Ricafort vs. Dicdican

A complaint praying to nullify an annual stockholders' meeting, including all proceedings taken thereat and all consequences thereof, is an election contest subject to the fifteen-day prescriptive period under Rule 6 of the Interim Rules of Procedure Governing Intra-Corporate Controversies, where its practical effect is to void the election of the board of directors and compel a new election.

Nationwide Development Corporation is a domestic corporation holding Mining Production Sharing Agreement MPSA 009-92-XI with the Department of Environment and Natural Resources covering the 1,656-hectare King-king Gold and Copper Project in Pantukan, Compostela Valley, described as the country's second largest copper and gold mine. Its Amended By-Laws fix the regular annual stockholders' meeting on the third Monday of August each year for the election of directors and transaction of general business, upon at least three days' mailed notice to stockholders of record. Control of the corporation and development of its sole valuable asset, the King-king concession, was contested between the group of Jose G. Ricafort and petitioners and the group of Calalang, Romulo and others allied with the St. Augustine group.

Corazon H. Ricafort, her children Jose Manuel H. Ricafort and Marie Grace H. Ricafort, and Maria Teresa Flora R. Santos claimed to be stockholders of record of Nationwide Development Corporation. Jose G. Ricafort, husband of Corazon and father of the other individual plaintiffs, had long served as director and, from January 1 to August 31, 2011, as president of the corporation. Pursuant to the Amended By-Laws, the regular annual stockholders' meeting for fiscal year 2011-2012 was held on August 15, 2011, the third Monday of August, in the Turf Room of the Manila Polo Club in Makati City. Corporate Secretary Luis Manuel L. Gatmaitan attested to a quorum representing 94.81% of outstanding shares and the election of Conrado T. Calalang, Jose G. Ricafort, Jose P. De Jesus, Roberto R. Romulo, Alfredo I. Ayala, Victor P. Lazatin, Ethelwoldo E. Fernandez, Leocadio Nitorreda and John Engle as directors.

More than two months later, on October 20, 2011, plaintiffs filed SEC Case No. 11-164 before the Regional Trial Court of Pasig City, Branch 159, to declare null and void the August 15, 2011 meeting, including all proceedings taken thereat and all consequences and acts carried out pursuant thereto. According to them, they had no prior knowledge of the meeting and received notice only on August 16, 2011, one day late and in violation of the three-day notice in the By-Laws, with a time and venue different from those prescribed, thereby depriving them of participation and vote in management. Defendants answered that the suit was in effect an election contest barred by the fifteen-day period under the Interim Rules, that messenger Mario S. San Juan had mailed notices on August 11, 2011 at the Ortigas Post Office four days beforehand, that a quorum attended, and that plaintiffs, though physically absent, were represented by Jose G. Ricafort under irrevocable proxies dated April 26, 2010 and were his nominees under Nominee Agreements executed in 2007, with Jose G. Ricafort as true and beneficial owner who himself won election to the board.

Thereafter, the trial court declared the meeting void for defective notice, rejected the proxies as mere comfort documents allegedly amended by an April 27, 2010 Special Power of Attorney concerning negotiations with Russel Mining and Minerals, Inc. and St. Augustine Mining Ltd., and ordered a new meeting within thirty days. While four certiorari petitions against that order were pending and after a temporary restraining order directing the old board to hold over, the old board through Deogracias G. Contreras, Jr. called a special stockholders' meeting on June 13, 2012 to ratify rescission of April 27, 2010 memoranda of understanding with the St. Augustine group, ratify subscription by Queensberry Mining and Development Corporation to 25% of capital stock for P1.8 Billion approved May 25, 2012, and elect directors. On June 13, 2012 the Court of Appeals issued a writ of preliminary injunction against the trial court order and the June 13 meeting; the meeting nevertheless proceeded, Calalang walked out after receipt of the injunction, De Jesus presided, a third board was elected, and rescission and the Queensberry subscription were ratified. Competing annual meetings were then held on August 22, 2012 and in 2013, each side electing rival boards and filing General Information Sheets, accompanied by disputes over corporate records, bank withdrawals, mine samples and suspension of processing of the Declaration of Mining Project Feasibility. The trial court had found lack of valid notice and absence of an election contest; the appellate court found due mailed notice, representation by an unrevoked irrevocable proxy, and nominee status negating deprivation of voting rights.

• Authority to Issue Injunction: Petitioner argued that the June 13, 2012 Resolution was void ab initio because it was penned by Justice Bato as mere acting Senior Member vice Justice Lantion, the regular ponente to whom the consolidated petitions had been raffled, without re-raffle and contrary to internal rules.
• Notice and Hearing and Form of Motion: Petitioner maintained that the writ was granted without the notice and hearing required under Section 5, Rule 58 of the Rules of Court, upon an unverified Third Urgent Motion to Resolve and Supplement raising new matters and subsequent events.
• Bond and Mootness: Petitioner argued that the injunction bond of P500,000.00 was belatedly posted and lacked appellate approval, rendering the writ a mere scrap of paper, and that the writ became functus officio because the June 13, 2012 special meeting and the August 22, 2012 and August 19, 2013 annual meetings were already fait accompli.
• Status Quo and Business Judgment: Petitioner countered that the writ did not preserve the status quo ante litem motam but created new relations by replacing the hold-over old board with the new board, that the old board possessed full powers of a regular board, and that its rescission of the St. Augustine memoranda and admission of Queensberry at sixty times book value reflected business judgment to protect the corporation from contractual violations and undercapitalization.
• Nature of Action and Notice: Petitioner maintained that SEC Case No. 11-164 was not an election contest but a general intra-corporate case under Rule 1, Section 1(a)(2) of the Interim Rules, and that the principal-nominee relationship with Jose G. Ricafort was immaterial because, as stockholders of record under Section 6 of the Corporation Code, they were not furnished notice.

• Election Contest and Prescription: Respondent countered that SEC Case No. 11-164 sought nullification of the election of the board at the annual meeting and was therefore an election contest barred by prescription for filing more than two months after the election, beyond the fifteen-day period in Section 3, Rule 6 of the Interim Rules, and should have been dismissed outright.
• Due Notice and Proxy Representation: Respondent argued that all stockholders were duly served by registered mail on August 11, 2011 in compliance with the three-day by-law requirement, and that petitioners participated through Jose G. Ricafort under a valid irrevocable proxy to attend any and all meetings and vote upon any and all matters, unquestioned at registration and confirmed by attendance records.
• Beneficial Ownership: Respondent maintained that Jose G. Ricafort was the true and beneficial owner of the shares in petitioners' names under 2007 Nominee Agreements, retained custody of the certificates, shared the same household, and spoke for petitioners at trial, exposing the claimed deprivation of voting rights as fabrication.
• Right to Injunction and Violation Thereof: Respondent argued that as stockholders and members of the August 15, 2011 board they had a right in esse to preserve the mining production sharing agreement, the corporation's only valuable asset, that the old board's call of the June 13, 2012 meeting violated the temporary restraining order, and that rescission of the St. Augustine memoranda and dilution through the Queensberry subscription threatened recall of the agreement and rendered the pending petitions moot, justifying permanent injunction.

• Nature of Action and Prescription: Whether the complaint to void the August 15, 2011 annual stockholders' meeting, including all proceedings thereat and consequences thereof, involves an election contest subject to the fifteen-day prescriptive period under Rule 6 of the Interim Rules.
• Proxy Representation and Cause of Action: Whether petitioners were duly represented at the August 15, 2011 meeting by Jose G. Ricafort under the April 26, 2010 irrevocable proxy, as affected by the April 27, 2010 Special Power of Attorney and the 2007 Nominee Agreements.
• Due Notice and Validity of Meeting: Whether petitioners were given due notice of the August 15, 2011 meeting under the Amended By-Laws and Section 50 of the Corporation Code, and whether any defect affects validity.
• Validity of Preliminary Injunction and Appellate Decision: Whether the Court of Appeals validly issued the June 13, 2012 writ of preliminary injunction and correctly nullified the Regional Trial Court Order dated December 21, 2011 and validated the August 15, 2011 meeting and board.

• Nature of Action and Prescription: Yes. The suit was in substance an election contest, having been filed more than two months after the election and thus barred by the fifteen-day period, warranting dismissal.
• Proxy Representation and Cause of Action: Yes. Petitioners participated through a valid, subsisting irrevocable proxy authorizing attendance and voting at any and all meetings, unamended by the Special Power of Attorney, leaving no deprivation of voting rights.
• Due Notice and Validity of Meeting: Yes. Timely mailing four days before the meeting complied with the three-day by-law rule, and failure or irregularity of notice of an annual meeting fixed in the by-laws does not affect validity, especially where attendance by proxy constitutes waiver.
• Validity of Preliminary Injunction and Appellate Decision: Yes. The injunction and the nullification of the trial court order were proper, the August 15, 2011 meeting and board being valid and acts pursuant to the void trial court order being null.

• Nature of Action and Prescription: An election contest covers any controversy involving title or claim to elective office and the manner and validity of elections, including proclamation of winners. Because petitioners invoked deprivation of the right to choose directors and prayed to void the meeting including all proceedings and consequences and for other equitable relief, nullification would have no practical effect except to void the board election and compel a new one. The carefully worded trial court order confirming that understanding by voiding all subsequent board acts and directing a new annual meeting confirmed the elective character. Directly on all fours was Yujuico vs. Quiambao, where nullification of the election and subsequent transactions for improper venue was deemed an election contest; the only ostensible difference — lack of notice here versus improper venue there — was immaterial.
• Proxy Representation and Cause of Action: The irrevocable proxy expressly constituted Jose G. Ricafort as attorney and proxy to attend any and all shareholder meetings and vote upon any and all matters according to shares petitioners would be entitled to vote if present, continuing for the maximum term allowed by law. Registration testimony by Atty. Mendoza established that Jose G. Ricafort signed the attendance sheet for himself and for petitioners without objection, supported by the corporate secretary's affidavit. No provision of the April 27, 2010 Special Power of Attorney was identified as amending or limiting that authority to St. Augustine negotiations; on the contrary, it acknowledged and expanded proxy authority to include appointment of a substitute proxy. Nominee Agreements uniformly acknowledged Jose G. Ricafort as beneficial owner who funded subscriptions, with petitioners holding mere legal title, corroborated by Raymond Ricafort's affidavit that the family knew of the meeting and that Corazon never attended but was always represented by her husband.
• Due Notice and Validity of Meeting: Mailing by registered mail on August 11, 2011, four days before August 15, 2011, satisfied Article I, Section 3 of the Amended By-Laws requiring mailing at least three days before the meeting, a shorter period expressly permitted by Section 50 of the Corporation Code unless a different by-law period is required. The same by-law provision states failure to give notice or irregularity shall not affect validity of the annual meeting or proceedings thereat, other than proceedings requiring special notice, and attendance in person or by proxy or written waiver dispenses with notice. Untimely filing beyond the election-protest period operated as waiver, particularly where the date — third Monday of August — was fixed in the by-laws and the beneficial owner sharing petitioners' household attended and voted.
• Validity of Preliminary Injunction and Appellate Decision: Preservation of the mining production sharing agreement, the corporation's sole valuable asset, supplied the right in esse threatened by rescission of the St. Augustine memoranda, potential recall by the Department of Environment and Natural Resources, and election of a supplanting third board that would moot review. Supervening acts in violation of the immediately executory injunction — the June 13, 2012 meeting, ratification of rescission and of the Queensberry issuance, and subsequent rival meetings — were therefore void, while acts of the August 15, 2011 board were valid. The administrative challenge to Justice Bato's participation had already been dismissed as valid, leaving no merit to the jurisdictional and procedural attacks on the writ.

• Election contest — definition and scope — Under Sections 1 and 2, Rule 6 of the Interim Rules of Procedure Governing Intra-Corporate Controversies, an election contest refers to any controversy or dispute involving title or claim to any elective office, validation of proxies, manner and validity of elections, qualifications of candidates including proclamation of winners, to the office of director, trustee or other officer directly elected by stockholders. Applied here, a prayer to nullify the annual meeting including all proceedings and consequences was deemed a challenge to the validity of the directors' election.
• Election contest — fifteen-day prescription and exhaustion — Section 3, Rule 6 requires the complaint to allege filing within fifteen days from the election if the by-laws provide no intra-corporate resolution procedure, or within fifteen days from corporate resolution thereof, plus exhaustion of intra-corporate remedies. Failure to file within that period, as with the October 20, 2011 filing more than two months after August 15, 2011, barred SEC Case No. 11-164.
• Irrevocable proxy — construction and persistence — A proxy irrevocably authorizing attendance and voting at any and all meetings upon any and all matters for the maximum term allowed by law remains effective absent revocation, and a subsequent special power of attorney concerning specific negotiations does not amend or limit it where no restrictive provision is shown and where it even authorizes appointment of a substitute proxy. Jose G. Ricafort's unquestioned registration and signing for petitioners thus constituted participation.
• Nominee vs. beneficial owner — voting rights — Where nominee agreements acknowledge that the nominee holds mere legal title funded by the principal who retains beneficial ownership, custody of certificates and control of voting, the nominee's claim of deprivation of the inherent right to vote as owner is negated where the principal attended and voted the shares.
• Notice of regular stockholders' meeting — by-law period and effect of defect — Under Section 50 of the Corporation Code, written notice of regular meetings shall be sent at least two weeks prior unless a different period is required by the by-laws; special meetings require at least one week unless otherwise provided; notice may be waived expressly or impliedly. Under NADECOR's By-Laws, three days' mailing suffices, and failure or irregularity of notice of an annual meeting fixed in the by-laws does not affect validity except for proceedings requiring special notice, especially where the stockholder attends by proxy.

• "including all proceedings taken thereat, all the consequences thereof, and all acts carried out pursuant thereto" — States the scope of petitioners' prayer for nullification, relied upon to characterize the suit as a challenge to the directors' election rather than a mere notice defect.
• "to attend and represent the undersigned at [any and all meetings of the shareholders of the Company], and for and on behalf of the undersigned, to vote upon any and all matters to be taken up at said meeting, according to the number of share(s) of stock of the Company of which the undersigned are the lawful record and beneficial owners, and which they would be entitled to vote if personally present" — Defines the breadth of Jose G. Ricafort's irrevocable proxy authority, negating limitation by the later Special Power of Attorney.
• "Failure to give notice of annual meeting, or any irregularity in such notice, shall not affect the validity of such annual meeting or of any proceedings at such meeting" — Recites the saving clause in Section 3, Article I of NADECOR's Amended By-Laws sustaining the August 15, 2011 meeting despite alleged late notice.
• "The complaint, not being an election contest, need not comply with the requirements stated in Rule 6, Section 3 of the Interim Rules." — States the trial court's rejected rationale for denying prescription, reversed upon finding the action was in substance an election contest.

• Yujuico vs. Quiambao, 542 Phil. 236 (2007) — Controlling precedent followed; where a relief sought is nullification of the board election at the annual meeting and of ensuing transactions, the action is an election contest subject to fifteen-day prescription, resulting in nullification of the subsequently ordered meeting and restoration of the last peaceable status.
• Fernandez et al. vs. Justices Bato, Jr., et al., 704 Phil. 175 (2013) — Cited as prior dismissal of the administrative case against respondent justices, upholding as valid the writ of preliminary injunction penned by Justice Bato and concurred in by Justices Dicdican and Peralta.

• Sections 1 to 3, Rule 6, Interim Rules of Procedure Governing Intra-Corporate Controversies — Define election contests, their coverage and the fifteen-day filing and exhaustion requirements; applied to dismiss SEC Case No. 11-164 as a time-barred election protest.
• Section 50, Corporation Code — Governs regular and special meetings, permitting by-laws to fix a notice period different from two weeks or one week and allowing waiver expressly or impliedly; applied to sustain the three-day mailed notice and to treat late filing as waiver where the annual meeting date was fixed in the by-laws.
• Article I, Sections 1, 3 and 6, NADECOR Amended By-Laws — Fix the annual meeting on the third Monday of August for election of directors, require at least three days' mailed notice while saving validity despite failure or irregularity, and grant one vote per share; applied to uphold quorum, notice by August 11 mailing, and proxy voting.
• Section 5, Rule 58, Rules of Court — Requires notice and hearing for preliminary injunction; invoked by petitioners to attack the writ and by complainants in the dismissed administrative case, but held not to invalidate the June 13, 2012 writ under the circumstances found.

Velasco, Jr., Chairperson, Peralta, Perez and Jardeleza, JJ., concur.