Atty. Remberto Z. Evio, et al. vs. Board of Directors of Capitol Masonic Corp., et al.

[SEC-SICD * CASE NO. 3175. May 3, 1988.] ATTY. REMBERTO Z. EVIO, ET AL , petitioners , vs .BOARD OF DIRECTORS OF CAPITOL MASONIC CORPORATION & ATANACIO S. BAYAN , respondents . D E C I S I O N This is a petition to declare illegal and null and void the board resolution dated March 14, 1987, giving stockholders who have not exercised their pre-emptive right to subscribe for shares from the increase in the authorized capital of the respondent corporation, another chance to exercise said right. cdll At the outset, it should be stated that while the petitioners are Atty. Remberto Z. Evio, et al., there is no allegation in the petition as to who the other petitioners were, in what capacity they are being joined as petitioners, except that they are alleged stockholders of Capitol Masonic Corporation who subscribed to their pre-emptive rights as of March 31, 1984, in the increase of the authorized capital stock of the corporation. Petitioners, alleged, among others, that they are stockholders of respondent Capitol Masonic Corporation who exercised their pre-emptive right as of March 31, 1984, in the increase of the authorized capital stock of the said corporation; that on March 23, 1987, respondent Atanacio S. Bayan, sent a communication to the stockholders of the corporation, informing them that the board of directors passed a resolution on March 14, 1987, giving stockholders of record as of March 31, 1984 who have not fully or partially availed of their pre-emptive right a second opportunity to exercise their pre-emptive right under the same condition on the basis of three shares for every share owned as of March 31, 1984 and at par value of P50.00 a share, provided that the subscription and payment of fifty percent (50%) of the par value be made before April 30, 1987; that petitioners are excluded, allegedly because they have fully availed of their pre-emptive right before; that the said resolution is in violation of Section 39 of the Corporation Code, which provides that all stockholders of a stock corporation shall enjoy pre-emptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings, unless such right is denied in the articles of incorporation or an amendment thereto; that a previous pre-emptive right as of March 31, 1984, that was not availed of or partially availed of is deemed waived and cannot be extended in 1987, to the exclusion of those who availed the same in 1984; that there is no provision in the articles of incorporation of the Capitol Masonic that deprives its stockholders of the said right. Respondents filed their answer thereto, and asserted that the board resolution on March 14, 1987 is legal and not in violation of Section 39 of the Corporation Code; that the said resolution extending the period within which the stockholders are to exercise their pre-emptive right was passed in accordance with law, to enable all stockholders to enjoy their pre-emptive right to subscribe, and no stockholder was discriminated against and their proportionate interest in the corporation remains unaltered and unimpaired. Likewise, respondents contend that there is a misrepresentation in the petition for the reason that Atty. Evio alleges other petitioners, but the fact remains that no stockholder could be pointed out by him. On May 15, 1987, a temporary restraining order was issued enjoining the respondents from allowing the use of subscribed shares under the questioned resolution dated March 14, 1987, in determining the quorum and in electing the members of the board of directors of the corporation in the annual meeting last May 16, 1987, or any subsequent meeting thereof. During the hearing on the petitioners' application for preliminary injunction, the parties agreed to submit the incident, as well as the merits of the case for decision considering that the issues raised are intertwined. It appears that respondent board of directors passed and approved the questioned resolution on March 14, 1987, to wit: xxx xxx xxx a) "That stockholders of record as of March 31, 1984 who have not subscribed or partially subscribed at par value to the shares of stock from the increase in capitalization are given another opportunity to exercise their pre-emptive right not later than April 30, 1987, provided that at least 50% of the value of the shares of stock is also paid not later than said date of April 30, 1987." xxx xxx xxx Petitioners, contend that the aforesaid resolution extending the period for the exercise of the pre-emptive right contravenes Section 39 of the Corporation Code considering that petitioners are excluded on the allegation that they have fully availed of their pre-emptive right before. To our mind, the aforesaid resolution is not contrary per se to the provision of the aforecited law. In the first place, there is no new issuance of shares which petitioners can claim exercise of their pre-emptive right. What happened here is other stockholders who have not availed of their right to subscribe were merely given a second chance to avail of their pre-emptive right. As provided in the law, the proviso "in proportion to their shareholding" is intended to protect the diminution of shareholdings and interest of existing stockholders. Therefore, the board of directors has the power to extend the time given to stockholders to exercise their pre-emptive right in fairness to the stockholders who complained that the period was too short to enable the interested stockholders to subscribe, (testimony of witness Abella, page 18, T.S.N. June 24, 1987).It is our view, that stockholders are entitled to a reasonable opportunity to obtain their proportionate share in the increase of capital stock under such terms as other stockholders. The reason for the rule is to maintain unimpaired and unaltered the relative voting strength of the issued shares and the voting control of the company to prevent disproportionate dilution of the voting power of the old stockholders. Petitioner, by his own admission, has fully exercised his pre-emptive right to the increase of the authorized capital stock. If the petitioner would again acquire additional shares, it would, in effect give him undue advantage in the acquisition of the shares of stock to the prejudice of the other stockholders. The exclusion, therefore, of petitioners would not prejudice a right which they have already earlier fully availed of. To allow them now to avail of the same right again would certainly alter the percentage of stockholdings. WHEREFORE, considering the foregoing, the petition should be, as it is hereby dismissed and the petitioners' application for a writ of preliminary injunction is also denied. Respondents' counterclaim are likewise dismissed, no sufficient evidence having been presented to support the same. Without pronouncement as to costs. SO ORDERED. (SGD.) ENRIQUE L. FLORES, JR. Hearing Officer