Placida N. Estrada, et al. vs. Miguel P. Acebedo

[SEC-SICD * CASE NO. 2110. December 9, 1992.] PLACIDA N. ESTRADA, ET AL. , petitioners , vs .MIGUEL P. ACEBEDO , respondent . [SEC-SICD * CASE NO. 2185. December 9, 1992.] ACEBEDO OPTICAL CO.,ET AL. , petitioners , vs .MIGUEL P. ACEBEDO, ET AL. , respondents . D E C I S I O N The above-entitled cases, although independent of each other, are related cases because 1) they both involve Acebedo Optical Co.,Inc. (AOCI for short):and the proceeding in the earlier case gave rise to the filing of the later case. CAETcH In SEC CASE No. 2110, petitioners Placida N. Estrada, Angel Nobleza, Filipinas A. Ortiz, Republica A. Panol, Gloria N. Concha, Manuel P. Nobleza, Rizalino P. Acebedo and Demosthenes P. Acebedo prayed, in the main, for the election of the members of the Board of Directors of the Acebedo Corporation (without specifying which of the Acebedo Corporations) and for the Commission to take custody of all the books, records and all other material documents pertinent, related and incidental to the corporation's financial status and other accountabilities. Petitioners also prayed that during the pendency of this case and until the election of the Board of Directors, a receiver be appointed to take care of the affairs of the corporation. In SEC CASE No. 2185, petitioners Demosthenes P. Acebedo, Herodotos P. Acebedo, Republica Acebedo, Alexander Acebedo, Angel Nobleza, Manuel Nobleza, Placida Estrada, Gloria Concha, Napoleon Acebedo and Rizalino Acebedo together with Acebedo Optical Co.,Inc. sought the annulment of the subscription of 77,731 additional shares by respondent Miguel Acebedo and the result of the election of November 2, 1981 which was held pursuant to proceedings had in SEC CASE No. 2110. Following the filing of the petition in SEC CASE No. 2110, the following proceedings were had: 1. On August 31, 1981, then Hearing Officer Antonio Manabat conducted a preliminary conference for the holding of the election as prayed for by the petitioners in which hearing, respondent Miguel Acebedo was not present. Hearing Officer Manabat then observed that "from the audited financial statement of the same corporation, the outstanding shares is 97,731. It would appear therefore that there is a subsequent subscription from the time the articles of incorporation was approved by the Commission. We want to know the 77,731 to whom was it issued." Atty. James Beltran, the then counsel for the petitioners commented that "the financial statement in connection with this 77,731 is very suspicious." (TSN, August 31, 1981 p, 7) 2. Hearing Officer Manabat cautioned Atty. Beltran: "Counsel, we would like to remind you that the 77,000 in excess of 20,000 shares is not an issue here, the validity of which is not disputed by your petition unless you will amend your petition then the Commission cannot do otherwise. Whether the issuance of 77,731 shares is illegal, it's up to you now to raise it as an issue in this case but in the meantime we will have to recognize the issuance of the 77,731 shares." (TSN, August 31, 1981) Atty. Beltran undertook to amend the petition but despite the undertaking, no amendment was made. 3. On September 11, 1981, another preliminary conference was held, this time with respondent Miguel Acebedo present who asserted his subscription to and ownership of the 77,731 shares without petitioners showing controverting evidence. Petitioners were asked if they are still willing to hold the election and they opted for the holding of the election (TSN, September 11, 1981 pp. 6-11). 4. On September 16, 1981, the parties, through their respective counsel, filed a joint motion praying for an order "setting forth the names of the current stockholders and their current shareholdings and directing that an election to be held on September 26, 1981". 5. On October 19, 1981, an order was issued enumerating who were the stockholders on record and their respective shares and ordering respondent Miguel Acebedo "to call and convene simultaneously the stockholders' meeting of the two (2) corporations for purposes of electing the members of the respective board of directors within ten (10) days from receipt hereof." 6. The said order listed the 77,731 shares as the subsequent subscription of respondent Miguel Acebedo and not one of the petitioners, seasonably and properly took exception to the Order dated October 19, 1981. Petitioner Demosthenes Acebedo filed an Urgent Motion To Declare the 77,731 Alleged Subscribed Shares of Acebedo Optical Co. Inc. by Respondent as Null and Void and to postpone the Stockholders' Meeting scheduled on November 2, 1981 until the motion is finally resolved but which motion was denied for being defective. 7. On November 2, 1981, the elections of the members of the respective boards of directors of the two (2) Acebedo Corporations were held under the supervision of this Commission with Hearing Officer Alberto P. Atas attending and with all the petitioners and respondent Miguel Acebedo participating. Elected directors of Acebedo Optical Co.,Inc. were the following: Miguel Acebedo III 87,390 Vivian Acebedo 87,390 Miguel Acebedo 87,389 Felix Acebedo 87,389 Filipinas Ortiz 87,389 On December 1, 1981, petitioner Gloria Concha, in common cause with her co-petitioners, filed an Omnibus Motion assailing the result of the election by questioning the legality of the issuance of the 77,731 additional shares of respondent Miguel Acebedo. On January 15, 1982, petitioners Placida N. Estrada, Demosthenes P. Acebedo, Republica A. Panol, Alexander Acebedo, Angel Nobleza, Filipinas Ortiz and Rizalino P. Acebedo filed a Motion to Withdraw Petition, leaving petitioner Gloria N. Concha as the lone petitioner in SEC CASE NO. 2110. On December 9, 1981, petitioners Demosthenes P. Acebedo, Republica A. Panol, Alexander Acebedo, Angel Nobleza, Filipinas Ortiz, Placida Estrada, Gloria Concha, Napoleon Acebedo and Rizalino Acebedo filed their petition, docketed as SEC CASE NO. 2185, for annulment of the subscription by respondent Miguel Acebedo of the 77,731 additional shares of AOCI and the result of the election of the Board of Directors of said corporation held on November 2, 1981, Hearing Officer Felipe S. Tongco issued an Order stating that "respondent are hereby temporarily restrained from performing and/or acting as directors and officers of AOCI until further orders from this Commission." On January 11, 1982, respondents Felix Acebedo, Miguel Acebedo III and Vivian Acebedo filed a motion to quash or recall restraining order and motion to dismiss the petition. On March 4, 1982, an Omnibus Order was issued denying the motions of respondents. On September 2, 1982, the restraining order was lifted pursuant to Sec. 5, Rule 58 of the Rules of Court, as mandated by Batas Pambansa Blg. 224 ,which limits the life of a restraining order only to 20 days from issuance. Earlier, on April 5, 1982, upon motion of respondents and notwithstanding the opposition of petitioners, SEC CASE NO. 2185 was ordered consolidated with SEC CASE NO. 2110 to "simplify the proceedings considering the fact that they involve the same corporation and the parties represent the same interest (order dated April 5, 1982 by Dir. Eugenio E. Reyes). On January 9, 1985, the hearing on the cases was held during which petitioners presented their evidence with the direct testimony of Demosthenes P. Acebedo. Other witnesses were presented by petitioners as follows: Gloria N. Concha on June 6, 1988, Placida N. Estrada on July 2, 1985 and Herodotus Acebedo on November 12, 1985. It was testified that when the late Felix B. Acebedo was still the Chairman and President of the company from 1963-1975, it is claimed by respondents that "in view of the filial relationship of the stockholders, the operation of the company from its inception was conducted on the basis of trust and good faith among the stockholders unhampered by the rigidity of formalities and documentation." This claim was apparently confirmed by petitioner Gloria Concha herself in her testimony on June 6, 1985 when she admitted that the meetings of the company were just gatherings of all the children and their parents during which matters pertaining to the company were discussed and at times the late Felix B. Acebedo gave everyone a list of the income of the company (TSN, June 6, 1985 pp. 22-24). This informal conduct of the affairs of the company apparently survived the founding spouses Felix B. Acebedo and Felipa P. Acebedo. Thus, when Felix B. Acebedo died in 1975, respondent Miguel Acebedo, in his capacity as administrator of the estate of the deceased, stepped into the twin positions of Chairman and President of the company. Petitioners claim that he was not elected to these positions but the fact is he was accepted, if not suffered, by all the stockholders-children as the company's Chairman and President. And although the founding spouses already died, the board of directors of Acebedo's corporations continued to function with the only change being that instead of five (5) directors only three (3),namely, Herodotus Acebedo, Demosthenes Acebedo and Miguel Acebedo, remained; the two (2) director's positions vacated by the deceased spouses were left unfilled. When respondent Miguel Acebedo became Chairman and President of the corporation, either by election or sufferance by the other stockholders, there was practically no change in the way the company was operated; it was run in practically the same informal manner. It was only when the other stockholders were asking for their dividends and respondent Miguel Acebedo failed to give them that, in the words of petitioner Gloria Concha herself, "we understand that he is no longer a good brother." (TSN, June 6, 1985 pp. 40-41).Respondent Miguel himself, in his affidavit, which constituted his direct testimony, had this to say: "16. Things, however, suddenly changed when in 1980, the Management of Acebedo Optical started to be strict in its collection efforts of the receivables not only from the branches of the company but also from the Acebedo Optical Clinics owned and operated individually by some brothers and sisters who through the years were receiving their supplies of frames and lenses from the company. 17. The receivables at the time have already reached alarming proportions and the Management decided to impose as a condition for continuing the supply of frames and lenses to all Acebedo Optical Clinics, whether company owned or operated by some stockholders in their individual capacities, that overdue receivables and accounts are updated and/or reduced. To enable these Acebedo Optical Clinics, particularly those owned and operated by stockholders in their individual capacities, to reduce their payables to the company without having to make cash outlay, it was decided that the monthly allowances which the stockholders were receiving whether they were actually working or not be utilized as payments for their payables. This arrangement was made not only to reduce the receivables from the Acebedo Optical Clinics but also to enable the company to stay liquid and not be drained unnecessarily with the payments of allowances of these stockholders." Petitioners themselves claim that there were only two (2) changes in the shareholdings of the stockholders of the company from the time it was incorporated in 1963. One was when the late Felipa P. Acebedo died on April 13, 1967 and the estate lift by the latter was the subject of Special Proceedings No. 696761 in the Court of First Instance of Manila, Branch XXIV. The other change in the shareholdings is precisely the question at issue between the petitioners, on the one hand, and respondent Miguel Acebedo and the other respondents, on the other. According to petitioners Demosthenes Acebedo, Gloria Concha, Placida N. Estrada and Herodotus Acebedo, this other change, which consists of the issuance of 77,731 additional shares to respondent Miguel Acebedo is questionable and not reflected in the corporate records of the company. In their testimony, the four petitioners claimed that the subscription of 77,731 additional shares by respondent Miguel Acebedo was not taken up and approved by the board and that they came to know about it only during the preliminary conference hearing in SEC CASE NO. 2110 before the election of November 2, 1981. (TSN, January 9, 1995, pp. 21-22; June 6, 1985, pp. 14-16; July 2, 1985 and November 12, 1985). Upon the other hand, respondent Miguel Acebedo testified by way of his affidavit, as follows: "7) In 1975 or 1976, Acebedo Optical Co.,Inc. was found with financial difficulties and thus urgently needed fresh infusion of capital to save it from bankruptcy. As was the practice after the death of the late Dr. Felix B. Acebedo, in one of the gatherings of the family on the occasion or birthday of our founder, one of the matters taken up was the financial condition of the Acebedo Optical Co.,Inc. At the time, its manufacturing arms, the Acebedo Optical Manufacturing, Inc. which similarly underwent financial difficulties had to cease its operations and naturally everyone in the family was concerned as to how the financial situation both companies were in could be remedied. DACIHc 8. As President, I talked to my brothers and sisters as to how all of us as stockholders could help in raising additional capital particularly for Acebedo Optical Co.,Inc. It was then that everybody agreed that each stockholders shall make additional subscriptions to the shares of stocks of the company to the extent affordable by each one. It was decided by all that the only way to save the company from bankruptcy was for additional capital to be raised by way of subscriptions to the unissued shares, with each stockholder given the option as to how much of the additional issuance will be subscribed and paid for by him or her. I know that there was a formal board resolution to that effect since at that time we had a duly appointed corporate secretary and the company was receiving legal advice from the lawyer who succeeded Atty. Facundo as legal counsel. 9. I was able to invest out of my own funds around P780,000.00 which was made to understand at the time was equivalent to 77,731 shares from the unissued capital of the company. The other stockholders, my brothers and sisters. As far as I remember did not exert effort to raise similar funds for the company and at the time I felt bad that I was being left alone longing to save the company from bankruptcy. ... 10. After I had subscribed out of my own funds to the additional shares from the unissued capital of the company, I remember I went on a trip abroad to look for possible supplier of optical products, such as frames and lenses at prices affordable to the company. ...I was away for sometime and I remember that my brother Demosthenes Acebedo was the one handling the day-to-day operations of the company although with the help of a professional manager at the time. 12. The infusion of additional capital needed by Acebedo Optical Co.,Inc. to save it from bankruptcy and dissolution was known to all of us/stockholders of the company, this was never kept secret from anyone. In fact everyone agreed that this was the only solution to the financial difficulties the company was faced with." CASE NO . 2110 In SEC CASE NO. 2110, the prayer of petitioner Gloria Concha (the only remaining petitioner in the case) for this Commission to take custody of the "books, records, and any all other material documents pertinent, related and incidental to the corporations' financial status and other accountabilities" did not appear to have been seriously pursued, much less proved to be necessary. Gloria Concha herself had only one line testimony that respondent Miguel Acebedo allegedly "does not give us any dividend at all." (TSN, June 6, 1985, pp. 167).Her only witness on the matter, petitioner Demosthenes Acebedo claimed that respondent Miguel Acebedo's management of Acebedo Optical Co.,Inc. was "only beneficial to himself and his family" in terms of travel abroad, putting up branches abroad, provision at the latter's residence and even food for their fancy dogs allegedly bought with company funds (TSN, January 9, 1985 page 40).But other than this verbal claim, he did not and could not present any supporting evidence. On the other hand, the witness admitted that the branches abroad were organized and owned by the company and other partners in Guam and not by respondent Miguel Acebedo (TSN supra 88-93).And that the company had to transfer its offices to the residence of the respondent in Pasay City because it was about to be ejected from its Barbosa, Quiapo location. What is more, according to the witness, respondent Miguel Acebedo was only one of three (3) corporate signatories for the checks paid by the company, the other two being the witness himself as Treasurer, and Filipinas Ortiz. These other two (2) were also petitioners originally in SEC CASE No. 2110. In the case of Demosthenes Acebedo, he was not only one of the three (3) remaining directors but also the company's Treasurer who had control of the accounting department which is part of Treasurer who had control of the accounting department which is part of Treasury and therefore had access to all vouchers of expenditures of the company including those from the provinces (TSN, April 10, 1985, pp. 41-44). With respect to the records and documents other than financial, respondent Miguel Acebedo in his Answer, stated in pertinent as follows: 5. The Corporate records in existence at the time of the death of the later Felix B. Acebedo, original and former company president, were not formally turned over to the respondent, but were kept by some of the petitioner. A great portion of key financial records were held by and kept in the house of Demosthenes Acebedo, which were destroyed by the fire that partly destroyed his house, some of the corporate records in the hands of former personnel such as the company accountant, company bookkeeper and administrative assistant were not recovered; At any rate, the official custodian of the corporate records are some of the petitioners, such as Filipinas Ortiz and Demosthenes Acebedo. Due to this situation concerning corporate records, respondent is not in a position to state who are the present stockholders, and their holdings." Petitioners have not shown proof, or even as much as claimed that the above allegations of respondent Miguel Acebedo are not true or correct. That petitioners in SEC CASE NO. 2110 were not as interested on the matter of accounting as they were or their demand for elections to be held to elect new directors of the Acebedo Corporations is borne out by the fact that soon after the election of November 2, 1981 or on January 15, 1982, all the petitioners except Gloria Concha filed their Motion to Withdraw Petition in the instant case and abandoned their demand for accounting by not including a similar prayer therefor in their petition in SEC CASE NO. 2185. As regards Gloria Concha, as stated above, her testimony in the instant case hardly suffices as proof upon which to base any ruling on the matter. Accordingly, this Hearing Panel hereby denies her prayer for the Commission to take custody of the books, records, papers and documents of Acebedo Optical Co.,Inc. and for an audit to be conducted thereon. SEC CASE NO . 2185 In this case, petitioners question the validity of 77,731 shares issued to respondent Miguel Acebedo on the ground that "the alleged subscription of the 77,731 shares by respondent Miguel Acebedo is illegal, null and void ab initio, the same not being reflected in the corporate records of the corporation." (Par. 13, petition). In their testimonies, Demosthenes Acebedo, Gloria Concha, Placida N. Estrada and Herodotus Acebedo claimed that the subscription of 77,731 shares by respondent Miguel Acebedo was not taken up and approved by the board and that they did not come to know about it until SEC CASE NO. 2110 was already filed and just before the election of November 2, 1981 was held. Petitioners also claim that the issuance of the 77,731 additional shares to respondent Miguel Acebedo is fictitious because no request for exemption from the registration under the Securities Act was made by the Company. Respondent Miguel Acebedo himself could not produce any board resolution or that the issuance of the 77,731 shares in his favor was, on due application with this Commission, exempted from the requirements of the Securities Act. But respondent averred that there was such a formal board resolution, authorizing the issuance of the additional shares, because, the company had a duly appointed corporate secretary and it was receiving advice from the lawyer who succeeded Atty. Facundo as legal counsel. And after he subscribed to the 77,731 shares and paying therefor around P780,000.00 he went on a trip abroad to look for possible suppliers of optical products such as frames and lenses at prices affordable to the company. During the time that he was away, his brother, petitioner Demosthenes Acebedo, was the one handling the company's affairs with the help of a professional manager. Petitioner Demosthenes Acebedo himself testified that during the time that he was Director and Treasurer of the corporation, he knew for a fact that the corporate secretaries of the corporation were not performing their functions as such but that he did not call their attention why they were not performing their functions. (TSN, April 10, 1985, pp. 22-23). In this light, there is truth to respondents' claim that on account of filial relationship among the stockholders, the operation of the company was conducted on the basis of trust and good faith among the stockholders without regard to formalities and documentation. This informal conduct of affairs was during the time of the founding Spouses Felix B. Acebedo, the corporation continued to be run in practically the same informal manner. To be sure, the corporate secretaries from 1967 to 1981 were members of the family, either by affinity or blood, from 1967 to 1981, the corporate secretary was Dionisio Panol, the husband of Republica A. Panol (one of the original petitioners in this case) and after him from 1978 to 1981 Filipinas Ortiz, also one of the original petitioners, became the corporate secretary. These two were the corporate secretaries whom petitioner Demosthenes Acebedo were referring to as having been deficient in the performance of their functions. It is probably on account of this failure to comply with the additional shares of 77,731 that petitioners Republica A. Panol and Filipinas Ortiz did not pursue seriously their petition in SEC CASE NO. 2185. It is possible that the reason these two (2) original petitioners, together with their co-petitioner Rizalino Acebedo, were not cooperating with the other petitioners was because they were aware of the issuance of the 77,731 additional shares to respondent Miguel Acebedo. These three (3) original petitioners found themselves co-respondents of respondent Miguel Acebedo in the petition for Extraordinary Writs of Preliminary Injunction and Temporary Restraining Order filed by their co-petitioners in SEC EB NO. 122 before the Commission en banc. In any event, petitioners-particularly Demosthenes Acebedo, the petitioner most interested in pursuing this case could not deny that the 77,731 shares have been in the records of the corporation as early as 1976. The testimony of said petitioner on January 9, 1985 is self-explanatory: "Q. On the other hand as Treasurer also, you were fully aware of your duties as Treasurer of the corporation? A. Yes. Q. As a matter of fact, you consciously performed and effectively at that, your duties as treasurer of the corporation? A. Yes. Q. Is it not a fact, Mr. Witness that as treasurer you are the one assigned the tasks of overseeing the making and auditing of the financial statement of the corporation? A. Yes. Q. As a matter of fact, in most of these years from 1968 to 1979 up to, 1981, you were signing the returns, the income tax of the corporation duly filed with the BIR, is it not? A. Yes, Sir. xxx xxx xxx Q. Is it not a fact, Mr. Witness, that for the year 1977, for the fiscal year ended December, 1977, the corporation, I am referring to Acebedo Optical Co.,Inc. filed its corporation annual income tax return with the Bureau of Internal Revenue? A. Yes, Sir. Q. It is not a fact that the annual income tax return was in fact duly signed by you as Treasurer of the corporation? I'm now referring to this xerox copy of the corporate annual income tax for the year ended December, 1977, which at this point, your honor, primarily, I request to be marked as Exhibit "1". A. Yes Atty. Chato: May I, at this point, your honor request that this marked as Exhibit "1". HEARING OFFICER TONGCO Mark it. Q. Now, in this income tax return for the year ended December, 1977, there appears on the right hand near the bottom, the type-written name and signature of one Demosthenes P. Acebedo, is this your type-written name and signature. A. Yes. HESCcA ATTY. CHATO: May I, at this point, request that the type-written name and signature identified by the witness as his be bracketed and marked as Exh. "1-A". HEARING OFFICER TONGCO: Have it so marked. Q. Now, attached to this income tax return, Mr. Witness, is the duly audited financial statement signed by one Cesar M. Carino who appears to be a certified public accountant who certified the financial statement. You recall having gone over this statement Mr. Witness when you signed this income tax return in 1978? A. Yes, Sir. ATTY. CHATO: At this point, your Honor, may I request that the attached income statement together with the Certificate duly made by certified public accountant in the name of Cesar M. Carino, consisting of six pages, be marked as Exhs. "1-B","1-B-1","1-B-2","1-B-3","1-B-4" and "1-B-5". HEARING OFFICER: Mark it. Q. May I invite your attention, Mr. Witness, to that page of Exhs. "1-B" marked as Exh. "1-B-1" which is the balance sheet for the year ended December 31, 1977. Could you go over this Mr. Witness? After having gone over this Exh. "1-B-1" which is the balance sheet for the year ended December 31, 1977 with comparative figures for 1976, do you agree with me Mr. Witness that in the Liabilities and Stockholders Equity entries particularly in the Stockholders Equity, it is stated that the Capital Stock Authorized is 100,000 shares, is it not? A. Yes, Sir. Q. And then the issued and subscribed is 97,731 shares, is it not? A. Yes, Sir. Q. And this is true for both the years 1977 and 1976, is it not? A. Yes. ATTY. CHATO: At this point, your honor, may I request that entries here on the Stockholders' Equity appearing on Exh. "1-B-1" be bracketed Your Honor, from the words Stockholders Equity up to figures 97,310 under the column with the year 1976 on top, as Exh. "1-B-6",your Honor. HEARING OFFICER TONGCO: Have it so marked. (TSN, January 9, 1985, pp. 67-71). In the light of the above testimony of petitioner Demosthenes Acebedo, it cannot be said that the latter did not have knowledge of the 77,731 shares held by respondent Miguel Acebedo as early as 1976. The former being the only witness for the petitioners who was in a position to testify on the alleged non-existence of the 77,731 shares because he had personal knowledge having been a director since the organization of the company and the Treasurer since 1967, on the contrary, virtually admitted the existence of the 77,731 shares in the records of the corporation. Petitioner Demosthenes Acebedo attempted to explain this obvious admission on his part by saying that he did not bother to examine the details of the income tax return marked as Exh. "1" and relied merely on the fact that it was prepared by the certified public accountant of the corporation whom he claimed was "a very new CPA of Miguel Acebedo." Apart from the fact that petitioner Demosthenes Acebedo's disclaimer came only on re-direct examination by his counsel on April 10, 1985 or more than four (4) months after his testimony on January 9, 1985 leaves no doubt that his admission during the cross-examination, compared with his denials on April 10, 1985, are more believable. Moreover, it is not just in Exh. "1" that the records of the corporation already reflected the issuance of the 77,731 shares. Exh "7" which is the corporate income tax return of the corporation for the fiscal year 1977 indicated in its supporting financial statements that the corporation issued and subscribed capital was 97,731 shares. The said exhibit shows that petitioners Demosthenes Acebedo knew of the 77,731 shares because, as he did in the 1976 income tax return, he also signed in behalf of the corporation in his capacity as Treasurer. Exhibit "8" which was duly filed also with the BIR also shows that the issued and subscribed capital consisted of 97,731 shares. Exh. "9",which was the corporate annual income tax return for the fiscal year 1979 and which was also filed with the BIR and signed by petitioner Demosthenes Acebedo in his capacity as Treasurer, also indicated the existence of the 77,731 shares. Exh. "10" which was the corporate annual income tax return for the fiscal year 1980 and again signed by petitioner Demosthenes Acebedo in his capacity as Treasurer, also shows that the issued and subscribed capital of the corporation consisted of 97,731 shares. Thus, even on the assumption that petitioner Demosthenes Acebedo merely relied on the CPA whom he alleged to be a man of respondent Miguel Acebedo, there can be no explanation why he relied on the same Certified Public Accountant for over a period of five (5) years other than the witness really had knowledge of and was privy to the issuance of the 77,731 shares of respondent Miguel Acebedo. Petitioner Gloria Concha and Placida Estrada, on the other hand, merely stated in their testimony that they were not aware of any meeting in which the issuance of the 77,000 or so shares in favor of Miguel Acebedo was taken up. They claimed that there was no notice to them of such meeting. (TSN, June 6, 1985, pp. 14-15).These two (2) petitioners, however, were mere stockholders. It is not legally required for the issuance of shares from the unissued capital to be approved by the stockholders, all that is required is for the board of directors to authorize the same. The other petitioner, Herodotus Acebedo, although one of the three (3) remaining directors of the corporation (the other two (2) being respondent Miguel Acebedo and petitioner Demosthenes Acebedo),was not active in the board but in his own Acebedo Optical business in the Visayas, principal in Cebu, and Mindanao. There is nothing in the testimony of Herodotus Acebedo on November 12, 1985 which rebuts the testimony of this co-petitioner Demosthenes Acebedo on January 9, 1985, and no documentary evidence has presented which could belie the exhibits of respondents showing that as early as 1976 and all through the five (5) years thereafter the corporation, indicated to all the sundry the existence of the 77,731 shares in addition to the subscribed and paid up shares appearing in the articles of incorporation. Parenthetically, even the change in the shareholdings which petitioners claimed to have in the shareholdings which occurred upon the death of the late Felipa P. Acebedo does not appear in the records of this Commission; only the original subscription shown in the articles of incorporation and the existence of the 77,731 shares as indicated in the income tax returns and financial statements of the corporation since 1976 appear in the records of the corporation before this Commission. As far back as 1976, therefore, petitioners were charged with knowledge of respondent Miguel Acebedo's subscription and payment of 77,731 additional shares of the corporation. It was only in the late 1981 that petitioners assailed the existence and validity of his 77,731 additional shares. Petitioners are already barred by laches and estoppel. Laches has been defined as one's negligence or failure to assert his right in due time or within a reasonable time from accrual of his cause of action, thus leading another party to believe that there is nothing wrong with his own claim. This results in placing the negligent party in estoppel to assert or enforce his right (De Lucas vs. Gamponia, G.R. No. L-9335, October 31, 1956, 100 Phil. 277). The basis of the equitable doctrine of laches is not alone the lapse of time during which the neglect to enforce the right has existed but the changes of condition which may have arisen during the period in which there has been neglect. In the leading case of Go Chi gun, et al., vs. Co Cho, et al., G.R. No. L-5208, February 28, 1955, 96 Phil. 622, the Supreme Court enumerated the essential elements of laches as follows: 1) conduct on the part of the defendant, or one under whom he claims, giving rise to the situation of which complainant is made and for which the complaint seeks remedy; 2) delay in asserting complainants' right, the complainant having been afforded an opportunity to institute a suit; 3) lack of knowledge or notice on the part of defendant that complainant could assert the right on which he bases his suit; and 4) injury or prejudice to the defendant in the event relief is accorded to complainant, on the suit is not held to be barred. (See also Villoria vs. Sec. of Agriculture and Natural Resources, L-11754, April 29, 1960). Moreover, the rule is "if the corporation has power and authority to issue stock of the kind and character in question, a stockholder may be estopped to deny its validity as against the corporation or its creditors because of its irregularities and informalities in issuing it. (Fletcher Vol. II Cyclopedia Corporation, Section 5169, pp. 294-295).Indeed not only the corporation but all the stockholders thereof, including petitioners, cannot just make it appear that the 77,731 shares are non-existent or otherwise invalid notwithstanding that for a period of five (5) years third parties who had dealt with the corporation such as banks, the suppliers of optical products and materials and the government through the BIR have been made to understand that these 77,731 shares are not only existing but valid shares of the corporation and duly and publicly represented to be such in appropriate filings before government authorities. The income tax returns of the corporation duly filed with the BIR are no less corporate records as its stock and transfer books and books of accounts. The financial statements supporting the income tax returns are required to be filed with this Commission. And is one were to consider that any wrongful income tax return constitutes tax fraud for which the corporation and its officers may be held criminally liable, the income tax return and the financial statements in support thereof should be accorded a high degree of credence as corporate records. The Hearing Panel finds tenable the contention of respondents that the banking institutions and the suppliers/creditors of Acebedo Optical Co.,Inc. have reposed trust on the company on the basis of representations as to the number of shares constituting the authorized and paid up capital of the corporation and that certainly accommodations, whether by way of loans or other credit arrangements, have been extended to the company, that these loans and credit accommodations have been extended to the company not because respondent Miguel Acebedo was the President and General Manager but more so because as such President and General Manager he is also a stockholder owning substantial shares of the outstanding capital stock of the corporation. Petitioners' claim that the issuance of the 77,000 additional shares of respondent Miguel Acebedo is fictitious because no request for exemption from the registration requirement under the Securities Act was made by the corporation is not, to our mind, a plausible argument. The 77,731 shares of stock were not issued as public offerings but rather an isolated private transaction, a fact which takes it beyond the ambit of the Securities Act. The issuance of said shares was not required to be registered with this Commission for its validity. The only consequence for non-compliance with the registration requirement is to subject the corporation to penalty. It must also be noted that the transfer having occurred in 1976, the provisions of the Securities Act (Com. Act. No. 83, 1933) and not the Revised Securities Act (Batas Pambansa Blg. 178) apply. This must be so, since the latter law took effect only in 1982. The basic philosophy of the Securities Act is to protect the investing public. Thus, the Supreme Court has aptly stated: "The purpose is to protect the public against speculative schemes which have no more basis than so many feet of the blue sky, and against the sale of stock in fly-by-night concerns, visionary oil wells, distance gold mines and other fraudulent exploitations." ...(People v. Rosenthal, G.R. No. 46076, June 12, 1939, 68 Phil 328) In the instant case at bar, the corporation issued to respondent 77,731 shares of its unissued original capital stock in 1976 for due consideration. Such shares were not offered to the public, but rather to the respondent, an existing stockholder and the Chairman and the President of the corporation. Taking into consideration the nature of the corporation as a close corporation, the transaction cannot be considered as anything but an isolated transaction with a particular person. Hence, the instant case falls squarely within the context of an isolated transaction under Sec. 6 (c) of the Securities Act, and therefore, did not require registration with the Securities and Exchange Commission for its validity. Moreover, it must be noted that the rules and regulations prescribing penalties for the issuance of shares without prior permit is not applicable in the instant case, such rules and regulations having been promulgated only in 1978. Thus, at the time of the issuance of shares in 1976, the rules were not yet effective. At any rate, records of the Brokers and Exchanges Department of this Commission show that in compliance with the Order of said Department dated July 24, 1991, the corporation paid on July 23, 1991 the penalty for the issuance of the 77,731 shares without prior SEC exemption in the total amount of P1,554.00. This came about after the said department of this Commission sent its letter dated May 31, 1991 (Exh. 13) advising the corporation that based on verification of the subscribed capital stock thereof, the department found that there was an issuance by the corporation of shares without a prior permit worth P77,310.00. In case of subscription for shares in an existing corporation, the contract is not between the subscribers, but is rather between each individual subscriber and the corporation. It is created by the agreement between the parties, the same as other contracts, and there is little, if anything, peculiar to corporation law in relation to the creation of the contract (Fletcher Vol. 4 Sec. 1414, p. 84).Applying the foregoing principles, it is beyond argument that all the requisites for a valid contract of subscription, i.e.,consent, cause and consideration, have been complied with. And as there appears to be no law or rule in this jurisdiction which requires to be in writing a subscription to the capital stock of a corporation, no writing is necessary to valid subscription. (3 Agbayani 446 citing Spielberger V. Nielson).And by virtue of a valid and binding subscription, a subscriber such as respondent is entitled to the rights and privileges of a stockholder (4 Fletcher Cyc. Corp. Sec. 1417 p. 85 citing Bielinski v. Miller, 382 S 2d 357).Hence, respondent Miguel Acebedo may rightfully enforce recognition of his ownership of the 7,731 shares. He may also validly exercise his right to vote and be voted for and such other rights and obligations as stockholders. WHEREFORE, the petitions in both SEC CASE NOS. 2110 and 2185 are hereby DISMISSED for lack of merit. HIACac SO ORDERED. (SGD.) ALBERTO P. ATAS (SGD.) JAMES K. ABUGAN Hearing Officer Hearing Officer