G.R. No. L-45302. July 24, 1990.
LATCHME MOTOOMULL and MANUEL LACSON, petitioners, vs. JOFFRE DELA PAZ, FILOMENA ARANAS, LADHO CHUGANI, BHAGWANI CHUGANI, THE COURT OF APPEALS, and THE SECURITIES & EXCHANGE COMMISSION, respondents.

FACTS

All parties are stockholders of Sarkara Trading Corporation. The corporation’s board approved a resolution authorizing the issuance of unissued shares to existing stockholders on a one-to-two basis, subject to Securities and Exchange Commission (SEC) approval and payment of an exemption fee. Petitioners Latchme Motoomull and Manuel Lacson, who were also corporate president and treasurer, paid for and were issued 10,000 additional shares on August 28-29, 1974. The SEC’s certificate of exemption for this issuance, however, was only granted on December 4, 1974. At the annual stockholders’ meeting on September 11, 1974, petitioners utilized these newly issued shares to vote in the election of directors. This surprise move altered the voting outcome, allowing petitioners to gain control. Private respondents contested the validity of using these shares for voting.

ISSUE

Whether the shares issued to petitioners prior to SEC approval and issuance of the certificate of exemption could be validly used for voting in the corporate election.

RULING

The Supreme Court denied the petition and affirmed the rulings of the SEC and the Court of Appeals. The legal logic centers on strict compliance with the Securities Act. The Court upheld the SEC’s finding that the issuance of shares to petitioners on August 28-29, 1974, was made pending the Commission’s approval of the application for exemption, which was only granted on December 4, 1974. Consequently, at the time of the September 1974 stockholders’ meeting, the shares were not yet lawfully issued for purposes of exercising corporate rights, such as voting. Petitioners, as corporate officers, were charged with knowledge that the exemption fee had not been paid and the certificate had not been received at the time they issued the shares to themselves and used them to vote. To allow the use of these shares would grant a premium to violators of the law and negate the statutory purpose. The Court accorded great respect to the SEC’s expertise and its factual findings, which were supported by substantial evidence. Thus, the election was declared null and void, and the incumbent board members were ordered to continue holding office until their duly elected successors qualified.