Vergne Roig v. Superior Court of Mayagüez
Vergne Roig v. Superior Court of Mayagüez
Opinion of the Court
delivered the opinion of the Court.
Cervecería Real, Inc. is a corporation engaged in the
On December 14, 1953, the date fixed in the by-laws or regulations of the corporation for the annual meeting of stockholders, the same was commenced and held in the presence and with the participation of a group of stockholders who held a total of 1658 shares, the total number of outstanding shares being 5,548. According to the stock books the spouses Alberto I. Alvarez and Lydia Fajardo de Alvarez had 1713 shares each in their own name, that is, 3,426 shares together. They neither appeared nor took part in the meeting, in compliance with a judicial order rendered in a litigation pending between them.- At any rate, at the annual meeting of December 14, 1953, less than V5 of the outstanding shares of the corporation was represented and therefore, no quorum was constituted as required by § 2 of Article 1 of the By-laws of the corporation, which reads:
“Sec. 2. Quorum. Except as hereinafter provided, the presence in person or by proxy of the holders of 4/5 of the outstanding- stock entitled to vote shall be necessary to constitute a quorum for the transaction of business, but a lesser number may adjourn to some future time not less than nor more than ten days later, and the Secretary shall thereupon give at least five days notice by mail to each stockholder entitled to vote who was absent from such meeting. In the event that quorum is not constituted in consequence of the second notice, the meeting shall adjourn to some future date not less than .nor more than fifteen days later and the Secretary shall thereupon give at*24 least five days notice by registered mail with acknowledgment receipt to each stockholder entitled to vote who was absent from such meeting. The Secretary shall in this last notice inform the stockholders that any number of stockholders present on such date will constitute quorum for transaction of business.”
Notwithstanding the fact that at the annual meeting of December 14, 1953, the required quorum was not constituted and that two of the stockholders present raised the question of quorum, the holders of a majority of the 1658 shares represented therein held the meeting, overruling the question of quorum and electing the stockholders Alberto I. Alvarez, Lydia Fajardo de Alvarez, Mario Escudero, José A. Ponce and Gabriel C. Soler as directors of the corporation. The meeting was closed without adjourning to some future date. Some of the stockholders, who are the interveners herein, thereafter contested this meeting in writing.
Immediately after the meeting, three of the “directors” elected, to wit, Gabriel C. Soler, Mario Escudero and José A. Ponce, met and appointed Gabriel C. Soler general manager of the corporation to take possession of such office immediately.
On December 19, 1953, the Secretary of the corporation, Enrique Córdova Diaz, sent the following notice to the stockholders :
“I hereby summon you as a stockholder of Cervecería Real, Inc. for the regular annual meeting of stockholders to be held on December 24, 1953, at the main office of the corporation in Mayagiiez, Puerto Rico, at 2 P. M. of said day. This meeting is called pursuant to the By-laws of the corporation inasmuch as there are doubts as to the regular annual meeting of stockholders held on December 14, 1953, insofar as quorum is concerned.”
On December 24,1953, a second meeting was held. Again there was no quorum, since only 1438 shares were represented inasmuch as the aforesaid judicial order was still in force. In that meeting the stockholders present ratified the agree-
When Soler attempted to take possession of the office to which he had been appointed, he was prevented from so doing because Pedro Vergne Roig, who had been previously appointed by the former Board of Directors for that same position, refused to surrender possession of the plant, properties, books, seal and documents of the corporation. An
Defendant Vergne Roig appeared and alleged, in brief, that Soler’s appointment was illegal and that the board which appointed him was an illegal board, setting forth the facts we have pointed out to prove said illegality. A group of stockholders who were absent at the three meetings of December 14 and 24, 1953, and of January 8, 1954, and who
The case was heard, and the Mayagüez Part rendered judgment sustaining the complaint and ordering Vergne Roig to surrender his position and the properties of the corporation to Soler and prohibiting Vergne Roig from continuing in the exercise of the functions of his' office and enjoining Vergne Roig and the interveners from performing any act that might prevent the corporation, through Soler, from taking charge of its properties and business. In its conclusions of law, the lower court held that the Board of Directors elected on January 8, 1954, “has the control and management of the matters and business of Cervecería Real, Inc. and that they represent the corporation in that capacity” ; that the Board had appointed Soler as general manager and had the right, which it exercised, to remove Vergne Roig upon appointing Soler to his position; that the corporation has the right to the free administration *of its business through the board elected on January 8, 1954, and through the new manager Soler, it being therefore entitled to remove Vergne Roig; that it is unnecessary to consider or determine the validity or illegality of the Board of Directors elected on January 8, 1954, “inasmuch as the directors thus
Vergne Roig and the interveners, petitioners herein, have appealed from said judgment to this Court, filing also a petition for certiorari. We issued the corresponding writ, and we now conclude that the judgment challenged in this certiorari proceeding must be annulled and set aside.
At the outset we must dispose of a preliminary question. The petitioners herein, defendants in the action of injunction, (a group of stockholders backing Vergne Roig) allege that the injunction is not the proper remedy to settle controversies between rival groups of directors, involving the legality of the directors’ election. Irrespective of the fact that in the trial court all the parties stipulated that their controversy should be settled in an injunction proceeding, we shall consider the question on the merits. It is true that, as a general rule, a court of equity has no inherent power to consider, by means of an injunction proceeding, contests between rival boards of directors and officers with respect to the validity of the election and appointment of such directors and officers, injunction not being generally the proper remedy to try the title to such an office. 13 Am. Jur. 861, 866, §§ 874, 882; Cook, Corporations, 6th ed., Vol. 2, ¡op. 1686, 1687, § 618; Fletcher, Cyclopedia of Corporations, permanent ed., Vol. 2, p. 132, § 367. On the other hand, if the action for injunction is based on other grounds inherent in such an action of injunction, and the questions concerning the validity of such elections are merely incidental to those grounds which constitute the main relief sought, the action for injunction then lies even if it is necessary to determine the incidental question regarding the validity of such elections or appointments. 13 Am. Jur.
The Mayagüez Court held that it was unnecessary to determine the validity of the meeting of January 8, 1954, and therefore, the validity of the meetings of December 14 and December 24, 1953, because as a matter of fact, a meeting had been held on January 8, 1954, and as a matter of fact, a board of directors had been elected therein, where a majority of the directors had appointed Soler as general manager; that in view thereof, the directors elected on January 8 were and are de facto directors,-“and as such their acts are valid insofar as the corporation and its stockholders and employees are concerned,” and are binding on the corporation and, as de facto directors, their status and the validity of their positions can not be collaterally attacked in this proceeding. However, the circumstances of this case offer several unsurmountable obstacles to the application herein of the doctrine of “de facto officers.”
The doctrine regarding “de facto officers” of a corporation and the fact that their acts are binding on a third person is introduced into the laws as a matter of public policy and necessity. When through a reasonably continuous
The doctrine of “de facto corporate officers” covers only the relations between those officers and third persons, to establish the obligations of the corporation to those third persons. 13 Am. Jur. 862; Fletcher, op. cit. pp. 144, 148, 159; 19 C.J.S. 76, 77, § 739; Mortgage Land Inv. Co. v. McMains, 215 N. W. 192; Lazenby v. Henderson, 135 N. E. 302. But that doctrine is not applicable in contests between rival boards of directors, or between rival groups of officers, or in contests between the corporation or its stockholders and a group of directors, the acts of the so-called de facto officers not being binding as to conflicting interests within the corporation. 19 C.J.S. 76, 77; Ellsworth Woolen Mfg. Co. v. Faunce, 10 Atl. 250; Stratton Mass. Gold Mines Co. v. Davis, 111 N.E. 375; Schmidt v. Mitchell, 41 S. W. 929; Mortgage Land Inv. Co. v. McMains, supra; Fletcher, op cit., p. 166, § 388. De facto directors can not, against the corporation itself, delegate powers which they themselves do not
The rule that the acts of the de facto officers are binding on third persons is not applicable unless it is shown that the officers have actually exercised their functions as such, and have been in the actual possession of the office during a reasonably uninterrupted period of time, since it is such more or less continuous acts which create the appearance or color of authority which induces people to believe that the title of those officers is valid. Fletcher, op. cit., pp. 145, 147, § 372; 19 C.J.S. 78, § 740; Lazenby v. Henderson, supra; Conaty v. Torghen, 128 A. 338; Consumers Salt Co. v. Riggins, 208 Cal. 537; Independence Land Co. v. Kingsbury, 175 F. 2d 983. The directors who are alleged to be officers de facto must have been in charge of the matters of the corporation, as a question of fact. Fernández v. District Court, 71 P.R.R. 149; Fletcher, op. cit., p. 147. They will not be de facto officers if they have not been in the possession or control of the seals, books, documents or properties of the corporation, or if they have not taken possession of the place which is reputed to be the corporation’s office. Fletcher, op. cit. p. 147; Waterman v. Chicago Ry. Co., 29 N. E. 689. The requirement of actually holding the position for a reasonably continuous period has not been fulfilled in the case at bar.
The reason of the rule of estoppel, as to de facto officers, is based on the validity of the acts of the “officers”, on the
In their brief, plaintiffs and interveners contend that the suit filed in the Mayagüez Court has all the characteristics of a possessory injunction, and that the controversy should then be limited to the fact itself of the possession of the corporate properties and not to the right of possession. This is not a possessory injunction of real property, but the classical injunction. Plaintiffs have not alleged or shown that they have been in the possession of the properties and the business during the year prior to the complaint. Precisely what they pray for is that possession be granted, and the question of the right to possession is raised in the complaint. In the usual injunction proceeding, like the one herein, the validity of the title of Soler and of the directors who appointed him may be tried.
Therefore, it is necessary to consider the validity of the stockholders’ meeting held on January 8,' 1954, and the legality of the election of directors which took place at said meeting. The legality of the election of January 8 depends on the validity of the meeting of December 14, 1953, and especially on whether the meeting was adjourned in a legal manner. If the meeting of December 14 was adjourned to a future date because of lack of quorum, pursuant to by-laws of the corporation, the meetings of December 24, 1953, and of January 8, 1954, must be considered as a continuation of the meeting of December 14, legally adjourned to a future date, and the resolutions adopted in the meeting of January 8, when a quorum was in attendance would be valid, since the meeting of January 8 would have been legally constituted. Sagness v. Farmers Co-operative Creamery Co., 293 N. W. 365; Vogel v. Parker (New Jersey), 193 Atl. 817, 818; Atterbury v. Consolidated Coppermines Cor-
Pursuant to the bylaws of the corporation the annual meeting of stockholders necessarily had to take place on December 14,1953. The provision of the bylaws requiring that the annual meeting be held on that date was mandatory. Steinberg v. Am. Bantam Car. Co., 76 F. Supp. 426. The provision in the bylaws requiring a quorum of four fifths of the outstanding stocks in the annual meeting of December 14 was also mandatory and essential. 13 Am. Jur. 521, § 480 As a matter of fact and irrespective of what was the cause of such situation, in the meeting of December 14 the quorum required by the bylaws was not present. Therefore, the stockholders who were present therein had no legal power to act or to adopt any resolution, with the sole exception of the resolution adjourning the session to a future date. Kauffman v. Meyberg, (Cal.) 140 P. 2d 210; Davidson v. American Paper Mfg. Co., 175 So. 753; Thompson, op. cit. Vol. 2, p. 297 et seq., § 935; Fletcher, op. cit., Vol. 5, 1952 rev. ed., p. 78 et seq., § 2013. In the absence of a quorum, the meeting was not legally organized. Davidson v. American Paper Mfg. Co., supra. The election of directors in a meeting where the corresponding quorum was not present was not valid. Hill v. Town, 128 N. W. 334. Pursuant to the terms of the bylaws, which we have copied, the resolution to adjourn the session, and the setting of a future date for the next meeting as a continuation of that of December 14, was an exclusive function of the stockholders present at the meet
In the case at bar, when the meeting was commenced on December 14, 1953, and no quorum was present, some of the stockholders raised the question of absence of quorum and
It could be alleged that from the standpoint of intrinsic justice the omission of the stockholders who met on December 14 to adjourn the meeting to a future date constitutes a mere technical irregularity which should yield to the reality that subsequent meetings were held on dates consistent with the bylaws and to the reality that the directors who appointed Soler were elected by a majority of the stockholders. But this is a case where the greater justice is better guaranteed by the fulfillment of the provisions of the bylaws. Those provisions have their reason of being. The best rule is to require that the holding of a future meeting be decided by the stockholders present at the meeting lacking a quorum. It would be a dangerous precedent to allow a ministerial officer of the corporation to have the legal power to make any decision as to that particular, in the absence
Our refusal to give legal effect to the erroneous proceeding followed in this case, does not imply that the stockholders who back Soler are left without a safeguard. If a valid annual meeting can not be held, the former directors must continue in their positions until their successors are validly elected, but in that case the former directors are under the obligation to convene a new meeting within a reasonable period of time after the date the annual meeting should have been held, and if they refuse to do so, the stockholders concerned may bring a judicial action, for example, an action of mandamus, to compel the directors to isssue the call or give the proper notice for a meeting. 13 Am. Jur. 516; Steinberg v. Am. Bantam Car. Co., supra; People v. Cummings, 72 N. Y. 433; Thompson, op. cit.,
The judgment rendered by the Mayagüez Part on January 28, 1954, will be rendered void and set aside.
Case-law data current through December 31, 2025. Source: CourtListener bulk data.