Farmers Agricultural Corporation, et al. vs. Marcelino Cuan, et al.

[SEC-SICD * CASE NO. 2777. July 29, 1987.] FARMERS AGRICULTURAL CORPORATION, ET AL. , petitioners , vs .MARCELINO CUAN and ROMEO REANTASO , respondents . D E C I S I O N This is a petition to enjoin respondents Marcelino Cuan and Romeo Reantaso from holding a special stockholders' meeting. On April 3, 1985, the Commission temporarily restrained respondents from holding said meeting. Petitioners alleged, among others, that respondents have threatened to call a special stockholders' meeting on April 9, 1985; that respondents have no right to call said meeting since the call was not made in accordance with Section 35 Article II of the by-laws, which provides that special stockholders' meeting may be called at any time by its President or by any three (3) directors or upon the request of any stockholders or stockholder holding at least twenty (20%) percent of the subscribed voting stock; that neither respondents Cuan and Reantaso is the President of the corporation; that petitioner Clemente H. Teruel is the President of petitioner corporation; that he owns and has paid 159,900 shares of the par value of P159,900.00 of the corporation's total outstanding capital stock of P1,000,000.00 as reflected in the general information sheet; that respondents are merely two (2) out of seven directors, and respondents own shares of stock equivalent to only .015% of petitioner corporation's total outstanding capital stock; that respondents have no right to call and hold said special stockholders' meeting on April 9, 1985; and that grave or irreparable injury will be suffered by the petitioners if respondents are not enjoined from doing this threatened act. Respondents, in opposition thereto as contained in their answer, alleged that based on the articles of incorporation, the original stockholders with their corresponding subscription and amounts paid were as follows: cdll Name of Stockholders No. of Common Amount Shares Paid Subscribed ANTONIO DE MESA 350,000 P87,500.00 CLEMENTE H. TERUEL 250,000 50,000.00 REYNALDO V. MORENTE, JR. 150,000 37,500.00 ADOLFO M. CASTILLO 100,000 25,000.00 EDILBERTO B. SOSA 50,000 12,500.00 FLORENTINO C. REYES 50,000 12,500.00 GREGORIO B. TRINIDAD, JR. 40,000 10,000.00 RAMON S. CASIMIRO 20,000 5,000.00 PLEBLIO G. ARELLANO 20,000 5,000.00 JOSEPH F. ALDANESE 10,000 2,500.00 ANTONIO Z. HENZON 10,000 2,500.00 TOTAL 1,000,000 P250,000.00 In November, 1979 and thereafter, petitioner Teruel assigned Five Thousand (5,000) common shares of stock of petitioner corporation in favor of respondent Cuan and Ten Thousand (10,000) common shares in favor of respondent Reantaso; on March 16, 1982, the board of directors of petitioner corporation passed a resolution calling on all unpaid subscriptions; subsequently notices of said call were sent to all the stockholders who had unpaid subscriptions as follows: NO. OF COMMON SHARES NAME OF STOCKHOLDER SUBSCRIBED BUT UNPAID ANTONIO DE MESA 262,500 CLEMENTE H. TERUEL, JR. 150,000 REYNALDO V. MORENTE, JR. 112,500 ADOLFO M. CASTILLO 75,000 EDILBERTO B. SOSA 37,500 FLORENTINO C. REYES 37,500 GREGORIO B. TRINIDAD, JR. 30,000 RAMON S. CASIMIRO 15,000 PUBLIO G. ARELLANO 15,000 JOSEPH F. ALDANESE 7,500 ANTONIO Z. HENZON 7,500 TOTAL 750,000 Since the period to pay had already lapsed, the board of directors declared that all unpaid subscriptions were considered delinquent and that the same may be sold to prospective buyers after all the legal requirements have been complied with; notices of the sale of delinquent shares were published on July 2, 9 and 16, 1983 issues of Balita; said delinquent shares were all bought by respondent Cuan by applying the amount of P734,800.00 owing to him from petitioner corporation from cash advances previously made by respondent Cuan to the corporation; that in a meeting held on August 3, 1983, said sale was confirmed by the board of directors after the sale of the delinquent shares of stock to respondent Cuan; thus the respective holdings of the stockholders of petitioner corporation are as follows: NAME NO. OF AMOUNT SHARES PAID-IN MARCELINO CUAN 739,800 P739,800.00 FORB DEV. CORP. 43,964 43,964.00 REYNALDO V. MORENTE, JR. 37,400 37,400.00 RVCM MGT. & INVESTMENT CORP. 34,400 34,400.00 ADOLFO M. CASTILLO 25,000 25,000.00 ANTONIO DE MESA 18,936 19,936.00 EDILBERTO B. SOSA 12,500 12,500.00 FLORENTINO C. REYES 12,500 12,500.00 GREGORIO B. TRINIDAD, JR. 10,000 10,000.00 ROMEO R. REANTASO 10,000 10,000.00 HERNANDEZ BALDO 10,000 10,000.00 CLEMENTE H. TERUEL 10,000 10,000.00 RAMON S. CASIMIRO 5,000 5,000.00 PUBLIO G. ARELLANO 5,000 5,000.00 ISABELO JARENO 5,000 5,000.00 GEORGE TERUEL 5,000 5,000.00 SANTIAGO PESTANO 5,000 5,000.00 AURE S. ABELLA 5,000 5,000.00 ANTONIO Z. HENZON 2,500 2,500.00 JOSEPH F. ALDANESE 2,500 2,500.00 FELICISIMO OCAMPO 300 300.00 GAUDENCIO ROMUALDEZ 200 200.00 1,000,000 P1,000,000.00 That respondents Cuan and Reantaso therefore own and paid for a total of (749,800) shares of stock of petitioner corporation representing 74.98% of its entire outstanding capital stock. In their reply dated 10 January 1985, petitioners stated among others, that respondent Cuan did not validly purchase the 734,800 delinquent shares of stock since: prcd a) The advances of respondent Cuan which was applied to the purchase price of the delinquent shares were made of a piece-meal basis either by way of cash or assets. With respect to advances in the form of assets, these were bought with the funds of petitioner corporation. b) The advances were recorded in the company's book of accounts merely on the basis of receipts submitted by respondents without any authority or knowledge of the board of directors; c) In view of the foregoing, it is clear that respondents were commingling or confusing their personal funds/assets with those of petitioner corporation to such an extent that at any point in time, petitioner corporation or any member of the board of directors could never ascertain as to how much were the advances given by the respondents; d) The identity of respondent Cuan was never revealed to the board of directors; e) The sale to the respondents was without board authority. Respondents in their rejoinder dated 22 July 1985, alleged that petitioner corporation, at the time of the sale of delinquent shares, was indebted to respondent Cuan in an amount greater than the purchase price of the delinquent shares; that the advances of respondent Cuan to petitioner corporation is in the nature of loans; that certain assets of petitioner corporation were placed in the name of the respondents to serve as security for said advances; that all of said advances were properly documented, recorded and authorized by the board of directors; that the sale of the delinquent shares of stock to respondent Cuan was duly authorized by the board of directors of petitioner corporation and lastly, it appears that petitioners are questioning the validity of the delinquent shares of stock to respondent Cuan and this is already barred by prescription under Section 69 of the Corporation Code. On August 20, 1985, an Order was issued denying petitioners' application for preliminary injunction. Now comes the merit of this case. From the pleadings filed, it appears that petitioners are questioning the authority of the respondents to call a special stockholders' meeting. Consequently, if the sale of the delinquent shares of stock to respondent Cuan is not valid, then, respondents do not have the required percentage of twenty (20) percent of the outstanding capital stock under the by-laws to qualify them to call a special stockholders' meeting. Based on the evidence presented, it was shown by the respondents that from September 1982 to July 5, 1983, the expenses of petitioner corporation were paid through checks issued by respondent Reantaso that said checks were funded through money given by respondent Cuan. Said expenses which were paid through the funds given by respondent Cuan from September, 1982 to July, 1983 amounted to P2,109,191.57 (Exhs. "338-704"). Petitioners claimed that said advances were not authorized by petitioner corporation and the same were in the form of investments, as shown by the minutes of the meeting of the board of directors on September 18, 1982 (Exh. "Z").However, said exhibits presented by the petitioners show that respondents Cuan and Reantaso were authorized "to put in substantial amounts as their investment in the corporation. Respondents argued that the term "investment" is a general term which can either mean "equity contribution" or "loan" and respondents presented testimonial evidence that the advances of respondent Cuan are investments in form of "loans". Moreover, assuming that the advances extended by respondent Cuan from September, 1982 to July, 1983 were not approved by the board of directors, still said advances should be deemed to have been ratified by the board of directors of petitioner corporation. This is due to the fact that said advances were used to pay the expenses of petitioner corporation. Accordingly, since September, 1982 when said advances were first used to pay corporate expenses up to the filing of this case, petitioners nor the board of directors failed to raise any objection to the use of said advances. In addition, no evidence was presented by the petitioners to prove the fact that said disbursements were not for the expenses incurred by petitioner corporation. Petitioners further asserted that the sale of the delinquent shares of stock to respondent Cuan is defective because his identity was never revealed to the petitioner corporation's board of directors. However, petitioners failed to cite any reason why the identity of the purchaser of the delinquent shares is important. In fact, Antonio Tria, the Corporate Secretary of the Petitioner corporation and their own witness, testified that he did not report to the board of directors that it was respondent Cuan who purchased said shares since he did not see the need for it because the sale of the delinquent stocks was made at public auction in accordance with the previous resolution of the board of directors and at the time of the sale as stated in the publication, it was only respondent Cuan who offered to buy and nobody else among the subscribers and even among the other stockholders offered to buy the shares." (T.S.N. June 6, 1985, page 26).The same witness for the petitioners when cross-examined, testified that he saw to it that all the legal requirements were complied with respect to the subject of delinquency sale (ibid at page 72),as shown in Exh. "10" which is the minutes of the meeting of the board of directors that considered the sale of the delinquent shares. Yet, no one among the members of the board of directors, including petitioner Teruel, as borne out by the minutes, inquired as to the identity of the purchaser of the delinquent shares. Further, no one raised any objection why the Corporate Secretary did not report to the board of directors the identity of the buyer. It is only natural that if the identity of the purchaser was important to the validity of the sale, the members of the board of directors would inquire as to who purchased the delinquent shares. Lastly, the notices of auction sale (Exhs. "13","14",and "15") and the minutes (Exhs. "8"-"10") pertaining to the decision of the board of directors to make a call on unpaid subscription and to sell the delinquent shares did not mention any conditions and/or qualifications regarding the purchase of said shares. Relative to the point raised by-the petitioners that the advances of respondent Cuan cannot be applied to the purchase price of the delinquent shares since respondents were confusing their own funds/assets with those of petitioner corporation, suffice it to say that during the period prior to the sale of the delinquent shares, petitioners were unable to present evidence showing that the checks of petitioner corporation or its own funds were used to buy assets that were put in the name of respondents or to pay expenses incurred by respondents for their own personal benefit. As shown in Exhs. "338" and "704",the total amount advanced by respondent Cuan from September, 1982 to July, 1983 was P2,109,197.57. The total acquisition cost of the equipments and land purchased from September, 1982 to July, 1983 with the advances of respondent Cuan and put in his name and that of respondent Reantaso, was only P492,950.00 (T.S.N. June 24, 1985, page 110).Thus, even if the acquisition cost is deducted from September, 1982 to July, 1983, the balance is more than the purchase price for the delinquent shares. In the case at bar, it appears that from the date of the delinquent shares up to March, 1985, respondent Cuan and Ciper Engineering Company, a firm controlled by the respondents, extended further advances in big sums to petitioner corporation (Exhs.,"17"-"286").If there was any dispute between the stockholders of petitioner corporation relating to the sale to respondent Cuan, he would not have extended such big amounts to the petitioner corporation as advances. Respondent would not have risked such amount of money unless it is undisputed that they were already the controlling stockholders of petitioner corporation, for without the delinquent shares, respondents would own only .015% of the outstanding capital stock. Considering the foregoing, and upon careful perusal of the facts and the evidence adduced in this case, no other conclusion can be made except that the sale of the delinquent shares to respondent Cuan is valid. Consequently, respondents have the right to call and hold a special stockholders' meeting. WHEREFORE, judgment is hereby rendered dismissing the instant case. No pronouncement as to cost and attorney's fees. SO ORDERED. (SGD.) ENRIQUE L. FLORES, JR. Hearing Officer