Ninfa De Vera vs. Earn, Inc., et al.

[SEC-SICD * CASE NO. 3500. September 6, 1990.] NINFA DE VERA , complainant , vs . EARN, INC., ET AL. , respondents . D E C I S I O N This is a petition filed by Nimfa D. de Vera, through counsel, seeking that judgment be rendered 1) ordering the respondent corporation to recognize as valid the common shares of stock of the petitioner and the other ninety-two (92) stockholders, numbering seven hundred thirty three (733) shares of stock, 2) declaring the election of the Board of Directors of respondent corporation held on July 10, 1988 null and void and ordering another election where the petitioner and the 92 stockholders will be allowed to vote, 3) ordering the respondent corporation to pay dividends to the petitioner and the other 92 stockholders for 1986 to 1988, and 4) ordering the respondent to pay attorney's fee in the amount of P10,000.00 to the petitioner. In support thereof, petitioner alleged, inter alia, that she is a stockholder of the respondent corporation and is bringing this suit for herself and in behalf of the 92 stockholders; that they are holders of common shares of stock; that they were refused to participate in the July 10, 1988 annual election on the ground that their shares of stock were among those nullified by this Commission; that the issued shares of stock do not refer to their shareholdings and therefore the election held on July 10, 1988 is null and void; and that as stockholders, they were deprived of the benefits accruing to their shares. Respondents answered the petition denying generally and specifically the material averments therein and alleging, among others, that the petitioner owns nine founder's shares of stock; that the action is not a class suit and being a holder of founder's shares, petitioner has a different right from that of the holders of common shares of stocks; that some of the ninety-two (92) stockholders have not authorized the petitioner to institute the instant petition; that the petitioner voted in the July 10, 1988 elections through her husband Procorpio de Vera as her proxy; that the ruling in SEC Case No. 2775 declaring the BED Resolution No. 652 null and void has become final; that the respondent corporation has already refunded the corresponding value of the shares of many of the common stockholders who have waived all causes of action against the respondent corporation; and by way of affirmative defenses alleged that (1) the petitioner is not the real party in interest, (2) the requirement of the law for class suits are not satisfied, (3) that the action is barred by prior judgment in SEC Case No. 2775; that this action is barred by lis pendens in SEC Case No. 3233 ; and that the demands set forth in the petition insofar as the other common stockholders are concerned have already been extinguished. The case had been set for preliminary conference on March 14, 1989 but on March 6, 1989, respondents filed a motion for preliminary hearing on the affirmative defenses raised as a motion to dismiss. Petitioner filed her opposition and comment thereto denying all the allegations and prayed that the motion be denied for lack of merit. The hearings on the motion to dismiss were conducted which considered not only the affirmative defenses but also the merits of the case, until the proceedings were terminated. Hence, this decision. A careful perusal of the arguments of the parties as well as the evidence adduced during the hearings will show that the respondent corporation was incorporated with an authorized capital stock of P500,000.00 divided into 2,500 founder's shares valued at P250,000.00 and 2,500 common shares valued at P250,000.00. The par value of each share is P100.00. Out of the authorized capital stock, pre-incorporation subscription in the amount of P122,000.00 equivalent to 1,220 shares was taken solely from the founder's shares and none from the common shares. While there was no pre-incorporation issuance of common shares, it was discovered later that the respondent corporation issued the entire common shares of stock (2,500) without prior approval from the SEC in favor of non-stockholders in violation of the pre-emptive right of stockholders of record. However, the error was rectified when the respondent corporation was granted exemption from the registration and licensing requirement of the SEC, upon request and upon payment of penalty, under BED Resolution No. 652 , series of 1984. On October 14, 1986, the said resolution was declared null and void in a decision rendered in SEC Case No. 2775. When appealed to the Commission En Banc, the said appeal was dismissed for having been filed out of time. Therefore, petitioner's contention that their common shares of stock were not among those nullified by the decision has no valid legal and factual basis. Considering that the issuance of all the 2,500 common shares of stock were nullified and the decision nullifying the same has already become final, the holders of said shares ceased to be bonafide stockholders of the respondent corporation. Hence, they lost their rights to vote in the election, to receive dividends, much less to demand for the nullification of an election. For the same reason, the petitioner can no longer insist on the recognition of their common shares of stock as valid because undoubtedly said shares are among those nullified. WHEREFORE, the motion to dismiss is hereby GRANTED. Accordingly, the instant petition should be, as it is hereby considered, DISMISSED. SO ORDERED. (SGD.) MANUEL P. PEREA Hearing Officer