G.R. Nos. 202647-50, 9 March 2016
The Nationwide Development Corporation (NADECOR) is a holder of a Mining Production Sharing Agreement (MPSA) which covers the King-king Gold and Copper Project (King-king Project). Pursuant to NADECOR’s Amended By-Laws, its regular annual stockholders’ meeting (ASM) was held on August 15, 2011 to elect its Board of Directors (BOD) for 2011-2012. In his Affidavit, Gatmaitan, NADECOR’s Corporate Secretary, attested to the presence of a quorum representing 94.81% of the outstanding shares of stock and the election of new set of BOD.
More than 2 months after the ASM, the petitioners, claiming to be stockholders of record, filed a complaint before the RTC to declare null and void the August 15, 2011 ASM of NADECOR including all the proceedings taken thereat, all the consequences thereof, and all acts carried out pursuant thereto against NADECOR itself, the newly-elected members of its BOD, and Gatmaitan (respondents). The petitioners alleged, among others, that they had no knowledge or prior notice of, and were thus unable to attend, participate in, and vote at the said ASM. They received the notice of the ASM, 1 day late, in violation of the 3-day notice provided in NADECOR’s By-Laws.
The respondents, on the other hand, sought the dismissal the case on the following grounds:
a. That the complaint involved an election contest since it sought to nullify the election of the BOD of NADECOR for 2011-2012 and under Section 3, Rule 6 of the Interim Rules of Procedure Governing Intra-Corporate Controversies (Interim Rules), it should have been filed within 15 days from the date of the election;
b. That the complaint is not only barred by prescription as stated above. The petitioners have no cause of action because they were duly served with notice of the said meeting per NADECOR messenger, Mario S. San Juan (San Juan), who mailed the notices 4 days prior to the scheduled ASM;
c. That a valid ASM was held on August 15, 2011, the third Monday of August 2011, at which the required quorum was present and that the petitioners, although physically absent, were in fact represented by their proxy, JG Ricafort, by virtue of irrevocable proxies which they executed;
d. That JG Ricafort attended and signed the attendance sheet as their proxy and participated in the ASM for himself as well as in their behalf;
e. That the true and beneficial owner of the shares of stock issued in their names is JG Ricafort as shown in the Nominee Agreements which they executed;
f. That aided by the irrevocable proxies and Nominee Agreements, JG Ricafort won election to the NADECOR BOD.
The RTC ruled that the petitioners were not validly served with notice of the ASM as required in the Amended By-Laws.
Moreover, their complaint did not involve an election contest, thus, was not subject to the 15-day prescriptive period for filing an election protest. Accordingly, the RTC declared as void and of no force and effect the assailed ASM and nullified all acts performed by the new BOD elected thereat. The CA nullified and set aside the order of the RTC.
1. Whether the case involves an election contest subject to the 15-day prescriptive period for filling an election protest.
2. Whether the petitioners have cause of action despite their execution of an irrevocable proxy in favor of JG Ricafort.
Yes. An election contest refers to any controversy or dispute involving title or claim to any elective office in a stock or non-stock corporation, the validation of proxies, the manner and validity of elections, and the qualifications of candidates, including the proclamation of winners, to the office of director, trustee or other officer directly elected by the stockholders in a close corporation or by members of a non-stock corporation where the articles of incorporation or by-laws so provide.
In the case at bar, there can be no denying that the petitioners were seeking the holding of a new election for members of the BOD of NADECOR for 2011-2012 by asserting their right to choose the persons who will direct, manage and operate the corporation because they said they had been unlawfully deprived thereof due to late notification of the aforesaid meeting and by praying for the voiding of the August 15, 2011 ASM and for other just and equitable reliefs. As the CA noted, by seeking to nullify the said ASM, the petitioners were clearly challenging the validity of the election of the new BOD. NADECOR’s Amended By-Laws even provides that the purpose of the ASM is for the election of directors and for the transaction of general business of its office. Moreover, in a case on all fours with the present case, the Court expressly ruled that where one of the reliefs sought in the complaint is to nullify the election of the BOD at the ASM, the complaint involves an election contest. Considering the foregoing, under Sections 1 to 3 of Rule 6 of the Interim Rules, the case should have been dismissed for having been filed beyond the 15-day prescriptive period allowed for an election protest.
The petitioners did participate in the ASM through their authorized representative and proxy, JG Ricafort. In his Affidavit, Gatmaitan categorically declared under oath that JG Ricafort held a valid irrevocable proxy from the petitioners to attend and vote their shares at all meetings of the stockholders and that JG Ricafort signed the attendance sheet for and in behalf of the petitioners. It must be noted that JG Ricafort’s proxy authority was “to attend and represent the petitioners at any and all meetings of the shareholders of the Company, and for and on behalf of the petitioners, to vote upon any and all matters to be taken up at said meeting, according to the number of shares of stock of the Company of which the petitioners are the lawful record and beneficial owners, and which they would be entitled to vote if personally present.”
Moreover, the petitioners do not deny that they each executed a Nominee Agreement wherein they acknowledged that JG Ricafort is the true and beneficial owner of the shares of stock in their names. Each of the nominee agreements uniformly provide that “The nominee holds the legal title to the shares for and in behalf of principal who is the beneficial owner thereof.” As nominees, the petitioners expressly acknowledged further that “any and all payments made by the nominee on the shares, including but not limited to the subscription payment therefor, were funded by, and made on behalf and for the benefit of the principal [JG Ricafort].” Thus, the petitioners misled the trial court into thinking that they had an inherent right to vote as an incident of their ownership of corporate stock although they always knew that JG Ricafort was the real and beneficial owner.
Considering the foregoing, lack of notice to the petitioners is inconsequential because JG Ricafort attended and represented them at the August 15, 2011 ASM. It defies reason, too, that he could not have informed his wife and children, who live in the same house with him, of the scheduled ASM.
*Case Digest by Rezeile S. Morandarte, Refresher, Andres Bonifacio College, SY 2019 – 2020