show that there was such a reduction. We believe that the defendants sufficiently explained with the evidence presented by them in this case that there was a valid conversion of debt to equity since the shares issued pursuant thereto were paid for with the liabilities of PNCC which were extinguished pursuant to LOI No. 1295 to the extent of P1,382.202 billion. The increase in the peso value of the loan obligation of PNCC was sufficiently explained by the defendants as having arisen from the substantial devaluation of the peso against the U.S. dollar in the aftermath of the assassination in August 1983 of former Sen. Benigno S. Aquino, Jr. The devaluation adversely affected PNCC, as it then had several currency-denominated loans with various institutions abroad. The substantial devaluation caused the booking of PNCC's loan to increase by more than P650 million from 1982 to 1983 (Notes 9 and 16 on "Foreign Fluctuation" (Exh. "NN"). DEICaA We do not agree with plaintiff's argument that the "Memorandum of Agreement" dated August 15, 1995 between the Department of Finance ("DOF"), APT and PNCC, whereby PNCC assigned to APT and the DOF a parcel of land located in Manila, proves that PNCC paid its obligations to PNB and DBP and therefore, the shares issued by PNCC to the latter was without any consideration; This argument is highly flawed. The agreement is not proof that APT received payment on the very same loans of PNB and DBP to PNCC covered by LOI No. 1295, in the form of real property. The evidence presented by defendants PNB and DBP indicate that the amounts of the loans of PNCC due to PNB and DBP that were converted into equity were only P255,000,000.00 and P269,874,470.00, respectively. Prior to LOI No: 1295, PNB and DBP's loans to PNCC were estimated at P1.79 billion and P629 million, respectively (Exh. "34-PNCC"). From the records presented, after conversion; there remained about P1.535 billion and P359 million in outstanding loans of PNCC to PNB and OBP, respectively, which were not converted into equity. These outstanding loans were the subject of the assignment of receivables to APT. We cannot likewise give any weight to the "Petition" dated January 24, 1991 filed by GSIS against PNCC, et al. with the Supreme Court, which was docketed as G.R. No. 100189 (Exh. "X"), to prove that GSIS had not converted its loans to equity in PNCC. As can be gleaned from the Petition itself, it sought the issuance of injunctive relief "directing the respondents from further implementing LOI No. 1295." A reasonable interpretation of the aforequoted statement is that GSIS recognized the implementation of LOI No. 1295, only that it sought to enjoin its further implementation. Nevertheless, GSIS withdraw its petition in recognition of the validity of LOI No. 1295 (TSN, Daniel Mijares, May 6, 1998 pp. 132-133). Plaintiff would have us believe that the "Deed of Transfer" dated February 27, 1987 between DBP and the National Government (Exh. "C"), the "Deed of Transfer" dated March 8, 1989 between PEFLGC and the National Government (Exh. "K") and the "Deed of Transfer" dated April 27, 1990 between NDC and the National Government (Exh. "M"), wherein the said GFIs assigned in favor of APT, as Trustee for the National Government pursuant to the trust agreement dated February 27, 1987, September 22, 1989 and May 25, 1990 between the National Government and APT (Exh "E", "L" and "N" respectively), certain assets, such as loans, equity investments, advances, acquired assets and other assets in consideration for the assumption by the National Government of certain liabilities of said GFIs pursuant to A.O. No. 14 (1987) (Exh. "D") and A.O. 64 (1988) (Exh. "J"), in relation to Proclamation No. 50 (1986) which created the APT, constitute evidence that the GFIs did not convert their loan credits from PNCC into equity in the latter. We are of the opinion, and so rule, that said documents do not prove that DBP, PEFLGC and NDC did not convert their loans to PNCC into equity herein. These documents merely prove that certain assets mentioned therein were transferred by said GFIs to APT in trust for the National Government. Moreover, on the part of DBP, Mrs. Gamilla explained that the fact that its shares of stock in PNCC were not included in the "Deed of Transfer" dated February 27, 1987 (Exh. "C") was because DBP, at the time it executed the "Deed of Transfer" had not yet known of the existence of the stock certificate evidencing the issuance of shares in PNCC to DBP, the latter having come to know the same only on January 9, 1997 (TSN, Juliana Gamilla, May 20, 1998, p. 25.) We hold that the documents do not disprove the fact of conversion of PNCC's Loans with the GFIs into equity of the PNCC. At any rate, as we previously said, any doubt in this Commission's mind regarding the conversion of PNCC's debt to equity was dispelled by the "Deed of Confirmation" dated April 14, 2000 (Exh. "70-PNCC") and the "Supplement to Deed of Confirmation" dated June 7, 2000 (Exh. "71-PNCC") whereby PNB, DBP, PEFLGC, LBP and GSIS ratified, confirmed, affirmed and acknowledged the conversion of their loan credits from PNCC into equity therein. The Office of the Government Corporate Counsel, in a Letter dated May 4, 2000 (Exh. "74-PNCC"), had furthermore issued an opinion that the "Deed of Confirmation" was sufficient for the purposes stated in the whereas clauses. We assent to the view contemporaneously given by a government agency on the matter in issue. At this point, we would like to stress that the evidence presented by plaintiff were not sufficient to overcome the substantial and overwhelming evidence presented by defendants on the fact of conversion of the GFIs' loan to equity. As an aside, we quote the Supreme Court in one of its decisions wherein it held that the absence of substantial evidence is not shown by stressing that there is contrary evidence on record, direct or circumstantial (Malate vs. Court of Appeals, 218 SCRA 572, 576 (1993). We are also aware of the decision of the Supreme Court in Children's Garden of the Philippines vs. APT, G.R. No. 101057, February 4, 1992, wherein the High Court in essence ruled that the implementation of LOI No. 1295 i.e., the conversion of GFIs loan credits to PNCC shares, was already a fait accompli. It is now too late for plaintiff to claim that LOI No. 1295 was never implemented in the light of the decision of the Supreme Court in Children's Garden. As an agency exercising quasi-judicial functions, we cannot overrule a precedent promulgated by the highest court of the land. We note the zealousness with which plaintiff prosecuted this case for the purpose of seeking a declaration by us that the shares issued by PNCC to the GFIs were without consideration and therefore, "watered". In so doing, plaintiff practically turned himself blind to the records of this Commissions and the overwhelming evidence of defendant that the former, as President and Chairman and major stockholder of PNCC, himself presided at the stockholders' meeting on April 23, 1983 that resulted in the increase of PNCC's capitalization to accommodate the debt-to-equity conversion mandated by LOI No. 1295. This we cannot countenance. The evidence presented by defendants show that LOI No. 1295 was issued precisely to rehabilitate PNCC, then known as CDCP, which in 1982 was experiencing cash flow problems arising from its gargantuan financial obligations. Presiding over the meeting of the stockholders of CDCP on April 13, 1982, plaintiff reported that President Marcos had issued LOI No. 1295 mandating the GFIs to convert their loan receivables from CDCP into equity therein. This was viewed as the solution to address the cash flow problems of CDCP. In order to implement LOI No. 1295, at the said meeting over which plaintiff himself presided, the stockholder approved the increase in CDCP's authorized capital stock. Thereafter, the relevant papers were submitted to this Commission to support CDCP's application for the increase in capital stock. Finding said documents in order, this Commission issued a certificate approving the application for increase. To reflect the new character of CDCP, it was renamed to PNCC. To give way to the new stockholders of PNCC, plaintiff resigned from his position as Vice-Chairman. In the meantime, PNCC issued stock certificates to the GFIs as evidence of their ownership therein. Since then, the GFIs nominated their representatives to the PNCC's board. Thirteen years later, plaintiff makes a comeback claiming that LOI No. 1295 was never implemented and that the shares issued to the GFIs were without consideration or "watered". EDSAac From the foregoing, we cannot discern any good intention on the part of plaintiff in instituting the instant complaint. On the contrary, we see a deceptive and fraudulent pattern of behavior on his part designed to defraud the GFIs of their assets. It is evident that plaintiff is motivated by bad faith in assailing the conversion of PNCC's debt to equity, a scheme which he himself masterminded and orchestrated. He is therefore estopped from assailing an act which he himself promoted. Moreover, plaintiff slept on his rights in assailing the conversion, if indeed he was convinced that no conversion took place. We note that LOI No. 1295 was issued in 1983 but it took plaintiff 13 more years before he filed the instant complaint. It likewise appears to us that this complaint is part of a malicious, backdoor ploy of plaintiff to regain control and management of PNCC, after it has been successfully rehabilitated as a result of LOI No. 1295, among others. To these, plaintiff did not come to us with clean hands. Thus, we cannot grant the reliefs 'prayed for by plaintiff. (LBC Express Inc. vs. Court of Appeals, 236 SCRA 602, 607 (1994). Principles of justice, fairness and equity dictate us to dismiss the instant complaint. As to NDC, we are constrained to dismiss the complaint on account of plaintiff's failure to state a cause of action against NDC. The complaint assails the issuance of 14,699,000 shares of the common stock of PNCC to NDC. According to plaintiff, these shares were issued to NDC in 1987 pursuant to LOI No. 1295 without consideration. The evidence presented by PNCC indicate that the shares issued by PNCC to NDC did not arise from LOI No. 1295, but form LOI No. 1136 (TSN, Dionisio Macanaya, June 8, 1998, pp. 43-46; Exhs. "36-PNCC", Exhs "63-PNCC" and "64-PNCC"). Thus insofar as the complaint assails the validity of the NDC shares as allegedly having been issued pursuant to LOI No. 1295, the complaint states no cause of action. As early as 1981, NDC was a stockholder of record of PNCC. In May of that year, President Marcos issued Letter of Instruction No. 1136 "directing a rehabilitation program for CDCP (Exh. "63-PNCC"). Under this LOI, NDC was directed "to invest the sum of TWO HUNDRED FIFTY MILLION PESOS (P250,000,000.00) in CDCP at par value". Subsequently NDC and CDCP entered into an "Agreement" dated October 22, 1981 (Exh. "64-PNCC") to implement LOI No. 1136. The agreement was executed by plaintiff in his capacity as President of CDCP. The third and fourth "whereas" clauses of the agreement read: "WHEREAS, the government is cognizant of the role of the construction industry in national economic development, and through Letter of Instruction No. 1136, has directed NDC to invest the sum of P250,000,000.00 in CDCP Preferred and Common Shares; WHEREAS, NDC agrees to invest said amount in CDCP for the purpose of providing the Company's needed capital and management assistance . . ." Under the agreement, NDC subscribed to the following classes of shares of stock of PNCC: a) SIX MILLION FOUR HUNDRED EIGHTY FIVE THOUSAND ONE HUNDRED TWENTY ONE (6,485,121) Preferred, "B" shares of the par value of TEN PESOS (P10.00) each with aggregate par value of SIXTY FOUR MILLION EIGHT HUNDRED FIFTY ONE THOUSAND TWO HUNDRED TEN PESOS (P64,851,210.00). b) EIGHTEEN MILLION FIVE HUNDRED FOURTEEN THOUSAND EIGHT HUNDRED SEVENTY NINE (P18,514,879.00) Common Shares of the par value of TEN PESOS (P10.00) each with aggregate par value of ONE HUNDRED EIGHT FIVE MILLION ONE HUNDRED FORTY EIGHT THOUSAND SEVEN HUNDRED NINETY PESOS (P185,148,790.00). HAICTD In the same agreement, PNCC agreed that "the total subscription price of TWO HUNDRED FIFTY MILLION PESOS (P250,000,000.00) shall be considered fully paid as of July 1, 1981 and that the interim advances in an equivalent amount extended by NDC to CDCP shall be applied in full payment of such subscription price as of the aforesaid date (clause 1.2 thereof). As a consequence, petitioner issued Certificate of Stock No. 001 (Exh. "15-PNCC") for 6,485,121 shares of Preferred Class "C" stock (not preferred "B" stock as originally intended) and Certificate of Stock No. 38956 for 18,514,879 shares of common stock (Exh. "20-PNCC") in the name of NDC. The stockholdings of NDC were also entered in the stock ledger card of CDCP (Exh. "21-PNCC"). In 1987, however, NDC entered into a series of transactions whereby it unloaded a number of its common shares in PNCC. The transactions culminated in the transfer of one common share on August 19, 1987 and the issuance of Certificate of Stock No. 43037 (Exh. "16-PNCC") for 14,699,000 common shares in the name of NDC. NDC over a certain period, unloaded 3,815,879 common shares that NDC originally subscribed to in 1981 pursuant to the "Agreement" dated October 22, 1987 between NDC and CDCP. The 18,514,475 common shares, reduces to 14,699,000 common shares in 1987, were already paid for by NDC. While the receivables of NDC from CDCP maturing in 1982 and 1983, for one reason or another, were not converted into equity as mandated by LOI No. 1295, the fact remains that the 14,699,000 common shares and the 6,485,121 preferred "C" shares in PNCC standing in NDC's name were issued to it for valuable consideration. As regards the issue presented by plaintiff whether we can compel PNCC to hold an annual stockholders' meeting for the purpose of electing the members of the board of directors of PNCC, this matter has been resolved by the Supreme Court in PNCC vs. Pabion, G.R. No. 131715, December 8, 1999, where this Commission's authority to direct PNCC to call a stockholders' meeting for the purpose of electing its directors was upheld. Prescinding from the above premises, it necessarily follows the SEC can compel PNCC to hold a stockholders' meeting for the purpose of electing members of the latter's board of directors. This is clearly provided for by Section 50 of the Corporation Code, which we quote: "Sec. 50. Regular and Special meetings of stockholders or members . . . Whenever, for any cause, there is no person authorized to call a meeting the Securities and Exchange Commission, upon petition of a stockholder or member, and on showing of good cause therefor, may issue an order to petitioning stockholder or member directing him to call a meeting of the corporation by giving proper notice required by this Code or by the by-laws. The petitioning stockholder or member shall preside thereat until at least a majority of the stockholders or members present have chosen one of their members as presiding officer." (Emphasis ours) Finally, we view with utmost displeasure plaintiff's act of seeking the intervention of more than one tribunal in the hope of improving his chances of obtaining favorable judgment with regard to this controversy. It is undisputed that the "Third Amended Complaint" dated May 5, 1998 (Exh. "79-PNCC") which plaintiff filed in Civil Case No. 95-1356 with the Regional Trial Court, Branch 142, Makati City, against the same defendants herein, is founded on the same transaction and the same set of facts and circumstances as the complaint in this case. Both actions share the same subject matter, cause of action, nature of the action, reliefs sought and set of parties. The Third Amended Complaint in Civil Case No. 95-1356 was filed while this case was pending. Clearly, the elements of forum-shopping are present in this case (Samad vs. COMELEC, 224 SCRA 631, 645 (1993). We therefore rule that plaintiff violated the rule on non-forum shopping by trifling with the rules of this Commission. aACHDS With the foregoing findings, we set aside our Orders dated April 14, 1998 and September 8, 1998, which granted the preliminary injunction sought by plaintiff, and dissolved the writ of preliminary injunction which was issued pursuant thereto. WHEREFORE, plaintiff's Complaint is hereby dismissed for lack of merit and the Orders dated April 14, 1998 and September 8, 1998 are hereby revoked and set aside. SO ORDERED. City of Mandaluyong, Philippines. July 10, 2000. (SGD.) ALBERTO P. ATAS (SGD.) JULIETO F. FABRERO Hearing Officer Hearing Officer (SGD.) NATHANIEL A. LOBIGAS Hearing Officer