Jeffrey Ho Tiongco vs. Gilbert So, et al.

[SEC-SICD * CASE NO. 2961. January 27, 1988.] JEFFREY HO TIONGCO , petitioners , vs .GILBERT SO, ET AL. , respondents . D E C I S I O N This is a petition seeking, among others, for the nullification of special stockholders' meeting of J & G ENTERPRISES, INC. held by herein respondents on March 3, 1986, accounting, with ancillary prayer for a writ of preliminary injunction. On March 7, 1986, petitioners Jeffrey Ho Tiongco, Jaime Ho Tiongco and Josephine Ho Tiongco, filed a petition with the Commission against certain alleged illegal acts of respondents Gilbert So, Chan Huan Yan, So Chi Min and Siao Ha Ong So, alleging, inter alia, the following: 1. That a notice of special stockholders' meeting dated February 28, 1986 allegedly signed by respondent Gilbert So as president was served upon petitioner Jeffrey Ho Tiongco, at his residence at 22 Silencio Street, Quezon City, on March 2, 1986, at 4:00 o'clock in the afternoon at its principal office at 214 Wilson St.,San Juan, Metro-Manila among others, for the election, of a new set of the members of the Board of Directors; 2. That, as scheduled, on March 3, 1986 at 4:00 o'clock in the afternoon, a special stockholders' meeting by J & G Enterprises, Inc. was allegedly held at its principal office where the following transpired: a) Election of the members of the Board of Directors, to wit: CHAN HUAN YAN SO CHI MIN SIAO HA O. SO GILBERT O. SO JEFFREY TIONGCO b) Election of officers of the corporation, to wit: SIAO HA ONG SO President GILBERT SO Vice-President & General Manager SO CHI MIN Treasurer WILFRED CHUA Secretary c) That the following are the stockholders of the corporation with their corresponding stockholdings, to wit: STOCKHOLDERS PRESENT STOCKHOLDING EQUITY CHAN HUAN YAN 1,250 shares 12.50% SO CHI MIN 1,250 shares 12.50% GILBERT SO 1,230 shares 12.30% SIAO HA ONG SO 771 shares 7.71% STOCKHOLDERS ABSENT STOCKHOLDING EQUITY JEFFREY TIONGCO 1,764 shares 17.64% JAIME TIONGCO 10 shares .10% JOSEPHINE TIONGCO 10 shares .10% 3. That the aforesaid list of stockholders was a sham as Messrs. Chan Huan Yan and So Chi Min are not stockholders of J & G Enterprises, Inc.,considering that there are only five (5) stockholders of record who are at the same time the members of the Board of Directors, and they are petitioners herein and respondents Gilbert So and Siao Ha Ong So, subscribing for 2,500 shares each with a par value of P250,000.00 with a paid-up capital of P64,000.00. Petitioners allegedly hold and control 50% of the said shares or 1,250 shares of stock; llcd 4. That as the petitioners hold and control 50% of the company's subscribed capital stock, for lack of quorum, the alleged special stockholders' meeting held on March 3, 1986, was null and void being in contravention of Article VI of the code of by-laws of J & G Enterprises, Inc. and that herein petitioners were not present thereat nor have not authorized anybody to represent any of the petitioners; 5. That with the intention to misappropriate corporate funds and dissipate J & G Enterprises, Inc. of its financial resources, a sham and fictitious Board Resolution dated November 30, 1985 was passed without the knowledge of nor participation by the petitioners, vesting authority upon any two (2) of petitioner Jeffrey Ho Tiongco and co-respondents Gilbert O. So and So Chi Min, who was not even a stockholder, to act as signatories with power to issue notes, checks and drafts, upon the deposit of the corporation at Citytrust Banking Corporation at Greenhills Branch, Ortigas Avenue, San Juan, Metro-Manila, on the basis of which subsequently respondents So Chi Min, Gilbert So and Siao Ha Ong So withdrew unaccounted corporate funds in the sum of P145,676.40 from the corporation's Checking Account No. 47-00087-2, complemented by the fact that proceeds from sales tickets pertaining to the company had been deposited at the separate account No. 549-00185-1 of Angie's Style, a single proprietorship business owned by respondent Siao Ha Ong So, at Solidbank. Acting on said petition and to preserve the status quo, a Temporary Restraining Order dated March 14, 1986 was issued enjoining the respondents or any one acting on their behalf from making withdrawals and/or disbursements of corporate funds from any and all of the existing bank accounts of J & G Enterprises, Inc. particularly Account No. 47-00087-2 Citytrust Banking Corporation, Ortigas Avenue, San Juan, Metro-Manila, except, that which is necessary in the ordinary course of business. Consequently, when the case was called for hearing on March 26, 1986, petitioners appeared without their counsel, manifesting that they were' assured by their counsel but failed to do so for reasons unknown to them. Respondents' counsel objected vehemently for further postponement and in open court moved for the denial of the application for injunction, which motion was granted in open hearing without prejudice to any motion for reconsideration which petitioners may file. Accordingly, the Commission lifted the Restraining Order it previously issued on March 14, 1986. Pursuant to said Order, petitioners filed a motion for reconsideration praying that respondents be restrained/enjoined from operating and carrying on the business of the corporation, from bringing out corporate properties from the company's principal office, and for accounting. Consequently, in an Order dated April 10, 1986, the Commission reinstated its previous restraining order of March 14, 1986. Then came respondents' answer dated April 14, 1986, specifically denying practically all the allegations in the petition, raising special and affirmative defenses thereof as well as a counterclaim, with a supportive allegation that petitioner Jeffrey Ho Tiongco refuses, without any reason and despite repeated demands, to deliver all the papers and records of the corporation which has come into his possession during the time that he managed and operated the business of the corporation to the exclusion of the respondents, particularly Gilbert So, which is damaging to the corporation. The case came up for hearing and, thereafter, a moratorium was had for the purpose of finding possibility of amicable settlement, specifically on the aspect of accounting, but the same failed where, consequently, petitioner filed on April 23, 1986 a Motion for the Resumption of Hearing on the Merits and to Hold Respondents in Contempt, Appointment of a Receiver, and Election of Officers, after which a Motion to Cite For Contempt with Injunction was filed by the respondents. In an Order dated August 5, 1986, the Commission denied respondents' Motion for Contempt, directing petitioner Jeffrey Ho Tiongco to relieve the two (2) security guards from RG Investigating and Security Service Agency. Corollary to the incident of the appointment' of a receiver, the Commission, acting on the respondents' Manifestation/Motion dated May 18, 1987, appointed Atty. Marciano S. Bacalla, Jr. of this Commission as representative to conduct, exercise and witness the inventory, hauling and storage of all the movable properties of the corporation located at 214 Wilson St.,San Juan, Metro-Manila on May 27, 1987. Thereafter, after series of incidents on the issue of appointment of; a receiver, the Commission in its Order dated July 28, 1987 resolved to defer resolution thereon pending promulgation of judgment of the instant case. After a careful consideration of the records and documents brought to this Commission and of the evidence adduced pro and con during the hearings, and a full consideration of the laws applicable to such facts, the following have been established to the satisfaction of the Commission: As to the questioned special meeting of stockholders held by herein respondents on March 3, 1986, the legality of which is being put in issue in the case, branching out from alleged lack of notice, the questioned subscriptions of shares by respondents Chan Huan Yan and So Chi Min, lack of quorum, misappropriation/dissipation of corporate funds and assets, with the consequent relief of accounting, the Commission will thus resolve the case by definitive discussions of each and every item raised by petitioners. The admitted and uncontroverted fact on the notice of said stockholders' meeting needs no further discussions since the giving of such notice was admitted by petitioner Jeffrey Ho Tiongco, served upon him and with his previous knowledge regarding its scheduled date on March 3, 1986 for the election of the members of the board of directors and officers thereat as well as other agenda to be taken up thereon. This is more than acquiescence since evidence shows that notice was sent to his residence and duly received by petitioner and, hence, not violative of the provisions of the corporate by-laws on notices of meetings, complemented by the fact that the scheduled meeting was known to petitioners beforehand in a series of meetings and conferences with the respondents, particularly respondent Gilbert So. Respondents supported all these with their Exhibits "9","9-a","11" and "11-d",showing who attended the questioned meeting, the matters taken thereon, and the fact that petitioner refused to receive the notice for said meeting, as against the previous denial having received the notice. Petitioners went on further questioning the propriety of considering respondents Chan Huan Yan and So Chi Min as stockholders of the corporation as there are only five (5) stockholders of record who are at the same time the members of the board of directors, petitioners herein and respondents Gilbert So and Siao Ha Ong So, subscribing for 2,500 shares each with a par value of P250,000.00. Prescinding from this petitioners' theory, the Commission finds that under the facts and circumstances of record, petitioners together with the other incorporators, respondents Gilbert So and Siao Ha Ong So, due to the financial setback and heavy liquidity problem of the corporation, have explicitly acquiesced on respondents So Chi Min and Chan Huan Yan entry into the corporation as investors-stockholders which is tantamount to agreeing in the latters' subscriptions and full payment thereon of 2,500 shares worth P250,000.00. Formalities required on their subscriptions were negated when petitioners' subscriptions and paid-up during incorporation have been exceeded without any formalities taken thereon, coupled by the fact that other respondents, like William So, So Chi Min and Chan Huan Yan became stockholders by reason of the invitation of petitioner Jeffrey Tiongco and respondent Gilbert So. Needless to say, that petitioner Jeffrey Tiongco has full knowledge and in fact not only agreed but acquiesced together with respondent Gilbert So on respondent Chan Huan Yan investment of P125,000.00 (T.S.N. dated March 27, 1987 pp. 13 and 14 of the testimony of respondent Williams So and T.S.N. dated October 3, 1986, pp. 16-18, Testimony of Mrs. Fructuosa Madayag, accountant of the corporation corroborating on the fact-that petitioner Jeffrey Tiongco agreed and knew that respondents So Chi Min and Chan Huan Yan are stockholders).Mrs. Fructuosa Madayag likewise testified regarding agreement of the parties on November 19, 1985, petitioner Jeffrey Tiongco and respondent Gilbert So with respect to respondents' So Chi Min and Chan Huan Yan investments with the company where So Chi Min will be the treasurer and the opening of Bank Account with the Citytrust Bank at Greenhills Branch were Gilbert So, Jeffrey Tiongco and So Chi Min will be the signatories (T.S.N. dated October 3, 1986).No other contrary evidence has been adduced regarding recognition of respondents So Chi Min and Chan Huan Yan as stockholders of the corporation thus making the respondents clear majority subscribers and outstanding capital stock of the corporation sufficient to constitute a quorum for the transaction of any corporate business. prcd "A director who has participated in the selection of the Board of Directors and attempts to question the manner of choosing directors, or as a stockholder participated in the proceedings of the meeting and made no objections to the same until after meeting had adjourned and the directors' election has organized, because he is estopped." (Smith v. Knauss, 52 Utah 614, 176 Pac. 621). "A stockholder may, by participation or acquiescence, be estopped to question the title of directors or other officers to their office, not only against strangers dealing with the corporation, but also as against the officers themselves. Thus, it has been held that a director of a corporation has no standing as a stockholder to question the title of the other directors to their office because of informalities in their election, when he participated in all proceedings, and has acted as a director under an election equally informal." (Hall v. Westchester Pub. Co.,180 Pa. St. 561, 37 Atl. 106, 2 Fletcher 51). The foregoing likewise took a contrary stand on the petitioners' claim of unlawful hyphotecation/misappropriation of the company's financial resources by the respondents as they know well and even acceded, without objection in vesting authority upon petitioner Jeffrey Tiongco and respondents Gilbert So and So Chi Min as signatories on the deposits of the corporation at Citytrust Banking Corporation at Greenhills Branch, and the alleged unaccounted withdrawal of P145,676.40 on checking account no. 47-00087-2, (Exh. "1").This was further bolstered upon proof of due receipts of copies of the receipts and forty-five (45) checks covering said amounts by petitioner (Exh. "4" and Exh. "A"),and the corresponding board resolution pursuant to the agreement of the parties on November 19, 1985, properly showing that said amount was duly accounted for and contained in the financial records of the corporation as disbursements and expenses of J & G Enterprises, Inc. For their part, therefore, petitioners have not shown misappropriation on the part of the respondents to justify an adverse stand against the latter, as this will be acted upon by the Commission on the basis of the records and documentary evidence on hand. Moreover, in the consideration of this, due weight is accorded likewise on the testimonies of the witnesses, particularly the corporate accountant and bookkeeper, their testimonies being entirely free and adduced on the basis of credible records of the corporation to which petitioners' have not been deprived of their rights as stockholders, specifically on accounting and other equally inherent rights of stockholders. These physical facts belies and negates petitioners' claim on this item of the case. Series of efforts were taken on the settlement of the issue of accounting for the purpose of abating further discords among the parties but the same proved unsuccessful where the parties, specifically the petitioner moved for the resumption of the hearing on the merits, to hold respondents in contempt, appointment of a receiver and election of officers, inspite of the fact that in the scheduled hearing on the incident of the appointment of a receiver, in the absence of respondents' counsel, petitioner agreed again on the resumption of possibility of a joint accounting. In an Order dated August 5, 1986, the Commission directed, among others, petitioner Jeffrey Ho Tiongco to relieve the two (2) security guards from RG Investigation and Security Services Agency from the company's premises, finding that continued presence of said guards might prove prejudicial to precautionary measures between the parties. What happened afterwards are series of efforts by the parties to provide for the safety and preservation of the remaining properties of the corporation, where in one instance petitioners moved for the appointment of a receiver as a convenient and feasible means of preserving and administering its properties, and in an Order dated May 26, 1987, the Commission appointed a representative to conduct, oversee the inventory, transfer of movables for storage, acting on the prayer of the respondents manifesting, among others, the decision to close and stop the operation of the company's disco business located at 214 Wilson St.,Greenhills, San Juan, Metro-Manila, by reason of the fact that the lessor of the building housing the disco business has given the corporation up to May, 1987 within which to vacate the leased premises, respondents making an offer to petitioners for the custody and safekeeping of the movables but the latter refused. For the benefit of the corporation and its stockholders, respondents likewise filed a motion to appoint receiver with authority to sell for and in behalf of the corporation all the personal properties presently in storage and listed in the inventory submitted to the Commission. The Commission deferred resolution thereon pending promulgation of judgment in the instant case. The reasons adduced by the parties convinced this Commission of the urgency of the matters now before it. For the petition in this case seeks, among others, a true and complete accounting of all the funds and property of the corporation, while respondent decided to liquidate remaining assets of the corporation as a convenient move for its preservation and protection of the rights of the stockholders. The resultant prejudice to the parties, as well as to all other parties-in- interest is very clear. Under these circumstances, taking into custody and safekeeping of the remaining assets of the corporation appears to be the only remaining remedy to preserve and protect the assets of the corporation for the benefit of all concerned, despite objection of the petitioners that resolution of the instant case be made before any decision to sell the remaining corporate assets be made. It only remains now to deal with the aspect of receivership/liquidation for the preservation of the corporation's assets and in discharge of its powers and duties to preserve the rights, the stockholders, the public availing of the corporation's services and the rights of the creditors, as well as for reasons of equity and justice and to prevent possible paralization of corporate business. (Pocketbell Philippines, Inc., et al. v. The Honorable Securities and Exchange Commission, et al., GR. Nos. L-63558, L-68450-51, May 19, 1987). ACCORDINGLY, decision is hereby rendered: a) Dismissing the petition. Election meeting of March 3, 1986 as it provides and elects the members of the Board of Directors and officers of the corporation is hereby declared as VALID. b) Recognition of the subscriptions to respondents SO CHI MIN and CHAN HUAN YAN, as stockholders of record of J & G Enterprises, Incorporated. c) Directing the contending parties, pursuant to Presidential Decree No. 902-A, in relation to the Rules of Court, to submit to the Commission the names of their designated representatives one from the petitioners, one from the respondents and another person mutually acceptable to the parties who shall act as chairman thereof, within three (3) days from receipt of this Decision, on pain of forfeiture of such right in case of failure to comply herewith, thereby the remaining assets of J and G Enterprises, Incorporated under receivership for the purpose of avoiding probable dissipation of the same. Before assuming such function, the appointed chairman of the receiver is hereby required not later than February 15, 1988 to take the requisite oath of office before any authorized officer and to file a bond in the amount of Twenty Five Thousand (P25,000.00) Pesos, executed to all the individual parties to this case, conditioned that such receiver shall well and faithfully discharge the aforementioned duties and in compliance with this directive of the Commission relative thereto. cdll SO ORDERED. (SGD.) NAPOLEON M. TUMAMAO Hearing Officer