GR 156819; (December, 2003) (Digest)
G.R. No. 156819; December 11, 2003
ALICIA E. GALA, GUIA G. DOMINGO and RITA G. BENSON, petitioners, vs. ELLICE AGRO-INDUSTRIAL CORPORATION, MARGO MANAGEMENT AND DEVELOPMENT CORPORATION, RAUL E. GALA, VITALIANO N. AGUIRRE II, ADNAN V. ALONTO, ELIAS N. CRESENCIO, MOISES S. MANIEGO, RODOLFO B. REYNO, RENATO S. GONZALES, VICENTE C. NOLAN, NESTOR N. BATICULON, respondents.
FACTS
Petitioners and respondents are members of the Gala family involved in intra-corporate disputes over Ellice Agro-Industrial Corporation and Margo Management and Development Corporation. The conflict began when respondents, led by Raul Gala, filed a petition with the Securities and Exchange Commission (SEC) against petitioners for alleged mismanagement and dissipation of corporate assets. Petitioners subsequently filed their own complaint seeking to nullify the elections of directors and officers in both corporations conducted by respondents in 1990, and to recover corporate papers and property titles. The SEC Hearing Officer ruled in favor of petitioners, nullifying the elections and ordering the return of documents. However, the SEC En Banc reversed this decision, prompting petitioners to elevate the case to the Court of Appeals, which dismissed their petition. Petitioners then filed this petition for review before the Supreme Court.
ISSUE
The core issue is whether the Court of Appeals erred in dismissing the petition and upholding the SEC En Banc’s decision which reversed the nullification of the corporate elections and other reliefs granted to petitioners by the SEC Hearing Officer.
RULING
The Supreme Court denied the petition and affirmed the Court of Appeals’ decision. The Court held that the SEC En Banc correctly reversed the Hearing Officer’s ruling. The legal logic rests on the principle of corporate democracy and the validity of the stockholdings that determined voting control. The records established that Margo Corporation became the majority stockholder of Ellice after a series of valid share transfers from the Gala spouses. Consequently, Margo had the right to vote its shares during the Ellice stockholders’ meeting. The election of directors and officers conducted by the majority stockholder was therefore valid and in accordance with the Corporation Code. The Court found no evidence of fraud or bad faith in the conduct of these elections. Furthermore, the Court ruled that the SEC En Banc correctly dismissed petitioners’ derivative suit for failure to prove that they made a prior demand on the board to sue, which is a condition precedent. The Supreme Court also noted that jurisdiction over the case had been transferred to the Regional Trial Court under the Securities Regulation Code, but proceeded to resolve the substantive issues to finally settle the long-pending dispute.