Peter Tanchi, et al. vs. Capitol City Development Bank, et al.

[SEC-SICD * CASE NO. 3037. February 22, 1989.] PETER TANCHI, ET AL. , petitioners , vs . CAPITOL CITY DEVELOPMENT BANK and DEVELOPMENT BANK OF THE PHILIPPINES , respondents . D E C I S I O N Before the Commission is an amended petition filed by a group of stockholders listed under paragraph 3 of the amended petition, claiming to own 35,029 common shares of stock out of the 69,900 common voting shares of stock in respondent Capitol Development Bank (Capitol, for brevity), whereby petitioners pray that a writ of preliminary injunction be issued enjoining respondents Capitol and Development Bank of the Philippines (DBP) from: (a) continued exercise by respondent DBP of the Assignment of Voting Shares/Rights (Annex "A" Petition), (b) from the use by Capitol of the stockholders' list of September 30, 1983, instead of the June 30, 1985 list as the basis for the issuance of stock dividends and the call for payment of the cash portion of the increase of capital of respondent Capitol per the resolution of its Board of Directors dated April 26, 1986, authorizing the merger of Capitol with Planters Development Bank. prcd Several hearings were conducted where testimonial as well as documentary evidence were presented by the parties on the prayer of the petitioners for the issuance of a writ of preliminary injunction, which was granted by this Hearing Officer in his Order dated December 22, 1986. In the same order, respondents' Motion to Dismiss was denied. On January 7, 1987, respondent Capitol filed a Motion for Reconsideration of the Order dated December 22, 1986, which was denied in an Order of March 16, 1987. Sometime on April, 1987, respondent Capitol filed a Petition for Certiorari with the Commission en banc of the Orders dated December 22, 1986 and March 16, 1987, which was later on withdrawn by respondent Capitol on March 15, 1988, and the said petition was dismissed by the Commission en banc in its Order of April 6, 1988. During the preliminary conference hearing (pre-trial) on August 23, 1988, the parties agreed to limit the issues of the case. Respondent DBP proposed that the issue of whether or not the Assignment of Voting Shares/Rights dated October 9, 1984, executed by the President of Manphil Investment Corporation (Manphil, for short), Mr. Carlos Sobrevinas, without the corresponding Board Resolution authorizing him to sign said document is valid or not. Respondent Capitol also proposed the issue of whether or not the list of respondent Capitol's stockholders of September 30, 1983 should be used instead of the June 30, 1985 list, as the basis for the issuance of stock dividends and the call for payment of the cash portion of the increase of capital stock of respondent Capitol. The above issues proposed by respondents DBP and Capitol were accepted by the petitioners. The parties, likewise, agreed that no further evidence will be presented anymore but instead the evidence presented during the hearing for the application for the Writ of Preliminary Injunction be considered as their evidence in chief. They furthermore, agreed that they be given a period of thirty (30) days within which to file their respective memoranda. cdll On the first issue, this Hearing Officer has exhaustively discussed this matter in its Order of December 22, 1986 which is hereby restated as follows: "However, in the case at bar, the main issue is the right to vote and to elect or be elected in the Board of Directors. Allegations are made that: which the Commission may pass upon as incident to the main issue, the Deed of Assignment, Exhibit "A" is null and void ab initio considering that the President of Manphil was not duly authorized by an appropriate board resolution passed and adopted by the Board of Directors of Manphil authorizing him to sign Exhibit "A". Furthermore, it appears that Mr. Carlos Sobrevinas cannot, on October 9, 1984, validly execute Exhibit "A" because the shares of stock covered by said Deed were at that time pledged with the UCPB to guarantee payment of a loan of P683,326.80 and the document signed by Manphil in favor of UCPB specifically states under Article III of Exhibit "E" that in the event of default as defined in the Audit Agreement and without notice and demand on the assignor the shares shall be applied in payment or reduction of the outstanding obligation of Manphil. It is to be noted that respondents have been shown to have failed to comply with par. 2, page 3 of Exhibit "A" and with the provisions of Section 59 of the Corporation Code of the Philippines. "To our mind, the denial of the right of petitioner, as stockholders of Capitol to vote in the stockholders' meeting of April 2, 1986 and to elect the Board of Directors, is an intra-corporate controversy that falls squarely within the jurisdiction of this Commission. "Evidence so far presented during the hearing of the issuance of a writ of preliminary injunction appear to us that the Deed of Assignment of Voting Shares/Rights, marked as Exhibit "A" was not duly authorized by an appropriate board resolution of Manphil, in accordance with the provision of Section 5, Article VI of the New By-Laws of Manphil, which specifically provides that: "To sign and execute in the name of the corporations all deeds, mortgages, bonds, contracts or other instruments authorized to be entered by the Board or by the Executive Committee, except where the signing and execution thereof shall have been expressly delegated to some other officer or agent of the corporation." We also note that it is expressly provided for in the document Exhibit "A", under par. 2, page 3 thereof, that the shares so assigned shall be turned over to and kept in the custody of the assignee with annotations of such assignments on the face of the certificate of stocks, as well, as registered in the corporate books this to our mind, is intended to protect the rights and interest of third parties, who may subsequently deal with in connection with said shares of' stocks. Petitioners' evidence also shows that the certificates of stocks of capital previously by Manphil, were at the time of execution of the Deed of Assignment, Exhibit "A" pledged with the UCPB and the Deed of Assignment signed and executed by Manphil, marked as Exhibit "E" more. specifically under Article III, thereof provides that: in the event of default as defined in the credit agreement and without need of notice to and demand on the assignor to apply the same in payment or reduction of the outstanding obligations of the principal, as set forth in Article I above. As it is, it would appear that the stock certificate issued to petitioners by respondent Capitol and marked as Exhibits "F-1 to F-11" do not contain the annotations provided for under par. 2, page 3 of Exhibit "E", and neither was the provisions of Section 59 of the Corporation Code of the Philippines been complied with, which provides, among others, that certified copy of the agreement shall be filed with the Corporation and with the Securities and Exchange Commission; otherwise, the said agreement is ineffective and unenforceable." The second issue proposed by respondent Capitol is whether it is the September 30, 1983 or the June 30, 1985 list of stockholders that will be used in the issuance of stock dividends, as well as the call for payment of the cash portion of the increase of capital stock of respondent Capitol. Petitioners contend in their memorandum that from the evidence so far presented during the hearing for the issuance of a Writ of Preliminary Injunction, it appears that the assignment of Voting Shares/Rights (Exhibit "A") was not properly authorized by an appropriate board resolution; consequently, all acts emanating therefrom were null and void and of no force and effect whatsoever. Petitioners further argue that the .September 30, 1983 list of stockholders of respondent Capitol was not approved by the Central Bank nor by this Commission. On the other hand, the June 30, 1985 list of stockholders of respondent Capitol was duly approved by the Central Bank as well as by this Commission. Proof of this approval were attached by petitioners in their memorandum consisting of (a) Certificate of Authority dated September 16, 1985 signed by Senior Deputy Governor Gabriel C. Singson, as Annex "A"; (b) letter of September 26, 1985 signed by Ramon V. Tiaoqui, Special Assistant to the Governor Head SES Department II, as Annex "B"; (c) Certificate of Increase of Capitol Stock showing that the same was filed with the Securities and Exchange Commission on February 19, 1986, as Annex "C"'; (d) Certificate of Filing of Certificate of Increase of Capitol Stock of respondent Capitol, as Annex "D"; and (e) list of stockholders of Capitol, marked as Annex "A" of Exhibit "D" hereof, as Annex "E". LibLex Petitioners claim that the increase or decrease in the capital stock cannot take effect without the prior approval of the Securities and Exchange Commission, which approval is signified with the issuance of a Certificate that the increase or reduction of capital stock has been filed with the SEC and said increase or reduction cannot retroact to the date of the stockholders' approval but will take effect only upon issuance of said certificate. Petitioners added that under Section 39 of the Corporation Code of the Philippines, petitioners whose present stockholdings with respondent Capitol amounts to 35,029 shares are entitled to and shall enjoy pre-emptive rights to all issues and disposition of shares of any class, in proportion to their respective shareholdings and are entitled to subscribe to 18,873 shares. They will therefore be prejudiced if Capitol insists on implementing its Board Resolution authorizing the issuance of stock dividends as well as for the cash portion of the 25% increase of P15,000,000.00 capital based on the alleged September 30, 1983 list. Petitioners, therefore pray that the Assignment of Voting Shares/Rights be declared null and void and the stockholders list of June 30, 1985 be used as basis for the issuance of stock dividends, as well as the call for the cash portion of 25% increase of P15,000,000.00 of the Authorized Capital Stock of respondent Capitol. Respondent Capitol, in its Memorandum submits that the increase of Capitol's authorized capital stock from P10 million to P25 million was approved by Capitol's stockholders in their annual meeting held on March 26, 1980, the cut-off date for allocation of subscription rights to Capitol's stockholders of record as approved on March 26, 1980, which was revised in a special stockholders' meeting on January 28, 1981, and the same was revised for the last time on April 27, 1983, with the 25% SEC subscription requirements consisting of 37,500 common shares to be covered by stock dividends, representing 25% of the subscription or 9,375 shares and the cash subscription of 75 % or 28,125 common shares. The September 30, 1983 list was used in applying for the approval of the increase in the capital stock of respondent Capitol. In a letter dated February 16, 1984 addressed to Capitol's corporate Secretary, the Central Bank returned all papers relative to the request for approval, including the stockholders list of September 30, 1983, inviting attention to the observation of the Central Bank's General Counsel, that the Tanchi group subscribed and paid voting shares out of the proposed increase was beyond the 33.56% ceiling. The adverse action of the Central Bank was not allegedly made known to the Board of Directors nor to the stockholders. Instead the Board Chairman allegedly took it upon himself to unilaterally change the list of stockholders and directed Perla Perez, the internal auditor, to prepare a new list of subscription using June 30, 1985 as the cut-off date. In the new list Benjamin Gonzales, Jr. who owns only one (1) share was given the right to subscribe to 2,853 shares, while Henry Co, who is not even a stockholder was given the right to subscribe to 2,500 shares. Respondent considers this as anomalous which the SEC should investigate. Respondent Capitol, therefore, argues that to comply with the CB requirement, the Tanchi group should assign 8,095 shares owned by Manphil to several individuals as well as corporations but the corresponding subscription rights relative to the transferred shares were assigned to Benjamin Gonzales, Jr. and Henry Co. Lastly, while apparently this scheme taken by the Tanchi group appears to be true, however, respondent Capitol states that it cannot help but be suspicious of the motives of the Tanchi group. On the other hand, respondent DBP claims in its memorandum that Ernesto Tanchi, Sr. was allegedly the one who authorized and was the source of the Deed of Assignment (Exhibit "A") and that both Ernesto Tanchi, Sr., and Ernesto Tanchi, Jr. actively participated in the board meeting of Capitol were the proposed Assignment was discussed and as such were allegedly estopped from questioning the said Deed of Assignment. Furthermore, Mr. Carlos Sobrevinas, as President of Manphil, has the apparent authority to enter the Deed of Assignment, because under the by-laws of Manphil, the President may exercise the powers incident to his office, and that the power arising out of an emergency justifies the action of Mr. Sobrevinas. As pointed out earlier, this Hearing Officer has already ruled that the Assignment of Voting Shares/Rights (Exhibit "A") was signed by the Manphil President, Mr. Carlos Sobrevinas, without the necessary board resolution authorizing him to sign said document. It is to be noted that no new and/or additional evidence was presented by respondents to counteract this point and this Hearing Officer cannot deviate or reverse himself from this point. On the basis of the arguments presented by the parties in their respective memoranda, more specifically by petitioners and respondent Capitol, as well as the records of the approved increase in capital stock of Capitol Development Bank, Inc., from P10 million to P25 million with the Commission, we find that the September 30, 1983 list was actually the list of stockholders of respondent Capitol showing therein the stockholders of records with their respective subscriptions and payments which were fully paid before the increase of capital stock was, effective and approved by the Commission. On the other hand, we also find that the so-called list of June 30, was actually the scheduled subscription to the P15 million increase of capital stock of respondent Capitol showing therein the stockholders who subscribed and the proposed payment by way of stock dividends and cash amount. The evidence presented, as well as the records of the corporation with the Commission, show that the Central Bank of the Philippines, in its approval of the proposed increase of capital stock respondent Capitol, endorsed to the SEC for registration of the said increase, the following documents: A) Certificate of Authority dated September 16, 1985 signed by the Senior Deputy Governor Gabriel C. Singson; B) Letter of September 26, 1985 signed by Mr. Ramon V. Tiaoqui, Special Assistant to the Governor, Head SES Department II; C) Certificate of Increase of Capital Stock with the scheduled subscription of the stockholders who subscribed to the increase (list of June 30, 1985), marked as Annex "A" of the Certificate. The so-called list of September 30, 1983, which was disapproved by the Central Bank for violation of C.B. Rules and Regulations was also made part of the Certificate of Increase of Capital Stock filed with the Commission only for the purpose of satisfying the requirement of submitting a list of stockholders of respondent Capitol at the time when the proposed increase was approved by the stockholders or at most, before the approval of the said increase by the Commission. The above documents approved/endorsed by the Central Bank to the Commission were the basis of the Commission's approval of respondent Capitol's increase in capital stock on February 19, 1986. So that in the implementation for the issuance of stock dividends and the call for payment of the cash portion of the increase of capital stock of respondent Capitol, the basis should be schedule of the subscription to the increase of capitol stock or what was commonly called by the parties as the list of June 30, 1985, which shows therein the proposed payment by the subscribing stockholders to the increase of the capital stock by way of stock dividends and cash amounts. In fact, that schedule of subscription spelled out the stockholders who subscribed to the increase, the number of shares subscribed and the amount of payment to their subscription by way of stock dividends and cash amount. This should be the basis of the implementation for the issuance of stock dividends and that call for payment of the cash portion of the increase of capital stock of respondent Capitol considering that this was the basis of the Commission's approval of the said increase. It is not correct for respondent Capitol to base the implementation of the stock-dividends and call for payment of cash portion of the increase on the September 30, 1983 list, because as previously discussed, such list was only a mere list of stockholders with their respective subscription and payment at the time when the proposed increase was decided by the stockholders or at most at the time before the approval of the increase by the Commission. We are not prepared to discuss the propriety of the disapproval of the Central Bank on the list of September 30, 1983, involving the shareholdings of the Tanchi group in respondent Capitol, and the subsequent transfer of some of these shares to Benjamin Gonzales, Jr. and Henry Co for this is within the domain and prerogative of the Central Bank. But as we see and appreciate it, in the course of processing the application for the approval of the increase in Capital stock, said subject document (September 30, 1983 list) is just a list of stockholders of respondent Capitol at the time when the increase of capital stock was approved/decided by the stockholders or at most before the said increase was approved by the Commission. WHEREFORE, premises considered, judgment is hereby rendered as follows: a) Making the Writ of Preliminary Injunction issued on December 22, 1986 permanent; b) Declaring the Deed of Assignment of Voting Shares/Rights (Exhibit "A") null and void for want of authority on the part of its president, Mr. Carlos Sobrevinas, to sign said documents, and all acts emanating therefrom are hereby declared null and void and without any force and effect whatsoever; c) Holding that the June 30, 1985 list or the schedule of subscription to the increase of capital stock of respondent Capitol endorsed/approved by the Central Bank as well as approved by the Securities and Exchange Commission, and not the September 30, 1983 list or the list of stockholders at the time when the proposed increase was approved by the stockholders, shall be followed or shall be the basis in the issuance of stocks dividends, as well as the call for the cash portion of the 25% increase of P15 million of the capital stock of respondent Capitol and the exercise by the shareholders of the pre-emptive rights to subscribe to all issues or disposition of shares of any class in proportion to their respective shareholdings. LLpr SO ORDERED. (SGD.) JUANITO B. ALMOSA, JR. Hearing Officer