Yabut vs. Villongco

For stock corporations, the quorum in a stockholders’ meeting is determined by the total number of outstanding capital stock entitled to vote, without distinguishing between disputed and undisputed shares; the right to vote is inherent in ownership of corporate stocks, and nothing in the law or jurisprudence authorizes the exclusion of disputed shares from the quorum count.

Phil-Ville Development and Housing Corporation (Phil-Ville) is a family real-estate corporation founded by Geronima Gallego Que, with an authorized capital stock of PHP 20,000,000.00 divided into 200,000 shares. During her lifetime, Geronima owned 3,140 shares, and her six children — Carolina, Ana Maria, Angelica, Cecilia, Corazon, and Maria Luisa — each held 32,810 shares. Two years before her death in 2007, Geronima purportedly executed a “Sale of Shares of Stocks” designating Cecilia as her attorney-in-fact, which distributed her 3,140 shares among her children and grandchildren. The distribution created two family blocs: the Villongco Group (Carolina, Ana Maria, Angelica, and their children) and the Yabut Group (Cecilia, Corazon, and the heirs of Luisa). The Villongco Group filed Civil Case No. CV-940-MN to annul the sale as simulated, and also contested the splitting of two shares into fractions by Luisa’s heirs. Meanwhile, the Yabut Group began convening annual stockholders’ meetings, electing themselves as directors and officers, consistently relying on the disputed shares to secure control — spawning successive election contests and the instant consolidated petitions.

• The Corporation and Shareholdings: Phil-Ville Development and Housing Corporation is a family corporation with an authorized capital stock of PHP 20,000,000.00 divided into 200,000 shares at PHP 100.00 par value. The founder, Geronima Gallego Que, owned 3,140 shares, while her six children — Carolina Que Villongco, Ana Maria Que Tan, Angelica Que Gonzales, Cecilia Que Yabut, Ma. Corazon Que Garcia, and Maria Luisa Que Camara — each owned 32,810 shares, totaling 196,860 shares.

• The Disputed Sale and Civil Case: On June 11, 2005, Geronima, through Cecilia as attorney-in-fact, purportedly executed a “Sale of Shares of Stocks” distributing her 3,140 shares among her grandchildren. The Villongco Group (Carolina, Ana Maria, Angelica, and their children) received 523 shares each; the Yabut Group (Cecilia, Corazon, and Luisa’s children) received 523 or 524 shares each. The Villongco Group filed Civil Case No. CV-940-MN in RTC Malabon, Branch 74, seeking to annul the sale as simulated and to bar the voting of those shares plus two fractional shares resulting from a division among Luisa’s heirs. That civil case remained pending.

• 2014 Annual Meeting: On January 25, 2014, the Yabut Group held Phil-Ville’s annual stockholders’ meeting, attended solely by themselves, and elected Cecilia, Corazon, and Eumir Carlo Que Camara as directors and officers. Respondents contested the election in SEC Case No. 14-001-MN. The RTC voided the election for lack of quorum; the CA voided the RTC decision for constitutional infirmity but concurred on the lack of quorum. In Villongco v. Yabut (2018), the Supreme Court affirmed that the meeting lacked quorum and held that petitioners, as alleged transferees of the 3,140 shares, could not vote them because they failed to present the stock and transfer book to prove transfer.

• 2015 Stockholders’ Meeting and Election Contest: On January 31, 2015, petitioners again convened the annual stockholders’ meeting, with only the Yabut Group present, and elected themselves as directors and officers. Respondents filed Civil Case No. SEC 15-001-MN (2015 election contest), arguing the meeting lacked quorum because the 3,140 disputed shares and two fractional shares could not be voted. The RTC issued a one-page Order dated January 26, 2016, dismissing the complaint on the ground that a resolution would prejudge Civil Case No. CV-940-MN. The CA declared this Order void for failing to state clear facts and law, and further held that quorum must be at least 98,430 shares after excluding the disputed 3,142 shares. The CA found only 98,428 shares present and declared the meeting and elections void.

• 2017 Stockholders’ Meeting and Election Contest: On January 28, 2017, petitioners held the annual meeting, again attended only by the Yabut Group, and elected themselves. Respondents filed SEC Case No. SEC-17-001-MAL (2017 election contest). The RTC dismissed the complaint in an Order dated February 13, 2018, reasoning that the issues were pending in Civil Case No. CV-940-MN and that the 2018 election rendered the case moot. The CA voided the Order for want of factual and legal bases, found no litis pendentia or mootness, and remanded for trial.

• Prejudicial Question: Petitioners argued that any ruling in the 2015 and 2017 election contests would prejudge the validity of the disputed shares, a matter pending in Civil Case No. CV-940-MN, because the entitlement to vote those shares is central to both.

• Voting Rights over Disputed Shares: Petitioners maintained that the owners of the 3,140 shares, though subject to pending litigation, may still exercise their right to vote those shares in the stockholders’ meetings.

• Validity of the RTC Orders: Petitioners contended that the 2015 Election Contest Order sufficiently expressed the factual and legal basis for dismissal, thus complying with Section 1, Rule 36 of the Rules of Court.

• Litis Pendentia: Petitioners asserted that the elements of litis pendentia existed between the election contests and Civil Case No. CV-940-MN, warranting dismissal of the former.

• Mootness of the 2017 Contest: Petitioners claimed that the 2018 stockholders’ meeting and elections rendered the 2017 election contest moot and academic, eliminating any justiciable controversy.

• Validity of the CA Rulings: Respondents countered that the appellate court’s decisions were anchored on law and jurisprudence, correctly voiding the RTC Orders for failing to meet constitutional standards for valid judgments.

• Lack of Corporate Authority: Respondents invoked the Supreme Court’s decision in Villongco, which voided the 2014 meeting and elections, arguing that this divested petitioners of any authority to call subsequent stockholders’ meetings.

• Irregularities in Conduct: Respondents questioned the validity of certain proxies submitted by the Yabut Group during the 2015 and 2017 meetings, as well as the manner in which the meetings themselves were conducted.

• Void Judgment: Whether the 2015 and 2017 Election Contest Orders are void for failure to comply with Section 1, Rule 36 of the Rules of Court in relation to Section 14, Article VIII of the Constitution.

• Mootness: Whether the conduct of the 2018 stockholders’ meeting and election rendered the issues raised in the 2017 election contest moot and academic.

• Litis Pendentia: Whether the elements of litis pendentia exist between the 2015 and 2017 election contests, on one hand, and Civil Case No. CV-940-MN, on the other.

• Quorum and Disputed Shares: Whether Phil-Ville’s shares of stock that are the subject of pending litigation may be considered for the purpose of determining the required quorum or may be voted.

• Void Judgment: Both the 2015 and 2017 Election Contest Orders were declared void for their abject failure to state clearly and distinctly the factual and legal bases for dismissal. The requirement under Section 14, Article VIII of the Constitution and Section 1, Rule 36 of the Rules of Court is a paramount component of due process; it assures the parties that the judge reached a decision through legal reasoning, not by ipse dixit. The RTC Orders merely recited the parties’ contentions and dismissed the cases with perfunctory references to the pending civil case, devoid of any meaningful analysis. The 2017 Order added a bare assertion that the 2018 election mooted the case, again without substantiation. These Orders are no better than the RTC decision nullified in the earlier Villongco case.

• Mootness: The 2017 election contest was not rendered moot by the subsequent stockholders’ meetings and elections. A case is moot only when the issues have become academic or the matter in dispute has already been resolved. Here, the validity of the 2017 meeting and the actions taken by the elected officers remained a justiciable controversy because those acts could be declared ultra vires should the election be invalidated. Moreover, even if moot, the case falls within the exception for controversies “capable of repetition yet evading review,” given the annual recurrence of identical disputes between the parties.

• Litis Pendentia: The elements of litis pendentia were not satisfied. Although the parties in the election contests and Civil Case No. CV-940-MN may be identical, the reliefs sought and causes of action are palpably different. Civil Case No. CV-940-MN seeks the annulment of the sale of the 3,140 shares and their equal distribution among Geronima’s children. The election contests, on the other hand, challenge the validity of the stockholders’ meetings and elections on grounds that include not only the voting of the disputed shares but also the questionable conduct of the meetings and validation of proxies. The evidence required to sustain each set of cases is distinct, and a judgment in one would not amount to res judicata in the other.

• Quorum and Disputed Shares: The Court of Appeals erred in excluding the disputed 3,142 shares from the quorum computation in the 2015 election contest. The doctrinal rule laid down in Villongco v. Yabut is controlling: for stock corporations, the quorum is based on the number of outstanding voting stocks, without any distinction as to whether some shares are disputed. The law does not distinguish, and neither should jurisprudence. Thus, Phil-Ville’s total 200,000 outstanding capital stock must be the basis for determining quorum, requiring the presence of at least 100,001 shares. Whether a quorum was actually present at the 2015 meeting is a factual question that must be resolved upon remand.

• Void Judgment for Lack of Clear Statement of Facts and Law — A judgment or final order that fails to clearly and distinctly state the facts and the law on which it is based violates Section 14, Article VIII of the Constitution and Section 1, Rule 36 of the Rules of Court. Such a decision leaves the parties in the dark as to how it was reached, impairs the losing party’s ability to appeal, and constitutes a denial of due process. The standard is not a rigid formula; the decision must, however, make clear why either party prevailed under the applicable law as applied to the established facts.

• Quorum in Stock Corporations — The quorum for a stockholders’ meeting is determined by the total number of outstanding capital stock entitled to vote. Neither the Corporation Code nor jurisprudence distinguishes between disputed and undisputed shares for quorum purposes. The rule applies even when some shares are the subject of pending litigation.

• Litis Pendentia Requisites — Litis pendentia requires: (1) identity of parties or at least the same interests represented; (2) identity of rights asserted and reliefs prayed for, founded on the same facts; and (3) such identity that the judgment in one would amount to res judicata in the other. The test for identity of causes of action is whether the same evidence necessary to sustain the second cause of action would authorize a recovery in the first.

• Mootness — Capable of Repetition Yet Evading Review — A case becomes moot when there is no longer a justiciable controversy. However, courts will resolve an otherwise moot case if the controversy is capable of repetition while evading review, as when the same parties annually litigate the same issues based on similar facts.

• “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.”

• “It is settled that unissued stocks may not be voted or considered in determining whether a quorum is present in a stockholders’ meeting. Only stocks actually issued and outstanding may be voted. Thus, for stock corporations, the quorum is based on the number of outstanding voting stocks. The distinction of undisputed or disputed shares of stocks is not provided for in the law or the jurisprudence. Ubi lex non distinguit nec nos distinguere debemus — when the law does not distinguish we should not distinguish.”

• Villongco v. Yabut, 825 Phil. 61 (2018) — Controlling precedent. The Supreme Court relied on this earlier case between the same parties for the rule that total outstanding capital stock, without distinction as to disputed shares, is the basis for determining quorum. It also affirmed that petitioners could not vote the disputed shares without proving their transfer through the stock and transfer book.

• De Leon v. People, 776 Phil. 701 (2016) — Applied for the constitutional standard requiring judgments to state clearly and distinctly the facts and law. The Court quoted its discussion on the due process function of this requirement as a safeguard against ipse dixit rulings.

• International Service for the Acquisition of Agri-Biotech Applications, Inc. v. Greenpeace Southeast Asia (Phils.), 791 Phil. 243 (2016) — Cited for the definition of mootness and the principle that a case is moot when it no longer presents a justiciable controversy because the issues have become academic or dead.

• Jose v. Quesada-Jose, G.R. No. 249434, March 15, 2023 — Cited for the elements of litis pendentia and the test for identity of causes of action.

• Section 14, Article VIII (Judicial Department), 1987 Constitution — “No decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on which it is based.” Applied to nullify the RTC Orders that contained no discernible analysis or legal reasoning, merely reciting contentions and dismissing the cases.

• Section 1, Rule 36, Rules of Court — “A judgment or final order determining the merits of the case shall be in writing personally and directly prepared by the judge, stating clearly and distinctly the facts and the law on which it is based, signed by him, and filed with the clerk of the court.” The RTC Orders were found severely wanting under this standard, containing no meaningful discussion that could withstand judicial scrutiny.

Associate Justice Alfredo Benjamin S. Caguioa (Chairperson), Associate Justice Samuel H. Gaerlan, Associate Justice Jose Midas P. Marquez, and Associate Justice Maria Filomena D. Singh. (Associate Justice Henri Jean Paul B. Inting recused himself due to the prior participation of his sister in the CA; Associate Justice Marquez was designated as additional member.)