JRB Realty Corporation vs. Marcopper Mining Corporation

[SEC-SICD * CASE NO. 2409. August 22, 1985.] JRB REALTY CORPORATION , petitioner , vs .MARCOPPER MINING CORPORATION , respondent . SUMMARY JUDGMENT This is a petition filed by JRB Realty Corporation, a stockholder of Marcopper Mining Corporation, in the exercise of its appraisal right, for payment of the value of its total shareholdings by respondent corporation (Marcopper Mining Corporation). Petitioner, alleges, inter alia that it is a minority stockholder in respondent corporation whose primary purpose is to engage in base metal mining; that none of respondent's secondary purpose includes an investment of its funds in any other corporation or business not reasonably necessary to accomplish respondent's primary purpose of base metal mining; that respondent's amendment to its secondary/incidental purpose clause of the Articles of Incorporation which includes among other things, the power to invest its funds in another corporation which amendment had been approved by the Commission on June 1, 1976, is null and void because it has not been approved in accordance with law, particularly on the requirement of notice to all the stockholders; that because of this amendment, respondent invested its funds in the capital stock of Mar Fishing Corporation, whose fishing business is not reasonably necessary to accomplish respondent's primary purpose; that likewise, respondent, to belatedly comply with the requirements of Sec. 17 * of the Corporation Law, now Section 42 of the Corporation Code of the Philippines, under the guise of a mere amendment to its Articles of Incorporation, included in the agenda for its annual stockholders' meeting on March 23, 1982, a proposed amendment to its Articles of Incorporation to authorize itself to engage in fishing industry; that petitioner voted against the relevant motions for the amendment of respondent's Articles of Incorporation that of authorizing the corporation to itself engage in fishing industry; that by virtue of its negative vote and as a consequence thereof, petitioner has timely complied with the requirements provided for by the Corporation Code in the exercise of its appraisal right; and that considering the existence of an unrestricted retained earnings of P116 million, per respondents' unaudited financial statements as of 1982 first quarter which ended March 31, 1982, petitioner requested that it be paid valuation of its 3,600,000.00 shares in respondents ( illegible portion in SEC files ) ration worth P72,000,000.00 at P20.00 ( illegible portion in SEC files ) respondent's unrestricted retained earnings ( illegible portion in SEC files ) valuation of P72,000,000.00 was allegedly not disputed by respondent. Respondent denies and takes issue with petitioner that the March 16, 1976 Amendment of the Articles of Incorporation and its approval by the Commission is null and void considering its compliance with the requirements of the Corporation Law, including the notice thereof to all the stockholders. It asserted further that petitioner cannot now question for the first time the matters taken up in the meeting of 16 March 1976 since its right to do so has long prescribed and/or has been barred by estoppel or laches; that as a consequence of that valid amendment of the Articles of Incorporation and the subsequent approval by the Commission, respondent did invest its funds to Mar Fishing Company, a corporation engaged in fishing industry, that likewise the proposed amendment of respondent Articles of Incorporation to engage itself in fishing industry during the annual stockholders' meeting on March 23, 1982 is legal and valid, as it is a right of the corporation to diversify the line of its business, and it has complied with the requirements of the Corporation Code; that petitioner's negative vote in that proposed amendment of the Articles of Incorporation does not give rise to an appraisal right under the Corporation Code or that the exercise thereof was not available to it, and more so, petitioner's fantastic price at most is speculative and the work of a fertile imagination. The preliminary conference was called on May 6, 1983. Petitioner marked in evidence Exhibits "A" to "H" (with sub-markings) the authenticity and due execution of which were admitted by respondent. Petitioner then contended that a judgment on the pleadings and/or a summary judgment, either in consequence of preliminary conference (Sec. 3, Rule 90, Rules of Court) * ,be rendered inasmuch as respondent's Answer to the Petition admits the material factual allegations thereof and thereby fails to tender an issue of fact and/or said Answer, as well as the exhibits at preliminary conference admitted by respondent, show no genuine issue as to any material fact. Further, upon motion, petitioner was allowed to file a memorandum for judgment on the pleadings or summary judgment in consequence of the preliminary conference. Upon the other hand, respondent, upon motion, was allowed to file a memorandum in support of its special and affirmative defenses constituting grounds for a motion to dismiss. Both parties filed their memoranda. From the pleadings, exhibits, and the admissions or the parties, the Commission finds that there are no important questions or issues of fact, only of law. The issue is Is petitioner J.R.B. Realty Corporation entitled to an appraisal right of its shares of stock in respondent Marcopper Mining Corporation? Corollary thereto If entitled, was it lost or barred by prescription, waiver or estoppel by laches? The relevant facts are as follows: 1. Petitioner, on the dates material to the controversy, is a minority stockholder of respondent with 3,600,000 common shares of the latter's capital stock, each with a par value of P1.00. 2. The primary purpose of respondent is to engage in base metal mining, prior to March 16, 1976 it had no stated secondary purpose to invest its funds in any other corporation or business or for any purpose not reasonably necessary to accomplish its primary purpose; at respondent's annual stockholders' meeting on March 16, 1976 pursuant to the notice marked Annex "A" of the petition, respondent's Articles of Incorporation was amended to include the following as an additional secondary purpose: "(d) Insofar as may be permitted by law, to acquire by purchase, exchange or otherwise and to own, hold for investment or otherwise, and to sell, assign, transfer, exchange, mortgage, pledge or otherwise dispose of shares of capital stock of, and any bonds, mortgages, securities and evidences of indebtedness of or other obligations issued or created by, any corporation or corporations organized under the laws of any state, country, nation or government, and while the holder or owner thereof, to exercise all the rights, powers and privileges of ownership, and to issue in exchange therefor, or shares of the capital stock, bonds or other obligations of the corporation or to make payment therefor by any other lawful means whatsoever;" The amendment was registered with and approved by this Commission. 3. During fiscal years 1976, 1979, 1980 and 1981, respondent invested the amounts of P3.5 Million, P3.5 Million, P28 Million and P17.5 Million, respectively, of its funds in the capital stock of Mar Fishing Company, Inc. The approval of the annual reports for each preceding year and the ratification of all acts and proceedings of the Board of Directors and office during each preceding year were included in the agenda for each of the stockholders' annual meeting for the years 1976 to 1982. The annual reports for the years 1975 to 1981 (Annexes "1" to "7" of respondent's Opposition etc.) make reference to respondent's investments in Mar Fishing Company, Inc. The said annual reports, and acts and proceedings of the Board of Directors for the years 1975 to 1981 were ratified by the stockholders representing at least two-thirds of the outstanding capital stock of respondent. 4. In the agenda included in the notice for respondent's annual stockholders' meeting on March 23, 1982 (Annex "B" of the Petition) was a proposed amendment to the primary purpose clause of respondent's Articles of Incorporation to authorize it to engage in fishing. At that meeting, petitioner voted against the proposed amendment. 5. As of the day prior to March 23, 1982 when petitioner dissented, respondent had unrestricted retained earnings of over the P72 Million claimed by petitioner. 6. By letter dated April 21, 1982 (Annex "C" of the Petition) served on respondent on the same date, petitioner informed the latter of its exercise of appraisal right over its 3,600,000 shares at a "fair value of P20.00 each totaling, and demanded payment of, P72 Million. 7. By letter dated April 22, 1982 (Annex "D" of the Petition) served on respondent on the same date, petitioner inquired as to whom to submit petitioner's stock certificates for notation in accordance with Sec. 86 of the Corporation Code. 8. By letter dated April 28, 1982 (Annex "E" of the Petition) served on petitioner the following day, respondent advised petitioner that it authorized the firm of Quasha, Asperilla, Ancheta, Valmonte, Pea & Marcos to act for respondent "on any and all matters pertaining to and arising through your corporation." 9. By letter dated April 30, 1982 (Annex "F" of the Petition) petitioner submitted to the firm named by respondent in Annex "E" of the Petition, petitioner's stock certificates for its 3,600,000 shares for notation in accordance with Section 86 of the Corporation Code. The said firm's Cirilo F. Asperilla, Jr. who is also respondent's Corporate Secretary, refused to receive the stock certificates and made a handwritten notation on the letter that said firm was preparing a letter denying petitioner's entitlement to exercise the appraisal right. llcd 10. Said firm's letter dated April 30, 1982, (Annex "G" of the Petition),served on petitioner on the same date, advised the latter that its exercise of appraisal rights under Sec. 42 in relation to Sec. 82 "has long been waived",that its demand for annotation by the Corporate Secretary of respondent cannot be allowed; and that "no admissions, waiver or limitation of any matter are made by this letter." 11. No payment for petitioner's shares of stock has since been made by respondent. After a careful review of the facts and evidence adduced, the Commission finds that petitioner is not entitled to the appraisal right. In the first place, petitioner's letter (Annex "G.") informing the respondent corporation of its exercise of appraisal right is based on Section 42 in relation to Section 82 of the Corporation Code. It should have been anchored on Section 81 of the Corporation Code. Assuming in gratia argumenti that petitioner used Section 81, still the right of appraisal does not obtain. Verily, neither Sections 42 and 82 nor Section 81 is applicable. Section 42 of the Corporation Code provides: "SECTION 42. Power to invest corporate funds in another corporation or business or for any other purpose . Subject to the provisions of this Code, a private corporation may invest its funds in any other corporation or business or for any purpose other than the primary purpose for which it was organized when approved by a majority of the board of directors or trustees and ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or by at least two-thirds (2/3) of the members in the case of non-stock corporation, at a stockholders' or members' meeting duly called for the purpose. Written notice of the proposed investment and the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder shall have appraisal right as provided in this Code: Provided, however, That where the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles of incorporation, the approval of the stockholders or members shall not be necessary." Section 82, states, to wit: "SECTION 82. How right is exercised . The appraisal right may be exercised by any stockholder who shall have voted against the proposed corporate action, by making a written demand on the corporation within thirty (30) days after the date on which the vote was taken for payment of the fair value of his shares: Provided, That failure to make the demand within such period shall be deemed a waiver of the appraisal right. If the proposed corporate action is implemented or effected, the corporation shall pay to such stockholder, upon surrender of the certificate(s) of stock representing his shares, the fair value thereof as of the day prior to the date on which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action. If within a period of sixty (60) days from the date the corporate action was approved by the stockholders, the withdrawing stockholder and the corporation cannot agree on the fair value of the shares, it shall be determined and appraised by three (3) disinterested persons, one of whom shall be named by the stockholder, another by the corporation, and the third by the two thus chosen. The findings of the majority of the appraisers shall be final, and their award shall be paid by the corporation within thirty (30) days after such award is made: Provided, That no payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover such payment: and Provided, further, That upon payment by the corporation of the agreed or awarded price, the stockholder shall forthwith transfer his shares to the corporation." Section 81 provides as follows: "SECTION 81. Instances of appraisal right . Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of his shares in the following instances: 1. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholders or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence; 2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all the corporate property and assets as provided in this Code; LLpr 3. In case of merger or consolidation." Why are the above sections material to the issue/s at hand? Stated otherwise, what is that incident which caused the controversy? It must be recalled that in the notice for annual stockholders' meeting on March 23, 1982, No. 6 of the agenda reads: "6. Amendment of Article SECOND of the Articles of Incorporation to authorize the corporation to engage in fishing business". The dissent of petitioner relative to the aforementioned amendment grounded principally on Section 42 has no basis. Section 42 refers to investment of corporate funds either (1) In another corporation or business; or (2) for any purpose. Certainly the proposed amendment does not fall within the purview of the foregoing. No. 6 of the agenda aptly falls on Section 81, specifically paragraph 1 thereof. What is sought to be amended by respondent corporation is the Articles of Incorporation itself. Nonetheless, petitioner's appraisal right is wanting. In order to be entitled thereto, the amendment should adversely be affecting the rights of certain stockholders consisting of (a) change or restriction of rights of shares; or (b) creating preferences in new shares superior to the outstanding shares. It would appear that petitioner's appraisal right under Section 42 (previously under Section 17 * of the Corporation Law) refers to the respondent alleged unauthorized investment in the fishing business (thru Mar Fishing Company, Inc.) in 1976, 1979, 1980 and 1981 which petitioner respondent corporation is supposedly trying to have its stockholders ratify thru the amendment to the primary purpose clause voted upon at the 1982 stockholders' meeting. Be that as it may, firstly, it must be remembered that the aforementioned investment or stated dates were made after the respondent's Amended Articles of Incorporation was approved by the Commission on June 1, 1976. Those investments by respondent corporation are therefore not ultra vires. Secondly assuming for the sake of argument (respondent claiming otherwise) that at each instance of investment, the respondent corporation failed to comply with Section 17 of the Corporation Law * or Section 42 of the Corporation Code that of (1) Under Section 17 * ,two steps must be taken in order to invest funds in any other corporation or business: (a) the board of directors is authorized by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power at a meeting called for the purpose; and (b) the board of directors ( illegible portion in SEC files ) takes action to that effect pursuant to the authority given; and that of 2) Under Section 42 when a) approved by a majority of the board of directors and ratified by the stockholders representing at least two-thirds 2/3 of the outstanding capital stock; and (b) in a stockholders' meeting duly called for the purpose, still petitioner cannot obtain relief. The investments questioned by petitioner were those made in the years 1976, 1979, 1980 and 1981. Under the Philippine Corporation Law (Act 1459, as amended) the law then in force, petitioner had only forty (40) days within which to register its objection and exercise appraisal rights pursuant to Section 17 * thereof. On the other hand, under the Corporation Code which became effective on May 1, 1980, petitioner had thirty (30) days after the date on which the vote was taken to register its objection, otherwise "the failure to make demand within said period shall be deemed a waiver of the appraisal rights" (Section 82, Corporation Code). Undoubtedly petitioner did not take the above actions within the prescribed period. Petitioner claims that there was no proper notice in each of the stockholders' meeting pertaining to the subject periods; the respondent denies the same (Par. 4 Answer).The doctrine is that: "A summary judgment should not be granted unless the facts are clear and undisputed, and if there is a controversy upon any question of fact there should be a trial of the action upon its merits. "The rules give the Court limited authority to enter summary judgment only if it clearly appears that there is no genuine issue of material fact. Upon a motion for summary judgment the Court's sole function is to determine whether there is an issue of fact to be tried, and all doubts as to the existence of an issue of fact must be resolved against the moving party." (Gatchalian vs. Pavilin, et al.,G.R. No. L-17619, October 31, 1962.) prcd At any rate, Petitioner cannot feign ignorance to the fact that the Annual Reports, copies of which were seasonably sent and furnished to each of the stockholders of respondent very much ahead of the scheduled Annual Stockholders Meeting in 1976, 1977, 1978, 1979, 1980, 1981 and 1982 contain, among others, reference to the investments of respondent in Mar Fishing Co.,Inc. Petitioner, after seven (7) long years, is now questioning for the first time these investments. Surely, petitioner's complaint is barred by estoppel by laches. "A party may be estopped or barred from raising a question in different ways and for different reasons. Thus, we speak of estoppel in pais, or estoppel by deed or by record, and of estoppel by laches. Laches, in a general sense, is failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier, it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. (Tijam, et al. vs. Sibonghanoy, G.R. No. L-21450, April 15, 1968) Wherefore, judgment is hereby rendered in favor of respondent Marcopper Mining Corporation as against petitioner J.R.B. Realty Corporation as follows: 1. Declaring that petitioner is not entitled to the exercise of its appraisal right; 2. Dismissing the petition for lack of merit. LLjur SO ORDERED. (SGD.) EMMANUEL R. SISON Hearing Officer * Copied verbatim from documents obtained directly from the Securities and Exchange Commission .