Lopez v. Lopez

ROSARIO, J.:

Before Us is a Petition for Review on Certiorari1 seeking to reverse the Decision2 dated 26 February 2020 rendered by the Court of Appeals (CA) in the consolidated cases of CA-G.R. SP No. 162134 and CA-G.R. SP No. 162787, entitled Lily C. Lopez, Ma. Christina Patricia C. Lopez vs. Lolito S. Lopez, Ma. Rachel Nicolette Lopez, Barbara Villas, Benedicto Villafuerte, Ma.

Luisa Paras, Ruel Villacorta, Teresita C. Fernando and iSpecialist Development Corporation and Lolito S. Lopez, Mario S. Lopez, Andresito S. Lopez, Barbara Villas, Benedicto Villafuerte, Ma. Luisa Paras, Ruel Villacorta, Teresita C. Fernando, LC Lopez Resources, Inc. and Conqueror International, Inc. vs. Lily C. Lopez, Ma. Christina Patricia Lopez, John Rusty Lito C. Lopez, respectively.

Insofar as they are relevant to the resolution of the instant petition, the facts are as follows: PROCEEDINGS IN THE QUEZON CITY REGIONAL TRIAL COURT On 1 March 2019, Lily C. Lopez (petitioner), along with Ma.3 Christina Patricia C. Lopez (Christina), filed before the Regional Trial Court of Quezon City (RTC-QC) a case4 for election contest against Lolito S. Lopez (respondent Lolito), Ma. Rachel Nicolette Lopez, Barbara Villas, Benedicto Villafuerte, Ma. Luisa Paras, Ruel Villacorta, Teresita C. Fernando, and iSpecialist Development Corporation (respondents, collectively).

Docketed as Commercial Case No. R-QZN-19-03290-CV, the case was assigned to Branch 93 of RTC-QC,5 which was designated as a special commercial court.6 iSpecialist Development Corporation (respondent iSpecialist) is engaged in the management and operation of a public market. It leases out market stalls in New Nova Plaza Market.7 Since its incorporation in 2011, it was being run by petitioner and her husband, respondent Lolito, who is also the president of said corporation.8 Petitioner and respondent Lolito own the majority shares of iSpecialist.9 On 14 February 2019, respondent Lolito, in his capacity as president of iSpecialist, called a special stockholders' meeting of said corporation, to be held at Anabel's Restaurant in Quezon City.10 During said meeting, new members of the Board of Directors were elected: namely, respondent Lolito, Ma. Rachel Nicolette Lopez, Teresita Fernando, Barbara Villas and Benedicto Villafuerte.11 Petitioner filed the Complaint a quo seeking to declare the nullity of the special stockholders' meeting and consequent election on the ground that they were conducted in violation of the By-Laws and Articles of Incorporation of iSpecialist.

According to petitioner, the meeting was null and void as it was not held in the principal office of iSpecialist, as required by its by-laws. Furthermore, it was held on a date different from that explicitly mandated by the same by-laws.12 Petitioner likewise argued that the conduct of the meeting was also void on the additional ground that Christina, who claimed to be a stockholder of iSpecialist, was prevented from attending it.13 Petitioner further asserted that the elections should be nullified, as 33,495 unissued shares were allowed to vote and were actually used to elect the new Board of Directors.

Petitioner also claimed that said shares could not be utilized without violating her right to pre-emptive right.14 Finally, petitioner contended that respondent Lolito had no right at all to vote any or all of his shares of stock as said shares were conjugal in nature, having been acquired during the existence of their marriage.15 Responding to the complaint, respondent Lolito and his co-defendants insisted on the validity of the meeting and the subsequent elections. They countered that under Section 2, Article II of the corporation's By-Laws, special meetings of stockholders may at any time be called by the president of the corporation.16 The venue was also valid as under Section 51 of the Corporation Code, regular or special meetings may be held in the city or municipality where the principal office is located-in this case, Quezon City.17 On 29 July 2019, the court a quo rendered its Decision18 finding for petitioner and Christina and declaring the 14 February 2019 elections null and void.

The dispositive portion of said decision reads: WHEREFORE , premises considered, judgment is hereby rendered in favor of the plaintiffs, and against the defendants, as follows: a. Declaring as null and void ab initio the Special Stockholders Meeting/Elections held on February 14, 2019, as well as any and all proceedings held therein, and b. Enjoining all of the herein defendants from representing themselves as the newly-elected Directors and/or officers of the defendant corporation on the basis of the Special Stockholders Meeting/Elections held on February 14, 2019.

SO ORDERED.19 The trial court found that in iSpecialist's 2013 General Information Sheet (GIS), the total number of common shares was only 12,500, with respondent Lolito and petitioner holding 44.75% each of the total shareholdings, or 5,592 common shares for each of them. Respondent Lolito allegedly infused his personal money into the corporation as additional capital by purchasing 33,495 unissued shares.20 However, the trial court held that the unissued shares in excess of the 12,500 shares originally issued by the corporation may only be issued by authority of the Board of Directors. Prior authorization of the Board was necessary to validate the sale of the unissued shares.21 When he was cross-examined during trial a quo , respondent Lolito admitted that there was no such board resolution authorizing the sale and that, despite the absence of prior authorization by said Board, he proceeded to make the purchase and eventually voted such shares in the questioned elections of the Board.22 Citing Section 23 of the Corporation Code, in relation to Section 25 of the same code, the court a quo held that all corporate business of iSpecialist should be conducted by the Board of Directors and that no individual corporate officer could solely exercise any corporate power without authority from said Board.23 It ruled that since the sale was invalid, the erstwhile unissued shares could not be voted upon.

And because the number of shares illegally issued were substantial enough to affect the elections, the latter should likewise be voided, as the court did so.24 PROCEEDINGS IN THE MARIKINA CITY REGIONAL TRIAL COURT Petitioner, together with Christina and John Rusty Lito C. Lopez (John Rusty) as plaintiffs, also filed an election contest25 docketed as SEC Case Nos. 2019-29 to 31 before Branch 273 of the Regional Trial Court of Marikina City (RTC-Marikina). Alleging that they were stockholders and directors of LC Lopez Resources, Inc. (LC Lopez), Conqueror International, Inc. (Conqueror) and Russ Marketing, Inc.

(Russ Marketing), they questioned the validity of a stockholders' meeting held on 11 February 2019.26 According to petitioner and her co-plaintiffs, who are her children with respondent Lolito, on 29 January 2019, they individually received notice for the said meeting, signed by respondent Lolito in his capacity as chairman of the board of directors and president of said corporations.27 Both Christina and John Rusty sent proxies to the said meeting, but they were turned away because allegedly, their principals (Christina and John Rusty) were not stockholders of the corporations.28 Petitioner, meanwhile, walked out of the venue after she was not allowed to have her lawyer around for the said meeting. However, the meeting went ahead and resulted in the election of a new set of board of directors for the aforesaid corporations.29 According to petitioner, on 26 November 2018, or some two months prior to the meeting, respondent Lolito acquired 252,125 unissued shares of stock in LC Lopez, and 97,050 unissued shares of stock in Conqueror.30 He used said shares, which were purchased without any board resolution of the two aforesaid corporations, to ostensibly elect, or cause to be elected, his co­defendants as directors for the two aforesaid corporations, in the process ousting petitioner, Christina, and John Rusty as directors and officers thereof.31 Petitioner and her co-plaintiffs thereafter filed the complaint a quo , assailing the alleged invalidity of the meeting and the eventual election of a new board of directors.32 Respondent Lolito and his co-defendants in the complaint a quo insisted on the validity of the meeting even as they sought the dismissal of the complaint insofar as Christina and John Rusty were concerned, claiming that they were not parties-in-interest as they were not stockholders of the subject corporations.33 They likewise sought to have the complaint dismissed in the case of Russ Marketing, saying that the scheduled election for its board of directors actually did not push through during the said meeting.

In its Decision34 dated 13 September 2019, RTC-Marikina rendered judgment in favor of petitioner and her co-plaintiffs and declared the special stockholders' meeting held on 11 February 2019 and all activities made in its course, including the election of a new set of board of directors, to be null, void, and of no force and effect. The court a quo found that both Christina and John Rusty were indeed stockholders of the subject corporations despite the fact that their names were not listed in the subject corporation's Stock and Transfer Book (STB), although they did appear as stockholders in the General Information Sheet (GIS) submitted to the Securities and Exchange Commission. According to the trial court, it was aware of the ruling of this Court in F & S Velasco, Co., Inc. v. Madrid35 (Velasco) and Lao vs. Lao36 (Lao), that respondent Lolito and his co-defendants cited to support their claim that both Christina and John Rusty were not stockholders of the concerned corporations.37 In both the Velasco and Lao cases, this Court held that in determining the status of one claiming to be a stockholder of a corporation, what was controlling were the entries in the STB and not the GIS.38 However, the trial court ruled that the cited cases could not be applied squarely to the case at bar because of differing factual milieus,39 foremost of which was that unlike in the Velasco and Lao cases, in the instant case, petitioner and her co-plaintiffs relied not only on the GIS but also on other circumstances to support their claim: first, respondent Lolito himself, as well as his other co-defendants, Benedicto L. Villafuerte and Teresita Fernando, confirmed that the two were indeed stockholders of the subject corporations; second, the three corporations were not in the habit of religiously complying with legal corporate requisites as according to Mario Lopez (Mario), the supposed corporate secretary, even the stock certificates of respondent Lolito and those of his five co-defendants were signed only a few days before the 11 February 2019 special stockholders' meeting; and, third, the subject corporations could be strictly considered family corporations, and that at least before conflicts started to appear among family members, petitioner and respondent Lolito really intended their two children to be stockholders thereof, which would explain the inclusion of their names in the GIS.40 The court a quo also ruled that the issuance of the stock certificates to respondent Lolito and his co-defendants was a clear afterthought and was obviously rigged, apparently in preparation to ousting the original members of the board.

It even held the certificates to be void, as it was not executed by Mario, but by a certain Edna Victoria (Edna), the accounting head of LC Lopez, who did not have the legal mandate to do so.41 On this matter, the trial court cited part of the testimony of Mario, thus: Atty. Nazareno: In relation to that mister witness, I refer you to A20 of your judicial affidavit where you testified "nilagyan ni Edna ng entrada iyong Libro ng LC Lopez at Conqueror x x x x" Witness: Yes, sir. Atty. Nazareno: And by Edna, you mean Edna Victoria?

Witness: Yes, sir. Atty. Nazareno: And Edna Victoria is the accounting head of the LC Lopez, correct? x x x x Witness: Yes, sir.

Atty. Nazareno: And again in A20, you said that nilagyan ni Edna ng entrada iyong libro ng LC Lopez," when did she put the entries? Witness: I cannot recall, sir.

Atty. Nazareno: But this was after you sought the lawyer's advice who said that you should fix the entries of the stock and transfer book, correct? Witness: Yes, sir. x x x x Atty. Nazareno: And in fact, all of the entries in the stock and transfer book were made by Edna, correct?

Witness: Yes, sir. Court: Okay. Were you present when Ms. Edna entered and wrote those entries in the stock and transfer book?

Witness: Yes, your Honor. x x x x Court: So, tell the court what documents were relied as basis by Edna in making those entries in the stock and transfer book? x x x x Witness: I don't know the documents.

Atty. Nazareno: And mister witness, you just testified that you were there when the entries were being made. And after which you signed, correct? Witness: Yes, sir.

x x x x Atty. Nazareno: And this was sometime in January 2019? Witness: I cannot recall the exact date, sir. Atty. Nazareno: But it was this year?

Witness: Yes, sir. Atty. Nazareno: I am showing you this Exhibit "6", which is the stock and transfer book of Conqueror. Similarly, all the entries here were prepared by Edna, correct?

Witness: Yes, sir. x x x x Atty. Nazareno: And similarly, you are not familiar with the documents that was the basis of Edna in making those entries, correct? Witness: Yes, sir.

Atty. Nazareno: Again, you signed it in 2019, correct? Witness: Yes, sir.42 According to the trial court, the act of Edna in filling out the entries in the STB was in violation of Article IV, Section 5 of the by-laws of both LC Lopez and Conqueror, as it was required therein it should be the corporate secretary, in this case Mario, who should do all the recording in the STB.43 Even the stock certificates themselves did not escape the trial court's scrutiny, noting that it did not comply with the jurisprudential requisites for their validity. Citing the case of Bitong vs.

Court of Appeals,44 the court held that for the stock certificates to be valid, the par value, as to par value shares, or the full subscription as to no par value shares, must have been fully paid first.45 It found that respondent Lolito, as reflected in the corporations' Articles of Incorporation, had only paid 25% of his subscribed shares, and was not able to present any proof of fully paying for his entire subscription.46 Finally, the court ruled that respondent Lolito was estopped from questioning the shareholder status of his two children after he testified in open court that he recognized them both as members of the Board of Directors, but only for the purpose of transacting with banks. According to the trial court, respondent Lolito should not be allowed to confirm or deny the two as stockholders and directors depending on the circumstances and whenever it fitted him.47 Concluding that the two children were stockholders and directors of the subject corporations, the trial court held that they had every right to be present during the special stockholders' meeting.

It ruled that the refusal of respondent Lolito to allow the two children and petitioner from attending the special stockholders' meeting greatly affected the validity of its conduct, as no quorum could have been acquired.48 It said that based on the 2017 GIS of LC Lopez, its outstanding shares of stock are as follows: Lolito Lopez - 61,750 shares Lily Lopez - 61,750 shares Ma. Rachele Lopez - 13,000 shares John Rusty Lopez - 13,000 shares Ma. Christina Lopez - 13,000 shares