Villongco vs. Yabut

The total outstanding capital stock, without distinction as to disputed or undisputed shares, is the sole basis for determining the presence of a quorum in stockholders' meetings under Section 52 of the Corporation Code; a stockholders' meeting attended by less than a majority of the outstanding capital stock is void ab initio, and all acts performed by directors and officers elected thereat are ultra vires for lack of corporate authority.

Phil-Ville Development and Housing Corporation is a family corporation engaged in real estate founded by Geronima Gallego Que. Geronima owned 3,140 shares while her six children held the remaining 196,860 shares. Following Geronima's death in 2007, a dispute arose regarding the distribution of her 3,140 shares pursuant to a purported Sale of Shares of Stocks executed by Cecilia Que Yabut as attorney-in-fact. This led to a rift between two factions: one led by Carolina Que Villongco, Ana Maria Que Tan, and Angelica Que Gonzales, and another led by Cecilia Que Yabut, Ma. Corazon Que Garcia, and Eumir Carlo Que Camara. The conflict escalated when the Cecilia faction proceeded to hold an annual stockholders' meeting on January 25, 2014 despite a prior decision by the majority of the Board of Directors to postpone the meeting pending resolution of the share distribution dispute.

• Phil-Ville Development and Housing Corporation has an authorized capital stock of P20,000,000 divided into 200,000 shares with a par value of P100.00 per share.
• Geronima Gallego Que owned 3,140 shares, while the remaining 196,860 shares were distributed equally among her six children: Carolina Que Villongco (32,810 shares), Ana Maria Que Tan (32,810 shares, partially transferred to her children), Angelica Que Gonzales (32,810 shares), Cecilia Que Yabut (32,810 shares, partially transferred to her children), Ma. Corazon Que Garcia (32,810 shares, partially transferred to her children), and Maria Luisa Que Camara (32,810 shares, transferred to her children upon her death).
• Geronima died on August 31, 2007.
• Cecilia Que Yabut, as attorney-in-fact of Geronima, allegedly executed a Sale of Shares of Stocks dated June 11, 2005 distributing Geronima's 3,140 shares to various grandchildren, which was reflected in the General Information Sheets filed in 2010 and 2011.
• On January 18, 2013, Cecilia Que, et al. requested Ana Maria Que Tan, as Corporate Secretary, to send notices for the annual stockholders' meeting.
• On January 21, 2013, Carolina, Ana Maria, and Angelica, comprising the majority of the Board of Directors, held an emergency meeting and decided to postpone the annual stockholders' meeting until the issue of the distribution of the 3,140 shares was settled, notifying all stockholders and the Securities and Exchange Commission.
• Despite the postponement, Cecilia Que, et al. proceeded with a stockholders' meeting in 2013 electing themselves as directors and officers.
• On January 15, 2014, Eumir Carlo Que Camara sent a Notice of Annual Stockholders' Meeting for January 25, 2014 at Max's Restaurant, Malabon City.
• During the January 25, 2014 meeting, Cecilia Que Yabut, Ma. Corazon Que Garcia, and Eumir Carlo Que Camara were elected as directors and subsequently as Chairperson/Vice President/Treasurer, Vice-Chairperson/President/General Manager, and Corporate Secretary/Secretary, respectively.
• Only 98,428 voting shares out of 200,000 outstanding shares were represented at the meeting according to the RTC, while the CA found 98,430 shares present.
• The 3,140 shares of Geronima allegedly transferred to her grandchildren were not recorded in the stock and transfer book of Phil-Ville.

• Carolina Que Villongco, et al. (in G.R. No. 225022) argued that the RTC decision did not violate Section 14, Article VIII of the Constitution as it thoroughly passed upon all allegations in the complaint vis-a-vis the judicial affidavit of Carolina Que Villongco which remained unrebutted. They contended that the basis for determining quorum should be the total number of undisputed shares (196,858 shares), excluding the 3,140 shares of Geronima and the fractional shares subject of another dispute, due to the exceptional nature of the case and applying the exception to the general rule.
• Cecilia Que Yabut, et al. (in G.R. No. 225024) argued that the CA erred in ruling that they were barred from filing an answer. They contended that the CA erred in ruling on the merits despite finding that there was a need to remand the case. They also argued that the issues raised are being litigated in another case, barring resolution on the merits.

• Cecilia Que Yabut, et al. (respondents in G.R. No. 225022) argued that the filing of a Motion for Extension of Time to File Answer should not be considered a voluntary appearance. They maintained that the RTC decision violated Section 14, Article VIII of the Constitution for failing to clearly and distinctly state the facts and law.
• Carolina Que Villongco, et al. (respondents in G.R. No. 225024) argued that the Motion for Extension of Time to File Answer filed by Cecilia Que, et al. constituted voluntary appearance, curing any defect in service of summons. They maintained that the RTC decision violated Section 14, Article VIII of the Constitution. They argued that the total outstanding capital stock (200,000 shares) should be the basis for quorum, not merely undisputed shares, and that the 3,140 shares were not validly transferred as they were not recorded in the stock and transfer book.

• Procedural Issues:
  • Whether the filing of a Motion for Extension of Time to File Answer constitutes voluntary appearance conferring jurisdiction over the person of the defendants.
  • Whether the RTC decision violated Section 14, Article VIII of the Constitution for failure to clearly and distinctly state the facts and law on which it was based.
• Substantive Issues:
  • Whether the total outstanding capital stock or only the undisputed shares should be the basis for determining quorum in a stockholders' meeting.
  • Whether the annual stockholders' meeting held on January 25, 2014 had a quorum.
  • Whether the election of Cecilia Que, et al. as directors and officers was valid.
  • Whether acts performed by virtue of an invalid election are ultra vires.

• Procedural:
  • The filing of a Motion for Extension of Time to File Answer constitutes voluntary appearance. A defendant who knowingly does an act inconsistent with the right to object to lack of personal jurisdiction, such as seeking affirmative relief like additional time to file an answer, is deemed to have submitted to the court's jurisdiction.
  • The RTC decision dated March 14, 2014 violated Section 14, Article VIII of the Constitution. It merely adopted the allegations of the complaint without a clear and distinct statement of facts and law. It stated that only 98,428 shares were present without explanation or justification, and failed to determine whether plaintiffs were entitled to the reliefs prayed for, leaving the parties in the dark as to how the judgment was reached.
• Substantive:
  • The total outstanding capital stock, without distinction as to disputed or undisputed shares, is the basis for determining quorum under Section 52 of the Corporation Code. Ubi lex non distinguit nec nos distinguere debemus.
  • For Phil-Ville, with 200,000 outstanding shares, a quorum requires the presence of stockholders representing at least 100,001 shares.
  • The meeting held on January 25, 2014 lacked quorum as only 98,430 shares were present.
  • The 3,140 shares of Geronima were not validly transferred as to the corporation because they were not recorded in the stock and transfer book as required by Section 63 of the Corporation Code. Thus, the transferees could not exercise stockholder rights including voting.
  • The election of Cecilia Que, et al. as directors and officers is void for lack of quorum.
  • All acts performed by Cecilia Que, et al. by reason of their election, including the filing of the General Information Sheet with the SEC, are ultra vires as they were not legally clothed with corporate authority.

• Voluntary Appearance — The filing of a motion for additional time to file an answer is considered voluntary submission to the jurisdiction of the court, curing any defect in the service of summons. A defendant who seeks affirmative relief without proper objection submits to the court's jurisdiction.
• Section 14, Article VIII of the Constitution — No decision shall be rendered without expressing clearly and distinctly the facts and law on which it is based. This is a paramount component of due process ensuring parties understand how the judgment was reached and enabling review by higher tribunals.
• Quorum Determination — Under Section 52 of the Corporation Code, quorum consists of stockholders representing a majority of the outstanding capital stock, defined under Section 137 as total shares issued under binding subscription agreements except treasury shares. The law does not distinguish between disputed and undisputed shares.
• Stock Transfer Recording — Under Section 63 of the Corporation Code, no transfer is valid except between parties until recorded in the books of the corporation. A transfer not recorded in the stock and transfer book is non-existent as far as the corporation is concerned, and the corporation looks only to its books to determine shareholders.

• "The filing of a motion for additional time to file answer is considered voluntary submission to the jurisdiction of the court. If the defendant knowingly does an act inconsistent with the right to object to the lack of personal jurisdiction as to him, like voluntarily appearing in the action, he is deemed to have submitted himself to the jurisdiction of the court."
• "Faithful adherence to the requirements of Section 14, Article VIII of the Constitution is indisputably a paramount component of due process and fair play. A decision that does not clearly and distinctly state the facts and the law on which it is based leaves the parties in the dark as to how it was reached and is precisely prejudicial to the losing party, who is unable to pinpoint the possible errors of the court for review by a higher tribunal."
• "Ubi lex non distinguit nec nos distinguere debemus — when the law does not distinguish we should not distinguish."
• "A transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is concerned. As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are."

• Carson Realty & Management Corporation v. Red Robin Security Agency, et al. (G.R. No. 225035, February 8, 2017) — Cited for the doctrine that filing a motion for additional time to file answer constitutes voluntary appearance.
• De Leon v. People (G.R. No. 212623, January 11, 2016) — Cited for the requirement under Section 14, Article VIII that decisions must clearly and distinctly state facts and law.
• Tan v. Sycip, et al. (530 Phil. 609 (2006)) — Cited for the rule that quorum is based on outstanding voting stocks and unissued stocks may not be voted.
• Interport Resources Corporation v. Securities Specialist, Inc. (G.R. No. 154069, June 6, 2016) — Cited for the rule that transfers not recorded in the stock and transfer book are non-existent as far as the corporation is concerned.
• Mary E. Lim, et al. v. Moldex Land, et al. (G.R. No. 206038, January 25, 2017) — Cited for the definition of quorum based on outstanding capital stock.
• Prudential Bank v. Magdamit, Jr., et al. (746 Phil. 649 (2014)) — Cited for the rule that jurisdiction over the person is obtained through valid service of summons.

• Section 14, Article VIII of the 1987 Constitution — Mandates that no decision shall be rendered without expressing clearly and distinctly the facts and law on which it is based.
• Section 52 of the Corporation Code (B.P. Blg. 68) — Defines quorum as stockholders representing a majority of the outstanding capital stock.
• Section 137 of the Corporation Code — Defines outstanding capital stock as total shares issued under binding subscription agreements except treasury shares.
• Section 63 of the Corporation Code — Requires recording of share transfers in the books of the corporation for validity as to the corporation.
• Section 74 of the Corporation Code — Grants stockholders the right to inspect corporate books and records.
• Section 144 of the Corporation Code — Provides penalties for violations of the Code, including refusal to allow inspection of books.
• Section 5, Rule 6 of the Interim Rules of Procedure for Intra-Corporate Controversies — Requires answer to be filed within ten days from service of summons.