Pascual v. Pascual

[SEC-SICD * CASE NO. 3085. January 27, 1999.] CARMEN S. PASCUAL, ET AL. , petitioners , vs .GABRIEL R. PASCUAL, ET AL. , respondents . D E C I S I O N This is a petition filed by Carmen S. Pascual, Wilfredo S. Pascual, Carolina Mejia, Araceli P. Miralles and Gabriel Eduardo S. Pascual, Jr. against Gabriel R. Pascual, Pablo C Villaber, Atty. Jose T. Sumcad, Atty. Godofredo V. Senires, Jr.,Eduardo R. Lopez and Hubert R. Lopez seeking to declare petitioners as the lawful and legitimate stockholders of Farmwealth Industrial Corporation, (hereinafter referred to as Farmwealth),and likewise to declare all acts done by the respondents including all the questioned deeds of mortgage and their subsequent transactions null and void. Petitioners further pray that pending trial on- the merits, a writ of preliminary injunction be issued to enjoin respondents from (1) making acts of usurpation of the rights and functions of directors and officers of Farmwealth (2) ejecting tenants of the corporation and (3) selling or soliciting buyers of the properties of the corporation. HISAET In support, petitioners alleged, among others, that sometime in or about 1973, they established Farmwealth as a closed family corporation with their respective shareholdings: Gabriel R. Pascual 10,000 shares (Husband-Father) Carmen S. Pascual 6,000 shares (Wife-Mother) Wilfredo S. Pascual 3,000 shares (Son) Carolina P. Mejia 2,000 shares (Daughter) Araceli P. Miralles 2,000 shares (Daughter) Gabriel Eduardo S. 2,000 shares Pascual Jr. (Son) Total Outstanding Shares 25,000 shares that their participation being duly reported to the Securities and Exchange Commission as per the Minutes of Annual Meeting of the stockholders held on March 22, 1975 at the Office of the Corporation at 258 Rizal Avenue Ext. Grace Park, Caloocan City; that the elected members of the Board of directors of Farmwealth who operated the corporation are respondent Gabriel R. Pascual, who was elected by the Board as Chairman and President, and petitioners Carmen S. Pascual, Carolina Mejia, Gabriel Eduardo S. Pascual and Wilfredo S. Pascual; that sometime in 1979 or thereabout, Carmen S. Pascual by reason of the existence of sufficient grounds for legal separation was compelled to leave their conjugal house at 818 Torres St., Mandaluyong, Metro Manila together with her remaining children and because of the serious and actual threat, to their lives made by her husband/respondent Gabriel R. Pascual and in their hurried flight from their home, they left their valuable documents including titles to their conjugal properties and certificate of shareholdings in the possession of respondent Gabriel R. Pascual; that sometime in April 1986, petitioners came to discover that defendant Gabriel R. Pascual together with other respondents by illegal manipulation and criminal falsification of documents made it appear that on June 20, 1985, respondent Gabriel R. Pascual became president, respondent Pablo Villaber as vice-president, and secretary-director, Atty. Jose T. Sumcad as director, Atty. Godofredo V. Senires Jr. as director, Mr. Eduardo R. Lopez as director and Herbert T. Lopez as director, and that they passed an illegal board resolution No. 3, series of 1985, to encumber and/or use legally as collateral the properties of Farmwealth, and further alleged that respondents through their exercise of usurped positions as directors and officers of Farmwealth and their illegal and unlawful claim of ownership of the properties of Farmwealth are about to evict by violent means the installed tenants of the petitioners in the premises of Farmwealth properties and to solicit buyers for the properties of the corporation. In their answer with an affirmative defenses, respondents contended that they are the lawful and legitimate stockholders, directors and officers of Farmwealth by virtue of their having purchased all the subscribed shares of stock of Gabriel R. Pascual and also all the subscribed shares of stocks of the petitioners through Gabriel R. Pascual. Respondents claimed that they exercise their rights over the properties of Farmwealth, because of their acquisition of all the shareholdings of the corporation. They further claimed that petitioners do not have the capacity or personality to sue as stockholders or directors of the corporation under P.D. NO. 902-A, there being no showing that they are the present stockholders of the corporation. While the hearing on the petitioners' application for a writ of preliminary injunction is in progress, respondents on April 6, 1988 filed a motion to dismiss the instant case. However, in an Order dated May 19, 1988, the Commission through Hearing Officer Josefina Pasay-Paz denied respondents' motion to dismiss. On February 15, 1989 then Hearing Officer Josefina Pasay-Paz of the Commission issued an Order granting petitioners' application for the issuance of a writ of preliminary injunction and on March 20, 1989, the Commission issued the writ of preliminary injunction as follows: "A verified petition for injunction with a prayer for restraining order and a writ of preliminary injunction having been filed before this Commission, and upon consideration and hearing of the injunctive relief, it appearing that this is a case where a writ of preliminary injunction should issue and the bond required having been posted in the amount of Twenty Five Thousand Pesos (P25,000.00) to the satisfaction of the Commission, it is hereby ordered that until further notice, you, the above-named respondents and all persons acting in your behalf are hereby enjoined from a) making any acts of usurpation of the rights and functions of directors and officers of the corporation; b) ejecting the installed tenants of the properties in the real properties of the corporation as well as soliciting buyers for these properties. SO ORDERED" The writ of preliminary injunction issued on March 20, 1989 was upheld by the Commission En Banc in SEC-AC-241 on October 15, 1990, by the Court of Appeals in CA-G.R. SP No. 23647 on August 12, 1991 and by the Supreme Court in G.R. No. 103115 on July 21, 1992. Hearing on the merits were conducted wherein both petitioners and respondents presented testimonial and documentary evidence. From the evidence adduced by the parties and the corporate record on file with the Commission of which this Hearing Officer takes judicial notice of, the undisputed facts are as follows. ICASEH Farmwealth Industrial Corporation was incorporated and registered with the Commission on February 26, 1968 with an Authorized Capital Stock Of Five Hundred Thousand (P500,000.00) Pesos, Philippine Currency divided into Fifty Thousand (50,000) shares at the par value of Ten Pesos (P10.00) per share. It has a subscribed capital stock of Two Hundred Fifty Thousand (P250,000.00) Pesos and with a paid-up capital of Eighty Thousand (P80,000.00) Pesos distributed to the following incorporators/subscribers as follows: Name No. of Shares Amount Subscribed Amount Paid Gabriel R. Pascual 10,000 P100,000.00 P40,000.00 Carmen S,.Pascual 6,000 60,000.00 15,000.00 Wilfredo S. Pascual 3,000 30,000.00 10,000.00 Carolina Mejia 2,000 20,000.00 5,000.00 Araceli Miralles 2,000 20,000.00 5,000.00 Rosa Confesor 2,000 20,000.00 5,000.00 25,000 P250,000.00 P80,000.00 Farmwealth is a close family corporation. Incorporators/Subscribers Gabriel R. Pascual and Carmen Pascual are spouses; Wilfredo S. Pascual, Carolina Mejia and Araceli Miralles are siblings and children of spouses Gabriel and Carmen Pascual; and Rosa Confesor was the late sister of Gabriel Pascual (TSN July 3, 7, 1989; Oct. 11, 1993; July 5, 1994 and June 8, 1994) Petitioner Gabriel Eduardo S. Pascual, Jr. another son of spouses Pascuals became stockholder of Farmwealth after acquiring the shares of one of the original subscriber and incorporator Rosa Confesor in July 1974 (TSN June 8, 1994 p. 5). Under Article 10 of the Articles of Incorporation of Farmwealth Industrial Corporation it provides "that no stockholder or executor or administrator of any deceased stockholder of the said corporation shall transfer, alienate or in any way dispose of any share in this corporation unless such share shall first have been offered in writing for sale to the corporation or to the remaining stockholders ...Any transfer, alienation or disposition of any share of this Corporation made in violation of the provision of this paragraph, shall not be transferable in the books of the corporation" (Exhibit "N") Contrary to respondents' contention, no amendments either in the Articles of Incorporation or in the By-laws of Farmwealth has been made and approved by the Securities and Exchange Commission since its registration in 1968 up to the present. No written documents or instruments that would show that petitioners have sold their shareholdings or shares of stock in Farmwealth to the respondents. Petitioners themselves testified and confirmed that they have never sold or transferred their shareholdings in Farmwealth to anyone. Petitioners never authorized anybody particularly respondent Pablo Villaber to sell their shares in Farmwealth. It was also established during the trial on the merits that in 1985 ,respondents Pablo Villaber and his group became stockholders of Farmwealth by virtue of the purchased made by them on the shares of stock of respondent Gabriel Pascual and later on the shares of stock of petitioners through respondent Gabriel Pascual. From thereon, respondents have been managing and running the affairs and businesses of the corporation, holding meetings (stockholders and Directors meeting) and have been religiously submitting to the Commission the SEC reportorial requirements such as the Minutes of Board and Stockholders' meetings, General Information sheets, Stock and Transfer Book and other corporate documents. The principal issue in this case is who are the legitimate and lawful stockholders of Farmwealth. Corollary to this issue is whether or not the acquisition by purchase of the shares of Gabriel Pascual and petitioners' shares by respondent Pablo Villaber and his group is valid. Based on the established facts and the evidence adduced, this Hearing Officer is of the opinion and so holds that the petitioners remain and are still stockholders of Farmwealth. This finding is based on the evidence that petitioners Carmen S. Pascual, Wilfredo .Pascual S. Carolina P. Mejia and Araceli P. Miralles are the original incorporators and subscribers of Farmwealth (Exh. "N") and on their categorical testimonies that they never sold their shares or authorized anyone particularly Gabriel Pascual to sell their shares. (TSN July 2, 1989 pp. 7-19; TSN July 7, 1989 pp. 12-16; TSN Oct. 39, 1993, pp. 15-19, TSN May 5, 1994, pp. 7-l0).Petitioner Gabriel Eduardo S. Pascual, Jr. also became stockholder on July 19, 1974 when he acquired the shares of Rosa Confesor, a original subscriber and incorporator of Farmwealth (TSN June 8, 1994 p. 5) This Hearing Officer could not subscribe to the respondents' contention that they are the present stockholders and officers of Farmwealth by virtue of their acquisition of the shares of respondent Gabriel Pascual and also the shares of the petitioners thru Gabriel Pascual based on the following observations/findings. Firstly, this acquisition theory of the respondents is not supported by sufficient documents or deeds of sale or assignment of shares duly signed by petitioners and neither respondents presented documents that would prove that Gabriel Pascual is authorized by the petitioners to sell their shares to respondent Pablo Villaber or to other respondents. Secondly, the Confirmation Receipt (Exh. 38) executed by Gabriel Pascual on September 10, 1985 which is the principal basis of respondents' claim that respondent Villaber acquired 14,000 shares of Farmwealth could not be given sufficient weight because (1) the authenticity and due execution of said receipt has not been sufficiently established during the trial as the person who executed the same was not presented in court and therefore was not cross-examined by the petitioners. (2) the Confirmation Receipt which purports to be an acknowledgment by Gabriel Pascual receiving Nine Hundred Thousand (P900,000.00) Pesos from Pablo Villaber as complete and full payment of the shares of stock of Farmwealth equivalent to 14,000 total number of shares is contrary to the undisputed facts or evidence that Farmwealth has an outstanding shares of stock of Twenty Five Thousand 25,000 shares. If ever this receipt has evidentiary value it would only be applicable to the conveyance of the 10,000 shares own by Gabriel Pascual to respondent Pablo Villaber. Thirdly, assuming that this Confirmation Receipt is genuine and there was indeed a sale of the shares of stock of Gabriel Pascual, nevertheless the sale is illegal, irregular and void because the same was made in violation of Article 10 of the Articles of Incorporation of Farmwealth which provides: "Tenth that in view of its primary purpose heretofore, set out in this instrument, the said corporation shall at all times, in accordance with applicable laws, maintain a capital stock ratio of the required percentage. It is hereby specifically provided that no stockholder, or the executor or administrator of any deceased stockholder of the said corporation, shall transfer, alienate, or in any way dispose of any share in this corporation unless such share shall first have been offered in writing for sale to the corporation or to the remaining stockholders. The corporation and remaining stockholders shall have and hereby reserve the exclusive and preferential right and option to purchase such share within thirty (30) days from and after the date such offer was made at a price equal to the fair market value thereof to be determined in accordance with the number of evaluation provided in the By-laws of the corporation. If, after the expiration of thirty (30) days from and after the offer to sell was made, the corporation or the remaining shareholders shall not have exercised the right and option to purchase the shares offered for sale, the selling shareholder, or his executor or administrator, shall be free to transfer, alienate, or otherwise dispose of such share to the qualified persons or entities, without any restriction whatsoever, except that the price shall in no case be less than that offered to the corporation and/or remaining stockholders. Any transfer, alienation or disposal of any shares of this corporation made in violation of the provision of this paragraph, shall not be transferable in the books of the corporation. DAHSaT It is very clear from the aforequoted provision of the Articles of Incorporation of Farmwealth that before any shareholder could sell or assign his share/s to any third person, such share/s must first be offered to the corporation and/or to the existing stockholder of Farmwealth. This transfer restriction was never followed by respondent Gabriel Pascual when he sold or transferred his shareholdings to respondent Pablo Villaber and his group. In fact petitioners were not aware of any transfer of shares and they came to know about it only in April 1986 when petitioners discovered some corporate documents filed with the Commission showing that respondents were already stockholders of Farmwealth. The findings that Gabriel Pascual has no authority to dispose petitioners' shares and his none observance of the time- honored principle of the so called "right of first refusal" under Article Tenth of the Articles of Incorporation of Farmwealth have been shared by no less than the counsel of the respondent (See Memorandum of Respondent dated 7/15/98 p. 7). Moreover, the Articles of Incorporation of Farmwealth is a contract between and among the individual petitioners/Incorporators and respondent Gabriel Pascual and therefore they have to comply with the obligations imposed upon them by the Articles of Incorporation of Farmwealth since "obligation arising from contracts have a force of law between the contracting parties and should be complied with in good faith (Article 1159 Civil Code). Article 1305 of the Civil Code likewise provides that 'the contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. In short, these restrictions on the right to transfer shares contained in the corporate charter of Farmwealth are binding and should be respected and strictly followed by every stockholder, as well as any third parties interested in acquiring or holding stock in Farmwealth. This Hearing Officer could not agree to the arguments of the respondents that petitioners/incorporators have not actually paid their paid-up shares as respondent Gabriel Pascual the patriarch of the Pascual Family was the one who really paid their shares and they were just his dummies and therefore not a stockholder. Respondents have not presented sufficient evidence on this matter except the testimony of respondent Pablo Villaber as against the documentary evidence presented by the petitioners (Exh. "N" and their categorical statements and testimonies that they are the original incorporators and subscribers of Farmwealth (TSN July 3 & 7, 1989; Oct. 19, 1993; June 8 & July 5, 1994). Neither could this Hearing Officer subscribe to respondents' contention that Farmwealth had increased its capitalization from Five Hundred Thousand (P500,000.00) Pesos to Twenty Million (P20,000,000.00) Pesos wherein respondents subscribed Five Million (P5,000,000.00) Pesos worth of shares and paid One Million Two Hundred (P1,200,000.00) Pesos thereon (Exh. "12" and "13" inclusive) considering that no evidence or record whatsoever in the Securities and Exchange Commission would show that it approved an amendment of the Articles of Incorporation of Farmwealth increasing its capitalization. In fact respondents never presented evidence on this respect that the Commission has approved said amendment. Even assuming that respondents have indeed approved the Farmwealth's increased capitalization, nevertheless, said amendment is not legal and valid considering that petitioners/incorporators who comprised the majority of the outstanding capital stock of the corporation never participated or approved the amendment of the Articles of Incorporation of Farmwealth Increasing its capitalization. Thus, Sec. 16 of the Corporation Code provides: "SECTION 16. Amendment of articles of incorporation . Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written asset of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of two-thirds (2/3) of the members if it be a non-stock corporation. The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Such articles, as amended, shall be indicated by underscoring the change or changes made, and a copy thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Securities and Exchange Commission The amendments shall take effect upon its approval by the Securities and Exchange Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation". Since said amendment has not been approved by the stockholders representing at least two thirds (2/3) of the outstanding capital stock of Farmwealth and by the Commission, the acquisition or subscription of shares by respondents based on the said increased capitalization is likewise illegal and void ab-initio. Respondents' arguments that petitioners "never became stockholders of Farmwealth since they were not issued any certificate of stock is likewise bereft of merit. While it is true and admitted to by petitioner Carmen Pascual that she and the other petitioners were never issued a certificate of stock yet this does not mean that they are not stockholders of Farmwealth. As pointed out by petitioners, a certificate of stock is not essential to make one a stockholder and entitle him to exercise all the rights of a stockholder. "A certificate of stock is a tangible evidence of the stock itself and of the various interest therein. The certificate is not stock in the corporation but is merely evidence of the holder's interest and status in the corporation, his ownership of the share represented thereby, but is not in law equivalent of such ownership. It expresses the contract between the corporation and the shareholder, but it is not essential to the existence of a share of stock or the creation of the relation of shareholder to the corporation. (AGPALO, Comments of the Corporation Code of the Philippines, 1993 Ed. at p. 273). Besides, petitioners who have not fully paid their subscriptions could not expect that a certificate of stock be issued to them, since under the law only subscribers who have fully paid their subscription are entitled for it. However, even if they have not fully paid their subscriptions they could still exercise all the rights of a stockholders. "SECTION 64. Issuance of Stock Certificate . No certificate of stock shall be issued to a subscriber until the full amount of his subscription together with interest and expenses if any is due, has been paid (Sec. 64. Corporation Code of the Philippines)" "SECTION 72. Rights of unpaid shares . Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder. (Sec. 72, Corporation Code of the Philippines)" cDACST This Hearing Officer also agrees with petitioner' position to reject or not to give weight to the Certificates of Stock Nos. 0001 to 0033, inclusive (Exhibits 15 to 37, 39-48), as evidence of the respondents stockholdings in Farmwealth for the following reasons: Firstly, because these certificates of stock emanated all from an alleged conveyance of shares of stock by Gabriel Pascual in favor of respondents which, as earlier found, is unlawful and invalid; Secondly, the Certificate of Stock (Nos. 0001 to 0030) were also not validly issued because said Certificates of Stock were not counter-signed by a duly elected secretary of Farmwealth. Pablo Villaber who counter-signed the certificates of stock as secretary was not duly elected by the Board of Directors of Farmwealth. He concedes that he was appointed secretary only by Gabriel Pascual (TSN July 31, 1996, pp. 30-31) thus, the issuance of these Certificates of Stock violated the provisions of Sections 25 and 63 of the Corporation Code. "SECTION 25. Corporate officer; quorum . Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines and such other officers as may be provided for in the By laws ..." SECTION 63. Certificate of stock and transfer of shares . The capital stock of a stock corporation shall be divided into shares for which certificates signed by the president or vice- president, countersigned by the secretary or assistant secretary and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificate 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, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation". Thirdly, the stock certificates represent a total of One Hundred Forty-Nine Thousand One Hundred (P149,100.00) shares valued at One Million Four Hundred Ninety One Thousand (P1,491,000.00) Pesos which exceeds Farmwealth's fifty thousand (50,000) shares valued at Five Hundred Thousand (P500,000.00) Pesos. Other respondents' evidence, such as the minutes of meetings, (stockholders and directors),General Information Sheets and Secretary Certificates are unavailing as evidence that they are stockholders, directors and officers of Farmwealth. These evidence are based on what has already been found as unlawful and invalid conveyance and therefore considered fruits of a void transaction. As also observed, these documents have been prepared, signed and filed by respondents themselves with the Commission after their illegal take over and therefore without evidentiary value and if at all, are merely self-serving evidence. On the other hand, while the conveyance or transfer of all the shares of Farmwealth by Gabriel Pascual to respondents is invalid, the fact remains that respondent Pablo Villaber has duly paid substantial amounts to Gabriel Pascual in exchange of some shares of Farmwealth numbering 14,000 shares in the total amount of P900,000.00 receipt of payment was duly acknowledged by respondent Gabriel Pascual (Exh. "2 and 38"),thus, it is but proper and just that said amount should be returned to respondent Pablo Villaber based on the principle that no person/s shall enriched themselves at the expense of another. Petitioners who are all legitimate and legal heirs of deceased stockholder Gabriel Pascual should therefore be held accountable for this amount paid by Pablo Villaber chargeable to the estate of Gabriel Pascual. WHEREFORE, in view of all the foregoing, judgment is hereby rendered: 1. Declaring the petitioners as the legitimate and lawful stockholders, directors and officers of Farmwealth Industrial Corporation; 2. Declaring all acts done by respondents including all mortgages and all other acts of disposition of the assets/properties of Farmwealth, null and void; 3. Declaring the preliminary injunction issued on March 20, 1989 permanent; 4. Ordering respondent Gabriel Pascual through his legal heirs or the duly appointed court administrator of the estate of Gabriel Pascual to return/pay, the amount of Nine Hundred Thousand (P900,000.00) Pesos representing the payments made by respondent Pablo Villaber to Gabriel Pascual per the acknowledgment receipt dated September 10, 1985. Further, the Record Division, AFD, of the Securities and Exchange Commission is hereby ordered to expunge and delete all corporate papers and other documents submitted by respondents found/attached in the record of Farmwealth Industrial Corporation on file with the Commission. cAHDES SO ORDERED. (SGD.) JAMES K. ABUGAN Hearing Officer