G.R. No.

184251, March 09, 2016

ESTATE OF DR. JUVENCIO P. ORTAÑEZ, REPRESENTED BY DIVINA ORTAÑEZ-
ENDERES, LIGAYA NOVICIO, AND CESAR ORTAÑEZ, Petitioners, v. JOSE C. LEE,
BENJAMIN C. LEE, CARMENCITA TAN, ANGEL ONG, MA. PAZ CASAL-LEE,
JOHN OLIVER PASCUAL, CONRADO CRUZ, JR., BRENDA ORTAÑEZ, AND JULIE
ANN PARADO AND JOHN DOES, Respondents.
DECISION
PEREZ, J.:
Before us for resolution is the appeal filed by the Estate of Dr. Juvencio P. Ortañez (Dr.
Ortañez), Ligaya Novicio, Divina Ortañez-Enderes, and Cesar Ortañez (petitioners)
seeking to nullify the 28 February 2008 Decision1 of the Court of Appeals (CA) in CA-
G.R. SP No. 97829. The CA affirmed the 17 January 2007 Judgment2 of the Regional Trial
Court (RTC), Branch 90, Quezon City, which dismissed the petitioners' complaint for
failure to present the required preponderance of evidence to substantiate the material
allegations embodied therein.

Culled from the records are the following antecedent facts:

On 6 July 1956, Dr. Ortañez organized and founded the Philippine International Life
Insurance Company, Inc. (Philinterlife). At the time of its incorporation, Dr. Ortañez
owned ninety percent (90%) of the subscribed capital stock of Philinterlife.

Upon his death on 21 July 1980, Dr. Ortañez left behind an estate consisting of, among
others, 2,029 shares of stock in Philinterlife, then representing at least 50.725% of the
outstanding capital stock of Philinterlife which was at 4,000 shares valued at
P4,000,000.00.

On 30 March 2006, petitioners filed a Complaint for Election Contest before the RTC of
Quezon City. The case was docketed as Civil Case No. Q-06-143 and raffled to Branch 90.
The complaint challenged the lawfulness and validity of the meeting and election
conducted by the group of Jose C. Lee (respondents) on 15 March 2006. During the
assailed meeting, Jose C. Lee (Lee), Angel Ong, Benjamin C. Lee, Carmelita Tan, Ma. Paz
C. Lee, John Oliver Pascual, Edwin C. Lee, Conrado C. Cruz, Jr., Brenda Ortañez, Julie
Ann Parado and Gary Jason Santos were elected as members of the Board of Directors of
Philinterlife.

Petitioners claimed that before the contested election, they formally informed the
respondents that without the participation of the Estate, no quorum would be constituted
in the scheduled annual stockholders' meeting.

Petitioners averred that in spite of their formal announcement and notice that they were
not participating in the session, the respondents continued, in bad faith, with the illegal
meeting. Further, respondents allegedly elected themselves as directors of Philinterlife
and proceeded to elect their own set of officers.

Petitioners, who insisted that they represented at least 51% of the outstanding capital
stock of 5,000 shares of Philinterlife, conducted on the same day and in the same venue
but in a different room, their own annual stockholders' meeting and proceeded to elect
their own set of directors, to wit: Rafael Ortañez, Divina Ortañez-Enderes, Ligaya
Novicio, Cesar Ortañez and Leopoldo Tomas.

Petitioners complained that despite being the true and lawful directors, they were
prevented by respondents to enter into the office premises of Philinterlife's corporate
records and assets.

In their backgrounder, petitioners narrated that on 15 April 1989 and 30 October 1991, the
2,029 shares of stock of the Estate were sold to the group of Lee, through an entity called
Filipino Loan Assistance Group (FLAG). By reason of said sale, respondents took control
of the management of the corporation. In the course of their management, and by voting
on the shares that they had illegally acquired, respondents increased the authorized
capital stock of Philinterlife to 5,000 shares.

The aforementioned sale of the shares of stock of the Estate was challenged by some of
the heirs (some of the petitioners) before the estate court, which in due course, issued an
order declaring the sale null and void ab initio. The case eventually reached this Court
and was docketed as G.R. No. 146006.

In the Court's decision in G.R. No. 146006, 3 it affirmed the lower court's ruling that indeed
the sale was null and void. Furthermore, the Court ruled that all increases in the
authorized capital stock of Philinterlife made and effected by the respondents using the
shares that they illegally acquired were null and void as well. Petitioners submit that as
a necessary and logical consequence, majority ownership over Philinterlife was restored
to the Estate, which was the controlling stockholder prior to the unlawful sale of the
shares.

Petitioners pointed out that in the Court's Resolutions dated 22 April 2005 and 22 August
2005 in G.R. No. 146006, it reiterated its 23 February 2004 ruling that all increases in the
capital stock of the corporation effected by Lee and his group were null and void.

They further submitted that the exercise of pre-emptive right of the Estate to acquire 51%
of the additional 1,000 paid up shares of stock, raising the total outstanding capital stock
to 5,000 shares, was recognized by the RFC of Quezon City, which acted as an Intestate
Court in Sp. Proc. No. Q-30884, through its Order dated 6 July 2000 and was upheld by
this Court in its decision in G.R. No. 146006.

On the basis and strength of the aforesaid decision and resolutions of this Court in G.R.
No. 146006, petitioners argued that the valid and lawful capital stock of Philinterlife
remained at 5,000 shares of stock. From this 5,000 shares, petitioner Estate owns 2,029
shares, plus 510 shares which also legally belongs to it by reason of its pre-emptive right,
or a total of 2,539 shares. These figures indicate that they still represent majority of the
outstanding capital stock of Philinterlife.

Petitioners concluded that notwithstanding the decision and subsequent resolutions of

this Court in G.R. No. 146006, respondents unlawfully held on to the management and
control of Philinterlife and maliciously resisted and prevented all their efforts to regain
control and management thereof.

Respondents, for their part, categorically denied the material allegations of the complaint
and raised the defense that the stockholders' meeting they conducted on 15 March 2006
was valid as it was allegedly attended by stockholders representing 98.76% of the 50,000
shares representing the authorized and issued capital stock of Philinterlife.

In an Judgment4 dated 17 January 2007, the RTC dismissed the complaint filed by
petitioners on the ground that the latter did not present the required preponderance of
evidence to substantiate their claim that they were the owners of at least 51% of the
outstanding capital stock of Philinterlife.
Dissatisfied with the RTC ruling, petitioners elevated the matter to the CA.

On 28 February 2008,5 the CA dismissed the petition on the grounds that: 1) petitioners
are guilty of forum shopping; 2) the decision of this Court in G.R. No. 146006 was already
interpreted and clarified by RTC, Branch 93 in Civil Case No. 05-115 in favor of the
respondents, when a writ of preliminary injunction was issued against petitioners and;
3) petitioners are not even stockholders on the stock books of Philinterlife even if the basis
for filing of the complaint in Civil Case No. Q-06-143 is the 5,000 shares existing on the
books of Philinterlife as of 1982.

Hence, this Petition for Review on Certiorari6 under Rule 45 of the Rules of Court.

Petitioners essentially allege that the CA erred when:

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(1) it refused to acknowledge the final and executory decision of this Court in G.R.
No. 146006, declaring that petitioner Estate is the owner of majority of the capital
stock of Philinterlife;

(2) it ruled that the election of respondents as directors of Philinterlife was in

accordance with the provisions of the Corporation Code, despite the categorical
pronouncement of this Court in G.R. No. 146006 that it is the Estate, and not the
respondents, which own the controlling interest in Philinterlife. 7
For reasons to be discussed hereunder, we rule in favor of respondents.

We note respondents' submission that in March 1983, Jose S. Ortañez sold certain shares
of stocks which he personally and exclusively owned to Lee and eighteen (18) other
stockholders including Divina Ortañez-Enderes and her family. These shares of stock are
separate and distinct from the 2,029 shares of stock belonging to the Estate. The
respondents direct the Court's attention to the General Information Sheets of Philinterlife
from 31 March 1983 to 16 April 1988, where it is shown that even before the alleged illegal
sales on 15 April 1980 and 30 October 1996, Lee and the other respondents were
stockholders and directors of Philinterlife. 8

Respondents also claim that as of 27 July 1987, the authorized capital stock of Philinterlife
was increased to P10,000,000.00 in compliance with Ministry Order 2-84; that as of 31
January 1989, the authorized capital stock was still at PI0,000,000.00 and the Estate's 2,025
shares have minority interest of 20.29% only; that as of 20 February 2003, 90% of the
company's controlling interest approved the increase of capital stock to P50,000,000.00 as
mandated by law. Moreover, respondents allege that the 15 March 2006 annual
stockholders' meeting presided over by Lee was attended by stockholders representing
98.76% of the 50,000 authorized and fully subscribed capital stock.

We agree with the lower courts that the petitioners failed to present credible and
convincing evidence that Philinterlife's outstanding capital stock during the 15 March
2006 annual stockholders' meeting was 5,000 and that they own more than 2,550 shares
or 51% thereof. The unrebutted presumption is that respondents, as defendants below,
were duly elected as directors-officers of Philinterlife.

G.R. No. 146006

We refer to the details of the antecedent facts of the case as culled from this Court's
decision promulgated on 23 February 2004, is as follows:
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Dr. Juvencio P. Ortañez incorporated the Philippine International Life Insurance
Company, Inc. on July 6, 1956. At the time of the company's incorporation, Dr. Ortañez
owned ninety (90%) of the subscribed capital stock.

On July 21, 1980, Dr. Ortañez died. He left behind a wife (Juliana Salgado Ortañez), three
legitimate children (Rafael, Jose and Antonio Ortañez) and five illegitimate children by
Ligaya Novicio (herein private respondent Ma. Divina Ortañez-Enderes and her siblings
Jose, Romeo, Enrico Manuel and Cesar, all surnamed Ortañez).

On September 24, 1980, Rafael Ortañez filed before the Court of First Instance of Rizal,
Quezon City a petition for letters of administration of the intestate estate of Dr. Ortañez,
docketed as SP. Proc. Q-30884. Private respondent Ma. Divina Ortañez-Enderes and her
siblings filed an opposition to the petition for letters of administration. x x x

On March 10, 1982, Rafael and Jose Ortañez were appointed joint special administrators
of their father's estate, x x x [The] inventory of the estate included, x x x among other
properties, 2,029 shares of stock in Philinterlife representing 50.725% of the company's
outstanding capital stock at that time.

On April 15, 1989 [and October 30, 1991], the decedent's wife, Juliana Ortañez [and
Special Administrator Jose Ortañez], sold [their] shares with right to repurchase in favor
of Filipino Loan Assistance Group (FLAG), represented by its president, Jose C. Lee.
[Both of them] failed to repurchase x x x, thus ownership thereof was consolidated by
FLAG in its name.

It appears that on [March 4, 1982] (during the pendency of the intestate proceedings),
Juliana Ortañez and her two children, Rafael and Jose Ortañez, entered into a
memorandum of agreement for the extrajudicial settlement of the estate of Dr. Juvencio
Ortañez, partitioning the estate (including Philinterlife shares of stock) among
themselves. x x x

x x x x

On November 8, 1995, the intestate court x x x appointed Ma. Divina Ortañez-Enderes as

special administratrix of the Philinterlife shares of stock.

x x x Special Administratix Enderes filed urgent motions to declare (1) void ab initio the
memorandum of agreement dated March 4, 1982; [(2)] x x x to declare the partial nullity
of the extrajudicial settlement of the decedent's estate; (3) to declare void ab initio the
deeds of sale of Philinterlife shares of stock x x x.

x x x x

On August 11, 1997, the intestate court x x x [ruled that] "a sale of a property of the estate
without an Order of the probate court is void and passes no title to the purchaser. Since
the sales in question were entered into by Juliana S. Ortañez and Jose S. Ortañez in their
personal capacity without prior approval of the Court, the same is not binding upon the
Estate."
On August 29, 1997, the intestate court x x x [granted] the motion [for the annulment of
the] March 4, 1982 memorandum of agreement or extrajudicial partition of [the] estate.
[The Memorandum of Agreement was declared partially void ab initio insofar as the
transfer/waiver/renunciation of the Philinterlife shares of stock was concerned. This was
eventually brought up to the Supreme Court but to no avail. The decision attained finality
and was subsequently recorded in the book of entries of judgment.] 9

xxxx
We observed in the aforesaid decision that Juliana Ortañez (Juliana) and her three sons
invalidly entered into a Memorandum of Agreement extra-judicially partitioning the
intestate estate among themselves, despite their knowledge that there were other heirs or
claimants to the Estate and before the final settlement of the Estate by the intestate court.
Since the appropriation of the estate properties was invalid, the subsequent sale thereof
by Juliana and Lee to a third party (FLAG), without court approval, was likewise void.

It goes without saying that the increase in Philinterlife's authorized capital stock,
approved on the vote of petitioners' non-existent shareholdings was likewise void ab
initio.

Overstretching of G.R. No. 146006

Petitioners anchor their claim on this Court's ruling in G.R No. 146006 to support their
argument that they own 51% of the outstanding capital stock of Philinterlife. They insist
that pursuant thereto, all increases in the authorized capital stock of Philinterlife are null
and void; thus, it logically follows that the authorized capital stock of Philinterlife
remains at 5,000 (capital stock at the time of death of Dr. Ortañez) to date and that the
2,029 shares owned by petitioners, coupled with the shares owned by other petitioners in
their individual capacity, constitute more than 51% of the issued capital stock.

Upon a closer analysis of our ruling in G.R. No. 146006, however, we note that only the 4
March 1982 memorandum of agreement was declared void and as a consequence thereto,
the subsequent sale to FLAG was likewise declared void. With regard to the increases in
Philinterlife's capital stock, we only declared void those increases approved on the vote
of petitioners' non-existent shareholdings.10 In other words, only those increases
subsequent to the illegal sales of shares of stock are considered void. The validity of the
increases of stock before 1989 (from 1980 to 1988) has never been questioned before any
court. Parenthetically, any question on the increase of stocks made before the illegal sales
should not be raised in the instant election contest case but should be the subject of a
separate proceeding.

Petitioners argue that G.R. No. 146006 serves as their "best evidence of the fact that
petitioners have always been the true and lawful owners of at least 51% of'Philinterlife."11 We
iterate that what we declared void in G.R. No. 146006 was the 4 March 1982
Memorandum of Agreement and consequently, the subsequent sales and pursuant
thereto, the increased authorized capital stocks approved on the vote of petitioners' non-
existent shares. Petitioners seek to over-stretch this Court's ruling in G.R. No. 146006 by
arguing that all increases of capital stock were declared void. At this juncture, we
emphasize once more, that the increases in the capital stock made before the illegal sales
were not declared void by G.R. No. 146006. In fact, these previous increases, as discussed
below, were mandated by law.

We give more weight to the Capital Structure of Philinterlife as of 15 December

1980,12 which shows that the Estate owned 2,029 shares of the 5,000 total outstanding
shares or 40.58%. It is evident, therefore, that as of 15 December 1980, the Estate no longer
owned 50.725% of the outstanding capital stock of Philinterlife. In view of the increase of
the capital structure of Philinterlife from 4,000 shares to 5,000 shares in 15 December 1980,
the percentage of shareholdings owned by the Estate was naturally reduced from 50.73%
(2,029 shares out of 4,000 shares) to 40.58% (2,029 shares out of 5,000 shares). In other
words, the Estate's 2,029 shares became a minority shareholder of Philinterlife from 15
December 1980 up to 24 March 1983. The Capital Structure proffered by the respondents
negated the claim of petitioners that they have always been the true and lawful owners of
at least 51% of Philinterlife.

It should be noted that the last valid uncontested outstanding capital stock before the
illegal sales was 10,000 shares. Prior to the sales made to FLAG on 15 April 1989 and 30
October 1991, the outstanding capital stock as reflected in the General Information Sheet
dated 16 April 1988,13 is 10,000 shares at P10,000,000.00 and not 5,000 shares as advanced
by the petitioners. Therefore, the total number of outstanding shares during the 15 March
2006 annual stockholders' meeting was definitely not 5,000 shares as petitioners posit.
Even before the illegal sale, the Estate only owned 2,029 shares, not even close to majority
of the total outstanding capital stock of 10,000 shares.

Moreover, this Court recognizes the significant weight of the Certification issued by the
Insurance Commission.14 The document certified that Department Order No. 62-87 (5
June 1987), as issued by the Insurance Commission, required domestic insurance
companies to increase their minimum paid-up capital to P10,000,000.00 by the end of 31
December 1987.

We quote with approval the following pertinent disquisitions of the RTC, Branch 93,
Quezon City in Civil Case No. 05-115:15
From July 21, 1980 up to April 15, 1989, there were changes in the capital structure of
Philinterlife. There were increases in the capital stock [pursuant to law]. 16 These changes
took place before the sale of the 2,029 shares of the Estate x x x in 1989 and 1991 to FLAG.
Prior to 1995, Rafael and Jose Ortañez were the joint special administrators of the Estate
x x x and their administration covered the 2,029 shares, x x x Under the joint special
administration x x x, the 2,029 shares remained static. How and why these shares of the
Estate remained unimproved despite the general increase in capital stock of Philinterlife
during that time can only be answered by the joint special administrators.
As respondents correctly pointed out, 17 to give premium to petitioners' story that the
quorum in the annual stockholders' meeting should be based on 5,000 shares is to grossly
violate and disregard corporate acts and powers done by the corporation, which were
validly voted upon by the stockholders including the Estate, through its then Special
Administrators Rafael Ortañez and Jose Ortañez, from 1983 to 1988. Furthermore, the
same increases of capital stock to 10,000 were also voted upon and approved after due
notice to petitioners Divina Ortañez-Enderes, Ligaya Novicio and Cesar Ortañez who
were present/allowed to be present, during the stockholders' meetings from 1983 to 1988.

Classified hereunder is a summary of the developments in the Capital Structure of

Philinterlife from the time of death of Dr. Ortañez:
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No. of Shares Amount

1. At the time of death

21 July 1980
Paid-up Capital 4,000 Php4,000,000.00

Holdings of Juvencio 2,029 Php2,029,000.00

Ortañez

Percentage 50.72%

2. Increase in Paid-Up Capital

15 December 1980

Paid-up Capital 5,000 Php5,000,000.00

Holdings of Juvencio 2,029 Php2,029,000.00

Ortañez

Percentage 40.58%

3. Increase in Paid-Up Capital

24 September 1984

Paid-Up Capital 6,000 Php6,000,000.00

Holdings of Juvencio 2,029 Php2,029,000.00

Ortañez

Percentage 33.81%

4. Increase in Paid Up Capital

26 January 1987

Paid-Up Capital 8,000 Php8,000,000.00

Holdings of Juvencio 2,029 Php2,029,000.00

Ortañez

Percentage 25.36%

5. Increase in Paid-Up Capital

27 July 1987

Paid-Up Capital 10,000 Php10,000,000.00

 Holdings of Juvencio 2,029 Php2,029,000.00

Ortañez

Percentage 20.29%

6. Increase in Paid-Up Capital

6 February 2003

Paid-Up Capital 20,000 Php20,000,000.00

Holdings of Juvencio 2,029 Php2,029,000.00

Ortañez

Percentage 9.85%

7. Increase in Paid-Up Capital

20 February 2003

Paid-Up Capital 50,000 Php50,000,000.00

Holdings of Juvencio Php2,029,000.00

Ortañez

Percentage 4.05%18
From the foregoing facts and based on a careful evaluation of the evidence on record, we
are of the considered view that petitioners indeed failed to present the required
preponderance of evidence to prove their allegation in the complaint that they
represented more than 51% of the outstanding capital stock of Philinterlife during the
annual stockholders' meeting held on 15 March 2006.

Clearly, the core issue to be resolved in the present case is simply on whether respondents
were validly elected as Board of Directors during the annual stockholders' meeting of
Philinterlife held on 15 March 2006. We agree with the courts below that in the absence
of evidence to the contrary, the presumption is that the respondents were duly elected as
directors/officers of Philinterlife during the aforesaid annual stockholders' meeting.
Petitioners cannot, in the instant election contest case, question the increases in the capital
stocks of the corporation.

Given the ruling of this Court, as provided above, we find it no longer necessary to rule
on the other matters raised in this case.chanrobleslaw

WHEREFORE, in the light of the foregoing premises, the instant appeal is

hereby DENIED.

SO ORDERED.cralawlawlibrary