Case Summary (G.R. No. 257697)
Applicable Law
The decision was rendered in 1983. The applicable constitution at the time was the 1973 Philippine Constitution. Corporate and administrative law principles governing issuance of shares, pre-emptive rights, internal corporate authority (board of directors/trustees and by‑laws), and the standard of judicial review of administrative findings were determinative.
Relevant Factual Allegations by Petitioner
Petitioner alleged that (1) the additional issuance of P110,980 worth of previously authorized shares violated his pre‑emptive rights; (2) the increase in authorized capital from P200,000 to P1,000,000 was illegal because stockholders of record were not notified of the meeting at which the increase was approved; and (3) he sought cancellation of the additional shares and newly issued shares, registration in his favor of 2,540 shares allegedly acquired from Domocao Alonto and Moki‑in Alonto, and an accounting from the corporation. Petitioner asserted he was not notified of the November 25, 1975 meeting because he was abroad on pilgrimage.
Respondents’ Pleadings and Defenses
Respondents denied material allegations and asserted, among other defenses, that petitioner had no cause of action and that stock certificates alleged to have been sold to petitioner had in fact been given to him merely as collateral for a loan to Domocao Alonto and Moki‑in Alonto. The corporation’s by‑laws conferred upon the Board of Trustees authority to provide for issuance and transfer of shares and to prescribe stock certificate form.
Administrative Proceedings and SEC Decision
Petitioner filed his petition with the SEC on November 18, 1976. After hearing, Hearing Officer Ledor E. Macalalag issued a decision on July 11, 1980, which the Commission En Banc affirmed on March 9, 1981. The Commission’s dispositive rulings included: (a) the issuance of the corporation’s unissued shares was valid and not subject to pre‑emptive rights of stockholders including petitioner; (b) cancellation of certain stock certificates in the names of Domocao Alonto and Moki‑in Alonto and issuance of new certificates in petitioner’s name upon presentation; (c) an order for the corporation to file annual financial statements; and (d) a declaration that the October 30, 1976 election of nine trustees was irregular, with instruction to call a stockholders’ meeting to elect a new five‑member board (subject to compliance with statutory requirements), to be called within thirty days after petitioner subscribes to the increased capitalization.
Issues Raised on Appeal to the Court
Petitioner’s primary contentions on appeal were: (1) the issuance of 11,098 shares (P110,980) without consent of stockholders or the board and without consideration was null and void; (2) the increase of authorized capital from P200,000 to P1,000,000 without stockholder consent or waiver was null and void; and (3) petitioner was entitled to attorneys’ fees, damages, and litigation expenses against the directors.
SEC’s Legal Reasoning as Adopted by the Court
The SEC—and ultimately the Court—relied on corporate law principles distinguishing pre‑emptive rights applicable to new issues of shares from additional issuances of originally authorized but unissued shares. The Commission reasoned that (i) authority to issue shares rests with the board of directors/trustees under the corporation’s by‑laws and in conformity with law; (ii) pre‑emptive rights typically apply to new issues, not to re‑issuances of previously authorized shares because original subscribers are deemed to have taken shares in proportion to the total authorized shares at incorporation; and (iii) therefore the issuance of the unsubscribed portion of the original authorized capital (P110,980) was not subject to stockholders’ pre‑emptive rights. With respect to the increase in authorized capital, the Commission found that a stockholders’ meeting was held on November 25, 1975 that approved the increase and other corporate changes; petitioner failed to sufficiently rebut evidence of the meeting’s occurrence though he successfully proved lack of notice to him.
Standard of Review and Precedents
The Court reiterated the settled administrative law principle that findings of fact by administrative bodies after hearing are binding on courts and will not be disturbed except for grave abuse of discretion, lack or excess of jurisdiction, or absence of substantial evidence. The decision cited prior authorities (e.g., Gokongwei, Jr. v. SEC; D
...continue readingCase Syllabus (G.R. No. 257697)
Facts of the Case
- Articles of Incorporation of respondent Jamiatul Philippine-Al Islamia, Inc., originally Kamilol Islam Institute, Inc., were filed with the Securities and Exchange Commission on February 6, 1959, and were approved on December 14, 1962.
- The corporation’s authorized capital stock was P200,000.00, divided into 20,000 shares at a par value of P10.00 per share.
- Of the authorized capital, 8,058 shares worth P80,580.00 were subscribed and fully paid.
- Petitioner Datu Tagoranao Benito subscribed to 460 shares worth P4,600.00.
- On October 28, 1975, the corporation filed a certificate of increase of its capital stock from P200,000.00 to P1,000,000.00.
- The certificate of increase reported that P191,560.00 worth of shares were represented at the stockholders’ meeting held on November 25, 1975, at which the increase was approved.
- Consequently, P110,980.00 worth of shares were subsequently issued by the corporation from the unissued portion of the original authorized capital stock.
- Of the increased capital stock of P1,000,000.00, shares worth P160,000.00 were subscribed by Mrs. Fatima A. Ramos, Mrs. Tarhata A. Lucman and Mrs. Moki-in Alonto.
Petitioner’s Claims and Relief Sought
- On November 18, 1976, petitioner filed a petition with the Securities and Exchange Commission (SEC) alleging:
- The additional issue (worth P110,980.00) of previously subscribed shares was made in violation of his pre-emptive right to the additional issue.
- The increase in authorized capital stock from P200,000.00 to P1,000,000.00 was illegal because stockholders of record were not notified of the meeting at which the proposed increase was on the agenda.
- Petitioner prayed for:
- Cancellation of the additional issue of shares of previously authorized capital stock and cancellation of shares issued from the increase in capital stock.
- Ordering the corporate secretary of respondent corporation to register the 2,540 shares alleged to have been acquired by him from Domocao Alonto and Moki-in Alonto.
- An accounting of funds of the corporation to the stockholders.
- In the petition for review to the Supreme Court, petitioner additionally contended:
- The issuance of 11,098 shares without the consent of stockholders or of the Board of Directors, and in the absence of consideration, is null and void.
- The increase in authorized capital stock from P200,000.00 to P1,000,000.00 without the consent or express waiver of the stockholders is null and void.
- He was entitled to attorneys’ fees, damages and expenses of litigation against the directors of the respondent corporation.
Respondents’ Answer and Special Defenses
- Respondents denied the material allegations of the petition.
- By way of special defense, respondents claimed:
- Petitioner has no cause of action.
- The stock certificates covering the shares alleged to have been sold to petitioner were given to him only as collateral for the loan of Domocao Alonto and Moki-in Alonto.
Administrative Proceedings and SEC Adjudication
- Hearing Officer Ledor E. Macalalag of the SEC rendered a decision on July 11, 1980, after due proceedings.
- The SEC En Banc, during its executive session on March 9, 1981, affirmed the Hearing Officer’s decision, adopting its dispositive portion and making additional directives.
- The SEC’s dispositive rulings and directives, as affirmed, were set out in the Commission’s resolution reproduced in the record.
Dispositive Orders of the SEC (as affirmed)
- The SEC ruled that:
- The issuance by the corporation of its unissued shares was validly made and was not subject to the pre-emptive rights of stockholders, including the petitioner.
- To direct the respondent corporation to immediately cancel Certificates of Stock Nos. 216, 223, 302, all in the name of Domocao Alonto, and Certificate of Stock No. 217, in the name of Moki-in Alonto, upon their presentation by the petitioner, and to issue new certificates corresponding theret