Title
Lopez vs. Lopez
Case
G.R. No. 254957-58
Decision Date
Jun 15, 2022
Election contests over corporate meetings; unissued shares illegally voted; CA reversed, SC reinstated RTC rulings, nullifying meetings and share purchases.
null and void
procedural issues
substantive issues

Case Summary (G.R. No. 254957-58)

Factual Background

i Specialist Development Corporation operated New Nova Plaza Market and was managed since incorporation in 2011 by petitioner and her husband, Lolito S. Lopez, who served as its president; the couple held majority shares. On February 14, 2019, a special stockholders meeting of i Specialist was called and a new board was elected. On February 11, 2019, special stockholders meetings were held for LC Lopez Resources, Inc. and Conqueror International, Inc., with elections that resulted in a new board of directors. Petitioner alleged that the meetings were conducted in violation of corporate by-laws and that respondent Lolito had caused the issuance and purchase of substantial quantities of erstwhile unissued shares shortly before the meetings without prior board authorization and without offering preemptive rights to existing stockholders.

Claims in the Quezon City Action

In Commercial Case No. R-QZN-19-03290-CV filed in Branch 93, RTC-Quezon City, petitioner and her co-plaintiff, Ma. Christina Patricia C. Lopez, sought annulment of the February 14, 2019 special stockholders meeting and the elections held therein. They alleged that the meeting violated the corporation’s by-laws as to venue and date, that Christina was prevented from attending, that 33,495 unissued shares were sold and voted without prior board authorization, thereby impairing petitioner’s preemptive rights, and that respondent Lolito’s votes were tainted because the shares he asserted were conjugal.

Defenses and Contentions in Quezon City

Respondents in the Quezon City action maintained that the president may call special meetings under Article II, Section 2 of the by-laws, and that Section 51 of the Corporation Code permitted meetings in the city where the principal office was located. Respondents asserted the validity of the share purchases and the resulting elections, characterizing the acts, where necessary, as ultra vires and susceptible of ratification, and contended that Christina was not a stockholder because her name did not appear in the Stock and Transfer Book.

RTC-Quezon City Decision

On July 29, 2019, Branch 93, RTC-Quezon City rendered judgment for petitioner and declared the February 14, 2019 special meeting and all proceedings therein null and void ab initio, enjoining respondents from representing themselves as newly-elected directors or officers. The trial court found that the corporation’s General Information Sheet (GIS) showed total common shares of 12,500 and that respondent Lolito purportedly purchased 33,495 unissued shares without board authorization or a board resolution, an act in violation of Section 23 of the Corporation Code and therefore invalid; the court held that the illegally issued shares materially affected the elections.

Proceedings and Ruling in Marikina

Petitioner, with Ma. Christina and John Rusty Lito C. Lopez, filed SEC Case Nos. 2019-29 to 31 before Branch 273, RTC-Marikina to contest the February 11, 2019 special meetings and elections of LC Lopez, Conqueror, and Russ Marketing, Inc. The Marikina court found on September 13, 2019 that Christina and John Rusty were stockholders despite their absence from the STB because their names appeared in the GIS and because respondents’ witnesses confirmed their stockholder status; the court declared the meetings and elections null and void, found the issuance of stock certificates and STB entries suspiciously created shortly before the meetings, and held the purchases of the unissued shares invalid for lack of board resolution and for violation of petitioner’s preemptive rights under Section 39 of the Corporation Code.

Evidentiary Findings Underpinning the Marikina Ruling

RTC-Marikina placed weight on testimony that entries in the Stock and Transfer Books and the stock certificates were inserted by an accounting officer, Edna Victoria, rather than by the corporate secretary, and were prepared just days before the meetings without identifiable documentary bases. The court found that stock certificates lacked proof of full payment as required by precedent, that respondent Lolito had earlier recognized his children’s roles for bank transactions and was therefore estopped from denying their stockholder status, and that the purported post hoc issuance of stock was a contrivance to control corporate governance.

Court of Appeals Proceedings and Ruling

Respondents sought relief from the Court of Appeals, which consolidated the two actions as CA-G.R. SP Nos. 162134 and 162787. On February 26, 2020 the CA reversed and set aside the RTC decisions and declared the special stockholders meetings valid. The CA held that the petition in CA-G.R. SP No. 162134 had been timely filed and discounted the RTC certification that an agent had received the Quezon City decision; the CA treated Ma. Christina as a non-stockholder because she did not appear in the STB; and the CA deemed respondent Lolito’s purchase of unissued shares merely ultra vires and voidable, subject to ratification, given alleged exigent needs for capital infusion.

Issues Presented to the Supreme Court

The Supreme Court identified the dispositive issues as: whether the petition in CA-G.R. SP No. 162134 was timely filed before the Court of Appeals; whether Ma. Christina Patricia C. Lopez was a stockholder of the subject corporations; and whether respondent Lolito’s purchase of the unissued shares was valid.

Supreme Court Analysis on Timeliness and Presumption of Regularity

The Court accepted the certification of Branch 93, RTC-Quezon City that an agent of respondents personally received a copy of the July 29, 2019 decision on August 6, 2019, and held that the certification carried the presumption of regularity which respondents bore the burden to overcome. Citing Yap v. Lagtapon, the Court reaffirmed that clear and convincing evidence is required to overturn such presumption. The Court found respondents failed to present adequate countervailing proof that the agent lacked authority and therefore concluded that the presumption stood.

Supreme Court Analysis on Stockholder Status and Evidentiary Weight

The Supreme Court agreed with Branch 273, RTC-Marikina that Ma. Christina was a stockholder based on evidence beyond the GIS. The Court distinguished Lao v. Lao and F & S Velasco, Co., Inc. v. Madrid on their differing factual records and accepted testimonial admissions by respondents and corroborative evidence indicating that Christina and John Rusty were intended and treated as stockholders, that respondent Lolito had invited them to the meetings, and that respondent Lolito was estopped from denying their status given his prior representations to banks.

Supreme Court Analysis on Validity of Unissued Share Sales and Quorum

The Court held that the sale of erstwhile unissued shares to respondent Lolito was invalid for lack of prior board authorization, invoking Section 23 of the Corporation Code which vests corporate powers and business conduct in the board of directors. The Court further held that the sale violated petitioner's and other stockholders’ preemptive rights un

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