G.R. No. 225022 - Villongco vs. Yabut

Case Summary (G.R. No. 225022)

Factual Background

Phil-Ville Development and Housing Corporation was a family corporation with authorized capital stock of PHP 20,000,000 divided into 200,000 shares of PHP 100 each. The founder, Geronima Gallego Que, held 3,140 shares at death on August 31, 2007, while the remainder was distributed among her six children in specified allotments. A purported Sale of Shares of Stocks dated June 11, 2005 and executed by Cecilia Que Yabut as attorney-in-fact allegedly redistributed Geronima’s 3,140 shares among various heirs and descendants; that redistribution later appeared in Phil-Ville’s General Information Sheets for 2010 and 2011. Disputes arose regarding the validity and recording of those transfers.

Pre-meeting and Prior Proceedings

On January 18, 2013, Cecilia Que Yabut, Eumir Carlo Que Camara and Ma. Corazon Que Garcia requested the corporate secretary, Ana Maria Que Tan, to send notices for the annual stockholders’ meeting; notice packets were subsequently mailed on January 21, 2013 signed by Cecilia and Ma. Corazon. The majority directors—Carolina, Ana Maria, and Angelica—convened an emergency meeting and, by consensus, postponed the meeting pending resolution of the dispute over the 3,140 shares. They notified stockholders and the Securities and Exchange Commission of the postponement. While litigation over the share transfers remained pending, Cecilia, Ma. Corazon and Eumir nonetheless convened an annual stockholders’ meeting and conducted elections.

Events Surrounding the January 25, 2014 Meeting and Complaint

On January 15, 2014, Eumir Carlo sent notice scheduling the annual meeting for January 25, 2014 at Max’s Restaurant, Malabon City. The meeting proceeded with a limited number of participants. Therein, Cecilia, Ma. Corazon and Eumir were elected to the board and thereafter assumed corporate offices. On February 10, 2014, Carolina, Ana Maria, Angelica, Elaine and Edison filed an election contest in the RTC of Malabon (docketed SEC Case No. 14-001-MN) seeking annulment of the elections and related corporate acts on grounds including lack of quorum, invalid voting, invalid proxies, and illegal inclusion of Geronima’s transferred shares in the vote.

RTC Proceedings and Judgment

Defendants filed a Motion for Additional Time to File Answer on March 7, 2014, which the RTC denied for being untimely under the Interim Rules. The RTC rendered judgment on March 14, 2014 without an answer having been filed, declaring the election of Cecilia, Ma. Corazon and Eumir null and void for lack of quorum and voiding all acts and organizational meetings emanating therefrom. The RTC’s decision recited that only 98,428 voting shares out of 200,000 were represented but did not sufficiently state the facts and law upon which its conclusion rested.

Court of Appeals Disposition

On appeal, the CA, in a Decision dated September 4, 2015, held that the RTC decision was void for failure to comply with Section 14, Article VIII, 1987 Constitution, but nonetheless declared the January 25, 2014 stockholders’ meeting void for lack of quorum and struck the elections therefrom. On motions for partial reconsideration, the CA issued an Amended Decision dated June 8, 2016 clarifying that all acts performed by Cecilia, Ma. Corazon and Eumir by reason of their election, including the filing of the General Information Sheet with the SEC, were ultra vires.

Issues on Supreme Court Review

The Supreme Court identified the principal issues as: whether the CA correctly held that the RTC decision violated Section 14, Article VIII, 1987 Constitution; whether the total undisputed shares or the total outstanding capital stock should determine quorum; and whether Cecilia, Ma. Corazon and Eumir were barred from filing an answer by reason of defective service. Both parties filed separate petitions for review raising assignments of error that challenged the CA’s rulings on these points.

The Court’s Ruling on Voluntary Appearance and Jurisdiction

The Supreme Court held that the Motion for Additional Time to File Answer filed by Cecilia, Ma. Corazon and Eumir constituted a voluntary appearance that cured any defect in the service of summons and thereby subjected them to the court’s jurisdiction. The Court relied on the settled principle that a defendant who performs an act inconsistent with an objection to personal jurisdiction, such as filing a motion for extension to answer, submits to the trial court’s authority, and invoked precedent including Carson Realty & Management Corporation v. Red Robin Security Agency, et al.

The Court’s Rationale Under Section 14, Article VIII

The Supreme Court agreed with the CA that the RTC decision violated Section 14, Article VIII, 1987 Constitution because it failed to state clearly and distinctly the facts and the law on which it was based. The RTC adopted plaintiffs’ allegations and judicial affidavit without articulating the legal reasoning or the evidentiary basis that supported its finding of lack of quorum. The Court reiterated the constitutional command and the demands of Section 1, Rule 36, Rules of Court, citing De Leon v. People, and concluded that the RTC’s cursory adoption of allegations rendered its judgment null and void.

The Court’s Analysis on Quorum and Outstanding Shares

The Supreme Court held that quorum in a stockholders’ meeting must be determined by reference to the total outstanding capital stock, without distinction between disputed and undisputed shares. The Court construed Section 52 and Section 137 of the Corporation Code to mean that only issued and outstanding shares are relevant and that the law does not recognize a category of “undisputed” shares for quorum computation. Applying these principles, the Court concluded that Phil-Ville’s outstanding capital stock was 200,000 shares and that a quorum required representation of 100,001 shares. The CA’s finding that only 98,430 shares were present at the January 25, 2014 meeting therefore established the absence of quorum and the invalidity of the elections.

The Court’s Treatment of the Alleged Transfers and the Stock and Transfer Book

The Supreme Court examined the contention that Geronima’s 3,140 shares and certain fractional shares were the subject of a separate dispute and therefore should be excluded from the quorum computation. The Court found no evidence that the

Case Syllabus (G.R. No. 225022)

Parties and Posture

The principal parties were Carolina Que Villongco, Ana Maria Que Tan, Angelica Que Gonzales, Elaine Victoria Que Tan and Edison Williams Que Tan as petitioners and Cecilia Que Yabut, Eumir Carlo Que Camara and Ma. Corazon Que Garcia as respondents.
The case arose from an intra-corporate election dispute involving Phil-Ville Development and Housing Corporation and proceeded from the RTC of Malabon City to the Court of Appeals and thence to the Supreme Court by separate Petitions for Review on Certiorari.
The RTC rendered judgment on March 14, 2014 declaring the election held on January 25, 2014 void for lack of quorum and nullifying all acts emanating from that meeting.
The Court of Appeals issued a Decision dated September 4, 2015 and an Amended Decision dated June 8, 2016 that declared the RTC decision void for failing to comply with Section 14, Article VIII of the Constitution while nevertheless ruling that the January 25, 2014 stockholders' meeting was void for lack of quorum and that acts by respondents were ultra vires.
The Supreme Court resolved consolidated petitions and affirmed the Court of Appeals' Decision and Amended Decision in toto.

Key Factual Allegations

Phil-Ville Development and Housing Corporation was a family corporation with authorized capital stock of PHP 20,000,000 divided into 200,000 shares with par value PHP 100 per share.
During her lifetime, founder Geronima Gallego Que owned 3,140 shares, while the remaining 196,860 shares were distributed among her six children in specified allotments.
A purported Sale of Shares dated June 11, 2005, executed by Cecilia as attorney-in-fact for Geronima, allegedly redistributed Geronima's 3,140 shares among various family members in an inequitable manner and such redistribution was reflected in the corporation's General Information Sheets for 2010 and 2011.
The parties disputed the validity and recording of transfers of the 3,140 shares and litigation concerning those transfers was pending before the RTC when notices for the January 25, 2014 stockholders' meeting were sent.
Despite a company decision and SEC notice postponing the meeting, Cecilia, Ma. Corazon and Eumir proceeded to hold the meeting on January 25, 2014, allegedly with only a limited number of shareholders present, and declared themselves elected to the board and corporate offices.

Procedural History

Petitioners filed a Complaint for Annulment of Meeting, Annulment of Sale/Distribution of Shares, and Injunction, and subsequently an election complaint in RTC Malabon (SEC Case No. SEC14-001-MN).
Respondents filed a Motion for Additional Time to File Answer which the RTC denied as untimely under the Interim Rules of Procedure for Intra-Corporate Controversies.
The RTC rendered judgment motu proprio for plaintiffs within the ten-day period after the failure to file an answer, declaring lack of quorum and annulling the election and subsequent acts.
On appeal, the Court of Appeals found the RTC decision void for violating Section 14, Article VIII of the Constitution but nonetheless declared the January 25, 2014 meeting void for lack of quorum and held respondents' acts ultra vires in its Amended Decision.
Both sides elevated issues to the Supreme Court by separate petitions raising procedural and substantive errors.

Issues Presented

Whether the Court of Appeals correctly held that the RTC decision violated Section 14, Article VIII of the Constitution.
Whether the proper basis for determining quorum was the total outstanding capital stock or the total undisputed shares of stock.
Whether respondents were barred from filing an answer by virtue of defective service of summons or whether their Motion for Additional Time constituted a voluntary appearance