Leonardo Monteverde, et al. vs. Cesar Nocum, et al.

[SEC-SICD * CASE NO. 3730. December 27, 1991.] LEONARDO MONTEVERDE, ET AL. , petitioners , vs . CESAR NOCUM, ET AL. , respondents . D E C I S I O N This is an action to declare as watered stocks the shares of stocks issued to the respondents who were the original stockholders of CAN Construction Corporation. LLpr In support thereof, petitioners alleged, inter alia, that CAN Construction Corporation was registered on May 4, 1988. Its original authorized capital stock then was P1,000,000.00 divided into 1,000 shares with a par value of P1,000.00 subscribed in the following manner, to wit: Name of stockholder Amount Subscribed Amount Paid 1. Cesar Nocum P 126,000.00 P 31,500.00 2. Gil Nocum 20,000.00 5,000.00 3. Leonilo Nocum 20,000.00 5,000.00 4. Victorino Nocum 15,000.00 3,750.00 5. Ricardo Nocum 14,000.00 3,500.00 6. Rowena Nocum 14,000.00 3,500.00 7. Myrna Nocum 14,000.00 3,500.00 8. Miguela Garcia 14,000.00 3,500.00 9. Clarita Campo 10,000.00 2,500.00 10. Flordeliza Granado 5,000.00 750.00 _________ _________ P 250,000.00 P 62,500.00 It appears that sometime in September 1988, before the approval of the increase of capital stock from One Million to Two Million Pesos, the respondents made it appear in paper that the unissued portion of the capital stock worth P780,000.00, more or less was sold to them as follows: Name of Stockholder Amount Subscribed Amount Paid 1. Cesar Nocum P400,000.00 P312,000.00 2. Gil Nocum 50,000.00 39,000.00 3. Leonilo Nocum 50,000.00 39,000.00 4. Victorino Nocum 50,000.00 39,000.00 5. Ricardo Nocum 50,000.00 39,000.00 6. Rowena Nocum 50,000.00 39,000.00 7. Myrna N. Galdo 50,000.00 39,000.00 8. Miguela N. Garcia 50,000.00 39,000.00 9. Clarita Campo 200,000.00 156,000.00 10. Flordeliza Granado 50,000.00 39,000.00 ___________ __________ P 1,000,000.00 P 780,000.00 Petitioners asserted that the foregoing issuance has no prior approval by this Commission; that on September 15, 1988, the respondents filed a Certificate of Increase of the authorized capital stock of the said corporation from One Million to Two Million Pesos with the end in view of making the petitioners new stockholders and directors; that in fact, petitioners paid the amount of P780,000.00 out of the subscribed capital stock of P1,000,000.00; that on October 1988, this Commission approved the increase of the authorized capital stock of the corporation, thereby approving the entry of petitioners as stockholders with payment of P780,000.00 to the corporation. Subsequently thereafter, on October 1988, petitioners have discovered that the shares sold to the respondents from the unissued portion of the capital stock were watered stocks; that the corporation did not receive payment and the issuance of said shares was done only in paper, that the participation of each of the respondents in the alleged payment of P780,000.00 enticed the petitioners to put up the same amount of P780,000.00; that there is an urgent need to cancel/annul the same so as to protect the rights of the petitioners and other stockholders who were not parties to such issuance. prLL Respondents Cesar, Gil, Leonilo, Victorino and Ricardo (all surnamed Nocum), Myrna N. Galido and Miguela N. Garcia, filed their answer and specifically denied the material allegations of the petition and alleged as special and affirmative defenses that in the middle of August 1988, petitioners and the aforenamed respondents met and discussed the need and search of funds to finance the business and projects of the corporation, which culminated in these agreements to wit: 1. The working relation between petitioners on the one hand and all parties named respondents, together with Rowena Nocum, on the other hand, should be one of joint venture; 2. Petitioners should invest the sum of Seven Hundred Eighty Thousand Pesos (P780,000.00) in the corporation. 3. To enable petitioners to so invest, the authorized capital stock of the corporation should be increased from One Million (P1,000,000.00) to Two Million (P2,000,000.00); 4. All parties named respondents, together with Rowena Nocum, should waive their pre-emptive rights to subscribe to the increase in the authorized capital stock by P1,000,000.00 as it should be petitioners who should subscribe to the entirety thereof and should pay up to P780,000.00 worth of shares of stocks so as to bring their stockholdings in equal footing with the stockholders of all parties named respondents, including Rowena Nocum. Respondents herein, averred that after incorporation, the shares of the unissued capital stock of the corporation worth P780,000.00 were sold to, and paid for by all parties named respondents including Rowena Nocum; that the Commission's approval of the increase of the authorized capital stock, should not only be taken as an approval of the entry of petitioners as stockholders who paid P780,000.00 but also as a recognition of the stocks as held by all parties named respondents, including Rowena Nocum, prior to the increase of the authorized capital stock; that petitioners' supposed discovery of watered stock must be an afterthought, it took them more than seventeen (17) months to make the discovery when all the while they had been occupying responsible, if not top level, positions in the corporation, thereby allowing them easy and ready access to its records and books. On the other hand, respondent Flordeliza A. Granado in her own behalf filed her answer and alleged that her investment constituting her shares of P25,000.00 which she subscribed was made known to the old board of directors; that she invested on her shares of stocks partly in cash and partly by her salaries or services rendered. Likewise, respondent Clarita Campo filed her answer and averred in her special and affirmative defenses that the stock certificate issued to her for 200,000 shares is evidence that her shares were fully paid as shown by cash allowances withdrawn and received by then Chairman of the Board Cesar Nocum which were expended for the registration with this Commission and other operating expenses necessary for registration; that receipts in various amounts issued by the then Chairman of the Board Cesar Nocum amounting to P197,500.00 were credited as payment of respondents shares; that petitioners had failed to comply with the mandatory requirement to give notice of "call" for the unpaid subscription nor had they published the same in a newspaper of general circulation. In the case at bar, it appears that during the meeting of the board of directors of the corporation sometime in November 19, 1989 (Exh. "A") the directors discussed the matter regarding the charge that some of the directors, the Nocum group, together with Flordeliza Granado and Clarita Campo, had watered stocks in relation to the issuance of shares from the unissued portion of the original authorized capital stock. Thereupon, a Committee was created to investigate the matter concerning the watered stocks. The then legal counsel of the corporation, Atty. Egmedio Castillan prepared a letter (Exh. "B") explaining his side on the charge of watered stocks owned by the respondents. Respondent Clarita Campo wrote a letter to petitioner Leonardo Monteverde dated October 21, 1989 (Exh. "C") stating that the Nocums loaned from her P100,000.00 to be considered as her share in the corporation. Moreover, respondent Campo sent another letter to petitioner Leonardo Monteverde (Exh. "D") that the Nocums did not pay or spend anything for the existence of the corporation. The other respondents Miguela Nocum, Myrna Nocum, Rowena Nocum, Victorino Nocum, Leonilo Nocum, Gil Nocum, Ricardo Nocum, and Cesar Nocum presented their cash vouchers alleging payments of their respective paid-up capital. Moreover, respondents Nocum including Rowena Nocum intimated that they were issued Stocks Certificates of the authorized capital stock as increased for requisite consideration, in the form of labor performed or services rendered, cash paid and indebtedness previously incurred thereby belying petitioners' claim that they are watered stocks and due to unavailability of receipts, the cash vouchers were used to prove that the required consideration for the stocks in question was recognized and acknowledged as such prior to the entry of the petitioners in the corporation. On the part of respondent Clarita Campo, she stressed the fact that pursuant to the board resolution No. 2 of CAN Construction Corporation Series of 1988 (Exh. "1"), the corporation had assumed the obligation of Cesar Nocum in the amount of P100,000.00 he had received from her which was used for the organization and operation of the corporation. Likewise, she wrote a letter to petitioner Leonardo Monteverde informing him of the amount received by Cesar Nocum (Exh. "2") and that various amounts were taken by Cesar Nocum and the total amount she had advanced to the corporation has reached P197,000.00 and the same was applied for the payment of her 200 shares of stocks at P1,000.00 per share. Furthermore, on the part of respondent Flordeliza A. Granado, she submitted her Certificate of Stock for Fifty (50) shares. The issue hinges on whether or not the respondents have paid the amount of P780,000.00 as paid up capital which was taken from the unissued portion of the original authorized capital stock of P1,000,000.00. From the evidence adduced, the Hearing Panel is of the opinion that, as far as the issuance of 1,000,000 shares out of the unissued portion of the original authorized capital stock is concerned, no payment thereto whatsoever, has been made by the respondents. This finds support from the findings of the Auditor's Report dated August 17, 1990 (Exh. "O") submitted by the Accounting and Auditing firm of Fernandez, Santos & Lopez, that in the absence of documents supporting the alleged payments such as official receipts, deposit slips, bank statement, and other pertinent documents, the said amount of P780,000.00 was lodged to other receivables account in the financial statement as of April 30, 1989. Under Section 62 of the Corporation Code, it provides that stocks shall not be issued for a consideration less than the par value or issued price thereof. Consideration for the issuance of stock may be any or a combination of any two or more of the following: 1. Actual cash paid to the corporation; 2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par value or issued value of the stock issued; 3. Labor performed for or service actually rendered to the corporation; LLpr 4. Previously incurred indebtedness by the corporation; 5. Amounts transferred from unrestricted retained earnings to stated capital; and 6. Outstanding shares exchanged for stocks on the event of reclassification or conversion. Where the consideration is other than actual cash, or consists of intangible property such as patents or copyrights, the valuation thereof shall initially be determined by the incorporators or the Board of Directors, subject to the approval by the Securities and Exchange Commission. . . . . In the case of the alleged payment of the Nocum brothers and sisters, no evidence was ever submitted to support it. The Hearing Panel subscribes to the findings of the Auditor's Report (Exh. "O") dated August 17, 1990 that the cash vouchers evidencing payment by the Nocum brothers and sisters are not competent evidence showing payment, as they were not supported by accompanying receipts. Likewise, the Hearing Panel cannot agree to the testimony of Cesar Nocum, that their contribution were never deposited in the bank because they were payments for a previously incurred obligation of the Corporation in the alleged Sta. Elena Subdivision Project. In fact, in his cross-examination, Cesar Nocum admitted that the amounts stated in the payrolls evidencing services rendered by them, were not actually paid but said amounts were just placed thereon for the consumption of the Petitioners, a ploy to make them part with their P780,000.00. Moreover, in the case of the alleged payments of respondents Clarita Campo and Flordeliza Granado, allegedly consisting of cash and services rendered, the Hearing Panel holds the same view that Section 62 of the Corporation Code was not substantially complied with. There was no proof of actual services rendered nor was there any contract submitted by respondents Clarita Campo and Flordeliza Granado. Ergo, their shares are watered. It appearing that the amount of P780,000.00 shares issued by the corporation from the unissued portion of the authorized capital stock of P1,000,000.00 was not paid in accordance with Section 62 of the Corporation Code, said shares are hereby declared as watered stocks. WHEREFORE, judgment is hereby rendered declaring and annulling the shares of stocks worth P780,000.00 issued in favor of the respondents as watered stocks; and ordering the respondents to pay the petitioners the sum of P10,000.00 as attorney's fees. No pronouncement as to costs. (SGD.) ENRIQUE L. FLORES, JR. Hearing Officer (SGD.) JOLLY E. SIMBULAN (SGD.) KIRTH S. BANSUELO Hearing Officer Hearing Officer