Francisco V. Paculanang, et al. vs. Arturo M. Paculanang, et al.

[SEC-SICD * CASE NO. 3764. March 18, 1991.] FRANCISCO V. PACULANANG & JAMES E. HANNEN , petitioners , vs .ARTURO M. PACULANANG, ET AL. , respondents . D E C I S I O N This is a petition for mandamus with prayer for a Temporary Restraining Order and/or Writ of Preliminary Injunction filed on April 25, 1990. At the hearing on July 16, 1990 at 9:30 in the morning, parties agreed to partially submit this case for resolution on the issue of whether or not the annual stockholders meeting on May 2, 1989, wherein the respondents were elected as members of the Board of Directors of Bulao Mining Exploration Corporation by means of per capita voting is valid, except the aspect on damages, upon submission of their respective memoranda, if no amicable settlement is arrived at by the parties. The parties, however, failed to arrive at an amicable settlement. Notwithstanding the petitioners' memorandum having been filed, respondents failed to file their own memorandum. The petition averred that petitioners are stockholders of Bulao Mining Exploration Corporation, a private stock corporation duly organized and existing under and by virtue of Philippine Laws; respondents Fredigardo M. Paculanang, Arturo M. Paculanang, Leonicia P. Morelos, Cesar Lopez, Bonifacio Empaynado and Presentacion P Cudillo are likewise stockholders of the above-said corporation while respondents Delly Paculanang, Wilfredo Guantero and Lillian Paculanang are not stockholders of the corporation; on May 2, 1989, the annual stockholders meeting of the corporation was held at Dipolog City whereby the election of directors was held; over the protestations and objections of the petitioners, the voting in the elections were based not on the number of shares of the voting stockholders but rather, by means of majority votes of each stockholder, whereby a stockholder, regardless of the number of his shares, was allowed one (1) vote each for the nine (9) positions of directors and worst, non-stockholders were allowed to participate and vote in such election over the protestations and objections of the petitioner, respondents were proclaimed winners, took their oaths of office as directors of the Corporation and thereafter assumed and continue to discharge the functions of the offices of directors and officers of the corporation. Respondents on the other hand, averred in their answer that except for Delly Paculanang and Lillian Paculanang who are duly designated proxies, all the other respondents are stockholders of Bulao Mining Exploration Corporation; that they admit the manner in which the elections were conducted and those non-stockholders who participated were proxies of stockholders not present during said meeting, with written authority from stockholders concerned, as allowed by the laws of the Corporation; that the respondents were proclaimed as winners, took their oath of offices and assumed and continue to discharge the functions of the offices of directors and officers of the said corporation, that they denied that there was protest or objection filed by petitioners with anybody or office regarding said protest or objection concerning the election and assumption of duties as directors of the corporation by herein respondents; that after the election and assumption into office by the respondents; the petitioners and other stockholders of the corporation have submitted themselves to the powers and authority of the herein respondents in running the affairs of the corporation. As aptly stated earlier, the only issue to be threshed out in this partial judgment is whether or not the annual stockholders meeting, of May 2, 1989, wherein the respondents were elected as members of the Board of Directors of Bulao Mining Exploration Corporation by means of per capita voting, is valid. After a painstaking study of the only legal issue, the undersigned Hearing Officer finds that the elections, assumptions and continuance to function as directors and officers of Bulao Mining Exploration Corporation by the respondents are invalid and illegal. It must be noted that Bulao Mining Exploration Corporation is a stock corporation. Both the old Corporation Code, Act No. 1459 as amended, Section 31, thereof, and the New Corporation Code, Batas Pambansa Blg. 68, require that votings in the elections of directors and officers of a stock corporation shall be by means of a cumulative voting as determined by the shares of stock of the corporation. Thus, Section 24 of BP 68 provides: "SECTION 24. Election of directors or trustees . At all elections of directors or trustees, there must be present, either in person or by representative authorized to act by written proxy, the owner of the majority of the outstanding capital stock, or if there be no capital stock, a majority of the members are entitled to vote. The election must be by ballot if requested by any voting stockholder or member. In stock corporation, every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares of stock standing, at the time fixed in the by-laws, in his own name on the stock books of the corporation, or where the by-laws are silent, at the time of the elections ;and said stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate the said shares and give one candidate as many votes as the number of the directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit; Provided, that the total number of the votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected: Provided however, that no delinquent stock shall be voted. Unless otherwise provided in the articles of incorporation or in the by-laws, members of corporations which have no capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. Candidates receiving the highest number of votes shall be declared elected. Any meeting of the stockholders or members called for an election may adjourn from day to day or from time to time but not sine die or indefinitely if, for any reason, no election is held, or if there are not present or represented by proxy, at the meeting, the owners of the majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote.(31a)." Respondents' contentions that the By-Laws of the Corporation which allowed the manner of voting undertaken by them in May 2, 1989 elections is without merit. Section 51 Rule VII of the By-Laws (Annex "A" - Petition),merely states: "Annual Meeting the annual meeting of the stockholders after the year 1977 shall be held on the First Tuesday of May in each calendar year at 4:00 p.m. when they shall elect by a plurality vote by ballot a board of directors to serve for one (1) year until their successors are elected and qualified." The above quoted provision of the By-Laws is merely of a plurality vote and does not provide that the elections shall be conducted by means of per capita voting, with each stockholder entitled to cast one vote each for the nine (9) directors to be elected, regardless of their number of shares. Respondents obviously read the foregoing provision out of context. Said provision should be read consistently with the provisions of Batas Pambansa Blg. 68 which requires cumulative votings determined by the number of shares of stocks in the case of stock corporation. Moreover, when the By-Laws speak of "plurality vote" it means none other than the plurality of vote cast by way of cumulative voting. The rule otherwise would be tantamount to allowing an inconsistent construction. As aptly cited by the petitioners in their memorandum: LibLex "The right of stockholders to vote in the elections of directors on cumulative plan given by law is personal to them, to be. exercised as each may for himself elect, and cannot be taken away by resolution or by law adopted by the majority of the shareholders and such right is not affected. by mere silent acquiescence in the act of others." ( Tomlin v . Farmers & Merchants Bank, 52, No . app . 430 ) Likewise, the election of respondents Delly Paculanang and Lillian Paculanang who are non-stockholders but mere proxies, as directors of the corporation is invalid. Section 23, of Batas Pambansa Blg. 68 essentially requires as qualification of a director of stock corporation that he/she must be a holder of at least one (1) share of stock. As such, respondents Delly Paculanang and Lillian Paculanang are not qualified to sit as directors of Bulao Mining Exploration Corporation. Section 23 of Batas Pambansa Blg. 68 provides: "SECTION 23. Every director must own at least one (1) share of the capital stock of the corporation of which he is a director; which shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. ..." Evidently, therefore, there is no other way but to declare the elections and assumptions of the office of directors and officers of the Bulao Mining Exploration Corporation of the respondents as illegal and invalid. All their acts in the exercise of corporate powers of Bulao Mining Exploration Corporation other than those in the ordinary course of the business of the said corporation which must be sustained to avoid legal and operational vacuum, are therefore null and void. Corollarily, to avoid further legal complications, and inviting multiplicity of suits, respondents must be made to vacate and to cease and desist from assuming and exercising the functions and offices of directors and officers of Bulao Mining Exploration Corporation and to allow the previous Board of Directors of 1988 to perform in the holdover capacity and thereupon, for the said Board to call an election for the positions of directors, to be conducted by way of cumulative votings determined by the number of shares of stocks, within thirty (30) days from receipt by petitioners of a copy of this partial judgment. prcd WHEREFORE, partial judgment is hereby rendered, as follows: a) Declaring the elections conducted on May 2, 1989 as null and void, b) Ordering the respondents to immediately vacate and desist from performing the functions and offices of directors and officers of Bulao Mining Exploration Corporation and to allow, instead, the 1988 Board of Directors of said corporation to function in a holdover capacity, and said Board is hereby directed/to call an election for directors to be conducted by way of cumulative voting determined by the number of shares of stock within thirty (30) days from date of receipt by petitioners of a copy of this Decision. c) Adjudging the acts of the respondents in the exercise of corporate powers of Bulao Mining Exploration Corporation as null and void, except those done in the ordinary course of its business. d) No pronouncement as to costs in the meantime, until the termination of the proceedings regarding damages. SO ORDERED. (SGD.) ANTONIO M. ESTEVES Hearing Officer