In Re: Polygon Investors & Managers Inc.

[SEC-SICD * CASE NO. 5780. December 22, 1999.] IN RE :POLYGON INVESTORS & MANAGERS INC.,Petition for the Reconstitution of the Stock and Transfer Book and Stock Certificates Booklets POLYGON INVESTORS & MANAGERS, INC. , petitioner , vs .AFRICA, VICTOR, ET AL. , respondents . D E C I S I O N This is a petition filed by Polygon Investors and Managers, Inc. which seeks (1) the permission of the Commission for the reconstitution of its lost stock and transfer book and cancellation of the existing old certificates of stocks and issuance of new ones in lieu thereof which shall be recorded in the reconstituted book; and (2) an order directing the respondents to present and surrender to petitioner their original certificates of stocks for cancellation and reissuance of new ones for recording in the reconstituted book. LLjur Records show that respondents Nathalie Africa-Verceles, Jose Enrique Africa, Paul Delfin Africa and Lourdes A. Africa filed their answer thereto alleging lack of knowledge of the veracity of the allegations in the petition. and interposing objection to the said reconstitution until and unless the loss of the stock and transfer book is established and the entries therein are duly verified while respondents Victor Africa, the Estate of Jose L. Africa, Manuel Nieto, Jr. Joselito Floro and William Yonan did not interpose objection to the petition. The parties' pleadings as well as evidence show that petitioner is a corporation duly registered with the Commission; that all the named respondents are stockholders of record thereof and that respondents Joselito Floro, Manuel H. Nieto, Jr. and William Yonan hold shares in petitioner in trust for respondents Nathalie Africa-Verceles, and Jose Enrique Africa. Further, the then Assistant Corporate Secretary (Miss Rosana A. Salak) and petitioner's President (Atty. Victor V. Africa) testified that sometime in 1992 and with the permission of the President, the late Jose L. Africa, one of the stockholders, borrowed petitioner's Stock and Transfer Book and Stock Certificate Booklet; that said Jose L. Africa died on December 20, 1995 without returning the same; that said two witnesses tried to have a general search of said book and booklets among the corporate records that were kept in the office of Jose L. Africa but to no avail; that sometime in 1987 then Jose L. Africa instructed Miss Salak to encode in a computer the contents of petitioner's stock and transfer book as well as the annotations and information given by the former to her (Exh. "A");that sometime in 1988 petitioner's authorized capital stock had been increased from P20.0 M to P150.0 M; that the same was approved by the Board and respondent Lourdes A. Africa herself and that these documents constituting the said increase were reflective of a 30-share stock dividend declaration which were not yet included in the computer print-out prepared by her (Exh. "A" ). It was further shown that on September 4, 1984 petitioner approved and bought back Jose L. Africa's 36,584 shares and Lourdes A. Africa's 9,557 shares leaving them one outstanding share each; and that petitioner paid them in October 1984 with the total amount of P6,024, 877.85. As a witness for petitioner, Atty. Victor Africa also testified on the reasons why spouses Jose L. Africa and Lourdes A. Africa were not reflected as having received stock dividend. He emphasized that the stock dividend that were distributed were based on the number of shares held by the respective stockholders at the time the increase in the authorized capital stock was approved by the Commission in June 30, 1986; and that since spouses Jose and Lourdes Africa had already sold their previously-held shares to petitioner, they were therefore given only stock dividends that corresponded to the one share in their respective name. Answering respondents, on the other hand, did not have any testimonial evidence although they submitted to the Commission corporate records relative to the June 30, 1986 increase in authorized capital stock-showing that Jose L. Africa held 9,558 shares prior to the said increase (from P10.0 M to P20.0 M) in and from which they subscribed and paid by way of 200% stock dividend, thus increasing Jose L. Africa and Lourdes A. Africa's shares to 73,170 and 19,116, respectively. They also submitted xerox copies of certain leaves of petitioner's stock and Transfer Book which were found among the documents in the bedroom of Jose L. Africa after his death and which they claimed to have been tampered with. By way of judicial notice over petitioner's corporate records on file with the Commission, it is shown among others, that after the approval of the increase in petitioner's authorized capital stock on November 16, 1981 from P5.0 Million to P10.0 Million, the stockholders with their respective shares were: Jose L. Africa (36,585);Lourdes A. Africa (9,558);Victor Africa (1,350);Manuel H. Nieto, Jr. (844);William Yonan (675);and Gregorio Floro (675);that again in the June 30, 1986 approved increase on petitioner's authorized capital stock from P10.0 Million to P20.0 Million, said stockholders appeared to have subscribed and fully paid by way of a 200% declared stock dividends (April 11, 1984) as follows: Jose L. Africa (73,170 shares);Lourdes Africa (19,116 shares);Victor Africa (2,700 shares);Gregorio Floro (1,688 shares);Manuel H. Nieto, Jr. (1,350 shares);and William Yonan (1,350 shares) in addition to their former respective shares; that in the audited Financial Statements as of December 31, 1983, prepared by certain Librado Bolor on April 4, 1984 and submitted to the Commission in connection with the foregoing increase in the authorized capital stock, it was shown in a footnote that as early as 1983 the amount of P9,937,400.00 had been appropriated to be declared as stock dividend after the filing of the application for and approval by the Commission of this 1986 increase in petitioner's authorized capital stock; that on April 11, 1984 the stockholders had approved the appropriation of said amount to be declared as stock dividend after approval by this Commission of the said application for increase; that in a Certification issued by the then Assistant Corporate Secretary (Rosana S. Salak) on April 8, 1988, the stockholders in a meeting held on June 30, 1986 amended the percentage of declaration of stock dividends on April 11, 1984 to 30 shares for every share to be distributed to stockholders of record as of June 30, 1986 and further appropriated additional amount of P700,600.00 to be also declared as stock dividends; and that on November 23, 1988 petitioner's other application for increase in authorized capital stock from P20.0 Million to P150.0 Million was approved by this Commission wherein petitioner had shown a relatively modified set of stockholders and equity prior to this increase and thereafter, although the same was given due course by the SEC Specialist who verified petitioner's records relative to this application. Quite obviously, there are three principal issues in this case namely: 1. Whether or not petitioner's stock and transfer book and stock certificates booklet got lost which thereby necessitate their reconstitution. 2. Whether or not in the reconstitution process, petitioner has to consider only those information contained in the computer print-out prepared by the Assistant Corporate Secretary, Miss Rosana Salak. 3. Whether or not it is necessary to cancel existing stock certificates and/or to issue new ones in lieu thereof which shall be the only certificates to be reflected in the reconstituted stock and transfer book. The Commission rules as follows: With respect to the first issue, the Commission finds sufficient factual basis to consider petitioner's original stock and transfer book, as well as, its stock certificate booklet as having been lost which thereby further necessitate their reconstitution. In other words, petitioner has sufficiently substantiated its allegation on the loss of the aforesaid documents by first establishing their existence; by thereafter proving the facts that these were borrowed out in 1987 and held in custody for almost seven years by one of the stockholders (Jose L. Africa) who died in December 1995 without returning the same; and by the effort of its officers in searching them in places where said stockholder may have possibly kept and there was nothing found, hence, these documents disappeared in such a way that their existence is unknown and they cannot be recovered (Article 1189, par. 3 of the New Civil Code of the Philippines). Besides, answering respondents failed to adduce evidence, either to controvert petitioner's evidence of loss, or to substantiate their belated claim that these documents were intentionally hidden. With the foregoing loss of the original and in compliance with the legal mandate over stocks corporations to maintain an official stock and transfer book in its principal office which must contain a record of all stocks in the name of the stockholders, as well as, the payments and transfers made thereof (Section 74 of the Corporation Code of the Philippines), it is imperative on the part of the petitioner to register another stock and transfer book in lieu of the lost original in which it shall inscribe not only the supposed contents of the lost original but also those information and stock; issuances on transactions which should and must have been recorded therein prior to and after the loss. As regards the second and third issues, the same are both in the negative. In view of certain undeterminable inconsistencies between the computer print-out (Exh. "A") and the petitioner's corporate records filed with this Commission as well as of the apparent and sudden, yet unexplained, changes in the stockholders component and equity as borne out by available corporate records which need immediate record reconciliation, it thereby becomes relatively imperative in the reconstitution process of its lost stock and transfer book for petitioner to give important reference to every evidentiary document, particularly those corporate records filed with this Commission, the above-stated computers print-out (Exh. "A"),and other documents of proof of stock ownership or of transfers thereof. Unless there is unanimity among the stockholders, the reconstitution of petitioner's lost stock and transfer book does not always necessitate the cancellation of old and existing stock certificates or the issuance of new certificates in lieu thereof. Neither for reason of said reconstitution can petitioner compel the stockholders to surrender their old certificates and cancel the same for the issuance of new ones instead because said cancellation and issuance. can only be had, under the law in case the old certificates had been stolen, destroyed or lost (Sec. 73 of the Corporation Code). In fact it would be the most reasonable, prudent, and practical move to start the reconstitution of the lost stock and transfer book by reflecting the old certificates therein and not by cancelling them first and reflecting only those newly issued in their instead. LLjur WHEREFORE, judgment is hereby rendered giving herein petitioner the permission to reconstitute its lost stock and transfer book and stock certificate booklet by allowing it to adopt and register with the Commission a new stock and transfer book and to fill-up the same with the required information under the law and with the supposed figures contained in the lost copy on the basis of the corporate records filed with this Commission, of the information in Exh. "A" hereof as well as of documents presented by the stockholders that may reconcile the inconsistencies in the records. No pronouncement as to attorney's fees and costs of litigation. SO ORDERED. (SGD.) PAULINO Q. GALLEGOS Hearing Officer