Perpetua M. Bocanegra vs. Professional Services, Inc., et al.

[SEC-SICD * CASE NO. 1926. July 24, 1981.] PERPETUA M. BOCANEGRA , petitioner , vs .PROFESSIONAL SERVICES, INC.,AUGUSTO M. BARCELON, ROMAN A. CRUZ, JR.,AUGUSTO V. AMPIL, FELIPE E. ESTRELLA, RODOLFO C. DIMAYUGA, MARTIN P. BONOAN, BIENVENIDO O. LAPUZ, LUIS E. GARCIA, ALFREDO Q.A. BENGZON, JUAN Y. FUENTES, JR.,and JOSE F.S. BENGZON, JR. , respondents . FILOMENA M. SISON , petitioner-in-intervention . D E C I S I O N Before the Commission is a petition for mandamus with prayer for a Writ of Preliminary Injunction, filed by a stockholder of respondent Professional Services, Inc. (hereinafter to be referred to as PSI) praying among others, that the annual stockholders' meeting of respondent corporation held on June 30, 1980 be declared null and void for being contrary to law, the Articles of Incorporation as well as the by-laws of the corporation. In the application for a writ of preliminary injunction, petitioner seeks to enjoin the directors elected in the above-mentioned meeting, from assuming their positions and from administering and managing the affairs of the respondent corporation. However, upon agreement of the parties, resolution on said application was deferred as the same touches on the very issues raised in the instant action. On September 15, 1980, a petition-in-intervention was admitted, the same reiterating the points presented in the main petition. Petition alleges inter alia, that in the meeting of June 30, 1980 she and the shares she represented were prevented from casting her votes for eleven (11) members of the Board by respondent Augusto M. Barcelon, chairman of the Board, who allegedly ruled upon advice of legal counsel respondent Jose F.S. Bengzon, Jr. that the petitioner and all other stockholders shall be entitled to elect only eight (8) members of the Board of Directors as the three seats therein were automatically reserved for the representatives of the Government Service Insurance System (GSIS) on the strength of the loan agreement of respondent corporation and GSIS in August of 1977, stating that at least two (2) representatives of the GSIS shall sit as ex-officio members of the Board of Directors of respondent corporation. In the answer of respondents, except Roman A. Cruz, Jr. they denied that petitioner or any stockholder was disenfranchised or deprived from electing eleven (11) members of the Board of said Corporation and alleged that petitioner and her group walked out while the chairman was stating alternatives in the mechanics of voting in the view of the corporate legal counsel and that thereafter the stockholders of respondent corporation voted for eleven (11) members of the Board, including therein those called to be elected as directors under or by virtue of the binding agreement with creditor GSIS. In the Amended Petition dated January 12, 1981, petitioner alleged that the entire annual stockholders' meeting of June 30, 1980 was void including all proceedings taken therein, in view of the newly approved Corporation Code requiring any voting trust agreement to be recorded in the books of the corporation to be enforceable thereby allegedly resulting in a lack of quorum in said meeting. Respondents asserted in their answer the validity of the voting trust agreements on binding contracts that cannot be abridged by new requirements in the Corporation Code and that, in any case, the new Corporation Code provides a period of two (2) years or up to May 1, 1982 for compliance with new requirements thereunder and that on the question of quorum the same was never raised during the said meeting and thus was waived. In the answer of respondent Roman A. Cruz, Jr.,he denied that he was among the newly elected members of the Board of Directors of respondent Professional Services, Inc. He likewise denied having participated in the proceedings of June 30, 1980 as he was not even in attendance at the said meeting and that consequently he cannot be held responsible as the matter complained of refers to actuations of respondent PSI and the other individual respondents in connection with the annual meeting of the respondent corporation. As his special affirmative defenses, respondent Roman A Cruz, Jr. alleged among others that he sits in the Board of Directors of respondent PSI pursuant to the explicit provisions of condition no. 24 of the Loan Agreement between the respondent PSI and the GSIS; that as the designated representative of the GSIS he was an ex-officio member of the Board, without the right to vote and only to protect the investment and interests of the GSIS in said respondent PSI and that he is not subject to the provisions of the Articles of Incorporation nor the by-laws of respondent PSI. The issue as agreed upon by the parties in the Pre-trial conducted on January 7 and March 4, 1981 are the following: 1. Whether or not there is any loan agreement(s) between respondent Professional Services, Inc. (PSI) and creditor-respondent GSIS, and assuming that there is such an agreement(s),what would be the effect of the same on the rights of the stockholders of PSI particularly on their right to elect the directors of the Board of Directors of PSI, as provided for by law as well as the by-laws of the corporation. 2. Whether the stockholders' meeting of June 30, 1980 is valid on the ground of lack of quorum. 3. Whether or not the directors elected during said stockholders' meeting were duly elected under the provisions of the by-laws of the corporation (PSI) 4. If issue number three (3) were in the negative such that the directors were not validly elected in accordance with the by-laws, can they continue as de-facto directors? 5. Whether or not the provisions of the Corporation Code of the Philippines on voting trust agreements are applicable to the existing voting trust agreements now held by respondent corporation. As may be culled from the documents submitted during the hearing of the case, it would appear that there are two agreements entered into by GSIS and PSI to cover loans extended by the former to the latter specifically as follows; 1. Agreement dated April 16, 1975 (Exh. "A"):making reference to the following loans: a) loan extended on April 19, 1965 in the amount of P1,450,000.00; b) loan extended on June 23, 1971 in the amount of P2,610,000.00; c) Consolidated loan extended on December 19, 1974 in the amount of P5,600,000.00. 2. Agreement dated August, 1977 covering an additional loan of P2,500,000.00 and making reference to the previous consolidated loan of P5,600,000.00 (Exh. "B"). In this agreement of August 1977 paragraph 19 page 6 thereof states as follows: "a) That this additional loan shall be subject to the same terms and conditions imposed in the previous loans insofar as they are applicable and not inconsistent with the terms and conditions imposed herein;" (Emphasis Supplied) The above quoted provision is material considering that there are pertinent provisions of the previous contracts/agreements which relate to the management of respondent PSI, to wit: 1) Condition found in Mortgage Contract dated April 19, 1965 quoted as follows: "12. That an official of the system shall be made a member of the Board of Directors of the Mortgage Corporation" (Exh. "5-A"). 2) Condition found in Mortgage Contract dated June 23, 1971, quoted as follows: "16. That the present occupants of the positions of the chairman of the Board (Mr. Augusto Barcelon),President and Medical Director (Dr. Augusto Sarmiento) and chairman of the executive committee (Mr. Martin Bonoan) of the mortgagor corporation shall not be replaced without the consent of the system; any violation of this condition will constitute a breach of contract and will entitle the GSIS to demand payment of the balance of the loan." (Exhibit "4-A") 3) Condition found in the agreement dated April 16, 1975, quoted as follows: "12. That at least three (3) representatives of the GSIS shall sit as ex-officio members of the Board of Directors of the Mortgagor with all the rights and powers of members of the Board, except the right to vote; the Mortgagor hereby agrees, however, that the designation of such ex-officio members of the Board shall not in any manner make the GSIS and/or its officials responsible for, consenting to, tolerating or participating in any act or omission of the Mortgagor which the GSIS may later question or for which the GSIS may take action against the Mortgagor nor shall the designation of such ex-officio members of the board be later used by the mortgagor as grounds for estoppel against the GSIS;" (Exh. "A-1") 4) Condition found in the Agreement of August 1977, quoted as follows: "24. At least two (2) representatives of the GSIS shall sit as ex-officio members of the Board of Directors of the PSI's Corporation with all the rights and powers of members of the Board, except the right to vote, the PSI hereby agrees, however, that the designation of such ex-officio members of the Board shall not in any manner make the GSIS and/or its officials responsible for, consenting to, tolerating or participating in any act or omission of the PSI which the GSIS may later question or for which the GSIS may take action against the PSI, nor shall be designation of such ex-officio members of the Board be later used by the PSI as grounds for estoppel against the GSIS;" A careful examination and analysis of the foregoing conditions relating to the Board of the respondent PSI would indicate that there are modifications in each provision and since they do not compliment but rather qualify the representatives who will sit as members of the Board, it is imperative to conclude that the latest condition on membership of the board should prevail and the previous conditions found in earlier contracts/agreements must be deemed accordingly repealed or modified. LLjur The cardinal rule on statutory construction being that provisions of a later contract/agreement which are inconsistent and irreconcilable with provisions of earlier contracts/agreements entered into by the same parties on the same subject matter are deemed to have repealed or modified the earlier contracts/agreements. In view of the foregoing the prevailing condition should be that which is found in the latest agreement among the parties which is that of August 1977, to wit: "24. At least two (2) representatives of the GSIS shall sit as ex-officio members of the Board of Directors of the PSI's Corporation with all the rights and powers of members of the Board, except the right to vote, the PSI hereby agrees, however, that the designation of such ex-officio members of the Board shall not in any manner make the GSIS and/or its officials responsible for, consenting to, tolerating or participating in any act or omission of the PSI which the GSIS may later question or for which the GSIS may take action against the PSI, nor shall the designation of such ex-officio members of the Board be later used by the PSI as grounds for estoppel against the GSIS," As the provision clearly states, the representatives of GSIS pursuant to the agreement between PSI and GSIS, sit in the Board of respondent corporation as ex-officio members of the board. The purpose of their presence, as explained in the letter-opinion dated April 28, 1980 of GSIS Deputy General Counsel for Corporate Business and Legal Advisory Group, Luis A. Javellana (Exhibit "C") is only to oversee the interest of the GSIS and not to interfere or to take active part in the management of said corporation. In said letter-opinion it was categorically stated that the number of representatives of the GSIS in the Board of PSI should not diminish the number of directors to be voted upon by the stockholders as provided in the Articles of Incorporation and the by-laws of the respondent PSI which is eleven (11). In the answer of Mr. Roman Cruz, who is representing GSIS, he adopted the letter of Deputy Counsel General Luis Javellana to the effect that the appointment of the representatives of the GSIS to act as ex-officio members of the Board of Directors of the PSI should not be construed as reducing the number of the elected members of the Board of Directors of the PSI as fixed in its articles of incorporation and by-laws. The agreement explicitly states that the designation of the GSIS representatives as ex-officio members of the Board of the respondent corporation, shall not in any manner make the GSIS and/or its officials responsible for, consenting to, tolerating or participating in any act or omission of respondent PSI, which the GSIS may later question or for which the GSIS may take action against the PSI nor can such designation be later used as grounds for estoppel against the GSIS. It is the position of respondent Roman Cruz, Jr. as stated in his answer as well as in his Memorandum that his designation as ex-officio member of the Board of PSI is by reason of his being the President and General Manager of the GSIS, a creditor of the respondent PSI. In view of the position taken by no less than the creditor himself who considers the representatives of GSIS in the board of respondent PSI not as regular directors to be elected but merely as ex-officio, the Commission is constrained to accept the interpretation given by the GSIS on its presence in the board of respondent PSI by virtue of Condition no. 24 of the agreement of 1977. As to the contention of respondents, except Roman Cruz, Jr. that it is mandatory to designate specific individuals to occupy specific position as required under the Mortgage Agreement of 1971, the same has been squarely answered by creditor GSIS through its Deputy Counsel General. LLphil "While the GSIS may express a preference for some persons for the position, it cannot impose the will on the Board of Directors as this would be contrary to the limitation imposed on its participation under the Agreement." (Exh. "C") Indeed the GSIS has recognized the latest agreement to have modified whatever earlier agreements it might have entered into with respondent corporation. In view of all the foregoing, it is our finding that the representatives of the GSIS must not be considered as regular directors as they themselves do not accept the position of directorship but mere guardians of the loans that GSIS has extended to PSI. As such, their presence in the board must be considered as mere observers without the effect of diminishing the number of directors that the stockholders could elect from among themselves. Consequently, since the Articles of Incorporation require that the directors to be elected must be eleven, the same must be observed. On the second issue on whether or not there is a quorum, it is our view that the presumption of regularity can no longer be contested by petitioner since she did not nor did anybody during the questioned meeting raise the issue of a quorum or the lack of it. It appearing from the Certificate of the Secretary (Exh. "2") that a quorum existed, the presence of a quorum cannot this late be contested. Upon the other hand, since petition questions the inclusion of the voting trust agreements in counting the quorum, the question or issue on the validity of the voting trust agreement should first be resolved before the other issues of this case. Section 59 of the New Corporation Code invoked by petitioner partly provides: "...a voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the Corporation and with the Securities and Exchange Commission. Otherwise said agreement is ineffective and unenforceable. ..." The issue raised on the voting agreement held by respondents had already been earlier resolved by this commission, and the Supreme Court in GR No. 51875 (Perpetua M. Bocanegra vs. SEC, et al.) has already ruled that these voting trust agreements are valid and binding between the parties and thus enforceable. This ruling stays and should not be disturbed. On the other hand even assuming that the Voting Trust Agreements are defective, the same can be corrected within two (2) years and in the meantime the defect, if any would not nullify the existing voting trust agreements. In view thereof, the voting trust agreements would not affect the quorum of the meeting questioned by the petitioner. On the third issue, petitioner was not able to adduce evidence to show that respondent directors were not elected in the manner provided for in the by-laws of the corporation, it appearing that she and her group walked out of the meeting while the chairman was stating the alternatives in the mechanics of voting for the directors of respondent corporation. Rule 131, Sec. 5 of the Rules of Court subsections (p) and (q) state: "SECTION 5. Disputable presumptions . The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence: xxx xxx xxx (p) that private transactions have been fair and regular; (q) that the ordinary course of business has been followed; xxx xxx xxx" Accordingly, therefore, the election of the directors of respondent PSI in the questioned meeting must be deemed to have been in order and in accordance with law and the by-laws of the corporation. In view of the affirmative answer on the third issue, the fourth issue need not be answered. WHEREFORE, the presence of GSIS representatives in the Board of Directors must not be viewed as having the effect of diminishing the number of directors that the stockholders could elect from among themselves; that in the absence of evidence showing irregularity, the meeting of June 30, 1980 is hereby declared valid and on the Voting Trust Agreements the same must be deemed valid and would therefore not affect the quorum of the meeting questioned by the petitioners. SO ORDERED. (SGD.) FE ELOISA C. GLORIA Hearing Officer