GR 150976; (October, 2004) (Digest)
G.R. No. 150976 ; October 18, 2004
CECILIA CASTILLO, ET AL. AND MEDICAL CENTER PARAÑAQUE, INC., petitioners, vs. ANGELES BALINGHASAY, ET AL., respondents.
FACTS
Petitioners and respondents are stockholders of Medical Center Parañaque, Inc. (MCPI), with petitioners holding Class “B” shares and respondents owning Class “A” shares. The corporation’s Articles of Incorporation, as amended in 1981 and 1992, explicitly state that “only holders of Class ‘A’ shares have the right to vote and the right to be elected as directors or as corporate officers.” During the February 9, 2001 annual stockholders’ meeting, respondents, citing this provision, declared that Class “B” shareholders were not qualified to run or be voted for as directors, contrary to past practice where Class “B” holders had been allowed to vote and serve on the board.
Petitioners filed a complaint to annul the election, arguing that Article VII of the Articles of Incorporation is null and void for depriving Class “B” shareholders of their right to vote and be voted upon, in violation of the Corporation Code. They contended that the exclusivity granted to Class “A” shares was more akin to a right for founder’s shares, which was not stated in the articles. The Regional Trial Court upheld the validity of the election and dismissed petitioners’ first cause of action, prompting this petition for review.
ISSUE
Whether Article VII of MCPI’s Articles of Incorporation, which grants exclusive voting and election rights to Class “A” shareholders, is valid and enforceable despite the provisions of the Corporation Code.
RULING
Yes, the provision is valid. The Supreme Court affirmed the trial court’s decision. The legal logic rests on the principle that the Articles of Incorporation constitute a contract among the stockholders and between them and the corporation. The original and amended articles clearly and categorically restricted voting and election rights to Class “A” shares. This classification was established under the old Corporation Law ( Act No. 1459 ), which permitted such restrictions. The Court emphasized that the Corporation Code, which generally mandates voting rights for all shareholders, does not apply retroactively to invalidate pre-existing, lawful provisions in corporate charters.
The Court rejected the argument that the provision violated the Corporation Code. The right to vote is not an inherent attribute of stock ownership but is subject to the stipulations in the articles of incorporation, which bind all stockholders who acquired shares with notice of these restrictions. Past practice of allowing Class “B” holders to vote did not create an estoppel nor amend the clear contractual terms. Furthermore, the provision does not create “founder’s shares” as defined by law, as it lacks the requisite characteristics, such as consent from the Securities and Exchange Commission. Therefore, the restriction was a valid contractual agreement that governed the February 9, 2001 election.