Conpharm Industries, Inc., et al. vs. Alberto Santillana

[SEC-SICD * CASE NO. 3210. January 29, 1992.] CONPHARM INDUSTRIES, INC., ET AL. , petitioners , vs . ALBERTO SANTILLANA , respondent . D E C I S I O N This refers to the petition for Injunction, Accounting and Damages with prayer for preliminary injunction filed by petitioners Conpharm Industries, Inc., (Conpharm for short) Paquito Chua and Angela P. Sarrosa against Alberto A. Santillana, alleging among others, that the individual petitioners are the controlling stockholders of Conpharm and likewise they constitute the majority of the Board of Directors, being three (3) out of the five (5) members thereof: that respondent is a minority stockholder and is at the time a director and the President and General Manager of Conpharm; that sometime on August 7, 1987, at a special meeting of the board of directors duly convened and held at Iloilo City with the presence of respondent himself, the board, by a vote of three (3) to one (1) removed respondent as President and General Manager of Conpharm due to mismanagement, nepotism and other acts inimical and injurious to Conpharm; that under Art. IV, Section 3 of the by-laws, any officer may be removed with or without cause by a vote of the majority of the Board of Directors; that upon respondent's removal as such President and General Manager, the board voted to elect Ney S. Chua as President and General Manager, that pursuant to the board resolution, petitioner Ney S. Chua assumed the position of President and General Manager and has forthwith taken over the office of Conpharm; that respondent, despite his removal as such President and General Manager, has re-assumed both positions and is at present exercising the duties and functions of the office of the President and General Manager of the petitioner corporation; that great and irreparable damages and injury would be suffered by the petitioners as well as the petitioner corporation if respondent is allowed to continue usurping the duties and functions of the aforesaid offices and the operations of the corporation would be disrupted and confusion would ensue and petitioner corporation's reputation and image would suffer by the spectacle of two persons occupying and exercising the functions of the President of said corporation; that respondent has also withheld valuable records of the corporation as well as stocks in trade of the corporation despite demands upon him by the petitioners; and that respondent has not accounted for the funds and properties of Conpharm which have come into his possession during his incumbency as President and General Manager of petitioner corporation. llcd Except for some allegations which were admitted, most if not all of the allegations of the complaint were denied by the respondent, and in answer thereto, the latter states that the capital investment of respondent, as of today, is as follows: Angela P. Sarrosa P205,012.50 Nilo S. Valente 162,955.96 Alberto A. Santillana 155,519.30 Ney S. Chua 163,600.11 Paquito E. Chua 52,500.00 that the above-enumerated shareholding validly refute petitioners' argument that respondent has less stockholdings than petitioner Paquito E. Chua; that no special meeting of Conpharm's Board of Directors was ever called and convened, much less one in accordance with the requirements of the corporation's by-laws; nor did any voting take place, either to remove respondent as President and General Manager of the company or to elect petitioner Ney S. Chua as President and General Manager; that no such removal has taken place; that he (respondent) has uninterruptedly been performing his functions and duties as such President and General Manager, but rudely disturbed therein by the individual petitioners, that it is petitioner Ney S. Chua who, with the cooperation and connivance of the other individual petitioners, is usurping the position of President and General Manager and any damage or injury to be sustained by the corporation and the stockholders emanates not from his (respondent) acts but from the malevolent and unlawful acts of the petitioners who have arbitrarily and through the use of falsified documents illegally caused the freezing of the corporation's bank accounts resulting in the failure of the corporation to pay its overdue obligations particularly to the lessor of its office space and warehouse; that far from having mismanaged and committed acts of nepotism and other acts inimical and injurious to the corporation, he (respondent) has given the corporation an enviable record as shown by its annual sales, yearly collections, income and retained earnings and dividends; that no such demand for the production of valuable records of the corporation has ever been made nor has he withheld any record or stock in trade, and by way of an affirmative defense, respondent averred that the petition states no cause of action; that contrary to petitioners' allegation, there was no board meeting on August 7, 1989, the scheduled meeting being one between respondent and petitioner Ney S. Chua and Paquito E. Chua only which partakes the nature of a private and an informal discussion; that even assuming that the petition states a cause of action, petitioners are not entitled to the reliefs prayed for since they (petitioners) are parties and are in fact principal culprits with respect to the wrongs they are seeking relief for, hence, they do not come to this Commission with clean hands; and by way of a counterclaim, respondent is claiming the amount of P300,000.00 as moral damages for the treacherous and precipitate manner in which petitioners tried to relieve him of his positions; that for the fraudulent and oppressive manner by which petitioners have treated him, he is claiming the amount of P200,000.00 as exemplary damages, and that by reason of the unfounded petition filed against him, he is asking that he be awarded the amount of P50,000.00 as attorney's fees. cdll On August 14, 1987, a temporary restraining order was issued enjoining respondent from exercising the duties and function of the President and General Manager of Conpharm. And on September 7, 1987, after extensive presentation of evidence by both the petitioners and the respondent in support of their respective stand in the matter of the injunctive relief being prayed for by the petitioners, an order was issued granting the issuance of a writ of preliminary injunction. And on September 10, 1987, the corresponding writ was issued after petitioners have posted the required bond. When the injunctive order was elevated to the Commission en banc on a petition for certiorari, the parties, through their respective counsel, entered into an agreement whereby they bound themselves by the following conditions: "1. Petitioners and respondents will jointly manage the corporation and all checks as well as withdrawals from the banks of the corporation will bear the signature of Mr. Alberto Santillana or Mr. Nilo Valente countersigned by Mrs. Ney S. Chua or Mr. Paquito Chua; 2. The respondents shall be given access to all the records of the corporation some of which are now stored at the Ben-Lor Building in Quezon City. For this purpose, the corporation shall pay the back rentals in favor of the lessor of said building so that corporate offices may be opened and respondents given access to the records therein; 3. The parties have agreed that the books of the corporation shall immediately be audited by Joaquin Cunanan & Co. at the expense of the corporation". which agreement was embodied in an order dated November 23, 1987. In the same order, the Commission en banc dissolved the writ of preliminary injunction issued on September 10, 1987 by virtue of the agreement forged by the parties, and the instant case was remanded back to this Hearing Officer for further proceedings. At the preliminary conference hearing held on August 15, 1991, only counsel for the petitioners appeared despite due notice sent to all the parties, and upon ex-parte motion by the counsel for the petitioners, respondent was declared in default for failure to attend said pre-trial hearing, and accordingly, the ex-parte hearing for the reception of petitioners' evidence was set on August 27, 1991. Proof adduced by petitioners consist of the testimony of petitioner Ney S. Chua. Petitioners sought to establish, through Mrs. Chua, that a special meeting of the Board of Directors of Conpharm was conducted in Iloilo City on August 7, 1987 wherein by a vote of majority of Three (3) members, respondent Alberto Santillana was removed as President and General Manager of Conpharm; that out of the five (5) members of the board who were present at the said meeting, three (3) members in the person of Paquito Chua, Angela Sarrosa and Ney S. Chua voted for the removal of respondent Santillana; that notice of said meeting was made through telephone by the respondent Santillana himself two (2) weeks before the scheduled meeting on August 7, 1987; that they were informed of the purpose of the meeting which is to divide the corporation only through petitioner Paquito Chua; that minutes of the aforesaid meeting (Exh. "A") were prepared by petitioner Paquito Chua, who was then acting as corporate secretary of the meeting: that also a resolution was adopted in said meeting removing respondent Santillana as President and General Manager of Conpharm (Exh. "C"); that respondent Santillana was removed from his position as President and General Manager of Conpharm because of mismanagement and similar acts inimical to the corporation; that his act of giving salary to himself without the approval of the board and the transfer of stocks of the corporation also without the approval of the board are the particular actions which to them constitute mismanagement; that respondent Santillana's removal from office is pursuant to the provision of Article 10, Section 3 of the corporation's by-laws which provides that "Any officer may be removed either with or without cause by the vote of a majority of the whole Board of Directors"; that the special meeting of the board was held in Iloilo City because Angela Sarrosa, one of the stockholders, is not capable of travelling; that petitioner Ney S. Chua was elected as President and General Manager in place of respondent Santillana; that even upon the former's assumption to the office of the President and General Manager of Conpharm, respondent Santillana continues to perform the duties of the office as President and General Manager thereat; and that respondent Santillana also closed and padlocked the office of Conpharm causing substantial damage to the corporation. There is no dispute that from the evidence presented, a special meeting of the Board of Directors of Conpharm took place in Iloilo City on August 7, 1987 Respondent's claim that no special meeting of Conpharm was ever called and convened, much less one held in accordance with the requirements of the corporation's by-laws cannot, on the basis of the evidence presented, be given much weight not only because respondent himself was present but more so because said special meeting has been convened and presided by him purposely to discuss his proposal to divide the corporation. Petitioner Ney S. Chua's testimony on this issue has never been controverted. Even if we are to admit the correctness of respondent's argument that there was no formal notice sent to the members of the board insofar as the August 7, 1987 special meeting is concerned, still such a contention cannot find so much support from a long line of authorities on the matter. The fact that notice of a special meeting was not given, even when it was required by the by-laws is immaterial, if all the directors were present and participated in the proceedings, (Minneapolis Times Co. vs. Nimocks, 53 Minn. 381, 55 N.W. 546, Troy Min. Co. vs. White 10 S.D. 475, N.W. 246 42 L.R.A. 459, cited in page 478, Clark on Corporation, Second Edition) A special meeting is valid without notice where the directors are all present or when they all consent to the meeting. (State vs. Manhattan Rubber Co. 149 Mo. 181, 50 S.W. 321 cited in page 676, Thompson on Corporations, 3rd Edition) Presence at the meeting waives the want of notice (Clark vs. Mutual Loan and Investment Co. 88F (2d.) 202, Lippuan vs. Kehoe Stenograph Co., 11 Del. Ch. 80, 95 ALT. 895) even though the directors depart. Moreover, it has been ruled that the fact that the meeting of the directors was held without a formal call first being had, and notice thereof given to the members, did not operate to invalidate it or to render the proceedings which were taken at it void, for every member of the board was present, and their joint action has completely bound the corporation as if the meeting had been called with due formality, and everyone of the directors has received proper notice. (Robson vs. C. E. Fenniman Co., 83 N. J. L. 453, 85 ALT. 356). Likewise, where all the directors attend the place fixed for a special meeting of the board, although such attendance be accidental on the part of some directors, necessity for giving notice is obviated. (Paducah & Illinois Ferry Co. vs. Robertson 161 Ky 485, 171 S.W. 171) Granting that the August 7, 1987 special meeting of the board was an informal one, still respondent's argument that it is invalid cannot be given serious consideration because it has been held that, when it is the custom to hold special meetings for the transaction of usual business whenever a quorum is present, and without notice, such meetings are valid. (Gorril vs. Greenless, 104 Kan. 693, 180 Cac. 798, following G.V.B. Min. Co. v. First Nat. Bank, 95 Fed. 23, Beermar v. Minneapoli's Photo Engraving Co., 144 Minn. 146 174 N.W. 735) in which the business of the company was habitually conducted in an informal manner. A thorough scrutiny of the facts as stated in the minutes of the meeting (Exh. "A") show that all the members of the board were present during the August 7, 1987 special meeting held in Iloilo City. From all indication, it can be readily presumed that a regular meeting took place where respondent was removed from his position as President and General Manager of Conpharm. And in the absence of any proof to the contrary, the board's action is legal and binding. Undisputedly, therefore, petitioner Ney S. Chua is the duly elected President and General Manager of Conpharm, and as such legitimate officer thereat, she is entitled to the full and unhampered exercise of the office in question including the control of the office itself and the records which are prerogatives appurtenant thereto. WHEREFORE, judgment is hereby rendered finding the removal of respondent to be legal and valid, and the latter is hereby enjoined permanently from further assuming the position of President and General Manager of Conpharm Industries, Inc. The respondent is further directed to make an accounting of all the funds and properties which have come into his possession during his incumbency as President and General Manager thereat, and to return to Conpharm Industries, Inc. whatever funds and properties which he cannot account. Having failed to present evidence to support the claim for damages, the same is hereby DENIED. No pronouncement as to costs. SO ORDERED. (SGD.) ALBERTO P. ATAS Hearing Officer