David Watts, et al. vs. Susan Abad

[SEC-SICD * CASE NO. 2977. November 10, 1987.] DAVID WATTS, ET AL. , petitioners , vs .SUSAN ABAD , respondent . D E C I S I O N The nature of the Petition For Mandamus with Writ of Preliminary and Mandatory Injunction and Prayer For Restraining Order against respondent Susan Abad, as culled from the allegations and prayers thereof, is for the immediate issuance of a restraining order directing the respondent Susan Abad to desist and refrain from exercising and performing the rights and powers of the general manager of Topflight (Philippines),Inc. and directing the petitioner, Rafael Vallejo to act as the general manager until a Writ of Preliminary Injunction shall have been issued; for the issuance of a Writ of Preliminary Prohibitory and Mandatory Injunction enjoining the respondent from further usurping the Office of the General Manager of the corporation and confirming that petitioner Rafael Vallejo is entitled to occupy the said office; for rendering judgment commanding the respondent Susan Abad to vacate the office of the general manager; for attorney's fees and litigation costs; and for other reliefs. LLpr Petitioners, in their petition, alleged inter alia; that they are bona fide stockholders and members of the Board of Directors of Topflight (Philippines),Inc.;that under Section 1, Article IV of the by-laws of the corporation, the General Manager must be elected by the Board of Directors as well as be a member thereof; that respondent was the General Manager of Topflight (Philippines),Inc. until April 10, 1986, when pursuant to Section 1, Article IV of the By-Laws, the Board of Directors elected Rafael Vallejo; that the Board of Directors were elected at the annual stockholders' meeting held on April 8, 1986; that respondent Susan Abad was not elected to the Board of Directors and, hence, not qualified to be elected to the position of general manager; that on April 10, 1986, Susan Abad, through a letter sent to her by the President David Watts, was informed that Rafael Vallejo had been elected as the General Manager of the corporation and, therefore, requested her to turn over the management and pertinent records of the corporation to Mr. Vallejo; that to date, Susan Abad refused and still refuses to turn over the management and pertinent records to Mr. Vallejo; that because of her refusal, respondent Abad unlawfully excludes Mr. Vallejo from the use and enjoyment of the office of general manager of the corporation to which he was duly elected; and that moreover respondent Abad is actually illegally performing corporate acts and exercising corporate powers to the detriment of the corporation as well as of the petitioners and other stockholders. In her answer, respondent avers, among others, the following: that contrary to their claims, petitioners' status as bona fide stockholders of Topflight (Philippines),Inc. are dubious, defective, illegal and is now the subject of cancellation proceedings before the Board of Investments; that the respondent is the General Manager of Topflight (Philippines),Inc. duly elected as such and authorized to perform the duties and functions as such general manager; that the removal of respondent as general manager is illegal; that petitioner Vallejo was not duly elected by a constituted Board of Directors but was designated by outsiders, intruders and trespassers; that the election of the members of the Board of Directors on April 8, 1986 was in violation of law and by- laws of the corporation; that there was no regular meeting of the board of direction on April 10, 1986 in accordance with law and the by-laws of the corporation; that the non-election of respondent to the board of directors is also unlawful; that the minutes of the meeting held on April 8, 1986 and April 10, 1986 by individual Petitioners are spurious and sham; that petitioners have no authority to remove respondent as general manager without just and legal cause; petitioner Vallejo could not have been validly elected or even designated as general manager because he was never a stockholder of record of the corporation entitled to be elected as director and general manager; that there was no regular meeting of the stockholders and the board of directors held in accordance with law and the by-laws of the corporation to elect the officers and directors of the corporation; that respondent could not turn over the management and records of the corporation to an intruder; that respondent could not have excluded from the management of the corporation somebody who was merely an impostor and railroaded into the corporate hierarchy of Topflight (Philippines),Inc.;that respondent was the one unlawfully excluded from management of the corporation and was subjected to indignities, insult and discourteous behavior by petitioners Watts, Sandejas, Vallejo, and Nunag; that petitioners are not entitled to any relief because they are not bonafide stockholders of the corporation to the extent of exercising control thereof; that petitioner Vallejo was not a lawful stockholder of the corporation and, therefore not qualified to be elected as director and general manager of the corporation in accordance with law and the by-laws and Articles of Incorporation; and that petitioners have no right to be protected for having violated the law, the by-laws and Articles of Incorporation of the corporation. The Commission, after several hearings, in its Order of August 26, 1986, denied petitioners' application for the issuance of the Writ of Preliminary Injunction; denied respondent's Motion To Cite Petitioners in contempt dated July, 1986; denied the Motion For Leave to Intervene filed by Braulio, Tarcila, Robert, all surnamed Abad and Ng Ming dated May 21, 1986, as well as the same Motion dated May 29, 1986 filed by Milagros Abad; and set the preliminary conference hearing on September 8, 1986. However, the said preliminary conference was only terminated on February 20, 1987, after the parties failed to reach an amicable settlement of their case. During the hearing of the merits of this case, the parties adopted their evidences, both testimonial and documentary, presented on the injunctive incident as their evidence in chiefs. For the petitioners, Rafael Vallejo and Atty. Jose Sandejas were presented as witnesses with Documentary exhibits from Exhibits "A" to "S" with submarkings. As for the respondent, respondent herself, Susan Abad, testified and presented documentary exhibits "L" to "9" with submarkings. On the basis of the evidence presented by the parties, the undisputed and pertinent facts appear to be as follows: That Topflight (Philippines),Inc. held its annual stockholders' meeting on April 8, 1986 for the election of the members of the Board of Directors (Exh. "B").This meeting was attended by Braulio Abad, Susan Abad, Tarcila Ng Ming, Rafael Vallejo, Jose Sandejas and David Watts. David Watts attended the said meeting in his capacity as a stockholder and as proxy of Topflight Corporation, (U.S.A.).The meeting ascertained the presence of the quorum, although there was no determination of the number of shares who actually were represented both in person and/or proxy which could be the basis for the declaration of a quorum. Braulio Abad, Tarcila Abad, Susan Abad and Robert Abad (Abad group, for short) walked out of the meeting after they resented the discussion of the proposed composition of the Board and officers of the corporation and the proposed election of a new general manager. After the walkout of the Abad group, the meeting was adjourned, to be continued on April 10, 1986, without the election of the Board of Directors. On April 10, 1986, without the presence and notice to the Abad group, and again without the determination and declaration of a quorum, the meeting was called to order by Mr. Watts. In that meeting, the following were elected members of the Board of Directors: Erwin Huber, David Watts, Braulio Abad, Jose Sandejas, Rafael Vallejo, Lucas Nunag and Pearl Liu, with the following as officers of the Corporation: Chairman, Braulio Abad; President, David Watts; Treasurer, Rafael Vallejo; General Manager and Secretary, Jose Sandejas. Petitioner Rafael Vallejo testified and admitted that during the meeting of April 8, 1986, there was no actual transfer of share in his favor as nominee of Topflight Corporation, U.S.A. in Topflight (Philippines),Inc. (TSN pp. 99, 112, 113 and 141. May 26, 1986. TSN, pp. 22 and 23, June 5, 1986).He further testified that he was not also aware whether petitioners Nunag, Sandejas and Liu were given shares as nominees of Topflight Corporation, (USA) during that particular meeting. Furthermore, he testified that during the meeting of April 10, 1986, wherein he was elected member of the Board, Treasurer and General Manager "No stock certificate was issued in his favor by Miss Susan Abad" (TSN, page 23, June 5, 1986) and so do with petitioners Nunag, Sandejas and Liu, who were likewise, elected to the Board of Directors. Although on April 3, 1986, there was a request to the Corporate Secretary, Susan Abad, from Mr. R. Kenneth Long, Vice President, Finance, to issue one (1) share each to Erwin Huber, David Watts, Jose R. Sandejas and Rafael Vallejo (Exh. "5" and Exh. "J") and another by Mr. Watts to the Corporate Secretary to issue one (1) share each to Lucas M. Nunag and Pearl T. Liu (Exh. "6"). LibLex Petitioner Jose R. Sandejas testified that he was a nominee of Top flight Corporation (USA) through a letter request dated April 3, 1986 from the Officer of Topflight Corporation (USA) to the Secretary of Topflight (Philippines),Inc. to issue one (1) share in his favor (Exh. "5" and "J");that the Secretary Susan Abad did not issue the one (1) share in his favor and the other request to issue one (1) share each to Lucas Nunag, Pearl Liu, Rafael Vallejo and David Watts, as nominees of Topflight Corporation (U.S.A.);that the reason why the Corporate Secretary, Susan Abad, did not issue the requested shares, was, according to her, it will violate the provision of Section 2, Article V of the Corporation's by-laws, and such issuance is not in accordance with the correct interpretation of the said provision, which refers only to transfers which are real transfers as against nominal transfers of the shares; that the meetings of April 8, 1986 and April 10, 1986 were recorded in writing and that he was the one who prepared the minutes of those meetings (Exh. "B");that the meetings of April 8 and 10, 1986 were attended among others by David Watts, as stockholder, and as proxy of Topflight Corporation (U.S.A.) (Exh. "K"),who appeared to own 65% of the equity of Topflight (Philippines),Inc.;that Mr. David Watts' attendance alone, for himself and as proxy of Topflight Corporation (USA) could have constituted a quorum of the meeting on April 8, 1986; that on or about April 10, 1986, together with Lucas Nunag, David Watts and Pearl Liu, who were issued one (1) share of stock each, he (Sandejas) was issued one (1) share of stock by Mr. David Watts and himself, as Secretary (Exhs. "L" to "S" including submarkings);that the issuance of shares to Sandejas and the other petitioners was not recorded in the books of Topflight (Philippines),Inc. because they had no possession of the Stock and Transfer Book; that Susan Abad is in possession of the stock and transfer book and she had not turned over the same to them. On cross-examination, Sandejas admitted that nominal transferees are not the real owners of the shares of stock; that in their case, they are merely holding the shares of stock for and in behalf of Topflight Corporation (USA);that the meeting of April 8, 1986 was called to order by Mr. Watts, the President of the corporation and not by Mr. Braulio Abad, the Chairman of the Board of Topflight (Philippines),Inc.;that no notices were sent to the stockholders during the April 10, 1986 meeting except the original notice sent by Susan Abad during the April 8, 1986 meeting. Respondent Susan Abad testified, among other things, that she was the Secretary and General Manager of Topflight Philippines, Inc.;that petitioners David Watts and Erwin Huber are stockholders and Directors of Topflight (Philippines),Inc.;that Topflight Corporation (USA) is also a stockholder of Topflight (Philippines),Inc.;that on the meeting of April 8, 1986, he was instructed through a letter dated April 3, 1986, delivered to her by Mr. Sandejas to transfer one (1) share each to David Watts, Erwin Huber, Jose Sandejas and Rafael Vallejo, but she did not issue the shares to them because of the provision in the by-laws prohibiting any transfer of stocks ten (10) days before election; that in fact she did not act on the request up to the present (TSN, page 27, June 13, 1986);that on April 10, 1986, while she was in her office, Mr. Sandejas together with Mr. Vallejo, Mr. Nunag, Mr. Watts and Pearl Liu, handed to her a letter instructing her to transfer one (1) share each to Lucas Nunag and to Pearl Liu; that she did not transfer any share to the above mentioned persons (TSN, pp. 30 to 33, June 19, 1986).The Stock and Transfer Book (Exh. "9") was presented and the names of Jose Sandejas, Rafael Vallejo, Lucas Nunag and Pearl Liu who were among those elected members of the Board of Directors on April 10, 1986, did not appear as stockholders nor nominees of Topflight Corporation. The primordial issues to be resolved in this case are the following: 1. Whether or not petitioners Rafael Vallejo, Jose R. Sandejas, Lucas M. Nunag, and Pearl T. Liu are bona fide stockholders of Topflight (Philippines),Inc. and/or nominees of Topflight Corporation (USA) during the annual stockholders' meetings of April 8 and 10, 1986; and corollary thereto, whether or not the election of directors and officers, particularly the election of petitioner Rafael Vallejo as director, treasurer and general manager is legal and valid; LibLex 2. Whether or not the annual stockholders' meetings conducted on April 8 and 10, 1986 are valid and legal. On the first issue, We resolve to rule in the negative. As claimed by the petitioners and as admitted by respondent, there is no question that petitioners David Watts and Erwin Huber are bona fide stockholders of Topflight (Philippines), Inc. However, in the case of petitioners Rafael Vallejo, Jose R. Sandejas, Lucas M. Nunag and Pearl T. Liu, their status as stockholders and/or nominees during the annual stockholders' meeting on April 8, 1986, and subsequently, on April 10, 1986 were dubious. During the meeting of April 8, 1986, the said petitioners were not stockholders nor nominees of Topflight Corporation (USA) who can validly attend and participate in the annual stockholders' meeting of Topflight (Philippines), Inc. It was only in the meeting of April 10, 1986, which was supposed to be a continuation of the April 8, 1986 meeting, although the latter's meeting was adjourned because of the walkout of the Abad group, that said petitioners appeared to have the semblance of the status of nominees of Topflight Corporation (USA) and who can therefore, participate and be elected as members of the Board of Directors and officers of Topflight (Philippines), Inc. But even against this perception, We cannot, however, consider at the moment their status as such, because the said transfers of one (1) share to each of them are not made in accordance with law. As testified by respondent Susan Abad and admitted by petitioners, these transfers of shares of stock to petitioners were or are not recorded in the Stock and Transfer Book of the corporation. Under the law, a stockholder in order for him to qualify to be elected a director, "must own at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his name in the books of the corporation" (Sec. 23, Corporation Code of the Philippines). Holders and/or owners of nominal shares, like petitioners, in this case, who maintain and insist that they were acting for and in behalf of the real owners of the shares of stock, must also register their nominal shares in order for them to qualify to be elected members of the Board of Directors. The registration of the aforesaid petitioners' nominal shares of stock in their own stock and transfer book (Exh. "S") is not the book of the corporation contemplated by law, but the official Stock and Transfer Book of the subject corporation kept by the respondent Secretary. It is to be noted that holders or owners of nominal shares who are properly recorded in the proper books of the corporation are considered, for all intents and purposes, stockholders of a corporation. The petitioners who were allegedly given a nominal one (1) each share of stock by Topflight Corporation (USA) in order for them to qualify to be elected as members of the Board of Directors must register or record their nominal shareholdings in the books of Topflight (Philippines), Inc. Otherwise, such transfer shall not be considered valid insofar as Topflight (Philippines), Inc. is concerned, except between the petitioners and Topflight Corporation (USA). Thus, section 63 of the Corporation Code of the Philippines provides: "SECTION 63. Certificate of Stock and Transfer of shares . ...Shares of Stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred " (Emphasis Supplied) LexLib In the same vein, the validity of the transfer of these nominal shares of stock to the aforesaid petitioners is seemingly doubtful considering the manner by which these nominal shares of stock were eventually being held by the petitioners. At the outset, petitioners through R. Kenneth Long and David Watts, requested the Corporate Secretary, Susan Abad, to transfer one (1) share of stock to each of the petitioners from the shareholdings of Topflight Corporation (USA) in Topflight (Philippines),Inc. By this request, it is perceived that the Corporate Secretary, respondent Susan Abad, was the only one authorized by Topflight Corporation (USA) to transfer shares from its shareholding in Topflight (Philippines),Inc. Failing to effect such transfers because of the refusal of Susan Abad to do so, petitioners were able to get their one (1) share of stock each from Mr. Watts and Jose Sandejas. Before the meeting of April 10, 1986, however, Mr. Watts was the Vice President on Southeast Asia Operations of Topflight Corporation (Philippines),Inc. Mr. Watts attended the meetings of April 8 and 10, 1986 as a stockholder and as proxy of Topflight Corporation (USA).Atty. Sandejas could not have issued the nominal shares of stock to the petitioners because as earlier stated, before April 10, 1986, he was not yet an officer of Topflight (Philippines),Inc. The letter-request dated April 3, 1986, of R. Kenneth Long, Vice President for Finance of Topflight Corporation (USA) to the Corporate Secretary Susan Abad to transfer one (1) share of stock to Erwin Huber, David Watts, Jose R. Sandejas and Rafael Vallejo, and the letter-request dated April 8, 1986 of David Watts, Vice President for Southeast Asian Operations and proxy of Topflight Corporation (USA) to the Corporate Secretary, Susan Abad, to issue one (1) share of stock to Lucas Nunag and Pearl Liu, seemed to imply that it is only respondent Corporate Secretary, Susan Abad, who was authorized to issue such nominal shares to petitioners during the meetings of April 8 and 10, 1986. Atty. Sandejas claimed that he and Mr. Watts issued the nominal shares of stock to the petitioners in their capacity as Secretary and President, respectively, of Topflight (Philippines),Inc.,and he issued the corresponding Certificate of Stock to each of the nominal shareholders (petitioners) and recorded the same in their own Stock and Transfer Book which-was registered with the Commission on July 24, 1986. If Atty. Sandejas and Mr. Watts issued the said nominal shares in their capacity as Secretary and President, respectively, then it can be presumed that such issuances were only made after they were elected or immediately after their election on April 10, 1986. So that, before or during the meeting on April 10, 1986, petitioners, therefore, were not yet nominal shareholders of Topflight Corporation (USA) who can validly elect the members of the Board of Topflight (Philippines),Inc.;otherwise, we will be putting "the horse before the cart." As to the second issue, We regrettably find that the annual stockholders' meetings of April 8 and 10, 1986 for the election of the members of the Board of Directors and Officers of Topflight (Philippines),Inc. have several infirmities. The annual stockholders' meeting on April 8, 1986, although there was an ascertaining of the presence of a quorum, had no actual determination of the number of shares who actually were present in person and/or represented by proxy which could be the basis of the declaration of the quorum. The meeting was adjourned after the walk out of the Abad group, and was continued on April 10, 1986 without notice to the Abad group. The meeting of April 10, 1986, presided over by Mr. Watts was held without the presence of the Abad group and without determination of the quorum. In the said meeting, the following were elected as members of the Board of Directors for 1986-1987: Erwin Huber, David Watts, Braulio Abad, Robert Abad, Jose Sandejas, Rafael Vallejo, Lucas Nunag and Pearl Liu. Immediately after, the following were elected officers for the ensuing year: Chairman Braulio Abad President David Watts Treasurer Rafael Vallejo General Manager Rafael Vallejo Secretary Jose Sandejas Notices to the Abad group and determination of the quorum of the meeting of April 10, 1987 were necessary because the first meeting of April 8, 1986 was already adjourned, inspite of the claim of the petitioners that the meeting of April 10, 1986 was just a continuation of the meeting of April 8, 1986, as embodied in the minutes of Exhibit "B".For all intents and purposes, the meeting of April 10, 1986 was a resetting of the April 8, 1986 meeting for failure of the Corporation to elect the members of the Board of Directors and officers of the Corporation. It was also necessary that the Abad group should have been notified of the April 10, !986 meeting because the announcement of the alleged continuation of the meeting on April 10, 1986 was made after they (Abad group) had already walked-out from the meeting of April 8, 1986. The number of shares who were present both in person and/or proxy during the meeting of April 10, 1986 should have been determined and quorum should have been declared for the validity of the proceedings during the said meeting. The presence of a quorum cannot be presumed even with the attendance of Mr. Watts as proxy of Topflight Corporation (USA) which holds 65% of the outstanding capital stock of Topflight (Philippines),Inc. WHEREFORE, judgment is hereby rendered as follows: 1. The above-entitled case is DISMISSED for being devoid of merit; 2. The annual stockholders' meetings conducted on April 8, and 10, 1986, as well as the election of the members of the Board of Directors and Officers, thereto, particularly the election of Rafael Vallejo, as General Manager are declared NULL AND VOID; No pronouncement as to costs. SO ORDERED. (SGD.) JUANITO B. ALMOSA, JR. Hearing Officer