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[G.R. No. 137934. September 19, 2005]
BLTB vs. Bitanga
FIRST DIVISION
Sirs/Mesdames:
Quoted hereunder, for your information, is a resolution of this Court dated SEP 19 2005.
G.R. No. 137934 (Batangas Laguna Tayabas Bus Company, Inc., et al. vs. Benjamin Bitanga, et al.)
G.R. No. 137936 (Danilo L. Conception, et al. vs. The Court of Appeals, et al.)
For our resolution is respondents' joint motion for reconsideration of the Court's decision in these two consolidated cases, the dispositive part of which reads:
WHEREFORE, in view of all the foregoing, the instant petitions for review are GRANTED. The Decision of the Court of Appeals dated November 23, 1998 in CA-G.R. SP No. 48374 and its resolution dated March 25, 1999 are SET ASIDE. The Orders of the SEC En Banc dated July 21, 1998 and July 27, 1998 in SEC Case No. EB 611 are ordered REINSTATED. [1] cralaw
It will be recalled that in October 1997, petitioners herein, the Potencianos, sold to BMB Holdings, Inc. their shares of stock representing 47.98% of the outstanding capital stock in the Batangas Laguna Tayabas Bus Company, Inc. (BLTB). The transaction was embodied in a Sale and Purchase Agreement whereby the parties agreed on a total purchase price of P72, 076,425.00.
The parties further stipulated that respondents, the Bitangas (representing BMB Holdings, Inc.), would take over the management and operations of BLTB. For this purpose, the Potencianos executed undated written resignation letters as directors of BLTB and a revocable proxy to vote the said shares in favor of the Bitangas. The former likewise acknowledged in a Declaration of Trust that they shall hold the shares in trust for the Bitangas pending transfer of the same in the latter's name. However, the Bitangas shall relinquish control of the company to the Potencianos if they fail to pay the balance of the purchase price.
Pursuant to their agreement, the Bitangas were elected to the Board of Directors of BLTB in November 1997. The newly elected directors then scheduled the annual stockholders' meeting on May 19, 1998. Three days before the scheduled meeting, however, Michael Potenciano wrote Benjamin Bitanga requesting for a postponement of the meeting due to the absence of a thirty-day advance notice. There was no response from Bitanga, but a notice of postponement appeared in a major newspaper on the day of the scheduled meeting itself.
Since the stockholders of BLTB did not receive word of the postponement prior to the scheduled date, stockholders representing 87% of the outstanding shares of BLTB arrived and attended the meeting. They voted to reject the postponement and proceeded to re-elect the Potencianos to the BLTB Board. [2] cralaw
The Bitangas refused to relinquish their positions and continued to act as directors and officers of BLTB. A major conflict thus arose between the Bitangas and Potencianos, resulting in the filing of three complaints before the Securities and Exchange Commission (SEC).
SEC Case No. 05-98-5973 was a Complaint for Damages and Injunction filed by the Bitangas against the Potencianos. Meanwhile, SEC Case No. 05-98-5978 was likewise a Complaint for Injunction and Damages with Preliminary Injunction and Temporary Restraining Order filed by the Potencianos against the Bitangas. The latter filed another complaint docketed as SEC Case No. 06-98-5994 to annul the May 19, 1998 stockholders' meeting with application for a writ of preliminary injunction and prayer for temporary restraining order. [3] cralaw
A SEC Hearing Panel jointly heard the first two cases and granted the Bitangas' application for a writ of preliminary injunction. The SEC Hearing Panel held:
... while there are evidence to show that certain important conditions were not met in the Sale Purchase Agreement through which BMB Holdings, Inc. was able to acquire BLTB shares that enabled it to control the corporation, these unfulfilled conditions in the contract, to our mind, did not automatically restore unto Dolores Potenciano and the other sellers she represents, the shares of stocks which were earlier sold to BMB Holdings, Inc.... Pending a final determination of the rights of the parties under the so-called Sale Purchase Agreement and other contracts and undertakings executed in connection therewith, in an appropriate proceedings, we may be abusing our discretion or exceeding our jurisdiction if we improvidently rule that the 47.97% [4] cralaw shares subject of the Sale Purchase Agreement between Potenciano and BMB Holdings automatically reverted back to the Seller upon failure to fulfill certain conditions therein. Thus, in view of these considerations, it would appear that the 19 May 1998 Annual Stockholders' meeting was invalid for want of a quorum. Consequently, the Bitanga Board still is, and remains to be the legitimate Board of the BLTB in a hold-over capacity since their term already expired.... Accordingly, the application for a writ of preliminary injunction by the Potenciano group in SEC Case 5978 should be, as it is hereby DENIED, for lack of merit.
The Potencianos assailed the foregoing ruling via a Petition for Certiorari before the SEC En Banc. The latter nullified the ruling of the SEC Hearing Panel on the ground that "the group of Dolores Potenciano, in whose names those shares still stand, were the ones entitled to attend and vote at the stockholders' meeting of the BLTB on 19 May 1998. This being the case, the Hearing Panel committed grave abuse of discretion in holding otherwise and in concluding that there was no quorum in said meeting." [5] cralaw Having ruled thus, the SEC En Banc granted the Potencianos' application for a writ of preliminary injunction and issued the corresponding writ.
Thereafter, the Bitangas filed a petition for certiorari with the Court of Appeals which, in due course, reinstated the order of the SEC Hearing Panel. [6] cralaw Hence, the Potencianos elevated the matter to this Court via these consolidated petitions for review. [7] cralaw
On August 10, 2001, we rendered a decision on these twin petitions and reversed the decision of the Court of Appeals. We sustained the validity of the May 19, 1998 stockholders' meeting, in which the Potencianos were re-elected to the BLTB Board, on the basis of the established principle that "until registration is accomplished, the transfer (of shares), though valid between the parties, cannot be effective as against the corporation. Thus, the unrecorded transferee, the Bitanga group in this case, cannot vote and be voted for." [8] cralaw
The Bitangas consequently filed the instant joint motion for reconsideration on August 31, 2001 seeking a reversal of our decision. [9] cralaw
The Court set the case for oral arguments on January 28, 2004 with the following issues for resolution:
(1) whether or not there was a valid transfer of ownership of the disputed shares from the Potencianos to the Bitangas;
(2) whether or not there was a quorum during the stockholders' meeting held on May 19, 1998;
(3) whether or not the disputed shares should have been allowed to vote in the said stockholders' meeting; and
(4) whether or not the Potencianos were estopped from voting the disputed shares.
After the parties were heard on their respective arguments, the Court directed them to submit their respective memoranda within a non-extendible period of twenty (20) days. The Potencianos filed their memorandum on February 16, 2004 while the Bitangas complied shortly thereafter.
The Bitangas insist that there was a valid transfer of ownership of the disputed shares of stock in their favor, thereby precluding the Potencianos from voting the same. Inasmuch as they already own the disputed shares, no quorum was present during the May 19, 1998 stockholders' meeting in which the Potencianos were re-elected as directors of BLTB. [10] cralaw
For their part, the Potencianos maintain that ownership of the shares did not pass to the Bitangas since they failed to comply with certain suspensive conditions under the Sale and Purchase Agreement. Moreover, the Potencianos remain as stockholders of record and could thus vote the shares standing in their names. [11] cralaw
Notwithstanding their opposing positions on the transfer of the shares, however, the parties agreed that the subject matter of the petitions before us pertains only to the propriety of the issuance of a writ of preliminary injunction by the Court of Appeals in favor of the Bitangas. The question of whether the shares were validly transferred to the Bitangas, on the other hand, is an issue that has yet to be decided in the cases below. The writ of preliminary injunction is merely a provisional remedy to the pending cases yet to be litigated. Consequently, the only issue for resolution in the instant petitions is the propriety of granting a preliminary injunctive writ against the Potencianos. [12] cralaw
In this connection, the Bitangas urge the Court to reconsider its pronouncement regarding the validity of the shares' transfer of ownership. They manifested that following the passage of Republic Act No. 8799 or the Securities Regulation Code, the SEC cases from which the instant petitions stemmed have been transferred to the Regional Trial Court of Makati City, Branch 138 (RTC-Makati City), where several other suits involving BLTB and its shareholders are currently pending. The issue of the shares' ownership, which underlies practically all of the pending cases in the lower court, must necessarily be decided in that forum. Accordingly, the Bitangas submit that a remand of the case to the RTC-Makati City would best address the competing interests of all the parties concerned. [13] cralaw
The Potencianos expressed their amenability to a remand of the case to the trial court. However, this is conditioned upon their remaining at the helm of BLTB, pending determination of the cases by the RTC-Makati City. According to the Potencianos, they have invested their personal assets and mortgaged their own properties to save BLTB, which is presently undergoing corporate rehabilitation. They, therefore, have much to lose should the company's financial condition turn from bad to worse. [14] cralaw
At the outset, it must be clarified that it was not the Court's intention to prejudge the issue of whether or not there was a valid transfer of ownership of the shares from the Potencianos to the Bitangas. Although the language of our main decision may have seemed categorical, our pronouncement on the matter should nonetheless be taken within the context of the whole decision itself. In other words, our ruling on the validity of the transfer of shares should be understood in relation to the grant of the preliminary injunctive writ. It should not be interpreted in a manner that would preclude the trial court from arriving at its own conclusion on the parties' rights under their agreement, in the main cases that remain pending before it.
Thus, for purposes of determining the propriety of granting the writ of preliminary injunction, we maintain that the stockholder of record has a clear legal right to be protected. While the law recognizes that an unrecorded transfer of shares is valid between the parties, the law also imposes certain conditions on the exercise of stockholders' rights by the transferee. Accordingly, the shares must be recorded in the name of the Bitangas before they may be allowed to exercise rights pertaining to the shares. [15] cralaw Prior to the recording of the shares in their names, the Bitangas have only the right to compel the Potencianos to execute acts pursuant to the Sale and Purchase Agreement that would enable them to exercise full rights over the disputed shares.
In the meantime, as stockholders of record, the Potencianos are clearly entitled to exercise all the rights and privileges pertaining thereto. Until challenged in a proper proceeding, they may vote and be voted for as directors of the corporation, and the shares standing in their names may likewise be taken into account in determining whether or not there was a quorum for the conduct of corporate business. [16] cralaw Thus, pending the determination of the parties' rights under the Sale and Purchase Agreement, the Potencianos may rightfully sit in the BLTB Board. This is without prejudice to the eventual outcome of the main cases before the RTC-Makati City and any damages that may be sustained by the Bitangas by virtue of the writ issued in favor of the Potencianos.
ACCORDINGLY, the instant joint motion for reconsideration is DENIED, without prejudice to the resolution of the main cases by the Regional Trial Court of Makati City, Branch 138, which is further ordered to RESOLVE the main cases with dispatch.
Davide, Jr., C.J., and Puno, J., maintain their dissent.
Very truly yours,
(Sgd.) ENRIQUETA ESGUERRA-VIDAL
Clerk of Court
[1] cralaw Rollo in G.R. No. 137936, p. 861.
[2] cralaw Main Decision, Rollo, pp. 849-852.
[3] cralaw Id. at 77-105.
[4] cralaw The correct figure is 47.98%.
[5] cralaw Rollo in G.R. No. 137936, p. 113.
[6] cralaw Id. at 47-64.
[7] cralaw Id. at 11-46.
[8] cralaw Id. at 859.
[9] cralaw Id. at 870-889.
[10] cralaw Oral Arguments, January 28, 2004.
[11] cralaw Id.
[12] cralaw Rollo in G.R. No. 137936, pp. 984 and 1041.
[13] cralaw Id. at 982-984.
[14] cralaw Id. at 1041-1042.
[15] cralaw Section 63, Corporation Code of the Philippines.
[16] cralaw See The Corporation Code of the Philippines, Vol. II, 1994 Edition, Rosario N. Lopez, pp. 813-814.
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