SEC Adm. Case No. 04-12-254 Alfredo J. Non versus Philippine Institute of Certified Public Accountants

SECURITIES AND EXCHANGE COMMISSION SEC Bldg, EDSA, Greenhills, Mandaluyong City Republic of the Philippines

ALFREDO J. NON,

Petitioner-Appellant.

PUBLIC ACCOUNTANTS, PHILIPPINE INSTITUTE OF CERTIFIED versus Respondent-Appellee. SEC En Banc Case No. 04-12-254

DECISION

dated 06 March 2012, the dispositive portion of which states as follows: Company Registration and Monitoring Department C`CRMD" of the Commission Before the Commission En Banc is an Appeal of the Decision of the

CERTIFIED PUBLIC ACCOUNTANTS, approved on 05 September 1996, is for the revocation of certificate of incorporation and annulment of the hereby DISMISSED for lack of jurisdiction." amended articles of incorporation of PHILIPPINE INSTITUTE OF "WHEREFORE, premises considered, the instant Petition praying

"Petitioner-Appellant"? filed its Notice and Memorandum of Appeal1 assailing CRMD's decision dated 06 March 2012 on the following grounds: (a) SEC has jurisdiction over petitions for revocation of certificate of incorporation, and (b) (hereinafter referred to as "Respondent-Appellee") was clearly established by documents obtained from Respondent-Appellee. fraud committed by the Philippine Institute of Certified Public Accountants On 02 April 2012, Mr. Alfredo J. Non (hereinafter referred to as

Appellee to file its Reply-Memorandum. On 24 April 2012, the Respondent- Appellee filed its Reply-Memorandum,2 arguing that (a) Petitioner-Appellant has On 10 April 2012, the Commission issued an Order requiring Respondent

1 Records, p. 67. 2 Id, p. 9i.

Alfredo J. Non v. Philippines Institute of Certified Public Accountants SEC En Banc Case No. 04-12-254 Page 2 of 11

no evidence sufficient and/or admissible to overcome the presumption of Amended Articles of Incorporation, and (b) the conflict between Petitioner- Appellant and Respondent-Appellee is an intra-corporate controversy which is within the jurisdiction of regular courts. regularity in the issuance of Respondent-Appellee's Certificate of Filing of

The relevant facts are narrated below.

Commission an application for the extension of its corporate life: for fifty (50) Respondent-Appellee certified under oath that: years or until 25 April 2047. In the Certificate of Amendment,3 the directors of corporate term of fifty (50) years or until 25 April 1997 and that it filed with the Respondent-Appellee was originally incorporated on 25 April 1947 with a

Board of Directors of the Association at their meeting on February 22, 1996: and 2. The said amendment was approved by a majority vote of the

members of the Corporation at their meeting heid on May 10, 1996. vote of the members owning and/or representing two thirds (2/3) of the 3. The same amendment was likewise approved by the affirmative

Respondent-Appellee's Articles of Incorporation, extending its corporate term. On 05 September 1996; the Commission approved the amendment of

March 2010, he inspected the corporate books and records of Respondent. Revocation of the Certificate of Incorporation and Annulment of the Amended Articles of Incorporation of Respondent-Appellee on the ground that the Certificate of Amendment submitted by its directors relative to the extension: of its corporate life was false and fraudulent. He alleged that on or around 24 Appellee and discovered that: On 18 July 2011, Petitioner-Appellant filed with the CRMD a Petition4 for

Appellee was never discussed nor approved during. the alleged 22 informed the directors that Respondent-Appellee's corporate term will February 1996 meeting of the Board of Directors. There was no board resolution to that effect. During the meeting, the president merely a. The matter of extending the corporate term of Respondent-

3 I, p. 32 4 Id, p. 46.

Alfredo.J. Non v. Philippines Institute of Certified Public Accountants SEC En Banc Case No. 04-12-254 Page 3 of 11

expire in 1996 and, thus, requested the legal counsel to work on the amendment;

to extend the corporate life of Respondent-Appellee during its 10 May 1996 meeting in Boracay Island, Aklan; b. The Board of Directors only approved the proposed amendment

no ratification by the members on the proposed extension as it was impossible that a members' meeting has taken place on 10 May 1996 because on the same date, Respondent-Appellee's Board of Directors and Officers, who should have presided over the meeting, were in Boracay Island, Aklan; c. There was no members' meeting and consequently, there was

and place of the meeting and the proposal to extend the corporate term of Respondent-Appellee. d. No notice was sent to the members to inform them of the time

"Minutes of the Meeting, 1996 National Board of Directors, held on February 22, the Certificate of Amendments as submitted by Respondent-Appellee to the 1996, 2:30 p.m." and "Minutes of Meeting of the 1996 National Board of Commission. Directors held on May 10, 1996, 9:00 p.m." which are allegedly referred to in Petitioner-Appellant also submitted photocopies of documents entitled

On 12 October 2011, Respondent-Appellee filed its Answer,5 alleging that:

consent or approval to have the term extended since the same is meeting, the issue on extension of term was brought up without any opposition interposed by the Members of the Board then present. The beneficial to respondent-appellee; absence of any objection during the meeting signifies the Board's implied a. As can be gleaned from the Minutes of the 22 February 1996

board merely confirmed or reaffirmed the already approved amendment extending Respondent-Appellee's term for another.fifty (50) years; b. During the 10 May 1996 meeting in Boracay Island, Aklan, the

members are not the officers and board members in 1996, the time when representation in the Certificate of Amendments as its incumbent belief as to the veracity of the. allegations of false and fraudulent c. Respondent-Appellee has no knowledge sufficient to form a

5 Id, p. 13.

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documents to the present board members; the questioned amendment was presented and approved by the Commission. Likewise, the former board and officers did not turn-over the

the conduct of meeting, notice and quorum. Thus, beyond the jurisdiction controversy since it centers on the legality or validity of the amendment process extending the corporate charter, which includes the regularity of of this Commission; and d. The issue raised partakes the nature of intra-corporate

years wherein laches had already set in. e. Petitioner-Appellant filed the instant case after fifteen (15) long

On 14 November 2011, Petitioner-Appellant filed his Reply, alleging that:

approved the extension of its corporate term; admission that there was indeed no board resolution approving the February 1996 meeting which will show that the board of directors during the 22 February 1996 meeting to have its term extended is an extension of corporate term. Implied consent is not a valid ground for corporate action or approval. There is nothing in the Minutes of the 22 a. Respondent-Appellee's claim of implied consent or approval

approved for the first time on 10 May 1996 meeting. There is nothing in the Minutes of the 10 May 1996 meeting which will show that the Board of Directors approved the extension of its corporate term; b. The extension of corporate term of Respondent-Appellant was

incumbent members were not yet officers and board members in year well as its current officers and trustees regardless of the claim that the 1996 omission of its officers and board members will bind the organization as c. Respondent-Appellee is a continuing entity and the acts and

Certificate of Incorporation on the ground of fraud in procuring the same; ad d. The Commission has jurisdiction over revocation of amended

cure an act that is fraudulent and void ab initio. Further, Petitioner- Appellant only came to know of the fraudulent misrepresentation by Respondent-Appellee when he inspected its corporate books and records e. The defense of laches is not applicable because laches cannot

6 Id, p. 9.

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on 24 March 2010. He filed the instant case for revocation after a year and four months from the discovery of fraud.

to attend all the meetings of Respondent-Appellee including the annual meetings Appellant contended that he is:a member of good standing of Respondent- Appellee since 1968 including the time when the supposed 22 February 1996 and subsequent to the 12" December 1996 meeting, as stated in Respondent- Appellee's 1996 General Information Sheet. 10 May 1996 meetings were held. He conceded, however, that he was not able During the preliminary conference held on 02 December 2011, Petitioner

authenticity of the subject Minutes of the Meetings submitted by Petitioner- ago since there was no formal turn-over of records by its previous board of Appellant. It maintained that the current board of directors has no knowledge of the actual conduct of said meetings which were held approximately fifteen years directors or officers. Respondent-Appellee, on the other hand, denied the existence and

issues that must be threshed out. members of the board of directors and officers alleging that there are factual Petitioner-Appellant moved for the issuance of subpoena against the past

to the registration, the CRMD pointed out that Petitioner-Appellant failed to of jurisdiction. Citing the Commission's power to investigate and revoke the corporate term. It further discussed that the heart of the controversy goes with the acts or omissions of the board of directors, the conduct of meetings and all overcome the presumption of regularity of the duly notarized Certificate of Amendments submitted to the Commission by Respondent-Appellee. It explained that the Minutes of the Meetings relied upon by Petitioner-Appellant does not offer any clear indication that there was fraud in. procuring the extension of acts that transpire within the corporate board room, which are intra-corporate controversies outside the jurisdiction of the Commission. approval it has given for a particular application on the ground of fraud attendant On 7 March 2012, the CRMD issued a Decision dismissing the case for lack

Hence, the instant appeal.

Alfredo J. Non v. Philippines Institute of Certified Public Accountants SEC En Banc Case No. 04-12-254 Page 6 of 11

ISSUE

have been fraudulently procured should be revoked. of Incorporation extending Respondent-Appellee's corporate term and alleged to The pertinent issue to be resolved is whether or not the Amended Articles

RULING

occasion to discuss the importance of a corporation's term of existence, viz - In Benguet Consolidated Mining Co. v. Pineda," the Supreme Court had

of life of associations, since the conferment of juridical capacity upon And the State is naturally interested that this privilege be enjoyed only under the conditions and'not beyond the period that it sees fit to grant; corporate existence) to a definite period is an exercise of control in the interest of the public. them during such period is a privilege that is derived from statute. other parties; and for this reason, it has been ruled that 'the limitation (of and particularly, that it be not abused in fraud and to the detriment ofl The State and its officers also have an obvious interest in the term

corporation's term of existence in a sense that it is also a privilege acquired and enjoyed only under the conditions of the law. Similarly. the State has a continuing interest in the extension of a

including "fraud in the procurement of certificate of registration.Bn The bone of revoke the approval it has given for a particular application on certain grounds, contention, however, is if there are sufficient grounds therefor. found to be non-compliant with the requirements of the law. As pointed out by CRMD itself in its Decision, the Commission has the power to investigate and The Commission has jurisdiction to cancel or revoke any amendment

the documents and/or papers presented to the Commission for the registration attendant in the registration and the same must be contained or connected with The fraud contemplated in Presidential Decree No. 902-A refers to fraud

7 98 Phil 711 (1956): % Section 5(a) and (c), Securities Regulation Code and Section 6 (i), Presidential Decree No. 902- A, as amended.

Alfredo J. Non v. Philippines Institute of Certified Public Accountants SEC En Banc Case No. 04-12-254 Page 7 of 1

of the said corporation, partnership or association.9 Accordingly, the pertinent issue at hand is whether or not the amendment to the Articles of Incorporation of respondent-appellee, approved on 05 September 1996, was fraudulently obtained and/or non-compliant with the requirements of the law.

the amendment of articles of incorporation, viz - Section 16 of the Corporation Code provides the formal requirements for

Ieast two-thirds (2/3) of the members if it be a non-stock or changes made, and a copy thereof duly certified under oath by otherwise prescribed by this Code or by special iaw, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of at provisions required by law to be set out in the articles of incorporation. Such articles, as amended shall be indicated by underscoring the change the corporate secretary and a majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Securities and Exchange Commission. x x x (Emphasis Supplied). corporation Sec. 16. Amendment of Articles of Incorporation. :- Unless The original and amended articles together: shall contain al

corporation to act as a juridical being endowed with the powers expressiy Section 37 of the Corporation Code, which is primarily applicable to the case at bestowed by the State and as such, it is not just an ordinary amendment. Thus, hand, must also be considered, viz - However, an extension of corporate term is a grant of fresh license for a

notice of the proposed action and of the time and place of the meeting corporation may extend or shorten its term as stated in the articles of incorporation when approved by a majority vote of the board of directors or trustees and ratified at a meeting by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two- thirds (2/3) of the members in case of non-stock corporations. Written Sec. 37. Power to Extend or Shorten Corporate Term. -- A private

% In the Matter of Charlyn Marketing Enterprise Corporations, SEC Case No. 03-05-49.

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stockholder may exercise his appraisal right under the conditions addressee in the post office with postage prepaid, or served personally: provided in this Code. shall be addressed to each stockhoider or member at his'place of residence as shown on the books of the corporation and deposited to the Provided, That in case of extension of corporate term, any dissenting

corporate term should be approved by the required two-third (2/3) vote of the outstanding capital stock or members. The above provision being mandatory. mere assent will not suffice.1t From the foregoing, it is therefore necessary that the extension of

and at least two-thirds (2/3) vote of the members in separate meetings held for that purpose. It was signed by the majority of the directors including the Respondent-Appellee's amendment for the extension of corporate term has been the corporate term was approved by the majority vote of the Board of Directors corporate secretary and certified under oath before a notary public. compliant with the requirements of Sections 16 and 37 of the Corporation Codel The reguired Certificate of Amendments certifies that the amendment extending Corollary thereto, records on file with the Commission show that

certificates of the. members of the Board and corporate secretary as to Respondent-Appellee's dealings with the Commission is presumed. Respondent-Appellee's compliance with the provisions of the Corporation Code Amendments submitted by Respondent-Appellee with the Commission enjoys the presumption of regularity and is, by law, entitled to full faith and credit upon its face. In fact, jurisprudence dictates that notarial documents, celebrated with all the legal requisites under the safeguard of a notarial certificate, is evidence of a high character.11 It is prima facie evidence of the truth of the facts stated therein document making it admissibie in evidence without further proof of authenticity. Accordingly, regularity in the execution of the documents submitted as well as and a conclusive presumption of its existence and due execution.12 The act of] notarization by a notary public converts a private document into a public on amendments. Being a. duly notarized document, the Certificate of The Commission, through the CRMD, is constrained to rely on said sworn

12"Ocampo V."Landbank of the Philipines, G.R. No.164968, July 3, 2009, citing Santos v. 1 Rosario Lopez, The Corporation Code of the Philippines, Book 2, page 523, 1994. Lumbao, G.R. No. 169129, March 28, 2007, 519 SCRA 408, 426-427. 11 Mendezona v. Philippine Sugar Estates.Development Co., 41 Phil. 475

Alfredo J. Non v. Philippines Institute of Certified Public Accountants SEC En Banc Case No. 04-12-254 Page 9 of 11

clear and convincing.13 Absent such evidence, the presumption must be upheld. In P.T. Cerna Corporation vs. Court of Appeals, 14 the Supreme Court held that its favor, the evidence must be clear, convincing and more than merely "to contradict facts in a notarial document and the presumption of regularity in preponderant." To overcome this presumption, there must be presented evidence that is

and the evidence submitted by Petitioner-Appellant fails to overcome the presumption of regularity and truthfulness of the statements contained in the sworn certificates submitted by Respondent-Appellee. evaluated the evidence presented before it as well as the records on file'with the Commission. In the Assailed Decision, the CRMD finds that the allegations made .In the instant case, the CRMD, as shown in the Assailed Decision,

having alleged the contrary, failed to present clear and convincing evidence sufficient to overcome the presumption of regularity and truthfuiness of the following reasons: statements contained in the notarized Certificate of Amendment, for the We agree that Petitioner-Appellant, upon whom the burden of proof rests

other than the original document itself.15, The reason for requiring are not altered or tampered. photocopied .Minutes of the Meetings of 22 February 1996 and 10 May 1996. Well-settled is the rule that "when the subject of inquiry is the contents of a document, no evidence shall be admissible the original document is to ensure that the contents of the same (a) Petitioner-Appellant solely relies on the contents of the

Meetings relied upon by Petitioner-Appellant are admissible, it does fraud and misrepresentation must be proved by clear and convincing evidence, mere preponderance of evidence is not not offer any clear indication that the amendment of the Articles of Incorporation extending the corporate - term of Respondent Appellee was tainted with fraud. Jurisprudence dictates that acts of (b)Even assuming that the photocopied Minutes of the

14 G.R. No. 91622. April 6, 1993. 15 Rule 130, Section 3, Rules of Court. 13 d

Alfredo J. Non v. Philippines Institute of Certified Public Accountants SEC En Banc Case No. 04-12-254 Page 10 of 11

adequate.16. The rule is that one who alleges a fact has the burden of proving it.17

Minutes of the Meeting expressly states that the Board approved the amendments to the Articles of Incorporation extending Meeting does not categorically state that the amendment was voted upon, the same alone is not convincing proof that no Board Respondent- Appellee's corporate life. approval was obtained. At any rate, the purported 10 May 1996 While the purported 22 February 1996 Minutes of the

because the directors were in Boracay, still this is not sufficient to Amendments, particularly the approval by two thirds (2/3) vote of meeting without Directors is valid would be an intra-corporate rebut or thwart the presumption engendered by the Certificate of the members of the Corporation of the extension of corporate term separate meeting without the Directors. Whether or not such This does not mean that the members could not have conducted a dispute, which is outside of the Commission's jurisdiction. As to the allegation that there was no members' meeting

ground of fraud in the procurement of Certificate of Registration. support the amendments made by Respondent-Appellee are presumed to be regular. Unless proven otherwise by clear and convincing evidence, there is no valid ground to revoke Respondent-Appellee's Certificate of Registration on the Accordingly, absent any indication of fraud, the documents presented to

members to inform them of the time and place of the meeting and the proposal to extend the corporate term of Respondent-Appellee, the same does not point to fraud in the procurement of certificate of registration but to an intra-corporate or association controversy which is outside the jurisdiction of the Commission. Note, that the Commission's jurisdiction over controversies arising out of intra- corporate or association relations between and among members; between any or all of them and the association of which they are members prior to the As to Petitioner-Appellant's allegations that no notice was sent to the

16 Sampaco v. Lantud, G.R. No. 163551, 18 Juty 2011; Palada v. Solidbank Corp., G.R. No. Services Center, Inc., G.R. No. 168664, May 4, 2006. 17 Exodus International Construction Corp. et al. v. Biscocho, G.R. No. 166109, February 23, 2011; Basay v. Hacienda Consolacion, G.R. No. 175532, April 19, 2010; Machica v. Roosevelt 172227, 29 June 2011.

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appropriate regional trial court.19 enactment of Securities and Regulations Code18 has since been transferred to the

DENIED for lack of merit. WHEREFORE, premises considered, the instant appeal is hereby

SO ORDERED.

Mandaluyong City, 06 December 2012.

TERESITA J. HERBOSA Chairperson

Ma. JUaNIta/E. cuato Commissioner MANUEL HUBERTO B. GAITE* Commissioner

CAwM ElAdIO M. JaLa (missioner ANTONIETA FORTUNA-IBE Commissioner

*On official leave.

18 R.A. 8799 took effect 9 August 2000. 19 SRC, Section 5.2.