Order of the Knights of Magellan, Inc., et al. vs. Vicente Dira, et al.

[SEC-SICD * CASE NO. 1793. September 23, 1985.] ORDER OF THE KNIGHTS OF MAGELLAN, INC.,EPIFANIO M. DAGZA, Chief Knight International , complainants , vs .VICENTE DIRA, ET AL. , respondents . [SEC-SICD * CASE NO. 1797. September 23, 1985.] IN RE KNIGHT OF MAGELLAN, ET AL. , complainants , vs .EPIFANIO M. DAGZA , respondent . D E C I S I O N This refers to the complaint filed by Epifanio Dagza against Vicente A. Dira, Santiago V. Vias, Neopulo Ma. Cascante, and Gregorio G. Chua in SEC Case No. 1793, for the nullification of the by-laws of the Knights of Magellan, Inc.,adopted on July 31, 1979, and registered with this Commission on September 3, 1979 and the complaint filed by Vicente A. Dira, Neopulo Ma. Cascante, Gregorio G. Chua and Santiago V. Vias against Epifanio Dagza, in SEC Case No. 1797, to enjoin the respondent and all persons acting in his behalf from acting for and in the name of the Knights of Magellan, Inc. llcd In his complaint filed before this Commission in SEC Case No. 1793, complainant Epifanio Dagza alleged that the Order of the Knights of Magellan, Inc. was founded on September 13, 1978 as a brainchild of complainant and his children; that the Articles of Incorporation of said organization was registered on November 20, 1978 and reflected therein as its Incorporators and Board of Directors at the same time are five individuals, namely: Epifanio Dagza, Vicente A. Dira, Santiago V. Vias, Neopulo Ma. Cascante and Gregorio G. Chua; that the By-laws of said Order was adopted on November 26, 1978 by the majority of the aforementioned five (5) members, with Epifanio Dagza, Vicente A. Dira and Santiago V. Vias as signatories thereto; that immediately thereafter, by force of and on the authority of said by-laws, the Order automatically enlisted the membership of the other co-organizers of the Order, namely: Virtud Norberto, Ben Felipe, Epifanio, Jr.,Val Fernando, and Ray Epifanio, all surnamed Dagza; that during the effectivity of the aforesaid by-laws under which respondents Vicente A. Dira, Santiago V. Vias, Neopulo Cascante and Gregorio G. Chua are all bound to uphold, the latter introduced/adopted a second by-laws, without prior notice to and in the absence, at the meeting allegedly called for that purpose, of the other six (6) members of the corporation; and that the respondents' actuations are all contrary to law and that it violates the provisions of the by-laws itself because aside from the lack of formal written notice duly served to and the absence and participation of the other six (6) members, four (4) of the respondents did not constitute a quorum with legal personality to transact business, much less adopt the second by-laws. Respondents, in answer thereto, vehemently denied each and every allegation of the complaint and claimed that the names of the children of complainant Dagza were intercalated and falsified and that several pages of the by-laws have been substituted to include all the Dagzas; that at the time of the filing of the Articles of Incorporation, the names of the children of Dagza do not appear in the list of members; that they deny that they did not give notice to complainant Dagza, the truth being that he was duly notified thereof and further aver that they do not have to give notice to the children of complainant Dagza since they are mere interlopers; that complainant Dagza and respondents are the only members of the Knights of Magellan, Inc.;and that complainant has no personality to sue. Complainants Dira, et al.,on the other hand, in SEC Case No. 1797, alleged that they, together with respondent Dagza organized the Knights of Magellan, Inc.,a socio-religious group of Catholic laymen, primarily for religious and humanitarian reasons similar to the Knights of Columbus which was later on registered with the Securities and Exchange Commission and for which a certificate of registration was issued; that on September 13, 1978, the Board of Directors constituted by herein parties, held a special meeting for the purpose of adopting the by-laws of the corporation; that the Board constituting a quorum with the presence of complainants Dira and Vias and respondent Dagza adopted a set of by-laws where only their names appeared therein; that surprisingly, complainants discovered after, the by-laws was registered and approved by the SEC, that most of the children of respondent Dagza were included on said by-laws as other incorporators; that they also discovered that respondents deleted or cancelled all their names as originally appearing in the by-laws; that when complainants Dira and Vias signed at the bottom portion of the by-laws and the minutes of the special meeting, they did not notice the names of the children of respondent, otherwise they would not have signed the same; that as it now appeared, respondent, for self-interest, had tampered with, interpolated or intercalated pages 4, 8 and 11 of the aforesaid by-laws, which he easily did because said pages were neither signed nor initialed by them; that after discovery of the irregularity, complainants acting as the Board of Directors adopted a set of new by-laws on July 31, 1979 which was duly filed with this Commission and later on was approved; that in the interim, respondent started to recruit members for the Knights of Magellan, Inc.;that respondent and his children started to meet and organize, which actuations are contrary to law and the new by-laws of the Knights of Magellan, Inc.;and that unless enjoined, respondent's actuation will cause irreparable damage to herein complainants. In answer to the above allegations, respondent Dagza maintained that he and his children were the founder of the Knights of Magellan, Inc.;that the joint affidavit executed by complainants Vicente Dira and Santiago Vias acknowledge the fact that Epifanio Dagza was acting as leader and his five (5) sons as original founders; that a resolution was passed and adopted by the body of organizers on September 10, 1978 approving the Articles of Incorporation and authorizing said respondent Epifanio Dagza to register, make corrections, and alterations in the by-laws already filed with this Commission; that complainants cannot be considered as incorporators nor organizers because they have not applied for membership and have not paid any of its annual dues; that it will be respondent Dagza, being the Chief Knights of Magellan, International, the founder and organizer of the Knights of Magellan, Inc. as original founder that will be greatly prejudiced and not the complainants; that any cessation of function affecting the rights of third persons whom respondent Dagza has a contract prior to the incorporation of the Knights of Magellan would greatly prejudiced and embarrassed the latter; and that there is no basis in fact and in law for the issuance of the injunctive relief being prayed for by the complainants. By agreement of the parties, hearing on the two cases was consolidated. From the evidence submitted by the parties, both oral and documentary, the following facts were duly established. On September 13, 1978, Dr. Vicente Dira, Neopulo Cascante, Gregorio Chua, Santiago Vias and Epifanio Dagza executed and adopted the Articles of Incorporation of the Knights of Magellan, Inc. On November 20, 1978, this Commission duly approved said Articles of Incorporation. Subsequently, thereafter, on November 26, 1978, majority of the members thereof adopted the by-laws of the Knights of Magellan, Inc. which was filed with this Commission on August 9, 1979 and which was approved after series of corrections/changes consisting of alterations, erasures, intercalation and deletion made by the Epifanio Dagza pursuant to an authority of a Resolution, series of 1978, adopted by the body of organizers composed mostly of the children of Mr. Dagza. The group of Dr. Vicente Dira, Neopulo Cascante, Gregorio Chua and Santiago Vias contested the alteration/intercalation made by Epifanio Dagza as having been done without the consent and authority of the incorporators and original members of the Knights of Magellan, Inc. On July 31, 1979, Dr. Dira et al.,constituting a majority of the Board of Directors, adopted another by-laws at a special meeting held after due notice sent to the members. On September 3, 1979, said by-laws was approved by this Commission. From the established facts, the issue boils down to the question of which of the two (2) sets of by-laws will now prevail. Stated differently, which of the two (2) sets of by-laws will govern the Knights of Magellan, Inc. Under the Corporation Law (Act No. 1459) and even under the Corporation Code of the Philippines (Batas Pambansa Blg. 68) it is not only a prerogative but an inherent right of the corporation to amend and repeal any by-laws or adopt a new by-laws for as long as the requirement as set for under said laws are complied with. However, the focal point in the present controversy centers not on the power of the corporation or board of directors to adopt a new by-laws but more on the question of whether the newly adopted by-laws was passed upon in accordance with the provision of existing law, rules and regulations. It is claimed that the new by-laws was adopted, passed and filed in violation of the provisions of law, rules and regulations promulgated by the Securities and Exchange Commission in that a) there was no due and prior notice to all original directors and incorporators and the additional Directors and Incorporators numbering eleven (11);b) there was no quorum of all the directors who allegedly passed the second or new by-laws; and c) the mandatory provisions of the first by-laws relative to amendments were not followed particularly Sections 1 and 2 of Article XXVI thereat. We find this contention to be without any merit. The evidence on record furnishes us ample justification to rule otherwise. Documentary evidences on hand reveal that under date of July 28, 1979, a written notice was caused to be issued and duly signed by one of the incorporators in the person of Gregorio Chua, informing the members originally composing the Knights of Magellan, Inc.,that a special meeting of the Order was to be held on July 31, 1979 for the purpose of adopting an amended by-laws (Exhibit "4").All the four (4) members thereat signified their agreement by signing their full name in the notice except for Mr. Epifanio Dagza. However, it is worthy to note that opposite the name of Epifanio Dagza in the notice appears the name E. S. Tugadi, which to us is a concrete proof that Mr. Dagza was properly notified through his representative but chose not to attend the meeting for some reason or another. We cannot subscribe to Mr. Dagza's claim that his five (5) children, at the time the second or new by-laws was adopted, are already members of the Order. At most, we agree with Dr. Dira's group's allegation that the Knights of Magellan, Inc. is composed only of five (5) original incorporators and members. We are thus compelled to look into the language of item Nos. 9 and 10 of the Articles of Incorporation of the Knights of Magellan, Inc. which is quoted hereunder, to wit: prcd "NINTH. That the corporation shall be governed by a Board of Directors of five (5) members. ...". "TENTH. That the present membership of the corporation is composed of the incorporators mentioned herein and that additional members shall be admitted in accordance with the by-laws and their names submitted to the Securities and Exchange Commission from time to time". This is the present form and wordings of the aforequoted provisions of the Articles of Incorporations and we cannot go beyond what is said in those sections. Interpreting these provisions as thus worded, the matter of sending notices of meeting to the members of the board is limited only to the five (5) original members mentioned in the Articles of Incorporation. Digressing further from the language of the aforesaid provisions, the majority of four (4) members is sufficient to constitute the necessary quorum for the transaction of corporate business. The claim of Mr. Dagza that the second or new by-laws was passed without quorum is, to us, no argument at all for in truth and in fact the said new by-laws was adopted by the four (4) of the original incorporators and members. Neither can we consider as valid, the arguments of Mr. Dagza that Dr. Dira's group cannot be considered as incorporators nor organizers because they have not applied for membership and have not paid for any of its annual dues. The provisions of Item No. 10 of the Articles of Incorporation is quite explicit when it provides that the present membership of the corporation is composed of the incorporators mentioned therein. The original incorporators are automatic members of the association and therefore, it is unnecessary to require the said incorporators to apply for membership. The allegation that the adoption of the second by-laws did not follow the provision of Article XXVI of the first by-laws is not meritorious considering that what has been actually adopted on July 31, 1979 was a new by-laws and not an amended by-laws. Sections 1 and 2 of Article XXVI of the first by-laws speak of the procedure to be followed in introducing amendments to the by-laws. As already stated, what has been adopted and approved by the majority members of board of directors was a new by-laws and not an amended by-laws and consequently the above-provision of Article XXVI of the first by-laws will not be applicable. However, the approval of the new by-laws of the Knights of Magellan, Inc. by the Securities and Exchange Commission on September 3, 1979 has set at naught the very basis of Mr. Dagza's complaint, and all things now being equal, the new by-laws, as approved, has undoubtedly superseded the original by-laws. WHEREFORE, judgment is hereby rendered declaring the new by-laws, as approved on September 3, 1979, as the by-laws governing the Knights of Magellan, Inc. No pronouncement as to cost. LLjur SO ORDERED. (SGD.) ALBERTO P. ATAS Hearing Officer