Makati Sports Club, Inc. vs.

Cheng 621 SCRA 103 , June 16, 2010

Facts:

On October 20, 1994, Makati Sports Club (MSCI) through its BOD adopted a resolution
authorizing the sale of 19 unissued shares of Class A and Class B.

Defendant Cheng was the Corporate treasurer and Director.

On July 7, 1995, Hodreal expressed his interest to buy a share and requested that his name be
included in the waiting list.

Sometime in November 1995, McFoods Inc. expressed its interest in acquiring a share.
McFood was able to buy the Class A shares from petitioner in the amount P1,800,000.
Payment for the share was made on November 28, 1995. The Deed of Absolute Sale was
executed on December 15, 1995 and the stock certificate was issued on January 5, 1996.

By December 27, 1995, McFood sent a notice to petitioner that it was offering to resell the
stock for P 2,800,000.

It appear that while the sale between petitioner and McFood was under negotiation, there was
also an ongoing negotiation between McFoods and Hodreal.

On November 24, 1995, Hondreal paid McFoods P1,400,000 and another payment in the
amount of P1,400,00 was made on December 27, 1995.On January 29, 1996, McFoods and
Hodreal executed a Deed of Sale for the same share of stock.

Only on February 7, 1996 was petitioner was advised of the sale between McFoods and
Hodreal. A new certificate of stock was issued upon request.

However, Cheng had been accused of profiteering from the said transaction upon an
investigation conducted. Petitioner alleged that Cheng and McFoods confabulated with one
another at the expense of MSCI.

Thus, petitioner filed against Cheng and demanded to pay P1,000,000 as amount allegedly
defrauded with damages.

RTC: dismissed the complaint

CA: affirmed RTC decision

Petiitoner: Cheng in collaboration with McFoods committed fraud in transacting the transfers
involving Stock Certificate No. A 2243. Cheng is alleged to provide insiders information as to
the status of the shares and facilitated the transfer by doctoring the books to give a
semblance of regularity to the transfer. McFoods never intended to become a legitimate holder
of Class A shares but did so for the purpose of realising a profit in the amount of P1,000,000 at
the expense of the petitioner.

Issue: Whether McFoods can validly sold his MSCI share prior to the issuance of the
certificate of sale

Held: Yes

Assuming the intention of McFoods was to speculate on the price of the share of stock when it
tendered payment on November 28, 1995, it had all the right to negotiate and transact, at least
on the anticipated and expected ownership of the share, with Hodreal.

There is nothing wrong with the fact that the first payment/installment made by Hodreal to
McFoods preceded or came earlier than the payment made McFoods to MSCI for the same
share of stocks because eventually McFoods became the owner of Class A share covered in
Certificate A2243.

Upon the payment by McFoods of P1,800,000 to MSCI and the execution of the Deed of
Absolute Sale on December 15, 1995, McFoods then had the right to demand the delivery of
stock certificate in his name. The right of a transferee to have the stocks transferred to its
name is an inherent right flowing from its ownership.

Petitioner’s stance that McFoods violated its By-Laws on its pre-emptive right is not correct as
McFoods offered to sell the shares to MSCI on December 27, 1995 for the latter to exercise his
right of first refusal. It had legally have the right to do so by virtue of the payment made by
McFoods and the execution of the Deed of Absolute Sale even if the certificate was issued on
January 1996.

The certificate of stock is the paper representative or tangible evidence of the stock itself and
of the various interests therein. The certificate is not a stock in the corporation but is merely
evidence of the holder’s interest and stars in the corporation , his ownership of the share
represented thereby. It is not in law, the equivalent of such ownership. It expresses the contract
between the corporation and the stockholder, but is not essential to the existence of a share of
stock or the nature of the relation of the shareholder tot he corporation.

Therefore, McFoods properly complied with the requirement of Sec30(e) of the Amended By-
Laws on MSCI’s pre-emptive right. Petitioner failed to purchase the share within 30 days from
receipt of notice. It was only on January 29,1996 or 32 days after December 28, 1994 when
McFoods and Hodreal executed the Deed of Absolute Sale.

Registration of McFoods as owner is not essential as it is only a ministerial upon the buyer’s
acquisition of ownership. The corporation cannot create restrictions in stock transfers.

Petitioner’s allegation of Cheng’s fraudulent act was not supported by evidence. The mere fact
of receiving payment from Hodreal in behalf of McFoods or claiming the certificate do not
show badges of fraud.