TL;DR

In a dispute over a family corporation, the Philippine Supreme Court clarified that for stockholders’ meetings, the quorum is determined by the total outstanding shares, regardless of whether some shares are under litigation. The Court emphasized that lower courts must clearly explain the factual and legal basis for their decisions, especially in corporate election contests. This ruling ensures that corporate actions are based on complete shareholder representation and that judicial processes are transparent and reasoned, even amidst family disagreements. The case highlights the importance of adhering to corporate governance principles and due process in resolving internal corporate disputes, especially within family businesses.

Family Feuds and Corporate Quorums: When Disputed Shares Still Count

The case of Yabut v. Villongco arises from a protracted family conflict within Phil-Ville Development and Housing Corporation, a family-owned real estate business. At the heart of the dispute is the validity of the transfer of shares from the company’s founder, Geronima Gallego Que, to her grandchildren. This transfer led to a power struggle between two family factions – the Yabut Group and the Villongco Group – resulting in multiple legal battles over the corporation’s annual stockholders’ meetings and the legitimacy of elected directors and officers. The Supreme Court was tasked to resolve consolidated petitions concerning the validity of the 2015 and 2017 stockholders’ meetings, focusing on whether shares under dispute should be counted when determining quorum.

The core legal issue revolved around the quorum requirement for valid stockholders’ meetings. Petitioners, the Yabut Group, consistently held meetings and elections, claiming quorum by including disputed shares. Respondents, the Villongco Group, challenged these meetings, arguing that the 3,140 shares subject to a separate legal case questioning their transfer should not be counted for quorum purposes. The Court of Appeals sided with the Villongco Group in the 2015 election contest, excluding the disputed shares and declaring the meeting invalid for lack of quorum. However, the Supreme Court disagreed with this approach, referencing its earlier decision in Villongco v. Yabut, which established that quorum is based on the total outstanding capital stock, irrespective of any share disputes.

The Supreme Court reiterated the principle that quorum in stock corporations is determined by the total number of outstanding voting stocks. The Court explicitly stated that the law does not distinguish between disputed and undisputed shares for quorum calculation. Quoting ubi lex non distinguit nec nos distinguere debemus (where the law does not distinguish, neither should we), the Court clarified that all 200,000 outstanding shares of Phil-Ville should be considered when determining quorum, without exception for shares under litigation. This stance ensures that corporate governance reflects the entirety of issued capital, preventing factions from disenfranchising other shareholders based on ongoing disputes.

Moreover, the Supreme Court addressed the procedural lapses of the lower courts. Both the Regional Trial Court (RTC) orders in the 2015 and 2017 election contests were deemed void because they failed to clearly state the factual and legal bases for their dismissal of the respondents’ complaints. The Supreme Court emphasized the constitutional mandate under Section 14, Article VIII, and Rule 36, Section 1 of the Rules of Court, requiring courts to issue reasoned decisions. The RTC orders merely referenced the pending civil case and mootness due to subsequent elections, lacking substantive legal or factual analysis. The Supreme Court underscored that such perfunctory orders undermine due process and transparency in judicial proceedings.

The Court also dismissed the argument of litis pendentia, which petitioners raised, claiming that the election contests were preempted by the civil case concerning the share validity. The Supreme Court clarified that while there was party identity, the causes of action and reliefs sought were distinct. The civil case aimed to invalidate the share sale, while the election contests challenged the validity of stockholders’ meetings and elections. The evidence and legal issues in each case were not identical, thus negating litis pendentia. The Court also rejected the mootness argument, stating that the validity of past corporate actions remains a justiciable issue, and election contests are capable of repetition, necessitating judicial review.

In its resolution, the Supreme Court partly granted the petition in G.R. No. 242353, reversing the Court of Appeals’ decision that excluded disputed shares from quorum calculation, and ordered the remand of the 2015 election contest to the RTC for further proceedings consistent with the principle of including all outstanding shares in quorum determination. Conversely, the motion for reconsideration in G.R. No. 253530 was denied, affirming the remand of the 2017 election contest due to the void RTC order. The Supreme Court’s decision reinforces the importance of adhering to established corporate law principles regarding quorum and the necessity for courts to provide well-reasoned judgments, especially in intra-corporate disputes that can significantly impact corporate governance and shareholder rights.

FAQs

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: YABUT vs. VILLONGCO, G.R. Nos. 242353 & 253530, January 22, 2024