Hermenegildo Rosales, et al. vs. Virginia De Leon, et al.

[SEC-SICD * CASE NO. 4062. August 21, 1992.] HERMENEGILDO ROSALES, ET AL. , petitioners , vs .VIRGINIA DE LEON, ET AL. , respondents . D E C I S I O N This is an action for injunction, nullification of the results of the election held on 31 August 1991 of the Board of Directors and Officers of the Avalon Condominium Corporation, with prayer for preliminary prohibitory and mandatory injunction and temporary restraining order. Petitioners plead, inter alia, that on 31 August 1991 there was an annual meeting of the members of the Avalon Condominium Corporation (ACC, for brevity) for election of the Board of Directors for the year 1992; that petitioners who arrived five (5) minutes late had in their possession 231 proxies, and that inclusive of their presence, they constituted an overwhelming majority of total membership vote of 422; that the corporate secretary, Atty. Teresita Sison, resigned on 19 August 1991 and an acting corporate secretary was appointed by the president/respondent Virginia de Leon in the person of Atty. Jose C. Tolentino for the scheduled annual meeting; that the appointment was done unilaterally without the approval of the general membership, who should be the one to appoint and fill the vacancy; that since the petitioners constituted the overwhelming majority ,by members present in person and by proxies, no acting corporate secretary could yet be appointed until the arrival of the petitioners for lack of quorum; that even without considering the votes of petitioners present in person, the proxies in their possession totalled to 231 voted out of total voting shared of 422; that no meeting could validly be called or convened without their presence; that the objections raised by respondent Renato Liboro on the ground of misrepresentation in the solicitation of the proxies in possession of the petitioners and the lateness in the submission of the same while the meeting was already in progress, were substantiated and without any legal basis; that the refusal of the Chairperson-respondent De Leon to recognize the validity of the proxies, after the ruling of the acting corporate secretary Tolentino on the matter, leads to the disenfranchisement of the petitioners, constraining them to walk-out from the meeting and refusal to participate in the elections; and that the elections held in 31 August 1991 was null and void. Petitioners are now seeking for the nullification of the 31 August 1991 election, the minutes thereof and to call for a new election and appointment of a new corporate secretary. LibLex Respondent Renato Liboro (hereinafter, respondent Liboro) in answer to the petition averred that petitioners are not the incumbent board but were members of the immediately preceding board of the corporation; that the petition states no cause of action against him in response to the relief prayed for as he is neither a director nor officer; that the 31 August 1991 annual meeting was conducted and called in accordance with the requirements of the By-laws, Corporation Code and pertinent rules and regulations of the Commission; that petitioners have no cause to assail and declare the election null and void of the present board since their alleged proxies were never presented and filed before the scheduled meeting in direct violation of the mandatory requirement of law; and that there was a requisite quorum at the time the meeting was convened and at the time of the election of the directors and officers of the Corporation. Respondent Liboro prays for the dismissal of the petition, and the compulsory counterclaims arising from the alleged baseless suit be given due course. On the part of the respondents Virginia De Leon, Ramon Ordoneza, Jose Estava and Tomas Syquia (from hereon, respondent De Leon, Ordoneza, Esteva and Syquia),they contend, among others, in their Answer that petitioners have no cause of action against respondents; that petitioners failed to exhaust intra-corporate remedies, a requisite sine qua-non in filing the instant case; that the designation of Atty. Tolentino as acting corporate secretary and legal counsel by respondent De Leon, only for the purpose of the annual membership meeting and not on a permanent basis, was proper and within the requirements of Section 3.6 of Article III of the Amended By Laws; that the designation of Atty. Tolentino was accepted by him on 21 August 1991, and that copies of such designation were furnished to all the members of then Board of Directors; that the provisions of Sec. 3.6, Article III of By-Laws negates petitioners' claim that it should be the members as a body who should appoint the acting secretary for the purpose of the members' annual meeting; that the required presence of the members, in persons or by proxies, to constitute a quorum was squarely met; that prior to the declaration of the annual meeting to order, the acting secretary Tolentino had already in his possession the Corporation's previous accomplished proxies representing 197 votes, out of which 53 votes thereof were constituted in favor of petitioner Luz Gonzales (petitioner Gonzales, from henceforth):that these old proxies, which in form and substance were in order, were never revoked before or during the meeting; that no protest was lodged on the use of the old proxies that the members present representing 69 votes and by proxies constituting 144 votes were duly recognized, thus making the total members present to 213 votes out of the overall members' votes of 422, before the petitioners' arrival and at the start of the meeting at 2:20 in the afternoon of 31 August 1991; that the petitioners came in late at 2:30, during the reading and approval of the minutes of the previous annual meeting; that petitioners being holder of 18 voted as members present and petitioner Gonzales of 53 proxy votes, already in the possession of the acting corporate secretary before the meeting, were duly allowed and recognized to participate in the meeting so as not to disenfranchise any member; that upon the arrival of the petitioners, the total members present in person and by proxies represented 284 voted, for exceeding the required number set for a quorum; that petitioner Gonzales submitted forthwith an envelope to the acting Secretary allegedly containing the new accomplished proxies of some members of the corporation; that same proxies were disallowed acceptability by the chairperson/respondent De Leon, after due referral to the acting corporate secretary/legal counsel, on the ground that the same was submitted when the meeting was very much in progress and not before the meeting as required by law and as previously agreed upon by the directors; that petitioners are in bad faith, their claim have no legal basis in law and in fact and are not entitled to the reliefs demanded; and that estoppel runs against all herein petitioners. Respondents De Leon, Ordoveza, Sateva, Jr. and Syquia prayed for the dismissal of the instant case, denial of petitioners' application for Temporary Restraining Order and injunctive reliefs. Respondent Ma. Marcelina Oreta (respondent Oreta), in her Answer, raised similar points found in the other respondents' pleadings and interposed, additionally, that due to the amendment of the By-laws of the ACC in July 1975, necessitating only twenty (20%) percent of the total voting or by proxy, shall constitute a valid quorum, the requisite quorum was present in the meeting of 31 August 1991; and that the alleged 231 proxies submitted late by the petitioners but never confirmed that it was in their person, was in contravention of Section 58 of the Corporation Code. Respondent Oreta likewise prayed for the denial of the provisional remedies and the petition and that petitioners be made liable for damages she suffered by reason of this action. On 2 January 2 1992, after due hearing, the Original Hearing Officer of the case, Atty. Felipe S. Tongco, penned an Order denying the application for a writ of preliminary prohibitory and mandatory injunction. After the issues were joined, the preliminary conference was set by the above-named Hearing Officer and terminated on 4 February 1992. The evidence, both testimonial and voluminous documents, were adduced by the parties not only in the hearing of the injunctive relief, and were likewise adopted in the merits as part of their evidence-in-chief, and during the hearing of the main case, were both exhaustive and indubitably established the hereunder facts: a. An annual membership meeting of the corporation was held on 31 August 1991, which was scheduled at 2:00 o'clock in the afternoon, but started at past 2:00 in the afternoon; b. The corporation's corporate secretary, Atty. Teresita Sison, resigned prior to the meeting. Atty. Jose Tolentino was appointed as acting corporate secretary/legal counsel by the president/respondent De Leon; c. There were old proxies already in the custody of the corporation. These proxies were constituted in the year 1986, 1987, 1988, 1989 and 1990, with provisions of effectivity unless sooner revoked; d. No revocation by the principal of the previous proxies was presented prior to the annual meeting; and neither was there any protest made on the use of the same proxies for the year 1992; e. The petitioners arrived late, after the meeting had progressed; f. The newly constitutes proxies for the year 1992 was submitted only during the meeting and only upon the arrival of petitioner Gonzales, which were in her possession, but were disallowed and invalidated by the respondent De Leon upon due consultation with the acting corporate secretary/legal counsel and upon his advice; g. Before the meeting started, no protest was made on the previous proxies, which were in possession of the corporation, being used for the determination of the quorum; LLjur h. The envelope containing the new proxies submitted during the meeting by the petitioners were never opened, examined nor counted by the acting corporate secretary; and the same was withdrawn by petitioner Gonzales in the same condition when they walked out; i. Petitioners walked out of the meeting after respondent De Leon ruled on the disallowance of the new proxies, and did not participate in the election. The primary issues raised for consideration of this Commission are viz: a. Whether or not there was a quorum present in the annual memberships meeting of 31 August 1991 as well as for the valid election of the respondents; b. Whether or not the ruling of the chairperson/respondent De Leon on the non-acceptability of new proxies submitted late by the petitioners was proper and legal; and the peripheral issues necessitating to be resolved likewise are a. Whether or not petitioner Gonzales is in estoppel from questioning the validity of the election when she attended the Special Members' meeting of 11 January 1992, without any reservations on her part, it being presided by the herein respondents; b. Whether or not petitioners have a cause of action against respondent Renato Liboro, who was neither elected as director nor officer of the corporation. After due and mature deliberation and analysis, along with the admissions of the parties, their assertions of fact in their respective pleadings, with reference to documentary evidence adduced in the course of the hearings conducted, this Hearing Officer arrived at the following conclusions: Relative to the first issue, in reference to the existence of a quorum and the resolution thereof, the same imperatively rest on the provisions of the By-laws of the corporation, considering that it is the private law of the corporation, written into the charter, becoming part of the fundamental law of the corporation and by which the corporation, its directors, officers and members are bound by and must comply with the same (8 Fletcher Cyclopedia Corporations, pp. 622-624). The amended By-Laws of the corporation pertinently provides, thus: "SECTION 3.5. Quorum at each meeting of the members, the holders of at least twenty (20) percent of the total voting power of the corporation, who are present in person or represented by proxy shall constitute a quorum for transaction of business except where otherwise provided by law." From the evidence on hand, being an undisputed fact and unrebutted by the petitioners, with no protest filed questioning the validity, efficacy, or revocation of the old proxies (Exhibit 4, page 2, respondents De Leon, et al.),the presence of members totalling to 69 votes and by proxies amounting to 144 votes were determined before the start of the meeting, bringing the total to 213 votes. The petitioners who came in late were credited with 53 old proxy votes (in favor of petitioner Luz Gonzales) and 18 votes on the members' presence (petitioners) and allowed to participate in the meeting, which if added to the 213 votes would generate 284 votes. It would appear therefore that before the start of the meeting for the purpose of determining the quorum, even without the presence of the petitioners, if we are to take into account the afore-quoted pertinent provisions of the ACC's amended By-laws, which is 20% of corporation's total voting power of 422, the requisite quorum would be pegged only at 84.40. Considering further that there were already 144 proxies and the presence 69 members or a total of 213 voted, the quorum has been duly attained, which far surpassed the minimum requirement of the By-laws. The entrance of the petitioners, with total members present and by their proxies, brought the total voting power to 284 votes, 20% of which is 56.80 votes. Assuming arguendo that the provisions of the ACC By-Laws, specifically 3.5 on quorum, requires a quorum of 20% of the total voting power of the corporation, who are present in person or represented by proxy, is in connection only to any transaction other than the election proper, then the pertinent section of the Corporation Code shall now be the governing law on the matter, which provides that a majority of the members, in case of non-stock corporation which ACC is categorized under, entitled to vote must be present ( Vide : Sec. 52, Corporation Code) The stance adopted by petitioners on the lack of quorum using as legal yardstick the aforestated provisions of Section 52 of the Code cannot, nevertheless, be afforded a favorable view. As previously discussed in the preceding pages, the quorum before the meeting started was ascertained to be at 213 votes (144 votes by old proxies + 69 votes of members present) in the custody of the Corporation and with the acting corporate secretary. Upon the entrance and appearance of the petitioner, they being recognized and allowed to participate in all aspects of the meeting and election, their 71 votes (53 by old proxy votes and 18 voted for members present) were added to the 213 votes, deriving a total of 284 votes. Inasmuch as the total voting power of the ACC is 422, the quorum of majority votes required by Section 52 is therefore only at 212 (211 + 1) votes. Certainly and logically, 213 voted (even before the entrance of petitioners) constituted already a valid quorum for purposes of the meeting and election in accordance to Section 52 of the Code. It must be emphasized here that what were disallowed were the new proxies submitted late and not counted nor used in the determination of the quorum before the start of the meeting. What the petitioners failed to realize is that had they come on time for the submission of their proxies and protested the use of the old proxies before the start of the meeting and determination of the quorum, the resultant consequence would have been totally different; and that had they attended and participated in the election, and protested the proceedings on record citing by Section 58 of the Code, in view of the new proxies solicited or that these were disallowed before the start of the meeting, their entitlement to the relief prayed for would have a basis in fact and law. Unfortunately, this was not the circumstance under the premises. DaEcTC Parenthetically speaking, the findings of an existence of a valid quorum under the By-laws or Section 52 of the Code, the resultant election therefore of the respondents is clothed with legality, there being no other issue interposed for the annulment of the same aside from the lack of quorum. The non-participation of the petitioners in the election, who staged a walked-out, did not in anyway affect the quorum previously determined in accordance to the amended by-laws and provisions of the Code. (Atterbury vs. Consolidated Coppermined Corp. 26 Ed Ch 1, 20 A2d 743; Duffy vs. Loft, Inc., 17 Del Ch 140, 151 A 223, affd 17 Del Ch 376, 152 A 849; Fletcher, Vol. 5 page 90, 1967). They cannot now raise the defense of lack of quorum on the premise that such lack was due to their walk out and or by not taking part in the election. On the matter of petitioner's complaint of non-casting of and counting of the members votes in the election of the respondents, the Code provides that election in non-stock corporation may be sufficiently done by viva voce or hand raising, unless a vote by ballot is requested by any voting stockholder or member. (Campos, Corporation Code Comments, Notes and Selected Cases, page 294). There is no evidence on record to show that a member had requested a vote by balloting for this Hearing Officer to endow credit on the claim of petitioners. In Exhibit "EE", petitioners, and by which they are bound, the Report of the SEC observers stated explicitly that the manner of voting was done by a motion, there being no objection to the nomination of the seven members, and the number of members nominated corresponds to the number of membership in the Board of Directors of the Corporation. Anent the second issue, there being no express provisions in the By-laws on the presentation and disallowance of proxies, and in lieu of such absence, the provisions of the Corporation Code shall be applicable, which provides, viz: "SECTION 58. Proxies . Stockholders and members may vote in person of by proxy in all meetings of stockholders or members. Proxies shall be in writing, signed by the stockholder or member and filed before the scheduled meeting with the corporate secretary. .... In the case at bar, the undisputed fact, and as admitted by the petitioners in their pleadings and testimonies, they came late and submitted their proxies recently constituted in their favor during the meeting and not before the meeting, not to the corporate secretary but to Fe Sibal, (TSN, p. 10, 26 May 1992) which is a direct contravention of the aforequoted provisions of the Code. In Fletcher Cyclopedia Corporation, Vol. 5, page 262, 1967 Ed.,Citing in Re Gulla, 13 Del Ch 23, 115 A317, the proxies should be filed with the corporate secretary and this should be done at such time before the meeting. The disallowance or non-acceptance of the proxies tendered by the petitioner by the ruling chairperson/respondent De Leon upon due consultation of the legal counsel is thus proper under the circumstances. Admittedly, upon due perusal of the new proxies tendered by the petitioner, the same revoked the old proxies which were already in possession of the corporation. The efficacy, however, of such revocation failed its purpose when the same was not submitted before the meeting for the chairperson and the acting corporation to verify and accept the same as mandated by the Code, and only after the quorum had been determined. The petitioners' contention that as a matter of practice and usage, the members can submit their proxies anytime, before or during the memberships' meeting cannot be given a semblance of approval and legitimacy. This jurisdiction is replete with authorities and cases stressing a principle of law that practice, custom or constant usage of certain acts cannot be sanctioned nor given a hue of validity if it contravenes a mandatory provisions of the law or the Code. On the peripheral issued involving the appointment of an acting corporate secretary who, this Hearing Officer finds the position adopted by petitioners to be devoid of credit. In the absence of a regular corporate secretary who resigned prior to the annual meeting, the appointment of an acting corporate secretary by the President (Exhibit 5, respondent) only for the purpose of the annual members' meeting is not only proper but is considered to be one within the inherent power of such officer to do so. The appointment partaking of a temporary or in an acting capacity does not need the approval of the membership as a body for the President/chairperson to do so. On the issue of estoppel in pais invoked by respondent Oreta on the presence of petitioner Gonzales in the meeting of 11 January 1992 presided by the respondents' Board, without due reservation on the part of the petitioner is equal to the recognition of the legitimacy of the election of the respondents, cannot be credited with merit. The testimony of petitioner Gonzales (TSN, July 9, 1992, pp. 56 to 88, while admitting that she attended the meeting of 11 January 1992, it was not to recognize the legitimacy of the respondents' Board but rather more on her apprehension on how the funds of the corporation shall be disbursed or disposed of, as well as to protect her interest on the matter, which has remained unrebutted by the respondents. On the petitioner's cause of action against respondent Liboro, this Hearing Officer finds no existence of any cause for the inclusion of respondent Liboro in the petition, being neither an elected director or officer of the corporation. Additionally, in the hearing of the September 1991, a judicial admission on the record was made by counsel for petitioners that the petition failed to state the cause of action against the same respondents. Hence, respondent Liboro should be dropped from the complaint. In failing to substantiate with definiteness the fact or basis by which respondents anchored their claim for damages, attorney's fees, by way of counterclaim, in the hearing of the merits to warrant or impel this Hearing Officer to favorably consider or grant the same, the denial of the respondents' counterclaim is in order. ACCORDINGLY, in the light of all the foregoing disquisition, judgment is hereby rendered as follows: a. Declaring the presence of a quorum in the annual membership meeting of 31 August 1991, rendering said meeting valid and legal; b. Declaring respondents as the duly elected director of the Avalon Condominium Corporation for the year 1992; c. Declaring valid the appointment of the acting corporate secretary, Atty. Jose Tolentino; d. Declaring no cause of action exists against respondent Renato L. Liboro; CSDAIa e. Dismissing the counterclaim for exemplary and moral damages for lack of merit and being unwarranted. No pronouncement as to costs. SO ORDERED. (SGD.) YSOBEL S. YASAY-MURILLO Hearing Officer