G.R. No. 208844 , November 10, 2015
F & S VELASCO COMPANY, INC., IRWIN J. SEVA, ROSINA B. VELASCO-SCRIBNER, MERCEDEZ SUNICO, AND JOSE SATURNINO O. VELASCO, PETITIONERS, VS. DR. ROMMEL L. MADRID, PETER PAUL L. DANAO, MANUEL L. ARIMADO, AND MAUREEN R. LABALAN, RESPONDENTS.

FACTS

Petitioner F & S Velasco Company, Inc. (FSVCI) is a corporation whose incorporators included Francisco O. Velasco, Simona J. Velasco, Angela V. Madrid (Angela), respondent Dr. Rommel L. Madrid (Madrid, Angela’s spouse), and petitioner Jose Saturnino O. Velasco. Upon the deaths of Francisco and Simona, their daughter Angela inherited their shares, giving her control of 70.82% of FSVCI’s total shares. The other shareholders were petitioner Rosina B. Velasco-Scribner (6,000 shares), Madrid (1,000 shares), and petitioners Irwin J. Seva and Mercedez Sunico (one share each). Angela died intestate and without issue on September 20, 2009. On October 8, 2009, Madrid executed an Affidavit of Self-Adjudication covering Angela’s estate, including her FSVCI shares. Believing he became the controlling stockholder, Madrid called for a Special Stockholders’ and Re-Organizational Meeting on November 18, 2009. Meanwhile, Seva, as corporate secretary, called an Emergency Meeting on November 6, 2009, attended by Saturnino, Seva, and Sunico (the Saturnino Group), where Saturnino was recognized as a board member and elected President, and Scribner was elected Vice-President. The Madrid Group proceeded with their meeting on November 18, 2009, ousted the existing board (except Madrid), replaced them with the Madrid Group, and elected new corporate officers. The Saturnino Group filed a petition for Declaration of Nullity of Corporate Election before the Regional Trial Court (RTC), which declared both the November 6 and November 18, 2009 meetings null and void. The Madrid Group appealed to the Court of Appeals (CA), which modified the RTC decision, declaring the November 18, 2009 meeting valid and ordering the remand of the case for the appointment of a Management Committee for FSVCI. The Saturnino Group elevated the case to the Supreme Court.

ISSUE

1. Whether the Court of Appeals correctly ruled that the November 18, 2009 Special Stockholders’ and Re-Organizational Meeting organized by Madrid is legal and valid.
2. Whether the Court of Appeals correctly ruled that a Management Committee should be appointed to take over the corporate and business affairs of FSVCI.

RULING

1. The Supreme Court ruled that the November 18, 2009 meeting was NOT validly convened. While Madrid, as Angela’s sole heir (a fact established in separate probate proceedings that attained finality), inherited her 70.82% shareholding, such inheritance did not automatically confer upon him the rights of a stockholder (e.g., to vote, call meetings) with respect to those shares until the transfer was recorded in the corporation’s Stock and Transfer Book, as required under Sections 63 and 74 of the Corporation Code. The Court found that Madrid failed to prove prior registration of the transfer of Angela’s shares in his name in the corporate books before calling and holding the November 18, 2009 meeting. The filing of a General Information Sheet (GIS) reflecting the transfer was insufficient, as the GIS is not the Stock and Transfer Book. Consequently, Madrid could not validly exercise voting rights over the inherited shares at that meeting. Furthermore, the Court held that the meeting’s purpose to reorganize the board was invalid because the existing board still had a quorum (with four remaining members after Angela’s death), and vacancies, if any, should have been filled by the remaining directors under Section 29 of the Corporation Code, not by stockholders through a general meeting. Thus, the CA erred in declaring the November 18, 2009 meeting valid.
2. The Supreme Court ruled that the appointment of a Management Committee was PROPER. The Court affirmed the CA’s finding that the persistent conflict between the Saturnino and Madrid Groups, allegations of embezzlement, and the resulting leadership paralysis created an imminent danger of dissipation and wastage of corporate assets, prejudicial to the corporation, its minority stockholders, and the public. This situation justified the appointment of a Management Committee under Section 6(d), Rule 59 of the Rules of Court, in relation to the Interim Rules of Procedure Governing Intra-Corporate Controversies. The case was remanded to the RTC for the purpose of constituting the Management Committee.