Alexander Van Twest vs. Edwin A. Moran, et al.

[SEC-SICD * CASE NO. 3896. September 23, 1994.] ALEXANDER VAN TWEST , complainant , vs .EDWIN A. MORAN, et al. , respondents . D E C I S I O N This is a complaint filed on October 26, 1990, to declare illegal the special stockholders' and directors' meeting held on April 6, 1990 by the four other stockholders and directors of Euroceanic Rainbow Enterprises Phil. Inc. (EREP for brevity) which ousted complainant as Director, President and Chairman of the Board of the corporation. Complainant further prays to declare invalid the withdrawal of the Deed of Assignment by respondent Anacleto, to declare him owner of at least 2,000 shares of the corporation, and for P100,000.00 attorney's fees and other expenses of litigation. LibLex Complainant alleged that as a foreign investor, he provided all the funds for the organization, registration, working capital and acquisition of all the assets of the EREP; that after the corporation was registered with the SEC on December 13, 1989, respondent Gloria A. Anacleto executed a Deed of Assignment dated 23 January 1990 assigning her 2,000 shares for a consideration of P200,000.00 in favor of herein complainant; that the General Information Sheet dated January 24, 1990 duly submitted to the SEC listed complainant as President and Chairman of the Board and owner of P200,000.00 worth of share of stock or 40% of the outstanding capital stock of EREP; and that he actually financed or provided for respondents' subscriptions to the corporation as per contracts of loan both dated 24 January 1990. Complainant further alleged that respondents Moran and Anacleto took over full control of the corporation after they had complainant detained by the National Bureau of Investigation on 15 March to 11 April 1990; and then from 17 May 1990 to 9 July 1990; that while complainant was under detention, respondents without the required notice, issued a resolution ousting complainant as Director, President and Chairman of the Board of the corporation; and that on 21 May 1990, respondent Anacleto executed an affidavit withdrawing the Deed of Assignment; and that the withdrawal of said Deed of Assignment was but a part of a conspiracy to defraud complainant of his rightful shares in the corporation. In their answer respondents alleged that no notice to complainant was required for the meeting held on 6 April 1990 under Section 9 of the By-laws because it was a meeting called by the stockholders of record of the corporation and the purpose of the meeting which was to oust complainant from the corporation was very urgent to protect the interest of the company; that the withdrawal of the Deed of Assignment was legal and valid; and since complainant is no longer a stockholder and his ouster as President and Chairman of the Board was proper, he is not entitled to reinstatement. At the preliminary conference, the parties agreed that the issue to be resolved are as follows: 1. Whether or not complainant is a stockholder on record of Euroceanic Rainbow Enterprises Phils.,Inc.? 2. Whether or not complainant was illegally ousted as President and Director of the aforementioned corporation? 3. Whether or not the withdrawal by respondent Gloria Anacleto of the Deed of Assignment in favor of the complainant was valid? 4. Whether or not the parties are entitled to damages? The factual and legal arguments posited by the parties herein having been considered in the light of the evidence they respectfully adduced, this Hearing Officer resolves for the complainant. As to the first issue, it is not disputed that complainant became a stockholder for 2,000 shares in consideration of P200,000.00 or 40% of the outstanding capital stock of EREP by virtue of a Deed of Assignment of shares of stock dated 23 January 1990 executed by respondent Anacleto in favor of the complainant (Exh. "E").This Deed of Assignment was duly confirmed and recognized by the corporation in a special meeting of stockholders on 23 January 1990 as evidenced by the minutes of said meeting (Exh. "F").In the General Information Sheet filed with the Commission on 24 January 1990 (Exh. "K"),or one (1) day after the execution of said Deed of Assignment, complainant was reported by the Corporate Secretary to be the Chairman of the Board and President owning 40% of the total subscribed capital. This Hearing Officer finds merit in complainant's argument that the execution of the Deed of Assignment, which was duly recognized by the corporation in the special meeting of stockholders and duly reported to the Commission in the General Information Sheet, is the operative act which vested title or ownership of the shares of stock in favor of the complainant from the time the Deed of Assignment was executed. The Deed of Assignment states in part. "1. That ASSIGNOR is the owner of 4,996 shares of stocks worth P499,600.00 in the Euroceanic Rainbow Enterprises, Phils.,Inc.; 2. That ASSIGNOR is assigning effective today a part thereof consisting of 2,000 shares for a consideration of P200,000.00 in favor of ASSIGNEE, Alexander Van Twest, his heirs and successors-in-interest free of all liens and encumbrances;" The words used in the aforequoted Deed of Assignment are clear and unequivocal in that the transfer of shares of stock in favor of the complainant is absolute and unconditional. In other words, the clear intention of the parties was for complainant to have acquired the shares of stock effective as of the execution of the Deed of Assignment which was on 23 January 1990. LibLex A person may become a holder of shares in a corporation either: 1) by subscription contract with the corporation for the issue of new shares; 2) by purchase from the corporation of treasury shares, that is, shares already issued and reacquired by the corporation; 3) by the transfer from a shareholder of outstanding shares, by which transfer he is substituted in the place of the transferor (Ballantine, 442, cited in Agbayani, Commercial Laws of the Philippines, Vol. III, 1990 ed.,p. 459). It is clear that complainant became a stockholder of the corporation by the transfer of 2,000 shares from respondent Anacleto effective as of the execution of the Deed of Assignment on 23 January 1990. It appears from the Articles of Incorporation (Exh. 1, Moran) that respondent Anacleto was the owner of 4,996 fully paid up shares. Thus, it follows that the 2,000 shares transferred by respondent Anacleto to complainant were likewise fully paid-up shares. Said transfer of shares was deemed registered with the corporation when the stockholders confirmed and recognized the transfer in a special stockholders' meeting on 23 January 1990 (Exh. F). While the registration may refer to registration in the books of the corporation under Section 63 of the Corporation Code, registration is likewise complied when the corporation is duly notified of the transfer. Notice to the corporation is equivalent to registration. The statute providing for registration of transfers contemplates only the protection of subsequent purchasers without notice of prior equities, and when such equities have been created by transfer, hypothecation, mortgage, or lien, the corporation is bound to regard them from the time it receives notice of their existence (Agbayani, supra, p. 562, citing Bank of Florida v. American National Bank of Pensacola, 75 So. 310). When a stockholder has made a valid transfer of his shares, and requested the corporation to register it, or the transferee has made such request, he has done all that he can be required to do to render the transfer effectual, and if the corporation wrongfully fails or refuses to register it, it waives the requirement of registration, and can take no advantage of such failure or refusal. (Agbayani, supra, p. 526 citing Lorenzo v. Genato Commercial Corporation, 45 O.G. 7972, at p. 2976, citing 12 Fletcher 352; see also, Salvador v. Mencias, No. 22863-R July 28, 1958 (CA) 55 O.G., No. 32, p. 6405, citing Lorenzo v. Genato Com. Corp.) Hence, as applied in this case, the transfer is not only valid and binding between complainant and respondent Anacleto, it is likewise valid and binding as against the corporation. As regards the second issue, there is no doubt that complainant was a stockholder as of 6 April 1990, the date when he was ousted as President and Director of the Corporation by the other stockholders led by the respondents Moran and Anacleto. Having thus established that complainant was a stockholder and director of the corporation as of the date he was ousted, the next question that must first be resolved is whether or not the requirements of Section 28 of the Corporation Code for the removal of directors have been complied with. Section 28 of the Corporation Code provides: "SECTION 28. Removal of Directors or Trustees . Any director or trustee of a corporation may be removed from office by a vote of the stockholders holding or representing two-thirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock corporation, by a vote of two-thirds (2/3) of the members entitled to vote. Provided, that such removal shall take place either at a regular meeting of the corporation or at a special meeting called for the purpose, and in either case, after previous notice to stockholders or members of the corporation of the intention to propose such removal at the meeting. A special meeting of the stockholders or members of a corporation for the purpose of removal of directors or trustees, or any of them, must be called by the secretary on order of the president or on the written demand of the stockholders representing or holding at least a majority of the outstanding capital stock, or, if it be a non-stock corporation, on the written demand of a majority of the members entitled to vote. Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice, or if there is no secretary, the call for the meeting may be addressed directly to the stockholders or members by any stockholder or member of the corporation signing the demand. Notice of the time and place of such meeting, as well as of the intention to propose such removal, must be given by publication or by written notice as prescribed in this Code. The vacancy resulting from removal pursuant to this section may be filled by election at the same meeting without further notice, or at any regular or at any special meeting called for the purpose, after giving notice as prescribed in this Code. Removal may be with or without cause; Provided, that removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled under Section 24 of this Code." Complainant alleged in the complaint that the meeting held on April 6, 1990 which ousted him as President and Director of the Corporation was illegal for lack of required notice and that under Section 9 of the By-laws of the EREP provides that only the President or Secretary can call a meeting of the Board of Directors. Respondents admitted in their respective Answers that only the President or Secretary can call a meeting of the Board of Directors under Section 9 of the by-laws but contends "that the meeting on 6 April 1990 was called by the stockholders of record themselves and was a meeting of stockholders and directors of the corporation." LLphil Section 9 of the By-laws of EREP (Exh. 2, Anacleto) provides: "Meetings of the Board may be called by the President at anytime on three (3) days notice to each director, and must be called by the President or Secretary in like manner and on like notice at the written request of two (2) directors." A careful review and scrutiny of the evidence adduced by the parties shows that no such written notice or notice by publication was sent to the stockholders/directors, much less to the complainant, of the stockholders' and/or Board of Directors' meeting on April 6, 1990 called for the purpose of removing the complainant as director of the EREP. Moreover, the removal of the complainant was not valid for the same was not made by a vote of the stockholders holding or representing two-thirds (2/3) of the outstanding capital stock of EREP because complainant holds 2,000 shares or 40% of the outstanding subscribed capital stocks of EREP. As to the third issue, it is undisputed that the withdrawal of the Deed of Assignment in question was made by Respondent Anacleto on 21 May 1990 by means of an Affidavit (Exh. 8, Anacleto) filed with this Commission on 22 May 1990. Anacleto advanced as reason for the withdrawal that "the transaction did not materialize and therefore, for the purpose of straightening the corporate records." As already discussed, the Deed of Assignment dated 23 January 1990 was absolute and unconditional and the transfer of 2,000 shares in favor of the complainant became effective as of said date. Hence, the withdrawal by respondent Anacleto of the Deed of Assignment could not have any legal effect nor removed from complainant his rightful ownership of the shares of stock. There being no evidence presented, the parties' claims for damages should not be given due course. Wherefore judgment is hereby rendered: 1. Declaring the complainant as stockholder on record of Euroceanic Rainbow Enterprises, Inc. (EREP); 2. Declaring the ouster of the complainant as Director and President illegal; 3. Declaring without effect the withdrawal by respondent Gloria Anacleto of the Deed of assignment in favor of the complainant. 4. No pronouncement as to costs. prLL SO ORDERED. (SGD.) ELPIDIO SARMEN SALGADO Hearing Officer