Corporate Law Case Digest: Dee v. SEC (1991)

G.R. No. L-60502 July 16, 1991
Lessons Applicable: Preemptive Rights (Sec.39) (Corporate Law)

FACTS:
  • 1954: Naga Telephone Company (Natelco), Inc. was organized with P100K authorized capital 
  • 1974: Natelco decided to increase its authorized capital to P3,000,000.00
    • As required by the Public Service Act, Natelco filed an application for the approval of the increased authorized capital with the then Board of Communications (BOC) 
  • January 8, 1975: approved with conditions:
    • That the issuance of the shares of stocks will be for a period of one year from the date hereof, "after which no further issues will be made without previous authority from this Board."
  • Natelco filed its Amended Articles of Incorporation with the SEC
    • the original authorized capital of P100K was already paid
    • increased capital of P2.9M the subscribers subscribed to P580K of which P145K was fully paid
  • capital stock of Natelco was divided into 213K CS and 87K PS, both at a par value of P10/shares
  • April 12, 1977: Without no prior authorization from the BOC (now National Telecommunications Commission) (NTC), Natelco entered into a contract with Communication Services, Inc. (CSI) for the "manufacture, supply, delivery and installation" of telephone equipment
    • Natelco issued 24K shares of CS to CSI as downpayment
    • May 5, 1979: issued another 12K shares of CS to CSI
  • May 19, 1979: annual stockholders' meeting to elect their 7 directors to their BOD for the year 1979-1980 
    • Pedro Lopez Dee (Dee) was unseated as Chairman of the Board and President but was elected as one of the directors, together with his wife, Amelia Lopez Dee 
    • CSI was able to gain control when their legal counsel, Atty. Luciano Maggay (Maggay) won a seat in the Board 
    • Atty. Maggay became president upon reorganization
  • Among the directors: Mr. Justino de Jesus, Sr., Mr. Pedro Lopez Dee and Mrs Amelia C. Lopez Dee never attended the Maggay Board thereby only Maggay representatives and Atty. Maggay attended
    • as per contract they issued 113,800 shares of stock  in favor of CSI
  • Dee having been unseated filed a petition in the SEC questioning the validity of the elections
    • ground: no valid list of stockholders through which the right to vote could be determined
  • As prayed for a restraining order was issued by the SEC placing officers of the 1978-1979 Natelco Board in hold-over capacity 
  • Upon elevation to the SC: dismissed the petition for being premature; restraining order was restrained 
    • resulted in the unseating of the Maggay group from the BOD in a "hold-over" capacity 
  • SEC: ordering the holding of special stockholder' meeting to elect the new members of the BOD based on its findings of who are entitled to vote
  • June 23, 1981: Dee filed a petition for certiorari/appeal with the SEC en banc
    • SEC en banc: dismissed for lack of merit
  • May 20, 1982: Antonio Villasenor filed w/ the CFI claiming that he was an assignee of an option to repurchase 36K shares of CS of Natelco under a Deed of Assignment executed in his favor  
  • May 21, 1982: restraining order dwas issued by the lower court commanding desistance from the scheduled election until further orders  
  • May 22, 1982: controlling majority of the stockholders proceeded with the elections under the supervision of the SEC representatives 
  • May 25, 1982: SEC recognized the election and the duly elected directors
    • Lopez Dee group headed by Messrs. Justino De Jesus and Julio Lopez Dee kept insisting no elections were held and refused to vacate their positions 
  • May 28, 1982: SEC issued another order directing the hold-over directors and officers to turn over their respective posts and directing the Sheriff of Naga City and other enforcement agencies to enforce its order 
  • May 29, 1982: hold-over officers peacefully vacated
  • June 2, 1982: Villasenor filed a charge for contempt  
  • September 7, 1982: lower court rendered CSI Nilda Ramos, Luciano Maggay, Desiderio Saavedra, Augusto Federis and Ernesto Miguel, guilty of contempt of court
  • September 17, 1982: CSI group filed a petition for certiorari and prohibition with preliminary injunction or restraining order against the CFI
  • April 14, 1983:  IAC: Annuling contempt charge
ISSUES:
  1. W/N SEC has the power and jurisdiction to declare null and void shares of stock issued by NATELCO to CSI for violation of Sec. 20 (h) of the Public Service Act - NO
  2. W/N Natelco stockholders have a right of preemption to the 113,800 shares
  3. W/N the May 22, 1982 election was valid
HELD:   Dismissed for lack of merit
  1. NO
  • The jurisdiction of the SEC is limited to matters intrinsically connected with the regulation of corporations, partnerships and associations and those dealing with internal affairs of such entities; P.D. 902-A does not confer jurisdiction to SEC over all matters affecting corporations
    • The jurisdiction of the SEC is limited to deciding the controversy in the election of the directors and officers of Natelco
    • The SEC is empowered by P.D. 902-A to decide intra-corporate controversies and that is precisely the only issue in this case.
     2. NO
  • There is distinction between:
    • an order to issue shares on or before May 19, 1979; and 
    • actual issuance of the shares after May 19, 1979 - CSI was in control of voting shares and the Board 
  • The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders meeting is required to consider it because additional issuance of shares of stocks does not need approval of the stockholders - no violation of preemptive right
      3. YES.  
  • Clear from records that it was held
  • within the jurisdiction of the lower court as it does not involve an intra-corporate matter but merely a claim of a private party of the right to repurchase common shares of stock of Natelco and that the restraining order was not meant to stop the election duly called for by the SEC and a matter purely within the exclusive jurisdiction of the SEC 
  • temporary restraining order amounted to an injunctive relief against the SEC 
  • since the trial judge in the lower court did not have jurisdiction in issuing the questioned restraining order, disobedience thereto did not constitute contempt