Philippine Legal Guide: Corporate Law Case Digest: Dee v. SEC (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)

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."

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

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

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

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:

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
W/N Natelco stockholders have a right of preemption to the 113,800 shares
W/N the May 22, 1982 election was valid

HELD: Dismissed for lack of merit

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

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