MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L. JOCSON, JR., MELVIN S.

JURISPRUDENCIA, AUGUSTUS CESAR AZURA and EDGARDO D. PABALAN, petitioners,

vs.

COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, TORMIL REALTY & DEVELOPMENT
CORPORATION, ANTONIO P. TORRES, JR., MA. CRISTINA T. CARLOS, MA. LUISA T. MORALES, and
DANTE D. MORALES, respondents.

G.R. No. 120138. September 5, 1997

FACTS:

Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty & Development
Corporation (TRDC). TRDC is a small family owned corporation and other stockholders thereof include
Judge Torres’ nieces and nephews. However, even though Judge Torres owns the majority of TRDC and
was also the president thereof, he is only entitled to one vote among the 9-seat Board of Directors,
hence, his vote can be easily overridden by minority stockholders. So in 1987, before the regular election
of TRDC officers, Judge Torres assigned one share (qualifying share) each to 5 “outsiders” for the purpose
of qualifying them to be elected as directors in the board and thereby strengthen Judge Torres’ power
over other family members.

However, the said assignment of shares were not recorded by the corporate secretary, Ma. Christina
Carlos (niece) in the stock and transfer book of TRDC. When the validity of said assignments were
questioned, Judge Torres ratiocinated that it is impractical for him to order Carlos to make the entries
because Carlos is one of his opposition. So what Judge Torres did was to make the entries himself
because he was keeping the stock and transfer book. He further ratiocinated that he can do what a mere
secretary can do because in the first place, he is the president.

Since the other family members were against the inclusion of the five outsiders, they refused to take
part in the election. Judge Torres and his five assignees then decided to conduct the election among
themselves considering that the 6 of them constitute a quorum.

ISSUE:

Whether or not the inclusion of the five outsiders are valid. Whether or not the subsequent election is
valid.

HELD:

NO. The assignment of the shares of stocks did not comply with procedural requirements. It did not
comply with the by laws of TRDC nor did it comply with Section 74 of the Corporation Code. Section 74
provides that the stock and transfer book should be kept at the principal office of the corporation. Here,
it was Judge Torres who was keeping it and was bringing it with him. Further, his excuse of not ordering
the secretary to make the entries is flimsy. The proper procedure is to order the secretary to make the
entry of said assignment in the book, and if she refuses, Judge Torres can come to court and compel her
to make the entry.Entries made on the stock and transfer book by any person other than the Corporate
Secretary, such as those made by the President and Chairman, cannot be given any valid effect. There
are judicial remedies for this. Needless to say, the subsequent election is invalid because the assignment
of shares is invalid by reason of procedural infirmity. The Supreme Court also emphasized: all
corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple family
corporation is not an exemption. Such corporations cannot have rules and practices other than those
established by law.