William F. Weber vs. Gertrudes Weber, et al.

[SEC-SICD * CASE NO. 3931. January 21, 1992.] WILLIAM F. WEBER , petitioner , vs .GERTRUDES WEBER, ET AL. , respondents . D E C I S I O N This is a petition filed by William F. Weber against Gertrudes Weber, Anita Kinney, Otto G. Weber, Jr.,Doris W. Triaca, Eduard Paul Weber, Melinda T. Weber, Elpedio M. Melu and Romeo D. Dilliones praying, among others, for the annulment of the 331 shares of stock of Wuthrich Hermanos, Inc. sold to Otto Weber and Doris W. Triaca and the special meeting of the Board of Directors held on November 10, 1989. LLjur Petitioner alleged, among others, that Wuthrich Hermanos, Inc. was organized as domestic corporation on October 31, 1958 with an authorized capital stock of Five Hundred Thousand (P500,000.00) Pesos, One Hundred Thousand (P100,000.00) Pesos of which has been subscribed representing 1,000 shares with the following persons who have subscribed for the number of shares and amount of capital stock set out after their respective names to wit: AMOUNT OF NO. OF SHARES CAPITAL STOCK NAME SUBSCRIBED SUBSCRIBED 1. Otto G. Weber 1 P100.00 2. Gertrudes Wuthrich 249 24,900.00 3. Caridad Wuthrich 249 24,900.00 4. Rafael Vallejo 1 100.00 5. Anita Kenny 250 25,000.00 6. Marie Louise Vontabel and Rudolf Paul Vontabel 250 25,000.00 1,000 P100,000.00 that likewise, the governing By-laws of the corporation was registered on the 8th day of June 1959; that sometime in July 1983, the authorized capital stock of the corporation was increased from P500,000.00 to Two Million (P2,000,000.00) Pesos divided into 20,000 shares with a par value of 100.00 pesos per share; that petitioner's father, Otto Weber, Sr. who was a stockholder of the corporation, died on July 3, 1985 and after his estate was extrajudicially settled, petitioner, together with his brothers Otto G. Weber, Jr., Eduard Paul Weber, and his sister Doris Weber Triaca became stockholders of Wuthrich Hermanos, Inc. that sometime in May 1986, the Board of Directors decided to sell shares of stock from the unissued capital stock of the corporation wherein petitioner William Weber, respondents Otto Weber, Jr., Eduard Paul Weber and Doris Weber Triaca subscribed to 434 shares each, thereby increasing their holdings in Wuthrich Hermanos, Inc. from the original 1,465 shares each to 1,899 shares each; that sometime in September, 1986, the Board of Directors again issued more shares to all stockholders of record of Wuthrich Hermanos, Inc. and according to their pre-emptive rights, petitioner, Otto Weber, Jr. and Doris Weber Triaca subscribed to additional 385 shares each increasing their shares from 1,899 to 2,284 shares each; that on October 1986, the remaining 1,678 unissued shares of the corporation was again offered for sale to all the stockholders of record. However, petitioner, who was entitled to the 331 shares, failed to subscribe for the reason that he was not duly notified of the said issuance, thereby depriving petitioner his pre-emptive right to purchase to that additional issuance of 331 shares; that despite several request, petitioner was denied of his right to inspect the books, accounts and records of the corporation; that corporate funds of Wuthrich Hermanos, Inc. were illegally transferred to Don Pablo Holding Corporation without the knowledge and consent of the petitioner which caused the dissipation of the assets of Wuthrich Hermanos, Inc. to the detriment and prejudice of the petitioner; that the special meeting of the Board of Directors held on November 10, 1989 was illegal and in complete violation of the Corporation Code because said meeting was held without the presence of a quorum. Respondents, in their separate answers, admitted the personal circumstances of the parties, as well as, the allegations regarding the organization of Wuthrich Hermanos, Inc. but they denied all the rest of the material allegations of the petitioner. At the pre-trial hearing held on March 26, 1991, the parties agreed on the following issues to be resolved, namely: 1. Whether or not petitioner was deprived of his pre-emptive right to subscribe to the 331 shares of stock of Wuthrich Hermanos, Inc. 2. Whether or not the transfer of funds from Wuthrich Hermanos, Inc. to Don Pablo Holding Corporation, was a ploy to ease petitioner out of both corporations. 3. Whether or not the organization of Don Pablo Holding Corporation prejudice the right of the petitioner or for the benefit of all the stockholders of Wuthrich Hermanos, Inc. 4. Whether or not the special meeting of the Board of Directors of Wuthrich Hermanos, Inc. held on November 10, 1989 is valid and legal. On the said hearing, respondents also admitted the following facts, to wit: 1. The incorporation of Wuthrich Hermanos, Inc. on October 31, 1958 with the initial capitalization of Five Hundred Thousand (P500,000.00) Pesos, (Exh. B) which capitalization was subsequently increased to Two Million (P2,000,000.00) Pesos on August 19, 1983. 2. After the death of Otto Weber, Sr. on July 3, 1985, petitioner William Weber, respondents Otto Weber, Jr.,Paul Eduard Weber and Doris Weber Triaca became stockholders of Wuthrich Hermanos, Inc. owning 1,465 shares each. 3. The incorporation of Don Pablo Holding Company on June 1, 1990 with an authorized capital stock of Ten Million Pesos, Six Million Pesos (P6,000,000.00) of which had been subscribed and One Million Seven Hundred Pesos (P1,751,300.00) had been paid-up. On the other hand, petitioner admitted also the following facts: 1. letter of Atty. J. Diaz addressed to petitioner, dated March 20, 1986 as well as the reply of petitioner to Atty. Diaz. (Exhs. "2" and "3"). 2. letters of Mr. Jose Sicangco, Jr. addressed to petitioner dated April 19, 1986 and October 11, 1986, respectively, (Exh. "7") 3. letter of Atty. Diaz addressed to petitioner dated April 27, 1986 (Exh. "5") 4. minutes of the special meeting of the Board held on March 7, 1986. (Exh. "1") Based on the evidence adduced as well as on the corporate record on file with the Commission of which this Hearing Officer takes judicial notice, the undisputed facts are as follows: 1. Wuthrich Hermanos, Inc. is a domestic corporation duly organized and registered with this Commission on May 13, 1959 with an authorized capital stock of P500,000.00 pesos divided into 5,000 shares with a par value of 100.00 per share. The original stockholders who have subscribed for the number or shares and amount of capital stock are set out after their respective names, to wit: NO. OF SHARES AMOUNT OF CAPITAL NAME SUBSCRIBED STOCK SUBSCRIBED 1. Otto G. Weber 1 P100.00 2. Gertrudes Wuthrich 249 24,900.00 3. Caridad Wuthrich 249 24,900.00 4. Rafael Vallejo 1 100.00 5. Anita Wuthrich 250 25,000.00 6. Marie Louise and Rudolf Paul Vontabel 250 25,000.00 1,000 P100,000.00 1. Additional subscription of shares out of the original 5,000 shares were subsequently made by the following stockholders, to wit: DATE NAME NO. OF SHARES 8/10/59 Gertrudes Wuthrich Weber 50 8/10/59 Caridad Wuthrich Vallejo 50 8/10/59 Anita Wuthrich Kinney 50 8/10/59 Mary Louise and Rudolf Paul Vontabel 50 11/30/60 Otto F. Weber, Sr. 300 500 On the 25 July 1983, the remaining unissued shares of 3,500 were then assigned to Otto Weber, Sr. by the Corporation in consideration of the advances made by the former to the latter in the amount of P350,000.00 pesos. 2. On July 27, 1983, the corporation's authorized capital stock was increased from P500,000.00 pesos to P2,000,000.00 pesos divided into 20,000 shares with a par value of P100.00 pesos per share. Of the represented increase of 15,000 shares worth P1,500,000.00 pesos, 3,750 shares worth P375,000.00 pesos have been subscribed with Otto Weber, Sr. and Gertrudes W. Weber subscribing 1,875 shares each respectively. All the rest of the stockholders of record waived their pre-emptive rights to subscribe. 3. Petitioner, together with his brothers and sister became stockholders of Wuthrich Hermanos, Inc. when they inherited the sales of their father, Otto Weber, Sr.,who died in 1985. At the time of his death, he was one of the single majority stockholders of the corporation. LibLex 4. As admitted to by the parties, the stockholders of record of Wuthrich Hermanos, Inc. as of January 31, 1986 with their respective number of shareholders are as follows; to wit: NAME NO. OF SHARES 1. Gertrudes W. Weber 4,941 2. Anita W. Kinney 2,314 3. Maria Louise V. Dubach 1,158 4. R. Paul Vontabel, Jr. 1,156 5. Otto G. Weber, Jr. 1,465 6. Doris W. Triaca 1,465 7. William F. Weber 1,465 8. Paul Eduard Weber 1,465 9. Eduard Paul Weber 1 Total 15,430 shares 5. On March 7, 1986 the Board of Directors of the corporation approved a resolution issuing all the remaining unissued shares of 4,570 shares to all stockholders of record as of the said dated. (Exh. "1") 6. Thereafter, all the stockholders including the petitioner were notified of their right to subscribe to the stock offering in proportion to their present stockholdings. (Exh. "2" and "4") 7. In response to this 4,570 shares being offered, the following stockholders have purchased in proportion to their stockholdings, namely: (Exh. "15") NAME NO. OF SHARES PURCHASE 1. Anita W. Kenney 685 2. Otto Weber, Jr. 434 3. Doris W. Triaca 434 4. William Weber 434 5. Paul Eduard Weber 434 6. Eduard Paul Weber 1 Total 2,422 while those who waived or did not exercise their right to the stock offering were as follows: NAME NO. OF SHARES Gertrudes W. Weber 1,463 Ma. Louise Vontabel Dubach 343 R. Paul Vontabel, Jr. 342 2,148 shares 8. On September 15, 1986, petitioner was informed that Mrs. Gertrudes W. Weber, who was entitled to 1,463 shares and the Vontabels, who were entitled to 685 shares, did not exercise their rights to subscribe to the said shares and further advised that he was entitled to purchase additional proportionate shares of 385 to be exercised not later than October 31, 1986. (Exh. "6") These waived shares of 2,148 as admitted by the respondents were then offered to the stockholders who exercised their rights in the first stock offering including petitioner. 9. A follow up letter dated October 11, 1986 (Exh. "7") was sent to petitioner informing him that whatever shares remaining after October 31, 1986 will be offered for sale to whoever wishes to purchase and further advised that any additional purchases made will be paid only in cash. 10. On October 19, 1986, only petitioner together with respondents Otto Weber, Jr. and Doris W. Triaca responded to purchase the 2,148 waived shares in the proportion of 385 shares each (Exh. "15") while Anita W. Kinney and Paul Eduard Weber waived their right to purchase their proportionate shares of 608 and 385, respectively, or a total of 993 shares. 11. These second set of 993 shares waived were subsequently subscribed by respondents Otto Weber, Jr. and Doris Triaca on November 5, 1986 in the proportion of 497 and 496 shares, respectively. 12. A special Board of Directors' meeting of Wuthrich Hermanos, Inc. was held on November 10, 1989 at San Carlos City, Negros Oriental, Philippines, wherein three (3) out of five (5) members of the board were present, namely: 1. Mrs. Gertrudes W. Weber 2. Doris W. Triaca, and 3. Otto Weber, Jr. (Exh. "F") 13. On June 1, 1990, Don Pablo Holding Corporation was organized and registered with the Commission with an authorized capital stock of Ten Million (P10,000.00) Pesos divided into One Hundred Thousand shares (100,000) at One Hundred Pesos (P100.00) per share. Its subscribed capital stock was Six Million Pesos (P6,000,000.00) and with a paid-up capital of One Million Seven Hundred Fifty One Thousand Three Hundred Pesos (P1,751,300.00). As admitted by respondents during the course of the hearing, the paid-up capital of Don Pablo Holding Corporation came from Wuthrich Hermanos, Inc. 14. All stockholders of Wuthrich Hermanos, Inc. are also stockholders of Don Pablo Holding Corporation having proportionate shareholdings in both corporations. As can be gleaned from the aforementioned established facts, this Hearing Officer is of the view that as far as the first issue raised herein, there is reason to believe that petitioner was clearly deprived of his pre-emptive right to purchase/subscribe on the 331 shares of Wuthrich Hermanos, Inc. It must be recalled that the corporation, from the beginning, has adopted a policy of giving each and every stockholder, who are close relatives that equal and proportionate sharing when there are issuances of stocks in the corporation. So much so, that when the Board of Directors of the corporation issued the remaining 4,570 unissued shares on March 7, 1986, all the stockholders of record as of the said date were given equal opportunity to purchase to the new issued shares in proportion to their respective shareholdings. Thus, the stockholders of record of Wuthrich Hermanos, Inc. as of March 7, 1986, who availed of the new issued shares in accordance with their proportionate shareholdings in the corporation are as follows, to wit: NO. OF SHARE NO. OF SHARE OWNED BEFORE PURCHASE FROM NAME ISSUANCE 4,570 SHARES (Exh. "1" & "15") Gertrudes W. Weber 4,941 685 Anita W. Kinney 2,314 Ma. Louise V. Dubach 1,158 R. Paul Vontabel, Jr. 1,156 Otto G. Weber, Jr. 1,465 434 Doris W. Triaca 1,465 434 William F. Weber 1,465 434 Paul Edward Weber 1,465 434 Eduard Paul Weber 1 1 Total 15,430 2,148 It must be noted, likewise, that from the above tabulation, the stockholders who waived their right to purchase their proportionate shares were Gertrudes Weber for 1,463, Ma. Louise V. Dubach for 343 and R. Paul Vontabel, Jr. for 342 or for a total of 2,148 waived shares. As admitted by the parties, these 2,148 waived shares were again offered for sale to all stockholders who exercised their rights in the first offering (Exh. "6" & "7").However, this time only three (3) of the six (6) stockholders exercised their pre-emptive rights to purchase in proportion to their present shareholdings (Exh. "15"),namely NO. OF SHARES PURCHASE NAME FROM 2,148 SHARES Otto Weber, Jr. 385 Doris W. Triaca 385 William Weber 385 while Anita W. Kinney and Paul Eduard Weber, who were entitled to purchase their proportionate shares of 608 shares and 385 shares, respectively, or a total of 993 shares, waived their right to purchase such shares. These 993 subsequently waived shares were then bought by respondent Otto Weber and Doris W. Triaca on November 5, 1986 in the proportion of 497 and 496, respectively. Petitioner claims that had he been notified of these 993 waived shares, he could have easily purchased his proportionate share of 331 shares. Without first notifying petitioner that another 993 shares are available for sale after October 31, 1986 because stockholders Anita Kinney and Eduard Paul Weber have waived their right to purchase their respective proportionate shares and without giving petitioner a reasonable time or opportunity to exercise his pre-emptive right to purchase at least the 331 shares out of the 993 waived shares, certainly deprived him of his right to purchase said shares. LibLex "A stockholder's preferential right to purchase new stock may be waived by him but he cannot be deprived of it without his consent except when stock is issued at a fixed price not less than par, and he is given reasonable opportunity to subscribe at such price in proportion to his holding or in some other equitable way that will enable him to protect his interest. (Dunlay v. Avenue M. Garage & Repair Co. 253 N.Y. 274, 170 NE 917)" Respondents' contention that petitioner was notified on October 11, 1986 (Exh. "7") on the availability of the 993 shares is untenable. In the first place, the 11 October 1986 letter was only a follow-up letter to the September 15, 1986 letter to which petitioner was advised, among others, to exercise his right to purchase the proportionate 385 shares on or before October 31, 1986 and further advised that payment should be made in cash and directly sent to Wuthrich Hermanos, Inc. or to the treasurer of the corporation, at which time, the 993 shares is not yet known and available. Thus, petitioner, in response to the September 15 and October 11, 1986 letters, exercised his right and purchased the indicated proportionate shares which is 385 shares on October 19, 1986 (Exh. "6","7" & "15") Secondly, it would be impossible for the petitioner to purchase the 331 shares out of the 993 shares, considering that the period given to the stockholders who purchased on the first offering, particularly respondents Anita W. Kinney and Paul Eduard Weber has not yet expired which period is up to October 31, 1986. As a matter of fact, petitioner was not aware stockholders Kinney and Paul Eduard Weber have waived their rights to purchase their proportionate shares of 608 and 385 shares respectively and the availability of said shares for sale. Lastly, had there been another specific notice, as what the corporation did in the previous offerings, that have been set/given to the petitioner after October 31, 1986 informing him about the 993 waived shares of which petitioner is entitled to a proportionate of 331 shares, then he could have purchased the questioned 331 shares by just calling his mother Gertrudes W. Weber and instruct her to purchase the same as what he previously did in the two previous offerings. (TSN, Atty. Diaz, July 1, 1991, page 37). Respondents invoked the case of Datu Taguranao (Benito vs. SEC, G.R. No. L-56655, July 25, 1983, 123 SCRA 722), promulgated on July 25, 1983, and argued that petitioner, was not entitled to a pre-emptive right to subscribe to the 331 questioned shares because under the aforecited jurisprudence preemptive right is recognized only with respect to new issues of shares, and not with respect to additional issues of originally authorized share. This contention is likewise bereft of any merit. The doctrine in the Taguranao Benito case is not applicable in the instant case in view of the approval of the New Corporation Code on May 1, 1980 which expressly provides that the preemptive right to subscribe shares can be enjoyed by an existing stockholder of record to all issues or disposition of shares of any class, in proportion to their respective shareholdings. "SECTION 39. Power to deny preemptive right . All stockholders of a stock corporation shall enjoy preemptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings , unless such right is denied by the Articles of Incorporation or an amendment thereto: Provided, that such preemptive right shall not extend to shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public; or to shares to be issued in good faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock in exchange for property needed for corporate purposes or in payment of previously contracted right." (Sec. 39 of the Corporation Code of the Philippines)." "SECTION 102. Preemptive right in close corporations . The preemptive right of stockholders in close corporations shall extend to all stock to be issued including reissuance of treasury shares , whether for money or for property or personal service, or in payment of corporate debts, unless the articles of incorporation provides otherwise. (Sec. 102 The Corporation Code of the Philippines)" The second and third issues are interrelated with each other and therefore should be discussed jointly. There is no dispute that Don Pablo Holding Corp. was organized and registered with this Commission on June 1, 1990 with a capitalization of Ten Million Pesos (P10,000,000.00) and as admitted to by the respondents, the paid-up capital of P1,750,300.00 Pesos was paid from the funds of Wuthrich Hermanos, Inc. Likewise, evidence shows that prior to the final organization of Don Pablo Holding Corporation, all the stockholders of record of Wuthrich Hermanos, Inc.,including the petitioner herein, were duly notified of the purposes and intention in the organization of the Holding Corporation (Exh. "10" & "12").After the approval of its Incorporation papers by the Securities and Exchange Commission, all stockholders of Wuthrich Hermanos, Inc.,including petitioner, were credited or given shareholdings in Don Pablo Holding Corporation equivalent to the same percentage they have owned in Wuthrich Hermanos, Inc. (Exh. "12" & "14"). Petitioner cannot even deny this fact considering that stock certificate No. 012 evidencing his shareholding in the holding corporation is now in his possession. The contention therefore, of petitioner that the organization of Don Pablo Holding Corporation was a ploy to ease him out from both corporations is bereft of any merit. Neither did the organization of Don Pablo Holding Corporation affect the interest or prejudice petitioner. On the contrary, its organization benefited all stockholders of Wuthrich Hermanos, Inc. As clearly explained by respondents, the transfer of the operating capital of Wuthrich Hermanos to Don Pablo Holding Corporation will ultimately preserve the assets of the former intact the moment Wuthrich Hermanos, Inc.'s application for the Stock Option Plan in the DAR under the CARP program will eventually be approved by the government. In other words, the transfer of funds or the operating capital of Wuthrich Hermanos to Don Pablo Holding Corporation would not in any way prejudice the interest of petitioner but will preserve the interest of all stockholders of Wuthrich Hermanos, Inc. As regards the last issue, this Hearing Officer could not likewise sustain the petitioner's contention that the special board meeting held on November 10, 1989 was illegal because it was conducted without the presence of a quorum. On the contrary, the evidence (Exh. "F") clearly show and as further testified to by respondent Doris Triaca, the said meeting was attended by at least three (3) out of five (5) members of the Board of Wuthrich Hermanos, Inc. There being a quorum, the meeting held on said date is considered valid or legal. WHEREFORE, judgment is hereby rendered as follows: 1. Declaring petitioner to have been deprived of his preemptive right to purchase the 331 shares out of the 993 shares of Wuthrich Hermanos, Inc. Accordingly, any shares of stock bought by respondents Otto Weber, Jr. and Doris Triaca from the 993 shares in excess of their 331 proportionate shares are hereby declared null and void. And petitioner is given the right to purchase his proportionate share. 2. Declaring the organization of Don Pablo Holding Corporation and the transfer of funds of Wuthrich Hermanos, Inc. not prejudicial to the interest of petitioner. 3. Declaring the special meeting of the Board of Directors of Wuthrich Hermanos, Inc. held on November 10, 1989 as valid and legal. Finally, with the declaration that petitioner was deprived of his right to the extent of 331 shares in Wuthrich Hermanos, Inc.,petitioner should likewise be given equal number of shares in the Don Pablo Holding Corporation, the moment petitioner finally acquired the 331 shares, to maintain the proportionate shareholdings of all stockholders in both corporations. SO ORDERED. (SGD.) JAMES K. ABUGAN Hearing Officer