Antonio A. Dumlao, et al. vs. Leopoldo S. Sison, et al.

[SEC-SICD * CASE NO. 2780. August 15, 1990.] ANTONIO A. DUMLAO AND CHRISTIAN S. DUMLAO , petitioners , vs .LEOPOLDO S. SISON, ET AL. , respondents . D E C I S I O N This is a petition filed by Antonio A. Dumlao and Christian S. Dumlao against Leopoldo S. Sison III, Amanda S. Sison, Emily S. Sison, Imelda S. Sison and Miriam S. Sison for the nullification of the amendments to the By-laws of the corporation and the cancellation of the Certificate of Filing of Amended By-laws and the nullification of the removal of petitioner Antonio A. Dumlao as director and his ouster as Chairman of the Board and as Chief Executive Officer of the Corporation with a prayer for the issuance of a writ of preliminary injunction. Petitioners alleged, among others, that they, together with the respondents, are the incorporators and stockholders of Capitol Security and Allied Services, Inc., a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office at No. 2 West Capitol Drive, Pasig, Metro Manila, Philippines; that petitioners jointly own more than one third (1/3) of the outstanding capital stock while the respondents jointly own less than two thirds (2/3) of the outstanding capital stock of the corporation; that the corporation has an approved By-laws under SEC registration No. 122708 dated October 29, 1984; that petitioners and respondents were elected members of the board of directors during the initial meeting of the stockholders; that at the organizational meeting of the Board of Directors, respondent Leopoldo S. Sison III was elected Chairman/Chief Executive Officer and petitioner Antonio A. Dumlao was elected President and General Manager, that in the regular meeting of the Board of Directors held on December 27, 1984, petitioner Antonio A. Dumlao and respondent Leopoldo S. Sison III exchanged positions so that petitioner Antonio A. Dumlao became the Chairman of the Board/Chief Executive Officer and respondent Leopoldo Sison III became the President and General Manager; that in the same meeting, a resolution was adopted designating petitioner Antonio A. Dumlao and respondent Emily S. Sison as signatories for checks of the corporation and further designating respondent Leopoldo S. Sison as an alternate signatory in the "absence for an extended reasonable period of time" of the chairman; that on February 28, 1985, a board meeting was held by the respondents despite the absence of the petitioners and the fact that no quorum was reached in violation of Section 7 of the By-laws of the Corporation which require 3/4 of the outstanding capital stocks represented by the directors shall constitute a quorum; that on said meeting respondents adopted amendments to the By-laws of the corporation in violation of the Corporate By-laws; that on the same date, an unscheduled special stockholders' meeting was held by the respondents and adopted the amendments to the By-laws as approved by the respondents acting as directors in spite of the fact that there was no quorum on said stockholders' meeting because under section 4 of Article III of the By-laws, it provides that three fourth (3/4) of the outstanding capital stock, present in person or proxy, shall constitute a quorum for the transaction of business; that the said special stockholders' meeting wherein amendments to the By-laws were adopted/approved by the respondents was also in violation of Section 5, of Article VIII of the Corporate By-laws, for apparent lack of prior notice; that the said illegally adopted amended By-laws were filed with the Securities and Exchange Commission and subsequently issued the corresponding Certificate of Filing of Amended By-laws under SEC Registration No. 122708 dated March 14, 1985; that on March 20, 1985, under the illegally adopted By-laws, respondents held a special Board meeting whereby petitioner Antonio A. Dumlao was illegally removed as Director, Chairman of the Board/Chief Executive Officer and as signatory to the corporate depository Bank Accounts; that the removal of petitioner Antonio A. Dumlao as director was also in violation of Section 24 and 28 of the Corporation Code; that the Board resolutions removing petitioner Antonio Dumlao as Director, Chairman of the Board/Chief Executive and as one of Bank signatories are null and void because they were made by the respondents as a board under the illegally adopted and approved Amended By-laws. In their answer, respondents denied specifically the allegations that the special meetings of (both the board and stockholders) wherein amendments to the By-laws were adopted and approved by the respondents is in violation of the corporate By-laws; they likewise specifically denied that the removal of petitioner Antonio A. Dumlao as Director, Chairman of the Board and Chief Executive is in violation of Sec. 28 of Corporation Code and maintained that the removal was legal and valid since petitioner Antonio A. Dumlao was removed pursuant to Sec. 9 of Article IV of the corrected By-laws. Petitioners' injunctive relief was heard and after both parties presented evidence in support of their respective positions, this Hearing Officer issued an Order dated August 30, 1985 granting petitioners' prayer for injunctive relief and on October 22, 1985, a Writ of Preliminary Injunction was likewise issued after petitioners posted the required bond. However, upon Joint Motion/Manifestation made by the parties, the Writ of Preliminary Injunction was lifted on November 21, 1985 and subsequently allowed petitioners, also upon motion, to withdraw the Bond per order dated August 1, 1986. During the hearing on the merit held on August 7, 1987, petitioners formally manifested that they are no longer presenting additional evidence and instead adopted and/or reoffered the evidence on the injunction incident. On the other hand, respondents only presented documentary evidence most of which are likewise evidence of the petitioners. Based on the pleadings of both parties, the issues to be resolved in this case are: Principal issue Whether or not the special board and stockholders' meeting held on February 28, 1990 wherein respondents adopted and approved amendments to the By-laws are valid or not. Secondary issue Whether or not the removal of petitioner Antonio A. Dumlao as Director, Chairman/Chief Executive of the Corporation and as signatory to the corporate depository bank accounts by respondents on a special Board Meeting held on March 20, 1985 is valid or not. From the evidence adduced, the established facts are as follows: 1. Petitioners and respondents are all stockholders and directors of Capitol Security and Allied Services, Inc.,a corporation duly organized and existing under and by virtue of the laws of the Philippines. (Exhibits "A" & "4") 2. Petitioners jointly owned 1167 shares or more than one third (1/3) of the outstanding capital stock of the Corporation while respondents jointly owned 2,333 shares or less than two (2/3) of the outstanding capital stock of the corporation; (Exhibits "A" & "4") 3. The original By-laws of the corporation were duly adopted and approved by the stockholders and filed with the Securities and Exchange Commission and the corresponding Certificate of Filing of By-laws was issued under SEC Reg. No. 122708 dated October 26, 1984; (Exhibits "B" & "5") 4. Petitioner Antonio A. Dumlao was the Chairman of the Board and Chief Executive of the corporation; (Exh. "D") 5. Respondent Emily Sison and petitioner Antonio A. Dumlao are the signatories for checks of the Corporation, (Exh. "D") 6. On February 28, 1985, a board of directors' meeting was held amending the By-laws of the corporation (Exhs. "E" and "7") and said amended By-laws of the corporation was duly filed and approved by the Securities and Exchange Commission on March 14, 1985. (Exhs. "C" and "6") 7. Among the provisions of the original By-laws amended were Article 3, Sec. 4 and Article 4, Section 7, wherein quorum requirement on all Board and stockholders' meeting was changed from three-fourth (3/4) of the outstanding capital stock of the corporation to simple majority; (Exh. "E") 8. Section 7 of Article 4 of the original By-laws specifically provides that in all meetings of the Board of the Directors, the presence of the directors representing three-fourths (3/4) of the outstanding capital stock shall constitute a quorum for the transaction of corporate business and their decision shall be valid as corporate act; 9. The meeting of the board and stockholders held on February 28, 1985 were conducted by the respondents without the required number to constitute a quorum provided for in Section 7, Article 4 and Section 4 Article III of the original corporate by-laws; 10. Despite lack of quorum, respondents proceeded with the meetings and adopted and approved amendments to the corporate by-laws; 11. On March 20, 1985, a special meeting of the board was held wherein petitioner Antonio A. Dumlao was removed as Director, Chief Executive Officer and as one of the signatories of the corporation depository bank accounts; (Exh. "6" and "8") 12. In the meeting held on February 28, 1985 and March 20, 1985, petitioners were not present. (Exhs. "E" & "G") From the established facts shown above, it cannot be denied that the February 28, 1985 meeting conducted by the respondents and without the presence of the petitioners violated Section 4 Article 3 and Section 7 Article 4, of the original by-laws of the corporation, which required the presence of 3/4 of the outstanding capital stock in every board or stockholders' meeting to constitute a quorum. It is to be noted that in said meeting respondents adopted and approved various amendments of the original by-laws despite the fact that their presence could not constitute a quorum to proceed with the meeting and to transact a valid corporate act. It can be said, therefore, that all acts of the respondents in amending the original by-laws in that meeting were all contrary to the original by-laws and therefore illegal. Moreover, since the March 20, 1985 meeting was called pursuant to the questionable and illegally amended by-laws, petitioner Antonio A. Dumlao's removal as Director and Chief Executive Officer, as well as his ouster as one of the signatories of all checks and/or money transactions of the corporation are likewise illegal. These acts of respondents clearly constitute a violation or deprivation of petitioners' rights as stockholders and officer of the corporation. WHEREFORE, in view of all the foregoing, judgment is hereby rendered: 1. declaring the meeting held on February 28, 1985 and the amendments of the by-laws adopted and approved during said meeting as null and void. 2. declaring the removal of petitioner Antonio A. Dumlao as Director, Chief Executive Officer and as signatory to corporate depository bank accounts as null and void. 3. declaring the Certificate of Filing of Amended By-laws issued on March 14, 1985 by this Honorable Commission as null and void. Let copy of this Decision be furnished the Corporate and Legal Department and the Records Division of this Commission for their information and guidance. SO ORDERED. (SGD.) JAMES K. ABUGAN Hearing Officer