SECOND DIVISION

G.R. No. 131394 March 28, 2005

JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES, Petitioner,
vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, DOLORES ONRUBIA, ELENITA
NOLASCO, JUAN O. NOLASCO III, ESTATE OF FAUSTINA M. ONRUBIA, PHILIPPINE MERCHANT
MARINE SCHOOL, INC., Respondents.

DECISION

TINGA, J.:

Presented in the case at bar is the apparently straight-forward but complicated question: What should be
the basis of quorum for a stockholders’ meeting—the outstanding capital stock as indicated in the articles
of incorporation or that contained in the company’s stock and transfer book?

Petitioners seek to nullify the Court of Appeals’ Decision in CA–G.R. SP No. 414731 promulgated on 18
August 1997, affirming the SEC Order dated 20 June 1996, and the Resolution2 of the Court of Appeals
dated 31 October 1997 which denied petitioners’ motion for reconsideration.

The antecedents are not disputed.

In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred
(700) founders’ shares and seventy-six (76) common shares as its initial capital stock subscription
reflected in the articles of incorporation. However, private respondents and their predecessors who were
in control of PMMSI registered the company’s stock and transfer book for the first time in 1978,
recording thirty-three (33) common shares as the only issued and outstanding shares of PMMSI.
Sometime in 1979, a special stockholders’ meeting was called and held on the basis of what was
considered as a quorum of twenty-seven (27) common shares, representing more than two-thirds (2/3)
of the common shares issued and outstanding.

In 1982, the heirs of one of the original incorporators, Juan Acayan, filed a petition with the Securities and
Exchange Commission (SEC) for the registration of their property rights over one hundred (120)
founders’ shares and twelve (12) common shares owned by their father. The SEC hearing officer held that
the heirs of Acayan were entitled to the claimed shares and called for a special stockholders’ meeting to
elect a new set of officers.3 The SEC En Bancaffirmed the decision. As a result, the shares of Acayan were
recorded in the stock and transfer book.

On 06 May 1992, a special stockholders’ meeting was held to elect a new set of directors. Private
respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992
stockholders’ meeting, alleging that the quorum for the said meeting should not be based on the 165
issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital
stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation. The
petition was dismissed.4 Appeal was made to the SEC En Banc, which granted said appeal, holding that
the shares of the deceased incorporators should be duly represented by their respective administrators
or heirs concerned. The SEC directed the parties to call for a stockholders meeting on the basis of the
stockholdings reflected in the articles of incorporation for the purpose of electing a new set of officers for
the corporation.5

Petitioners, who are PMMSI stockholders, filed a petition for review with the Court of Appeals.6 Rebecca
Acayan, Jayne O. Abuid, Willie O. Abuid and Renato Cervantes, stockholders and directors of PMMSI,
earlier filed another petition for review of the same SEC En Banc’s orders. The petitions were thereafter
consolidated.7 The consolidated petitions essentially raised the following issues, viz: (a) whether the
basis the outstanding capital stock and accordingly also for determining the quorum at stockholders’
meetings it should be the 1978 stock and transfer book or if it should be the 1952 articles of
incorporation; and (b) whether the Court of Appeals "gravely erred in applying the Espejo Decision to the
benefit of respondents."8 The "Espejo Decision" is the decision of the SEC en banc in SEC Case No. 2289
which ordered the recording of the shares of Jose Acayan in the stock and transfer book.

The Court of Appeals held that for purposes of transacting business, the quorum should be based on the
outstanding capital stock as found in the articles of incorporation.9 As to the second issue, the Court of
Appeals held that the ruling in the Acayan case would ipso facto benefit the private respondents, since to
require a separate judicial declaration to recognize the shares of the original incorporators would entail
unnecessary delay and expense. Besides, the Court of Appeals added, the incorporators have already
proved their stockholdings through the provisions of the articles of incorporation.10

In the instant petition, petitioners claim that the 1992 stockholders’ meeting was valid and legal. They
submit that reliance on the 1952 articles of incorporation for determining the quorum negates the
existence and validity of the stock and transfer book which private respondents themselves prepared. In
addition, they posit that private respondents cannot avail of the benefits secured by the heirs of Acayan,
as private respondents must show and prove entitlement to the founders and common shares in a
separate and independent action/proceeding.

In private respondents’ Memorandum11 dated 08 March 2000, they point out that the instant petition
raises the same facts and issues as those raised in G.R. No. 13131512, which was denied by the First
Division of this Court on 18 January 1999 for failure to show that the Court of Appeals committed any
reversible error. They add that as a logical consequence, the instant petition should be dismissed on the
ground of res judicata. Furthermore, private respondents claim that in view of the applicability of the rule
on res judicata, petitioners’ counsel should be cited for contempt for violating the rule against forum-
shopping.13

For their part, petitioners claim that the principle of res judicata does not apply to the instant case. They
argue that the instant petition is separate and distinct from G.R. No. 131315, there being no identity of
parties, and more importantly, the parties in the two petitions have their own distinct rights and interests
in relation to the subject matter in litigation. For the same reasons, they claim that counsel for petitioners
cannot be found guilty of forum-shopping.14

In their Manifestation and Motion15 dated 22 September 2004, private respondents moved for the
dismissal of the instant petition in view of the dismissal of G.R. No. 131315. Attached to the said
manifestation is a copy of the Entry of Judgment16 issued by the First Division dated 01 December 1999.

The petition must be denied, not on res judicata, but on the ground that like the petition in G.R. No.
131315 it fails to impute reversible error to the challenged Court of Appeals’ Decision.
Res judicata does not apply in
the case at bar.

Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter settled
by judgment.17 The doctrine of res judicata provides that a final judgment, on the merits rendered by a
court of competent jurisdiction is conclusive as to the rights of the parties and their privies and
constitutes an absolute bar to subsequent actions involving the same claim, demand, or cause of
action.18 The elements of res judicata are (a) identity of parties or at least such as representing the same
interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on
the same facts; and (c) the identity in the two (2) particulars is such that any judgment which may be
rendered in the other action will, regardless of which party is successful, amount to res judicata in the
action under consideration.19

There is no dispute as to the identity of subject matter since the crucial point in both cases is the
propriety of including the still unproven shares of respondents for purposes of determining the quorum.
Petitioners, however, deny that there is identity of parties and causes of actions between the two
petitions.

The test often used in determining whether causes of action are identical is to ascertain whether the
same facts or evidence would support and establish the former and present causes of action.20 More
significantly, there is identity of causes of action when the judgment sought will be inconsistent with the
prior judgment.21 In both petitions, petitioners assert that the Court of Appeals’ Decision effectively
negates the existence and validity of the stock and transfer book, as well as automatically grants private
respondents’ shares of stocks which they do not own, or the ownership of which remains to be unproved.
Petitioners in the two petitions rely on the entries in the stock and transfer book as the proper basis for
computing the quorum, and consequently determine the degree of control one has over the company.
Essentially, the affirmance of the SEC Order had the effect of diminishing their control and interests in the
company, as it allowed the participation of the individual private respondents in the election of officers of
the corporation.

Absolute identity of parties is not a condition sine qua non for res judicata to apply—a shared identity of
interest is sufficient to invoke the coverage of the principle.22 However, there is no identity of parties
between the two cases. The parties in the two petitions have their own rights and interests in relation to
the subject matter in litigation. As stated by petitioners in their Reply to Respondents’
Memorandum,23 there are no two separate actions filed, but rather, two separate petitions for review
on certiorari filed by two distinct parties with the Court and represented by their own counsels, arising
from an adverse consolidated decision promulgated by the Court of Appeals in one action or
proceeding.24 As such, res judicata is not present in the instant case.

Likewise, there is no basis for declaring petitioners or their counsel guilty of violating the rules against
forum-shopping. In the Verification/Certification25 portion of the petition, petitioners clearly stated that
there was then a pending motion for reconsideration of the 18 August 1997 Decision of the Court of
Appeals in the consolidated cases (CA-G.R. SP No. 41473 and CA-G.R. SP No. 41403) filed by the Abuids, as
well as a motion for clarification. Moreover, the records indicate that petitioners filed
their Manifestation26 dated 20 January 1998, informing the Court of their receipt of the petition in G.R. No.
131315 in compliance with their duty to inform the Court of the pendency of another similar petition.
The Court finds that petitioners substantially complied with the rules against forum-shopping.
The Decision of the Court of
Appeals must be upheld.

The petition in this case involves the same facts and substantially the same issues and arguments as those
in G.R. No. 131315 which the First Division has long denied with finality. The First Division found the
petition before it inadequate in failing to raise any reversible error on the part of the Court of Appeals.
We reach a similar conclusion as regards the present petition.

The crucial issue in this case is whether it is the company’s stock and transfer book, or its 1952 Articles of
Incorporation, which determines stockholders’ shareholdings, and provides the basis for computing the
quorum.

We agree with the Court of Appeals.

The articles of incorporation has been described as one that defines the charter of the corporation and
the contractual relationships between the State and the corporation, the stockholders and the State, and
between the corporation and its stockholders.27 When PMMSI was incorporated, the prevailing law was
Act No. 1459, otherwise known as "The Corporation Law." Section 6 thereof states:

Sec. 6. Five or more persons, not exceeding fifteen, a majority of whom are residents of the
Philippines, may form a private corporation for any lawful purpose or purposes by filing with the
Securities and Exchange Commission articles of incorporation duly executed and acknowledged
before a notary public, setting forth:

....

(7) If it be a stock corporation, the amount of its capital stock, in lawful money of the Philippines,
and the number of shares into which it is divided, and if such stock be in whole or in part without
par value then such fact shall be stated; Provided, however, That as to stock without par value the
articles of incorporation need only state the number of shares into which said capital stock is
divided.

(8) If it be a stock corporation, the amount of capital stock or number of shares of no-par stock
actually subscribed, the amount or number of shares of no-par stock subscribed by each and the
sum paid by each on his subscription. . . .28

A review of PMMSI’s articles of incorporation29 shows that the corporation complied with the
requirements laid down by Act No. 1459. It provides in part:

7. That the capital stock of the said corporation is NINETY THOUSAND PESOS (P90,000.00)
divided into two classes, namely:

FOUNDERS’ STOCK - 1,000 shares at P20 par value- P 20,000.00

COMMON STOCK- 700 shares at P 100 par value – P 70,000.00

TOTAL ---------------------1,700 shares----------------------------P 90,000.00

....

8. That the amount of the entire capital stock which has been actually subscribed is TWENTY ONE
THOUSAND SIX HUNDRED PESOS (P21,600.00) and the following persons have subscribed for the
number of shares and amount of capital stock set out after their respective names:

SUBSCRIBER SUBSCRIBED AMOUNT

SUBSCRIBED

No. of Shares Par Value

Crispulo J. 120 Founders P 2,400.00

Onrubia

Juan H. Acayan 120 " 2, 400.00

Martin P. 100 " 2, 000.00

Sagarbarria

Mauricio G. 50 " 1, 000.00

Gallaga

Luis Renteria 50 " 1, 000.00

Faustina M. de 140 " 2, 800.00

Onrubia

Mrs. Ramon 40 " 800.00

Araneta

Carlos M. Onrubia 80 " 1,600.00

700 P 14,000.00

SUBSCRIBER SUBSCRIBED AMOUNT

SUBSCRIBED
No. of Shares
Par Value

Crispulo J. 12 Common P 1,200.00

Onrubia

Juan H. Acayan 12 " 1,200.00

Martin P. 8" 800.00

Sagarbarria

Mauricio G. 8" 800.00

Gallaga
 Luis Renteria 8" 800.00

Faustina M. de 12 " 1,200.00

Onrubia

Mrs. Ramon 8" 800.00

Araneta

Carlos M. Onrubia 8" 800.00

76 P7,600.0030

There is no gainsaying that the contents of the articles of incorporation are binding, not only on the
corporation, but also on its shareholders. In the instant case, the articles of incorporation indicate that at
the time of incorporation, the incorporators were bona fide stockholders of seven hundred (700)
founders’ shares and seventy-six (76) common shares. Hence, at that time, the corporation had 776
issued and outstanding shares.

On the other hand, a stock and transfer book is the book which records the names and addresses of all
stockholders arranged alphabetically, the installments paid and unpaid on all stock for which
subscription has been made, and the date of payment thereof; a statement of every alienation, sale or
transfer of stock made, the date thereof and by and to whom made; and such other entries as may be
prescribed by law.31 A stock and transfer book is necessary as a measure of precaution, expediency and
convenience since it provides the only certain and accurate method of establishing the various corporate
acts and transactions and of showing the ownership of stock and like matters.32 However, a stock and
transfer book, like other corporate books and records, is not in any sense a public record, and thus is not
exclusive evidence of the matters and things which ordinarily are or should be written therein.33 In fact, it
is generally held that the records and minutes of a corporation are not conclusive even against the
corporation but are prima facie evidence only,34 and may be impeached or even contradicted by other
competent evidence.35 Thus, parol evidence may be admitted to supply omissions in the records or
explain ambiguities, or to contradict such records.36

In 1980, Batas Pambansa Blg. 68, otherwise known as "The Corporation Code of the Philippines"
supplanted Act No. 1459. BP Blg. 68 provides:

Sec. 24. Election of directors or trustees.—At all elections of directors or trustees, there must be
present, either in person or by representative authorized to act by written proxy, the owners of a
majority of the outstanding capital stock, or if there be no capital stock, a majority of the members
entitled to vote. . . .

Sec. 52. Quorum in meetings.- Unless otherwise provided for in this Code or in the by-laws, a
quorum shall consist of the stockholders representing a majority of the outstanding capital stock
or majority of the members in the case of non-stock corporation.

Outstanding capital stock, on the other hand, is defined by the Code as:

Sec. 137. Outstanding capital stock defined.— The term "outstanding capital stock" as used in this
code, means the total shares of stock issued to subscribers or stockholders whether or not fully or
partially paid (as long as there is binding subscription agreement) except treasury shares.
Thus, quorum is based on the totality of the shares which have been subscribed and issued, whether it be
founders’ shares or common shares.37 In the instant case, two figures are being pitted against each
other— those contained in the articles of incorporation, and those listed in the stock and transfer book.

To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer
book, and completely disregarding the issued and outstanding shares as indicated in the articles of
incorporation would work injustice to the owners and/or successors in interest of the said shares. This
case is one instance where resort to documents other than the stock and transfer books is necessary. The
stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does
not reflect the totality of shares which have been subscribed, more so when the articles of incorporation
show a significantly larger amount of shares issued and outstanding as compared to that listed in the
stock and transfer book. As aptly stated by the SEC in its Order dated 15 July 1996:38

It is to be explained, that if at the onset of incorporation a corporation has 771 shares subscribed,
the Stock and Transfer Book should likewise reflect 771 shares. Any sale, disposition or even
reacquisition of the company of its own shares, in which it becomes treasury shares, would not
affect the total number of shares in the Stock and Transfer Book. All that will change are the
entries as to the owners of the shares but not as to the amount of shares already subscribed.

This is precisely the reason why the Stock and Transfer Book was not given probative value. Did
the shares, which were not recorded in the Stock and Transfer Book, but were recorded in the
Articles of Iincorporation just vanish into thin air? . . . .39

As shown above, at the time the corporation was set-up, there were already seven hundred seventy-six
(776) issued and outstanding shares as reflected in the articles of incorporation. No proof was adduced
as to any transaction effected on these shares from the time PMMSI was incorporated up to the time the
instant petition was filed, except for the thirty-three (33) shares which were recorded in the stock and
transfer book in 1978, and the additional one hundred thirty-two (132) in 1982. But obviously, the
shares so ordered recorded in the stock and transfer book are among the shares reflected in the articles
of incorporation as the shares subscribed to by the incorporators named therein.

One who is actually a stockholder cannot be denied his right to vote by the corporation merely because
the corporate officers failed to keep its records accurately.40 A corporation’s records are not the only
evidence of the ownership of stock in a corporation.41 In an American case,42 persons claiming
shareholders status in a professional corporation were listed as stockholders in the amendment to the
articles of incorporation. On that basis, they were in all respects treated as shareholders. In fact, the acts
and conduct of the parties may even constitute sufficient evidence of one’s status as a shareholder or
member.43 In the instant case, no less than the articles of incorporation declare the incorporators to have
in their name the founders and several common shares. Thus, to disregard the contents of the articles of
incorporation would be to pretend that the basic document which legally triggered the creation of the
corporation does not exist and accordingly to allow great injustice to be caused to the incorporators and
their heirs.

Petitioners argue that the Court of Appeals "gravely erred in applying the Espejo decision to the benefit of
respondents." The Court believes that the more precise statement of the issue is whether in its
assailed Decision, the Court of Appeals can declare private respondents as the heirs of the incorporators,
and consequently register the founders shares in their name. However, this issue as recast is not actually
determinative of the present controversy as explained below.
Petitioners claim that the Decision of the Court of Appeals unilaterally divested them of their shares in
PMMSI as recorded in the stock and transfer book and instantly created inexistent shares in favor of
private respondents. We do not agree.

The assailed Decision merely declared that a separate judicial declaration to recognize the shares of the
original incorporators would entail unnecessary delay and expense on the part of the litigants,
considering that the incorporators had already proved ownership of such shares as shown in the articles
of incorporation.44 There was no declaration of who the individual owners of these shares were on the
date of the promulgation of the Decision. As properly stated by the SEC in its Order dated 20 June 1996, to
which the appellate court’s Decision should be related, "if at all, the ownership of these shares should only
be subjected to the proper judicial (probate) or extrajudicial proceedings in order to determine the
respective shares of the legal heirs of the deceased incorporators."45

WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioners.

SO ORDERED.

SPECIAL SECOND DIVISION

G.R. No. 144476 April 8, 2003

ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and
JULIE ONG ALONZO, petitioners,
vs.
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C.
TIU, INTRALAND RESOURCES DEVELOPMENT CORP., MASAGANA TELAMART, INC., REGISTER OF
DEEDS OF PASAY CITY, and the SECURITIES AND EXCHANGE COMMISSION, respondents.

x-----------------------------x

G.R. No. 144629 April 8, 2003

DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C.
TIU, and INTRALAND RESOURCES DEVELOPMENT CORP., petitioners,
vs.
ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and
JULIA ONG ALONZO, respondents.

RESOLUTION

CORONA, J.:

Before us are the (1) motion for reconsideration, dated March 15, 2002, of petitioner movants Ong Yong,
Juanita Tan Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julia Ong Alonzo (the Ongs); (2)
motion for partial reconsideration, dated March 15, 2002, of petitioner movant Willie Ong seeking a
reversal of this Court's Decision,1dated February 1, 2002, in G.R. Nos. 144476 and 144629 affirming with
modification the decision2 of the Court of Appeals, dated October 5, 1999, which in turn upheld, likewise
with modification, the decision of the SEC en banc, dated September 11, 1998; and (3) motion for
issuance of writ of execution of petitioners David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D.
Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius) of our February 1, 2002 Decision.

A brief recapitulation of the facts shows that:

In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage and
incompletion when its owner, the First Landlink Asia Development Corporation (FLADC), which
was owned by the Tius, encountered dire financial difficulties. It was heavily indebted to the
Philippine National Bank (PNB) for P190 million. To stave off foreclosure of the mortgage on the
two lots where the mall was being built, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong,
Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC. Under the Pre-
Subscription Agreement they entered into, the Ongs and the Tius agreed to maintain equal
shareholdings in FLADC: the Ongs were to subscribe to 1,000,000 shares at a par value of P100.00
each while the Tius were to subscribe to an additional 549,800 shares at P100.00 each in addition
to their already existing subscription of 450,200 shares. Furthermore, they agreed that the Tius
were entitled to nominate the Vice-President and the Treasurer plus five directors while the Ongs
were entitled to nominate the President, the Secretary and six directors (including the chairman)
to the board of directors of FLADC. Moreover, the Ongs were given the right to manage and
operate the mall.

Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000 shares of stock while
the Tius committed to contribute to FLADC a four-storey building and two parcels of land respectively
valued at P20 million (for 200,000 shares), P30 million (for 300,000 shares) and P49.8 million (for
49,800 shares) to cover their additional 549,800 stock subscription therein. The Ongs paid in another
P70 million3 to FLADC and P20 million to the Tius over and above their P100 million investment, the total
sum of which (P190 million) was used to settle the P190 million mortgage indebtedness of FLADC to
PNB.

The business harmony between the Ongs and the Tius in FLADC, however, was shortlived because the
Tius, on February 23, 1996, rescinded the Pre-Subscription Agreement. The Tius accused the Ongs of (1)
refusing to credit to them the FLADC shares covering their real property contributions; (2) preventing
David S. Tiu and Cely Y. Tiu from assuming the positions of and performing their duties as Vice-President
and Treasurer, respectively, and (3) refusing to give them the office spaces agreed upon.

According to the Tius, the agreement was for David S. Tiu and Cely S. Tiu to assume the positions and
perform the duties of Vice-President and Treasurer, respectively, but the Ongs prevented them from
doing so. Furthermore, the Ongs refused to provide them the space for their executive offices as Vice-
President and Treasurer. Finally, and most serious of all, the Ongs refused to give them the shares
corresponding to their property contributions of a four-story building, a 1,902.30 square-meter lot and a
151 square-meter lot. Hence, they felt they were justified in setting aside their Pre-Subscription
Agreement with the Ongs who allegedly refused to comply with their undertakings.

In their defense, the Ongs said that David S. Tiu and Cely Y. Tiu had in fact assumed the positions of Vice-
President and Treasurer of FLADC but that it was they who refused to comply with the corporate duties
assigned to them. It was the contention of the Ongs that they wanted the Tius to sign the checks of the
corporation and undertake their management duties but that the Tius shied away from helping them
manage the corporation. On the issue of office space, the Ongs pointed out that the Tius did in fact already
have existing executive offices in the mall since they owned it 100% before the Ongs came in. What the
Tius really wanted were new offices which were anyway subsequently provided to them. On the most
important issue of their alleged failure to credit the Tius with the FLADC shares commensurate to the
Tius' property contributions, the Ongs asserted that, although the Tius executed a deed of assignment for
the 1,902.30 square-meter lot in favor of FLADC, they (the Tius) refused to pay P 570,690 for capital
gains tax and documentary stamp tax. Without the payment thereof, the SEC would not approve the
valuation of the Tius' property contribution (as opposed to cash contribution). This, in turn, would make
it impossible to secure a new Transfer Certificate of Title (TCT) over the property in FLADC's name. In
any event, it was easy for the Tius to simply pay the said transfer taxes and, after the new TCT was issued
in FLADC's name, they could then be given the corresponding shares of stocks. On the 151 square-meter
property, the Tius never executed a deed of assignment in favor of FLADC. The Tius initially claimed that
they could not as yet surrender the TCT because it was "still being reconstituted" by the Lichaucos from
whom the Tius bought it. The Ongs later on discovered that FLADC had in reality owned the property all
along, even before their Pre-Subscription Agreement was executed in 1994. This meant that the 151
square-meter property was at that time already the corporate property of FLADC for which the Tius were
not entitled to the issuance of new shares of stock.

The controversy finally came to a head when this case was commenced4 by the Tius on February 27, 1996
at the Securities and Exchange Commission (SEC), seeking confirmation of their rescission of the Pre-
Subscription Agreement. After hearing, the SEC, through then Hearing Officer Rolando G. Andaya, Jr.,
issued a decision on May 19, 1997 confirming the rescission sought by the Tius, as follows:

WHEREFORE, judgment is hereby rendered confirming the rescission of the Pre-Subscription

Agreement, and consequently ordering:

(a) The cancellation of the 1,000,000 shares subscription of the individual defendants in FLADC;

(b) FLADC to pay the amount of P170,000,000.00 to the individual defendants representing the
return of their contribution for 1,000,000 shares of FLADC;

(c) The plaintiffs to submit with (sic) the Securities and Exchange Commission amended articles of
incorporation of FLADC to conform with this decision;

(d) The defendants to surrender to the plaintiffs TCT Nos. 132493, 132494, 134066 (formerly
15587), 135325 and 134204 and any other title or deed in the name of FLADC, failing in which
said titles are declared void;

(e) The Register of Deeds to issue new certificates of titles in favor of the plaintiffs and to cancel
the annotation of the Pre-Subscription Agreement dated 15 August 1994 on TCT No. 134066
(formerly 15587);

(f) The individual defendants, individually and collectively, their agents and representatives, to
desist from exercising or performing any and all acts pertaining to stockholder, director or officer
of FLADC or in any manner intervene in the management and affairs of FLADC;

(g) The individual defendants, jointly and severally, to return to FLADC interest payment in the
amount of P8,866,669.00 and all interest payments as well as any payments on principal received
from the P70,000,000.00 inexistent loan, plus the legal rate of interest thereon from the date of
their receipt of such payment until fully paid;
 (h) The plaintiff David Tiu to pay individual defendants the sum of P20,000,000.00 representing
his loan from said defendants plus legal interest from the date of receipt of such amount.

SO ORDERED.5

On motion of both parties, the above decision was partially reconsidered but only insofar as the Ongs'
P70 million was declared not as a premium on capital stock but an advance (loan) by the Ongs to FLADC
and that the imposition of interest on it was correct.6

Both parties appealed7 to the SEC en banc which rendered a decision on September 11, 1998, affirming
the May 19, 1997 decision of the Hearing Officer. The SEC en banc confirmed the rescission of the Pre-
Subscription Agreement but reverted to classifying the P70 million paid by the Ongs as premium on
capital and not as a loan or advance to FLADC, hence, not entitled to earn interest. 8

On appeal, the Court of Appeals (CA) rendered a decision on October 5, 1999, thus:

WHEREFORE, the Order dated September 11, 1998 issued by the Securities and Exchange
Commission En Banc in SEC AC CASE NOS. 598 and 601 confirming the rescission of the Pre-
Subscription Agreement dated August 15, 1994 is hereby AFFIRMED, subject to the following
MODIFICATIONS:

1. The Ong and Tiu Groups are ordered to liquidate First Landlink Asia Development Corporation
in accordance with the following cash and property contributions of the parties therein.

(a) Ong Group – P100,000,000.00 cash contribution for one (1) million shares in First
Landlink Asia Development Corporation at a par value of P100.00 per share;

(b) Tiu Group:

1) P45,020,000.00 original cash contribution for 450,200 shares in First Landlink

Asia Development Corporation at a par value of P100.00 per share;

2) A four-storey building described in Transfer Certificate of Title No. 15587 in the

name of Intraland Resources and Development Corporation valued at
P20,000,000.00 for 200,000 shares in First Landlink Asia Development Corporation
at a par value of P100.00 per share;

3) A 1,902.30 square-meter parcel of land covered by Transfer Certificate of Title

No. 15587 in the name of Masagana Telamart, Inc. valued at P30,000,000.00 for
300,000 shares in First Landlink Asia Development Corporation at a par value of
P100.00 per share.

2) Whatever remains of the assets of the First Landlink Asia Development Corporation and the
management thereof is (sic) hereby ordered transferred to the Tiu Group.

3) First Landlink Asia Development Corporation is hereby ordered to pay the amount of
P70,000,000.00 that was advanced to it by the Ong Group upon the finality of this decision. Should
 the former incur in delay in the payment thereof, it shall pay the legal interest thereon pursuant to
Article 2209 of the New Civil Code.

4) The Tius are hereby ordered to pay the amount of P20,000,000.00 loaned them by the Ongs
upon the finality of this decision. Should the former incur in delay in the payment thereof, it shall
pay the legal interest thereon pursuant to Article 2209 of the New Civil Code.

SO ORDERED.9

An interesting sidelight of the CA decision was its description of the rescission made by the Tius as the
"height of ingratitude" and as "pulling a fast one" on the Ongs. The CA moreover found the Tius guilty of
withholding FLADC funds from the Ongs and diverting corporate income to their own MATTERCO
account.10 These were findings later on affirmed in our own February 1, 2002 Decision which is the
subject of the instant motion for reconsideration.11

But there was also a strange aspect of the CA decision. The CA concluded that both the Ongs and the Tius
were in pari delicto (which would not have legally entitled them to rescission) but, "for practical
considerations," that is, their inability to work together, it was best to separate the two groups by
rescinding the Pre-Subscription Agreement, returning the original investment of the Ongs and awarding
practically everything else to the Tius.

Their motions for reconsideration having been denied, both parties filed separate petitions for review
before this Court.

In their petition docketed as G.R. No. 144476, Ong et al. vs. Tiu et al., the Ongs argued that the Tius may
not properly avail of rescission under Article 1191 of the Civil Code considering that the Pre-Subscription
Agreement did not provide for reciprocity of obligations; that the rights over the subject matter of the
rescission (capital assets and properties) had been acquired by a third party (FLADC); that they did not
commit a substantial and fundamental breach of their agreement since they did not prevent the Tius from
assuming the positions of Vice-President and Treasurer of FLADC, and that the failure to credit the
300,000 shares corresponding to the 1,902.30 square-meter property covered by TCT No. 134066
(formerly 15587) was due to the refusal of the Tius to pay the required transfer taxes to secure the
approval of the SEC for the property contribution and, thereafter, the issuance of title in FLADC's name.
They also argued that the liquidation of FLADC may not legally be ordered by the appellate court even for
so called "practical considerations" or even to prevent "further squabbles and numerous litigations,"
since the same are not valid grounds under the Corporation Code. Moreover, the Ongs bewailed the
failure of the CA to grant interest on their P70 million and P20 million advances to FLADC and David S.
Tiu, respectively, and to award costs and damages.

In their petition docketed as G.R. No. 144629, Tiu et al. vs. Ong et al., the Tius, on the other hand,
contended that the rescission should have been limited to the restitution of the parties' respective
investments and not the liquidation of FLADC based on the erroneous perception by the court that: the
Masagana Citimall was threatened with incompletion since FLADC was in financial distress; that the Tius
invited the Ongs to invest in FLADC to settle its P190 million loan from PNB; that they violated the Pre-
Subscription Agreement when it was the Lichaucos and not the Tius who executed the deed of
assignment over the 151 square-meter property commensurate to 49,800 shares in FLADC thereby
failing to pay the price for the said shares; that they did not turn over to the Ongs the entire amount of
FLADC funds; that they were diverting rentals from lease contracts due to FLADC to their own
MATTERCO account; that the P70 million paid by the Ongs was an advance and not a premium on capital;
and that, by rescinding the Pre-Subscription Agreement, they wanted to wrestle away the management of
the mall and prevent the Ongs from enjoying the profits of their P190 million investment in FLADC.

On February 1, 2002, this Court promulgated its Decision (the subject of the instant motions), affirming
the assailed decision of the Court of Appeals but with the following modifications:

1. the P20 million loan extended by the Ongs to the Tius shall earn interest at twelve percent
(12%) per annum to be computed from the time of judicial demand which is from April 23, 1996;

2. the P70 million advanced by the Ongs to the FLADC shall earn interest at ten percent (10%) per
annum to be computed from the date of the FLADC Board Resolution which is June 19, 1996; and

3. the Tius shall be credited with 49,800 shares in FLADC for their property contribution,
specifically, the 151 sq. m. parcel of land.

This Court affirmed the fact that both the Ongs and the Tius violated their respective obligations under
the Pre-Subscription Agreement. The Ongs prevented the Tius from assuming the positions of Vice-
President and Treasurer of the corporation. On the other hand, the Decision established that the Tius
failed to turn over FLADC funds to the Ongs and that the Tius diverted rentals due to FLADC to their
MATTERCO account. Consequently, it held that rescission was not possible since both parties were in pari
delicto. However, this Court agreed with the Court of Appeals that the remedy of specific performance, as
espoused by the Ongs, was not practical and sound either and would only lead to further "squabbles and
numerous litigations" between the parties.

On March 15, 2002, the Tius filed before this Court a Motion for Issuance of a Writ of Execution on the
grounds that: (a) the SEC order had become executory as early as September 11, 1998 pursuant to
Sections 1 and 12, Rule 43 of the Rules of Court; (b) any further delay would be injurious to the rights of
the Tius since the case had been pending for more than six years; and (c) the SEC no longer had quasi-
judicial jurisdiction under RA 8799 (Securities Regulation Code). The Ongs filed their opposition,
contending that the Decision dated February 1, 2002 was not yet final and executory; that no good reason
existed to issue a warrant of execution; and that, pursuant to Section 5.2 of RA 8799, the SEC retained
jurisdiction over pending cases involving intra-corporate disputes already submitted for final resolution
upon the effectivity of the said law.

Aside from their opposition to the Tius' Motion for Issuance of Writ of Execution, the Ongs filed their own
"Motion for Reconsideration; Alternatively, Motion for Modification (of the February 1, 2002 Decision)"
on March 15, 2002, raising two main points: (a) that specific performance and not rescission was the
proper remedy under the premises; and (b) that, assuming rescission to be proper, the subject decision of
this Court should be modified to entitle movants to their proportionate share in the mall.

On their first point (specific performance and not rescission was the proper remedy), movants Ong argue
that their alleged breach of the Pre-Subscription Agreement was, at most, casual which did not justify the
rescission of the contract. They stress that providing appropriate offices for David S. Tiu and Cely Y. Tiu
as Vice-President and Treasurer, respectively, had no bearing on their obligations under the Pre-
Subscription Agreement since the said obligation (to provide executive offices) pertained to FLADC itself.
Such obligation arose from the relations between the said officers and the corporation and not any of the
individual parties such as the Ongs. Likewise, the alleged failure of the Ongs to credit shares of stock in
favor of the Tius for their property contributions also pertained to the corporation and not to the Ongs.
Just the same, it could not be done in view of the Tius' refusal to pay the necessary transfer taxes which in
turn resulted in the inability to secure SEC approval for the property contributions and the issuance of a
new TCT in the name of FLADC.

Besides, according to the Ongs, the principal objective of both parties in entering into the Pre-Subscription
Agreement in 1994 was to raise the P190 million desperately needed for the payment of FLADC's loan to
PNB. Hence, in this light, the alleged failure to provide office space for the two corporate officers was no
more than an inconsequential infringement. For rescission to be justified, the law requires that the
breach of contract should be so "substantial or fundamental" as to defeat the primary objective of the
parties in making the agreement. At any rate, the Ongs claim that it was the Tius who were guilty of
fundamental violations in failing to remit funds due to FLADC and diverting the same to their MATTERCO
account.

The Ongs also allege that, in view of the findings of the Court that both parties were guilty of violating the
Pre-Subscription Agreement, neither of them could resort to rescission under the principle of pari delicto.
In addition, since the cash and other contributions now sought to be returned already belong to FLADC,
an innocent third party, said remedy may no longer be availed of under the law.

On their second point (assuming rescission to be proper, the Ongs should be given their proportionate
share of the mall), movants Ong vehemently take exception to the second item in the dispositive portion
of the questioned Decision insofar as it decreed that whatever remains of the assets of FLADC and the
management thereof (after liquidation) shall be transferred to the Tius. They point out that the mall
itself, which would have been foreclosed by PNB if not for their timely investment of P190 million in
1994 and which is now worth about P1 billion mainly because of their efforts, should be included in any
partition and distribution. They (the Ongs) should not merely be given interest on their capital
investments. The said portion of our Decision, according to them, amounted to the unjust enrichment of
the Tius and ran contrary to our own pronouncement that the act of the Tius in unilaterally rescinding
the agreement was "the height of ingratitude" and an attempt "to pull a fast one" as it would prevent the
Ongs from enjoying the fruits of their P190 million investment in FLADC. It also contravenes this Court's
assurance in the questioned Decision that the Ongs and Tius "will have a bountiful return of their
respective investments derived from the profits of the corporation."

Willie Ong filed a separate "Motion for Partial Reconsideration" dated March 8, 2002, pointing out that
there was no violation of the Pre-Subscription Agreement on the part of the Ongs; that, after more than
seven years since the mall began its operations, rescission had become not only impractical but would
also adversely affect the rights of innocent parties; and that it would be highly inequitable and unfair to
simply return the P100 million investment of the Ongs and give the remaining assets now amounting to
about P1 billion to the Tius.

The Tius, in their opposition to the Ongs' motion for reconsideration, counter that the arguments therein
are a mere re-hash of the contentions in the Ongs' petition for review and previous motion for
reconsideration of the Court of Appeals' decision. The Tius compare the arguments in said pleadings to
prove that the Ongs do not raise new issues, and, based on well-settled jurisprudence,12 the Ongs' present
motion is therefore pro-forma and did not prevent the Decision of this Court from attaining finality.
On January 29, 2003, the Special Second Division of this Court held oral arguments on the respective
positions of the parties. On February 27, 2003, Dr. Willie Ong and the rest of the movants Ong filed their
respective memoranda. On February 28, 2003, the Tius submitted their memorandum.

We grant the Ongs' motions for reconsideration.

This is not the first time that this Court has reversed itself on a motion for reconsideration. In Philippine
Consumers Foundation, Inc. vs. National Telecommunications Commission,13 this Court, through then Chief
Justice Felix V. Makasiar, said that its members may and do change their minds, after a re-study of the
facts and the law, illuminated by a mutual exchange of views.14 After a thorough re-examination of the
case, we find that our Decision of February 1, 2002 overlooked certain aspects which, if not corrected,
will cause extreme and irreparable damage and prejudice to the Ongs, FLADC and its creditors.

The procedural rule on pro-forma motions pointed out by the Tius should not be blindly applied to
meritorious motions for reconsideration. As long as the same adequately raises a valid ground15 (i.e., the
decision or final order is contrary to law), this Court has to evaluate the merits of the arguments to
prevent an unjust decision from attaining finality. In Security Bank and Trust Company vs. Cuenca,16 we
ruled that a motion for reconsideration is not pro-forma for the reason alone that it reiterates the
arguments earlier passed upon and rejected by the appellate court. We explained there that a movant
may raise the same arguments, if only to convince this Court that its ruling was erroneous. Moreover, the
rule (that a motion is pro-forma if it only repeats the arguments in the previous pleadings) will not apply
if said arguments were not squarely passed upon and answered in the decision sought to be
reconsidered. In the case at bar, no ruling was made on some of the petitioner Ongs' arguments. For
instance, no clear ruling was made on why an order distributing corporate assets and property to the
stockholders would not violate the statutory preconditions for corporate dissolution or decrease of
authorized capital stock. Thus, it would serve the ends of justice to entertain the subject motion for
reconsideration since some important issues therein, although mere repetitions, were not considered or
clearly resolved by this Court.

Going now to the merits, we resolve whether the Tius could legally rescind the Pre-Subscription
Agreement. We rule that they could not.

FLADC was originally incorporated with an authorized capital stock of 500,000 shares with the Tius
owning 450,200 shares representing the paid-up capital. When the Tius invited the Ongs to invest in
FLADC as stockholders, an increase of the authorized capital stock became necessary to give each group
equal (50-50) shareholdings as agreed upon in the Pre-Subscription Agreement. The authorized capital
stock was thus increased from 500,000 shares to 2,000,000 shares with a par value of P100 each, with
the Ongs subscribing to 1,000,000 shares and the Tius to 549,800 more shares in addition to their
450,200 shares to complete 1,000,000 shares. Thus, the subject matter of the contract was the
1,000,000 unissued shares of FLADC stock allocated to the Ongs. Since these were unissued shares, the
parties' Pre-Subscription Agreement was in fact a subscription contract as defined under Section 60, Title
VII of the Corporation Code:

Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to
be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the
fact that the parties refer to it as a purchase or some other contract (Italics supplied).
A subscription contract necessarily involves the corporation as one of the contracting parties since the
subject matter of the transaction is property owned by the corporation – its shares of stock. Thus, the
subscription contract (denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs
invested P100 million for 1,000,000 shares of stock was, from the viewpoint of the law, one between the
Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in their
personal capacities with the Ongs since they were not selling any of their own shares to them. It was
FLADC that did.

Considering therefore that the real contracting parties to the subscription agreement were FLADC and
the Ongs alone, a civil case for rescission on the ground of breach of contract filed by the Tius in their
personal capacities will not prosper. Assuming it had valid reasons to do so, only FLADC (and certainly
not the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs
inasmuch as it was the real party in interest therein. Article 1311 of the Civil Code provides that
"contracts take effect only between the parties, their assigns and heirs…" Therefore, a party who has not
taken part in the transaction cannot sue or be sued for performance or for cancellation thereof, unless he
shows that he has a real interest affected thereby.17

In their February 28, 2003 Memorandum, the Tius claim that there are two contracts embodied in the
Pre-Subscription Agreement: a shareholder's agreement between the Tius and the Ongs defining and
governing their relationship and a subscription contract between the Tius, the Ongs and FLADC regarding
the subscription of the parties to the corporation. They point out that these two component parts form
one whole agreement and that their terms and conditions are intrinsically related and dependent on each
other. Thus, the breach of the shareholders' agreement, which was allegedly the consideration for the
subscription contract, was also a breach of the latter.

Aside from the fact that this is an entirely new angle never raised in any of their previous pleadings until
after the oral arguments on January 29, 2003, we find this argument too strained for comfort. It is
obviously intended to remedy and cover up the Tius' lack of legal personality to rescind an agreement in
which they were personally not parties-in-interest. Assuming arguendo that there were two "sub-
agreements" embodied in the Pre-Subscription Agreement, this Court fails to see how the shareholders
agreement between the Ongs and Tius can, within the bounds of reason, be interpreted as the
consideration of the subscription contract between FLADC and the Ongs. There was nothing in the Pre-
Subscription Agreement even remotely suggesting such alleged interdependence. Be that as it may,
however, the Tius are nevertheless not the proper parties to raise this point because they were not
parties to the subscription contract between FLADC and the Ongs. Thus, they are not in a position to
claim that the shareholders agreement between them and the Ongs was what induced FLADC and the
Ongs to enter into the subscription contract. It is the Ongs alone who can say that. Though FLADC was
represented by the Tius in the subscription contract, FLADC had a separate juridical personality from the
Tius. The case before us does not warrant piercing the veil of corporate fiction since there is no proof that
the corporation is being used "as a cloak or cover for fraud or illegality, or to work injustice."18

The Tius also argue that, since the Ongs represent FLADC as its management, breach by the Ongs is
breach by FLADC. This must also fail because such an argument disregards the separate juridical
personality of FLADC.

The Tius allege that they were prevented from participating in the management of the corporation. There
is evidence that the Ongs did prevent the rightfully elected Treasurer, Cely Tiu, from exercising her
function as such. The records show that the President, Wilson Ong, supervised the collection and receipt
of rentals in the Masagana Citimall;19 that he ordered the same to be deposited in the bank;20 and that he
held on to the cash and properties of the corporation.21 Section 25 of the Corporation Code prohibits the
President from acting concurrently as Treasurer of the corporation. The rationale behind the provision is
to ensure the effective monitoring of each officer's separate functions.

However, although the Tius were adversely affected by the Ongs' unwillingness to let them assume their
positions, rescission due to breach of contract is definitely the wrong remedy for their personal
grievances. The Corporation Code, SEC rules and even the Rules of Court provide for appropriate and
adequate intra-corporate remedies, other than rescission, in situations like this. Rescission is
certainly not one of them, specially if the party asking for it has no legal personality to do so and the
requirements of the law therefor have not been met. A contrary doctrine will tread on extremely
dangerous ground because it will allow just any stockholder, for just about any real or imagined offense,
to demand rescission of his subscription and call for the distribution of some part of the corporate assets
to him without complying with the requirements of the Corporation Code.

Hence, the Tius, in their personal capacities, cannot seek the ultimate and extraordinary remedy of
rescission of the subject agreement based on a less than substantial breach of subscription contract. Not
only are they not parties to the subscription contract between the Ongs and FLADC; they also have other
available and effective remedies under the law.

All this notwithstanding, granting but not conceding that the Tius possess the legal standing to sue for
rescission based on breach of contract, said action will nevertheless still not prosper since rescission will
violate the Trust Fund Doctrine and the procedures for the valid distribution of assets and property
under the Corporation Code.

The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust Co. vs.
Rivera,22provides that subscriptions to the capital stock of a corporation constitute a fund to which the
creditors have a right to look for the satisfaction of their claims.23 This doctrine is the underlying
principle in the procedure for the distribution of capital assets, embodied in the Corporation Code, which
allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of
Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable shares by the
corporation, regardless of the existence of unrestricted retained earnings,25and (3) dissolution and
eventual liquidation of the corporation. Furthermore, the doctrine is articulated in Section 41 on the
power of a corporation to acquire its own shares26 and in Section 122 on the prohibition against the
distribution of corporate assets and property unless the stringent requirements therefor are complied
with.27

The distribution of corporate assets and property cannot be made to depend on the whims and caprices
of the stockholders, officers or directors of the corporation, or even, for that matter, on the earnest desire
of the court a quo"to prevent further squabbles and future litigations" unless the indispensable
conditions and procedures for the protection of corporate creditors are followed. Otherwise, the
"corporate peace" laudably hoped for by the court will remain nothing but a dream because this time, it
will be the creditors' turn to engage in "squabbles and litigations" should the court order an unlawful
distribution in blatant disregard of the Trust Fund Doctrine.

In the instant case, the rescission of the Pre-Subscription Agreement will effectively result in the
unauthorized distribution of the capital assets and property of the corporation, thereby violating the
Trust Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of
the instances when distribution of capital assets and property of the corporation is allowed.

Contrary to the Tius' allegation, rescission will, in the final analysis, result in the premature liquidation of
the corporation without the benefit of prior dissolution in accordance with Sections 117, 118, 119 and
120 of the Corporation Code.28 The Tius maintain that rescinding the subscription contract is not
synonymous to corporate liquidation because all rescission will entail would be the simple restoration of
the status quo ante and a return to the two groups of their cash and property contributions. We wish it
were that simple. Very noticeable is the fact that the Tius do not explain why rescission in the instant case
will not effectively result in liquidation. The Tius merely refer in cavalier fashion to the end-result of
rescission (which incidentally is 100% favorable to them) but turn a blind eye to its unfair, inequitable
and disastrous effect on the corporation, its creditors and the Ongs.

In their Memorandum dated February 28, 2003, the Tius claim that rescission of the agreement will not
result in an unauthorized liquidation of the corporation because their case is actually a petition to
decrease capital stock pursuant to Section 38 of the Corporation Code. Section 122 of the law provides
that "(e)xcept by decrease of capital stock…, no corporation shall distribute any of its assets or property
except upon lawful dissolution and after payment of all its debts and liabilities." The Tius claim that their
case for rescission, being a petition to decrease capital stock, does not violate the liquidation procedures
under our laws. All that needs to be done, according to them, is for this Court to order (1) FLADC to file
with the SEC a petition to issue a certificate of decrease of capital stock and (2) the SEC to approve said
decrease. This new argument has no merit.

The Tius' case for rescission cannot validly be deemed a petition to decrease capital stock because such
action never complied with the formal requirements for decrease of capital stock under Section 33 of the
Corporation Code. No majority vote of the board of directors was ever taken. Neither was there any
stockholders meeting at which the approval of stockholders owning at least two-thirds of the outstanding
capital stock was secured. There was no revised treasurer's affidavit and no proof that said decrease will
not prejudice the creditors' rights. On the contrary, all their pleadings contained were alleged acts of
violations by the Ongs to justify an order of rescission.

Furthermore, it is an improper judicial intrusion into the internal affairs of the corporation to compel
FLADC to file at the SEC a petition for the issuance of a certificate of decrease of stock. Decreasing a
corporation's authorized capital stock is an amendment of the Articles of Incorporation. It is a decision
that only the stockholders and the directors can make, considering that they are the contracting parties
thereto. In this case, the Tius are actually not just asking for a review of the legality and fairness of a
corporate decision. They want this Court to make a corporate decision for FLADC. We decline to intervene
and order corporate structural changes not voluntarily agreed upon by its stockholders and directors.

Truth to tell, a judicial order to decrease capital stock without the assent of FLADC's directors and
stockholders is a violation of the "business judgment rule" which states that:

xxx xxx xxx (C)ontracts intra vires entered into by the board of directors are binding upon the
corporation and courts will not interfere unless such contracts are so unconscionable and
oppressive as to amount to wanton destruction to the rights of the minority, as when plaintiffs
aver that the defendants (members of the board), have concluded a transaction among themselves
as will result in serious injury to the plaintiffs stockholders.29
The reason behind the rule is aptly explained by Dean Cesar L. Villanueva, an esteemed author in
corporate law, thus:

Courts and other tribunals are wont to override the business judgment of the board mainly
because, courts are not in the business of business, and the laissez faire rule or the free enterprise
system prevailing in our social and economic set-up dictates that it is better for the State and its
organs to leave business to the businessmen; especially so, when courts are ill-equipped to make
business decisions. More importantly, the social contract in the corporate family to decide the
course of the corporate business has been vested in the board and not with courts.30

Apparently, the Tius do not realize the illegal consequences of seeking rescission and control of the
corporation to the exclusion of the Ongs. Such an act infringes on the law on reduction of capital stock.
Ordering the return and distribution of the Ongs' capital contribution without dissolving the corporation
or decreasing its authorized capital stock is not only against the law but is also prejudicial to corporate
creditors who enjoy absolute priority of payment over and above any individual stockholder thereof.

Stripped to its barest essentials, the issue of rescission in this case is not difficult to understand. If
rescission is denied, will injustice be inflicted on any of the parties? The answer is no because the
financial interests of both the Tius and the Ongs will remain intact and safe within FLADC. On the other
hand, if rescission is granted, will any of the parties suffer an injustice? Definitely yes because the Ongs
will find themselves out in the streets with nothing but the money they had in 1994 while the Tius will
not only enjoy a windfall estimated to be anywhere from P450 million to P900 million31 but will also take
over an extremely profitable business without much effort at all.

Another very important point follows. The Court of Appeals and, later on, our Decision dated February 1,
2002, stated that both groups were in pari delicto, meaning, that both the Tius and the Ongs committed
breaches of the Pre-Subscription Agreement. This may be true to a certain extent but, judging from the
comparative gravity of the acts separately committed by each group, we find that the Ongs' acts were
relatively tame vis-à-vis those committed by the Tius in not surrendering FLADC funds to the corporation
and diverting corporate income to their own MATTERCO account. The Ongs were right in not issuing to
the Tius the shares corresponding to the four-story building and the 1,902.30 square-meter lot because
no title for it could be issued in FLADC's name, owing to the Tius' refusal to pay the transfer taxes. And as
far as the 151 square-meter lot was concerned, why should FLADC issue additional shares to the Tius for
property already owned by the corporation and which, in the final analysis, was already factored into the
shareholdings of the Tius before the Ongs came in?

We are appalled by the attempt by the Tius, in the words of the Court of Appeals, to "pull a fast one" on
the Ongs because that was where the problem precisely started. It is clear that, when the finances of
FLADC improved considerably after the equity infusion of the Ongs, the Tius started planning to take over
the corporation again and exclude the Ongs from it. It appears that the Tius' refusal to pay transfer taxes
might not have really been at all unintentional because, by failing to pay that relatively small amount
which they could easily afford, the Tius should have expected that they were not going to be given the
corresponding shares. It was, from every angle, the perfect excuse for blackballing the Ongs. In other
words, the Tius created a problem then used that same problem as their pretext for showing their
partners the door. In the process, they stood to be rewarded with a bonanza of anywhere between P450
million to P900 million in assets (from an investment of only P45 million which was nearly foreclosed by
PNB), to the extreme and irreparable damage of the Ongs, FLADC and its creditors.
After all is said and done, no one can close his eyes to the fact that the Masagana Citimall would not be
what it has become today were it not for the timely infusion of P190 million by the Ongs in 1994. There
are no ifs or buts about it.

Without the Ongs, the Tius would have lost everything they originally invested in said mall. If only for this
and the fact that this Resolution can truly pave the way for both groups to enjoy the fruits of their
investments — assuming good faith and honest intentions — we cannot allow the rescission of the
subject subscription agreement. The Ongs' shortcomings were far from serious and certainly less than
substantial; they were in fact remediable and correctable under the law. It would be totally against all
rules of justice, fairness and equity to deprive the Ongs of their interests on petty and tenuous grounds.

WHEREFORE, the motion for reconsideration, dated March 15, 2002, of petitioners Ong Yong, Juanita Tan
Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julie Ong Alonzo and the motion for partial
reconsideration, dated March 15, 2002, of petitioner Willie Ong are hereby GRANTED. The Petition for
Confirmation of the Rescission of the Pre-Subscription Agreement docketed as SEC Case No. 02-96-5269
is hereby DISMISSED for lack of merit. The unilateral rescission by the Tius of the subject Pre-
Subscription Agreement, dated August 15, 1994, is hereby declared as null and void.

The motion for the issuance of a writ of execution, dated March 15, 2002, of petitioners David S. Tiu, Cely
Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu is hereby DENIED for
being moot.

Accordingly, the Decision of this Court, dated February 1, 2002, affirming with modification the decision
of the Court of Appeals, dated October 5, 1999, and the SEC en banc, dated September 11, 1998, is hereby
REVERSED.

Costs against the petitioner Tius.

SO ORDERED.

FIRST DIVISION

G.R. No. 154069, June 06, 2016

INTERPORT RESOURCES CORPORATION, Petitioner, v. SECURITIES SPECIALIST, INC., AND R.C. LEE
SECURITIES INC., Respondents.

DECISION

BERSAMIN, J.:

This appeal assails the decision promulgated on February 11, 2002,1 whereby the Court of Appeals (CA),
in C.A.-G.R. SP No. 66600, affirmed the decision the Securities and Exchange Commission (SEC) rendered
in SEC AC No. 501-5022 ordering Interport Resources Corporation (Interport) to deliver 25% of the
shares of stocks under Subscription Agreements Nos. 1805 and 1808-1811, or the value thereof, and to
pay to respondent Securities Specialist, Inc. (SSI), jointly and severally with R.C. Lee Securities, Inc. (R.C.
Lee), exemplary damages and litigation expenses.
 Antecedents

In January 1977, Oceanic Oil & Mineral Resources, Inc. (Oceanic) entered into a subscription agreement
with R.C. Lee, a domestic corporation engaged in the trading of stocks and other securities, covering
5,000,000 of its shares with par value of P0.01 per share, for a total of P50,000.00. Thereupon, R.C. Lee
paid 25% of the subscription, leaving 75% unpaid. Consequently, Oceanic issued Subscription
Agreements Nos. 1805, 1808, 1809, 1810, and 1811 to R.C. Lee.3chanrobleslaw

On July 28, 1978, Oceanic merged with Interport, with the latter as the surviving corporation. Interport
was a publicly-listed domestic corporation whose shares of stocks were traded in the stock exchange.
Under the terms of the merger, each share of Oceanic was exchanged for a share of
Interport.4chanrobleslaw

On April 16, 1979 and April 18, 1979, SSI, a domestic corporation registered as a dealer in securities,
received in the ordinary course of business Oceanic Subscription Agreements Nos. 1805, 1808 to 1811,
all outstanding in the name of R.C. Lee, and Oceanic official receipts showing that 25% of the
subscriptions had been paid.5 The Oceanic subscription agreements were duly delivered to SSI through
stock assignments indorsed in blank by R.C. Lee.6chanrobleslaw

Later on, R.C. Lee requested Interport for a list of subscription agreements and stock certificates issued in
the name of R.C. Lee and other individuals named in the request. In response, Atty. Rhodora B. Morales,
Interport1 s Corporate Secretary, provided the requested list of all subscription agreements of Interport
and Oceanic, as well as the requested stock certificates of Interport.7 Upon finding no record showing any
transfer or assignment of the Oceanic subscription agreements and stock certificates of Interport as
contained in the list, R.C. Lee paid its unpaid subscriptions and was accordingly issued stock certificates
corresponding thereto.8chanrobleslaw

On February 8, 1989, Interport issued a call for the full payment of subscription receivables, setting
March 15, 1989 as the deadline. SSI tendered payment prior to the deadline through two stockbrokers of
the Manila Stock Exchange. However, the stockbrokers reported to SSI that Interport refused to honor the
Oceanic subscriptions.9chanrobleslaw

Still on the date of the deadline, SSI directly tendered payment to Interport for the balance of the
5,000,000 shares covered by the Oceanic subscription agreements, some of which were in the name of
R.C. Lee and indorsed in blank. Interport originally rejected the tender of payment for all unpaid
subscriptions on the ground that the Oceanic subscription agreements should have been previously
converted to shares in Interport.10chanrobleslaw

SSI then required Interport to furnish it with a copy of any notice requiring the conversion of Oceanic
shares to Interport shares. However, Interport failed to show any proof of the notice. Thus, through a
letter dated March 30, 1989, SSI asked the SEC for a copy of Interport's board resolution requiring said
conversion. The SEC, through Atty. Fe Eloisa C. Gloria, Director of Brokers and Exchange Department,
informed SSI that the SEC had no record of any such resolution.11chanrobleslaw

Having confirmed the non-existence of the resolution, Francisco Villaroman, President of SSI, met with
Pablo Roman, President and Chairman of the Board of Interport, and Atty. Pineda, Interport's Corporate
Secretary, at which meeting Villaroman formally requested a copy of the resolution. However, Interport
did not produce a copy of the resolution.12chanrobleslaw
Despite that meeting, Interport still rejected SSI's tender of payment for the 5,000,000 shares covered by
the Oceanic Subscription Agreements Nos. 1805, and 1808 to 1811.13chanrobleslaw

On March 31, 1989, or 16 days after its tender of payment, SSI learned that Interport had issued the
5,000,000 shares to R.C. Lee, relying on the latter's registration as the owner of the subscription
agreements in the books of the former, and on the affidavit executed by the President of R.C. Lee stating
that no transfers or encumbrances of the shares had ever been made.14chanrobleslaw

Thus, on April 27, 1989, SSI wrote R.C. Lee demanding the delivery of the 5,000,000 Interport shares on
the basis of a purported assignment of the subscription agreements covering the shares made in 1979.
R.C. Lee failed to return the subject shares inasmuch as it had already sold the same to other parties. SSI
thus demanded that R.C. Lee pay not only the equivalent of the 25% it had paid on the subscription but
the whole 5,000,000 shares at current market value.15chanrobleslaw

SSI also made demands upon Interport and R.C. Lee for the cancellation of the shares issued to R.C. Lee
and for the delivery of the shares to SSI.16chanrobleslaw

On October 6, 1989, after its demands were not met, SSI commenced this case in the SEC to compel the
respondents to deliver the 5,000,000 shares and to pay damages.17 It alleged fraud and collusion between
Interport and R.C. Lee in rejecting the tendered payment and the transfer of the shares covered by the
subscription agreements.

On October 25, 1994, after due hearing, the Hearing Officer of the SEC's Securities Investigation and
Clearing Department (SICD) rendered a decision,18 disposing thusly:ChanRoblesVirtualawlibrary
WHEREFORE, judgment is hereby rendered ordering respondent Interport to deliver the five (5) million
shares covered by Oceanic Oil and Mineral Resources, Inc. subscription agreement TNos. 1805, 1808-
1811 to petitioner SSI; and if the same not be possible to deliver the value thereof, at the market price as
of the date of this judgment; and ordering both respondents, jointly and severally, to indemnify the
complainant in the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) by way of temperate or
moderate damages, to indemnify complainant in the sum of FIVE HUNDRED THOUSAND PESOS
(P500,000.00) by way of exemplary damages; to pay for complainant's litigation expenses, including
attorney's fees, reasonably in the sum of THREE HUNDRED THOUSAND pesos (P300,000.00) and to pay
the costs of suit.19chanroblesvirtuallawlibrary
Both Interport and R.C. Lee appealed to the SEC En Banc, which ultimately ruled as
follows:ChanRoblesVirtualawlibrary
After a careful review of the records of this case, we find basis in partially reversing the decision dated
October 25, 1994.

It is undisputed from the facts presented and evidence adduced that the subject matter of this case
pertains to the subscription agreements for which complainant paid only twenty five percent and the
remaining balance of seventy five percent paid for by respondent RCL. Accordingly, to order the return of
the five million shares or the payment of the entire value thereof to the complainant, without requiring
the latter to pay the balance of seventy five percent will be inequitable. Accordingly, the pertinent portion
of the decision is hereby revised to reflect this.

As regards the portion awarding temperate damages, the same may not be awarded. All evidence
presented by Securities Specialist, Inc. pertaining to its "lost opportunity" seeking for damages for its
supposed failure to sell Interport's shares, when the market was allegedly good, is merely speculative.
Moreover, even if the alleged pecuniary loss of SSI would be considered, the same is again purely
speculative and deserves scant consideration by the Commission. Hence, temperate damages may not be
justly awarded along with the other damages prayed for.

WHEREFORE, premises considered, judgment is hereby rendered, ordering respondent Interport to

deliver the corresponding shares previously covered by Oceanic Oil Mineral Resources Inc. subscription
agreements Nos. 1805-1811 to petitioner SSI, to the extent only of 25% thereof, as duly paid by petitioner
SSI; and if the same will not be possible, to deliver the value thereof at the market price as of the date of
this judgment and ordering both respondents jointly and severally, to indemnify the complainant in the
sum of five hundred thousand pesos (P500,000.00) by way of exemplary damages, to pay for
complainant's litigation expenses, including attorney's fees, reasonably in the sum of three hundred
thousand pesos (P300,000.00) and to pay the costs of the suit.20chanroblesvirtuallawlibrary
Interport appealed to the CA,21 which on February 11, 2002 affirmed the SEC's
decision,22viz.:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered the Petition is hereby DENIED DUE COURSE and ordered DISMISSED
and the challenged decision of the Securities and Exchange Commission AFFIRMED, with costs to
Petitioner.

SO ORDERED.
On June 25, 2002, the CA denied Interport's motion for reconsideration.23chanrobleslaw

Issues

Interport assigns the following errors to the CA, namely:ChanRoblesVirtualawlibrary

I

THE COURT OF APPEALS ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN THE
APPRECIATION OF THE FACTS IN HOLDING PETITIONER LIABLE TO DELIVER THE 25% OF THE
SUBJECT 5 MILLION SHARES OR IF THE SAME NOT BE POSSIBLE TO DELIVER THE VALUE THEREOF
DESPITE THE EVIDENCE TO THE CONTRARY.

II

THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER IS LIABLE FOR EXEMPLARY DAMAGES
IN THE AMOUNT OF P500 000.00 WITHOUT LEGAL BASIS, WHICH IS NOT IN ACCORD WITH LAW AND
APPLICABLE DECISIONS OF THE SUPREME COURT.

III

THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER IS LIABLE FOR ATTORNEY'S FEES IN
THE AMOUNT OF P300.000.00 AND COSTS THERE BEING NO FACTUAL AND LEGAL BASIS, WHICH IS
NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME
COURT.24chanroblesvirtuallawlibrary
The issues are: (a) whether or not Interport was liable to deliver to SSI the Oceanic shares of stock, or the
value thereof, under Subscriptions Agreement No. 1805, and Nos. 1808 to 1811 to SSI; and (b) whether or
not SSI was entitled to exemplary damages and attorney's fees.

Ruling
The appeal is partly meritorious.

1.

Interport was liable to deliver the Oceanic shares of stock, or the value thereof, under
Subscription Agreements Nos. 1805, and 1808 to 1811 to SSI

Interport argues that R.C. Lee should be held liable for the delivery of 25% of the shares under the subject
subscription agreements inasmuch as R.C. Lee had already received all the 5,000,000 shares upon its
payment of the 75% balance on the subscription price to Interport; that it was only proper for R.C. Lee to
deliver 25% of the shares under the Oceanic subscription agreements because it had already received the
corresponding payment therefor from SSI for the assignment of the shares; that R.C. Lee would be
unjustly enriched if it retained the 5,000,000 shares and the 25% payment of the subscription price made
by SSI in favor of R.C. Lee as a result of the assignment; and that it merely relied on its records, in
accordance with Section 74 of the Corporation Code, when it issued the stock certificates to R.C. Lee upon
its full payment of the subscription price.

Interport's arguments must fail.

In holding Interport liable for the delivery of the Oceanic shares, the SEC
explained:ChanRoblesVirtualawlibrary
x x x [T]he Oceanic subscriptions agreements were duly delivered to the Complainant SSI supported by
stock assignments of respondent R.C. Lee (Exhibits "B" to "B-4" of the petitioner) and by official receipts
of Oceanic showing that twenty five percent of the subscription had been paid (Exhibits "C" to "C-4"). To
this date, respondent R.C. Lee does not deny having subscribed and delivered such stock
assignments to the Oceanic subscription agreements. Therefore, having negotiated them by
allowing to be in street certificates, respondent R.C. Lee, as a broker, cannot now legally and
morally claim any further interests over such subscriptions or the shares of stock they represent.

xxxx

Both respondents seek to be absolved of liability for their machinations by invoking both the rule on
novation of the debtor without the creditor's consent; as well as the Corporation Code rule of non-
registration of transfers in the corporation's stock and transfer book. Neither will avail in the case at bar.
Art. 1293 of the New Civil Code states:

chanRoblesvirtualLawlibrary"Art. 1293. Novation which consists in substituting a new debtor in the

place of the original one may be made even without the knowledge or against the will of the latter but not
without the consent of the creditor" x x x.

More importantly, the allusion by the respondents likening the subscription contracts to the situation of
debtor-creditor finds no basis in law. Indeed, as held by the Supreme Court, shareholders are not
creditors of the corporation with respect to the shareholdings (Garcia vs. Lim Chu Sing, 59 Phil. 562).

The Memorandum of R.C. Lee, likewise cites the Opinion of the SEC dated November 12, 1976, which
states "that since an assignment will involve a substitution of debtor or novation of contract, as such the
consent of the creditor must be obtained" has the same effect. The opinion, however, merely restated the
general rule already embodied in the Codal provision quoted above; it does not preclude previously
authorized transfers. According to Tolentino -
"When the original contract authorizes the debtor to transfer his obligations to a third person, the
novation by substitution of debtor is effected when the creditor is notified that such transfer has been
made" (IV Tolentino 392, 1991 ed, Emphasis supplied)
But even following the argument of the respondents, when complainant SSI tendered the balance
of the unpaid subscription on the subject five (5) million shares on the basis of the existing
subscription agreements covering the same, respondents Interport was bound to accept payment
even as the same were being tendered in the name of the registered subscriber, respondent R.C.
Lee and once the payment is fully accepted in the name of respondent R.C. Lee, respondent
Interport was then bound to recognize the stock assignment also tendered duly executed by
respondent R.C. Lee in favor of complainant SSI.25cralawred(bold Emphasis supplied.)
The SEC correctly categorized the assignment of the subscription agreements as a form of novation by
substitution of a new debtor and which required the consent of or notice to the creditor. We agree. Under
the Civil Code, obligations may be modified by: (1) changing their object or principal conditions; or (2)
substituting the person of the debtor; or (3) subrogating a third person in the rights of the
creditor.26Novation, which consists in substituting a new debtor in the place of the original one, may be
made even without the knowledge or against the will of the latter, but not without the consent of the
creditor.27 In this case, the change of debtor took place when R.C. Lee assigned the Oceanic shares under
Subscription Agreement Nos. 1805, and 1808 to 1811 to SSI so that the latter became obliged to settle the
75% unpaid balance on the subscription.

The SEC likewise did not err in appreciating the fact that Interport was duly notified of the assignment
when SSI tendered its payment for the 75% unpaid balance, and that it could not anymore refuse to
recognize the transfer of the subscription that SSI sufficiently established by documentary evidence.

Yet, Interport claims that SSI waived its rights over the 5,000,000 shares due to its failure to register the
assignment in the books of Interport; and that SSI was estopped from claiming the assigned shares,
inasmuch as the assignor, R.C. Lee, had already transferred the same to third parties.

Interport's claim cannot be upheld. It should be stressed that novation extinguished an obligation
between two parties.28 We have stated in that respect that:ChanRoblesVirtualawlibrary
x x x Novation may:

chanRoblesvirtualLawlibrary[E]ither be extinctive or modificatory, much being dependent on the nature

of the change and the intention of the parties. Extinctive novation is never presumed; there must be an
express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate
their intent to dissolve the old obligation as the moving consideration for the emergence of the new one.
Implied novation necessitates that the incompatibility between the old and new obligation be total on
every point such that the old obligation is completely superseded by the new one. The test of
incompatibility is whether they can stand together, each one having an independent existence; if they
cannot and are irreconcilable, the subsequent obligation would also extinguish the first.

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation
and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four
essential requisites: (1) a previous valid obligation, (2) an agreement of all parties concerned to a new
contract, (3) the extinguishment of the old obligation, and (4) the birth of a valid new obligation.
Novation is merely modificatory where the change brought about by any subsequent agreement is
merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay; in
this instance, the new agreement will not have the effect of extinguishing the first but would merely
supplement it or supplant some but not all of its provisions.29chanroblesvirtuallawlibrary
Clearly, the effect of the assignment of the subscription agreements to SSI was to extinguish the
obligation of R.C. Lee to Oceanic, now Interport, to settle the unpaid balance on the subscription. As a
result of the assignment, Interport was no longer obliged to accept any payment from R.C. Lee because
the latter had ceased to be privy to Subscription Agreements Nos. 1805, and 1808 to 1811 for having
been extinguished insofar as it was concerned. On the other hand, Interport was legally bound to accept
SSI's tender of payment for the 75% balance on the subscription price because SSI had become the new
debtor under Subscription Agreements Nos. 1805, and 1808 to 1811. As such, the issuance of the stock
certificates in the name of R.C. Lee had no legal basis in the absence of a contractual agreement between
R.C. Lee and Interport.

Under Section 63 of the Corporation Code, no transfer of shares of stock shall be valid, except as between
the parties, until the transfer is recorded in the books of the corporation so as to show the names of the
parties to the transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred. Hence:ChanRoblesVirtualawlibrary
[A] transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-
existent as far as the corporation is concerned. As between the corporation on the one hand, and its
shareholders and third persons on the other, the corporation looks only to its books for the purpose of
determining who its shareholders are. It is only when the transfer has been recorded in the stock and
transfer book that a corporation may rightfully regard the transferee as one of its stockholders. From this
time, the consequent obligation on the part of the corporation to recognize such rights as it is mandated
by law to recognize arises.30chanroblesvirtuallawlibrary
This statutory rule cannot be strictly applied herein, however, because Interport had unduly refused to
recognize the assignment of the shares between R.C. Lee and SSI. Accordingly, we adopt with approval
the SEC's following conclusion that -
x x x To say that the ten years since the assignment had been made are a sufficient lapse of time in order
for respondent SSI to be considered to have abandoned its rights under the subscription agreements, is to
ignore the rule -
"The right to have the transfer registered exists from the time of the transfers and it is to the transferee's
benefit that the right be exercised early. However, since the law does not prescribed (sic) any period
within which the registration should be effected the action to be enforced the right does not accrue until
here has been a demand and a refusal to record the transfer." (11 Campus 310, 1990 ed., citing Won v.
Wack Wack Golf, 104 Phil. 466, Emphasis supplied).
Petitioner SSI was denied recognition of its subscription agreement on March 15, 1989; the complaint
against the respondents was filed before the SEC on October 6 of that same year. This is the period of
time that is to be taken into account, not the period between 1979 and 1989. The Commission thus finds
that petitioner acted with sufficient dispatch in seeking to enforce its rights under the subscription
agreements, and sought the intervention of this Commission within a reasonable period.

In the affidavit of respondent R.C. Lee's president, Ramon C. Lee, dated February 22, 1989, there are
several averments that need to be examined, in the light of respondent R.C. Lee's claim of having acted in
good faith.

The first is the statement made in paragraph 3 thereof:ChanRoblesVirtualawlibrary

"That R.C. Lee Securities, Inc. has delivered to Interport its subscription Agreements for Twenty Five
Million (25,000,000) shares of Oceanic for conversion into Interport shares however, as of date, only
twenty million (20,000,000) shares have been duly covered by Interport Subscription Agreements and
the Five million (5,000,000) shares still remains without Subscription Agreements".
No explanation is given for the failure of respondent Interport to convert the five (5) million shares. As
can be seen from the letter of Interport to counsel of R.C. Lee, dated January 27, 1989, already mentioned
above, these five (5) million shares purportedly belonging to respondent R.C. Lee do not seem to be
covered by any properly identified subscription agreements. Yet respondent Interport issued the shares
without respondent R.C. Lee having anything to show for the same. On the other hand, respondent
Interport refused to recognize complainant SSI's claim to five (5) millions (sic) shares inspite of the fact
that its claim was fully supported by duly issued subscription agreements, stock assignment and receipts
of payment of the initial subscription. x x x31chanrobleslaw

Subscription Agreements Nos. 1805, and 1808 to 1811 were now binding between Interport and SSI only,
and only such parties were expected to comply with the terms thereof. Hence, the CA did not err in
relying on the findings of the SEC, which was in a better position to pass judgment on whether or not
Interport was liable to deliver to SSI the Oceanic shares under Subscription Agreements Nos. 1805, and
1808 to 1811.
2.

Interport and R.C. Lee were not liable to pay exemplary damages and attorney's fees

Article 2229 of the Civil Code provides that exemplary damages may be imposed by way of example or
correction for the public good. While exemplary damages cannot be recovered as a matter of right, they
need not be proved, although the plaintiff must show that he is entitled to moral, temperate, or
compensatory damages before the court may consider the question of whether or not exemplary
damages should be awarded. Exemplary damages are imposed not to enrich one party or impoverish
another, but to serve as a deterrent against or as a negative incentive to curb socially deleterious
actions.32chanrobleslaw

SSI was not able to show that it was entitled to moral, temperate, or compensatory damages. In fact, the
SEC pointed out that the award of temperate damages was not proper because SSI's alleged pecuniary
loss was merely speculative in nature. Neither could SSI recover exemplary damages considering that
there was no award of moral damages. Indeed, exemplary damages are to be allowed only in addition to
moral damages, and should not be awarded unless the claimant first establishes a clear right to moral
damages.33chanrobleslaw

Nonetheless, the Court observes that exemplary damages were awarded in the past despite the award of
moral damages being deleted because the defendant party to a contract acted in a wanton, fraudulent,
oppressive or malevolent manner.34chanrobleslaw

In this case, the Court finds that Interport's act of refusing to accept SSI's tender of payment for the 75%
balance of the subscription price was not performed in a wanton, fraudulent, oppressive or malevolent
manner. In doing so, Interport merely relied on its records which did not show that an assignment of the
shares had already been made between R.C. Lee and SSI as early as 1979. R.C. Lee, on the other hand,
persisted in paying the 75% balance on the subscription price simply on the basis of Interport's
representation that no transfer has yet been made in connection with Subscription Agreement Nos. 1805,
and 1808 to 1811. Although Interport and R.C. Lee might have acted in bad faith35 in refusing to recognize
the assignment of the subscription agreements in favor of SSI, their acts certainly did not fall within the
ambit of being performed in a wanton, fraudulent, oppressive or malevolent manner as to entitle SSI to
an award for exemplary damages.

We delete the attorney's fees for lack of legal basis.36chanrobleslaw

WHEREFORE, the Court PARTIALLY GRANTS the petition for review on certiorari; and AFFIRMS the
decision promulgated on February 11, 2002 subject to the following MODIFICATIONS, namely:

chanRoblesvirtualLawlibrary1. ORDERING Interport Resources Corporation: (a) To accept the tender of

payment of Securities Specialist, Inc. corresponding to the 75% unpaid balance of the total subscription
price under Subscription Agreements Nos. 1805, 1808, 1809, 1810 and 1811; (b) To deliver 5,000,000
shares of stock and to issue the corresponding stock certificates to Securities Specialist, Inc. upon receipt
of the payment of the latter under Item No. (a); (c) To cancel the stock certificates issued to R.C. Lee
Securities, Inc. corresponding to the 5,000,000 shares of stock covered by Subscription Agreements Nos.
1805, 1808, 1809, 1810 and 1811; (d) To reimburse R.C. Lee Securities, Inc. the amounts it paid
representing the 75% unpaid balance of the total subscription price of Subscription Agreements Nos.
1805, 1808, 1809, 1810 and 1811; and (e) In the alternative, if the foregoing is no longer possible,
Interport Resources Corporation shall pay Securities Specialist, Inc. the market value of the 5,000,000
shares of stock covered by Subscription Agreements Nos. 1805, 1808, 1809, 1810 and 1811 at the time of
the promulgation of this decision; and cralawlawlibrary

2. DELETING the award for exemplary damages and attorney's fees for lack of merit.

No pronouncement on costs of suit.

SO ORDERED.chanRoblesvirtualLawlibrary

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-18216 October 30, 1962

STOCKHOLDERS OF F. GUANZON AND SONS, INC., petitioners-appellants,

vs.
REGISTER OF DEEDS OF MANILA, respondent-appellee.

Ramon C. Fernando for petitioners-appellants.

Office of the Solicitor General for respondent-appellee.

BAUTISTA ANGELO, J.:

On September 19, 1960, the five stockholders of the F. Guanzon and Sons, Inc. executed a certificate of
liquidation of the assets of the corporation reciting, among other things, that by virtue of a resolution of
the stockholders adopted on September 17, 1960, dissolving the corporation, they have distributed
among themselves in proportion to their shareholdings, as liquidating dividends, the assets of said
corporation, including real properties located in Manila.
The certificate of liquidation, when presented to the Register of Deeds of Manila, was denied registration
on seven grounds, of which the following were disputed by the stockholders:

3. The number of parcels not certified to in the acknowledgment;

5. P430.50 Reg. fees need be paid;

6. P940.45 documentary stamps need be attached to the document;

7. The judgment of the Court approving the dissolution and directing the disposition of the assets
of the corporation need be presented (Rules of Court, Rule 104, Sec. 3).

Deciding the consulta elevated by the stockholders, the Commissioner of Land Registration overruled
ground No. 7 and sustained requirements Nos. 3, 5 and 6.

The stockholders interposed the present appeal.

As correctly stated by the Commissioner of Land Registration, the propriety or impropriety of the three
grounds on which the denial of the registration of the certificate of liquidation was predicated hinges on
whether or not that certificate merely involves a distribution of the corporation's assets or should be
considered a transfer or conveyance.

Appellants contend that the certificate of liquidation is not a conveyance or transfer but merely a
distribution of the assets of the corporation which has ceased to exist for having been dissolved. This is
apparent in the minutes for dissolution attached to the document. Not being a conveyance the certificate
need not contain a statement of the number of parcel of land involved in the distribution in the
acknowledgment appearing therein. Hence the amount of documentary stamps to be affixed thereon
should only be P0.30 and not P940.45, as required by the register of deeds. Neither is it correct to require
appellants to pay the amount of P430.50 as registration fee.

The Commissioner of Land Registration, however, entertained a different opinion. He concurred in the
view expressed by the register of deed to the effect that the certificate of liquidation in question, though it
involves a distribution of the corporation's assets, in the last analysis represents a transfer of said assets
from the corporation to the stockholders. Hence, in substance it is a transfer or conveyance.

We agree with the opinion of these two officials. A corporation is a juridical person distinct from the
members composing it. Properties registered in the name of the corporation are owned by it as an entity
separate and distinct from its members. While shares of stock constitute personal property they do not
represent property of the corporation. The corporation has property of its own which consists chiefly of
real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share
of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to
that extent when distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala 398,
56 So., 235), but its holder is not the owner of any part of the capital of the corporation (Bradley v.
Bauder 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its property or
assets (Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-
owner or tenant in common of the corporate property (Halton v. Hohnston, 166 Ala 317, 51 So 992).
On the basis of the foregoing authorities, it is clear that the act of liquidation made by the stockholders of
the F. Guanzon and Sons, Inc. of the latter's assets is not and cannot be considered a partition of
community property, but rather a transfer or conveyance of the title of its assets to the individual
stockholders. Indeed, since the purpose of the liquidation, as well as the distribution of the assets of the
corporation, is to transfer their title from the corporation to the stockholders in proportion to their
shareholdings, — and this is in effect the purpose which they seek to obtain from the Register of Deeds of
Manila, — that transfer cannot be effected without the corresponding deed of conveyance from the
corporation to the stockholders. It is, therefore, fair and logical to consider the certificate of liquidation as
one in the nature of a transfer or conveyance.

WHEREFORE, we affirm the resolution appealed from, with costs against appellants.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. Nos. L-24177-85 June 29, 1968

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
BITULOK SAWMILL, INC., DINGALAN LUMBER CO., INC., SIERRA MADRE LUMBER CO., INC., NASIPIT
LUMBER CO., INC., WOODWORKS, INC., GONZALO PUYAT, TOMAS B. MORATO, FINDLAY MILLAR
LUMBER CO., INC., ET AL., INSULAR LUMBER CO., ANAKAN LUMBER CO., AND CANTILAN LUMBER
CO., INC., defendants-appellees.

Tomas Besa, Simplicio N. Angeles and Jose B. Galang for plaintiff-appellee.

Bausa, Ampil and Suarez for defendant-appellant Woodworks, Inc.
Pacifico de Ocampo for defendant-appellant Anakan Lumber Co.
Ross, Selph, Salcedo, Del Rosario, Bito and Misa for defendant-appellant Insular Lumber Co.
Garin, Boquiren and Tamesis for defendant-appellant Nasipit Lumber Co., Inc.
Feria, Manglapus and Associates for defendant-appellant Gonzalo Puyat.
Sycip, Salazar and Associates for defendant-appellant Cantilan Lumber Co., Inc.
Ozaeta, Gibbs and Ozaeta for defendant-appellant Findlay Millar Lumber Co., Inc.
Dominador Alafriz for defendant-appellant Bitulok Sawmill, Inc.
De la Costa and De la Costa for defendant-appellant Tomas B. Morato.

FERNANDO, J.:

In the face of a statutory norm, which, as interpreted in a uniform line of decisions by this Court, speaks
unequivocally and is free from doubt, the lower court with full recognition that the case for the plaintiff
creditor, Philippine National Bank, "is meritorious strictly from the legal standpoint" 1 but apparently
unable to "close its eyes to the equity of the case" 2 dismissed nine (9) cases filed by it, seeking "to recover
from the defendant lumber producers [Bitulok Sawmill, Inc.; Dingalan Lumber Co., Inc., Sierra Madre
Lumber Co., Inc.; Nasipit Lumber Co., Inc.; Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay
Millar Lumber Co., Inc.; Insular Lumber Co., Inc.; Anakan Lumber Co., Inc.; and Cantilan Lumber Co., Inc.]
the balance of their stock subscriptions to the Philippine Lumber Distributing Agency, Inc." 3 In essence
then, the crucial question posed by this appeal from such a decision of the lower court is adherence to the
rule of law. Otherwise stated, would non-compliance with a plain statutory command, considering the
persuasiveness of the plea that defendants-appellees would "not have subscribed to [the] capital stock" of
the Philippine Lumber Distributing Agency "were it not for the assurance of the [then] President of the
Republic of the Philippines that the Government would back [it] up by investing P9.00 for every
peso" 4subscribed, a condition which was not fulfilled, such commitment not having been complied with,
be justified? The answer must be in the negative.

It cannot be otherwise even if an element of unfairness and injustice could be predicated, as the lower
court, in a rather sympathetic mood, did find in the plaintiff bank, as creditor, compelling defendant
lumber producers under the above circumstances to pay the balance of their subscriptions. For a plain
and statutory command, if applicable, must be respected. The rule of law cannot be satisfied with
anything less. The appeal must be sustained.

In these various suits decided jointly, the Philippine National Bank, as creditor, and therefore the real
party in interest, was allowed by the lower court to substitute the receiver of the Philippine Lumber
Distributing Agency in these respective actions for the recovery from defendant lumber producers the
balance of their stock subscriptions. The amount sought to be collected from defendants-appellees
Bitulok Sawmill, Inc., Dingalan Lumber Co., Inc., and Sierra Madre Lumber Co., Inc., is P5,000.00,
defendants-appellees having made a partial payment of P15,000.00 of their total subscription worth
P20,000.00; from defendant-appellee Nasipit Lumber Co., Inc., the sum of P10,000.00, defendant-appellee
having made a partial payment of P10,000.00 of its total subscription worth P20,000.00; from defendant-
appellee Woodworks, Inc., the sum of P10,886.00, defendant-appellee having made a partial payment of
P9,114.00 of its total subscription worth P20,000.00; from defendant-appellee Gonzalo Puyat the sum of
P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of his total subscription
worth P20,000.00; from defendant-appellee Tomas Morato the sum of P10,000.00, defendant-appellee
having made a partial payment of P10,000.00 of his total subscription worth P20,000.00; from defendant-
appellee Findlay Millar Lumber Co., Inc., the sum of P10,000.00, defendant-appellee having made a partial
payment of P10,000.00 of its total subscription worth P20,000.00; from defendant-appellee Insular
Lumber Co., Inc., the sum of P5,000.00, defendant-appellee having made a partial payment of P15,000.00
of its total subscription worth P20,000.00; from defendant-appellee Anakan Lumber Co., Inc., the sum of
P15,000.00, defendant-appellee having made a partial payment of P5,000.00 of its total subscription
worth P20,000.00; and from defendant-appellee Cantilan Lumber Co., Inc., the sum of P7,500.00,
defendant-appellee having made a partial payment of P2,500.00 of its total subscription worth
P10,000.00, plus interest at the legal rate from the filing of the suits and the costs of the suits in all the
nine (9) cases.

The Philippine Lumber Distributing Agency, Inc., according to the lower court, "was organized sometime
in the early part of 1947 upon the initiative and insistence of the late President Manuel Roxas of the
Republic of the Philippines who for the purpose, had called several conferences between him and the
subscribers and organizers of the Philippine Lumber Distributing Agency, Inc." 5 The purpose was
praiseworthy, to insure a steady supply of lumber, which could be sold at reasonable prices to enable the
war sufferers to rehabilitate their devastated homes. The decision continues: "He convinced the lumber
producers to form a lumber cooperative and to pool their sources together in order to wrest, particularly,
the retail trade from aliens who were acting as middlemen in the distribution of lumber. At the beginning,
the lumber producers were reluctant to organize the cooperative agency as they believed that it would
not be easy to eliminate from the retail trade the alien middlemen who had been in this business from
time immemorial, but because the late President Roxas made it clear that such a cooperative agency
would not be successful without a substantial working capital which the lumber producers could not
entirely shoulder, and as an inducement he promised and agreed to finance the agency by making the
Government invest P9.00 by way of counterpart for every peso that the members would invest
therein,...." 6

This was the assurance relied upon according to the decision, which stated that the amount thus
contributed by such lumber producers was not enough for the operation of its business especially having
in mind the primary purpose of putting an end to alien domination in the retail trade of lumber products.
Nor was there any appropriation by the legislature of the counterpart fund to be put up by the
Government, namely, P9.00 for every peso invested by defendant lumber producers. Accordingly, "the
late President Roxas instructed the Hon. Emilio Abello, then Executive Secretary and Chairman of the
Board of Directors of the Philippine National Bank, for the latter to grant said agency an overdraft in the
original sum of P250,000.00 which was later increased to P350,000.00, which was approved by said
Board of Directors of the Philippine National Bank on July 28, 1947, payable on or before April 30, 1958,
with interest at the rate of 6% per annum, and secured by the chattel mortgages on the stock of lumber of
said agency." 7 The Philippine Government did not invest the P9.00 for every peso coming from defendant
lumber producers. The loan extended to the Philippine Lumber Distributing Agency by the Philippine
National Bank was not paid. Hence, these suits.

For the lower court, the above facts sufficed for their dismissal. To its mind "it is grossly unfair and unjust
for the plaintiff bank now to compel the lumber producers to pay the balance of their subscriptions ....
Indeed, when the late President Roxas made representations to the plaintiff bank, thru the Hon. Emilio
Abello, who was then the Executive Secretary and Chairman of its Board of Directors, to grant said
overdraft to the agency, it was the only way by which President Roxas could make good his commitment
that the Government would invest in said agency to the extent already mentioned because, according to
said late President Roxas, the legislature had not appropriated any amount for such counterpart.
Consequently, viewing from all considerations of equity in the case, the Court finds that plaintiff bank
should not collect any more from the defendants the balance of their subscriptions to the capital stock of
the Philippine Lumber Distributing Agency, Inc." 8

Even with the case for defendant lumber producers being put forth in its strongest possible light in the
appealed decision, the plaintiff creditor, the Philippine National Bank, should have been the prevailing
party. On the law as it stands, the judgment reached by the lower court cannot be sustained. The appeal,
as earlier made clear, possesses merit.

In Philippine Trust Co. v. Rivera, 9 citing the leading case of Velasco v. Poizat, 10 this Court held: "It is
established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors
have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an
action upon any unpaid stock subscription in order to realize assets for the payment of its debt.... A
corporation has no power to release an original subscriber to its capital stock from the obligation of
paying for his shares, without a valuable consideration for such release; and as against creditors a
reduction of the capital stock can take place only in the manner and under the conditions prescribed by
the statute or the charter or the articles of incorporation. Moreover, strict compliance with the statutory
regulations is necessary...." The Poizat doctrine found acceptance in later cases. 11One of the latest
cases, Lingayen Gulf Electric Power v. Baltazar, 12 Speaks to this effect: "In the case of Velasco v.
Poizat, 13 the corporation involved was insolvent, in which case all unpaid stock subscriptions become
payable on demand and are immediately recoverable in an action instituted by the assignee."
It would be unwarranted to ascribe to the late President Roxas the view that the payment of the stock
subscriptions, as thus required by law, could be condoned in the event that the counterpart fund to be
invested by the Government would not be available. Even if such were the case, however, and such a
promise were in fact made, to further the laudable purpose to which the proposed corporation would be
devoted and the possibility that the lumber producers would lose money in the process, still the plain and
specific wording of the applicable legal provision as interpreted by this Court must be controlling. It is a
well-settled principle that with all the vast powers lodged in the Executive, he is still devoid of the
prerogative of suspending the operation of any statute or any of its terms.

The emphatic and categorical language of an American decision cited by the late Justice Laurel, in People
v. Vera, 14 comes to mind: "By the twentieth article of the declaration of rights in the constitution of this
commonwealth, it is declared that the power of suspending the laws, or the execution of the laws, ought
never to be exercised but by the legislature, or by authority derived from it, to be exercised in such
particular cases only as the legislature shall expressly provide for...." Nor could it be otherwise
considering that the Constitution specifically enjoins the President to see to it that all laws be faithfully
executed. 15 There may be a discretion as to what a particular legal provision requires; there can be none
whatsoever as to the enforcement and application thereof once its meaning has been ascertained. What it
decrees must be followed; what it commands must be obeyed. It must be respected, the wishes of the
President, to the contrary notwithstanding, even if impelled by the most worthy of motives and the most
persuasive equitable considerations. To repeat, such is not the case here. For at no time did President
Roxas ever give defendant lumber producers to understand that the failure of the Government for any
reason to put up the counterpart fund could terminate their statutory liability.

Such is not the law. Unfortunately, the lower court was of a different mind. That is not to pay homage to
the rule of law. Its decision then, one it is to be repeated influenced by what it considered to be the
"equity of the case", is not legally impeccable.

WHEREFORE, the decision of the lower court is reversed and the cases remanded to the lower court for
judgment according to law, with full consideration of the legal defenses raised by defendants-appellees,
Bitulok Sawmill, Inc.; Dingalan Lumber Co., Inc.; Sierra Madre Lumber Co., Inc.; Nasipit Lumber Co., Inc.;
Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.; Anakan Lumber Co.,
Inc.; and Cantilan Lumber Co., Inc. No pronouncement as to costs.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-57586 October 8, 1986

AQUILINO RIVERA, ISAMU AKASAKO and FUJIYAMA HOTEL & RESTAURANT, INC., petitioners,
vs.
THE HON. ALFREDO C. FLORENDO, as Judge of the Court of First Instance of Manila (Branch
XXXVI), LOURDES JUREIDINI and MILAGROS TSUCHIYA, respondents.

Bobby P. Yuseco for petitioners.

Arthur Canlas for private respondents.

PARAS, J.:

This is a petition for certiorari and prohibition with preliminary injunction seeking the annulment of the
following Orders of the then Court of First Instance of Manila, Branch XXXVI: (a) Order dated June 5, 1981
directing the issuance of a writ of preliminary mandatory injunction requiring petitioners Fujiyama Hotel
& Restaurant, Inc., Isamu Akasako and Aquilino Rivera to allow respondents Lourdes Jureidini and
Milagros Tsuchiya to manage the corporate property upon filing of a bond in the amount of P30,000.00
(Rollo, pp. 43-57) and (b) Order dated July 24, 1981 denying petitioners' motion for reconsideration and
motion to dismiss for lack of jurisdiction but increasing the bond to P120,000.00 (Rollo, p. 81).

Petitioner corporation was organized and register under Philippine laws with a capital stock of
P1,000,000.00 divided into 10,000 shares of P100.00 par value each by the herein petitioner Rivera and
four (4) other incorporators. Sometime thereafter petitioner Rivera increased his subscription from the
original 1,250 to a total of 4899 shares (Rollo, p. 4).

Subsequently, Isamu Akasako, a Japanese national and co-petitioner who is allegedly the real owner of
the shares of stock in the name of petitioner Aquilino Rivera, sold 2550 shares of the same to private
respondent Milagros Tsuchiya for a consideration of P440,000.00 with the assurance that Milagros
Tsuchiya will be made the President and Lourdes Jureidini a director after the purchase. Aquilino Rivera
who was in Japan also assured private respondents by overseas call that he will sign the stock certificates
because Isamu Akasako is the real owner. However, after the sale was consummated and the
consideration was paid with a receipt of payment therefor shown, Aquilino Rivera refused to make the
indorsement unless he is also paid. (Rollo, pp. 51-52).

It also appears that the other incorporators sold their shares to both respondent Jureidini and Tsuchiya
such that both respondents became the owners of a total of 3300 shares or the majority out of 5,649
outstanding subscribed shares of the corporation (Rollo, pp. 4-5), and that there was no dispute as to the
legality of the transfer of the stock certificate Exhibits "B-1" to "B-4" to Jureidini, all of which bear the
signatures of the president and the secretary as required by the Corporation Law with the proper
indorsements of the respective owners appearing thereon. Exhibits "B-1" to "B-4" are specifically
indorsed to her while Exhibits "B-2" and "B-3" are indorsed in blank. Aquilino Rivera admitted the
genuineness of an the signatures of the officers of the corporation and of an the indorsee therein. (Order
dated June 5, 1981, Civil Case No. 13273, Rollo, pp. 51-53).

Nonetheless, private respondents attempted several times to register their stock certificates with the
corporation but the latter refused to register the same. (Ibid., Rollo, pp. 54-55). Thus, private respondents
filed a special civil action for mandamus and damages with preliminary mandatory injunction and/or
receivership naming herein petitioners as respondents, docketed as Special Civil Action No.
13273, "Lourdes Jureidini, et al. v. Fujiyama Hotel et al." of the Court of First Instance of Manila, Branch
XXXVI presided by respondent Judge. Petitioners' counsel Atty. Marcelino A. Bueno, upon receipt of the
summons and a copy of the aforesaid petition, filed an answer thereto with denials, special and
affirmative defenses and counterclaim. Thereafter, a hearing was held on the application for preliminary
mandatory injunction and/or receivership, after which respondent Judge issued an order for a writ of
preliminary mandatory injunction authorizing respondent Jureidini and Tsuchiya to manage the
corporation's hotel and restaurant, upon the filing of a bond in the amount of P30,000.00. Then through
another counsel Atty. Eriberto D. Ignacio in collaboration with their counsel of record, Atty. Marcelino A.
Bueno, petitioners (respondents therein) filed a motion to dismiss the petition on the ground that
respondent Judge has no jurisdiction to entertain the case, while through Atty. Bueno, they filed a motion
for reconsideration of the Order granting the issuance of a writ of mandatory preliminary injunction.
Private respondents filed their opposition to both motions and on July 24, 1981, respondent Judge issued
an Order denying both the motion for reconsideration and the motion to dismiss the petition but
increased the amount of the bond from P30,000.00 to P120,000.00 to sufficiently protect the interests of
herein petitioners. (Rollo, p. 81).

Hence, this petition.

After filing the petition, Atty. Eriberto D. Ignacio withdrew as counsel for petitioners on August 6, 1981.
Such withdrawal was confirmed by petitioner Isamu Akasako (Rollo, p. 83). On August 10, 1981 the
appearance of Isaca & Espiritu Law Offices as counsel in substitution of former counsel Attys. Marcelino
A. Bueno and Eriberto D. Ignacio was received by this Court. (Rollo, p. 84); all of which were noted in the
resolution of the First Division of this Court dated August 17, 1981. (Rollo, p. 160).

The new counsel filed a Manifestation and Motion praying that the therein attached Supplement and
certified copies of the questioned orders and writs be admitted and considered as part of petitioners'
original petition for certiorari and Prohibition with Preliminary injunction. (Rollo, pp. 85-131). On August
14, 1981 petitioners filed an Urgent Motion for Restraining Order and Other Provisional Injunctive
Reliefs (Rollo, pp. 154-159). In the same resolution of August 17, 1981, after deliberating on the petition
and supplemental to the petition, the Court Resolved: (a) to require the respondents to comment thereon
(not to file a motion to dismiss within ten (10) days from notice and (b) upon petitioners' filing of an
injunction bond in the amount of P30,000.00 to issue a Writ of Preliminary Injunction enjoining
respondents from enforcing the writ of preliminary mandatory injunction dated June 23, 1981 issued in
Civil Case No. 132673. (Rollo, p. 160). Said bond was filed on August 20, 1981 (Rollo, p. 161) and
accordingly, a writ of preliminary injunction was issued by this Court on August 21, 1981 (Rollo, pp. 172-
173).

Subsequently, petitioners filed a manifestation and urgent motion on August 28, 1981 praying that
private respondent Lourdes Jureidini and her counsel Atty. Arthur Canlas be declared in contempt of
court for the former's alleged defiant refusal: (a) to acknowledge receipt of the Writ of Preliminary
Injunction of August 21, 1981 and (b) to comply with the said writ issued by this Court. (Rollo, pp. 174-
180).

Comment thereon was filed by private respondents through counsel (Rollo, pp. 185-199) in compliance
with the resolution of the First Division dated August 17, 1981 (Rollo, p. 160), praying for the immediate
lifting of the preliminary injunction. Said comment of private respondents was noted in the resolution of
October 5, 1981 (Rollo, p. 200) which also required respondents to comment on the supplement to the
petition.

On October 2, 1981, comment on the manifestation and urgent motion to declare Jureidini and her
counsel in contempt of court was filed by counsel for private respondent (Reno, pp. 201-214) in
compliance with the resolution of September 14, 1981 (Rollo, p. 181).
In the resolution of October 26, 1981 (Reno, p. 215) the Court Resolved to require petitioners to file a
reply to aforesaid comment. (Rollo, p. 215).

Meanwhile, supplemental comment on the supplement to the petition was filed by private respondents
on October 14, 1981 (Rollo, pp. 216-222) reiterating their stand that it is the ordinary court and not the
Securities and Exchange Commission (SEC) that has jurisdiction to entertain the case as the controversies
did not arise from the intra-corporate relationship among the parties.

On October 21, 1981, petitioner filed: (a) motion for leave to file reply to comment of respondents on the
petition and supplemental petition required in the resolution of August 17, 1981 (Rollo, pp. 223-224) and
(b) the attached Reply (Rollo, pp. 225-241). On November 25, 1981, petitioners filed their Reply to
respondents' Comment on petitioners' manifestation and urgent motion to declare them in contempt.
(Rollo, pp. 246-257).

On December 7, 1981 Atty. Bobby P. Yuseco entered his appearance as collaborating counsel for
petitioners (Rollo, p. 258) and filed an urgent petition for early resolution of petitioners' motion to hold
private respondents in contempt and for issuance of Order clarifying Writ of Injunction dated August 21,
1981. (Rollo, pp. 259-261).

In the resolution of January 18, 1982, this case and all pending incidents were set for hearing on February
3, 1982. (Rollo, p. 268).

On February 1, 1982, Lesaca and Espiritu Law Offices filed a Manifestation and Motion for Leave to
withdraw as counsel for petitioners. (Rollo, pp. 274-275).

When this case was called for hearing on February 3, 1982, counsel for both parties appeared and argued
their causes and both were required by the Court within an unextendible period of ten (10) days to file
their respective memoranda in support of their positions on an pending incidents of the case at bar while
the hearing on the contempt proceedings was reset for February 10, 1982 where the personal
appearance of private respondent Lourdes Jureidini through her counsel was required. (Rollo, p. 279).

On February 9, 1982, counsel for private respondent Jureidini filed an Urgent Motion and Manifestation
that he was informed by his client that she is physically exhausted and is beset with hypertension and
praying that she be excused from appearing at the hearing set for February 10, 1982, that the hearing be
cancelled and the contempt incident be considered submitted for decision on the basis of pleadings
previously filed. (Rollo, pp. 280-282).

On the same date, February 9, 1982, counsel for petitioners filed his Memorandum in support of his oral
argument at the hearing of February 3, 1982, (Rollo, pp. 283-287) while a supplement thereto was filed
on February 12, 1982. (Rollo, pp. 291-294).

At the hearing of February 10, 1982, private respondent Lourdes Jureidini and her counsel failed to
appear. Accordingly the Court Resolved: (a) to IMPOSE on said counsel Atty. Canlas a fine of P200.00 or to
suffer imprisonment if said fine is not paid; (b) to RESET the hearing on the contempt incidents on March
3, 1982 and (c) to REQUIRE the presence of Atty. Canlas and respondent Lourdes Jureidini and of
complainants Attys. Bibiano P. Lasaca, Rodolfo A. Espiritu and Renato T. Paqui. (Resolution of February
10, 1982, Rollo, p. 290).
On February 15, 1982, private respondents file their memorandum in compliance with the resolution of
this Court of February 3, 1982 while petitioners on February 25, 1982 filed their reply thereto.

At the hearing of March 3, 1982, both counsel as well as private respondent Lourdes Jureidini, Attys.
Bibiano P. Lesaca, Rodolfo A. Espiritu and Renato R. Paguio appeared. Atty. Canlas, Lourdes Jureidini,
Atty. Lesaca and a representative of the petitioners were interpellated by the Court. Thereafter, the
incident was declared submitted for resolution. (Resolution of March 3, 1982, Rollo, p. 316).

On March 5, 1982, counsel for private respondents filed his compliance with the resolution of February
10, 1982 enclosing a check payable to this Court in the amount of P200.00 in payment of the fine imposed
with motion for reconsideration explaining why he should not be declared in contempt and praying that
the aforesaid resolution of February 10, 1982 be set aside, (Rollo, pp. 312-314). However, in the
resolution of March 10, 1982, (Rollo, p. 317) the Court acting on the compliance of Atty. Arthur Canlas
with motion for reconsideration, denied the motion and required the Chief of the Docket Division to
return to Atty. Canlas the check in the amount of P200.00 it being an out of town check, and Atty. Canlas
to pay the fine in cash, and to show cause why he should not be disciplinary dealt with or held in
contempt for wilful delay in paying the fine by mail through an out of town check contrary to his
manifestation at the hearing that he had promptly paid the fine, both within forty eight hours from notice.

Meanwhile, counsel for petitioners filed on April 6, 1982 an Urgent Petition for Permission to Implement
Injunction Writ issued on August 21, 1981 (Rollo, pp. 323-325) which was granted in the resolution of
May 26, 1982 (Rollo, p. 313). In the same resolution the Court ordered Lourdes Jureidini and Milagros
Tsuchiya to strictly and immediately comply with the Court's aforesaid writ of preliminary injunction;
indicated that it would resolve the pending incident for contempt against private respondent Lourdes
Jureidini when the Court decides the case on the merits; and gave the parties thirty (30) days from notice
within which to submit simultaneously their respective memoranda on the merits of the case.

On May 31, 1982, counsel for private respondent Atty. Canlas filed in compliance with the resolution of
March 10, 1982, his explanation and manifestation why he should not be disciplinarily dealt with and
held in contempt of Court (Rollo, pp. 316-318). In the resolution of June 2, 1982, the Court Resolved to set
aside and lift the Order of Atty. Canlas' arrest and commitment it had issued on March 31, 1982 but found
the explanation and manifestation of Atty. Canlas dated May 29, 1982 unsatisfactory. In view thereof, he
was reprimanded for negligence and undue delay in complying with the Court's resolution. (Rollo, p.
319).

On June 18, 1982, counsel for petitioners allegedly for purposes of clarification as to the laws involved in
the matter of contempt of Lourdes Jureidini, filed a pleading entitled "Re Incident of Contempt against
Lourdes Jureidini." (Rollo, pp. 320-326) which was noted by the Court in the resolution of July 7, 1982.
(Rollo, p. 328).

Counsel for private respondents manifested (Rollo, p. 329), on July 12, 1982 that they are adopting the
memorandum submitted in the preliminary injunction incident as their memorandum in the main case.
Said manifestation was noted in the resolution of July 26, 1982. (Rollo, p. 331). Counsel for petitioners
manifested (Rollo, p. 333) that they are adopting their memorandum in support of argument last
February 3, 1982 as their combined memoranda on the merits of the case. Said manifestation was noted
in the resolution of September 15, 1982. (Rollo, p. 334). In the resolution of November 29, 1982, this case
was transferred to the Second Division. (Rollo, p. 336).
In their petition and supplemental petition, petitioners raised the following issues:

THE RESPONDENT COURT OF FIRST INSTANCE HAS NO JURISDICTION OVER THE

PETITION FOR mandamus AND RECEIVERSHIP "AS WELL AS IN PLACING THE
CORPORATE ASSETS UNDER PROVISIONAL RECEIVERSHIP IN THE GUISE OF A WRIT OF
PRELIMINARY MANDATORY INJUNCTION.

II

EVEN FALSELY ASSUMING THAT THE RESPONDENT COURT HAD JURISDICTION, THE
PRIVATE RESPONDENTS' PRINCIPAL ACTION OF mandamus IS AN IMPROPER COURSE OF
ACTION.

III

ASSUMING ARGUENDO THAT WHAT THE RESPONDENT COURT FOUND IS TRUE, NAMELY
THAT PRIVATE RESPONDENTS "ARE OUTSIDERS" AND "NOT YET STOCKHOLDERS,"
THUS, HAVING NO PERSONALLY AT ALL, THEN PROVISIONAL RECEIVERSHIP, ALBEIT
CLOTHED AS A "WRIT OF PRELIMINARY MANDATORY INJUNCTION" WAS ILLEGALLY
ISSUED DE HORS ITS JURISDICTION.

IV

ASSUMING ARGUENDO THAT THE RESPONDENT COURT HAD JURISDICTION OVER BOTH
THE PETITION FOR mandamus AS WELL AS THE PROVISIONAL RECEIVERSHIP STILL THE
RESPONDENT COURT ACTED IN EXCESS OF ITS JURISDICTION OR IN GRAVE ABUSE OF
ITS DISCRETION TO GRANT RECEIVERSHIP OVER THE MANAGEMENT OF THE
CORPORATE BUSINESS AND ASSETS WHICH NEVER WAS NOR IS A SUBJECT MATTER OF
LITIGATION.

EVEN GRANTING FOR THE SAKE OF AGRGUMENT THAT THE RESPONDENT COURT HAD
JURISDICTION OVER THE SUBJECT MATTER OF THE CASE; NONETHELESS IT WAS IN
GRAVE ABUSE OF ITS DISCRETION TO UNILATERALLY GRANT TO A "PARTY-IN-
LITIGATION," THE PRIVATE RESPONDENTS HEREIN, THE MANAGEMENT OF THE
CORPORATE BUSINESS. (Petition and Supplemental Petition; Rollo, pp. 2-18; 88-131).

The crucial issue in this case is whether it is the regular court or the Securities and Exchange Commission
that has jurisdiction over the present controversy.

Presidential Decree No. 902-A provides:

 Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving

(a) ...

(b) Controversies arising out of intra-corporate or partnership relations and among

stockholders, members, or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members, or associates,
respectively and between such corporations, partnership or association and the State
insofar as it concerns their individual franchise or right to exist as such entity.

It has already been settled that an intracorporate controversy would call for the jurisdiction of the
Securities and Exchange Commission. (Philippine School of Business Administration v. Lanao, 127 SCRA
781, February 24, 1984). On the other hand, an intra-corporate controversy has been defined as "one
which arises between a stockholder and the corporate. There is no distinction, qualification, nor any
exemption whatsoever." (Philex Mining Corporation v. Reyes, 118 SCRA 605, November 19, 1982). This
Court has also ruled that cases of private respondents who are not shareholders of the corporation,
cannot be a "controversy arising out of intracorporate or partnership relations between and among
stockholders, members or associates; between any or all of them and the corporation, partnership or
association, of which they are stockholders, members or associates, respectively." (Sunset View
Condominium Corporation v. Campos, Jr., 104 SCRA 303, April 27, 1981).

Under Batas Pambansa Blg. 68 otherwise known as "The Corporation Code of the Philippines," shares of
stock are transferred as follows:

SEC. 63. Certificate of stock and transfer of shares. — The capital stock of stock corporations
shall be divided into shares for which certificates signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in- fact or other person legally authorized to make
the transfer. No transfer, however, shall be valid, except as between the parties, until the
transfer is recorded in the book of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred.

xxx xxx xxx

As confirmed by this Court, "shares of stock may be transferred by delivery to the transferee of the
certificate properly indorsed. 'Title may be vested in the transferee by delivery of the certificate with a
written assignment or indorsement thereof ' (18 C.J. S. 928). There should be compliance with the mode
of transfer prescribed by law (18 C.J.S. 930)' " (Nava v. Peers Marketing Corp. 74 SCRA 65, 69, Nov. 25,
1976)

As the bone of contention in this case, is the refusal of petitioner Rivera to indorse the shares of stock in
question and the refusal of the Corporation to register private respondents' shares in its books, there is
merit in the findings of the lower court that the present controversy is not an intracorporate controversy;
private respondents are not yet stockholders; they are only seeking to be registered as stockholders
because of an alleged sale of shares of stock to them. Therefore, as the petition is filed by outsiders not
yet members of the corporation, jurisdiction properly belongs to the regular courts.

II

On the other hand, there is merit in petitioners' contention that private respondents' principal action of
mandamus is an improper course of action.

It is evident that mandamus wig not lie in the instant case where the shares of stock in question are not
even indorsed by the registered owner Rivera who is specifically resisting the registration thereof in the
books of the corporation. Under the above ruling, even the shares of stock which were purchased by
private respondents from the other incorporators cannot also be the subject of mandamus on the
strength of mere indorsement of the supposed owners of said shares in the absence of express
instructions from them. The rights of the parties will have to be threshed out in an ordinary action.

III-V

Petitioners insist that what was issued was a provisional receivership, while private respondents
maintain that the trial court issued a Writ of Preliminary Mandatory Injunction. Be that as it may, it
appears obvious that from the abovementioned rulings of this Court, petitioners' contention that
respondent Judge in the issuance thereof committed acts of grave abuse of discretion, is well taken.

In the Order dated June 5, 1981, in Civil Case No. 132673, the basis of aforesaid Writ was as follows:

Finally, the Court, after assessing the evidence, finds that the issuance of a preliminary
mandatory injunction is proper. Respondents Isamu Akasako and Aquilino Rivera, thru
their simulated relationship, have succeeded for two years since 1979 to deprive the
petitioners to participate in the profit and management of the corporation of which they
are the majority stockholders considering that the stocks certificates appearing in the
name of Aquilino Rivera (Exh. "8") is 55% to 75% of the total stocks of the corporation by
Isamu Akasako would only prolong the injustice committed against the petitioners and the
damages they would suffer would be irreparable. The Court is aware that preliminary
mandatory injunction is the exception rather than the rule, but according to the Code
Commission, in its report on page 98, "the writ of preliminary mandatory injunction is
called for by the fact that there are at present prolonged litigation between owner and
usurper and the former is deprived of his possession even when he has an immediate right
thereto." In the instant case, the right of the petitioners is clear and unmistakable on the
law and the facts and there exists an urgent and paramount necessity for the issuing of the
writ in order to prevent extreme or rather serious damage which ensues from withholding
it. (43 C.J.S. 413)

WHEREFORE, in view of the foregoing circumstances, let a writ of preliminary mandatory

injunction issue requiring respondents to allow petitioners to manage the corporate
property known as the Fujiyama Hotel & Restauarant, Inc. upon petitioners' filing of a bond
in the amount of P30,000.00.
A mandatory injunction is granted only on a showing (a) that the invasion of the right is material and
substantial; (b) the right of complainant is clear and unmistakable; and (c) there is an urgent and
permanent necessity for the writ to prevent serious damage. (Pelejo v. Court of Appeals, 117 SCRA 668,
Oct. 18, 1982).

A mandatory injunction which commands the performance of some specific act is regarded as of a more
serious nature than a mere prohibitive injunction, the latter being intended generally to maintain the
status quo only. While our courts, being both of law and equity, have jurisdiction to issue a mandatory
writ, it has always been held that its issuance would be justified only in clear cases; that it is generally
improper to issue it before final hearing because it tends to do more than maintain the status quo; that it
should be issued only where there is a willful and unlawful invasion of plaintiff's right and that the
latter's case is one free from doubt and dispute. (National Marketing v. Cloribel, 22 SCRA 1038, March 13,
1968).

Respondent court in the instant case violated the fundamental rule of injunctions that a mandatory
injunction will not issue in favor of a party whose rights are not clear and free of doubt or as yet
undetermined. (Namarco v. Cloribel, 22 SCRA 1038-1039, March 13, 1968). It will be recalled that the
disputed shares of stock were purchased not from the registered owner but from a Japanese national
who allegedly was the real owner thereof. It was also alleged that the registered owner was only a
dummy of Akasako. it is also true that the trial court has already made findings to that effect at the
hearing for the issuance of the Order of June 5, 1981. Nonetheless, these are contentious issues that
should properly be ventilated at the trial on the merits. As correctly stated in petitioners' motion for
reconsideration, the Order of the trial court is in effect a judgment on the merits, declaring expressly or
impliedly that petitioners are stockholders of the Corporation at the hearing of only the incident for the
issuance of a Writ of Preliminary Injunction. On the other hand if the Order amounts to a judgment on the
merits, the lower court should first rule on what private respondents seek, the registration of their
shareholdings in the books of the corporation and the issuance of new stock certificates. It is only
thereafter that the subsequent act of management may be ordered and the period of finality of such a
judgment should be in accordance with the Rules of Court, giving the respondents the right to an appeal
or review and not be immediately executory as the Writ of Preliminary Mandatory Injunction would
infer. (Rollo, p. 65).

Another fundamental rule which appears to have been violated in the case at bar is that no advantage
may be given to one to the prejudice of the other, a court should not by means of a preliminary injunction
transfer the property in litigation from the possession of one party to another where the legal title is in
dispute and the party having possession asserts ownership thereto. (Rodulfo v. Alonso, 76 Phil. 225),
February 28, 1946). Similarly, the primary purpose of an injunction is to preserve the status quo, that is
the last actual peaceable uncontested status which preceded the controversy. In the instant case,
petitioner Rivera is the registered majority and controlling stockholder of the corporation before the
ensuing events transpired. By the issuance of the Writ in question he appears to have been deprived of
his rights as stockholder thereof apart from his status as Chairman of the Board and President of the
corporation, with Akasako as the Manager of the two restaurants in this case; the same being the last
uncontested status which preceded the controversy. (Rollo, p. 127).

On the contempt incident involving private respondent Lourdes Jureidini, a Manifestation and Urgent
Motion was filed by petitioners to declare her in contempt of Court for allegedly refusing to acknowledge
receipt of the Writ of Preliminary Injunction issued by this Court and for allegedly refusing to comply
therewith. Attributed to her were the following statements: "I will not obey that ... Yes, I am higher than
the Supreme Court ... I will obey only what my lawyer tells me."

In her explanation however, filed through her counsel she denied having uttered the statements alluded
to her, the truth of the matter being that she was alone in the restaurant when this Court's process server,
accompanied by petitioners' lawyers, approached her and demanded that she vacate the premises and
surrender the management of the Restaurant. Fazed by the unusual display of lawyers she requested that
she be given time to confer with her counsel Said request allegedly precipitated the remark from
Petitioners' counsel that neither respondent herself, nor her counsel can be higher than the Supreme
Court and that any conference seeking to clarify the effect of the Writ of Preliminary Injunction would be
futile. (Rollo, pp. 174-175).

It was likewise explained that respondent Jureidini did not sign and acknowledge receipt of the Writ
because it was not addressed to her but to the lower court and to her counsel.

Respondent's counsel says that the incident was concocted and devised by the petitioners and their
counsel to serve no salutary purpose but to scare and harass respondent Jureidini. He also stated that "it
is equally improper, at least in practice, for lawyers to accompany officers of the Court in serving or
otherwise executing processes of said court as to create a seeming suspicion to the public that lawyers
are not involved only professionally in the case they handle but signify their personal interests as well."
(Rollo, pp. 208-209).

When this contempt incident was heard on March 3, 1982, Atty. Arthur A. Canlas, counsel for private
respondent Lourdes Jureidini, Jureidini herself, Atty. Bibiano P. Lesaca a representative of the petitioners
were interpellated by the Court. Thereafter, the incident was declared submitted for resolution.
(Resolution of March 3, 1982; Rollo, p. 316).

Thereafter, counsel for petitioner filed a pleading "The Incident of Contempt of Lourdes Jureidini" in the
form of a summation of the incident and reiteration of petitioners' charges of contempt.

Counsel for petitioner invokes the provisions of: Section 3, Rule 71 on Indirect Contempt and par. (b)
thereof, on Disobedience of or Resistance to a Lawful Writ, Process, Order, Judgement or Command of a
Court; or Injunction granted by a Court or Judge ... ; (2) Section 6, Rule 71 regarding punishment or
penalty thereof and (3) Section 5, Rule 135, par. (e) to compel obedience to its judgments, orders and
processes, and to the lawful orders of a judge out of Court, in a case pending therein.

On the incident itself, petitioners' counsel stressed that present when the writ was served were attorneys
for petitioners Bibiano P. Lesaca, and Renato P. Paguio in the company of petitioners Isamu Akasako,
Akasako's assistants Furnio, Fujihara and Isamu Tajewakai and this Court's process server, before whose
presence the alleged contemptuous acts were committed.

Counsel for petitioners also reminded the Court that the first summons of the Court were answered only
by counsel for private respondent Jureidini while the latter feigned sickness without a medical certificate.
The hearing for the contempt charge was reset but neither counsel for private respondent nor the latter
appeared for which non-appearance Atty. Canlas was fined P200.00 for contempt when finally both
counsel and client appeared on the third day, the hearing was set.
At that hearing, counsel for petitioners narrated that Attys. Lesaca and Paguio and two Japanese nationals
testified in unison that Lourdes Jureidini not only disregarded the writ but distinctly uttered the
complained of statements.

Petitioners' counsel laid emphasis on the fact that Lourdes Jureidini is a graduate of nursing, who speaks
in straight polished English, capable of understanding the Writ of Mandatory Injunction of the
Respondent Court served on petitioners by herself and a Deputy Sheriff of Manila, but incredibly unable
to understand the Writ issued by the Supreme Court. She was assessed as "overbearing to the point of
insolence" and capable of uttering "I am higher than the Supreme Court."

There is no question that disobedience or resistance to a lawful writ, process, order, judgment or
command of a court, or injunction granted by a court or judge, more particularly in this case, the Supreme
Court, constitutes Indirect Contempt punishable under Rule 71 of the Rules of Court. (Rule 71, Section
3(b) and Section 6).

It has been held that contempt of court is a defiance of the authority, justice or dignity of the court, such
conduct as tends to bring the authority and administration of the law into disrespect or to interfere with
or prejudice parties litigant or their witnesses during litigation. It is defined as a disobedience to the
court by setting up an opposition to its authority justice and dignity. It signifies not only a willful
disregard or disobedience of the court's orders but such conduct as tends to bring the authority of the
court and the administration of law into disrepute or in some manner to impede the due administration
of justice (Halili v. Court of Industrial Relations, 136 SCRA 135, April 30, 1985).

However, it is also well settled that "the power to punish for contempt of court should be exercised on the
preservative and not on the vindictive principle. Only occasionally should the court invoke its inherent
power in order to retain that respect without which the administration of justice must falter or fail."
(Villavicencio v. Lukban, 39 Phil. 778 [1919]; Gamboa v. Teodoro, et al., 91 Phil. 274 [1952]; Sulit v.
Tiangco, 115 SCRA 207 [1982]; Lipata v. Tutaan, 124 SCRA 880 [1983]). "Only in cases of clear and
contumacious refusal to obey should the power be exercised. A bona fide misunderstanding of the terms
of the order or of the procedural rules should not immediately cause the institution of contempt
proceedings." "Such power 'being drastic and extra-ordinary in its nature ... should not be resorted to ...
unless necessary in the interest of justice.' " (Gamboa v. Teodoro, et al., supra).

In the case at bar, although private respondent Jureidini did not immediately comply with the Writ of
Injunction issued by this Court, it appears reasonable on her part to request that she be allowed to confer
with her lawyer first before she makes any move of her own. It is likewise reasonable for counsel for
private respondent to request that he be given time to file a motion for clarification with the Supreme
Court.

It will also be noted that the testimonies produced at the hearing to establish the fact that she had uttered
the alleged contemptuous statements alluded to her were those of Attys. Lesaca and Paguio and two
Japanese nationals, a one-sided version for the petitioners.

It appears to Us that the version of counsel for private respondent is more in accord with human
experience: Jureidini who was alone in the Restaurant was fazed by the unusual display of might and by
the presence of lawyers demanding that she vacate premises and surrender the management of the
Restaurant (Rollo, p. 204), this is more believable than the version of counsel for petitioners who
summed her up as a person "overbearing to the point of insolence" and capable of uttering" I am higher
than the Supreme Court." It would therefore be more reasonable to believe that what she uttered in that
situation where she felt threatened, was more in self-defense and not an open defiance of the Supreme
Court.

Jureidini cannot also be faulted for finding it difficult to understand the writ issued against her by the
Supreme Court as she believed that not only have she and her correspondent the legal right to manage
the restaurant but the equitable right as well, having been placed in possession of the corporate property
only after posting a bond of P120,000.00. (Rollo, pp. 197-198).

In connection with this incident, Jureidini through her counsel filed her comment on October 2, 1981
(Rollo, p. 201) contrary to the allegation of petitioners' counsel that it was only Atty. Canlas who filed his
comment.

WHEREFORE, the assailed orders of respondent Judge are SET ASIDE; the complaint (special civil action
for mandamus with damages, etc.) should ordinarily be dismissed without prejudice to the filing of the
proper action; but as all parties are already duly represented, We hereby consider the case as an ordinary
civil action for specific performance, and the case is therefore remanded to the lower court for trial on the
merits; the charge of contempt against respondent Jureidini is DISMISSED but the order of Our Court
restraining respondent from taking over the management of the restaurant remains until after this case is
decided.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 47206 September 27, 1989

GLORIA M. DE ERQUIAGA, administratrix of the estate of the late SANTIAGO DE ERQUIAGA & HON.
FELICIANO S. GONZALES, petitioners,
vs.
HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE REYNOSO, JOSES V. REYNOSO, JR., EERNESTO ,
SYLVIA REYNOSO, LOURDES REYNOSO, CECILE REYNOSO, EDNA REYNOSO, ERLINDA REYNOSO &
EMILY REYNOSO, respondents.

Agrava, Lucero, Gineta & Roxas for petitioners.

Bausa, Ampil, Suarez, Parades & Bausa for private respondents.

GRINO-AQUINO, J.:

This is a case that began in the Court of First Instance of Sorsogon in 1970. Although the decision dated
September 30, 1972 of the trial court (pp. 79-106, Rollo) became final and executory because none of the
parties appealed, its execution has taken all of the past seventeen (17) years with the end nowhere in
sight. The delay in writing finis to this case is attributable to several factors, not the least of which is the
intransigence of the defeated party. Now, worn down by this attrital suit, both have pleaded for a decision
to end this case.

Assailed in this petition for review are:

(a) the decision of the Court of Appeals dated May 31, 1976 in CA-G.R. No. SP 04811,
entitled "Africa Valdez Vda. de Reynoso et al. vs. Hon. Feliciano S. Gonzales and Santiago de
Erquiaga" (pp. 275-290, Rollo);

(b) its resolution dated August 3, 1976, denying the motion for reconsideration (p. 298,
Rollo);

(c) its resolution of August 24, 1977, ordering entry of judgment (p. 316, Rollo); and

(d) its resolution of October 4, 1977, denying the motion to set aside the entry of judgment.

Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the Erquiaga
Development Corporation which owns the Hacienda San Jose in Irosin, Sorsogon (p. 212, Rollo). On
November 4,1968, he entered into an Agreement with Jose L. Reynoso to sell to the latter his 3,100 shares
(or 100%) of Erquiaga Development Corporation for P900,000 payable in installments on definite dates
fixed in the contract but not later than November 30, 1968. Because Reynoso failed to pay the second and
third installments on time, the total price of the sale was later increased to P971,371.70 payable on or
before December 17, 1969. The difference of P71,371.70 represented brokers' commission and interest
(CFI Decision, pp. 75, 81, 90, 99,Rollo).

As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to Erquiaga who thereupon
transferred all his shares (3,100 paid-up shares) in Erquiaga Development Corporation to Reynoso, as
well as the possession of the Hacienda San Jose, the only asset of the corporation (p. 100, Rollo).
However, as provided in paragraph 3, subparagraph (c) of the contract to sell, Reynoso pledged 1,500
shares in favor of Erquiaga as security for the balance of his obligation (p. 100, Rollo). Reynoso failed to
pay the balance of P561,321.70 on or before December 17, 1969, as provided in the promissory notes he
delivered to Erquiaga. So, on March 2, 1970, Erquiaga, through counsel, formally informed Reynoso that
he was rescinding the sale of his shares in the Erquiaga Development Corporation (CFI Decision, pp. 81-
100, Rollo).

As recited by the Court of Appeals in its decision under review, the following developments occurred
thereafter:

On March 30, 1970, private respondent Santiago de Erquiaga filed a complaint for
rescission with preliminary injunction against Jose L. Reynoso and Erquiaga Development
Corporation, in the Court of First Instance of Sorsogon, Branch I (Civil Case
No. 2446).** After issues have been joined and after trial on the merits, the lower court
rendered judgment (on September 30, 1972),*** the dispositive portion of which reads as
follows:
 In view of the foregoing, judgment is hereby rendered in favor of the plaintiff
and against the defendant Jose L. Reynoso, rescinding the sale of 3,100 paid
up shares of stock of the Erquiaga Development Corporation to the
defendant, and ordering:

(a) The defendant to return and reconvey to the plaintiff the 3,100 paid up shares of stock
of the Erquiaga Development Corporation which now stand in his name in the books of the
corporation;

(b) The defendant to render a full accounting of the fruits he received by virtue of said
3,100 paid up shares of stock of the Erquiaga Development Corporation, as well as to
return said fruits received by him to plaintiff Santiago de Erquiaga;

(c) The plaintiff to return to the defendant the amount of P100,000.00 plus legal interest
from November 4,1968, and the amount of P310,000.00 plus legal interest from December
17, 1968, until paid;

(d) The defendant to pay the plaintiff as actual damages the amount of P12,000.00;

(e) The defendant to pay the plaintiff the amount of P50,000.00 as attorney's fees; and

(f) The defendant to pay the costs of this suit and expenses of litigation. (Annex A-Petition.)

The parties did not appeal therefrom and it became final and executory.

On March 21, 1973, the CFI of Sorsogon issued an Order, pertinent portions of which reads:

It will be noted that both parties having decided not to appeal, the decision
has become final and executory. Nevertheless, the Court finds merit in the
contention of the plaintiff that the payment to the defendant of the total sum of
P410,000.00 plus the interest, should be held in abeyance pending rendition of
the accounting by the defendant of the fruits received by him on account of the
3,100 shares of the capital stock of Erquiaga Development Corporation. The
same may be said with respect to the sums due the plaintiff from the
defendant for damages and attorney's fees. Indeed it is reasonable to
suppose, as contended by the plaintiff, that when such accounting is made
and the accounting, as urged by plaintiff, should refer not only to the
dividends due from the shares of stock but to the products of the hacienda
which is the only asset of the Erquiaga Development Corporation, certain
sums may be found due to the plaintiff from the defendant which may
partially or entirely off set (sic) the amount adjudged against him in the
decision.

It is the sense of the court that the fruits referred to in the decision include not
only the dividends received, if any, on the 3,100 shares of stocks but more
particularly the products received by the defendant from the hacienda. The
hacienda and the products thereon produced constitute the physical assets of
the Erquiaga Development Corporation represented by the shares of stock
 and it would be absurd to suppose that any accounting could be made by the
defendant without necessarily taking into account the products received
which could be the only basis for determining whether dividends are due or
not on account of the investment. The hacienda and its natural fruits as
represented by the shares of stock which the defendant received as manager
and controlling stockholder of the Erquiaga Development Corporation can
not be divorced from the certificates of stock in order to determine whether
the defendant has correctly reported the income of the corporation or
concealed part of it for his personal advantage. It is hardly necessary for the
Court to restate an obvious fact that on both legal and equitable grounds, the
Erquiaga Development Corporation and defendant Jose Reynoso are one and
the same persons as far as the obligation to account for the products of the
hacienda is concerned,' (pp. 4-6, Annex 1, Answer.)

In the same Order, the CFI of Sorsogon appointed a receiver upon the filing of a bond in the
amount of P100,000.00. The reasons of the lower court for appointing a receiver 'were that
the matter of accounting of the fruits received by defendant Reynoso as directed in the
decision will take time; that plaintiff Erquiaga has shown sufficient and justifiable ground
for the appointment of a receiver in order to preserve the Hacienda which has obviously
been mismanaged by the defendant to a point where the amortization of the loan with the
Development Bank of the Philippines has been neglected and the arrears in payments have
risen to the amount of P503,510.70 as of October 19, 1972, and there is danger that the
Development Bank of the Philippines may institute foreclosure proceedings to the damage
and prejudice of the plaintiff.' (p. 7, Id.)

On April 26, 1973, defendant Jose L. Reynoso died and he was substituted by his surviving
spouse Africa Valdez Vda. de Reynoso and children, as party defendants.

Defendants filed a petition for certiorari with a prayer for a writ of preliminary injunction
seeking the annulment of the aforementioned Order of March 21, 1973. On June 28, 1973,
the Court of Appeals rendered judgment dismissing the petition with costs against the
petitioners, ruling that said Order is valid and the respondent court did not commit any
grave abuse of discretion in issuing the same (Annex 2, Id.). Petitioners brought the case up
to the Supreme Court on a petition for review on certiorari which was denied by said
tribunal in a Resolution dated February 5, 1974 (Annex 3, Id.). Petitioners' motion for
reconsideration thereof was likewise denied by the Supreme Court on March 29,1974.

Upon motion of Erquiaga, the CFI of Sorsogon issued an order, dated February 12,1975,
dissolving the receivership and ordering the delivery of the possession of the Hacienda San
Jose to Erquiaga, the filing of bond by said Erquiaga in the amount of P410,000.00
conditioned to the payment of whatever may be due to the substituted heirs of deceased
defendant Reynoso (petitioners herein) after the approval of the accounting report
submitted by Reynoso. Said order further directed herein petitioners to allow counsel for
Erquiaga to inspect, copy and photograph certain documents related to the accounting
report (Annex B, Petition).

On March 3,1975, the CFI of Sorsogon approved the P410,000.00 bond submitted by
Erquiaga and the possession, management and control of the hacienda were turned over to
Erquiaga (Annex C, Petition). Petitioners (Reynosos) filed their motion for reconsideration
which the CFI of Sorsogon denied in an Order, dated June 23, 1975 (Annex D, Id.).

In an Omnibus Motion, dated July 25,1975, filed by Erquiaga, and over the objections
interposed thereto by herein petitioners (Reynosos), the CFI of Sorsogon issued an Order,
dated October 9, 1975, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, on the first count, the defendants are
directed (to deliver) to the plaintiff or his counsel within five (5) days from
receipt of this order the 1,600 shares of stock of the Erquiaga Development
Corporation which are in their possession. Should the defendants refuse or
delay in delivering such shares of stock, as prayed for, the plaintiff is
authorized:

(a) To call and hold a special meeting of the stockholders of the Erquiaga Development
Corporation to elect the members of the Board of Directors;

(b) In the said meeting the plaintiff is authorized to vote not only the 1,500 shares of stock
in his name but also the 1,600 shares in the name and possession of the defendants;

(c) The question as to who shall be elected members of the Board of Directors and officers
of the board is left to the discretion of the plaintiff;

(d) The members of the board and the officers who are elected are authorized to execute
any and all contracts or agreements under such conditions as may be required by the
Development Bank for the purpose of restructuring the loan of the Erquiaga Development
Corporation with the said bank.

On the second count, the prayer to strike out all expenses alleged[ly]
incurred by the defendants in the production of the fruits of Hacienda San
Jose and declaring the obligation of the plaintiff under paragraph (c) of the
judgment to pay the defendant the sum of P410,000.00 with interest as fully
compensated by the fruits earned by the defendants from the property, as
well as the issuance of a writ of execution against the defendants to pay the
plaintiffs P62,000.00 under paragraphs (e) and (d) and costs of litigation
under paragraph (f) of the judgment of September 30, 1972, is denied.

The defendants are once more directed to comply with the order of February
12, 1975, by answering the interrogatories propounded by counsel for the
plaintiff and allowing said counsel or his representative to inspect, copy and
photograph the documents mentioned by the plaintiff during reasonable
hours of any working day within twenty (20) days from receipt of this order,
should the defendants persist in their refusal or failure to comply with the
order, the plaintiff may inform the court seasonably so that the proper action
may be taken. (Annex J, Id.)
 Hence, the present petition for certiorari, prohibition and mandamus instituted by the
substituted defendants, heirs of the deceased defendant Jose L. Reynoso against the CFI of
Sorsogon and (plaintiff) Santiago de Erquiaga. (pp. 276- 281, Rollo.)

On May 31, 1976, the Court of Appeals rendered judgment holding that:

IN VIEW OF ALL THE FOREGOING, this court finds that the respondent court had acted
with grave abuse of discretion or in excess of jurisdiction in issuing the assailed order of
October 9, 1975 (Annex A, Petition) insofar only as that part of the Order (1) giving private
respondent voting rights on the 3,100 shares of stock of the Erquiaga Development
Corporation without first divesting petitioners of their title thereto and ordering the
registration of the same in the corporation books in the name of private respondent,
pursuant to Section 10, Rule 39 of the Revised Rules of Court; (2) authorizing corporate
meetings and election of members of the Board of Directors of said corporation and (3)
refusing to order the reimbursement of the purchase price of the 3,100 shares of stock in
the amount of P410,000.00 plus interests awarded in said final decision of September 30,
1972 and the set-off therewith of the amount of P62,000.00 as damages and attorney's fees
in favor of herein private respondent are concerned. Let writs of certiorari and prohibition
issue against the aforesaid acts, and the writ of preliminary injunction heretofore issued is
hereby made permanent only insofar as (1), (2) and (3) above are concerned. As to all
other matters involved in said Order of October 9, 1975, the issuance of writs prayed for in
the petition are not warranted and therefore denied.

FINALLY, to give effect to all the foregoing, with a view of putting an end to a much
protracted litigation and for the best interest of the parties, let a writ of mandamus issue,
commanding the respondent Judge to order (1) the Clerk of Court of the CFI of Sorsogon to
execute the necessary deed of conveyance to effect the transfer of ownership of the entire
3,100 shares of stock of the Erquiaga Development Corporation to private respondent
Santiago Erquiaga in case of failure of petitioners to comply with the Order of October 9,
1975 insofar as the delivery of the 1,600 shares of stock to private respondent is
concerned, within five (5) days from receipt hereof; and (2) upon delivery by petitioners or
transfer by the Clerk of Court of said shares of stock to private respondent, as the case may
be, to issue a writ of execution ordering private respondent to pay petitioners the amount
of P410,000.00 plus interests in accordance with the final decision of September 30, 1972
in Civil Case No. 2448, setting-off therewith the amount of P62,000.00 adjudged in favor of
private respondent, and against petitioners' predecessor-in-interest, Jose L. Reynoso, in the
same decision, as damages and attorney's fees. (pp. 289-290, Rollo.)

It may be seen from the foregoing narration of facts that as of the time the Court of Appeals rendered its
decision on May 31, 1976 (now under review) only the following have been done by the parties in
compliance with the final judgment in the main case (Civil Case No. 2446):

1. The Hacienda San Jose was returned to Erquiaga on March 3, 1975 upon approval of
Erquiaga's surety bond of P410,000 in favor of Reynoso;

2. Reynoso has returned to Erquiaga only the pledged 1,500 shares of stock of the Erquiaga
Development Corporation, instead of 3,100 shares, as ordered in paragraph (a) of the final
judgment.
What the parties have not done yet are:

1. Reynoso has not returned 1,600 shares of stock to Erquiaga as ordered in paragraph (a,)
of the decision;

2. Reynoso has not rendered a full accounting of the fruits he has received from Hacienda
San Jose by virtue of the 3,100 shares of stock of the Erquiaga Development Corporation
delivered to him under the sale, as ordered in paragraph (b) of the decision;

3. Erquiaga has not returned the sum of P100,000 paid by Reynoso on the sale, with legal
interest from November 4, 1968 and P310,000 plus legal interest from December 17, 1968,
until paid (total: P410,000) as ordered in paragraph (c) of the decision;

4. Reynoso has not paid the judgment of Pl2,000 as actual damages in favor of Erquiaga,
under paragraph (d) of the judgment;

5. .Reynoso has not paid the sum of P50,000 as attorney's fees to Erquiaga under paragraph
(e) of the judgment; and

6. Reynoso has not paid the costs of suit and expenses of litigation as ordered in paragraph
(f) of the final judgment.

The petitioner alleges, in her petition for review, that:

I. The decision of the Court of Appeals requiring the petitioner to pay the private
respondents the sum of P410,000 plus interest, without first awaiting Reynoso's accounting
of the fruits of the Hacienda San Jose, violates the law of the case and Article 1385 of the
Civil Code, alters the final order dated February 12, 1975 of the trial court, and is
inequitous.

II. The Court of Appeals erroneously applied the Corporation Law.

III. The Court of Appeals erred in ordering entry of its judgment.

We address first the third assignment of error for it will be futile to discuss the first and second if, after
all, the decision complained of is already final, and the entry of judgment which the Court of Appeals
directed to be made in its resolution of August 24,1977 (p. 316, Rollo) was proper. After examining the
records, we find that the Court of Appeals' decision is not yet final. The entry of judgment was
improvident for the Court of Appeals, in its resolution of December 13, 1976, suspended the proceedings
before it "pending the parties' settlement negotiations" as prayed for in their joint motion (p. 313, Rollo).
Without however giving them an ultimatum or setting a deadline for the submission of their compromise
agreement, the Court of Appeals, out of the blue, issued a resolution on August 24, 1977 ordering the
Judgment Section of that Court to enter final judgment in the case (p. 316, Rollo).

We hold that the directive was precipitate and premature. Erquiaga received the order on September 2,
1977 and filed on September 12, 1977 (p. 317, Rollo) a motion for reconsideration which the Court of
Appeals denied on October 4, 1977 (p. 322, Rollo). The order of denial was received on October 14, 1977
(p. 7, Rollo). On October 28, 1977, Erquiaga filed in this Court a timely motion for extension of time to file
a petition for review, and the petition was filed within the extension granted by this Court.

We now address the petitioners' first and second assignments of error.

After deliberating on the petition for review, we find no reversible error in the Court of Appeals' decision
directing the clerk of court of the trial court to execute a deed of conveyance to Erquiaga of the 1,600
shares of stock of the Erquiaga Development Corporation still in Reynoso's name and/or possession, in
accordance with the procedure in Section 10, Rule 39 of the Rules of Court. Neither did it err in annulling
the trial court's order: (1) allowing Erquiaga to vote the 3,100 shares of Erquiaga Development
Corporation without having effected the transfer of those shares in his name in the corporate books; and
(2) authorizing Erquiaga to call a special meeting of the stockholders of the Erquiaga Development
Corporation and to vote the 3,100 shares, without the pre-requisite registration of the shares in his name.
It is a fundamental rule in Corporation Law (Section 35) that a stockholder acquires voting rights only
when the shares of stock to be voted are registered in his name in the corporate books.

Until registration is accomplished, the transfer, though valid between the parties, cannot be
effective as against the corporation. Thus, the unrecorded transferee cannot enjoy the
status of a stockholder; he cannot vote nor be voted for, and he will not be entitled to
dividends. The Corporation will be protected when it pays dividend to the registered
owner despite a previous transfer of which it had no knowledge. The purpose of
registration therefore is two-fold; to enable the transferee to exercise all the rights of a
stockholder, and to inform the corporation of any change in share ownership so that it can
ascertain the persons entitled to the rights and subject to the liabilities of a stockholder.
(Corporation Code, Comments, Notes and Selected cases by Campos & Lopez-Campos, p.
838,1981 Edition.)

The order of respondent Court directing Erquiaga to return the sum of P410,000 (or net P348,000 after
deducting P62,000 due from Reynoso under the decision) as the price paid by Reynoso for the shares of
stock, with legal rate of interest, and the return by Reynoso of Erquiaga's 3,100 shares with the
fruits(construed to mean not only dividends but also fruits of the corporation's Hacienda San Jose) is in
full accord with Art. 1385 of the Civil Code which provides:

ART. 1385. Rescission creates the obligation to return the things which were the object of
the contract, together with their fruits, and the price with its interest; consequently, it can
be carried out only when he who demands rescission can return whatever he may be
obliged to restore.

Neither shall rescission take place when the things which are the object of the contract are
legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

The Hacienda San Jose and 1,500 shares of stock have already been returned to Erquiaga. Therefore,
upon the conveyance to him of the remaining 1,600 shares, Erquiaga (or his heirs) should return to
Reynoso the price of P410,000 which the latter paid for those shares. Pursuant to the rescission decreed
in the final judgment, there should be simultaneous mutual restitution of the principal object of the
contract to sell (3,100 shares) and of the consideration paid (P410,000). This should not await the mutual
restitution of the fruits, namely: the legal interest earned by Reynoso's P410,000 while in the possession
of Erquiaga and its counterpart: the fruits of Hacienda San Jose which Reynoso received from the time the
hacienda was delivered to him on November 4,1968 until it was placed under receivership by the court
on March 3, 1975. However, since Reynoso has not yet given an accounting of those fruits, it is only fair
that Erquiaga's obligation to deliver to Reynoso the legal interest earned by his money, should await the
rendition and approval of his accounting. To this extent, the decision of the Court of Appeals should be
modified. For it would be inequitable and oppressive to require Erquiaga to pay the legal interest earned
by Reynoso's P410,000 since 1968 or for the past 20 years (amounting to over P400,000 by this time)
without first requiring Reynoso to account for the fruits of Erquiaga's hacienda which he allegedly
squandered while it was in his possession from November 1968 up to March 3, 1975.

WHEREFORE, the petition for review is granted. The payment of legal interest by Erquiaga to Reynoso on
the price of P410,000 paid by Reynoso for Erquiaga's 3,100 shares of stock of the Erquiaga Development
Corporation should be computed as provided in the final judgment in Civil Case No. 2446 up to
September 30,1972, the date of said judgment. Since Reynoso's judgment liability to Erquiaga for
attorney's fees and damages in the total sum of P62,000 should be set off against the price of P410,000
that Erquiaga is obligated to return to Reynoso, the balance of the judgment in favor of Reynoso would be
only P348,000 which should earn legal rate of interest after September 30,1972, the date of the judgment.
However, the payment of said interest by Erquiaga should await Reynoso's accounting of the fruits
received by him from the Hacienda San Jose. Upon payment of P348,000 by Erquiaga to Reynoso,
Erquiaga's P410,000 surety bond shall be deemed cancelled. In all other respects, the decision of the
Court of Appeals in CA-G.R. No, 04811-SP is affirmed. No pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 80682 August 13, 1990

EMBASSY FARMS, INC., petitioner,

vs.
HON. COURT OF APPEALS (INTERMEDIATE APPELLATE COURT), HON. ZENAIDA S. BALTAZAR,
Judge of the Regional Trial Court, Branch CLVIII, (158), Pasig, Metro Manila, VOLTAIRE B. CRUZ,
Deputy Sheriff, Branch CLVIII, Regional Trial Court, Pasig, Metro Manila and EDUARDO B.
EVANGELISTA, respondents.

Romeo Z. Comia for petitioner.

Manuel Y Macias for private respondents.

PARAS, J.:
This is a petition for certiorari and prohibition with preliminary injunction seeking to set aside the
resolution * dated October 13, 1987 in CA-G.R. SP No. 12817 entitled "Eduardo B. Evangelists v. Honorable
Camilo O. Montesa, et al." and CA G.R. SP No. 12834 entitled "Embassy Farms, Inc. v. Hon. Zenaida S.
Baltazar, et al." lifting the restraining order dated September 22, 1987, and the resolution dated
November 3, 1987 denying petitioner's motion for reconsideration.

It appears on record that sometime on August 2, 1984, Alexander G. Asuncion (AGA for short) and
Eduardo B. Evangelists (EBE for short) entered into a Memorandum of Agreement (Annex "A" of the
petition). Under said agreement EBE obligated himself to transfer to AGA 19 parcels of agricultural land
registered in his name with an aggregate area of 104,447 square meters located in Loma de Gato, Marilao,
Bulacan, together with the stocks, equipment and facilities of a piggery farm owned by Embassy Farms,
Inc., a registered corporation wherein ninety (90) per cent of its shares of stock is owned by EBE. EBE
also obligated himself to cede, transfer and convey "in a manner absolute and irrevocable any and all of
his shares of stocks" in Embassy Farins Inc. to AGA or his nominees "until the total of said shares of stock
so transferred shall constitute 90% of the paid-in-equity of said corporation" within a reasonable time
from signing of the document. Likewise, EBE obligated to turnover to AGA the effective control and
management of the piggery upon the signing of the agreement.

On the other hand, AGA obligated himself, upon signing of the agreement to pay to EBE the total sum of
close to P8,630,000.00. Within reasonable time from signing of the agreement AGA obligated himself to
organize and register a new corporation with an authorized capital stock of P10,000,000.00 which upon
registration will take over all the rights and liabilities of AGA.

Pursuant to clause 8 of the Memorandum of Agreement, on August 2, 1984, EBE turned over to AGA the
effective control and management of the piggery at Embassy Farms. Likewise, in accordance with clause
15 of the Memorandum of Agreement EBE served as President and Chief Executive of the Embassy Farms
with a monthly salary of P15,000. EBE also endorsed in blank all his shares of stock including that of his
wife and three nominees with minor holdings in Embassy Farms Inc. Out of the total 3,125 shares of
stocks EBE has 2,725 shares, his wife Epifania has 250 shares, while Angel Santos, Armando Martin and
Teofilo Mesina had 50 shares, each registered in their names. Said shares of 3,125 correspond to the paid
subscription because as reflected in the Articles of Incorporation (Annexes "B") EBE subscribed 10,900
shares, Epifania Evangelista 1,000 shares, while Angel Santos, Armando Martin and Teofilo Mesina had
200 shares each subscription in the capital stocks of the corporation. However, despite the indorsement,
EBE retained possession of said shares and opted to deliver to AGA only upon full compliance of the latter
of his obligations under the Memorandum of Agreement.

Notwithstanding the non-delivery of the shares of stocks, in a Deed of Transfer of Shares of Stock dated
August 1984, but notarized on June 20, 1985, AGA transferred a total of 8,602 shares to several persons.

For failure to comply with his obligations, EBE intimated the institution of appropriate legal action.

On April 10, 1986, AGA preempted EBE by filing an action for rescission of the Memorandum of
Agreement with damages. The case was docketed as Civil Case No. 53335 and assigned to Branch CLVIII,
Regional Trial Court, National Capital Judicial Region, Pasig, Metro Manila alleging among others, EBE's
misrepresentation on the piggery business since said business is actually losing and EBE's failure to
execute the deeds of conveyance of the 19 parcels of land.
The Pasig Court in its order dated July 30, 1987, granted a writ of preliminary injunction the dispositive
portion of which reads, viz:

WHEREFORE, this Court hereby orders the issuance of a writ of preliminary injunction
whereby restraining the plaintiff, his nominees, agents, security guards, employees and all
persons claiming under him from disposing of in any manner removing and carrying away
the stocks including rights sucklings, equipment and other facilities in Embassy Farms, Inc.
in Bo. Loma de Gato, Marilao, Bulacan; from harrassing defendant and his employees and
associates; and preventing defendant, assisted by his said employees and associates from
discharging, performing and exercising his duties, prerogatives as director, president and
chief executive of Embassy Farms, Inc. until further orders from this Court subject to
defendant's filing a bond with this Court in the amount of P1,750,000.00 executed in favor
of herein plaintiff, Alexander G. Asuncion, conditioned upon defendant's payment to such
plaintiff Asuncion of all damages which the latter may sustain by reason of this injunction
in the event the Court shall finally decide otherwise and in case said plaintiff, Alexander G.
Asuncion is adjudged entitled to such damages.

SO ORDERED.(p. 258, Rollo)

On September 14, 1987, the Pasig Court on EBE's motion issued an order to break open the premises of
Embassy Farms to enforce the writ of preliminary injunction dated July 30, 1987.

On September 18, 1987, Embassy Farms, Inc. filed a petition with the Court of Appeals for prohibition
with preliminary injunction. The case was docketed as CA-G.R. 12834 and entitled "Embassy Farms, Inc. v.
the Hon. Zenaida S. Baltazar, et al." In its resolution dated September 22, 1987, the Fifth Division of the
Court of Appeals enjoined the enforcement of the Pasig Court's order dated July 30, 1987.

Meanwhile, on July 30, 1987, Embassy Farms Incorporated instituted an action for Injunction with
damages against EBE. In its complaint it alleged that sometime on July 11, 1987, EBE forced his way
inside the Embassy Farms and while inside took some cash and cheek amounting to P423,275.45. The
case was docketed as Civil Case No. 348-11-89 and raffled to Branch 19, Regional Trial Court's 3rd
Judicial Region, Malolos, Bulacan.

On August 10, 1987, upon a motion to dismiss filed by EBE, the Malolos Court issued an order, the
dispositive portion provides, viz:

WHEREFORE, the motion to dismiss is hereby denied for lack of merit, and a writ of
preliminary injunction is hereby issued enjoining defendant, his agent and/or any person
claiming right under him to refrain or desist from interfering in the management and
operation of Embassy Farms, Inc. at Barangay Loma de Gato Marilao, Bulacan, until further
orders from this Court, subject to plaintiffs filing of a bond in the amount of P150,000.00
executed in favor of defendant conditioned for the payment of all damages which the latter
may sustain by reason of this injunction and in case said defendant is adjudged entitled
thereto.

SO ORDERED. (p. 296, Rollo)

On August 27, 1987, EBE filed a motion for the reconsideration of the order dated August 10, 1987 of the
Malolos Court.

On September 15, 1987, without awaiting the resolution of his motion for reconsideration, EBE filed a
Petition for certiorari and Prohibition with preliminary injunction with the Court of Appeals, docketed as
CA-G.R. No. 12817.

On October 13, 1987, the Fifth Division of the Court of Appeals issued a consolidated resolution in CA-G.R.
Nos. 12817 and 12834 sustaining the order dated July 30, 1987 of the Pasig Court. Accordingly, it set
aside and lifted the restraining order dated September 22, 1987 it issued in CA-G.R. SP No. 12834. The
appellate court based its resolution on its findings in the hearing that the Board of Directors of Embassy
Farms are nominees of AGA so that it considered AGA and Embassy Farms as one and the same person. It
noted that EBE has not delivered the certificate of stock outstanding in his name in the books of the
corporation to AGA because the latter allegedly has not complied with the terms and conditions of the
memorandum of agreement. Also the appellate court opined that "(I)n the instant case, it will appear that
no transfer of shares of stock has been made by Evangelista to Asuncion as there had been no delivery of
the certificate in order to produce or effect the transfer of such shares of stock." (Rollo, pp. 231-232)

Embassy Farms filed a motion for reconsideration thereto but it was denied in the resolution dated
November 5, 1987 of the appellate court. Hence, this petition.

The primary issue for resolution is whether or not the appellate court committed a reversible error when
it sustained the order dated July 13, 1987 of the Pasig Court and lifted the restraining order it had issued
in CA-G.R. SP No. 12834.

It is the contention of Petitioner that the appellate court acted without jurisdiction or in excess of
jurisdiction and/or gravely abused its discretion when it sustained the order dated July 30, 1987 of the
Pasig Court and lifted the restraining order it had issued on September 22, 1987 in CA-G.R. SP No. 12834.
Petititioner argued that the Pasig Court has no jurisdiction to hear and decide EBE's application for the
issuance of a writ of preliminary injunction in Civil Case No. 53335 because the ouster of EBE and his
reinstatement as President and Chief Executive Officer of Embassy Farms is an intra-corporate matter
within the exclusive and original jurisdiction of the Securities and Exchange Commission. Petitioner also
claimed that the Pasig Court did not acquire jurisdiction over Embassy Farms because it was not made a
party in Civil Case No. 53335. Neither could the orders of the Pasig Court be enforced at Loma de Gato,
Marilao Bulacan, the principal office of the corporati•n, because it is located outside of the National
Capital Judicial Region. Petitioner likewise claimed that the writ of preliminary injunction issued in Civil
Case No. 53335 was irregularly issued because it was issued one day ahead of the injunction bond.

We do not agree with the petitioner.

It must be stressed at the outset that the case at bar is merely an offshoot of a controversy yet to be
decided on the merits by the Pasig Court. The action for rescission filed by AGA in Civil Case No. 53335
now pending before the Pasig Court will ultimately settle the controversy as to whether it is AGA or EBE
or both parties who have reneged on their obligations under the memorandum of agreement. We do not
want to pre-empt the Pasig Court on the main case.

From the pleadings submitted by the parties it is clear that although EBE has indorsed in blank the shares
outstanding in his name he has not delivered the certificate of stocks to AGA because the latter has not
fully complied with his obligations under the memorandum of agreement. There being no delivery of the
indorsed shares of stock AGA cannot therefore effectively transfer to other person or his nominees the
undelivered shares of stock. For an effective transfer of shares of stock the mode and manner of transfer
as prescribed by law must be followed (Navea v. Peers Marketing Corp., 74 SCRA 65). As provided under
Section 3 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines,
shares of stock may be transferred by delivery to the transferree of the certificate properly indorsed.
Title may be vested in the transferree by the delivery of the duly indorsed certificate of stock (18 C.J.S.
928, cited in Rivera v. Florendo, 144 SCRA 643). However, no transfer shall be valid, except as between
the parties until the transfer is properly recorded in the books of the corporation (Sec. 63, Corporation
Code of the Philippines).

In the case at bar the indorsed certificate of stock was not actually delivered to AGA so that EBE is still the
controlling stockholder of Embassy Farms despite the execution of the memorandum of agreement and
the turn over of control and management of the Embassy Farms to AGA on August 2, 1984.

When AGA filed on April 10, 1986 an action for the rescission of contracts with damages the Pasig Court
merely restored and established the status quo prior to the execution of the memorandum of agreement
by the issuance of a restraining order on July 10, 1987 and the writ of preliminary injunction on July 30,
1987. It would be unjust and unfair to allow AGA and his nominees to control and manage the Embassy
Farms despite the fact that AGA who is the source of their supposed shares of stock in the corporation is
not asking for the delivery of the indorsed certificate of stock but for the rescission of the memorandum
of agreement. Rescission would result in mutual restitution (Magdalena Estate v. Myrick, 71 Phil. 344) so
it is but proper to allow EBE to manage the farm. Compared to AGA or his nominees EBE would be more
interested in the preservation of the assets, equipment and facilities of Embassy Farms during the
pendency of the main case.

Contrary to petitioner's contention the dispute at bar is not an intracorporate controversy within the
exclusive and original jurisdiction of the Securities and Exchange Commission under Presidential Decree
No. 902-A as amended by Presidential Decree No. 1758. To be an intracorporate controversy it must
pertain to any of the following relationships: (1) between the corporation, partnership or association and
the public; (2) between the corporation, partnership or association and the state in so far as its franchise,
permit or license to operate is concerned; (3) between the corporation, partnership or association and its
stockholders, partners, members or officers; and (4) among the stockholders, partners or associates
themselves (Union Glass and Container Corp. v. SEC, 126 SCRA 31; DMRC Enterprises v. Este Del Sol
Mountain Reserve Inc., 132 SCRA 293; Rivera v. Florendo, 144 SCRA 643; Abeijo v. De la Cruz, 149 SCRA
654).

Basically the conflict here is between AGA and EBE arising from a contract denominated as a
memorandum of agreement. Here the controversy in reality involves the contractual rights and
obligations of AGA and EBE under the memorandum of agreement and not to the enforcement of rights
and obligations under the corporation code or the internal or intracorporate affairs of the corporation.
AGA or his nominees are not even the lawful stockholders of Embassy Farms because EBE for a justifiable
reason has withheld the delivery of the indorsed certificate of stocks so that the supposed transfer by
virtue of the memorandum of agreement could not be properly recorded in the book of the corporation.
The dispute therefore does not fall within the special jurisdiction of the Securities and Exchange
Commission but with regular Courts. AGA or his nominees unduly dragged the petitioner Embassy Farms
in order to resist the order of the Pasig Court and to confuse the real and legitimate issue in the case at
bar.
On the enforceability of the order of the Pasig Court, We see no cogent reason to depart from the ruling of
the trial court which was sustained by the Court of Appeals. Generally, an injunction under Section 21 of
Batas Pambansa Bilang 129 is enforceable within the region. The reason is that the trial court has no
jurisdiction to issue a writ of preliminary injunction to enjoin acts being performed or about to be
performed outside its territorial boundaries. (C.F. Tan vs. Sarmiento, L,24971, June 20, 1975). However,
to avoid an irreparable prejudice We allowed in Dagupan Electric Corporation et al. v. Pano (95 SCRA
693) the enforcement of an injunction to restrain acts committed outside the territorial jurisdiction of the
issuing court. In Dagupan case We ruled that a Court of First Instance has jurisdiction to try a case
although the acts sought be restrained are committed outside its territorial jurisdiction where the
principal business addresses of the parties and the decisions on the acts to be restrained are located and
originated within the Court's jurisdiction.

Here to avoid an injustice and irreparable injury We apply the exception rather than the general rule.
Both parties are residents of the National Capital Region. AGA is a resident of 7-A Lake Street, San Juan,
Metro Manila while EBE is residing at 113 R. Tirona Street, BF Homes, Parañaque, Metro Manila. AGA
filed the case with the Pasig Court and the injunction as an equitable remedy intended to preserve the
status quo is directed against AGA, his nominees and agents. Besides, as noted by the Pasig Court all
orders to be enforced and executed at Embassy Farms in Loma de Gato, Marilao, Bulacan emanated from
its main office which is located at the 2nd Floor, Agora Complex, Domingo Street, San Juan, Metro Manila.

Finally, on the issue whether or not the writ of injunction was irregularly issued as it was issued on July
30, 1987 one day ahead of the injunction bond, suffice it to say that aside from the factual findings of the
Court of Appeals that the date July 31, 1987, appearing on the bond is a typographical error it must be
pointed out that with the injunction bond the party enjoined is amply protected against loss or damage in
case it is finally decided that the injunction ought not to have been granted.

WHEREFORE, the instant petition is hereby DENIED for lack of merit.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 95696 March 3, 1992

ALFONSO S. TAN, Petitioner,

vs.
SECURITIES AND EXCHANGE COMMISSION, VISAYAN EDUCATIONAL SUPPLY CORP., TAN SU CHING,
ALFREDO B. UY, ANGEL S. TAN and PATRICIA AGUILAR, Respondents.

PARAS, J.:
Petitioner filed a petition for certiorari against the public respondent Securities and Exchange
Commission and its co-respondents, after the former in an en banc Order, overturned with modification,
the decision of its Cebu SEC Extension hearing officer, Felix Chan, in SEC Case No. C-0096, dated May 23,
1989, on October 10, 1990, under SEC-AC No. 263. (Rollo, pp. 3 and 4)

Sought to be reversed by petitioner, is the ruling of the Commission, specifically declaring that:

1. Confirming the validity of the resolution of the board of directors of the Visayan
Educational Supply Corporation so far as it cancelled Stock Certificate No. 2 and split the
same into Stock Certificates No. 6 (for Angel S. Tan) and No. 8 (for Alfonso S. Tan);

2. Invalidating the sale of shares represented under Stock Certificate No. 8 between Alfonso
S. Tan and the respondent corporation which converted the said stocks into treasury
shares, as well as those transactions involved in the withdrawal of the stockholders from
the respondent corporation for being contrary to law, but ordering the neither party may
recover pursuant to Article 1412 (1) Civil Code of the Philippines; and

3. Revoking the Order of Hearing Officer Felix Chan to reinstate complainant's original 400
shares of stock in the books of the corporation in view of the validity of the sale of 50
shares represented under stock certificate No. 6; and the nullity of the sale 350 shares
represented under stock certificate No. 8, pursuant to the "in pari delicto" doctrine
aforecited. (Rollo, p. 4)

The antecedent facts of the case are as follows:

Respondent corporation was registered on October 1, 1979. As incorporator, petitioner had four hundred
(400) shares of the capital stock standing in his name at the par value of P100.00 per share, evidenced by
Certificate of Stock No. 2. He was elected as President and subsequently reelected, holding the position as
such until 1982 but remained in the Board of Directors until April 19, 1983 as director. (Rollo, p. 5)

On January 31, 1981, while petitioner was still the president of the respondent corporation, two other
incorporators, namely, Antonia Y. Young and Teresita Y. Ong, assigned to the corporation their shares,
represented by certificate of stock No. 4 and 5 after which, they were paid the corresponding 40%
corporate stock-in-trade. (Rollo, p. 43)

Petitioner's certificate of stock No. 2 was cancelled by the corporate secretary and respondent Patricia
Aguilar by virtue of Resolution No. 1981 (b), which was passed and approved while petitioner was still a
member of the Board of Directors of the respondent corporation. (Rollo, p. 6)

Due to the withdrawal of the aforesaid incorporators and in order to complete the membership of the five
(5) directors of the board, petitioner sold fifty (50) shares out of his 400 shares of capital stock to his
brother Angel S. Tan. Another incorporator, Alfredo B. Uy, also sold fifty (50) of his 400 shares of capital
stock to Teodora S. Tan and both new stockholders attended the special meeting, Angel Tan was elected
director and on March 27, 1981, the minutes of said meeting was filed with the SEC. These facts stand
unchallenged. (Rollo, p. 43)

Accordingly, as a result of the sale by petitioner of his fifty (50) shares of stock to Angel S. Tan on April
16, 1981, Certificate of Stock No. 2 was cancelled and the corresponding Certificates Nos. 6 and 8 were
issued, signed by the newly elected fifth member of the Board, Angel S. Tan as Vice-president, upon
instruction of Alfonso S. Tan who was then the president of the Corporation.(Memorandum of the Private
Respondent, p. 15)

With the cancellation of Certificate of stock No. 2 and the subsequent issuance of Stock Certificate No. 6 in
the name of Angel S. Tan and for the remaining 350 shares, Stock Certificate No. 8 was issued in the name
of petitioner Alfonso S. Tan, Mr. Buzon, submitted an Affidavit (Exh. 29), alleging that:

9. That in view of his having taken 33 1/3 interest, I was personally requested by Mr. Tan
Su Ching to request Mr. Alfonso Tan to make proper endorsement in the cancelled
Certificate of Stock No. 2 and Certificate No. 8, but he did not endorse, instead he kept the
cancelled (1981) Certificate of Stock No. 2 and returned only to me Certificate of Stock No.
8, which I delivered to Tan Su Ching.

10. That the cancellation of his stock (Stock No. 2) was known by him in 1981; that it was
Stock No. 8, that was delivered in March 1983 for his endorsement and cancellation. (Ibid,
p. 18)

From the same Affidavit, it was alleged that Atty. Ramirez prepared a Memorandum of Agreement with
respect to the transaction of the fifty (50) shares of stock part of the Stock Certificate No. 2 of petitioner,
which was submitted to its former owner, Alfonso Tan, but which the purposely did not return. (Ibid., p.
18)

On January 29, 1983, during the annual meeting of the corporation, respondent Tan Su Ching was elected
as President while petitioner was elected as Vice-president. He, however, did not sign the minutes of said
meeting which was submitted to the SEC on March 30, 1983. (Rollo, p. 43)

When petitioner was dislodged from his position as president, he withdrew from the corporation on
February 27, 1983, on condition that he be paid with stocks-in-trade equivalent to 33.3% in lieu of the
stock value of his shares in the amount of P35,000.00. After the withdrawal of the stocks, the board of the
respondent corporation held a meeting on April 19, 1983, effecting the cancellation of Stock Certificate
Nos. 2 and 8 (Exh. 278-C) in the corporate stock and transfer book 1 (Exh. 1-1-A) and submitted the
minutes thereof to the SEC on May 18, 1983. (Rollo, p. 44)

Five (5) years and nine (9) months after the transfer of 50 shares to Angel S. Tan, brother of petitioner
Alfonso S. Tan, and three (3) years and seven (7) months after effecting the transfer of Stock Certificate
Nos. 2 and 8 from the original owner (Alfonso S. Tan) in the stock and transfer book of the corporation,
the latter filed the case before the Cebu SEC Extension Office under SEC Case No. C-0096, more
specifically on December 3, 1983, questioning for the first time, the cancellation of his aforesaid Stock
Certificates Nos. 2 and 8. (Rollo, p. 44)

The bone of centention raised by the petitioner is that the deprivation of his shares despite the non-
endorsement or surrender of his Stock Certificate Nos. 2 and 8, was without the process contrary to the
provision of Section 63 of the Corporation Code (Batas Pambansa Blg. 68), which requires that:

. . . No transfer, however, shall be valid, except as between the parties, until the transfer is
recorded to the books of the corporation so as to show the names of the parties to the
 transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred.

After hearing, the Cebu SEC Extension Office Hearing Officer, Felix Chan ruled, that:

a) The cancellation of the complainant's shares of stock with the Visayan Educational
Supply Corporation is null and void;

b) The earlier cancellation of stock certificate No. 2 and the subsequent issuance of stock
certificate No. 8 is also hereby declared null and void;

c) The Secretary of the Corporation is hereby ordered to make the necessary corrections in
the books of the corporation reinstating thereto complainant's original 400 shares of stock.
(Rollo, pp. 39-40)

Private respondent in the original complaint went to the Securities and Exchange and Commission on
appeal, and on October 10, 1990, the commission en banc unanimously overturned the Decision of the
Hearing Officer under SEC-AC No. 263. (Order, Rollo, pp. 42-49)

The petition for certiorari centered on three major issues, with other issues considered as subordinate to
them, to wit:

1. The meaning of shares of stock are personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized
to make the transfer. (Rollo, p. 10)

The case of Nava vs. peers Marketing corporation (74 SCRA 65) was cited by petitioner making the
reference to commentaries taken from 18 C.J.S. 928-930, that the transfer by delivery to the transferee of
the certificate should be properly indorsed, and that "There should be compliance with the mode of
transfer prescribed by law." Using Section 35, now Section 63 of the Corporation Code, the provision of
the law, reads:

SEC. 63. Certificate of stock and transfer of shares. — The capital stock and stock and
corporations shall be divided into shares for which certificates signed by the president and
vice president, countersigned by the secretary or assistant secretary, and sealed with the
seal of the corporation shall be issued in accordance with the by-laws. Shares of stocks so
issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person legally authorized
to make the transfer. No transfer, however, shall be valid, except as between the parties,
until the transfer is recorded in the books of the corporation so as to show the names of the
parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.

No shares of stocks against which the corporation holds any unpaid claim shall be
transferable in the books of the corporations.

There is no doubt that there was delivery of Stock Certificate No. 2 made by the petitioner to the
Corporation before its replacement with the Stock Certificate No. 6 for fifty (50) shares to Angel S. Tan
and Stock Certificate No. 8 for 350 shares to the petitioner, on March 16, 1981. The problem arose when
petitioner was given back Stock Certificate No. 2 for him to endorse and he deliberately witheld it for
reasons of his own. That the Stock Certificate in question was returned to him for his purpose was
attested to by Mr. Buzon in his Affidavit, the pertinent portion of which has been earlier quoted.

The proof that Stock Certificate No. 2 was split into two (2) consisting of Stock Certificate No. 6 for fifty
(50) shares and Stock Certificate No. 8 for 350 shares, is the fact that petitioner surrendered the latter
stock (No. 8) in lieu of P2 million pesos 1 worth of stocks, which the board passed in a resolution in its
meeting on April 19, 1983. Thus, on February 27, 1983, petitioner indicated he was withdrawing from the
corporation on condition that he be paid with stock-in-trade corresponding to 33.3% (Exh. 294), which
had only a par value of P35,000.00. In this same meeting, the transfer of Stock Certificate Nos. 2 and 8
from the original owner, Alfonso S. Tan was ordered to be recorded in the corporate stock and transfer
book (Exh. "I-1-A") thereafter submitting the minutes of said meeting to the SEC on May 18, 1983 (Exhs.
12 and I). (Order, Rollo, p. 44)

It is also doubtless that Stock Certificate No. 8 was exchanged by petitioner for stocks-in-trade since he
was operating his own enterprise engaged in the same business, otherwise, why would a businessman be
interested in acquiring P2,000,000.00 worth of goods which could possibly at that time, fill up
warehouse? In fact, he even padlocked the warehouse of the respondent corporation, after withdrawing
the thirty-three and one-third (33 1/3%) percent stocks. Accordingly, the Memorandum of Agreement
prepared by the respondents' counsel, Atty. Ramirez evidencing the transaction, was also presented to
petitioner for his signature, however, this document was never returned by him to the corporate officer
for the signature of the other officers concerned. (Rollo, p. 28)

At the time the warehouse was padlocked by the petitioner, the remaining stock inventory was valued at
P7,454,189.05 of which 66 2/3 percent thereof belonged to the private respondents. (Ibid., p. 28)

It was very obvious that petitioner devised the scheme of not returning the cancelled Stock Certificate No.
2 which was returned to him for his endorsement, to skim off the largesse of the corporation as shown by
the trading of his Stock Certificate No. 8 for goods of the corporation valued at P2 million when the par
value of the same was only worth P35,000.00. (Ibid., p. 470) He also used this scheme to renege on his
indebtedness to respondent Tan Su Ching in the amount of P1 million. (Decision, p. 6)

It is not remote that if petitioner could have cashed in on Stock Certificate No. 2 with the remainder of the
goods that he padlocked, he would have done so, until the respondent corporation was bled entirely.

Along this line, petitioner put up the argument that he was responsible for the growth of the corporation
by the alleging that during his incumbency, the corporation grew, prospered and flourished in the court
of business as evidenced by its audited financial statements, and grossed the following incomes from:
1980 — P8,658,414.10, 1981 — P8,039,816.67, 1982 — P7,306,168.67, 1983 — P5,874,453.55, 1984 —
P3,911,667.76. (Ibid., Rollo, p. 24)

Moreover, petitioner asserted that he was ousted from the corporation by reason of his efforts to
establish fiscal controls and to demand an accounting of corporate funds which were accordingly being
transferred and diverted to certain of private respondents' personal accounts which were allegedly
misapplied, misappropriated and converted to their own personal use and benefit. (Ibid., p. 125)
2. Petitioner further claims that "(T)he cancellation and transfer of petitioner's shares and Certificate of
Stock No. 2 (Exh. A) as well as the issuance and cancellation of Certificate of Stock No. 8 (Exh. M) was
patently and palpably unlawful, null and void, invalid and fraudulent." (Rollo, p. 9) And, that Section 63 of
the Corporation Code of the Philippines is "mandatory in nature", meaning that without the actual
delivery and endorsement of the certificate in question, there can be no transfer, or that such transfer is
null and void. (Rollo, p. 10)

These arguments are all motivated by self-interest, using foreign authorities that are slanted in his favor
and even misquoting local authorities to prop up his erroneous posture and all these attempts are
intended to stifle justice, truth and equity.

Contrary to the understanding of the petitioner with respect to the use of the word "may", in the case
of Shauf v. Court of Appeals, (191 SCRA 713, 27 November 1990), this Court held, that "Remedial law
statues are to be construed liberally." The term 'may' as used in adjective rules, is only permissive and
not mandatory. In several earlier cases, the usage of the word "may" was described as follows:

The word "may"is an auxilliary verb showing among others, opportunity or possibility. Under
ordinary circumstances, the phrase "may be" implies the possible existence of something. In
this case, the "something" is a law governing sectoral representation. The phrase in
question should, therefore, be understood to mean as prescribed by such law that governs
the matter at the time . . . The phrase does not and cannot, by its very wording, restrict itself
to the uncertainly of future legislation. (Legaspi v. Estrella, 189 SCRA 58, 24 Aug. 1990, En
Banc)

Years before the above rulings concerning the interpretation of the word "may", this Court held in Chua v.
Samahang Magsasaka, that "the word "may" indicates that the transfer may be effected in a manner
different from that provided for in the law." (62 Phil. 472)

Moreover, it is safe to infer from the facts deduced in the instant case that, there was already delivery of
the unendorsed Stock Certificate No. 2, which is essential to the issuance of Stock Certificate Nos. 6 and 8
to angel S. Tan and petitioner Alfonso S. Tan, respectively. What led to the problem was the return of the
cancelled certificate (No. 2) to Alfonso S. Tan for his endorsement and his deliberate non-endorsement.

For all intents and purposes, however, since this was already cancelled which cancellation was also
reported to the respondent Commission, there was no necessity for the same certificate to be endorsed
by the petitioner. All the acts required for the transferee to exercise its rights over the acquired stocks
were attendant and even the corporation was protected from other parties, considering that said transfer
was earlier recorded or registered in the corporate stock and transfer book.

Following the doctrine enunciated in the case of Tuazon v. La Provisora Filipina, where this Court held,
that:

But delivery is not essential where it appears that the persons sought to be held as
stockholders are officers of the corporation, and have the custody of the stock book . . . (67
Phi. 36).
Furthermore, there is a necessity to delineate the function of the stock itself from the actual delivery or
endorsement of the certificate of stock itself as is the question in the instant case. A certificate of stock is
not necessary to render one a stockholder in corporation.

Nevertheless, a certificate of stock is the paper representative or tangible evidence of the stock itself and
of the various interests therein. The certificate is not stock in the corporation but is merely evidence of
the holder's interest and status in the corporation, his ownership of the share represented thereby, but 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 in stock or the nation of the relation of
shareholder to the corporation. (13 Am. Jur. 2d, 769)

Under the instant case, the fact of the matter is, the new holder, Angel S. Tan has already exercised his
rights and prerogatives as stockholder and was even elected as member of the board of directors in the
respondent corporation with the full knowledge and acquiescence of petitioner. Due to the transfer of
fifty (50) shares, Angel S. Tan was clothed with rights and responsibilities in the board of the respondent
corporation when he was elected as officer thereof.

Besides, in Philippine jurisprudence, a certificate of stock is not a negotiable instrument. "Although it is

sometime regarded as quasi-negotiable, in the sense that it may be transferred by endorsement, coupled
with delivery, it is well-settled that it is non-negotiable, because the holder thereof takes it without
prejudice to such rights or defenses as the registered owner/s or transferror's creditor may have under
the law, except insofar as such rights or defenses are subject to the limitations imposed by the principles
governing estoppel." (De los Santos vs. McGrath, 96 Phil. 577)

To follow the argument put up by petitioner which was upheld by the Cebu SEC Extension Office Hearing
Officer, Felix Chan, that the cancellation of Stock Certificate Nos. 2 and 8 was null and void for lack of
delivery of the cancelled "mother" Certificate No. 2 whose endorsement was deliberately withheld by
petitioner, is to prescribe certain restrictions on the transfer of stock in violation of the corporation law
itself as the only law governing transfer of stocks. While Section 47(s) grants a stock corporations the
authority to determine in the by-laws "the manner of issuing certificates" of shares of stock, however,
the power to regulate is not the power to prohibit, or to impose unreasonable restrictions of the right of
stockholders to transfer their shares. (Emphasis supplied)

In Fleisher v. Botica Nolasco Co., Inc., it was held that a by-law which prohibits a transfer of stock without
the consent or approval of all the stockholders or of the president or board of directors is illegal as
constituting undue limitation on the right of ownership and in restraint of trade. (47 Phil. 583)

3. Attempt to mislead — Petitioner should be held guilty of manipulating the provision of Section 63 of
the Corporation Law for contumaciously withholding the endorsement of Stock Certificate No. 2 which
was returned to him for the purpose, wasting time and resources of the Court, even after he had received
the stocks-in-trade equivalent to P2,000,000.00 in lieu of his 350 shares of stock with a par value of
P35,000.00 only, and thereafter withdrawing from the respondent corporation.

Not content with the fantastic return of his investment in the corporation and bent on sucking out the
corporate resources by filing the instant case for damages and seeking the nullity of the cancellation of
his Certificate of Stock Nos. 2 and 8, petitioner even attempted to mislead the Court by erroneously
quoting the ruling of the Court in C. N. Hodges v. Lezama, which has some parallelism with the instant case
was the parties involved therein were also close relatives as in this case.
The quoted portion appearing on p. 11 of the petition, was cut short in such a way that relevant portions
thereof were purposely left out in order to impress upon the Court that the unendorsed and uncancelled
stock certificate No. 17, was unconditionally declared null and void, flagrantly omitting the justifying
circumstances regarding its acquisition and the reason given by the Court why it was declared so. The
history of certificate No. 17 is quoted below, showing the reason why the certificate in question was
considered null and void, as follows:

(P)etitioner Hodges did not cause to be entered in the books of the corporation as he had
his stock certificate No. 17 which, therefore had not been endorsed by him to anybody or
cancelled and which he considered still subsisting. On September 18, 1958, petitioner
Hodges again sold his aforesaid 2,230 shares of stock covered by his stock certificate No. 17 on
installment basis to his co-petitioner Ricardo Gurrea, but continued keeping the stock
certificate in his possession without endorsing it to Gurrea or causing the sale to be entered in
the books of the corporation, believing that said shares of stock were his until fully paid for.
Up to the present, petitioner Hodges has in his possession and under his control his aforesaid
stock certificate No. 17, unendorsed and uncancelled (Exhs. A & A-1), a fact known to the
respondents. (14 SCRA p. 1032)

The pertinent misquoted portion follows:

Before the stockholders' meeting of the La Paz ice Plant & Cold Storage Co., Inc., —
hereinafter referred to as the Corporation - which was scheduled to be held on August 6,
1959, petitioners C.N. Hodges and Ricardo Gurrea filed with the CFI of Iloilo, a petition —
docketed as Civil Case No. 5261 of said court — for a writ of prohibition with preliminary
injunction, to restrain respondents Jose Manuel Lezama, as president and secretary,
respectively, of said Corporation from allowing their brother-in-law and brother,
respectively, respondent Benjamin L. Borja, to vote in said meeting on the aforementioned
2,230 shares of stock. Upon the filing of said petition and of a bond in the sum of P1,000,
the writ of preliminary injunction prayed for was issued. After due trial, or on March 28,
1960, (start of petitioner's quotation) "The court of origin rendered a decision holding that,
in view of the provision in stock certificate no. 17, in the name of Hodges, to the effect that
he

. . . is the owner of Two Thousand Two Hundred Thirty shares of the capital
stock of La Paz Ice Plant & Cold Storage Co., Inc., transferrable only on the
books of the corporation by the holder hereof in person or by attorney upon
surrender of this certificate properly endorsed.

stock certificate no. 18, issued in favor of Borja and the entry thereof at his instance in the
books of the corporation without stock certificate no. 17 being first properly endorsed,
surrendered and cancelled, is null and void. . . . " (end of quotation by petitioner, but the
ruling, continues without the period after the word void.) "and that it would be
unconscionable and for Borja to vote on said shares of stock, knowing that he had ceased to
have actual interest therein since September 17, 1958, when Hodges bought such interest
at the public auction held in the proceedings for the foreclosure of his chattel was rendered
making said preliminary injunction permanent and declaring Hodges as the one entitled to
vote on the shares of stock in question.
Petitioner ought to have even included the following which was the reason for declaring the following
which was the reason for declaring the unedorsed, unsurrendered and uncancelled stock certificate, null
and void:

. . . It is, moreover, obvious that Hodges retained it (stock certificate no. 17) with Borja's
consent. It was evidently part of their agreement, or implied therein, that Hodges would
keep the stock certificate and thus remain in the records of the Corporation as owner of the
shares, despite the aforementioned sale thereof and the chattel mortgage thereon. In other
words, the parties thereto intended Hodges to continue, for all intents and purposes, as owner
of said share, until Borja shall have fully paid its stipulated price. (Ibid, pp. 1033-1034)

Other issues raised by the petitioner, subordinate to the principal issues above, (except the ruling by the
respondent Commission with respect to the "pari delicto" doctrine which is not acceptable to this Court)
are of no moment.

Considering the circumstances of the case, it appearing that petitioner is guilty of manipulation, and high-
handedness, circumventing the clear provisions of law in shielding himself from his wrongdoing contrary
to the protective mantle that the law intended for innocent parties, the Court finds the excuses of the
petitioner as unworthy of belief.

WHEREFORE, in view of the foregoing, the Order of the Commission under SEC-AC No. 263 dated October
10, 1990 is hereby AFFIRMED but modified with respect to the "nullity of the sale of 350 shares
represented under stock certification No. 8, pursuant to the "in pari delicto" doctrine. The court holds
that the conversion of the 350 shares with a par value of only P35,000.00 at P100.00 per share into
treasury stocks after petitioner exchanged them with P2,000,000.00 worth of stocks-in-trade of the
corporation, is valid and lawful. With regard to the damages being claimed by the petitioner, the
respondent Commission is not empowered to award such, other than the imposition of fine and
imprisonment under Section 56 of the Corporation Code of the Philippines, as amended.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 74306 March 16, 1992

ENRIQUE RAZON, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and VICENTE B. CHUIDIAN, in his capacity as Administrator of
the Estate of the Deceased JUAN T. CHUIDIAN, respondents.

G.R. No. 74315 March 16, 1992

VICENTE B. CHUIDIAN, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, ENRIQUE RAZ0N, and E. RAZON, INC., respondents.

GUTIERREZ, JR., J.:

The main issue in these consolidated petitions centers on the ownership of 1,500 shares of stock in E.
Razon, Inc. covered by Stock Certificate No. 003 issued on April 23, 1966 and registered under the name
of Juan T. Chuidian in the books of the corporation. The then Court of First Instance of Manila, now
Regional Trial Court of Manila, declared that Enrique Razon, the petitioner in G.R. No. 74306 is the owner
of the said shares of stock. The then Intermediate Appellate Court, now Court of Appeals, however,
reversed the trial court's decision and ruled that Juan T. Chuidian, the deceased father of petitioner
Vicente B. Chuidian in G.R. No. 74315 is the owner of the shares of stock. Both parties filed separate
motions for reconsideration. Enrique Razon wanted the appellate court's decision reversed and the trial
court's decision affirmed while Vicente Chuidian asked that all cash and stock dividends and all the pre-
emptive rights accruing to the 1,500 shares of stock be ordered delivered to him. The appellate court
denied both motions. Hence, these petitions.

The relevant Antecedent facts are as follows:

In his complaint filed on June 29, 1971, and amended on November 16, 1971, Vicente B.
Chuidian prayed that defendants Enrique B. Razon, E. Razon, Inc., Geronimo Velasco,
Francisco de Borja, Jose Francisco, Alfredo B. de Leon, Jr., Gabriel Llamas and Luis M. de
Razon be ordered to deliver certificates of stocks representing the shareholdings of the
deceased Juan T. Chuidian in the E. Razon, Inc. with a prayer for an order to restrain the
defendants from disposing of the said shares of stock, for a writ of preliminary attachment
v. properties of defendants having possession of shares of stock and for receivership of the
properties of defendant corporation . . .

xxx xxx xxx

In their answer filed on June 18, 1973, defendants alleged that all the shares of stock in the
name of stockholders of record of the corporation were fully paid for by defendant, Razon;
that said shares are subject to the agreement between defendants and incorporators; that
the shares of stock were actually owned and remained in the possession of Razon.
Appellees also alleged . . . that neither the late Juan T. Chuidian nor the appellant had paid
any amount whatsoever for the 1,500 shares of stock in question . . .

xxx xxx xxx

The evidence of the plaintiff shown that he is the administrator of the intestate estate of
Juan Telesforo Chuidian in Special Proceedings No. 71054, Court of First Instance of Manila.

Sometime in 1962, Enrique Razon organized the E. Razon, Inc. for the purpose of bidding
for the arrastre services in South Harbor, Manila. The incorporators consisted of Enrique
 Razon, Enrique Valles, Luisa M. de Razon, Jose Tuason, Jr., Victor Lim, Jose F. Castro and
Salvador Perez de Tagle.

On April 23, 1966, stock certificate No. 003 for 1,500 shares of stock of defendant
corporation was issued in the name of Juan T. Chuidian.

On the basis of the 1,500 shares of stock, the late Juan T. Chuidian and after him, the
plaintiff-appellant, were elected as directors of E. Razon, Inc. Both of them actually served
and were paid compensation as directors of E. Razon, Inc.

From the time the certificate of stock was issued on April 1966 up to April 1971, Enrique
Razon had not questioned the ownership by Juan T. Chuidian of the shares of stock in
question and had not brought any action to have the certificate of stock over the said
shares cancelled.

The certificate of stock was in the possession of defendant Razon who refused to deliver
said shares to the plaintiff, until the same was surrendered by defendant Razon and
deposited in a safety box in Philippine Bank of Commerce.

Defendants allege that after organizing the E. Razon, Inc., Enrique Razon distributed shares
of stock previously placed in the names of the withdrawing nominal incorporators to some
friends including Juan T. Chuidian

Stock Certificate No. 003 covering 1,500 shares of stock upon instruction of the late
Chuidian on April 23, 1986 was personally delivered by Chuidian on July 1, 1966 to the
Corporate Secretary of Attorney Silverio B. de Leon who was himself an associate of the
Chuidian Law Office (Exhs. C & 11). Since then, Enrique Razon was in possession of said
stock certificate even during the lifetime of the late Chuidian, from the time the late
Chuidian delivered the said stock certificate to defendant Razon until the time (sic) of
defendant Razon. By agreement of the parties (sic) delivered it for deposit with the bank
under the joint custody of the parties as confirmed by the trial court in its order of August
7, 1971.

Thus, the 1,500 shares of stook under Stock Certificate No. 003 were delivered by the late
Chuidian to Enrique because it was the latter who paid for all the subscription on the
shares of stock in the defendant corporation and the understanding was that he (defendant
Razon) was the owner of the said shares of stock and was to have possession thereof until
such time as he was paid therefor by the other nominal incorporators/stockholders (TSN.,
pp. 4, 8, 10, 24-25, 25-26, 28-31, 31-32, 60, 66-68, July 22, 1980, Exhs. "C", "11", "13" "14").
(Ro11o — 74306, pp. 66-68)

In G.R. No. 74306, petitioner Enrique Razon assails the appellate court's decision on its alleged
misapplication of the dead man's statute rule under Section 20(a) Rule 130 of the Rules of Court.
According to him, the "dead man's statute" rule is not applicable to the instant case. Moreover, the private
respondent, as plaintiff in the case did not object to his oral testimony regarding the oral agreement
between him and the deceased Juan T. Chuidian that the ownership of the shares of stock was actually
vested in the petitioner unless the deceased opted to pay the same; and that the petitioner was subjected
to a rigid cross examination regarding such testimony.
Section 20(a) Rule 130 of the Rules of Court (Section 23 of the Revised Rules on Evidence) States:

Sec. 20. Disqualification by reason of interest or relationship — The following persons

cannot testify as to matters in which they are interested directly or indirectly, as herein
enumerated.

(a) Parties or assignors of parties to a case, or persons in whose behalf a case is

prosecuted, against an executor or administrator or other representative of a deceased
person, or against a person of unsound mind, upon a claim or demand against the estate of
such deceased person or against such person of unsound mind, cannot testify as to any
matter of fact accruing before the death of such deceased person or before such person
became of unsound mind." (Emphasis supplied)

xxx xxx xxx

The purpose of the rule has been explained by this Court in this wise:

The reason for the rule is that if persons having a claim against the estate of the deceased
or his properties were allowed to testify as to the supposed statements made by him
(deceased person), many would be tempted to falsely impute statements to deceased
persons as the latter can no longer deny or refute them, thus unjustly subjecting their
properties or rights to false or unscrupulous claims or demands. The purpose of the law is
to "guard against the temptation to give false testimony in regard to the transaction in
question on the part of the surviving party." (Tongco v. Vianzon, 50 Phil. 698; Go Chi Gun, et
al. v. Co Cho, et al., 622 [1955])

The rule, however, delimits the prohibition it contemplates in that it is applicable to a case against the
administrator or its representative of an estate upon a claim against the estate of the deceased person.
(See Tongco v. Vianzon, 50 Phil. 698 [1927])

In the instant case, the testimony excluded by the appellate court is that of the defendant (petitioner
herein) to the affect that the late Juan Chuidian, (the father of private respondent Vicente Chuidian, the
administrator of the estate of Juan Chuidian) and the defendant agreed in the lifetime of Juan Chuidian
that the 1,500 shares of stock in E. Razon, Inc. are actually owned by the defendant unless the deceased
Juan Chuidian opted to pay the same which never happened. The case was filed by the administrator of
the estate of the late Juan Chuidian to recover shares of stock in E. Razon, Inc. allegedly owned by the late
Juan T. Chuidian.

It is clear, therefore, that the testimony of the petitioner is not within the prohibition of the rule. The case
was not filed against the administrator of the estate, nor was it filed upon claims against the estate.

Furthermore, the records show that the private respondent never objected to the testimony of the
petitioner as regards the true nature of his transaction with the late elder Chuidian. The petitioner's
testimony was subject to cross-examination by the private respondent's counsel. Hence, granting that the
petitioner's testimony is within the prohibition of Section 20(a), Rule 130 of the Rules of Court, the
private respondent is deemed to have waived the rule. We ruled in the case of Cruz v. Court of
Appeals (192 SCRA 209 [1990]):
 It is also settled that the court cannot disregard evidence which would ordinarily be
incompetent under the rules but has been rendered admissible by the failure of a party to
object thereto. Thus:

. . . The acceptance of an incompetent witness to testify in a civil suit, as well as the

allowance of improper questions that may be put to him while on the stand is a matter
resting in the discretion of the litigant. He may assert his right by timely objection or he
may waive it, expressly or by silence. In any case the option rests with him. Once admitted,
the testimony is in the case for what it is worth and the judge has no power to disregard it for
the sole reason that it could have been excluded, if it had been objected to, nor to strike it out
on its own motion (Emphasis supplied). (Marella v. Reyes, 12 Phil. 1.)

The issue as to whether or not the petitioner's testimony is admissible having been settled, we now
proceed to discuss the fundamental issue on the ownership of the 1,500 shares of stock in E. Razon, Inc.

E. Razon, Inc. was organized in 1962 by petitioner Enrique Razon for the purpose of participating in the
bidding for the arrastre services in South Harbor, Manila. The incorporators were Enrique Razon,
Enrique Valles, Luisa M. de Razon, Jose Tuazon, Jr., Victor L. Lim, Jose F. Castro and Salvador Perez de
Tagle. The business, however, did not start operations until 1966. According to the petitioner, some of the
incorporators withdrew from the said corporation. The petitioner then distributed the stocks previously
placed in the names of the withdrawing nominal incorporators to some friends, among them the late Juan
T. Chuidian to whom he gave 1,500 shares of stock. The shares of stock were registered in the name of
Chuidian only as nominal stockholder and with the agreement that the said shares of stock were owned
and held by the petitioner but Chuidian was given the option to buy the same. In view of this
arrangement, Chuidian in 1966 delivered to the petitioner the stock certificate covering the 1,500 shares
of stock of E. Razon, Inc. Since then, the Petitioner had in his possession the certificate of stock until the
time, he delivered it for deposit with the Philippine Bank of Commerce under the parties' joint custody
pursuant to their agreement as embodied in the trial court's order.

The petitioner maintains that his aforesaid oral testimony as regards the true nature of his agreement
with the late Juan Chuidian on the 1,500 shares of stock of E. Razon, Inc. is sufficient to prove his
ownership over the said 1,500 shares of stock.

The petitioner's contention is not correct.

In the case of Embassy Farms, Inc. v. Court of Appeals (188 SCRA 492 [1990]) we ruled:

. . . For an effective, transfer of shares of stock the mode and manner of transfer as
prescribed by law must be followed (Navea v. Peers Marketing Corp., 74 SCRA 65).
As provided under Section 3 of Batas Pambansa Bilang, 68 otherwise known as the
Corporation Code of the Philippines, shares of stock may be transferred by delivery to the
transferee of the certificate properly indorsed. Title may be vested in the transferee by the
delivery of the duly indorsed certificate of stock (18 C.J.S. 928, cited in Rivera v. Florendo,
144 SCRA 643). However, no transfer shall be valid, except as between the parties until the
transfer is properly recorded in the books of the corporation (Sec. 63, Corporation Code of
the Philippines; Section 35 of the Corporation Law)
In the instant case, there is no dispute that the questioned 1,500 shares of stock of E. Razon, Inc. are in the
name of the late Juan Chuidian in the books of the corporation. Moreover, the records show that during
his lifetime Chuidian was ellected member of the Board of Directors of the corporation which clearly
shows that he was a stockholder of the corporation. (See Section 30, Corporation Code) From the point of
view of the corporation, therefore, Chuidian was the owner of the 1,500 shares of stock. In such a case,
the petitioner who claims ownership over the questioned shares of stock must show that the same were
transferred to him by proving that all the requirements for the effective transfer of shares of stock in
accordance with the corporation's by laws, if any, were followed (See Nava v. Peers Marketing
Corporation, 74 SCRA 65 [1976]) or in accordance with the provisions of law.

The petitioner failed in both instances. The petitioner did not present any by-laws which could show that
the 1,500 shares of stock were effectively transferred to him. In the absence of the corporation's by-laws
or rules governing effective transfer of shares of stock, the provisions of the Corporation Law are made
applicable to the instant case.

The law is clear that in order for a transfer of stock certificate to be effective, the certificate must be
properly indorsed and that title to such certificate of stock is vested in the transferee by the delivery of
the duly indorsedcertificate of stock. (Section 35, Corporation Code) Since the certificate of stock covering
the questioned 1,500 shares of stock registered in the name of the late Juan Chuidian was never indorsed
to the petitioner, the inevitable conclusion is that the questioned shares of stock belong to Chuidian. The
petitioner's asseveration that he did not require an indorsement of the certificate of stock in view of his
intimate friendship with the late Juan Chuidian can not overcome the failure to follow the procedure
required by law or the proper conduct of business even among friends. To reiterate, indorsement of the
certificate of stock is a mandatory requirement of law for an effective transfer of a certificate of stock.

Moreover, the preponderance of evidence supports the appellate court's factual findings that the shares
of stock were given to Juan T. Chuidian for value. Juan T. Chuidian was the legal counsel who handled the
legal affairs of the corporation. We give credence to the testimony of the private respondent that the
shares of stock were given to Juan T. Chuidian in payment of his legal services to the corporation.
Petitioner Razon failed to overcome this testimony.

In G.R. No. 74315, petitioner Vicente B. Chuidian insists that the appellate court's decision declaring his
deceased father Juan T. Chuidian as owner of the 1,500 shares of stock of E. Razon, Inc. should have
included all cash and stock dividends and all the pre-emptive rights accruing to the said 1,500 shares of
stock.

The petition is impressed with merit.

The cash and stock dividends and all the pre-emptive rights are all incidents of stock ownership.

The rights of stockholders are generally enumerated as follows:

xxx xxx xxx

. . . [F]irst, to have a certificate or other evidence of his status as stockholder issued to him;
second, to vote at meetings of the corporation; third, to receive his proportionate share of
the profits of the corporation; and lastly, to participate proportionately in the distribution
 of the corporate assets upon the dissolution or winding up. (Purdy's Beach on Private
Corporations, sec. 554) (Pascual v. Del Saz Orozco, 19 Phil. 82, 87)

WHEREFORE, judgment is rendered as follows:

a) In G.R. No. 74306, the petition is DISMISSED. The questioned decision and resolution of the then
Intermediate Appellate Court, now the Court of Appeals, are AFFIRMED. Costs against the petitioner.

b) In G.R. No. 74315, the petition is GRANTED. The questioned Resolution insofar as it denied the
petitioner's motion to clarify the dispositive portion of the decision of the then Intermediate Appellate
Court, now Court of Appeals is REVERSED and SET ASIDE. The decision of the appellate court is
MODIFIED in that all cash and stock dividends as, well as all pre-emptive rights that have accrued and
attached to the 1,500 shares in E. Razon, Inc., since 1966 are declared to belong to the estate of Juan T.
Chuidian.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 96674 June 26, 1992

RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and FRANCISCO
TRIAS, petitioners,

vs.

COURT OF APPEALS*, SECURITIES AND EXCHANGE COMMISSION, MELANIA A. GUERRERO, LUZ

ANDICO, WILHEMINA G. ROSALES, FRANCISCO M. GUERRERO, JR., and FRANCISCO GUERRERO ,
SR., respondents.

PARAS, J.:

The basic controversy in this case is whether or not the respondent court erred in sustaining the
Securities and Exchange Commission when it compelled by Mandamus the Rural Bank of Salinas to
register in its stock and transfer book the transfer of 473 shares of stock to private respondents.
Petitioners maintain that the Petition for Mandamus should have been denied upon the following
grounds.
(1) Mandamus cannot be a remedy cognizable by the Securities and Exchange Commission when the
purpose is to register certificates of stock in the names of claimants who are not yet stockholders of a
corporation:

(2) There exist valid reasons for refusing to register the transfer of the subject of stock, namely:

(a) a pending controversy over the ownership of the certificates of stock with the Regional
Trial Court;

(b) claims that the Deeds of Assignment covering the subject certificates of stock were
fictitious and antedated; and

(c) claims on a resultant possible deprivation of inheritance share in relation with a

conflicting claim over the subject certificates of stock.

The facts are not disputed.

On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special
Power of Attorney in favor of his wife, private respondent Melania Guerrero, giving and granting the latter
full power and authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the Bank
registered in his name (represented by the Bank's stock certificates nos. 26, 49 and 65), to execute the
proper documents therefor, and to receive and sign receipts for the dispositions.

On February 27, 1980, and pursuant to said Special Power of Attorney, private respondent Melania
Guerrero, as Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the 473 shares, in
favor of private respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco
Guerrero, Jr. (5 shares).

Almost four months later, or two (2) days before the death of Clemente Guerrero on June 24, 1980,
private respondent Melania Guerrero, pursuant to the same Special Power of Attorney, executed a Deed of
Assignment for the remaining one (1) share of stock in favor of private respondent Francisco Guerrero, Sr.

Subsequently, private respondent Melania Guerrero presented to petitioner Rural Bank of Salinas the two
(2) Deeds of Assignment for registration with a request for the transfer in the Bank's stock and transfer
book of the 473 shares of stock so assigned, the cancellation of stock certificates in the name of Clemente
G. Guerrero, and the issuance of new stock certificates covering the transferred shares of stocks in the
name of the new owners thereof. However, petitioner Bank denied the request of respondent Melania
Guerrero.

On December 5, 1980, private respondent Melania Guerrero filed with the Securities and Exchange
Commission" (SEC) an action for mandamus against petitioners Rural Bank of Salinas, its President and
Corporate Secretary. The case was docketed as SEC Case No. 1979.

Petitioners filed their Answer with counterclaim on December 19, 1980 alleging the upon the death of
Clemente G. Guerrero, his 473 shares of stock became the property of his estate, and his property and
that of his widow should first be settled and liquidated in accordance with law before any distribution
can be effected so that petitioners may not be a party to any scheme to evade payment of estate or
inheritance tax and in order to avoid liability to any third persons or creditors of the late Clemente G.
Guerrero.

On January 29, 1981, a motion for intervention was filed by Maripol Guerrero, a legally adopted daughter
of the late Clemente G. Guerrero and private respondent Melania Guerrero, who stated therein that on
November 26, 1980 (almost two weeks before the filing of the petition for Mandamus) a Petition for the
administration of the estate of the late Clemente G. Guerrero had been filed with the Regional Trial Court,
Pasig, Branch XI, docketed as Special Proceedings No. 9400. Maripol Guerrero further claimed that the
Deeds of Assignment for the subject shares of stock are fictitious and antedated; that said conveyances
are donations since the considerations therefor are below the book value of the shares, the
assignees/private respondents being close relatives of private respondent Melania Guerrero; and that the
transfer of the shares in question to assignees/private respondents, other than private respondent
Melania Guerrero, would deprive her (Maripol Guerrero) of her rightful share in the inheritance. The SEC
hearing officer denied the Motion for Intervention for lack of merit. On appeal, the SEC En Banc affirmed
the decision of the hearing officer.

Intervenor Guerrero filed a complaint before the then Court of First Instance of Rizal, Quezon City
Branch, against private respondents for the annulment of the Deeds of Assignment, docketed as Civil Case
No. Q-32050. Petitioners, on the other hand, filed a Motion to Dismiss and/or to Suspend Hearing of SEC
Case No. 1979 until after the question of whether the subject Deeds of Assignment are fictitious, void or
simulated is resolved in Civil Case No. Q-32050. The SEC Hearing Officer denied said motion.

On December 10, 1984, the SEC Hearing Officer rendered a Decision granting the writ
of Mandamus prayed for by the private respondents and directing petitioners to cancel stock certificates
nos. 26, 49 and 65 of the Bank, all in the name of Clemente G. Guerrero, and to issue new certificates in
the names of private respondents, except Melania Guerrero. The dispositive, portion of the decision
reads:

WHEREFORE, judgment is hereby rendered in favor of the petitioners and against the
respondents, directing the latter, particularly the corporate secretary of respondent Rural
Bank of Salinas, Inc., to register in the latter's Stock and Transfer Book the transfer of 473
shares of stock of respondent Bank and to cancel Stock Certificates Nos. 26, 45 and 65 and
issue new Stock Certificates covering the transferred shares in favor of petitioners, as
follows:

1. Luz Andico 457 shares

2. Wilhelmina Rosales 10 shares

3. Francisco Guerrero, Jr. 5 shares

4. Francisco Guerrero, Sr. 1 share

and to pay to the above-named petitioners, the dividends for said shares corresponding to
the years 1981, 1982, 1983 and 1984 without interest.

No pronouncement as to costs.
 SO ORDERED. (p. 88, Rollo)

On appeal, the SEC En Banc affirmed the decision of the Hearing Officer. Petitioner filed a petition for
review with the Court of Appeals but said Court likewise affirmed the decision of the SEC.

We rule in favor of the respondents.

Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to hear and decide
cases involving intracorporate controversies. An intracorporate controversy has been defined as one
which arises between a stockholder and the corporation. There is no distinction, qualification, nor any
exception whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The case at bar involves shares of
stock, their registration, cancellation and issuances thereof by petitioner Rural Bank of Salinas. It is
therefore within the power of respondent SEC to adjudicate.

Respondent SEC correctly ruled in favor of the registering of the shares of stock in question in private
respondent's names. Such ruling finds support under Section 63 of the Corporation Code, to wit:

Sec. 63. . . . Shares of stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or
other person legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation
...

In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in his wise:

Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation Code]) contemplates no
restriction as to whom the stocks may be transferred. It does not suggest that any
discrimination may be created by the corporation in favor of, or against a certain
purchaser. The owner of shares, as owner of personal property, is at liberty, under said
section to dispose them in favor of whomever he pleases, without limitation in this respect,
than the general provisions of law. . . .

The only limitation imposed by Section 63 of the Corporation Code is when the corporation holds
any unpaid claim against the shares intended to be transferred, which is absent here.

A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock
transfers, because:

. . . Restrictions in the traffic of stock must have their source in legislative enactment, as the
corporation itself cannot create such impediment. By-laws are intended merely for the
protection of the corporation, and prescribe regulation, not restriction; they are always
subject to the charter of the corporation. The corporation, in the absence of such power,
cannot ordinarily inquire into or pass upon the legality of the transactions by which its
stock passes from one person to another, nor can it question the consideration upon which
a sale is based. . . . (Tomson on Corporation Sec. 4137, cited in Fleisher vs. Nolasco, Supra).

The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing
from his ownership of the stocks. Thus:
 Whenever a corporation refuses to transfer and register stock in cases like the
present, mandamus will lie to compel the officers of the corporation to transfer said stock
in the books of the corporation" (26, Cyc. 347, Hyer vs. Bryan, 19 Phil. 138; Fleisher vs.
Botica Nolasco, 47 Phil. 583, 594).

The corporation's obligation to register is ministerial.

In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and
does not try to decide the question of ownership. (Fletcher, Sec. 5528, page 434).

The duty of the corporation to transfer is a ministerial one and if it refuses to make such
transaction without good cause, it may be compelled to do so by mandamus. (See. 5518, 12
Fletcher 394)

For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in its stock and
transfer book, which duty is ministerial on its part, is to render nugatory and ineffectual the spirit and
intent of Section 63 of the Corporation Code. Thus, respondent Court of Appeals did not err in upholding
the Decision of respondent SEC affirming the Decision of its Hearing Officer directing the registration of
the 473 shares in the stock and transfer book in the names of private respondents. At all events, the
registration is without prejudice to the proceedings in court to determine the validity of the Deeds of
Assignment of the shares of stock in question.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 120138 September 5, 1997

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.

KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioners
seek to annul the decision of the Court of Appeals in CA-G.R. SP. No. 31748 dated 23 May 1994 and
its subsequent resolution dated 10 May 1995 denying petitioners' motion for reconsideration.

The present case involves two separate but interrelated conflicts. The facts leading to the first
controversy are as follows:

The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority stockholder of Tormil
Realty & Development Corporation while private respondents who are the children of Judge
Torres' deceased brother Antonio A. Torres, constituted the minority stockholders. In particular,
their respective shareholdings and positions in the corporation were as follows:

Name of Stockholder Number of Percentage Position(s)

Shares

Manuel A. Torres, Jr. 100,120 57.21 Dir./Pres./Chair

Milagros P. Torres 33,430 19.10 Dir./Treasurer
Josefina P. Torres 8,290 4.73 Dir./Ass. Cor-Sec.
Ma. Cristina T. Carlos 8,290 4.73 Dir./Cor-Sec.
Antonio P. Torres, Jr. 8,290 4.73 Director
Ma. Jacinta P. Torres 8,290 4.73 Director
Ma. Luisa T. Morales 7,790 4.45 Director
Dante D. Morales 500 .28 Director1

In 1984, Judge Torres, in order to make substantial savings in taxes, adopted an "estate planning" scheme
under which he assigned to Tormil Realty & Development Corporation (Tormil for brevity) various real
properties he owned and his shares of stock in other corporations in exchange for 225,972 Tormil Realty
shares. Hence, on various dates in July and August of 1984, ten (10) deeds of assignment were executed
by the late Judge Torres:

ASSIGNMENT DATE PROPERTY ASSIGNED LOCATION SHARES TO BE

ISSUED

1. July 13, 1984 TCT 81834 Quezon City 13,252

TCT 144240 Quezon City

2. July 13, 1984 TCT 77008 Manila

TCT 65689 Manila 78,493
TCT 109200 Manila

3. July 13, 1984 TCT 374079 Makati 8,307

4. July 24, 1984 TCT 41527 Pasay

TCT 41528 Pasay 9,855
TCT 41529 Pasay

5. Aug. 06, 1984 El Hogar Filipino Stocks 2,000

 6. Aug. 06, 1984 Manila Jockey Club Stocks 48,737

7. Aug. 07, 1984 San Miguel Corp. Stocks 50,283

8. Aug. 07, 1984 China banking Corp. Stocks 6,300

9. Aug. 20, 1984 Ayala Corp. Stocks 7,468

10. Aug. 29, 1984 Ayala Fund Stocks 1,322

———
225,9722

Consequently, the aforelisted properties were duly recorded in the inventory of assets of Tormil Realty
and the revenues generated by the said properties were correspondingly entered in the corporation's
books of account and financial records.

Likewise, all the assigned parcels of land were duly registered with the respective Register of Deeds in
the name of Tormil Realty, except for the ones located in Makati and Pasay City.

At the time of the assignments and exchange, however, only 225,000 Tormil Realty shares remained
unsubscribed, all of which were duly issued to and received by Judge Torres (as evidenced by stock
certificates Nos. 17, 18, 19, 20, 21, 22, 23, 24 & 25).3

Due to the insufficient number of shares of stock issued to Judge Torres and the alleged refusal of private
respondents to approve the needed increase in the corporation's authorized capital stock (to cover the
shortage of 972 shares due to Judge Torres under the "estate planning" scheme), on 11 September 1986,
Judge Torres revoked the two (2) deeds of assignment covering the properties in Makati and Pasay City.4

Noting the disappearance of the Makati and Pasay City properties from the corporation's inventory of
assets and financial records private respondents, on 31 March 1987, were constrained to file a complaint
with the Securities and Exchange Commission (SEC) docketed as SEC Case No. 3153 to compel Judge
Torres to deliver to Tormil corporation the two (2) deeds of assignment covering the aforementioned
Makati and Pasay City properties which he had unilaterally revoked and to cause the registration of the
corresponding titles in the name of Tormil. Private respondents alleged that following the disappearance
of the properties from the corporation's inventory of assets, they found that on October 24, 1986, Judge
Torres, together with Edgardo Pabalan and Graciano Tobias, then General Manager and legal counsel,
respectively, of Tormil, formed and organized a corporation named "Torres-Pabalan Realty and
Development Corporation" and that as part of Judge Torres' contribution to the new corporation, he
executed in its favor a Deed of Assignment conveying the same Makati and Pasay City properties he had
earlier transferred to Tormil.

The second controversy — involving the same parties — concerned the election of the 1987 corporate
board of directors.

The 1987 annual stockholders meeting and election of directors of Tormil corporation was scheduled on
25 March 1987 in compliance with the provisions of its by-laws.
Pursuant thereto, Judge Torres assigned from his own shares, one (l) share each to petitioners Tobias,
Jocson, Jurisprudencia, Azura and Pabalan. These assigned shares were in the nature of "qualifying
shares," for the sole purpose of meeting the legal requirement to be able to elect them (Tobias and
company) to the Board of Directors as Torres' nominees.

The assigned shares were covered by corresponding Tormil Stock Certificates Nos. 030, 029, 028, 027,
026 and at the back of each certificate the following inscription is found:

The present certificate and/or the one share it represents, conformably to the purpose and
intention of the Deed of Assignment dated March 6, 1987, is not held by me under any
claim of ownership and I acknowledge that I hold the same merely as trustee of Judge
Manuel A. Torres, Jr. and for the sole purpose of qualifying me as Director;

(Signature of Assignee)5

The reason behind the aforestated action was to remedy the "inequitable lopsided set-up obtaining in the
corporation, where, notwithstanding his controlling interest in the corporation, the late Judge held only a
single seat in the nine-member Board of Directors and was, therefore, at the mercy of the minority, a
combination of any two (2) of whom would suffice to overrule the majority stockholder in the Board's
decision making functions."6

On 25 March 1987, the annual stockholders meeting was held as scheduled. What transpired therein was
ably narrated by Attys. Benito Cataran and Bayani De los Reyes, the official representatives dispatched by
the SEC to observe the proceedings (upon request of the late Judge Torres) in their report dated 27
March 1987:

xxx xxx xxx

The undersigned arrived at 1:55 p.m. in the place of the meeting, a residential bungalow in
Urdaneta Village, Makati, Metro Manila. Upon arrival, Josefina Torres introduced us to the
stockholders namely: Milagros Torres, Antonio Torres, Jr., Ma. Luisa Morales, Ma. Cristina
Carlos and Ma. Jacinta Torres. Antonio Torres, Jr. questioned our authority and personality
to appear in the meeting claiming subject corporation is a family and private firm. We
explained that our appearance there was merely in response to the request of Manuel
Torres, Jr. and that SEC has jurisdiction over all registered corporations. Manuel Torres, Jr.,
a septuagenarian, argued that as holder of the major and controlling shares, he approved of
our attendance in the meeting.

At about 2:30 p.m., a group composed of Edgardo Pabalan, Atty. Graciano Tobias, Atty.
Rodolfo Jocson, Jr., Atty. Melvin Jurisprudencia, and Atty. Augustus Cesar Azura
arrived. Atty. Azura told the body that they came as counsels of Manuel Torres, Jr. and as
stockholders having assigned qualifying shares by Manuel Torres, Jr.

The stockholders' meeting started at 2:45 p.m. with Mr. Pabalan presiding after verbally
authorized by Manuel Torres, Jr., the President and Chairman of the Board. The secretary
when asked about the quorum, said that there was more than a quorum. Mr. Pabalan
distributed copies of the president's report and the financial statements. Antonio Torres,
Jr. requested time to study the said reports and brought out the question of auditing the
finances of the corporation which he claimed was approved previously by the board. Heated
arguments ensued which also touched on family matters. Antonio Torres, Jr. moved for the
suspension of the meeting but Manuel Torres, Jr. voted for the continuation of the
proceedings.

Mr. Pabalan suggested that the opinion of the SEC representatives be asked on the
propriety of suspending the meeting but Antonio Torres, Jr. objected reasoning out that we
were just observers.

When the Chairman called for the election of directors, the Secretary refused to write down
the names of nominees prompting Atty. Azura to initiate the appointment of Atty. Jocson, Jr.
as Acting Secretary.

Antonio Torres, Jr. nominated the present members of the Board. At this juncture, Milagros
Torres cried out and told the group of Manuel Torres, Jr. to leave the house.

Manuel Torres, Jr., together with his lawyers-stockholders went to the residence of Ma.
Jacinta Torres in San Miguel Village, Makati, Metro Manila. The undersigned joined them
since the group with Manuel Torres, Jr. the one who requested for S.E.C. observers,
represented the majority of the outstanding capital stock and still constituted a quorum.

At the resumption of the meeting, the following were nominated and elected as directors
for the year 1987-1988:

1. Manuel Torres, Jr.

2. Ma. Jacinta Torres

3. Edgardo Pabalan

4. Graciano Tobias

5. Rodolfo Jocson, Jr.

6. Melvin Jurisprudencia

7. Augustus Cesar Azura

8. Josefina Torres

9. Dante Morales

After the election, it was resolved that after the meeting, the new board of directors shall
convene for the election of officers.

xxx xxx xxx7

Consequently, on 10 April 1987, private respondents instituted a complaint with the SEC (SEC Case No.
3161) praying in the main, that the election of petitioners to the Board of Directors be annulled.

Private respondents alleged that the petitioners-nominees were not legitimate stockholders of Tormil
because the assignment of shares to them violated the minority stockholders' right of pre-emption as
provided in the corporation's articles and by-laws.

Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 were consolidated for joint hearing and
adjudication.

On 6 March 1991, the Panel of Hearing Officers of the SEC rendered a decision in favor of private
respondents. The dispositive portion thereof states, thus:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering and directing the respondents, particularly respondent Manuel A. Torres, Jr., to
turn over and deliver to TORMIL through its Corporate Secretary, Ma. Cristina T. Carlos: (a)
the originals of the Deeds of Assignment dated July 13 and 24, 1984 together with the
owner's duplicates of Transfer Certificates of Title Nos. 374079 of the Registry of Deeds for
Makati, and 41527, 41528 and 41529 of the Registry of Deeds for Pasay City and/or to
cause the formal registration and transfer of title in and over such real properties in favor
of TORMIL with the proper government agency; (b) all corporate books of account, records
and papers as may be necessary for the conduct of a comprehensive audit examination, and
to allow the examination and inspection of such accounting books, papers and records by
any or all of the corporate directors, officers and stockholders and/or their duly authorized
representatives or auditors;

2. Declaring as permanent and final the writ of preliminary injunction issued by the
Hearing Panel on February 13, 1989;

3. Declaring as null and void the election and appointment of respondents to the Board of
Directors and executive positions of TORMIL held on March 25, 1987, and all their acts and
resolutions made for and in behalf of TORMIL by authority of and pursuant to such invalid
appointment & election held on March 25, 1987;

4. Ordering the respondents jointly and severally, to pay the complainants the sum of ONE
HUNDRED THOUSAND PESOS (P100,000.00) as and by way of attorney's fees.8

Petitioners promptly appealed to the SEC en banc (docketed as SEC-AC No. 339). Thereafter, on 3 April
1991, during the pendency of said appeal, petitioner Manuel A. Torres, Jr. died. However, notice thereof
was brought to the attention of the SEC not by petitioners' counsel but by private respondents in a
Manifestation dated 24 April 1991.9

On 8 June 1993, petitioners filed a Motion to Suspend Proceedings on grounds that no administrator or
legal representative of the late Judge Torres' estate has yet been appointed by the Regional Trial Court of
Makati where Sp. Proc. No. M-1768 ("In Matter of the Issuance of the Last Will and Testament of Manuel
A Torres, Jr.") was pending. Two similar motions for suspension were filed by petitioners on 28 June
1993 and 9 July 1993.
On 19 July 1993, the SEC en banc issued an Order denying petitioners' aforecited motions on the
following ground:

Before the filing of these motions, the Commission en banc had already completed all
proceedings and had likewise ruled on the merits of the appealed cases. Viewed in this
light, we thus feel that there is nothing left to be done except to deny these motions to
suspend proceedings. 10

On the same date, the SEC en banc rendered a decision, the dispositive portion of which reads, thus:

WHEREFORE, premises considered, the appealed decision of the hearing panel is hereby
affirmed and all motions pending before us incident to this appealed case are necessarily
DISMISSED.

SO ORDERED. 11

Undaunted, on 10 August 1993, petitioners proceeded to plead its cause to the Court of Appeals by way of
a petition for review (docketed as CA-G.R. SP No. 31748).

On 23 May 1994, the Court of Appeals rendered a decision, the dispositive portion of which states:

WHEREFORE, the petition for review is DISMISSED and the appealed decision is
accordingly affirmed.

SO ORDERED. 12

From the said decision, petitioners filed a motion for reconsideration which was denied in a resolution
issued by the Court of Appeals dated 10 May 1995. 13

Insisting on their cause, petitioners filed the present petition for review alleging that the Court of Appeals
committed the following errors in its decision:

(1)

WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A FULL LENGTH DECISION,
WITHOUT THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C. — AC NO. 339 BEING
PROPERLY BROUGHT BEFORE IT FOR REVIEW AND RE-EXAMINATION, AN OMISSION
RESULTING IN A CLEAR TRANSGRESSION OR CURTAILMENT OF THE RIGHTS OF THE
HEREIN PETITIONERS TO PROCEDURAL DUE PROCESS;

(2)

WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE RESPONDENT S.E.C., WHICH
IS VOID FOR HAVING BEEN RENDERED WITHOUT THE PROPER SUBSTITUTION OF THE
DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.-AC NO. 339 AND CONSEQUENTLY,
FOR WANT OF JURISDICTION OVER THE SAID DECEASED'S TESTATE ESTATE, AND
MOREOVER, WHEN IT SOUGHT TO JUSTIFY THE NON-SUBSTITUTION BY ITS
APPLICATION OF THE CIVIL LAW CONCEPT OF NEGOTIORUM GESTIO;
 (3)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL

RECORD OF S.E.C. — AC NO. 339 NOT HAVING ACTUALLY BEEN RE-EXAMINED, THAT
S.E.C. CASE NO. 3153 INVOLVED A SITUATION WHERE PERFORMANCE WAS IMPOSSIBLE
(AS CONTEMPLATED UNDER ARTICLE 1191 OF THE CIVIL CODE) AND WAS NOT A MERE
CASE OF LESION OR INADEQUACY OF CAUSE (UNDER ARTICLE 1355 OF THE CIVIL CODE)
AS SO ERRONEOUSLY CHARACTERIZED BY THE RESPONDENT S.E.C.; and,

(4)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL

RECORD OF S.E.C. — AC NO. 339 NOT HAVING ACTUALLY BEEN EXAMINED, THAT THE
RECORDING BY THE LATE JUDGE MANUEL A. TORRES, JR. OF THE QUESTIONED
ASSIGNMENT OF QUALIFYING SHARES TO HIS NOMINEES, WAS AFFIRMED IN THE STOCK
AND TRANSFER BOOK BY AN ACTING CORPORATE SECRETARY AND MOREOVER, THAT
ACTUAL NOTICE OF SAID ASSIGNMENT WAS TIMELY MADE TO THE OTHER
STOCKHOLDERS. 14

We shall resolve the issues in seriatim.

Petitioners insist that the failure to transmit the original records to the Court of Appeals deprived them of
procedural due process. Without the evidence and the original records of the proceedings before the SEC,
the Court of Appeals, petitioners adamantly state, could not have possibly made a proper appreciation
and correct determination of the issues, particularly the factual issues, they had raised on appeal.
Petitioners also assert that since the Court of Appeals allegedly gave due course to their petition, the
original records should have been forwarded to said court.

Petitioners anchor their argument on Secs. 8 and 11 of SC Circular 1-91 (dated 27 February 1991) which
provides that:

8. WHEN PETITION GIVEN DUE COURSE. — The Court of Appeals shall give due course to
the petition only when it shows prima facie that the court, commission, board, office or
agency concerned has committed errors of fact or law that would warrant reversal or
modification of the order, ruling or decision sought to be reviewed. The findings of fact of
the court commission, board, office or agency concerned when supported by substantial
evidence shall be final.

xxx xxx xxx

11. TRANSMITTAL OF RECORD. — Within fifteen (15) days from notice that the petition has
been given due course, the court, commission, board, office or agency concerned shall
transmit to the Court of Appeals the original or a certified copy of the entire record of the
proceeding under review. The record to be transmitted may be abridged by agreement of
all parties to the proceeding. The Court of Appeals may require or permit subsequent
correction or addition to the record.
Petitioners contend that the Court of Appeals had given due course to their petition as allegedly indicated
by the following acts:

a) it granted the restraining order applied for by the herein petitioners, and
after hearing, also the writ of preliminary injunction sought by them; under
the original SC Circular No. 1-91, a petition for review may be given due
course at the onset (paragraph 8) upon a mereprima facie finding of errors of
fact or law having been committed, and such prima faciefinding is but
consistent with the grant of the extra-ordinary writ of preliminary
injunction;

b) it required the parties to submit "simultaneous memoranda" in its

resolution dated October 15, 1993 (this is in addition to the comment
required to be filed by the respondents) and furthermore declared in the
same resolution that the petition will be decided "on the merits," instead of
outrightly dismissing the same;

c) it rendered a full length decision, wherein: (aa) it expressly declared the

respondent S.E.C. as having erred in denying the pertinent motions to
suspend proceedings; (bb) it declared the supposed error as having become
a non-issue when the respondent C.A. "proceeded to hear (the) appeal"; (cc) it
formulated and applied its own theory of negotiorum gestio in justifying the
non-substitution of the deceased principal party in S.E.C. — AC No. 339 and
moreover, its theory of di minimis non curat lex (this, without first
determining the true extent of and the correct legal characterization of the
so-called "shortage" of Tormil shares;
and, (dd) it expressly affirmed the assailed decision of respondent S.E.C. 15

Petitioners' contention is unmeritorious.

There is nothing on record to show that the Court of Appeals gave due course to the petition. The fact
alone that the Court of Appeals issued a restraining order and a writ of preliminary injunction and
required the parties to submit their respective memoranda does not indicate that the petition was given
due course. The office of an injunction is merely to preserve the status quo pending the disposition of the
case. The court can require the submission of memoranda in support of the respective claims and
positions of the parties without necessarily giving due course to the petition. The matter of whether or
not to give due course to a petition lies in the discretion of the court.

It is worthy to mention that SC Circular No. 1-91 has been replaced by Revised Administrative Circular
No. 1-95 (which took effect on 1 June 1995) wherein the procedure for appeals from quasi-judicial
agencies to the Court of Appeals was clarified thus:

10. Due course. — If upon the filing of the comment or such other pleadings or documents
as may be required or allowed by the Court of Appeals or upon the expiration of the period
for the filing thereof, and on the bases of the petition or the record the Court of Appeals
finds prima facie that the court or agency concerned has committed errors of fact or law
that would warrant reversal or modification of the award, judgment, final order or
resolution sought to be reviewed, it may give due course to the petition; otherwise, it shall
 dismiss the same. The findings of fact of the court or agency concerned, when supported by
substantial evidence, shall be binding on the Court of Appeals.

11. Transmittal of record. — Within fifteen (15) days from notice that the petition has been
given due course, the Court of Appeals may require the court or agency concerned to transmit
the original or a legible certified true copy of the entire record of the proceeding under
review. The record to be transmitted may be abridged by agreement of all parties to the
proceeding. The Court of Appeals may require or permit subsequent correction of or
addition to the record. (Emphasis ours.)

The aforecited circular now formalizes the correct practice and clearly states that in resolving appeals
from quasi judicial agencies, it is within the discretion of the Court of Appeals to have the original records
of the proceedings under review be transmitted to it. In this connection petitioners' claim that the Court
of Appeals could not have decided the case on the merits without the records being brought before it is
patently lame. Indubitably, the Court of Appeals decided the case on the basis of the uncontroverted facts
and admissions contained in the pleadings, that is, the petition, comment, reply, rejoinder, memoranda,
etc. filed by the parties.

II

Petitioners contend that the decisions of the SEC and the Court of Appeals are null and void for being
rendered without the necessary substitution of parties (for the deceased petitioner Manuel A. Torres, Jr.)
as mandated by Sec. 17, Rule 3 of the Revised Rules of Court, which provides as follows:

Sec. 17. Death of party. — After a party dies and the claim is not thereby extinguished, the
court shall order, upon proper notice, the legal representative of the deceased to appear
and to be substituted for the deceased, within a period of thirty (30) days, or within such
time as may be granted. If the legal representative fails to appear within said time, the
court may order the opposing party to procure the appointment of a legal representative of
the deceased within a time to be specified by the court, and the representative shall
immediately appear for and on behalf of the interest of the deceased. The court charges
involved in procuring such appointment, if defrayed by the opposing party, may be
recovered as costs. The heirs of the deceased may be allowed to be substituted for the
deceased, without requiring the appointment of an executor or administrator and the court
may appoint guardian ad litemfor the minor heirs.

Petitioners insist that the SEC en banc should have granted the motions to suspend they filed based as
they were on the ground that the Regional Trial Court of Makati, where the probate of the late Judge
Torres' will was pending, had yet to appoint an administrator or legal representative of his estate.

We are not unaware of the principle underlying the aforequoted provision:

It has been held that when a party dies in an action that survives, and no order is issued by
the Court for the appearance of the legal representative or of the heirs of the deceased to be
substituted for the deceased, and as a matter of fact no such substitution has ever been
effected, the trial held by the court without such legal representative or heirs, and the
judgment rendered after such trial, are null and void because the court acquired no
 jurisdiction over the persons of the legal representative or of the heirs upon whom the trial
and the judgment are not binding. 16

As early as 8 April 1988, Judge Torres instituted Special Proceedings No. M-1768 before the Regional
Trial Court of Makati for the ante-mortem probate of his holographic will which he had executed on 31
October 1986. Testifying in the said proceedings, Judge Torres confirmed his appointment of petitioner
Edgardo D. Pabalan as the sole executor of his will and administrator of his estate. The proceedings,
however, were opposed by the same parties, herein private respondents Antonio P. Torres, Jr., Ma. Luisa
T. Morales and Ma. Cristina T. Carlos, 17 who are nephew and nieces of Judge Torres, being the children of
his late brother Antonio A. Torres.

It can readily be observed therefore that the parties involved in the present controversy are virtually the
same parties fighting over the representation of the late Judge Torres' estate. It should be recalled that
the purpose behind the rule on substitution of parties is the protection of the right of every party to due
process. It is to ensure that the deceased party would continue to be properly represented in the suit
through the duly appointed legal representative of his estate. In the present case, this purpose has been
substantially fulfilled (despite the lack of formal substitution) in view of the peculiar fact that both
proceedings involve practically the same parties. Both parties have been fiercely fighting in the probate
proceedings of Judge Torres' holographic will for appointment as legal representative of his estate. Since
both parties claim interests over the estate, the rights of the estate were expected to be fully protected in
the proceedings before the SEC en banc and the Court of Appeals. In either case, whoever shall be
appointed legal representative of Judge Torres' estate (petitioner Pabalan or private respondents) would
no longer be a stranger to the present case, the said parties having voluntarily submitted to the
jurisdiction of the SEC and the Court of Appeals and having thoroughly participated in the proceedings.

The foregoing rationate finds support in the recent case of Vda. de Salazar v. CA, 18 wherein the Court
expounded thus:

The need for substitution of heirs is based on the right to due process accruing to every
party in any proceeding. The rationale underlying this requirement in case a party dies
during the pendency of proceedings of a nature not extinguished by such death, is that . . .
the exercise of judicial power to hear and determine a cause implicitly presupposes in the
trial court, amongst other essentials, jurisdiction over the persons of the parties. That
jurisdiction was inevitably impaired upon the death of the protestee pending the
proceedings below such that unless and until a legal representative is for him duly named
and within the jurisdiction of the trial court, no adjudication in the cause could have been
accorded any validity or binding effect upon any party, in representation of the deceased,
without trenching upon the fundamental right to a day in court which is the very essence of
the constitutionally enshrined guarantee of due process.

We are not unaware of several cases where we have ruled that a party having died in an
action that survives, the trial held by the court without appearance of the deceased's legal
representative or substitution of heirs and the judgment rendered after such trial, are null
and void because the court acquired no jurisdiction over the persons of the legal
representatives or of the heirs upon whom the trial and the judgment would be binding.
This general rule notwithstanding, in denying petitioner's motion for reconsideration, the
Court of Appeals correctly ruled that formal substitution of heirs is not necessary when the
heirs themselves voluntarily appeared, participated in the case and presented evidence in
 defense of deceased defendant. Attending the case at bench, after all, are these particular
circumstances which negate petitioner's belated and seemingly ostensible claim of
violation of her rights to due process. We should not lose sight of the principle underlying
the general rule that formal substitution of heirs must be effectuated for them to be bound
by a subsequent judgment. Such had been the general rule established not because the rule
on substitution of heirs and that on appointment of a legal representative are jurisdictional
requirements per se but because non-compliance therewith results in the undeniable
violation of the right to due process of those who, though not duly notified of the
proceedings, are substantially affected by the decision rendered therein . . . .

It is appropriate to mention here that when Judge Torres died on April 3, 1991, the SEC en banc had
already fully heard the parties and what remained was the evaluation of the evidence and rendition of the
judgment.

Further, petitioners filed their motions to suspend proceedings only after more than two (2) years from
the death of Judge Torres. Petitioners' counsel was even remiss in his duty under Sec. 16, Rule 3 of the
Revised Rules of Court. 19 Instead, it was private respondents who informed the SEC of Judge Torres'
death through a manifestation dated 24 April 1991.

For the SEC en banc to have suspended the proceedings to await the appointment of the legal
representative by the estate was impractical and would have caused undue delay in the proceedings and
a denial of justice. There is no telling when the probate court will decide the issue, which may still be
appealed to the higher courts.

In any case, there has been no final disposition of the properties of the late Judge Torres before the SEC.
On the contrary, the decision of the SEC en banc as affirmed by the Court of Appeals served to protect and
preserve his estate. Consequently, the rule that when a party dies, he should be substituted by his legal
representative to protect the interests of his estate in observance of due process was not violated in this
case in view of its peculiar situation where the estate was fully protected by the presence of the parties
who claim interests therein either as directors, stockholders or heirs.

Finally, we agree with petitioners' contention that the principle of negotiorum gestio 20 does not apply in
the present case. Said principle explicitly covers abandoned or neglected property or business.

III

Petitioners find legal basis for Judge Torres' act of revoking the assignment of his properties in Makati
and Pasay City to Tormil corporation by relying on Art. 1191 of the Civil Code which provides that:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
 This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

Petitioners' contentions cannot be sustained. We see no justifiable reason to disturb the findings of SEC,
as affirmed by the Court of Appeals:

We sustain the ruling of respondent SEC in the decision appealed from (Rollo, pp. 45-46)
that —

. . . the shortage of 972 shares would not be valid ground for respondent
Torres to unilaterally revoke the deeds of assignment he had executed on
July 13, 1984 and July 24, 1984 wherein he voluntarily assigned to TORMIL
real properties covered by TCT No. 374079 (Makati) and TCT No. 41527,
41528 and 41529 (Pasay) respectively.

A comparison of the number of shares that respondent Torres received from

TORMIL by virtue of the "deeds of assignment" and the stock certificates
issued by the latter to the former readily shows that TORMIL had
substantially performed what was expected of it. In fact, the first two
issuances were in satisfaction to the properties being revoked by respondent
Torres. Hence, the shortage of 972 shares would never be a valid ground for
the revocation of the deeds covering Pasay and Quezon City properties.

In Universal Food Corp. vs. CA, the Supreme Court held:

The general rule is that rescission of a contract will not be

permitted for a slight or carnal breach, but only for such
substantial and fundamental breach as would defeat the very
object of the parties in making the agreement.

The shortage of 972 shares definitely is not substantial and fundamental

breach as would defeat the very object of the parties in entering into
contract. Art. 1355 of the Civil Code also provides: "Except in cases specified
by law, lesion or inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influences." There being no fraud,
mistake or undue influence exerted on respondent Torres by TORMIL and
the latter having already issued to the former of its 225,000 unissued shares,
the most logical course of action is to declare as null and void the deed of
revocation executed by respondent Torres. (Rollo, pp. 45-46.) 21

The aforequoted Civil Code provision does not apply in this particular situation for the obvious reason
that a specific number of shares of stock (as evidenced by stock certificates) had already been issued to
the late Judge Torres in exchange for his Makati and Pasay City properties. The records thus disclose:

DATE OF PROPERTY LOCATION NO. OF SHARES ORDER OF

ASSIGNMENT ASSIGNED TO BE ISSUED COMPLIANCE*
 1. July 13, 1984 TCT 81834 Quezon City) 13,252 3rd
TCT 144240 Quezon City)

2. July 13, 1984 TCT 77008 Manila)

TCT 65689 Manila) 78,493 2nd
TCT 102200 Manila)

3. July 13, 1984 TCT 374079 Makati 8,307 1st

4. July 24, 1984 TCT 41527 Pasay

TCT 41528 Pasay) 9,855 4th
TCT 41529 Pasay)

5. August 6, 1984 El Hogar Filipino Stocks 2,000 7th

6. August 6, 1984 Manila Jockey Club Stocks 48,737 5th

7. August 7, 1984 San Miguel Corp. Stocks 50,238 8th

8. August 7, 1984 China Banking Corp. Stocks 6,300 6th

9. August 20, 1984 Ayala Corp. Stocks 7,468.2) 9th

10. August 29, 1984 Ayala Fund Stocks 1,322.1)

—————
TOTAL 225,972.3

*Order of stock certificate issuances by TORMIL to respondent Torres relative to the Deeds
of Assignment he executed sometime in July and August, 1984. 22 (Emphasis ours.)

Moreover, we agree with the contention of the Solicitor General that the shortage of shares should not
have affected the assignment of the Makati and Pasay City properties which were executed in 13 and 24
July 1984 and the consideration for which have been duly paid or fulfilled but should have been applied
logically to the last assignment of property — Judge Torres' Ayala Fund shares — which was executed on
29 August 1984. 23

IV

Petitioners insist that the assignment of "qualifying shares" to the nominees of the late Judge Torres
(herein petitioners) does not partake of the real nature of a transfer or conveyance of shares of stock as
would call for the "imposition of stringent requirements (with respect to the) recording of the transfer of
said shares." Anyway, petitioners add, there was substantial compliance with the above-stated
requirement since said assignments were entered by the late Judge Torres himself in the corporation's
stock and transfer book on 6 March 1987, prior to the 25 March 1987 annual stockholders meeting and
which entries were confirmed on 8 March 1987 by petitioner Azura who was appointed Assistant
Corporate Secretary by Judge Torres.
Petitioners further argue that:

10.10. Certainly, there is no legal or just basis for the respondent S.E.C. to penalize the late
Judge Torres by invalidating the questioned entries in the stock and transfer book, simply
because he initially made those entries (they were later affirmed by an acting corporate
secretary) and because the stock and transfer book was in his possession instead of the
elected corporate secretary, if the background facts herein-before narrated and the serious
animosities that then reigned between the deceased Judge and his relatives are to be taken
into account;

xxx xxx xxx

10.12. Indeed it was a practice in the corporate respondent, a family corporation with only
a measly number of stockholders, for the late judge to have personal custody of corporate
records; as president, chairman and majority stockholder, he had the prerogative of
designating an acting corporate secretary or to himself make the needed entries, in
instances where the regular secretary, who is a mere subordinate, is unavailable or
intentionally defaults, which was the situation that obtained immediately prior to the 1987
annual stockholders meeting of Tormil, as the late Judge Torres had so indicated in the
stock and transfer book in the form of the entries now in question;

10.13. Surely, it would have been futile nay foolish for him to have insisted under those
circumstances, for the regular secretary, who was then part of a group ranged against him,
to make the entries of the assignments in favor of his nominees; 24

Petitioners' contentions lack merit.

It is precisely the brewing family discord between Judge Torres and private respondents — his nephew
and nieces that should have placed Judge Torres on his guard. He should have been more careful in
ensuring that his actions (particularly the assignment of qualifying shares to his nominees) comply with
the requirements of the law. Petitioners cannot use the flimsy excuse that it would have been a vain
attempt to force the incumbent corporate secretary to register the aforestated assignments in the stock
and transfer book because the latter belonged to the opposite faction. It is the corporate secretary's duty
and obligation to register valid transfers of stocks and if said corporate officer refuses to comply, the
transferor-stockholder may rightfully bring suit to compel performance. 25 In other words, there are
remedies within the law that petitioners could have availed of, instead of taking the law in their own
hands, as the cliche goes.

Thus, we agree with the ruling of the SEC en banc as affirmed by the Court of Appeals:

We likewise sustain respondent SEC when it ruled, interpreting Section 74 of the

Corporation Code, as follows (Rollo, p. 45):

In the absence of (any) provision to the contrary, the corporate secretary is

the custodian of corporate records. Corollarily, he keeps the stock and
transfer book and makes proper and necessary entries therein.
 Contrary to the generally accepted corporate practice, the stock and transfer
book of TORMIL was not kept by Ms. Maria Cristina T. Carlos, the corporate
secretary but by respondent Torres, the President and Chairman of the Board
of Directors of TORMIL. In contravention to the above cited provision, the
stock and transfer book was not kept at the principal office of the corporation
either but at the place of respondent Torres.

These being the obtaining circumstances, any entries made in the stock and
transfer book on March 8, 1987 by respondent Torres of an alleged transfer
of nominal shares to Pabalan and Co. cannot therefore be given any valid
effect. Where the entries made are not valid, Pabalan and Co. cannot
therefore be considered stockholders of record of TORMIL. Because they are
not stockholders, they cannot therefore be elected as directors of TORMIL. To
rule otherwise would not only encourage violation of clear mandate of Sec.
74 of the Corporation Code that stock and transfer book shall be kept in the
principal office of the corporation but would likewise open the flood gates of
confusion in the corporation as to who has the proper custody of the stock
and transfer book and who are the real stockholders of records of a certain
corporation as any holder of the stock and transfer book, though not the
corporate secretary, at pleasure would make entries therein.

The fact that respondent Torres holds 81.28% of the outstanding capital
stock of TORMIL is of no moment and is not a license for him to arrogate unto
himself a duty lodged to (sic) the corporate secretary. 26

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.

WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 117604 March 26, 1997

CHINA BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS, and VALLEY GOLF and COUNTRY CLUB, INC., respondents.
KAPUNAN, J.:

Through a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner China
Banking Corporation seeks the reversal of the decision of the Court of Appeals dated 15 August 1994
nullifying the Securities and Exchange Commission's order and resolution dated 4 June 1993 and 7
December 1993, respectively, for lack of jurisdiction. Similarly impugned is the Court of Appeals'
resolution dated 4 September 1994 which denied petitioner's motion for reconsideration.

The case unfolds thus:

On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of private respondent
Valley Golf & Country Club, Inc. (VGCCI, for brevity), pledged his Stock Certificate No. 1219 to petitioner
China Banking Corporation (CBC, for brevity).1

On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned pledge agreement be
recorded in its books.2

In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed by Calapatia in
petitioner's favor was duly noted in its corporate books.3

On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was
secured by the aforestated pledge agreement still existing between Calapatia and petitioner.4

Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985, filed a petition for
extrajudicial foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to
conduct a public auction sale of the pledged stock.5

On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure proceedings and
requested that the pledged stock be transferred to its (petitioner's) name and the same be recorded in
the corporate books. However, on 15 July 1985, VGCCI wrote petitioner expressing its inability to accede
to petitioner's request in view of Calapatia's unsettled accounts with the club.6

Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and petitioner
emerged as the highest bidder at P20,000.00 for the pledged stock. Consequently, petitioner was issued
the corresponding certificate of sale.7

On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue account in
the amount of P18,783.24. 8 Said notice was followed by a demand letter dated 12 December 1985 for the
same amount9 and another notice dated 22 November 1986 for P23,483.24. 10

On 4 December 1986, VGCCI caused to be published in the newspaper Daily Express a notice of auction
sale of a number of its stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein
was Calapatia's own share of stock (Stock Certificate No. 1219).

Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination of his
membership due to the sale of his share of stock in the 10 December 1986 auction. 11
On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate No.
1219 by virtue of being the highest bidder in the 17 September 1985 auction and requested that a new
certificate of stock be issued in its name. 12

On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public
auction held on 10 December 1986 for P25,000.00. 13

On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of stock and thereafter filed
a case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and
for the issuance of a new stock certificate in its name. 14

On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over
the subject matter on the theory that it involves an intra-corporate dispute and on 27 August 1990
denied petitioner's motion for reconsideration.

On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission (SEC)
for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate
issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages,
attorney's fees and costs of litigation.

On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in
the main that "(c)onsidering that the said share is delinquent, (VGCCI) had valid reason not to transfer
the share in the name of the petitioner in the books of (VGCCI) until liquidation of
delinquency." 15 Consequently, the case was dismissed. 16

On 14 April 1992, Hearing Officer Perea denied petitioner's motion for reconsideration. 17

Petitioner appealed to the SEC en banc and on 4 June 1993, the Commission issued an order reversing the
decision of its hearing officer. It declared thus:

The Commission en banc believes that appellant-petitioner has a prior right over the
pledged share and because of pledgor's failure to pay the principal debt upon maturity,
appellant-petitioner can proceed with the foreclosure of the pledged share.

WHEREFORE, premises considered, the Orders of January 3, 1992 and April 14, 1992 are
hereby SET ASIDE. The auction sale conducted by appellee-respondent Club on December
10, 1986 is declared NULL and VOID. Finally, appellee-respondent Club is ordered to issue
another membership certificate in the name of appellant-petitioner bank.

SO ORDERED. 18

VGCCI sought reconsideration of the abovecited order. However, the SEC denied the same in its
resolution dated 7 December 1993. 19

The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the
Court of Appeals rendered its decision nullifying and setting aside the orders of the SEC and its hearing
officer on ground of lack of jurisdiction over the subject matter and, consequently, dismissed petitioner's
original complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is not
intra-corporate. It ruled as follows:

In order that the respondent Commission can take cognizance of a case, the controversy
must pertain to any of the following relationships: (a) between the corporation,
partnership or association and the public; (b) between the corporation, partnership or
association and its stockholders, partners, members, or officers; (c) between the
corporation, partnership or association and the state in so far as its franchise, permit or
license to operate is concerned, and (d) among the stockholders, partners or associates
themselves (Union Glass and Container Corporation vs. SEC, November 28, 1983, 126 SCRA
31). The establishment of any of the relationship mentioned will not necessarily always
confer jurisdiction over the dispute on the Securities and Exchange Commission to the
exclusion of the regular courts. The statement made in Philex Mining Corp. vs. Reyes, 118
SCRA 602, that the rule admits of no exceptions or distinctions is not that absolute. The
better policy in determining which body has jurisdiction over a case would be to consider
not only the status or relationship of the parties but also the nature of the question that is
the subject of their controversy (Viray vs. Court of Appeals, November 9, 1990, 191 SCRA
308, 322-323).

Indeed, the controversy between petitioner and respondent bank which involves
ownership of the stock that used to belong to Calapatia, Jr. is not within the competence of
respondent Commission to decide. It is not any of those mentioned in the aforecited case.

WHEREFORE, the decision dated June 4, 1993, and order dated December 7, 1993 of
respondent Securities and Exchange Commission (Annexes Y and BB, petition) and of its
hearing officer dated January 3, 1992 and April 14, 1992 (Annexes S and W, petition) are all
nullified and set aside for lack of jurisdiction over the subject matter of the case.
Accordingly, the complaint of respondent China Banking Corporation (Annex Q, petition) is
DISMISSED. No pronouncement as to costs in this instance.

SO ORDERED. 20

Petitioner moved for reconsideration but the same was denied by the Court of Appeals in its resolution
dated 5 October 1994. 21

Hence, this petition wherein the following issues were raised:

II

ISSUES

WHETHER OR NOT RESPONDENT COURT OF APPEALS (Former Eighth Division) GRAVELY

ERRED WHEN:

1. IT NULLIFIED AND SET ASIDE THE DECISION DATED JUNE 04, 1993 AND ORDER
DATED DECEMBER 07, 1993 OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC,
AND WHEN IT DISMISSED THE COMPLAINT OF PETITIONER AGAINST RESPONDENT
 VALLEY GOLF ALL FOR LACK OF JURISDICTION OVER THE SUBJECT MATTER OF THE
CASE;

2. IT FAILED TO AFFIRM THE DECISION OF THE SECURITIES AND EXCHANGE

COMMISSION EN BANC DATED JUNE 04, 1993 DESPITE PREPONDERANT EVIDENCE
SHOWING THAT PETITIONER IS THE LAWFUL OWNER OF MEMBERSHIP CERTIFICATE
NO. 1219 FOR ONE SHARE OF RESPONDENT VALLEY GOLF.

The petition is granted.

The basic issue we must first hurdle is which body has jurisdiction over the controversy, the regular
courts or the SEC.

P. D. No. 902-A conferred upon the SEC the following pertinent powers:

Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all
corporations, partnerships or associations, who are the grantees of primary franchises
and/or a license or permit issued by the government to operate in the Philippines, and in
the exercise of its authority, it shall have the power to enlist the aid and support of and to
deputize any and all enforcement agencies of the government, civil or military as well as
any private institution, corporation, firm, association or person.

xxx xxx xxx

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:

a) Devices or schemes employed by or any acts of the board of directors,

business associates, its officers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, members of associations or
organizations registered with the Commission.

b) Controversies arising out of intra-corporate or partnership relations,

between and among stockholders, members, or associates; between any or
all of them and the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between such
corporation, partnership or association and the State insofar as it concerns
their individual franchise or right to exist as such entity;

c) Controversies in the election or appointment of directors, trustees,

officers, or managers of such corporations, partnerships or associations.

d) Petitions of corporations, partnerships or associations to be declared in

the state of suspension of payments in cases where the corporation,
partnership or association possesses property to cover all of its debts but
 foresees the impossibility of meeting them when they respectively fall due or
in cases where the corporation, partnership or association has no sufficient
assets to cover its liabilities, but is under the Management Committee
created pursuant to this Decree.

The aforecited law was expounded upon in Viray v. CA 22 and in the recent cases of Mainland Construction
Co., Inc. v. Movilla 23 and Bernardo v. CA, 24 thus:

. . . .The better policy in determining which body has jurisdiction over a case would be to
consider not only the status or relationship of the parties but also the nature of the
question that is the subject of their controversy.

Applying the foregoing principles in the case at bar, to ascertain which tribunal has jurisdiction we have
to determine therefore whether or not petitioner is a stockholder of VGCCI and whether or not the nature
of the controversy between petitioner and private respondent corporation is intra-corporate.

As to the first query, there is no question that the purchase of the subject share or membership certificate
at public auction by petitioner (and the issuance to it of the corresponding Certificate of Sale) transferred
ownership of the same to the latter and thus entitled petitioner to have the said share registered in its
name as a member of VGCCI. It is readily observed that VGCCI did not assail the transfer directly and has
in fact, in its letter of 27 September 1974, expressly recognized the pledge agreement executed by the
original owner, Calapatia, in favor of petitioner and has even noted said agreement in its corporate
books. 25 In addition, Calapatia, the original owner of the subject share, has not contested the said
transfer.

By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and, therefore,
the conflict that arose between petitioner and VGCCI aptly exemplies an intra-corporate controversy
between a corporation and its stockholder under Sec. 5(b) of P.D. 902-A.

An important consideration, moreover, is the nature of the controversy between petitioner and private
respondent corporation. VGCCI claims a prior right over the subject share anchored mainly on Sec. 3, Art
VIII of its by-laws which provides that "after a member shall have been posted as delinquent, the Board
may order his/her/its share sold to satisfy the claims of the Club. . ." 26 It is pursuant to this provision that
VGCCI also sold the subject share at public auction, of which it was the highest bidder. VGCCI caps its
argument by asserting that its corporate by-laws should prevail. The bone of contention, thus, is the
proper interpretation and application of VGCCI's aforequoted by-laws, a subject which irrefutably calls
for the special competence of the SEC.

We reiterate herein the sound policy enunciated by the Court in Abejo v. De la Cruz 27:

6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in
administrative commissions and boards the power to resolve specialized disputes in the
field of labor (as in corporations, public transportation and public utilities) ruled that
Congress in requiring the Industrial Court's intervention in the resolution of labor-
management controversies likely to cause strikes or lockouts meant such jurisdiction to be
exclusive, although it did not so expressly state in the law. The Court held that under the
"sense-making and expeditious doctrine of primary jurisdiction . . . the courts cannot or will
not determine a controversy involving a question which is within the jurisdiction of an
 administrative tribunal, where the question demands the exercise of sound administrative
discretion requiring the special knowledge, experience, and services of the administrative
tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is
essential to comply with the purposes of the regulatory statute administered.

In this era of clogged court dockets, the need for specialized administrative boards or
commissions with the special knowledge, experience and capability to hear and determine
promptly disputes on technical matters or essentially factual matters, subject to judicial
review in case of grave abuse of discretion, has become well nigh indispensable. Thus, in
1984, the Court noted that "between the power lodged in an administrative body and a
court, the unmistakable trend has been to refer it to the former. 'Increasingly, this Court
has been committed to the view that unless the law speaks clearly and unequivocably, the
choice should fall on [an administrative agency.]'" The Court in the earlier case of Ebon
v. De Guzman, noted that the lawmaking authority, in restoring to the labor arbiters and the
NLRC their jurisdiction to award all kinds of damages in labor cases, as against the previous
P.D. amendment splitting their jurisdiction with the regular courts, "evidently, . . . had
second thoughts about depriving the Labor Arbiters and the NLRC of the jurisdiction to
award damages in labor cases because that setup would mean duplicity of suits, splitting
the cause of action and possible conflicting findings and conclusions by two tribunals on
one and the same claim."

In this case, the need for the SEC's technical expertise cannot be over-emphasized involving as it does the
meticulous analysis and correct interpretation of a corporation's by-laws as well as the applicable
provisions of the Corporation Code in order to determine the validity of VGCCI's claims. The SEC,
therefore, took proper cognizance of the instant case.

VGCCI further contends that petitioner is estopped from denying its earlier position, in the first complaint
it filed with the RTC of Makati (Civil Case No. 90-1112) that there is no intra-corporate relations between
itself and VGCCI.

VGCCI's contention lacks merit.

In Zamora v. Court of Appeals, 28 this Court, through Mr. Justice Isagani A. Cruz, declared that:

It follows that as a rule the filing of a complaint with one court which has no jurisdiction
over it does not prevent the plaintiff from filing the same complaint later with the
competent court. The plaintiff is not estopped from doing so simply because it made a
mistake before in the choice of the proper forum. . . .

We remind VGCCI that in the same proceedings before the RTC of Makati, it categorically stated (in its
motion to dismiss) that the case between itself and petitioner is intra-corporate and insisted that it is the
SEC and not the regular courts which has jurisdiction. This is precisely the reason why the said court
dismissed petitioner's complaint and led to petitioner's recourse to the SEC.

Having resolved the issue on jurisdiction, instead of remanding the whole case to the Court of Appeals,
this Court likewise deems it procedurally sound to proceed and rule on its merits in the same
proceedings.
It must be underscored that petitioner did not confine the instant petition for review on certiorari on the
issue of jurisdiction. In its assignment of errors, petitioner specifically raised questions on the merits of
the case. In turn, in its responsive pleadings, private respondent duly answered and countered all the
issues raised by petitioner.

Applicable to this case is the principle succinctly enunciated in the case of Heirs of Crisanta Y. Gabriel-
Almoradie v. Court of Appeals, 29 citing Escudero v. Dulay 30 and The Roman Catholic Archbishop of Manila
v. Court of Appeals. 31

In the interest of the public and for the expeditious administration of justice the issue on
infringement shall be resolved by the court considering that this case has dragged on for
years and has gone from one forum to another.

It is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a
single proceeding leaving no root or branch to bear the seeds of future litigation. No useful
purpose will be served if a case or the determination of an issue in a case is remanded to
the trial court only to have its decision raised again to the Court of Appeals and from there
to the Supreme Court.

We have laid down the rule that the remand of the case or of an issue to the lower court for
further reception of evidence is not necessary where the Court is in position to resolve the
dispute based on the records before it and particularly where the ends of justice would not
be subserved by the remand thereof. Moreover, the Supreme Court is clothed with ample
authority to review matters, even those not raised on appeal if it finds that their
consideration is necessary in arriving at a just disposition of the case.

In the recent case of China Banking Corp., et al. v. Court of Appeals, et al., 32 this Court, through Mr. Justice
Ricardo J. Francisco, ruled in this wise:

At the outset, the Court's attention is drawn to the fact that since the filing of this suit
before the trial court, none of the substantial issues have been resolved. To avoid and gloss
over the issues raised by the parties, as what the trial court and respondent Court of
Appeals did, would unduly prolong this litigation involving a rather simple case of
foreclosure of mortgage. Undoubtedly, this will run counter to the avowed purpose of the
rules, i.e., to assist the parties in obtaining just, speedy and inexpensive determination of
every action or proceeding. The Court, therefore, feels that the central issues of the case,
albeit unresolved by the courts below, should now be settled specially as they involved
pure questions of law. Furthermore, the pleadings of the respective parties on file have
amply ventilated their various positions and arguments on the matter necessitating prompt
adjudication.

In the case at bar, since we already have the records of the case (from the proceedings before the SEC)
sufficient to enable us to render a sound judgment and since only questions of law were raised (the
proper jurisdiction for Supreme Court review), we can, therefore, unerringly take cognizance of and rule
on the merits of the case.

The procedural niceties settled, we proceed to the merits.

VGCCI assails the validity of the pledge agreement executed by Calapatia in petitioner's favor. It contends
that the same was null and void for lack of consideration because the pledge agreement was entered into
on 21 August
1974 33 but the loan or promissory note which it secured was obtained by Calapatia much later or only on
3 August 1983. 34

VGCCI's contention is unmeritorious.

A careful perusal of the pledge agreement will readily reveal that the contracting parties explicitly
stipulated therein that the said pledge will also stand as security for any future advancements (or
renewals thereof) that Calapatia (the pledgor) may procure from petitioner:

xxx xxx xxx

This pledge is given as security for the prompt payment when due of all loans, overdrafts,
promissory notes, drafts, bills or exchange, discounts, and all other obligations of every
kind which have heretofore been contracted, or which may hereafter be contracted, by the
PLEDGOR(S) and/or DEBTOR(S) or any one of them, in favor of the PLEDGEE, including
discounts of Chinese drafts, bills of exchange, promissory notes, etc., without any further
endorsement by the PLEDGOR(S) and/or Debtor(s) up to the sum of TWENTY THOUSAND
(P20,000.00) PESOS, together with the accrued interest thereon, as hereinafter provided,
plus the costs, losses, damages and expenses (including attorney's fees) which PLEDGEE
may incur in connection with the collection thereof. 35 (Emphasis ours.)

The validity of the pledge agreement between petitioner and Calapatia cannot thus be held suspect by
VGCCI. As candidly explained by petitioner, the promissory note of 3 August 1983 in the amount of
P20,000.00 was but a renewal of the first promissory note covered by the same pledge agreement.

VGCCI likewise insists that due to Calapatia's failure to settle his delinquent accounts, it had the right to
sell the share in question in accordance with the express provision found in its by-laws.

Private respondent's insistence comes to naught. It is significant to note that VGCCI began sending
notices of delinquency to Calapatia after it was informed by petitioner (through its letter dated 14 May
1985) of the foreclosure proceedings initiated against Calapatia's pledged share, although Calapatia has
been delinquent in paying his monthly dues to the club since 1975. Stranger still, petitioner, whom VGCCI
had officially recognized as the pledgee of Calapatia's share, was neither informed nor furnished copies of
these letters of overdue accounts until VGCCI itself sold the pledged share at another public auction. By
doing so, VGCCI completely disregarded petitioner's rights as pledgee. It even failed to give petitioner
notice of said auction sale. Such actuations of VGCCI thus belie its claim of good faith.

In defending its actions, VGCCI likewise maintains that petitioner is bound by its by-laws. It argues in this
wise:

The general rule really is that third persons are not bound by the by-laws of a corporation
since they are not privy thereto (Fleischer v. Botica Nolasco, 47 Phil. 584). The exception to
this is when third persons have actual or constructive knowledge of the same. In the case at
bar, petitioner had actual knowledge of the by-laws of private respondent when petitioner
foreclosed the pledge made by Calapatia and when petitioner purchased the share
 foreclosed on September 17, 1985. This is proven by the fact that prior thereto, i.e., on May
14, 1985 petitioner even quoted a portion of private respondent's by-laws which is
material to the issue herein in a letter it wrote to private respondent. Because of this actual
knowledge of such by-laws then the same bound the petitioner as of the time when
petitioner purchased the share. Since the by-laws was already binding upon petitioner
when the latter purchased the share of Calapatia on September 17, 1985 then the
petitioner purchased the said share subject to the right of the private respondent to sell the
said share for reasons of delinquency and the right of private respondent to have a first lien
on said shares as these rights are provided for in the by-laws very very clearly. 36

VGCCI misunderstood the import of our ruling in Fleischer v. Botica Nolasco Co.: 37

And moreover, the by-law now in question cannot have any effect on the appellee. He had no
knowledge of such by-law when the shares were assigned to him. He obtained them in good
faith and for a valuable consideration. He was not a privy to the contract created by said by-
law between the shareholder Manuel Gonzales and the Botica Nolasco, Inc. Said by-law
cannot operate to defeat his rights as a purchaser.

An unauthorized by-law forbidding a shareholder to sell his shares without first offering
them to the corporation for a period of thirty days is not binding upon an assignee of the
stock as a personal contract, although his assignor knew of the by-law and took part in its
adoption. (10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.)

When no restriction is placed by public law on the transfer of corporate stock, a purchaser
is not affected by any contractual restriction of which he had no notice. (Brinkerhoff-Farris
Trust & Savings Co. vs. Home Lumber Co., 118 Mo., 447.)

The assignment of shares of stock in a corporation by one who has assented to an

unauthorized by-law has only the effect of a contract by, and enforceable against, the
assignor; the assignee is not bound by such by-law by virtue of the assignment alone.
(Ireland vs. Globe Milling Co., 21 R.I., 9.)

A by-law of a corporation which provides that transfers of stock shall not be valid unless
approved by the board of directors, while it may be enforced as a reasonable regulation for
the protection of the corporation against worthless stockholders, cannot be made available
to defeat the rights of third persons. (Farmers' and Merchants' Bank of Lineville vs.
Wasson, 48 Iowa, 336.) (Emphasis ours.)

In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time
the transaction or agreement between said third party and the shareholder was entered into, in this case,
at the time the pledge agreement was executed. VGCCI could have easily informed petitioner of its by-
laws when it sent notice formally recognizing petitioner as pledgee of one of its shares registered in
Calapatia's name. Petitioner's belated notice of said by-laws at the time of foreclosure will not suffice. The
ruling of the SEC en banc is particularly instructive:

By-laws signifies the rules and regulations or private laws enacted by the corporation to
regulate, govern and control its own actions, affairs and concerns and its stockholders or
members and directors and officers with relation thereto and among themselves in their
relation to it. In other words, by-laws are the relatively permanent and continuing rules of
action adopted by the corporation for its own government and that of the individuals
composing it and having the direction, management and control of its affairs, in whole or in
part, in the management and control of its affairs and activities. (9 Fletcher 4166, 1982 Ed.)

The purpose of a by-law is to regulate the conduct and define the duties of the members
towards the corporation and among themselves. They are self-imposed and, although
adopted pursuant to statutory authority, have no status as public law. (Ibid.)

Therefore, it is the generally accepted rule that third persons are not bound by by-laws,
except when they have knowledge of the provisions either actually or constructively. In the
case of Fleisher v. Botica Nolasco, 47 Phil. 584, the Supreme Court held that the by-law
restricting the transfer of shares cannot have any effect on the transferee of the shares in
question as he "had no knowledge of such by-law when the shares were assigned to him.
He obtained them in good faith and for a valuable consideration. He was not a privy to the
contract created by the by-law between the shareholder . . .and the Botica Nolasco, Inc. Said
by-law cannot operate to defeat his right as a purchaser. (Emphasis supplied.)

By analogy of the above-cited case, the Commission en banc is of the opinion that said case
is applicable to the present controversy. Appellant-petitioner bank as a third party can not
be bound by appellee-respondent's by-laws. It must be recalled that when appellee-
respondent communicated to appellant-petitioner bank that the pledge agreement was
duly noted in the club's books there was no mention of the shareholder-pledgor's unpaid
accounts. The transcript of stenographic notes of the June 25, 1991 Hearing reveals that the
pledgor became delinquent only in 1975. Thus, appellant-petitioner was in good faith when
the pledge agreement was contracted.

The Commission en banc also believes that for the exception to the general accepted rule
that third persons are not bound by by-laws to be applicable and binding upon the pledgee,
knowledge of the provisions of the VGCI By-laws must be acquired at the time the pledge
agreement was contracted. Knowledge of said provisions, either actual or constructive, at
the time of foreclosure will not affect pledgee's right over the pledged share. Art. 2087 of
the Civil Code provides that it is also of the essence of these contracts that when the
principal obligation becomes due, the things in which the pledge or mortgage consists
maybe alienated for the payment to the creditor.

In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc., the Commission issued
an opinion to the effect that:

According to the weight of authority, the pledgee's right is entitled to full

protection without surrender of the certificate, their cancellation, and the
issuance to him of new ones, and when done, the pledgee will be fully
protected against a subsequent purchaser who would be charged with
constructive notice that the certificate is covered by the pledge. (12-A
Fletcher 502)

The pledgee is entitled to retain possession of the stock until the pledgor
pays or tenders to him the amount due on the debt secured. In other words,
 the pledgee has the right to resort to its collateral for the payment of the
debts. (Ibid, 502)

To cancel the pledged certificate outright and the issuance of new certificate
to a third person who purchased the same certificate covered by the pledge,
will certainly defeat the right of the pledgee to resort to its collateral for the
payment of the debt. The pledgor or his representative or registered
stockholders has no right to require a return of the pledged stock until the
debt for which it was given as security is paid and satisfied, regardless of the
length of time which have elapsed since debt was created. (12-A Fletcher
409)

A bona fide pledgee takes free from any latent or secret equities or liens in favor either of
the corporation or of third persons, if he has no notice thereof, but not otherwise. He also
takes it free of liens or claims that may subsequently arise in favor of the corporation if it
has notice of the pledge, although no demand for a transfer of the stock to the pledgee on
the corporate books has been made. (12-A Fletcher 5634, 1982 ed., citing Snyder v. Eagle
Fruit Co., 75 F2d739) 38

Similarly, VGCCI's contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of
the Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of
a good father of a family, fails to convince. The case of Cruz & Serrano v. Chua A. H. Lee, 39 is clearly not
applicable:

In applying this provision to the situation before us it must be borne in mind that the
ordinary pawn ticket is a document by virtue of which the property in the thing pledged
passes from hand to hand by mere delivery of the ticket; and the contract of the pledge is,
therefore, absolvable to bearer. It results that one who takes a pawn ticket in pledge
acquires domination over the pledge; and it is the holder who must renew the pledge, if it is
to be kept alive.

It is quite obvious from the aforequoted case that a membership share is quite different in
character from a pawn ticket and to reiterate, petitioner was never informed of Calapatia's unpaid
accounts and the restrictive provisions in VGCCI's by-laws.

Finally, Sec. 63 of the Corporation Code which provides that "no shares of stock against which the
corporation holds any unpaid claim shall be transferable in the books of the corporation" cannot be
utilized by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid subscription,
and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any
other transaction." 40 In the case at bar, the subscription for the share in question has been fully paid as
evidenced by the issuance of Membership Certificate No. 1219. 41 What Calapatia owed the corporation
were merely the monthly dues. Hence, the aforequoted provision does not apply.

WHEREFORE, premises considered, the assailed decision of the Court of Appeals is REVERSED and the
order of the SEC en banc dated 4 June 1993 is hereby AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 116631 October 28, 1998

MARSH THOMSON, petitioner,

vs.
COURT OF APPEALS and THE AMERICAN CHAMPER OF COMMERCE OF THE PHILIPPINES,
INC, respondents.

QUISUMBING, J.:

This is a petition for review on certiorari seeking the reversal of the Decision 1 of the Court of Appeals
on May 19, 1994, disposing as follows:

WHEREFORE, THE DECISION APPEALED FROM IS HEREBY SET ASIDE. ANOTHER

JUDGMENT IS ENTERED ORDERING DEFENDANT-APPELLEE MARSH THOMSON TO
TRANSFER THE SAID MPC [Manila Polo Club] SHARE TO THE NOMINEE OF THE
APPELLANT.

The facts of the case are:

Petitioner Marsh Thomson (Thomson) was the Executive Vice-President and, later on, the
Management Consultant of private respondent, the American Chamber of Commerce of the
Philippines, Inc. (AmCham) for over ten years, 1979-1989.

While petitioner was still working with private respondent, his superior, A. Lewis Burridge,
retired as AmCham's President. Before Burridge decided to return to his home country, he wanted
to transfer his proprietary share in the Manila Polo Club (MPC) to petitioner. However, through
the intercession of Burridge, private respondent paid for the share but had it listed in petitioner's
name. This was made clear in an employment advice dated January 13, 1986, wherein petitioner
was informed by private respondent as follows:

xxx xxx xxx

11. If you so desire, the Chamber is willing to acquire for your use a
membership in the Manila Polo Club. The timing of such acquisition
shall be subject to the discretion of the Board based on the Chamber's
financial position. All dues and other charges relating to such
membership shall be for your personal account. If the membership is
acquired in your name, you would execute such documents as
 necessary to acknowledge beneficial ownership thereof by the
Chamber. 2

xxx xxx xxx

On April 25, 1986, Burridge transferred said proprietary share to petitioner, as confirmed in a
letter3 of notification to the Manila Polo Club.

Upon his admission as a new member of the MPC, petitioner paid the transfer fee of P40,000.00
from his own funds; but private respondent subsequently reimbursed this amount. On November
19, 1986, MPC issued Proprietary Membership Certificate Number 3398 in favor of petitioner. But
petitioner, however, failed to execute a document recognizing private respondent's beneficial
ownership over said share.

Following AmCham's policy and practice, there was a yearly renewal of employment contract
between the petitioner and private respondent. Separate letters of employment advice dated
October 1, 19864, as well March 4, 19885 and January 7, 19896, mentioned the MPC share. But
petitioner never acknowledged that private respondent is the beneficial owner of the share as
requested in follow-up requests, particularly one dated March 4, 1988 as follows:

Dear Marsh:

xxx xxx xxx

All other provisions of your compensation/benefit package will remain the same and
are summarized as follows:

xxx xxx xxx

9) The Manila Polo Club membership provided by the Chamber for you
and your family will continue on the same basis, to wit: all dues and
other charges relating to such membership shall be for your personal
account and, if you have not already done so, you will execute such
documents as are necessary to acknowledge that the Chamber is the
beneficial owner of your membership in the
Club. 7

When petitioner's contract of employment was up for renewal in 1989, he notified private
respondent that he would no longer be available as Executive Vice President after September 30,
1989. Still, the private respondent asked the petitioner to stay on for another six (6) months.
Petitioner indicated his acceptance of the consultancy arrangement with a counter-proposal in his
letter dated October 8, 1989, among others as follows:

11.) Retention of the Polo Club share, subject to my reimbursing the

purchase price to the Chamber, or one hundred ten thousand pesos
(P110,000.00).8

Private respondent rejected petitioner's counter-proposal.

Pending the negotiation for the consultancy arrangement, private respondent executed on
September 29, 1989 a Release and Quitclaim,9 stating that "AMCHAM, its directors, officers and
assigns, employees and/or representatives do hereby release, waive, abandon and discharge J.
MARSH THOMSON from any and all existing claims that the AMCHAM, its directors, officers and
assigns, employees and/or representatives may have against J. MARSH THOMSON." 10 The
quitclaim, expressed in general terms, did not mention specifically the MPC share.

On April 5, 1990, private respondent, through counsel sent a letter to the petitioner demanding
the return and delivery of the MPC share which "it (AmCham) owns and placed in your
(Thomson's) name." 11

Failing to get a favorable response, private respondent filed on May 15, 1990, a complaint against
petitioner praying, inter alia, that the Makati Regional Trial Court render judgment ordering
Thomson "to return the Manila Polo Club share to the plaintiff and transfer said share to the
nominee of plaintiff." 12

On February 28, 1992, the trial court promulgated its decision, 13 thus:

The foregoing considered judgment is rendered as follows:

1) The ownership of the contested Manila Polo Club share is

adjudicated in favor of defendant Marsh Thomson; and;

2) Defendant shall pay plaintiff the sum of P300,000.00

Because both parties thru their respective faults have somehow contributed to the
birth of this case, each shall bear the incidental expenses incurred. 14

In said decision, the trial court awarded the MPC share to defendant (petitioner now) on the
ground that the Articles of Incorporation and By-laws of Manila Polo Club prohibit artificial
persons, such as corporations, to be club members, ratiocinating in this manner:

An assessment of the evidence adduced by both parties at the trial will show clearly
that it was the intention of the parties that a membership to Manila Polo Club was to
be secured by plaintiff [herein private respondent] for defendant's [herein
petitioner] use. The latter was to execute the necessary documents to acknowledge
ownership of the Polo membership in favor of plaintiff. (Exh. C par 9) However, when
the parties parted ways in disagreement and with some degree of bitterness, the
defendant had second thoughts and decided to keep the membership for himself.
This is evident from the exhibits (E & G) where defendant asked that he retained the
Polo Club membership upon reimbursement of its purchase price; and where he
showed his "profound disappointment, both at the previous Board's unfair action,
and at what I consider to be harsh terms, after my long years of dedication to the
Chamber's interest."

xxx xxx xxx

 Notwithstanding all these evidence in favor of plaintiff, however, defendant may not
be declared the owner of the contested membership be compelled to execute
documents transferring the Polo Membership to plaintiff or the latter's nominee for
the reason that this is prohibited by Polo Club's Articles & By-Laws. . . .

It is for the foregoing reasons that the Court rules that the ownership of the
questioned Polo Club membership be retained by defendant. 15 . . . .

Not satisfied with the trial court's decision, private respondent appealed to the Court of Appeals.

On May 19, 1994, the Court of Appeals (Former Special Sixth Division) promulgated its
decision 16 in said CA-G.R. CV No. 38417, reversing the, trial court's judgment and ordered herein
petitioner to transfer the MPC share to the nominee of private respondent, reasoning thus:

xxx xxx xxx

The significant fact in the instant case is that the appellant [herein private
respondent] purchased the MPC share for the use of the appellee [herein petitioner]
and the latter expressly conformed thereto as shown in Exhibits A-1, B, B-1, C, C-1, D,
D-1. By such express conformity of the appellee, the former was bound to recognize
the appellant as the owner of the said share for a contract has the force of law
between the parties. (Alim vs. CA, 200 SCRA 450; Sasuhura Company, Inc., Ltd. vs. IAC,
205 SCRA 632) Aside from the foregoing, the appellee conceded the true ownership
of the said share to the appellant when (1) he offered to buy the MPC share from the
appellant (Exhs. E and E-1) upon the termination of his employment; (2) he obliged
himself to return the MPC share after his six month consultancy contract had
elapsed, unless its return was earlier requested in writting (Exh. I); and (3) on cross-
examination, he admitted that the proprietary share listed as one of the assets of the
appellant corporation in its 1988 Corporate Income Tax Return, which he signed as
the latter's Executive Vice President (prior to its filing), refers to the Manila Polo
Club Share (tsn., pp. 19-20, August 30, 1991). . . . 17

On 16 June 1994, petitioner filed a motion for reconsideration 18 of said decision. By

resolution 19promulgated on August 4, 1994, the Court of Appeals denied the motion for
reconsideration.

In this petition for review, petitioner alleges the following errors of public respondent as grounds
for our review:

I. The respondent Court of Appeals erred in setting aside the Decision

dated 28 February 1992 of the Regional Trial Court, NCJR, Branch 65,
Makati, Metro Manila, in its Civil Case No. 90-1286, and in not
confirming petitioner's ownership over the MPC membership share.

II. The respondent Court of Appeals erred in ruling that "the Quitclaim
executed by AmCham in favor of petitioner of September 29, 1989 was
superseded by the contractual agreement entered into by the parties on
October 13, 1989 wherein again the appellee acknowledged that the
 appellant owned the MPC share, there being absolutely no evidence to
support such a conclusion and/or such inference is manifestly
mistaken.

III. The respondent Court of Appeals erred in rendering judgment

ordering petitioner to transfer the contested MPC share to a nominee of
respondent AmCham notwithstanding that: (a) AmCham has no
standing in the Manila Polo Club (MPG), and being an artificial person, it
is precluded under MPC's Articles of Incorporation and governing rules
and regulations from owning a proprietary share or from becoming a
member thereof: and (b) even under AmCham's Articles of
Incorporation, the purposes for which it is dedicated, becoming a
stockholder or shareholder in other corporation is not one of the
express implied powers fixed in AmCham's said corporate franchise. 20

As posited above, these assigned errors show the disputed matters herein are mainly factual. As
such they are best left to the trial and appellate courts' disposition. And this Court could have
dismissed the petition outright, were it not for the opposite results reached by the courts below.
Moreover, for the enhanced appreciation of the jural relationship between the parties involving
trust, this Court has given due course to the petition, which we now decide.

After carefully considering the pleadings on record, we find there are two main issues to be
resolved: (1) Did respondent court err in holding that private respondent is the beneficial owner
of the disputed share? (2) Did the respondent court err in ordering petitioner to transfer said
share to private respondent's nominees?

Petitioner claims ownership of the MPC share, asserting that he merely incurred a debt to
respondent when the latter advanced the funds for the purchase of the share. On the other hand,
private respondent asserts beneficial ownership whereby petitioner only holds the share in his
name, but the beneficial title belongs to private respondent. To resolve the first issue, we must
clearly distinguish a debt from a trust.

The beneficiary of a trust has beneficial interest in the trust property, while a creditor has merely
a personal claim against the debtor. In trust, there is a fiduciary relation between a trustee and a
beneficiary, but there is no such relation between a debtor and creditor. While a debt implies
merely an obligation to pay a certain sum of money, a trust refers to a duty to deal with a specific
property for the benefit of another. If a creditor-debtor relationship exists, but not a fiduciary
relationship between the parties, there is no express trust. However, it is understood that when
the purported trustee of funds is entitled to use them as his or her own (and commingle them with
his or her own money), a debtor-creditor relationship exists, not a trust. 21

In the present case, as the Executive Vice-President of AmCham, petitioner occupied a fiduciary
position in the business of AmCham. AmCham released the funds to acquire a share in the Club for
the use of petitioner but obliged him to "execute such document as necessary to acknowledge
beneficial ownership thereof by the Chamber". 22 A trust relationship is, therefore, manifestly
indicated.
Moreover, petitioner failed to present evidence to support his allegation of being merely a debtor
when the private respondent paid the purchase price of the MPC share. Applicable here is the rule
that a trust arises in favor of one who pays the purchase money of property in the name of
another, because of the presumption that he who pays for a thing intends a beneficial interest
therein for himself. 23

Although petitioner initiated the acquisition of the share, evidence on record shows that private
respondent acquired said share with its funds. Petitioner did not pay for said share, although he
later wanted to, but according to his own terms, particularly the price thereof.

Private respondent's evident purpose in acquiring the share was to provide additional incentive
and perks to its chosen executive, the petitioner himself. Such intention was repeated in the
yearly employment advice prepared by AmCham for petitioner's concurrence. In the cited
employment advice, dated March 4, 1988, private respondent once again, asked the petitioner to
execute proof to recognize the trust agreement in writing:

The Manila Polo membership provided by the Chamber for you and your family will
continue on the same basis, to wit: all dues and other charges relating to such
membership shall be for your personal account and, if you have not already done so,
you will execute such documents as are necessary to acknowledge that the Chamber
is the beneficial owner of your membership in the Club. 24

Petitioner voluntarily affixed his signature to conform with the employment advice, including his
obligation stated therein — for him to execute the necessary document to recognize his employer
as the beneficial owner of the MPC share. Now, we cannot hear him claiming otherwise, in
derogation of said undertaking, without legal and equitable justification.

For private respondent's intention to hold on to its beneficial ownership is not only presumed; it
was expressed in writing at the very outset. Although the share was placed in the name of
petitioner, his title is limited to the usufruct, that is, to enjoy the facilities and privileges of such
membership in the club appertaining to the share. Such arrangement reflects a trust relationship
governed by law and equity.

While private respondent paid the purchase price for the share, petitioner was given legal title
thereto. Thus, a resulting trust is presumed as a matter of law. The burden then shifted to the
transferee to show otherwise, that it was just a loan. Such resulting trust could have been rebutted
by proof of a contrary intention by a showing that, in fact, no trust was intended. Petitioner could
have negated the trust agreement by contrary, consistent and convincing evidence on rebuttal.
However, on the witness stand, petitioner failed to do so persuasively.

On cross-examination, the petitioner testified as follows:

ATTY. AQUINO (continuing)

Q. Okay, let me go to the cash advance that you mentioned Mr. Witness,
is there any document proving that you claimed cash advance signed by
an officer of the Chamber?
 A. I believe the best evidence is the check.

Q. Is there any document?

COURT

Other than the Check?

MR. THOMSON

Nothing more.

ATTY. AQUINO

Is there any application filed in the Chamber to avail of this cash

advance?

A. Verbal only.

Q. Nothing written, and can you tell to this Honorable Court what are
the stipulations or conditions, or terms of this transaction of securing
this cash advance or loan?

xxx xxx xxx

COURT

How are you going to repay the cash advance?

MR. THOMSON

The cash advance, we never stipulate when I have to repay it, but I
presume that I would, when able to repay the money. 25

In deciding whether the property was wrongfully appropriated or retained and what the intent of
the parties was at the time of the conveyance, the court must rely upon its impression of the
credibility of the witnesses. 26 Intent is a question of fact, the determination of which is not
reviewable unless the conclusion drawn by the trier is one which could not reasonably be
drawn. 27 Petitioner's denial is not adequate to rebut the trust. Time and again, we have ruled that
denials, if unsubstantiated by clear and convincing evidence, are deemed negative and self-
serving evidence, unworthy of credence. 28

The trust between the parties having been established, petitioner advanced an alternative
defense that the private respondent waived the beneficial ownership of MPC share by issuing the
Release and Quitclaim in his favor.

This argument is less than persuasive. The quitclaim executed by private respondent does not
clearly show the intent to include therein the ownership over the MPC share. Private respondent
even asserts that at the time the Release and Quitclaim was executed on September 29, 1989, the
ownership of the MPC share was not controversial nor contested. Settled is the rule that a waiver
to be valid and effective must, in the first place, be couched in clear and unequivocal terms which
leave no doubt as to the intention of a party to give up a right or benefit which legally pertains to
him. 29 A waiver may not be attributed to a person when the terms thereof do not explicitly and
clearly evidence an intent to abandon a right vested in such person. 30 If we apply the standard
rule that waiver must be cast in clear and unequivocal terms, then clearly the general terms of the
cited release and quitclaim indicates merely a clearance from general accountability, not
specifically a waiver of AmCham's beneficial ownership of the disputed shares.

Additionally, the intention to waive a right or advantage must be shown clearly and convincingly,
and when the only proof of intention rests in what a party does, his act should be so manifestly
consistent with, and indicative of, an intent to voluntarily relinquish the particular right or
advantage that no other reasonable explanation of his conduct is possible. 31 Considering the
terms of the quitclaim executed by the President of private respondent, the tenor of the document
does not lead to the purported conclusion that be intended to renounce private respondent's
beneficial title over its share in the Manila Polo Club. We, therefore, find no reversible error in the
respondent Court's holding that private respondent, AmCham, is the beneficial owner of the share
in dispute.

Turning now to the second issue, the petitioner contends that the Articles of Incorporation and
By-laws of Manila Polo Club prohibit corporate membership. However, private respondent does
not insist nor intend to transfer the club membership in its name but rather to its designated
nominee. For as properly ruled by the Court of Appeals:

The matter prayed for does not involve the transfer of said share to the appellant, an
artificial person. The transfer sought is to the appellant's nominee. Even if the MPC
By-Laws and Articles prohibit corporate membership, there would be no violation of
said prohibition for the appellant's nominee to whom the said share is sought to be
transferred would certainly be a natural person. . . .

As to whether or not the transfer of said share the appellant's nominee would be
disapproved by the MPC, is a matter that should be raised at the proper time, which
is only if such transfer is disapproved by the MPC. 32

The Manila Polo Club does not necessarily prohibit the transfer of proprietary shares by its
members. The Club only restricts membership to deserving applicants in accordance with its
rules, when the amended Articles of Incorporation states that: "No transfer shall be valid except
between the parties, and shall be registered in the Membership Book unless made in accordance
with these Articles and the By-Laws". 33Thus, as between parties herein, there is no question that
a transfer is feasible. Moreover, authority granted to a corporation to regulate the transfer of its
stock does not empower it to restrict the right of a stockholder to transfer his shares, but merely
authorizes the adoption of regulations as to the formalities and procedure to be followed in
effecting transfer. 34

In this case, the petitioner was the nominee of the private respondent to hold the share and enjoy
the privileges of the club. But upon the expiration of petitioner's employment as officer and
consultant of AmCham, the incentives that go with the position, including use of the MPC share,
also ceased to exist. It now behooves petitioner to surrender said share to private respondent's
next nominee, another natural person. Obviously this arrangement of trust and confidence cannot
be defeated by the petitioner's citation of the MPC rules to shield his untenable position, without
doing violence to basic tenets of justice and fair dealing.

However, we still have to ascertain whether the rights of herein parties to the trust still subsist. It
has been held that so long as there has been no denial or repudiation of the trust, the possession
of the trustee of an express and continuing trust is presumed to be that of the beneficiary, and the
statute of limitations does not run between them. 35 With regard to a constructive or a resulting
trust, the statute of limitations does not begin to run until the trustee clearly repudiates or
disavows the trust and such disavowal is brought home to the other party, "cestui que
trust". 36 The statute of limitations runs generally from the time when the act was done by which
the party became chargeable as a trustee by operation of law or when the beneficiary knew that
he had a cause of action, 37 in the absence of fraud or concealment.

Noteworthy in the instant case, there was no declared or explicit repudiation of the trust existing
between the parties. Such repudiation could only be inferred as evident when the petitioner
showed his intent to appropriate the MPC share for himself. Specifically, this happened when he
requested to retain the MPC share upon his reimbursing the purchase price of P110,000, a
request denied promptly by private respondent. Eventually, petitioner refused to surrender the
share despite the written demand of private respondent. This act could then be construed as
repudiation of the trust. The statute of limitation could start to set in at this point in time. But
private respondent took immediate positive action. Thus, on May 15, 1990, private respondent
filed an action to recover the MPC share. Between the time of implicit repudiation of the trust on
October 9, 1989, as evidenced by petitioner's letter of said date, and private respondent's
institution of the action to recover the MPC share on May 15, 1990, only about seven months bad
lapsed. Our laws on the matter provide that actions to recover movables shall prescribe eight
years from the time the possession thereof is lot, 38 unless the possessor has acquired the
ownership by prescription for a less period of four years if in good faith. 39 Since the private
respondent filed the necessary action on time and the defense of good faith is not available to the
petitioner, there is no basis for any purported claim of prescription, after repudiation of the trust,
which will entitle petitioner to ownership of the disputed share. As correctly held by the
respondent court, petitioner has the obligation to transfer now said share to the nominee of
private respondent.

WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals
of May 19, 1994, is AFFIRMED.

COSTS against petitioner.

SO ORDERED.

G.R. No. 133969 January 26, 2000

NEMESIO GARCIA, petitioner,

vs.
NICOLAS JOMOUAD, Ex-officio Provincial Sheriff of Cebu and SPOUSES JOSE ATINON & SALLY
ATINON,respondents.
KAPUNAN, J.:

In this petition for review on certiorari, Nemesio Garcia (herein petitioner) seeks the reversal of the
Decision, dated 27 October 1997, of the Court of Appeals in CA G.R. CV No. 52255 and its Resolution,
dated 22 April 1998, denying petitioner's motion for reconsideration of said decision.

Petitioner filed with the Regional Trial Court, Branch 23 of Cebu, an action for injunction with prayer for
preliminary injunction against respondents spouses Jose and Sally Atinon and Nicolas Jomouad, ex-
officio sheriff of Cebu. Said action stemmed from an earlier case for collection of sum of money, docketed
as Civil Case No. CEB-10433, before the RTC, Branch 10 of Cebu, filed by the spouses Atinon against Jaime
Dico. In that case (collection of sum of money), the trial court rendered judgment ordering Dico to pay the
spouses Atinon the sum of P900,000.00 plus interests. After said judgment became final and executory,
respondent sheriff proceeded with its execution. In the course thereof, the Proprietary Ownership
Certificate (POC) No. 0668 in the Cebu Country Club, which was in the name of Dico, was levied on and
scheduled for public auction. Claiming ownership over the subject certificate, petitioner filed the
aforesaid action for injunction with prayer for preliminary injunction to enjoin respondents from
proceeding with the auction.

After trial, the lower court rendered its Decision, dated 28 July 1995, dismissing petitioner's complaint
for injunction for lack of merit. On appeal, the CA affirmed in toto the decision of the RTC upon finding
that it committed no reversible error in rendering the same. Hence, this petition.1âwphi1.nêt

Petitioner avers that Dico, the judgment debtor of the spouses Atinon, was employed as manager of his
(petitioner's) Young Auto Supply. In order to assist him in entertaining clients, petitioner "lent" his POC,
then bearing the number 1459, in the Cebu Country Club to Dico so the latter could enjoy the "signing"
privileges of its members. The Club issued POC No. 0668 in the name of Dico. Thereafter, Dico resigned as
manager of petitioner's business. Upon demand of petitioner, Dico returned POC No. 0668 to him. Dico
then executed a Deed of Transfer, dated 18 November 1992, covering the subject certificate in favor of
petitioner. The Club was furnished with a copy of said deed but the transfer was not recorded in the
books of the Club because petitioner failed to present proof of payment of the requisite capital gains tax.

In assailing the decision of the CA, petitioner mainly argues that the appellate court erroneously relied on
Section 63 of the Corporation Code in upholding the levy on the subject certificate to satisfy the judgment
debt of Dico in Civil Case No. CEB-14033. Petitioner contends that the subject stock of certificate, albeit in
the name of Dico, cannot be levied upon the execution to satisfy his judgment debt because even prior to
the institution of the case for collection of sum of money against him:

1. The spouses Atinon had knowledge that Dico already conveyed back the ownership of the
subject, certificate to petitioner;

2. Dico executed a deed of transfer, dated 18 November 1992, covering the subject certificate in
favor of petitioner and the Club was furnished with a copy thereof; and

3. Dico resigned as a proprietary member of the Club and his resignation was accepted by the
board of directors at their meeting on 4 May 1993.

The petition is without merit.

Sec. 63 of the Corporation Code reads:

Sec. 63 Certificate of stock and transfer of shares. — The capital stock of corporations shall be
divided into shares for which certificates signed by the president or vice-president, countersigned
by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued
in accordance with the by-laws. Shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-
fact or other person legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation
showing the names of the parties to the transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation.

The sole issue in this case is similar to that raised in Uson vs. Diosomito,1 i.e., "whether a bona fide transfer
of the shares of a corporation, not registered or noted in the books of the corporation, is valid as against a
subsequent lawful attachment of said shares, regardless of whether the attaching creditor had actual
notice of said transfer or not."2 In that case, we held that the attachment prevails over the unrecorded
transfer stating thus —

[w]e think that the true meaning of the language is, and the obvious intention of the legislature in
using it was, that all transfers of shares should be entered, as here required, on the books of the
corporation. And it is equally clear to us that all transfers of shares not so entered are invalid as to
attaching or execution creditors of the assignors, as well as to the corporation and to subsequent
purchasers in good faith, and, indeed, as to all persons interested, except the parties to such
transfers. All transfers not so entered on the books of the corporation are absolutely void; not
because they are without notice or fraudulent in law or fact, but because they are made so void by
statute.3

Applying the foregoing jurisprudence in this case, we hold that the transfer of the subject certificate made
by Dico to petitioner was not valid as to the spouses Atinon, the judgment creditors, as the same still
stood in the name of Dico, the judgment debtor, at the time of the levy on execution. In addition, as
correctly ruled by the CA, the entry in the minutes of the meeting of the Club's board of directors noting
the resignation of Dico as proprietary member thereof does not constitute compliance with Section 63 of
the Corporation Code. Said provision of law strictly requires the recording of the transfer in the books of
the corporation, and not elsewhere, to be valid as against third parties. Accordingly, the CA committed no
reversible error in rendering the assailed decision.

IN VIEW OF THE FOREGOING, the Court RESOLVED to DENY the petition.

SO ORDERED.1âwphi1.nêt

FIRST DIVISION

G.R. No. 124535 September 28, 2001

THE RURAL BANK OF LIPA CITY, INC., THE OFFICERS AND DIRECTORS, BERNARDO BAUTISTA,
JAIME CUSTODIO, OCTAVIO KATIGBAK, FRANCISCO CUSTODIO, and JUANITA BAUTISTA OF THE
RURAL BANK OF LIPA CITY, INC., petitioners,
vs.
HONORABLE COURT OF APPEALS, HONORABLE COMMISSION EN BANC, SECURITIES AND
EXCHANGE COMMISSION, HONORABLE ENRIQUE L. FLORES, JR., in his capacity as Hearing Officer,
REYNALDO VILLANUEVA, SR, AVELINA M. VILLANUEVA, CATALINO VILLANUEVA, ANDRES
GONZALES, AURORA LACERNA, CELSO LAYGO, EDGARDO REYES, ALEJANDRA TONOGAN and ELENA
USI, respondents.

YNARES-SANTIAGO, J.:

Before us is a petition for review on certiorari assailing the Decision of the Court of Appeals dated
February 27, 1996, as well as the Resolution dated March 29, 1996, in CA-G.R. SP No. 38861.

The instant controversy arose from a dispute between the Rural Bank of Lipa City, Incorporated
(hereinafter referred to as the Bank), represented by its officers and members of its Board of Directors,
and certain stockholders of the said bank. The records reveal the following antecedent facts:

Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed a Deed
of Assignment,1 wherein he assigned his shares, as well as those of eight (8) other shareholders under his
control with a total of 10,467 shares, in favor of the stockholders of the Bank represented by its directors
Bernardo Bautista, Jaime Custodio and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr.
and his wife, Avelina, executed an Agreement2 wherein they acknowledged their indebtedness to the
Bank in the amount of Four Million Pesos (P4,000,000.00), and stipulated that said debt will be paid out
of the proceeds of the sale of their real property described in the Agreement.

At a meeting of the Board of Directors of the Bank on November 15, 1993, the Villanueva spouses assured
the Board that their debt would be paid on or before December 31 of that same year; otherwise, the Bank
would be entitled to liquidate their shareholdings, including those under their control. In such an event,
should the proceeds of the sale of said shares fail to satisfy in full the obligation, the unpaid balance shall
be secured by other collateral sufficient therefor.

When the Villanueva spouses failed to settle their obligation to the Bank on the due date, the Board sent
them a letter3 demanding: (1) the surrender of all the stock certificates issued to them; and (2) the
delivery of sufficient collateral to secure the balance of their debt amounting to P3,346,898.54. The
Villanuevas ignored the bank's demands, whereupon their shares of stock were converted into Treasury
Stocks. Later, the Villanuevas, through their counsel, questioned the legality of the conversion of their
shares.4

On January 15, 1994, the stockholders of the Bank met to elect the new directors and set of officers for
the year 1994. The Villanuevas were not notified of said meeting. In a letter dated January 19, 1994, Atty.
Amado Ignacio, counsel for the Villanueva spouses, questioned the legality of the said stockholders'
meeting and the validity of all the proceedings therein. In reply, the new set of officers of the Bank
informed Atty. Ignacio that the Villanuevas were no longer entitled to notice of the said meeting since
they had relinquished their rights as stockholders in favor of the Bank.
Consequently, the Villanueva spouses filed with the Securities and Exchange Commission (SEC), a
petition for annulment of the stockholders' meeting and election of directors and officers on January 15,
1994, with damages and prayer for preliminary injunction5 , docketed as SEC Case No. 02-94-4683.
Joining them as co-petitioners were Catalino Villanueva, Andres Gonzales, Aurora Lacerna, Celso Laygo,
Edgardo Reyes, Alejandro Tonogan, and Elena Usi. Named respondents were the newly-elected officers
and directors of the Rural Bank, namely: Bernardo Bautista, Jaime Custodio, Octavio Katigbak, Francisco
Custodio and Juanita Bautista.

The Villanuevas' main contention was that the stockholders' meeting and election of officers and
directors held on January 15, 1994 were invalid because: (1) they were conducted in violation of the by-
laws of the Rural Bank; (2) they were not given due notice of said meeting and election notwithstanding
the fact that they had not waived their right to notice; (3) they were deprived of their right to vote
despite their being holders of common stock with corresponding voting rights; (4) their names were
irregularly excluded from the list of stockholders; and (5) the candidacy of petitioner Avelina Villanueva
for directorship was arbitrarily disregarded by respondent Bernardo Bautista and company during the
said meeting

On February 16, 1994, the SEC issued a temporary restraining order enjoining the respondents,
petitioners herein, from acting as directors and officers of the Bank, and from performing their duties and
functions as such.6

In their joint Answer,7 the respondents therein raised the following defenses:

1) The petitioners have no legal capacity to sue;

2) The petition states no cause of action;

3) The complaint is insufficient;

4) The petitioners' claims had already been paid, waived, abandoned, or otherwise extinguished;

5) The petitioners are estopped from challenging the conversion of their shares.

Petitioners, respondents therein, thus moved for the lifting of the temporary restraining order and the
dismissal of the petition for lack of merit, and for the upholding of the validity of the stockholders'
meeting and election of directors and officers held on January 15, 1994. By way of counterclaim,
petitioners prayed for actual, moral and exemplary damages.

On April 6, 1994, the Villanuevas' application for the issuance of a writ of preliminary injunction was
denied by the SEC Hearing Officer on the ground of lack of sufficient basis for the issuance thereof.
However, a motion for reconsideration8 was granted on December 16, 1994, upon finding that since the
Villanuevas' have not disposed of their shares, whether voluntarily or involuntarily, they were still
stockholders entitled to notice of the annual stockholders' meeting was sustained by the SEC.
Accordingly, a writ of preliminary injunction was issued enjoining the petitioners from acting as directors
and officers of the bank.9
Thereafter, petitioners filed an urgent motion to quash the writ of preliminary injunction,10 challenging
the propriety of the said writ considering that they had not yet received a copy of the order granting the
application for the writ of preliminary injunction.

With the impending 1995 annual stockholders' meeting only nine (9) days away, the Villanuevas filed an
Omnibus Motion11 praying that the said meeting and election of officers scheduled on January 14, 1995
be suspended or held in abeyance, and that the 1993 Board of Directors be allowed, in the meantime, to
act as such. One (1) day before the scheduled stockholders meeting, the SEC Hearing Officer granted the
Omnibus Motion by issuing a temporary restraining order preventing petitioners from holding the
stockholders meeting and electing the board of directors and officers of the Bank.12

A petition for Certiorari and Annulment with Damages was filed by the Rural Bank, its directors and
officers before the SEC en banc,13 naming as respondents therein SEC Hearing Officer Enrique L. Flores,
Jr., and the Villanuevas, erstwhile petitioners in SEC Case No. 02-94-4683. The said petition alleged that
the orders dated December 16, 1994 and January 13, 1995, which allowed the issuance of the writ of
preliminary injunction and prevented the bank from holding its 1995 annual stockholders' meeting,
respectively, were issued by the SEC Hearing Officer with grave abuse of discretion amounting to lack or
excess of jurisdiction. Corollarily, the Bank, its directors and its officers questioned the SEC Hearing
Officer's right to restrain the stockholders' meeting and election of officers and directors considering that
the Villanueva spouses and the other petitioners in SEC Case No. 02-94-4683 were no longer
stockholders with voting rights, having already assigned all their shares to the Bank.

In their Comment/Opposition, the Villanuevas and other private respondents argued that the filing of the
petition for certiorari was premature and there was no grave abuse of discretion on the part of the SEC
Hearing Officer, nor did he act without or in excess of his jurisdiction.

On June 7, 1995, the SEC en banc denied the petition for certiorari in an Order,14 which stated:

In the case now before us, petitioners could not show any proof of despotic or arbitrary exercise of
discretion committed by the hearing officer in issuing the assailed orders save and except the
allegation that the private respondents have already transferred their stockholdings in favor of the
stockholders of the Bank. This, however, is the very issue of the controversy in the case a quo and
which, to our mind, should rightfully be litigated and proven before the hearing officer. This is so
because of the undisputed fact the (sic) private respondents are still in possession of the stock
certificates evidencing their stockholdings and as held by the Supreme Court in Embassy Farms,
Inc. v. Court of Appeals, et al., 188 SCRA 492, citing Nava v. Peers Marketing Corp., the non-delivery
of the stock certificate does not make the transfer of the shares of stock effective. For an effective
transfer of stock, the mode of transfer as prescribed by law must be followed.

We likewise find that the provision of the Corporation Code cited by the herein petitioner,
particularly Section 83 thereof, to support the claim that the private respondents are no longer
stockholders of the Bank is misplaced. The said law applies to acquisition of shares of stock by the
corporation in the exercise of a stockholder's right of appraisal or when the said stockholder opts
to dissent on a specific corporate act in those instances provided by law and demands the
payment of the fair value of his shares. It does not contemplate a "transfer" whereby the
stockholder, in the exercise of his right to dispose of his shares (jus disponendi) sells or assigns his
stockholdings in favor of another person where the provisions of Section 63 of the same Code
should be complied with.
 The hearing officer, therefore, had a basis in issuing the questioned orders since the private
respondents' rights as stockholders may be prejudiced should the writ of injunction not be issued.
The private respondents are presumably stockholders of the Bank in view of the fact that they
have in their possession the stock certificates evidencing their stockholdings. Until proven
otherwise, they remain to be such and the hearing officer, being the one directly confronted with
the facts and pieces of evidence in the case, may issue such orders and resolutions which may be
necessary or reasonable relative thereto to protect their rights and interest in the meantime that
the said case is still pending trial on the merits.

A subsequent motion for reconsideration15 was likewise denied by the SEC en banc in a
Resolution16 dated September 29, 1995.

A petition for review was thus filed before the Court of Appeals, which was docketed as CA-G.R. SP No.
38861, assailing the Order dated June 7, 1995 and the Resolution dated September 29, 1995 of the SEC en
banc in SEC EB No. 440. The ultimate issue raised before the Court of Appeals was whether or not the
SEC en banc erred in finding:

1. That the Hon. Hearing Officer in SEC Case No. 02-94-4683 did not commit any grave abuse of
discretion that would warrant the filing of a petition for certiorari;

2. That the private respondents are still stockholders of the subject bank and further stated that "it
does not contemplate a transfer" whereby the stockholders, in the exercise of his right to dispose
of his shares (Jus Disponendi) sells or assigns his stockholdings in favor of another person where
the provisions of Sec. 63 of the same Code should be complied with; and

3. That the private respondents are presumably stockholders of the bank in view of the fact that
they have in their possession the stock certificates evidencing their stockholdings.

On February 27, 1996, the Court of Appeals rendered the assailed Decision17 dismissing the petition for
review for lack of merit. The appellate court found that:

The public respondent is correct in holding that the Hearing Officer did not commit grave abuse of
discretion. The officer, in exercising his judicial functions, did not exercise his judgment in a
capricious, whimsical, arbitrary or despotic manner. The questioned Orders issued by the Hearing
Officer were based on pertinent law and the facts of the case.

Section 63 of the Corporation Code states: "x x x Shares of stock so issued are personal property
and may be transferred by delivery of the certificate or certificates indorsed by the owner x x x. No
transfer, however, shall be valid, except as between the parties, until the transfer is recorded in
the books of the corporation so as to show the names of the parties to the transaction, the date of
the transfer, the number of the certificate or certificates and the number of shares transferred."

In the case at bench, when private respondents executed a deed of assignment of their shares of
stocks in favor of the Stockholders of the Rural Bank of Lipa City, represented by Bernardo
Bautista, Jaime Custodio and Octavio Katigbak, title to such shares will not be effective unless the
duly indorsed certificate of stock is delivered to them. For an effective transfer of shares of stock,
the mode and manner of transfer as prescribed by law should be followed. Private respondents
are still presumed to be the owners of the shares and to be stockholders of the Rural Bank.
 We find no reversible error in the questioned orders.

Petitioners' motion for reconsideration was likewise denied by the Court of Appeals in an Order18 dated
March 29, 1996.

Hence, the instant petition for review seeking to annul the Court of Appeals' decision dated February 27,
1996 and the resolution dated March 29, 1996. In particular, the decision is challenged for its ruling that
notwithstanding the execution of the deed of assignment in favor of the petitioners, transfer of title to
such shares is ineffective until and unless the duly indorsed certificate of stock is delivered to them.
Moreover, petitioners faulted the Court of Appeals for not taking into consideration the acts of disloyalty
committed by the Villanueva spouses against the Bank.

We find no merit in the instant petition.

The Court of Appeals did not err or abuse its discretion in affirming the order of the SEC en banc, which in
turn upheld the order of the SEC Hearing Officer, for the said rulings were in accordance with law and
jurisprudence.

The Corporation Code specifically provides:

SECTION 63. Certificate of stock and transfer of shares. — The capital stock of stock corporations
shall be divided into shares for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation
shall be issued in accordance with the by-laws. Shares of stocks so issued are personal property and
may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-
in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation so as to
show the names of the parties to the transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in
the books of the corporation. (Emphasis ours)

Petitioners argue that by virtue of the Deed of Assignment,19 private respondents had relinquished to
them any and all rights they may have had as stockholders of the Bank. While it may be true that there
was an assignment of private respondents' shares to the petitioners, said assignment was not sufficient to
effect the transfer of shares since there was no endorsement of the certificates of stock by the owners,
their attorneys-in-fact or any other person legally authorized to make the transfer. Moreover, petitioners
admit that the assignment of shares was not coupled with delivery, the absence of which is a fatal defect.
The rule is that the delivery of the stock certificate duly endorsed by the owner is the operative act of
transfer of shares from the lawful owner to the transferee.20 Thus, title may be vested in the transferee
only by delivery of the duly indorsed certificate of stock.21

We have uniformly held that for a valid transfer of stocks, there must be strict compliance with the mode
of transfer prescribed by law.22 The requirements are: (a) There must be delivery of the stock certificate:
(b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally
authorized to make the transfer; and (c) To be valid against third parties, the transfer must be recorded
in the books of the corporation. As it is, compliance with any of these requisites has not been clearly and
sufficiently shown.

It may be argued that despite non-compliance with the requisite endorsement and delivery, the
assignment was valid between the parties, meaning the private respondents as assignors and the
petitioners as assignees. While the assignment may be valid and binding on the petitioners and private
respondents, it does not necessarily make the transfer effective. Consequently, the petitioners, as mere
assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not be entitled
to dividends, insofar as the assigned shares are concerned Parenthetically, the private respondents
cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of ownership and
transfer of the shares in question is resolved with finality.

There being no showing that any of the requisites mandated by law23 was complied with, the SEC Hearing
Officer did not abuse his discretion in granting the issuance of the preliminary injunction prayed for by
petitioners in SEC Case No. 02-94-4683 (herein private respondents). Accordingly, the order of the SEC
en banc affirming the ruling of the SEC Hearing Officer, and the Court of Appeals decision upholding the
SEC en banc order, are valid and in accordance with law and jurisprudence, thus warranting the denial of
the instant petition for review.

To enable the shareholders of the Rural Bank of Lipa City, Inc. to meet and elect their directors, the
temporary restraining order issued by the SEC Hearing Officer on January 13, 1995 must be lifted.
However, private respondents shall be notified of the meeting and be allowed to exercise their rights as
stockholders thereat.

While this case was pending, Republic Act No. 879924 was enacted, transferring to the courts of general
jurisdiction or the appropriate Regional Trial Court the SEC's jurisdiction over all cases enumerated
under Section 5 of Presidential Decree No. 902-A.25 One of those cases enumerated is any controversy
"arising out of intra-corporate or partnership relations, between and among stockholders, members, or
associates, between any and/or all of them and the corporation, partnership or association of which they
are stockholders, members or associates, respectively; and between such corporation, partnership or
association and the state insofar as it concerns their individual franchise or right to exist as such entity."
The instant controversy clearly falls under this category of cases which are now cognizable by the
Regional Trial Court.

Pursuant to Section 5.2 of R.A. No. 8799, this Court designated specific branches of the Regional Trial
Courts to try and decide cases formerly cognizable by the SEC. For the Fourth Judicial Region, specifically
in the Province of Batangas, the RTC of Batangas City, Branch 32 is the designated court.26

WHEREFORE, in view of all the foregoing, the instant petition for review on certiorari is DENIED. The
Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 38861 are hereby AFFIRMED. The case
is ordered REMANDED to the Regional Trial Court of Batangas City, Branch 32, for proper disposition.
The temporary restraining order issued by the SEC Hearing Officer dated January 13, 1995 is ordered
LIFTED.

SO ORDERED.

SECOND DIVISION
G.R. NO. 139802 December 10, 2002

VICENTE C. PONCE, petitioner,

vs.
ALSONS CEMENT CORPORATION, and FRANCISCO M. GIRON, JR., respondents.

DECISION

QUISUMBING, J.:

This petition for review seeks to annul the decision1 of the Court of Appeals, in CA-G.R. SP No. 46692,
which set aside the decision2 of the Securities and Exchange Commission (SEC) En Banc in SEC-AC No.
545 and reinstated the order3 of the Hearing Officer dismissing herein petitioner’s complaint. Also
assailed is the CA’s resolution4 of August 10, 1999, denying petitioner’s motion for reconsideration.

On January 25, 1996, plaintiff (now petitioner) Vicente C. Ponce, filed a complaint5 with the SEC for
mandamus and damages against defendants (now respondents) Alsons Cement Corporation and its
corporate secretary Francisco M. Giron, Jr. In his complaint, petitioner alleged, among others, that:

xxx

5. The late Fausto G. Gaid was an incorporator of Victory Cement Corporation (VCC), having
subscribed to and fully paid 239,500 shares of said corporation.

6. On February 8, 1968, plaintiff and Fausto Gaid executed a "Deed of Undertaking" and
"Indorsement" whereby the latter acknowledges that the former is the owner of said shares and
he was therefore assigning/endorsing the same to the plaintiff. A copy of the said
deed/indorsement is attached as Annex "A".

7. On April 10, 1968, VCC was renamed Floro Cement Corporation (FCC for brevity).

8. On October 22, 1990, FCC was renamed Alsons Cement Corporation (ACC for brevity) as shown
by the Amended Articles of Incorporation of ACC, a copy of which is attached as Annex "B".

9. From the time of incorporation of VCC up to the present, no certificates of stock corresponding
to the 239,500 subscribed and fully paid shares of Gaid were issued in the name of Fausto G. Gaid
and/or the plaintiff.

10. Despite repeated demands, the defendants refused and continue to refuse without any
justifiable reason to issue to plaintiff the certificates of stocks corresponding to the 239,500 shares
of Gaid, in violation of plaintiff’s right to secure the corresponding certificate of stock in his name.6

Attached to the complaint was the Deed of Undertaking and Indorsement7 upon which petitioner based
his petition for mandamus. Said deed and indorsement read as follows:

DEED OF UNDERTAKING

KNOW ALL MEN BY THESE PRESENTS:

I, VICENTE C. PONCE, is the owner of the total subscription of Fausto Gaid with Victory Cement
Corporation in the total amount of TWO HUNDRED THIRTY NINE THOUSAND FIVE HUNDRED
(P239,500.00) PESOS and that Fausto Gaid does not have any liability whatsoever on the subscription
agreement in favor of Victory Cement Corporation.

(SGD.) VICENTE C. PONCE

February 8, 1968

CONFORME:

(SGD.) FAUSTO GAID

INDORSEMENT

I, FAUSTO GAID is indorsing the total amount of TWO HUNDRED THIRTY NINE THOUSAND FIVE
HUNDRED (239,500.00) stocks of Victory Cement Corporation to VICENTE C. PONCE.

(SGD.) FAUSTO GAID

With these allegations, petitioner prayed that judgment be rendered ordering respondents (a) to issue in
his name certificates of stocks covering the 239,500 shares of stocks and its legal increments and (b) to
pay him damages.8

Instead of filing an answer, respondents moved to dismiss the complaint on the grounds that: (a) the
complaint states no cause of action; mandamus is improper and not available to petitioner; (b) the
petitioner is not the real party in interest; (c) the cause of action is barred by the statute of limitations;
and (d) in any case, the petitioner’s cause of action is barred by laches.9 They argued, inter alia, that there
being no allegation that the alleged "INDORSEMENT" was recorded in the books of the corporation, said
indorsement by Gaid to the plaintiff of the shares of stock in question—assuming that the indorsement
was in fact a transfer of stocks—was not valid against third persons such as ALSONS under Section 63 of
the Corporation Code.10 There was, therefore, no specific legal duty on the part of the respondents to
issue the corresponding certificates of stock, and mandamus will not lie.11

Petitioner filed his opposition to the motion to dismiss on February 19, 1996 contending that: (1)
mandamus is the proper remedy when a corporation and its corporate secretary wrongfully refuse to
record a transfer of shares and issue the corresponding certificates of stocks; (2) he is the proper party in
interest since he stands to be benefited or injured by a judgment in the case; (3) the statute of limitations
did not begin to run until defendant refused to issue the certificates of stock in favor of the plaintiff on
April 13, 1992.

After respondents filed their reply, SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to
dismiss in an Order dated February 29, 1996, which held that:

xxx

Insofar as the issuance of certificates of stock is concerned, the real party in interest is Fausto G. Gaid, or
his estate or his heirs. Gaid was an incorporator and an original stockholder of the defendant corporation
who subscribed and fully paid for 239,500 shares of stock (Annex "B"). In accordance with Section 37 of
the old Corporation Law (Act No. 1459) obtaining in 1968 when the defendant corporation was
incorporated, as well as Section 64 of the present Corporation Code (Batas Pambansa Blg. 68), a
stockholder who has fully paid for his subscription together with interest and expenses in case of
delinquent shares, is entitled to the issuance of a certificate of stock for his shares. According to
paragraph 9 of the Complaint, no stock certificate was issued to Gaid.

Comes now the plaintiff who seeks to step into the shoes of Gaid and thereby become a stockholder of the
defendant corporation by demanding issuance of the certificates of stock in his name. This he cannot do,
for two reasons: there is no record of any assignment or transfer in the books of the defendant
corporation, and there is no instruction or authority from the transferor (Gaid) for such assignment or
transfer. Indeed, nothing is alleged in the complaint on these two points.

xxx

In the present case, there is not even any indorsement of any stock certificate to speak of. What the
plaintiff possesses is a document by which Gaid supposedly transferred the shares to him. Assuming the
document has this effect, nevertheless there is neither any allegation nor any showing that it is recorded
in the books of the defendant corporation, such recording being a prerequisite to the issuance of a stock
certificate in favor of the transferee.12

Petitioner appealed the Order of dismissal. On January 6, 1997, the Commission En Banc reversed the
appealed Order and directed the Hearing Officer to proceed with the case. In ruling that a transfer or
assignment of stocks need not be registered first before it can take cognizance of the case to enforce the
petitioner’s rights as a stockholder, the Commission En Banc cited our ruling in Abejo vs. De la Cruz, 149
SCRA 654 (1987) to the effect that:

xxx As the SEC maintains, "There is no requirement that a stockholder of a corporation must be a
registered one in order that the Securities and Exchange Commission may take cognizance of a suit
seeking to enforce his rights as such stockholder". This is because the SEC by express mandate has
"absolute jurisdiction, supervision and control over all corporations" and is called upon to enforce the
provisions of the Corporation Code, among which is the stock purchaser’s right to secure the
corresponding certificate in his name under the provisions of Section 63 of the Code. Needless to say, any
problem encountered in securing the certificates of stock representing the investment made by the buyer
must be expeditiously dealt with through administrative mandamus proceedings with the SEC, rather
than through the usual tedious regular court procedure. xxx

Applying this principle in the case on hand, a transfer or assignment of stocks need not be registered first
before the Commission can take cognizance of the case to enforce his rights as a stockholder. Also, the
problem encountered in securing the certificates of stock made by the buyer must be expeditiously taken
up through the so-called administrative mandamus proceedings with the SEC than in the regular courts.13

The Commission En Banc also found that the Hearing Officer erred in holding that petitioner is not the
real party in interest.

xxx
As appearing in the allegations of the complaint, plaintiff-appellant is the transferee of the shares of stock
of Gaid and is therefore entitled to avail of the suit to obtain the proper remedy to make him the rightful
owner and holder of a stock certificate to be issued in his name. Moreover, defendant-appellees failed to
show that the transferor nor his heirs have refuted the ownership of the transferee. Assuming these
allegations to be true, the corporation has a mere ministerial duty to register in its stock and transfer
book the shares of stock in the name of the plaintiff-appellant subject to the determination of the validity
of the deed of assignment in the proper tribunal. 14

Their motion for reconsideration having been denied, herein respondents appealed the decision15 of the
SEC En Banc and the resolution16 denying their motion for reconsideration to the Court of Appeals.

In its decision, the Court of Appeals held that in the absence of any allegation that the transfer of the
shares between Fausto Gaid and Vicente C. Ponce was registered in the stock and transfer book of
ALSONS, Ponce failed to state a cause of action. Thus, said the CA, "the complaint for mandamus should be
dismissed for failure to state a cause of action."17 petitioner’s motion for reconsideration was likewise
denied in a resolution18 dated August 10, 1999.

Hence, the instant petition for review on certiorari alleging that:

I. … THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPLAINT FOR
ISSUANCE OF A CERTIFICATE OF STOCK FILED BY PETITIONER FAILED TO STATE A CAUSE OF
ACTION BECAUSE IT DID NOT ALLEGE THAT THE TRANSFER OF THE SHARES (SUBJECT MATTER
OF THE COMPLAINT) WAS REGISTERED IN THE STOCK AND TRANSFER BOOK OF THE
CORPORATION, CITING SECTION 63 OF THE CORPORATION CODE.

II. … THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASES OF "ABEJO VS.
DE LA CRUZ", 149 SCRA 654 AND "RURAL BANK OF SALINAS, INC., ET AL VS. COURT OF APPEALS,
ET AL.", G.R. NO. 96674, JUNE 26, 1992.

III. … THE HONORABLE COURT OF APPEALS ERRED IN APPLYING A 1911 CASE, "HAGER VS.
BRYAN", 19 PHIL. 138, TO DISMISS THE COMPLAINT FOR ISSUANCE OF A CERTIFICATE OF
STOCK.19

At issue is whether the Court of Appeals erred in holding that herein petitioner has no cause of action for
a writ of mandamus.

Petitioner first contends that the act of recording the transfer of shares in the stock and transfer book and
that of issuing a certificate of stock for the transferred shares involves only one continuous process. Thus,
when a corporate secretary is presented with a document of transfer of fully paid shares, it is his duty to
record the transfer in the stock and transfer book of the corporation, issue a new stock certificate in the
name of the transferee, and cancel the old one. A transferee who requests for the issuance of a stock
certificate need not spell out each and every act that needs to be done by the corporate secretary, as a
request for issuance of stock certificates necessarily includes a request for the recording of the transfer.
Ergo, the failure to record the transfer does not mean that the transferee cannot ask for the issuance of
stock certificates.

Secondly, according to petitioner, there is no law, rule or regulation requiring a transferor of shares of
stock to first issue express instructions or execute a power of attorney for the transfer of said shares
before a certificate of stock is issued in the name of the transferee and the transfer registered in the
books of the corporation. He contends that Hager vs. Bryan, 19 Phil. 138 (1911), and Rivera vs. Florendo,
144 SCRA 643 (1986), cited by respondents, do not apply to this case. These cases contemplate a
situation where a certificate of stock has been issued by the company whereas in this case at bar, no stock
certificates have been issued even in the name of the original stockholder, Fausto Gaid.

Finally, petitioner maintains that since he is under no compulsion to register the transfer or to secure
stock certificates in his name, his cause of action is deemed not to have accrued until respondent ALSONS
denied his request.

Respondents, in their comment, maintain that the transfer of shares of stock not recorded in the stock
and transfer book of the corporation is non-existent insofar as the corporation is concerned and no
certificate of stock can be issued in the name of the transferee. Until the recording is made, the transfer
cannot be the basis of issuance of a certificate of stock. They add that petitioner is not the real party in
interest, the real party in interest being Fausto Gaid since it is his name that appears in the records of the
corporation. They conclude that petitioner’s cause of action is barred by prescription and laches since 24
years elapsed before he made any demand upon ALSONS.

We find the instant petition without merit. The Court of Appeals did not err in ruling that petitioner had
no cause of action, and that his petition for mandamus was properly dismissed.

There is no question that Fausto Gaid was an original subscriber of respondent corporation’s 239,500
shares. This is clear from the numerous pleadings filed by either party. It is also clear from the Amended
Articles of Incorporation20 approved on August 9, 199521 that each share had a par value of P1.00 per
share. And, it is undisputed that petitioner had not made a previous request upon the corporate secretary
of ALSONS, respondent Francisco M. Giron Jr., to record the alleged transfer of stocks.

The Corporation Code states that:

SEC. 63. Certificate of stock and transfer of shares.–The capital stock of stock corporations shall be
divided into shares for which certificates signed by the president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance
with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of
the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until
the transfer is recorded in the books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the number of shares
transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation.

Pursuant to the foregoing provision, a transfer of shares of stock not recorded in the stock and transfer
book of the corporation is non-existent as far as the corporation is concerned.22 As between the
corporation on the one hand, and its shareholders and third persons on the other, the corporation looks
only to its books for the purpose of determining who its shareholders are.23 It is only when the transfer
has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee
as one of its stockholders. From this time, the consequent obligation on the part of the corporation to
recognize such rights as it is mandated by law to recognize arises.

Hence, without such recording, the transferee may not be regarded by the corporation as one among its
stockholders and the corporation may legally refuse the issuance of stock certificates in the name of the
transferee even when there has been compliance with the requirements of Section 6424 of the
Corporation Code. This is the import of Section 63 which states that "No transfer, however, shall be valid,
except between the parties, until the transfer is recorded in the books of the corporation showing the
names of the parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred." The situation would be different if the petitioner was
himself the registered owner of the stock which he sought to transfer to a third party, for then he would
be entitled to the remedy of mandamus.25

From the corporation’s point of view, the transfer is not effective until it is recorded. Unless and until
such recording is made the demand for the issuance of stock certificates to the alleged transferee has no
legal basis. As between the corporation on the one hand, and its shareholders and third persons on the
other, the corporation looks only to its books for the purpose of determining who its shareholders
are.26 In other words, the stock and transfer book is the basis for ascertaining the persons entitled to the
rights and subject to the liabilities of a stockholder. Where a transferee is not yet recognized as a
stockholder, the corporation is under no specific legal duty to issue stock certificates in the transferee’s
name.

It follows that, as held by the Court of Appeals:

x x x until registration is accomplished, the transfer, though valid between the parties, cannot be effective
as against the corporation. Thus, in the absence of any allegation that the transfer of the shares between
Gaid and the private respondent [herein petitioner] was registered in the stock and transfer book of the
petitioner corporation, the private respondent has failed to state a cause of action.27

Petitioner insists that it is precisely the duty of the corporate secretary, when presented with the
document of fully paid shares, to effect the transfer by recording the transfer in the stock and transfer
book of the corporation and to issue stock certificates in the name of the transferee. On this point, the SEC
En Banc cited Rural Bank of Salinas, Inc. vs. Court of Appeals, 28 where we held that:

For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in its stock and
transfer book, which duty is ministerial on its part, is to render nugatory and ineffectual the spirit and
intent of Section 63 of the Corporation Code. Thus, respondent Court of Appeals did not err in upholding
the decision of respondent SEC affirming the Decision of its Hearing Officer directing the registration of
the 473 shares in the stock and transfer book in the names of private respondents. At all events, the
registration is without prejudice to the proceedings in court to determine the validity of the Deeds of
Assignment of the shares of stock in question.

In Rural Bank of Salinas, Inc., however, private respondent Melania Guerrero had a Special Power of
Attorney executed in her favor by Clemente Guerrero, the registered stockholder. It gave Guerrero full
authority to sell or otherwise dispose of the 473 shares of stock registered in Clemente’s name and to
execute the proper documents therefor. Pursuant to the authority so given, Melania assigned the 473
shares of stock owned by Guerrero and presented to the Rural Bank of Salinas the deeds of assignment
covering the assigned shares. Melania Guerrero prayed for the transfer of the stocks in the stock and
transfer book and the issuance of stock certificates in the name of the new owners thereof. Based on
those circumstances, there was a clear duty on the part of the corporate secretary to register the 473
shares in favor of the new owners, since the person who sought the transfer of shares had express
instructions from and specific authority given by the registered stockholder to cause the disposition of
stocks registered in his name.

That cannot be said of this case. The deed of undertaking with indorsement presented by petitioner does
not establish, on its face, his right to demand for the registration of the transfer and the issuance of
certificates of stocks. In Hager vs. Bryan, 19 Phil. 138 (1911), this Court held that a petition for
mandamus fails to state a cause of action where it appears that the petitioner is not the registered
stockholder and there is no allegation that he holds any power of attorney from the registered
stockholder, from whom he obtained the stocks, to make the transfer, thus:

It appears, however, from the original as well as the amended petition, that this petitioner is not the
registered owner of the stock which he seeks to have transferred, and except in so far as he alleges that
he is the owner of the stock and that it was "indorsed" to him on February 5 by the Bryan-Landon
Company, in whose name it is registered on the books of the Visayan Electric Company, there is no
allegation that the petitioner holds any power of attorney from the Bryan-Landon Company authorizing
him to make demand on the secretary of the Visayan Electric Company to make the transfer which
petitioner seeks to have made through the medium of the mandamus of this court.

Without discussing or deciding the respective rights of the parties which might be properly asserted in an
ordinary action or an action in the nature of an equitable suit, we are all agreed that in a case such as that
at bar, a mandamus should not issue to compel the secretary of a corporation to make a transfer of the
stock on the books of the company, unless it affirmatively appears that he has failed or refused so to do,
upon the demand either of the person in whose name the stock is registered, or of some person holding a
power of attorney for that purpose from the registered owner of the stock. There is no allegation in the
petition that the petitioner or anyone else holds a power of attorney from the Bryan-Landon Company
authorizing a demand for the transfer of the stock, or that the Bryan-Landon Company has ever itself
made such demand upon the Visayan Electric Company, and in the absence of such allegation we are not
able to say that there was such a clear indisputable duty, such a clear legal obligation upon the
respondent, as to justify the issuance of the writ to compel him to perform it.

Under the provisions of our statute touching the transfer of stock (secs. 35 and 36 of Act No. 1459),29 the
mere indorsement of stock certificates does not in itself give to the indorsee such a right to have a
transfer of the shares of stock on the books of the company as will entitle him to the writ of mandamus to
compel the company and its officers to make such transfer at his demand, because, under such
circumstances the duty, the legal obligation, is not so clear and indisputable as to justify the issuance of
the writ. As a general rule and especially under the above-cited statute, as between the corporation on
the one hand, and its shareholders and third persons on the other, the corporation looks only to its books
for the purpose of determining who its shareholders are, so that a mere indorsee of a stock certificate,
claiming to be the owner, will not necessarily be recognized as such by the corporation and its officers, in
the absence of express instructions of the registered owner to make such transfer to the indorsee, or a
power of attorney authorizing such transfer.30

In Rivera vs. Florendo, 144 SCRA 643, 657 (1986), we reiterated that a mere indorsement by the
supposed owners of the stock, in the absence of express instructions from them, cannot be the basis of an
action for mandamus and that the rights of the parties have to be threshed out in an ordinary action. That
Hager and Rivera involved petitions for mandamus to compel the registration of the transfer, while this
case is one for issuance of stock, is of no moment. It has been made clear, thus far, that before a transferee
may ask for the issuance of stock certificates, he must first cause the registration of the transfer and
thereby enjoy the status of a stockholder insofar as the corporation is concerned. A corporate secretary
may not be compelled to register transfers of shares on the basis merely of an indorsement of stock
certificates. With more reason, in our view, a corporate secretary may not be compelled to issue stock
certificates without such registration.31

Petitioner’s reliance on our ruling in Abejo vs. De la Cruz, 149 SCRA 654 (1987), that notice given to the
corporation of the sale of the shares and presentation of the certificates for transfer is equivalent to
registration is misplaced. In this case there is no allegation in the complaint that petitioner ever gave
notice to respondents of the alleged transfer in his favor. Moreover, that case arose between and among
the principal stockholders of the corporation, Pocket Bell, due to the refusal of the corporate secretary to
record the transfers in favor of Telectronics of the corporation’s controlling 56% shares of stock which
were covered by duly endorsed stock certificates. As aforesaid, the request for the recording of a transfer
is different from the request for the issuance of stock certificates in the transferee’s name. Finally, in
Abejo we did not say that transfer of shares need not be recorded in the books of the corporation before
the transferee may ask for the issuance of stock certificates. The Court’s statement, that "there is no
requirement that a stockholder of a corporation must be a registered one in order that the Securities and
Exchange Commission may take cognizance of a suit seeking to enforce his rights as such stockholder
among which is the stock purchaser’s right to secure the corresponding certificate in his name,"32 was
addressed to the issue of jurisdiction, which is not pertinent to the issue at hand.

Absent an allegation that the transfer of shares is recorded in the stock and transfer book of respondent
ALSONS, there appears no basis for a clear and indisputable duty or clear legal obligation that can be
imposed upon the respondent corporate secretary, so as to justify the issuance of the writ of mandamus
to compel him to perform the transfer of the shares to petitioner. The test of sufficiency of the facts
alleged in a petition is whether or not, admitting the facts alleged, the court could render a valid judgment
thereon in accordance with the prayer of the petition.33 This test would not be satisfied if, as in this case,
not all the elements of a cause of action are alleged in the complaint.34 Where the corporate secretary is
under no clear legal duty to issue stock certificates because of the petitioner’s failure to record earlier the
transfer of shares, one of the elements of the cause of action for mandamus is clearly missing.

That petitioner was under no obligation to request for the registration of the transfer is not in issue. It
has no pertinence in this controversy. One may own shares of corporate stock without possessing a stock
certificate. In Tan vs. SEC, 206 SCRA 740 (1992), we had occasion to declare that a certificate of stock is
not necessary to render one a stockholder in a corporation. But a certificate of stock is the tangible
evidence of the stock itself and of the various interests therein. The certificate is the evidence of the
holder’s interest and status in the corporation, his ownership of the share represented thereby. The
certificate is in law, so to speak, an equivalent of such ownership. It expresses the contract between the
corporation and the stockholder, but it is not essential to the existence of a share in stock or the creation
of the relation of shareholder to the corporation.35 In fact, it rests on the will of the stockholder whether
he wants to be issued stock certificates, and a stockholder may opt not to be issued a certificate. In Won
vs. Wack Wack Golf and Country Club, Inc., 104 Phil. 466 (1958), we held that considering that the law
does not prescribe a period within which the registration should be effected, the action to enforce the
right does not accrue until there has been a demand and a refusal concerning the transfer. In the present
case, petitioner’s complaint for mandamus must fail, not because of laches or estoppel, but because he
had alleged no cause of action sufficient for the issuance of the writ.
WHEREFORE, the petition is DENIED for lack of merit. The decision of the Court of Appeals, in CA-G.R. SP
No. 46692, which set aside that of the Securities and Exchange Commission En Banc in SEC-AC No. 545
and reinstated the order of the Hearing Officer, is hereby AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

G.R. Nos. 107789 & 147214 April 30, 2003

REPUBLIC OF THE PHILIPPINES (PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT), petitioner,
vs.
THE HONORABLE SANDIGANBAYAN (THIRD DIVISION) and VICTOR AFRICA, respondents.
AEROCOM INVESTORS AND MANAGERS, INC., BENITO NIETO, CARLOS NIETO, MANUEL NIETO III,
RAMON NIETO, ROSARIO ARELLANO, VICTORIA LEGARDA, ANGELA LOBREGAT, MA. RITA DE LOS
REYES, CARMEN TUAZON and RAFAEL VALDEZ, intervenors.

x-----------------------------x

G.R. No. 147214 April 30, 2003

VICTOR AFRICA, petitioner,

vs.
THE HONORABLE SANDIGANBAYAN and THE PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT,respondents.

RESOLUTION

CARPIO MORALES, J.:

These consolidated cases, the first for Certiorari, Mandamus and Prohibition, and the second "for Review
on Certiorari" although it is actually one for Certiorari, stem from a Resolution of November 13, 1992
issued by the Sandiganbayan in Civil Case No. 0130,1 on motion of Victor Africa (Africa) who prayed that
said court order the "calling and holding of the Eastern Telecommunications, Philippines, Inc. (ETPI)
annual stockholders meeting for 1992 under the [c]ourt's control and supervision and prescribed
guidelines."

It is gathered that on August 7, 1991, the Presidential Commission on Good Government (PCGG)
conducted an ETPI stockholders meeting during which a PCGG controlled board of directors was elected.
A special stockholders meeting was later convened by the registered ETPI stockholders wherein another
set of board of directors was elected, as a result of which two sets of such board and officers were elected.

Africa, a stockholder of ETPI, alleging that the PCGG had since January 29, 1988 been "illegally 'exercising'
the rights of stockholders of ETPI,"2 especially in the election of the members of the board of directors,
filed the above-said motion before the Sandiganbayan.

The PCGG did not object to Africa's motion provided that:

 1. An Order be issued upholding the right of PCGG to vote all the Class "A" shares of ETPI.

2. In the alternative, in the remote event that PCGG's right to vote the sequestered shares be not
upheld, an Order be issued:

a. Disregarding the Stock and Transfer Book and Booklet of Stock Certificates of ETPI in
determining who can vote the shares in an Annual Stockholders Meeting of ETPI,

b. Allowing PCGG to vote twenty-three and 90/100 percent (23.9%) of the total
subscription in ETPI, and

c. Directing the amendment of the Articles of Incorporation and By-laws of ETPI providing
for the minimum safeguards for the conservation of assets . . . prior to the calling of a
stockholders meeting.3

By the assailed Resolution of November 13, 1992,4 the Sandiganbayan resolved Africa's motion, the
dispositive portion of which reads:

WHEREFORE, it is ordered that an annual stockholders meeting of the Eastern Telecommunications,

Philippines, Inc. (ETPI), for 1992 be held on Friday, November 27, 1992, at 2:00 o'clock in the afternoon,
at the ETPI Board Room, Telecoms Plaza, 7th Floor, 316 Gil J. Puyat Avenue, Makati, Metro Manila. The
Executive Clerk of Court of this Division shall issue the call and notice of annual stockholders meeting of
ETPI addressed to all the duly registered/recorded stockholders of ETPI. The stockholders meeting shall
be conducted under the supervision and control of this Court, through Mr. Justice Sabino R. de Leon, Jr. In
accordance with the Supreme Court ruling in Cojuangco et al vs. Azcuna, et al., supra, only the registered
owners, their duly authorized representatives or their proxies may vote their corresponding shares.

The following minimum safeguards must be set in place and carefully maintained until final judicial
resolution of the question of whether or not the sequestered shares of stock (or in a proper case the
underlying assets of the corporation concerned) constitute ill-gotten wealth:

"a. An independent comptroller must be appointed by the Board of Directors upon nomination of
the PCGG as conservator. The comptroller shall not be removable (nor shall his position be
abolished or his compensation changed) without the consent of the conservator. The comptroller
shall, in addition to his other functions as such, have charge of internal audit.

b. The corporate secretary must be acceptable to the conservator. If the corporate secretary ceases
to be acceptable to the conservator, a new one must be appointed by the Board of Directors upon
nomination of the conservator.

c. The external auditors of the corporation must be independent and must be acceptable to the
conservator. The independent external auditors shall not be changed without the consent of the
conservator.

d. The conservator must be represented in the Board of Directors and in the Executive (or
equivalent) and Audit Committees of the corporation involved and of its majority-owned
subsidiaries or affiliates. The representative of the conservator must be a full director (not merely
an honorary or ex-officio director) with the right to vote and all other rights and duties of a
 member of the Board of Directors under the Corporation Code. The conservator's representative
shall not be removed from the Board of Directors (or the mentioned Committees) without the
consent of the conservator. The conservator shall, however, have the right to remove and change
its representative at any time, and the new representative shall be promptly elected to the Board
and its mentioned Committees.

e. All transactions involving the disbursement of corporate funds in excess of P5 million must have
the prior approval of the director representing the conservator, in order to be valid and effective.

f. The incurring of debt by the corporation, whether in the form of bonds, debentures, commercial
paper or any other form, in excess of P5 million, must have the prior approval of the director
representing the conservator, in order to be valid and effective.

g. The disposition of a substantial part of assets of the corporation (substantial meaning in excess
of P5 million) shall require the prior approval of the director representing the conservator, in
order to be valid and effective.

h. The above safeguards must be written into the articles of incorporation and by-laws of the
company involved. In other words, the articles of incorporation and by-laws of the company must
be amended so as to incorporate the above safeguards.

i. Any amendment of the articles of incorporation or by-laws of the company that will modify in
any way any of the above safeguards, shall need the prior approval of the director representing
the conservator."

SO ORDERED.5 (Emphasis supplied)

Assailing the foregoing resolution, the PCGG filed before this Court the herein first petition, docketed
as G.R. No. 107789, anchored upon the following grounds:

RESPONDENT SANDIGANBAYAN ACTED WITH GRAVE ABUSE OF DISCRETION IN RULING THAT THE
REGISTERED STOCKHOLDERS OF ETPI HAD THE RIGHT TO VOTE IN SPITE OF (A) THE RULING OF THIS
HONORABLE COURT IN PCGG V. SEC AND AFRICA (G.R. NO. 82188) AND (B) A CLEAR SHOWING THAT
ETPI'S STOCK AND TRANSFER BOOK WAS ALTERED AND CANNOT BE USED AS THE BASIS TO
DETERMINE WHO CAN VOTE IN A STOCKHOLDERS' MEETING.

II

RESPONDENT SANDIGANBAYAN GRAVELY ABUSED ITS DISCRETION AND EXCEEDED ITS JURISDICTION
WHEN IT HELD THAT PCGG CANNOT VOTE AT LEAST 23.9% OF THE OUTSTANDING CAPITAL STOCK OF
ETPI.

III

WITHOUT DUE CARE AND IN RECKLESS DISREGARD OF THE INTERESTS OF THE REPUBLIC,
RESPONDENT SANDIGANBAYAN GRAVELY ABUSED ITS DISCRETION IN ORDERING THE HOLDING OF A
STOCKHOLDERS' MEETING IN ETPI WITHOUT FIRST SETTING IN PLACE — BY AMENDING THE ARTICLES
AND BY-LAWS OF ETPI TO INCORPORATE — THE SAFEGUARDS PRESCRIBED BY THIS HONORABLE
COURT IN COJUANGCO V. ROXAS.

IV

THE SANDIGANBAYAN ACTED IN EXCESS OF ITS AUTHORITY AND/OR WITH GRAVE ABUSE OF
DISCRETION IN APPOINTING (A) ITS OWN DIVISION CLERK OF COURT TO PERFORM THE DUTIES OF A
CORPORATE SECRETARY, AND (B) ITS OWN JUSTICE SABINO DE LEON, JR. TO CONTROL AND SUPERVISE
THE STOCKHOLDERS' MEETING.6 (Emphasis in the original)

By Resolution of November 26, 1992, this Court enjoined the Sandiganbayan from (a) implementing its
Resolution of November 13, 1992, and (b) holding the stockholders' meeting of ETPI scheduled on
November 27, 1992, at 2:00 p.m.

On December 7, 1992, Aerocom Investors and Managers, Inc. (AEROCOM), Benito Nieto, Carlos Nieto,
Manuel Nieto III, Ramon Nieto, Rosario Arellano, Victoria Legarda, Angela Lobregat, Ma. Rita de los Reyes,
Carmen Tuazon and Rafael Valdez, all stockholders of record of ETPI, filed a motion to intervene in G.R.
No. 107789. Their motion was granted by this Court by Resolution of January 14, 1993.

After the parties submitted their respective memoranda, the PCGG, in early 1995, filed a "VERY URGENT
PETITION FOR AUTHORITY TO HOLD SPECIAL STOCKHOLDERS' MEETING FOR [THE] SOLE PURPOSE
OF INCREASING [ETPI's] AUTHORIZED CAPITAL STOCK," it claiming that the increase in authorized
capital stock was necessary in light of the requirements laid down by Executive Order No. 1097 and
Republic Act No. 7975.8

By Resolution of May 7, 1996,9 this Court resolved to refer the PCGG's very urgent petition to hold the
special stockholders' meeting to the Sandiganbayan for reception of evidence and resolution.

In compliance therewith, the Sandiganbayan issued a Resolution of December 13, 1996,10 which is being
assailed in the herein second petition, granting the PCGG "authority to cause the holding of a special
stockholders' meeting of ETPI for the sole purpose of increasing ETPI's authorized capital stock and to
vote therein the sequestered Class 'A' shares of stock. . . ." In said Resolution, the Sandiganbayan held that
there was an urgent necessity to increase ETPI's authorized capital stock; there existed a prima
facie factual foundation for the issuance of the writ of sequestration covering the Class "A" shares of
stock; and the PCGG was entitled to vote the sequestered shares of stock.

The PCGG-controlled ETPI board of directors thus authorized the ETPI Chair and Corporate Secretary to
call the special stockholders meeting. Notices were sent to those entitled to vote for a meeting on March
17, 1997. The meeting was held as scheduled and the increase in ETPI's authorized capital stock from
P250 Million to P2.6 Billion was "unanimously approved."11

On April 1, 1997, Africa filed before this Court a motion to cite the PCGG "and its accomplices" in
contempt and "to nullify the 'stockholders meeting' called/conducted by PCGG and its accomplices," he
contending that only this Court, and not the Sandiganbayan, has the power to authorize the PCGG to call a
stockholders meeting and vote the sequestered shares. Africa went on to contend that, assuming that the
Sandiganbayan had such power, its Resolution of December 13, 1996 authorizing the PCGG to hold the
stockholders meeting had not yet become final because the motions for reconsideration of said resolution
were still pending. Further, Africa alleged that he was not given notice of the meeting, and the PCGG had
no right to vote the sequestered Class "A" shares.

A motion for leave to intervene relative to Africa's "Motion to Cite the PCGG and its Accomplices in
Contempt" was filed by ETPI. This Court granted the motion for leave but ETPI never filed any pleading
relative to Africa's motion to cite the PCGG in contempt.

By Resolution of February 16, 2001, the Sandiganbayan finally resolved to deny the motions for
reconsideration of its Resolution of December 13, 1996, prompting Africa to file on April 6, 2001 before
this Court the herein second petition,12 docketed as G.R. No. 147214, challenging the Sandiganbayan
Resolutions of December 13, 1996 (authorizing the holding of a stockholders meeting to increase ETPI's
authorized capital stock and to vote therein the sequestered Class "A" shares of stock) and February 16,
2001 (denying reconsideration of the December 13, 1996 Resolution).

In his petition in G.R. No. 147214, Africa alleged that the Sandiganbayan committed "grave abuse of
discretion" when, by the assailed Resolutions,

a. IT DID NOT ACKNOWLEDGE THE NON-SEQUESTERED STATUS OF THE SHARES [OF "SMALL
STOCKHOLDERS" OF WHICH HE IS ONE AND AEROCOM AND POLYGON] AND/OR OWNERS
THEREOF[;] [AND]

b. IT DID NOT ACCORD TO THE NON-SEQUESTERED SHARES/OWNERS THE RIGHTS

APPURTENANT TO A STOCKHOLDER[.]

He thus prayed that this Court set aside the questioned Resolutions permitting the PCGG to vote the non-
sequestered ETPI Class "A" shares and nullify the votes the PCGG had cast in the stockholders meeting
held on March 17, 1997.

By Resolution of February 24, 2003,13 this Court ordered the consolidation of G.R. No. 147214 with G.R.
No. 107789, now the subject of the present Resolution.

The first issue to be resolved is whether the PCGG can vote the sequestered ETPI Class "A" shares in the
stockholders meeting for the election of the board of directors. The leading case on the matter is Bataan
Shipyard & Engineering Co., Inc. v. Presidential Commission on Good Government 14 where this Court
defined the powers of the PCGG as follows:

a. PCGG May Not Exercise Acts of Ownership

One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion
over property sequestered, frozen or provisionally taken over. As already earlier stressed with no
little insistence, the act of sequestration[,] freezing or provisional takeover of property does not
import or bring about a divestment of title over said property; [it] does not make the PCGG the
owner thereof. In relation to the property sequestered, frozen or provisionally taken over,
the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and
this is specially true in the situations contemplated by the sequestration rules where, unlike cases
of receivership, for example, no court exercises effective supervision or can upon due application
and hearing, grant authority for the performance of acts of dominion.

Equally evident is that resort to the provisional remedies in question should entail the least
possible interference with business operations or activities so that, in the event that the
accusation of the business enterprise being "ill-gotten" be not proven, it may be returned to its
rightful owner as far as possible in the same condition as it was at the time of sequestration.

b. PCGG Has Only Powers of Administration

The PCGG may thus exercise only powers of administration over the property or business
sequestered or provisionally taken over, much like a court-appointed receiver, such as to bring
and defend actions in its own name; receive rents; collect debts due; pay outstanding debts due;
and generally do such other acts and things as may be necessary to fulfill its mission as
conservator and administrator. In this context, it may in addition enjoin or restrain any actual or
threatened commission of acts by any person or entity that may render moot and academic, or
frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect
contempt in accordance with the Rules of Court; and seek and secure the assistance of any office,
agency or instrumentality of the government. In the case of sequestered businesses generally (i.e.,
going concerns, businesses in current operation), as in the case of sequestered objects, its
essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is
not that of manager, or innovator, much less an owner.

c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him;
Limitations Thereon

Now, in the special instance of a business enterprise shown by evidence to have been "taken over
by the government of the Marcos Administration or by entities or persons close to former
President Marcos," the PCGG is given power and authority, as already adverted to, to
"provisionally take (it) over in the public interest or to prevent . . . (its) disposal or dissipation;"
and since the term is obviously employed in reference to going concerns, or business enterprises
in operation, something more than mere physical custody is connoted; the PCGG may in this case
exercise some measure of control in the operation, running, or management of the business itself.
But even in this special situation, the intrusion into management should be restricted to the
minimum degree necessary to accomplish the legislative will, which is "to prevent the disposal or
dissipation" of the business enterprise. There should be no hasty, indiscriminate, unreasoned
replacement or substitution of management officials or change of policies, particularly in respect
of viable establishments. In fact, such a replacement or substitution should be avoided if at all
possible, and undertaken only when justified by demonstrably tenable grounds and in line with
the stated objectives of the PCGG. And it goes without saying that where replacement of
management officers may be called for, the greatest prudence, circumspection, care and attention
should accompany that undertaking to the end that truly competent, experienced and honest
managers may be recruited. There should be no role to be played in this area by rank amateurs, no
matter how well meaning. The road to hell, it has been said, is paved with good intentions. The
business is not to be experimented or played around with, not run into the ground, not driven to
bankruptcy, not fleeced, not ruined. Sight should never be lost x x x of the ultimate objective of the
whole exercise, which is to turn over the business to the Republic, once judicially established to be
"ill-gotten." Reason dictates that it is only under these conditions and circumstances that the
 supervision, administration and control of business enterprises provisionally taken over may
legitimately be exercised.

d. Voting of Sequestered Stock; Conditions Therefor

So, too, it is within the parameters of these conditions and circumstances that the PCGG may
properly exercise the prerogative to vote sequestered stock of corporations, granted to it by the
President of the Philippines through a Memorandum dated June 26, 1986. That Memorandum
authorizes the PCGG, "pending the outcome of proceedings to determine the ownership of **
(sequestered) shares of stock," "to vote such shares of stock as it may have sequestered in
corporations at all stockholders' meetings called for the election of directors, declaration of
dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be
construed in such a manner as to be consistent with, and not contradictory to the Executive
Orders earlier promulgated on the same matter. There should be no exercise of the right to vote
simply because the right exists, or because the stocks sequestered constitute the controlling or a
substantial part of the corporate voting power. The stock is not to be voted to replace directors, or
revise the articles or by-laws, or otherwise bring about substantial changes in policy, program or
practice of the corporation except for demonstrably weighty and defensible grounds, and always
in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the
dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply
because the power to do so exists. Substitution of directors is not to be done without reason or
rhyme, should indeed be shunned if at all possible, and undertaken only when essential to prevent
disappearance or wastage of corporate property, and always under such circumstances as to
assure that replacements are truly possessed of competence, experience and probity.

In the case at bar, there was adequate justification to vote the incumbent directors out of office
and elect others in their stead because the evidence showed prima facie that the former were just
tools of President Marcos and were no longer owners of any stock in the firm, if they ever were at
all. This is why, in its Resolution of October 28, 1986[,] this Court declared that —

"Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in
respondents' calling and holding of a stockholders' meeting for the election of directors as
authorized by the Memorandum of the President ** (to the PCGG) dated June 26, 1986,
particularly, where as in this case, the government can, through its designated directors,
properly exercise control and management over what appear to be properties and assets
owned and belonging to the government itself and over which the persons who appear in
this case on behalf of BASECO have failed to show any right or even any shareholding in
said corporation."

It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in
the management of the company's affairs should henceforth be guided and governed by the norms
herein laid down. They should never for a moment allow themselves to forget they are
conservators, not owners of the business; they are fiduciaries, trustees, of whom the highest
degree of diligence and rectitude is, in the premises, required. (Italics in the original)

The PCGG cannot thus vote sequestered shares, except when there are "demonstrably weighty and
defensible grounds" or "when essential to prevent disappearance or wastage of corporate property."15
The principle laid down in Baseco was further enhanced in the subsequent cases of Cojuangco v.
Calpo16 and Presidential Commission on Good Government v. Cojuangco, Jr.,17 where this Court developed a
"two-tiered" test in determining whether the PCGG may vote sequestered shares:

The issue of whether PCGG may vote the sequestered shares in SMC necessitates a determination
of at least two factual matters:

1. whether there is prima facie evidence showing that the said shares are ill-gotten and thus
belong to the state; and

2. whether there is an immediate danger of dissipation thus necessitating their continued

sequestration and voting by the PCGG while the main issue pends with the
Sandiganbayan.18

The two-tiered test, however, does not apply in cases involving funds of "public character." In such cases,
the government is granted the authority to vote said shares, namely:

(1) Where government shares are taken over by private persons or entities who/which registered
them in their own names, and

(2) Where the capitalization or shares that were acquired with public funds somehow landed in
private hands.19

This Court, in Republic v. Cocofed,20 explained:

The [public character] exceptions are based on the common-sense principle that legal fiction must
yield to truth; that public property registered in the names of non-owners is affected with trust
relations; and that the prima facie beneficial owner should be given the privilege of enjoying the
rights flowing from the prima faciefact of ownership.

In Baseco, a private corporation known as the Bataan Shipyard and Engineering Co. was placed
under sequestration by the PCGG. Explained the Court:

"The facts show that the corporation known as BASECO was owned and controlled by
President Marcos 'during his administration, through nominees, by taking undue advantage
of his public office and/or using his powers, authority, or influence,' and that it was by and
through the same means, that BASECO had taken over the business and/or assets of the
National Shipyard and Engineering Co., Inc., and other government-owned or controlled
entities."

Given this factual background, the Court discussed PCGG's right over BASECO in the following
manner:

"Now, in the special instance of a business enterprise shown by evidence to have been
'taken over by the government of the Marcos Administration or by entities or persons close
to former President Marcos,' the PCGG is given power and authority, as already adverted to,
to provisionally take (it) over in the public interest or to prevent ** (its) disposal or
dissipation;' and since the term is obviously employed in reference to going concerns, or
 business enterprises in operation, something more than mere physical custody is
connoted; the PCGG may in this case exercise some measure of control in the operation,
running, or management of the business itself."

Citing an earlier Resolution, it ruled further:

"Petitioner has failed to make out a case of grave abuse of excess of jurisdiction in
respondent's calling and holding of a stockholder's meeting for the election of directors as
authorized by the Memorandum of the President ** (to the PCGG) dated June 26, 1986,
particularly, where as in this case, the government can, through its designated directors,
properly exercise control and management over what appear to be properties and assets
owned and belonging to the government itself and over which the persons who appear in
this case on behalf of BASECO have failed to show any right or even any shareholding in
said corporation." (Emphasis supplied)

The Court granted PCGG the right to vote the sequestered shares because they appeared to be
"assets belonging to the government itself." The Concurring Opinion of Justice Ameurfina A.
Melencio-Herrera, in which she was joined by Justice Florentino P. Feliciano, explained this
principle as follows:

"I have no objection to according the right to vote sequestered stock in case of a take-over
of business actually belonging to the government or whose capitalization comes from
public funds but which, somehow, landed in the hands of private persons, as in the case of
BASECO. To my mind, however, caution and prudence should be exercised in the case of
sequestered shares of an on-going private business enterprise, specially the sensitive ones,
since the true and real ownership of said shares is yet to be determined and proven more
conclusively by the Courts." (Italics supplied)

The exception was cited again by the Court in Cojuangco-Roxas in this wise:

"The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict
ownership of sequestered property. It is a mere conservator. It may not vote the shares in a
corporation and elect the members of the board of directors. The only conceivable exception
is in a case of a takeover of a business belonging to the government or whose capitalization
comes from public funds, but which landed in private hands as in BASECO." (italics supplied)

The "public character" test was reiterated in many subsequent cases; most recently, in Antiporda
v. Sandiganbayan. Expressly citing Cojuangco-Roxas, this Court said that in determining the issue
of whether the PCGG should be allowed to vote sequestered shares, it was crucial to find out first
whether this were purchased with public funds, as follows:

"It is thus important to determine first if the sequestered corporate shares came from
public funds that landed in private hands."

This Court summed up the rule in the determination of whether the PCGG has the right to vote
sequestered shares as follows:
 In short, when sequestered shares registered in the names of private individuals or entities are
alleged to have been acquired with ill-gotten wealth, then the two-tiered test is applied. However,
when the sequestered shares in the name of private individuals or entities are shown, prima facie,
to have been (1) originally government shares, or (2) purchased with public funds or those
affected with public interest, then the two-tiered test does not apply. Rather, the public character
exception in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall vote
the shares.

The PCGG contends, however, that it is entitled to vote the sequestered shares in the election of the board
of directors, it invoking this Court's alleged finding in PCGG et al. v. Securities and Exchange Commission, et
al.21 that Africa had dissipated ETPI's assets, thus:

Under a consultancy contract, Polygon Investors and Managers, Inc. with Jose L. Africa as
Chairman and Victor Africa as President, earned from ETPI as of 1987, more than P57 million.
Likewise in 1987, ETPI paid to Jose L. Africa P1,200,000.00 as "professional fees" and Manuel
Nieto, Jr. another P1,200,000.00 as "allowances".22

The PCGG's contention is misleading, This Court made no finding in PCGG v. SEC et al. that Africa
dissipated ETPI's assets. Precisely this Court issued a Resolution of July 28, 1988 in the same case to
clarify, upon motion of Africa, that the narration of facts found in the decision therein did not constitute a
finding of facts:

The categorical statement in the decision of June 30, 1988 that the "relevant background facts of
the case culled from Petitioners' Urgent Consolidated Petition" was not without a reason or
purpose. Precisely this statement was made to impress upon the parties that the narration of
facts is just that — a narration, without necessarily judging its truth or veracity. Being based
on mere allegations, properly controverted, it is not a finding of facts, but more of a
presentation of the complete picture of events which led to the sequestration of Eastern
Telecommunications, Philippines, Inc. as well as to the instant petition. This Court, it must be
remembered, is not a trier of facts, and particularly so in this case where the facts narrated are
precisely the facts in litigation before the Sandiganbayan. (Emphasis supplied.)

Unfortunately, the Sandiganbayan, in its impugned Resolution of November 13, 1992, skirted the
question of whether there is evidence of dissipation of ETPI assets, holding instead that:

The issue as to whether the B[enedicto]A[frica]N[ieto] group had dissipated funds of ETPI during
its administration of ETPI is a matter which is not in issue herein. Dissipation by the PCGG Board
of Directors is also charged by the BAN group. An investigation of the anomalies charged by one
against the other may be taken up in another case.23

And it further held that the PCGG could not vote the sequestered shares as "only the owners of the shares
of stock of subject corporation, their duly authorized representatives or their proxies, may vote the said
shares,"24 relying on this Court's ruling in Cojuangco, Jr. v. Roxas25 that:

The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of
sequestered property. It is a mere conservator. It may not vote the shares in a corporation and elect
members of the board of directors. The only conceivable exception is in a case of a takeover of a business
belonging to the government or whose capitalization comes from public funds, but which landed in
private hands as in BASECO.

In short, the Sandiganbayan held that the public character exception does not apply, in which case it
should have proceeded to apply the two-tiered test. This it failed to do.

The questions thus remain if there is prima facie evidence showing that the subject shares are ill-gotten
and if there is imminent danger of dissipation. This Court is not, however, a trier of facts, hence, it is not
in a position to rule on the correctness of the PCGG's contention. Consequently, this issue must be
remanded to the Sandiganbayan for resolution.

II

On the PCGG's submission that the Stock and Transfer Book should not be used as the basis for
determining the voting rights of the shareholders because some entries therein were altered "by
substitution": This Court sees no grave abuse of discretion on the part of the Sandiganbayan in ruling
that:

The charge that there were "alterations by substitution" in the Stock and Transfer Book is not a
matter which should preclude the Stock and Transfer Book from being the basis or guide to
determine who the true owners of the shares of stock in ETPI are. If there be any substitution or
alterations, the anomaly, if at all, may be explained by the corporate secretary who made the
entries therein. At any rate, the accuracy of the Stock and Transfer Book may be checked by
comparing the entries therein with the issued stock certificates. The fact is that any transfer of
stock or issuance thereof would necessitate an alteration of the record by substitution. Any
anomaly in any entry which may deprive a person or entity of its right to vote may generate a
controversy personal to the corporation and the stockholder and should not affect the issue as to
whether it is the PCGG or the shareholder who has the right to vote. In other words, should there
be a stockholder who feels aggrieved by any alteration by substitution in the Stock and Transfer
Book, said stockholder may object thereto at the proper time and before the stockholders
meeting.26

Whether the ETPI Stock and Transfer Book was falsified and whether such falsification deprives the true
owners of the shares of their right to vote are thus issues best settled in a different proceeding instituted
by the real parties-in-interest.

III

On the PCGG's submission that the Sandiganbayan gravely abused its discretion when it held that it
cannot vote at least 23.9% of the outstanding capital stock of ETPI, which percentage is broken down as
follows:

Shares ceded to the government - 12.8%

by virtue of the Benedicto
compromise
Shares represented by some - 3.1%
stock certificates found in
Malacañang (at least)
 Shares held and admitted by 8.0%
Manuel Nieto to belong to then
President Marcos -

The PCGG alleges that the 12.8% indicated above represents 51% of the combined shareholdings of
Roberto S. Benedicto and his controlled corporations amounting to 12.8% of the total equity of ETPI
which was ceded to the Republic; the 3.1% represents the shares covered by the ETPI stock certificates
endorsed in blank found in Malacañang, now in its (PCGG's) possession, which it submits it may, under
Section 34 of the Negotiable Instruments Law,27 take title thereto and vote the same in the stockholders
meeting; and the 8% represents the shares of Manuel H. Nieto, Jr. which, so it avers, he, in an Affidavit of
May 28, 1986, admitted actually belong to former President Marcos:

5. That in relation to and simultaneously with the board meeting of PHILCOMSAT, on March 21,
1986, I declared my concurrence in the disclosures made on the participation of Mr. Ferdinand E.
Marcos and associates in the companies covered by the sequestration order dated March 14, 1986
i.e., 39,926.2% (sic) of the total subscribed capital stock of Philippine Overseas
Telecommunications Corporation and 40% of the individual shareholdings of Jose L. Africa,
Manuel H. Nieto, Jr., & Roberto S. Benedicto in Eastern Telecommunications Philippines, Inc. 28

On the question of whether the PCGG can vote all the above shares, the Sandiganbayan, finding in the
affirmative, held in its Resolution of November 13, 1992:

Considering the Compromise Agreement entered into by the PCGG and Roberto S. Benedicto in
Civil Case No. 009 wherein Roberto S. Benedicto assigned and transferred to the Government
12.8% of the shares of stock of ETPI, which Compromise Agreement was made the basis of a
judgment of this Court, it is only proper that the PCGG may vote these shares in the stockholders
meeting after said judgment shall have become final and executory. Besides, before the PCGG can
vote these shares, the transfer to the State of the shares of stock must be entered in the Stock and
Transfer Book, the entries therein being the only basis for which the stockholder may vote the said
shares.

The same ruling is made in respect to the shares of stock represented by stock certificates found in
Malacañang (3.1%) and the shares of stock allegedly admitted by Manuel H. Nieto to belong to
former President Ferdinand E. Marcos (8.0%).29 (Emphasis supplied)

The Sandiganbayan clearly made no ruling proscribing the PCGG from voting the shares representing
12.8% of ETPI's outstanding capital stock, the only requirement it imposed being that the transfer of the
shares be registered in the Stock and Transfer Book and that, in the case of the Benedicto shares, the
Compromise Agreement be final and executory.

In requiring that the transfer of the Benedicto shares be first recorded in ETPI's Stock and Transfer Book
before the PCGG may vote them, the Sandiganbayan committed no grave abuse of discretion. For Section
63 of the Corporation Code provides:

Sec. 63. Certificate of stock and transfer of shares. — The capital stock of stock corporations shall
be divided into shares for which the certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation
shall be issued in accordance with the by-laws. Shares of stock so issued are personal property
 and may be transferred by the delivery of the certificate or certificates endorsed by the owner or
his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties to the transaction, the date of the transfer, the
number of the certificate or certificates and the number of shares transferred.

xxx xxx xxx.

Explaining why registration is a prerequisite for the voting of shares, this Court, in Batangas Laguna
Tayabas Bus Company, Inc., v. Bitanga,30 discoursed:

Indeed, until registration is accomplished, the transfer, though valid between the parties, cannot
be effective as against the corporation. Thus, the unrecorded transferee x x x cannot vote nor be
voted for. The purpose of registration, therefore, is two-fold: to enable the transferee to exercise
all the rights of a stockholder, including the right to vote and to be voted for, and to inform the
corporation of any change in share ownership so that it can ascertain the persons entitled to the
rights and subject to the liabilities of a stockholder. Until challenged in a proper proceeding, a
stockholder of record has a right to participate in any meeting; his vote can be properly counted to
determine whether a stockholders' resolution was approved, despite the claim of the alleged
transferee. On the other hand, a person who has purchased stock, and who desires to be
recognized as a stockholder for the purpose of voting, must secure such a standing by having the
transfer recorded on the corporate books. Until the transfer is registered, the transferee is not a
stockholder but an outsider.

Whether the PCGG needs to await the finality of the judgment31 based on the Republic-Benedicto
compromise agreement is now moot since it is not disputed that it had long become final and executory.
Accordingly, the PCGG may vote in its name the shares ceded to the Republic by Benedicto pursuant to
the said agreement once they are registered in its name.

With respect to the PCGG's submission that under Section 34 of the Negotiable Instruments Law, it may
take title to the shares represented by the blank stock certificates found in Malacañang and vote the
same, the same is untenable. The PCGG assumes that stock certificates are negotiable. They are not.

x x x [A]lthough a stock certificate is sometimes regarded as quasi-negotiable, in the sense that it

may be transferred by delivery, it is well settled that the instrument is non-negotiable, because the
holder thereof takes it without prejudice to such rights or defenses as the registered owner or
creditor may have under the law, except insofar as such rights or defenses are subject to the
limitations imposed by the principles governing estoppel.32

That the PCGG found the stock certificates endorsed in blank does not necessarily make it the owner of
the shares represented therein. Their true ownership has to be ascertained in a proper proceeding.
Similarly, the ownership of the Nieto shares has yet to be adjudicated. That they allegedly belong to
former President Marcos does not make the PCGG, its owner. The PCGG must, in an appropriate
proceeding, first establish that they truly belong to the former President and that they were ill-gotten.
Pending final judgment over the ownership of these shares, the PCGG may not register and vote the Nieto
and the Malacañang shares in its name. If the Sandiganbayan finds, however, that there is evidence of
dissipation of these shares, the PCGG may vote the same as conservator thereof.

IV
On the PCGG's imputation of grave abuse of discretion upon the Sandiganbayan for ordering the holding
of a stockholders meeting to elect the ETPI board of directors without first setting in place, through the
amendment of the articles of incorporation and the by-laws of ETPI, the safeguards prescribed
in Cojuangco, Jr. v. Roxas.33 This Court laid down those safeguards because of the obvious need to
reconcile the rights of the stockholder whose shares have been sequestered and the duty of the
conservator to preserve what could be ill-gotten wealth.

It is through the right to vote that the stockholder participates in the management of the
corporation. The right to vote, unlike the rights to receive dividends and liquidating distributions,
is not a passive thing because management or administration is, under the Corporation Code,
vested in the board of directors, with certain reserved powers residing in the stockholders
directly. The board of directors and executive committee (or management committee) and the
corporate officers selected by the board may make it very difficult if not impossible for the PCGG
to carry out its duties as conservator if the Board or officers do not cooperate, are hostile or
antagonistic to the conservator's objectives.

Thus, it is necessary to achieve a balancing of or a reconciliation between the stockholders' right

to vote and the conservator's statutory duty to recover and in the process thereof, to conserve
assets, thought to be ill-gotten wealth, until final judicial determination of the character of such
assets or until a final compromise agreement between the parties is reached.

There are, in the main, two (2) types of situations that need to be addressed. The first situation
arises where the sequestered shares of stock constitute a distinct minority of the voting shares of
the corporation involved, such that the registered owners of such sequestered shares would in any
case be able to vote in only a minority of the Board of Directors of the corporation. The second
situation arises where the sequestered shares of stock constitute a majority of the voting shares of
the corporation concerned, such that the registered owners of such shares of stock would in any
case be entitled to elect a majority of the Board of Directors of the corporation involved.

Turning to the first situation, the Court considers and so holds that in order to enable the PCGG to
perform its functions as conservator of the sequestered shares of stock pending final
determination by the courts as to whether or not the same constitute ill-gotten wealth or a final
compromise agreement between the parties, the PCGG must be represented in the Board of
Directors of the corporation and to its majority-owned subsidiaries or affiliates and in the
Executive Committee (or its equivalent) and the Audit Committee thereof, in at least an ex
officio (i.e., non-voting) capacity. The PCGG representative must have a right of full access to and
inspection of (including the right to obtain copies of) the books, records and all other papers of the
corporation relating to its business, as well as a right to receive copies of reports to the Board of
Directors, its Executive (or equivalent) and Audit Committees. By such representation and rights
of full access, the PCGG must be able so to observe and monitor the carrying out of the business of
the corporation as to discover in a timely manner any move or effort on the part of the registered
owners of the sequestered stock alone or in concert with other shareholders, to conceal, waste
and dissipate the assets of the corporation, or the sequestered shares themselves, and seasonably
to bring such move or effort to the attention of the Sandiganbayan for appropriate action.

In the second situation above referred to, the Court considers and so holds that the following
minimum safeguards must be set in place and carefully maintained until final judicial resolution of
the question of whether or not the sequestered shares of stock (or, in a proper case, the
underlying assets of the corporation concerned) constitute ill-gotten wealth or until a final
compromise agreement between the parties is reached:

a. An independent comptroller must be appointed by the Board of Directors upon

nomination of the PCGG as conservator. The comptroller shall not be removable (nor shall
his position be abolished or his compensation changed) without the consent of the
conservator. The comptroller shall, in addition to his other functions as such, have charge
of internal audit.

b. The corporate secretary must be acceptable to the conservator. If the corporate secretary
ceases to be acceptable to the conservator, a new one must be appointed by the Board of
Directors upon nomination of the conservator.

c. The external auditors of the corporation must be independent and must be acceptable to
the conservator. The independent external auditors shall not be changed without the
consent of the conservator.

d. The conservator must be represented in the Board of Directors and in the Executive (or
equivalent) and Audit Committees of the corporation involved and of its majority-owned
subsidiaries or affiliates. The representative of the conservator must be a full director (not
merely an honorary or ex officiodirector) with the right to vote and all other rights and
duties of a member of the Board of Directors under the Corporation Code. The
conservator's representative shall not be removed from the Board of Directors (or the
mentioned Committees) without the consent of the conservator. The conservator shall,
however, have the right to remove and change its representative at any time, and the new
representative shall be promptly elected to the Board and its mentioned Committees.

e. All transactions involving the disbursement of corporate funds in excess of P5 million

must have the prior approval of the director representing the conservator, in order to be
valid and effective.

f. The incurring of debt by the corporation, whether in the form of bonds, debentures,
commercial paper or any other form, in excess of P5 million, must have the prior approval
of the director representing the conservator, in order to be valid and effective.

g. The disposition of a substantial part of assets of the corporation (substantial meaning in

excess of P5 million) shall require the prior approval of the director representing the
conservator, in order to be valid and effective.

h. The above safeguards must be written into the articles of incorporation and by-laws of
the company involved. In other words, the articles of incorporation and by-laws of the
company must be amended so as to incorporate the above safeguards.

i. Any amendment of the articles of incorporation or by-laws of the company that will
modify in any way any of the above safeguards, shall need the prior approval of the director
representing the conservator.
 The amount of P5,000,000.00 referred to in paragraphs (e), (f) and (g) above is intended
merely to be indicative. The precise amount may differ depending upon the size of the
corporation involved and the reasonable operating requirements of its business.

Whether a particular case falls within the first or the second type of situation described above, the
following safeguards are indispensably necessary:

1. The sequestered shares and any stock dividends pertaining to such shares, may not be
sold, transferred, alienated, mortgaged, or otherwise disposed of and no such sale, transfer
or other disposition shall be registered in the books of the corporation, pending final
judicial resolution of the question of ill-gotten wealth or a final compromise agreement
between the parties; and

2. Dividend and liquidating distributions shall not be delivered to the registered

stockholders of the sequestered shares, including stock dividends pertaining to such
shares, but shall instead be deposited in an escrow, interest-bearing, account in a first class
bank or banks, acceptable to the Sandiganbayan, to be held by such banks for the benefit of
whoever is held by final judicial decision or final compromise agreement, to be entitled to
the shares involved. (Emphasis in the original)

There is nothing in the Cojuangco case that would suggest that the above measures should be
incorporated in the articles and by-laws before a stockholders meeting for the election of the board of
directors is held. The PCGG nonetheless insists that those measures should be written in the articles and
by-laws before such meeting, "otherwise, the [Marcos] cronies will elect themselves or their
representatives, control the corporation, and for an appreciable period of time, have every opportunity to
disburse funds, destroy or alter corporate records, and dissipate assets." That could be a possibility, but
the peculiar circumstances of this case require that the election of the board of directors first be held
before the articles of incorporation are amended. Section 16 of the Corporation Code requires the
majority vote of the board of directors to amend the articles of incorporation:

Sec. 16. Amendment of Articles of Incorporation. — Unless otherwise prescribed by this Code or by
special law, 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 least two thirds
(2/3) of the members if it be a non-stock corporation.

xxx xxx xxx. (Emphasis supplied)

At the time Africa filed his motion for the holding of the annual stockholders meeting, there were two sets
of ETPI directors, one controlled by the PCGG and the other by the registered stockholders. Which of
them is the legitimate board of directors? Which of them may rightfully vote to amend the articles of
incorporation and integrate the safeguards laid down in Cojuangco? It is essential, therefore, to cure this
aberration of two boards of directors sitting in a single corporation before the articles of incorporation
are amended to set in place the Cojuangco safeguards.
The danger of the so-called Marcos cronies taking control of the corporation and dissipating its assets is,
of course, a legitimate concern of the PCGG, charged as it is with the duties of a conservator. Nevertheless,
such danger may be averted by the "substantially contemporaneous" amendment of the articles after the
election of the board. This Court said as much in Cojuangco:

The Court is aware that the implementation of some of the above safeguards may require
agreement between the registered stockholders and the PCGG as well as action on the part of the
Securities and Exchange Commission. The Court, therefore, directs petitioners and the PCGG to
effect the implementation of this decision under the supervision and control of the Sandiganbayan
so that the right to vote the sequestered shares and the installation and operation of the
safeguards above-specified may be exercised and effected in a substantially contemporaneous
manner and with all deliberate dispatch.

As for the PCGG's contention that the Sandiganbayan gravely abused its discretion in ordering the
Division Clerk of Court to call the stockholders meeting and in appointing then Sandiganbayan Associate
Justice Sabino de Leon, Jr. to control and supervise the same, it is impressed with merit.

The Clerk of Court, who is already saddled with judicial responsibilities, need not be burdened with the
additional duties of a corporate secretary. Moreover, the Clerk of Court may not have the requisite
knowledge and expertise to discharge the functions of a corporate secretary. It is not thus surprising to
find the PCGG complaining that:

x x x ETPI's By-laws provide:

"Sec. 4. Notice of Meeting. — Except as otherwise provided by law, written or printed notice
of all annual and special meetings of stockholders, stating the place and time of the meeting
and the general nature of the business to be considered, shall be transmitted by personal
delivery, registered air-mail, telegraph, or cable to each stockholder of record entitled to
vote thereat at his address last known to the Secretary of the Company, at least ten (10)
days before the date of the meeting, if an annual meeting, or at least five (5) days before the
date of the meeting, if a special meeting."

Here, respondent Victor Africa filed a Motion dated March 30, 1992 asking the Sandiganbayan to
"issue the call and Notice of Annual Stockholder's Meeting in ETPI" because under ETPI's By-laws
such meeting should be held in the month of May. x x x . In the Resolution dated November 13,
1992, the Sandiganbayan granted the Motion and authorized its Division Clerk of Court to issue
such "Notice of Annual Stockholder's Meeting." However, for inexplicable reasons, the Division
Clerk of Court issued a "Notice of Special Stockholder's Meeting". x x x . which requires only a prior
5-day notice, instead of a "notice of (Delayed) Annual Stockholder's Meeting" which requires a
prior 10-day notice.

Instead of sending the Notices to each stockholder at his recorded address, the Division Clerk of
Court whimsically sent all the Notices meant for the Class B stockholders to Atty. Eduardo de los
Angeles (who returned the Notices because he was not authorized to receive such Notices).
According to him . . ., he does not know some of the Class B stockholders for whom notices were
sent to him. As a result, at this late stage, no proper notice has been sent to Class B stockholders.
 Yet, the Sandiganbayan has scheduled and is dead set to supervise a stockholder's meeting on
November 27, 1992. This clearly violates the substantial rights of the Class B stockholders who
own 40% of ETPI. Under the Articles of Incorporation . . . and By-laws . . . of ETPI, Class B
stockholders are entitled to vote two members of the Board of Directors. Unless properly notified,
most of the Class B stockholders who reside in the United Kingdom (and whose shares are not
sequestered) will not be able to exercise their right to vote.34 (Emphasis in the original)

The appointment of a sitting member of the Sandiganbayan is particularly unsound for, as the PCGG
points out:

x x x What then is the reason for him to attend and supervise the meeting? To observe so that he
can later testify in the court where he himself sits — in the court which will eventually decide any
controversy which may arise from the meeting?35

Obviously, under such situation, the justice so appointed would be compelled to inhibit himself from any
judicial controversy arising from the stockholders meeting.36 Worse, if he were to preside at the meeting
and rule upon the objections that may be raised by some stockholders, the Sandiganbayan would be faced
with the "anomaly"37 of eventually reviewing the decisions rendered by a member of its court during the
stockholders meeting.

This Court appreciates the quandary that the Sandiganbayan faced when it ordered its Division Clerk of
Court to call the meeting: ETPI has two sets of officers and, presumably, two corporate secretaries. And
given the stakes involved, the stockholders meeting would be contentious, to say the least, hence, the
need for an impartial referee to supervise and control the meeting.

Happily, the case of Board of Directors and Election Committee of SMB Workers Savings and Loan Asso.,
Inc. v. Tan, etc., et al.38 provides a solution to the Sandiganbayan's dilemma. There, this Court upheld the
creation of a committee empowered to call, conduct and supervise the election of the board of directors:

As regards the creation of a committee of three vested with the authority to call, conduct and
supervise the election, and the appointment thereto of Candido C. Viernes as chairman and
representative of the court and one representative each from the parties, the Court in the exercise
of its equity jurisdiction may appoint such committee, it having been shown that the Election
Committee that conducted the election annulled by the respondent court if allowed to act as such
may jeopardize the rights of the respondents.

In a proper proceeding a court of equity may direct the holding of a stockholders' meeting
under the control of a special master, and the action taken at such a meeting will not be set
aside because of a wrongful use of the court's interlocutory decree, where not brought to
the attention of the court prior to the meeting. (18 C.J.S. 1270.)

A court of equity may, on showing of good reason, appoint a master to conduct and
supervise an election of directors when it appears that a fair election cannot otherwise be
had. Such a court cannot make directions contrary to statute and public policy with respect
to the conduct of such election. (19 C.J.S. 41)

This Court also approved a similar action by the Securities and Exchange Commission in Sales v. Securities
and Exchange Commission.39
Such a committee composed of impartial persons knowledgeable in corporate proceedings would
provide the needed expertise and objectivity in the calling and the holding of the meeting without
compromising the Sandiganbayan or its officers. The appointment of the committee members and the
delineation of the scope of the duties of the committee may be made pursuant to an agreement by the
parties or in accordance with the provisions of Rule 9 (Management Committee) of the Interim Rules of
Procedure for Intra-Corporate Controversies insofar as they are applicable.

VI

And now, Africa's motion to cite the PCGG and its "accomplices" in contempt for calling and holding a
stockholders meeting to increase ETPI's authorized capital stock without this Court's authority and
despite the pendency of motions for reconsideration of the Sandiganbayan Resolution of December 13,
1996 granting the PCGG authority to cause the holding of such meeting. In the same motion, Africa asks
this Court to nullify the March 17, 1997 stockholders meeting which increased ETPI's authorized capital
stock on the grounds that he, an ETPI stockholder, was not notified of the meeting, and the PCGG voted
the sequestered ETPI shares despite the absence of evidence of dissipation of assets. Intervenor
AEROCOM has shared Africa's assertions.

As earlier stated, this Court, by Resolution of May 7, 1996, referred the PCGG's "VERY URGENT MOTION
FOR RECONSIDERATION TO HOLD SPECIAL STOCKHOLDERS MEETING . . ." to the Sandiganbayan for
reception of evidence and resolution. The dispositive portion of said Resolution reads:

Taking account of all the foregoing, the Court Resolved to REFER the "VERY URGENT PETITION
FOR AUTHORITY TO HOLD SPECIAL STOCKHOLDERS' MEETING FOR SOLE PURPOSE OF
INCREASING EASTERN'S AUTHORIZED CAPITAL STOCK" to the Sandiganbayan for reception of
evidence and resolution — WITH ALL DELIBERATE DISPATCH but no longer than sixty (60) days
from notice hereof — of the factual issues raised by the parties as herein set out, and such
others, factual or otherwise as are relevant, in order to decide the basic question in this
proceeding of the necessity and propriety of the holding of the special stockholders' meeting of
EASTERN for the "sole purpose of increasing ** (its) authorized capital stock" and the exercise by
the PCGG of the right to vote at said meeting.40 (Emphasis supplied)

Clearly, when the PCGG's "VERY URGENT PETITION TO HOLD SPECIAL STOCKHOLDERS MEETING . . . "
was referred to the Sandiganbayan, this Court gave the latter full authority to decide the issue of whether
a stockholders meeting should be held. Implicit in this authority was the power to grant (or deny) the
petition. There is thus no need for the parties to seek this Court's imprimatur to hold the same.

Africa's motion must thus be denied.

Even assuming arguendo that the holding of the meeting was contemptuous because the December 13,
1996 Sandiganbayan Resolution had not yet attained finality, it was the Sandiganbayan, and not this
Court, which was contemned. Consequently, it is the Sandiganbayan, and not this Court, which has
jurisdiction over the motion to declare the PCGG and "its accomplices" in contempt.

In whatever context it may arise, contempt of court involves the doing of an act, or the failure to
do an act, in such a manner as to create an affront to the court and the sovereign dignity with
which it is clothed. As a matter of practical judicial administration, jurisdiction has been felt
properly to rest in only one tribunal at a time with respect to a given controversy. Partly because
 of administrative considerations, and partly to visit the full personal effect of the punishment on a
contemnor, the rule has been that no other court than the one contemned will punish a given
contempt.

The rationale that is usually advanced for the general rule that the power to punish for contempt
rests with the court contemned is that contempt proceedings are sui generic and are triable only
by the court against whose authority the contempts are charged; the power to punish for
contempt exists for the purpose of enabling a court to compel due decorum and respect in its
presence and due obedience to its judgments, orders and processes; and in order that a court may
compel obedience to its orders, it must have the right to inquire whether there has been any
disobedience thereof, for to submit the question of disobedience to another tribunal would
operate to deprive the proceeding of half its efficiency. 41

The above rule is not of course absolute as it admits exception "when the entire case has already been
appealed [in which case] jurisdiction to punish for contempt rests with the appellate court where the
appeal completely transfers to proceedings thereto or where there is a tendency to affect the status
quo or otherwise interfere with the jurisdiction of the appellate court."42 This exception does not,
however, apply to Africa's motion since at the time he filed it on April 1, 1997 before this Court, his
petition in G.R. No. L-147214 assailing the December 17, 1996 Resolution of the Sandiganbayan had not
yet been filed.

The motion to nullify the March 17, 1997 stockholders meeting must likewise be denied for lack of
jurisdiction. Such motion is but an incident to Sandiganbayan Civil Case No. 0130.43 As such, jurisdiction
over it pertains exclusively and originally to the Sandiganbayan.

Under Section 2 of the President's Executive Order No. 14 issued on May 7, 1986, all cases of the
Commission regarding "the Funds, Moneys, Assets, and Properties Illegally Acquired or
Misappropriated by Former President Ferdinand Marcos, Mrs. Imelda Romualdez Marcos, their
Close Relatives, Subordinates, Business Associates, Dummies, Agents, or Nominees" whether civil
or criminal are lodged within the "exclusive and original jurisdiction of the Sandiganbayan" and
all incidents arising from, incidental to, or related to, such cases necessarily fall likewise
under the Sandiganbayan's exclusive and original jurisdiction, subject to review on certiorari
exclusively by the Supreme Court.44

This is another reason for the denial of the motion to cite the PCGG and its "accomplices" in contempt.

VII

FINALLY, the question on the validity of the PCCG's voting the Class "A" shares to increase the authorized
capital stock of ETPI.

In his petition in G.R. No. 147214, Africa faults the Sandiganbayan for failing to acknowledge, in its
Resolution of February 16, 2001, the Decisions of this Court declaring that his shares in ETPI45 and those
of AEROCOM46 and POLYGON (Polygon Investors & Managers, Inc.)47 were not sequestered. Hence, so he
contends, they, and not the PCGG, should have been allowed to vote their respective shares during the
meeting.
Two matters require clarification at this point. First, that this Court rendered decisions holding that the
shares of Africa, AEROCOM and POLYGON are not or are no longer sequestered is of little consequence
since the decisions were promulgated after the Sandiganbayan issued its resolution granting the PCGG
authority to call and hold the stockholders meeting to increase the authorized capital stock. At that time,
the shares were presumed to have been regularly sequestered. The more fundamental question that
confronts this Court is: Was the PCGG entitled to vote the sequestered shares in the stockholders meeting
of March 17, 1997?

Second, the PCGG correctly argues that Africa has no cause of action to claim on behalf of AEROCOM and
POLYGON that these two companies are entitled to vote their respective shares in the stockholders
meeting to increase ETPI's authorized capital stock. The claim is personal to AEROCOM and POLYGON.
Nevertheless, this does not preclude Africa from invoking his own right as a "small stockholder" of ETPI
to vote in the stockholders meeting for the purpose of increasing ETPI's authorized capital stock. The
PCGG maintains, however, that it is entitled to vote said shares because this Court, by its claim,
recognized in PCGG v. SEC, supra, that ETPI's assets were being dissipated by the BAN (Benedicto, Africa,
Nieto) Group, thus:

Under the Management of Cable and Wireless ETPI grew and prospered. But when its dividends,
which were paid in dollars to the BAN Group, began to run into millions, said group also started to
intervene in the corporation's operations and management. Requests for employment of family
relatives and high salaries for them were made. The BAN Group likewise placed the majority of
their individual stockholdings in three separate companies, namely: Aerocom Investors, Universal
Molasses, and Polygon, so that in 1986, the ownership of the Class "A" stocks of the corporation
was as follows:

Roberto S. Benedicto - 3.3

percent
Universal Molasses Corp. - 16.6
percent
Manuel Nieto, Jr. - 2.2
percent
Nieto's relatives - 3.3
percent
Aerocom Investors and - 17.5
Managers Inc. percent
Jose Africa - 2.2
percent
Africa's relatives - .3
percent
Polygon Investors and - 17.5
Managers Inc. percent

By the end of 1987, the initial capital of P1M of the BAN Group, its corporations and relatives had
grown to the astronomical sum of P784,185,198.00. Cash dividends paid to them as of 1986 had
amounted to P225,845,000.00 even as another P180,000,000.00 is due them for 1987, for a grand
 total of P405,845,000.00. In 1984, cash dividends to the BAN Group, et al. in the amount of $1M
were remitted to the United States.

Under a consultancy contract, Polygon Investors and Managers with Jose L. Africa as Chairman
and his son, Victor Africa as President, earned from ETPI as of 1987 more than P57M. Likewise in
1987, ETPI paid to Jose L. Africa P1,200,000.00 as "professional fees" and Manuel H. Nieto, Jr.,
another P1,200,000.00 as "allowances".48

As stated early on, however, the foregoing narration does not constitute a finding of fact.

The PCGG further submits that the Sandiganbayan found prima facie evidence for the issuance of the writ
of sequestration covering the Class "A" shares of ETPI. Such reliance on the Sandiganbayan's ruling is
misplaced because the issue is not whether there is prima facie evidence to warrant sequestration of the
shares, but whether there is prima facie evidence showing that the shares are ill-gotten and whether there
is evidence of dissipation of assets to warrant the voting by the PCGG of sequestered shares. As to the latter
issue, the Sandiganbayan held in the affirmative in this wise:

x x x [T]he propriety and legality of allowing the PCGG to cause the holding of a stockholders'
meeting of the ETPI for the purpose of electing a new Board of Directors or effecting changes in
the policy, program and practices of said corporation (except for the specified purpose of
amending the right of first refusal clause in ETPI's Articles of Incorporation and By Laws)
and impliedly to vote the sequestered shares of stocks has been upheld by the Supreme Court in the
case of "PCGG vs. SEC, PCGG vs. Sandiganbayan, et al.", G.R. No. 82188, promulgated June 30, 1988 x
x x.49 (Emphasis supplied)

The Sandiganbayan proceeded to quote the following pronouncement of this Court in PCGG v. SEC:

But while We find the Sandiganbayan to have acted properly in enjoining the PCGG from holding
the stockholders meeting for the specified purpose of amending the "right of first refusal" clause in
ETPI's Articles of Incorporation and By-Laws, We find the general injunction imposed by it on the
PCGG to desist and refrain from calling a stockholders meeting for the purpose of electing a new
Board of Directors of effecting substantial changes in the policy, program or practice of the
corporation to be too broad as to taint said order with grave abuse of discretion. Said order
completely ties the hands of the PCGG, rendering it virtually helpless in the exercise of its power of
conserving and preserving the assets of the corporation. Indeed, of what use is the PCGG if it cannot
even do this? x x x.50 (italics and underscoring supplied)

The Sandiganbayan, however, misread this Court's ruling in the said SEC case. One of the issues raised
therein was whether the Sandiganbayan committed grave abuse of discretion in enjoining the PCGG from
calling and holding stockholders meetings and voting the sequestered ETPI shares for the purpose of
deleting the "right of first refusal" clause in ETPI's articles of incorporation. In its therein assailed Order,
the Sandiganbayan temporarily restrained the PCGG "from calling and/or holding stockholders meetings
and voting the sequestered shares thereat for the purpose of amending the articles or by-laws of ETPI, or
otherwise effecting substantial changes in policy, programs or practices of said corporation."

Clearly, the temporary restraining order was too broad. The Sandiganbayan should have limited itself to
restraining the calling and holding of the stockholders meeting and voting the shares for the sole purpose
of amending the "right of first refusal" clause. It was thus necessary for this Court to make the
underscored ruling above. No declaration therein was made that in all instances the PCGG may vote the
sequestered shares to effect substantial changes in ETPI policy, programs or practices. In lifting the
injunction on that aspect, this Court merely recognized "that situations may arise wherein only through
an act of strict ownership can the PCGG be able to prevent the dissipation of the assets of the sequestered
corporation or business."51

Moreover, if, as the Sandiganbayan assumed, this Court had come to a conclusion in the SEC case that the
BAN Group was guilty of dissipation and that, consequently, the PCGG was entitled to vote the
sequestered shares, this Court would not have bothered, in its Resolution of May 7, 1996, to direct said
court to decide whether the PCGG has the right to vote in the stockholders meeting for the purpose of
increasing ETPI's authorized capital stock.52

This Court notes that, like in Africa's motion to hold a stockholders meeting (to elect a board of
directors), the Sandiganbayan, in the PCGG's petition to hold a stockholders meeting (to amend the
articles of incorporation to increase the authorized capital stock), again failed to apply the two-tiered
test. On such determination hinges the validity of the votes cast by the PCGG in the stockholders meeting
of March 17, 1997. This lapse by the Sandiganbayan leaves this Court with no other choice but to remand
these questions to it for proper determination.

IN SUM, this Court rules that:

(1) The PCGG cannot vote sequestered shares to elect the ETPI Board of Directors or to amend the
Articles of Incorporation for the purpose of increasing the authorized capital stock unless there is a prima
facie evidence showing that said shares are ill-gotten and there is an imminent danger of dissipation.

(2) The ETPI Stock and Transfer Book should be the basis for determining which persons have the right
to vote in the stockholders meeting for the election of the ETPI Board of Directors.

(3) The PCGG is entitled to vote the shares ceded to it by Roberto S. Benedicto and his controlled
corporations under the Compromise Agreement, provided that the shares are first registered in the name
of the PCGG. The PCGG may not register the transfer of the Malacañang and the Nieto shares in the ETPI
Stock and Transfer Book; however, it may vote the same as conservator provided that the PCGG satisfies
the two-tiered test devised by the Court in Cojuangco v. Calpo, supra.

(4) The safeguards laid down in the case of Cojuangco v. Roxas shall be incorporated in the ETPI Articles
of Incorporation substantially contemporaneous to, but not before, the election of the ETPI Board of
Directors.

(5) Members of the Sandiganbayan shall not participate in the stockholders meeting for the election of
the ETPI Board of Directors. Neither shall a Clerk of Court be appointed to call such meeting and issue
notices thereof. The Sandiganbayan shall appoint, or the parties may agree to constitute, a committee of
competent and impartial persons to call, send notices and preside at the meeting for the election of the
ETPI Board of Directors; and

(6) This Court has no jurisdiction over the motion to cite the PCGG and "its accomplices" in contempt and
to nullify the stockholders meeting of March 17, 1997.
WHEREFORE, this Court Resolved to REFER the petitions at bar to the Sandiganbayan for reception of
evidence to determine whether there is a prima facie evidence showing that the sequestered shares in
question are ill-gotten and there is an imminent danger of dissipation to entitle the PCGG to vote them in a
stockholders meeting to elect the ETPI Board of Directors and to amend the ETPI Articles of
Incorporation for the sole purpose of increasing the authorized capital stock of ETPI.

The Sandiganbayan shall render a decision thereon within sixty (60) days from receipt of this Resolution
and in conformity herewith.

The motion to cite the PCGG and its "accomplices" and to nullify the ETPI Stockholders Meeting of March
17, 1997 filed by Victor Africa is DENIED for lack of jurisdiction.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

EN BANC

G.R. No. 152578 November 23, 2005

REPUBLIC OF THE PHILIPPINES, Represented by the Presidential Commission on Good

Government,Petitioner,
vs.
ESTATE OF HANS MENZI (Through its Executor, MANUEL G. MONTECILLO), EMILIO T. YAP,
EDUARDO M. COJUANGCO, JR., ESTATE OF FERDINAND MARCOS, SR., and IMELDA R.
MARCOS, Respondents.

x----------------------------------------- x

G.R. No. 154487

EDUARDO M. COJUANGCO, JR., Petitioner,

vs.
REPUBLIC OF THE PHILIPPINES, Respondent.

x ------------------------------------x

G.R. No. 154518

ESTATE OF HANS M. MENZI (Through its Executor, Manuel G. Montecillo), and HANS M. MENZI
HOLDINGS AND MANAGEMENT, INC. (HMHMI), Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, (represented by the PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT), Respondents.

DECISION
Tinga, J.:

In the hope-filled but problem-laden aftermath of the EDSA Revolution, President Corazon C. Aquino
issued Executive Order (EO) No. 1, creating the Presidential Commission on Good Government (PCGG)
tasked with, among others, the recovery of all ill-gotten wealth accumulated by former President
Ferdinand Marcos, his immediate family, relatives, subordinates and close associates. This was followed
by EO Nos. 2 and 14, respectively freezing all assets and properties in the Philippines in which the former
President, his wife, their close relatives, subordinates, business associates, dummies, agents or nominees
have any interest or participation, and defining the jurisdiction over cases involving the ill-gotten wealth.
Pursuant to the executive orders, several writs of sequestration were issued by the PCGG in pursuit of the
reputedly vast Marcos fortune.

Following a lead that Marcos had substantial holdings in Bulletin Publishing Corporation (Bulletin), the
PCGG issued a Writ of Sequestration dated April 22, 1986, sequestering the shares of Marcos, Emilio T.
Yap (Yap), Eduardo M. Cojuangco, Jr. (Cojuangco), and their nominees and agents in Bulletin.

This was followed by another Writ of Sequestration issued on February 12, 1987, this time sequestering
the shares of stock, assets, properties, records and documents of Hans Menzi Holdings and Management,
Inc. (HMHMI).

The Republic then instituted before the Sandiganbayan on July 29, 1987, a complaint for reconveyance,
reversion, accounting, restitution and damages entitled "Republic of the Philippines v. Emilio T. Yap,
Manuel G. Montecillo, Eduardo M. Cojuangco, Jr., Cesar C. Zalamea, Ferdinand E. Marcos and Imelda R.
Marcos" and docketed as Civil Case No. 0022. The complaint substantially averred that Yap knowingly
and willingly acted as the dummy, nominee or agent of the Marcos spouses in appropriating shares of
stock in domestic corporations such as the Bulletin, and for the purpose of preventing disclosure and
recovery of illegally obtained assets. It also averred that Cesar Zalamea (Zalamea) acted, together with
Cojuangco, as dummies, nominees and/or agents of the Marcos spouses in acquiring substantial shares in
Bulletin in order to prevent disclosure and recovery of illegally obtained assets, and that Zalamea
established, together with third persons, HMHMI which acquired Bulletin.

On March 10, 1988, the complaint was amended joining Cojuangco as Zalamea’s co-actor instead of mere
collaborator. The complaint was amended for the second time on October 17, 1990. The amendment
consisted of dropping Zalamea as defendant in view of the Deed of Assignment dated October 15, 1987
which he executed, assigning, transferring and ceding to the Government the 121,178 Bulletin shares
registered in his name. These shares, as will be explained forthwith, formed part of the 214,424.5 shares
(214 block) which became the subject of a case1 that reached this Court.

The Second Amended Complaint also included the Estate of Hans M. Menzi (Estate of Menzi), through its
executor, Atty. Manuel G. Montecillo (Atty. Montecillo), as one of the defendants.

The issues presented for resolution as stated in the Sandiganbayan’s Pre-Trial Order dated November 11,
1991 were:

1) Whether or not the sale of 154,470 shares of stock of Bulletin Publishing Co., Inc., subject of this case
by the late Hans M. Menzi to the U.S. Automotive Co. Inc. is valid and legal; and
2) Whether or not the shares of stock of Bulletin Publishing Co. Inc. registered and/or issued in the name
of defendants Emilio T. Yap, Eduardo Cojuangco, Jr., Cesar Zalamea and the late Hans M. Menzi (and/or
his estate and/or his holding company, HM Holding & Investment Corp.) are ill-gotten wealth of the
defendants Marcos spouses.

Make of record the oral manifestation of Atty. Estelito Mendoza, counsel for defendant Eduardo
Cojuangco. That: (a) whether or not the said 154,470 shares of stock of Bulletin Publishing Co. Inc. legally
belonged to the late Hans Menzi before he sold the same to U.S. Automotive Co. Inc. and (b) whether or
not plaintiff Republic is entitled to the same, should also be threshed out during the trial on the merits. 2

After protracted proceedings which spawned a number of cases3 that went up to this Court, the
Sandiganbayan rendered a Decision4 dated March 14, 2002,5 the dispositive portion of which states:

WHEREFORE, judgment is hereby rendered:

1. Declaring that the following Bulletin shares are the ill-gotten wealth of the defendant Marcos spouses:

A. The 46,626 Bulletin shares in the name of defendant Eduardo M. Cojuangco, Jr., subject of the
Resolution of the Supreme Court dated April 15, 1988 in G.R. No. 79126.

Pursuant to alternative "A" mentioned therein, plaintiff Republic of the Philippines through the PCGG is
hereby declared the legal owner of these shares, and is further directed to execute, in accordance with
the Agreement which is entered into with Bulletin Publishing Corporation on June 9, 1988, the necessary
documents in order to effect transfer of ownership over these shares to the Bulletin Publishing
Corporation.

B. The 198,052.5 Bulletin shares in the names of:

No. of Shares

Jose Y. Campos 90,866.5

Eduardo M. Cojuangco, Jr. 90,877

Cesar C. Zalamea 16,309

Total 198,052.5

which they transferred to HM Holdings and Management, Inc. on August 17, 1983, and which the latter
sold to Bulletin Publishing Corporation on February 21, 1986. The proceeds from this sale are frozen
pursuant to PCGG’s Writ of Sequestration dated February 12, 1987, and this writ is the subject of the
Decision of the Supreme Court dated January 31, 2002 in G.R. No. 135789.

Accordingly, the proceeds from the sale of these 198,052.5 Bulletin shares, under Philtrust Bank Time
Deposit Certificate No. 136301 dated March 3, 1986 in the amount of P19,390,156.68 plus interest
earned, in the amount of P104,967,112.62 as of February 28, 2002, per Philtrust Bank’s Motion for Leave
to Intervene and to consign the Proceeds of Time Deposits of HMHMI, filed on February 28, 2002 with the
Supreme Court in G.R. No. 135789, are hereby declared forfeited in favor of the plaintiff Republic of the
Philippines.

2. Ordering the defendant Estate of Hans M. Menzi through its Executor, Manuel G. Montecillo, to
surrender for cancellation the original eight Bulletin certificates of stock in its possession, which were
presented in court as Exhibits …., which are part of the 212,424.5 Bulletin shares subject of the
Resolution of the Supreme Court dated April 15, 1988 in G.R. No. 79126.

3. Declaring that the following Bulletin shares are not the ill-gotten wealth of the defendant Marcos
spouses:

a. The 154,472 Bulletin shares sold by the late Hans M. Menzi to U.S. Automotive Co., Inc., the sale thereof
being valid and legal;

b. The 2,617 Bulletin shares in the name of defendant Emilio T. Yap which he owns in his own right; and

c. The 1 Bulletin share in the name of the Estate of Hans M. Menzi which it owns in its own right.

4. Dismissing, for lack of sufficient evidence, plaintiff’s claim for damages, and defendants’ respective
counterclaims.

SO ORDERED.6

In the present consolidated petitions, the foregoing Sandiganbayan Decision is assailed on different
grounds.

The Republic, in G.R. No. 152758, assails the afore-quoted Decision insofar as it declared as not ill-gotten
wealth of the Marcos spouses the 154,472 shares (154 block) sold by Menzi to U.S. Automotive Co., Inc.
(US Automotive) and dismissed the Republic’s claim for damages.

In G.R. No. 154487, Cojuangco questions paragraphs 1 and 2 of the Sandiganbayan Decision.

In G.R. No. 154518, on the other hand, the Estate of Menzi imputes grave error and misinterpretation of
facts and evidence against the Sandiganbayan in declaring that the 46,626 Bulletin shares in the name of
Cojuangco, and the 198,052.5 shares (198 block) in the names of Jose Campos (Campos), Cojuangco and
Zalamea are ill-gotten wealth of the Marcoses.

The three blocks of Bulletin shares of stock subject of these consolidated petitions are:

1. 154,472 shares (154 block) sold by the late Menzi and/or Atty. Montecillo to US Automotive on May 15,
1985 for ₱24,969,200.09;

2. 198,052.50 (198 block) issued and registered in the names of Campos, Cojuangco, and Zalamea which
were transferred to HMHMI and subsequently sold by HMHMI (through Atty. Montecillo) to Bulletin on
February 21, 1986 for ₱23,675,195.85; and

3. 214,424.5 shares (214 block) issued and registered in the names of Campos, Cojuangco, and Zalamea
which were the subject of the unanimous Resolution of this Court, through Mr. Chief Justice Claudio
Teehankee, in Bulletin v. PCGG7 (Teehankee Resolution) dated April 15, 1988 and the Sandiganbayan
Resolutions dated January 2, 1995 and April 25, 1996 in Civil Case No. 0022.

For clarity of presentation, the 154 block, which is the subject of the Republic’s petition in G.R. No.
152578, is treated separately from the 198 and 214 blocks, which are the subjects of the petitions in G.R.
No. 154487 and G.R. No. 154518.

154 Block

In 1957, Menzi purchased the entire interest in Bulletin from its founder and owner, Mr. Carson Taylor. In
1961, Yap, owner of US Automotive, purchased Bulletin shares from Menzi and became one of the
corporation’s major stockholders.

On April 2, 1968, a stock option was executed by and between Menzi and Menzi and Co. on the one hand,
and Yap and US Automotive on the other, whereby the parties gave the each other preferential right to
buy the other’s Bulletin shares.

On April 22, 1968, the stockholders of Bulletin approved certain amendments to Bulletin’s Articles of
Incorporation, consisting of some restrictions on the transfer of Bulletin shares to non-stockholders.8 The
amendments were approved by the Board of Directors of Bulletin and by the Securities and Exchange
Commission (SEC).

Several years later, on June 5, 1984, Atty. Amorsolo V. Mendoza (Atty. Mendoza), Vice President of US
Automotive, executed a promissory note with his personal guarantee in favor of Menzi, promising to pay
the latter the sum of P21,304,921.16 with interest at 18% per annum as consideration for Menzi’s sale of
his 154 block on or before December 31, 1984.

One day after Menzi’s death on June 27, 1984, a petition for the probate of his last will and testament was
filed in the Regional Trial Court (RTC) of Manila, Branch 29, by the named executor, Atty. Montecillo, and
docketed as Special Proceeding No. 84-25244.

On January 10, 1985, Atty. Montecillo filed a motion praying for the confirmation of the sale to US
Automotive of Menzi’s 154 block. The probate court confirmed the sale in its Order dated February 1,
1985.

Accordingly, on May 15, 1985, Atty. Montecillo received from US Automotive two (2) checks in the
amounts of ₱21,304,778.24 and ₱3,664,421.85 in full payment of the agreed purchase price and interest
for the sale of the 154 block. On the same day, Atty. Montecillo signed a company voucher acknowledging
receipt of the payment for the shares, indicating on the dorsal portion thereof the certificate numbers of
the 12 stock certificates covering the 154 block, the number of shares covered by each certificate and the
date of issuance thereof.

Atty. Montecillo also wrote on the lower portion of the promissory note executed by Atty. Mendoza the
words "Paid May 15, 1985 (signed) M.G. Montecillo, Executor of the Estate of Hans M. Menzi."

Upon these facts, the Sandiganbayan ruled that the sale of the 154 block to US Automotive is valid and
legal. According to the Sandiganbayan, the sale was made pursuant to the stock option executed in 1968
between the parties to the sale. Negotiations took place and were concluded before Menzi’s death, and
full payment was made only after the probate court had judicially confirmed the sale.

The Sandiganbayan dismissed the Republic’s claim, based on the affidavit of Mariano B. Quimson, Jr.
(Quimson) dated October 9, 1986, that the sale should be nullified because US Automotive only acted as a
dummy of Marcos who was the real buyer of the shares. According to the court, the Republic failed to
overcome its burden of proof since Quimson’s affidavit was not corroborated by other evidence and was,
in fact, refuted by Atty. Montecillo.

In its Memorandum9 dated July 7, 2003 in G.R. No. 152578, the Republic argues that the Sandiganbayan
failed to take into account the fact that despite Menzi’s claim that he acquired Bulletin in 1957, he did not
include any Bulletin shares in his Last Will and Testament executed in 1977. Atty. Montecillo, the
executor of Menzi’s estate, likewise did not include any Bulletin share in the initial inventory of Menzi’s
properties filed on May 15, 1985. Neither were any Bulletin shares declared by Atty. Montecillo even
after the probate court issued an Order dated November 17, 1992 for the submission of an updated
inventory of Menzi’s assets.

The Republic claims that despite these circumstances, coupled with Quimson’s affidavit detailing how
Marcos used his dummies to conceal his control over Bulletin, as well as the letters and correspondence
between Marcos and Menzi indicating that Menzi consistently updated Marcos on the affairs of Bulletin,
the Sandiganbayan ruled that the 154 block was not ill-gotten wealth of the Marcoses. The
Sandiganbayan’s erroneous inference allegedly warrants a review of its findings.

Moreover, the Republic disputes the Sandiganbayan’s ruling that it heavily leaned on the affidavit of
Quimson without presenting any other corroborating evidence.10 It argues that in the proceedings before
the PCGG, Quimson was subjected to cross-examination by the lawyers of Bulletin which is controlled by
Yap. Further, the evidence it presented before the PCGG purportedly showing that the transfer of Bulletin
shares from Menzi to US Automotive was undertaken due to pressure exerted by Marcos on Menzi should
have been taken into account.

The Republic insists that the sale between Menzi and U.S. Automotive was a sham because the parties
failed to comply with the basic requirement of a deed of sale in the transfer of the subject shares. Further,
a number of questions were allegedly not resolved, such as: (a) Who was the seller of the subject
shares—the late Menzi as the alleged owner or Atty. Montecillo as then special administrator and later
executor of Menzi’s estate; (b) If Menzi sold the shares, was there a need to confirm the sale? If Atty.
Montecillo was the one who sold them, what was his authority to sell the said shares?

The Republic also contends that Menzi and Yap were both dummies of the late President Marcos, used by
the latter in order to conceal his interest in Bulletin. Hence, the 154 block should also have been declared
ill-gotten wealth and forfeited in favor the Government.

The foregoing allegedly warrants the award of damages in favor of the Republic which the Sandiganbayan
erroneously failed to do.

The Republic, therefore, prays that the Sandiganbayan Decision, insofar as it declares the sale of the 154
block to be valid and legal, be reconsidered and judgment accordingly rendered declaring the 154 block
as ill-gotten wealth, forfeiting the same or the proceeds thereof in favor of the Republic, and awarding
actual, temperate and nominal damages in the Court’s discretion, moral damages in the amount of 50
Billion Pesos, exemplary damages of 1 Billion Pesos, attorney’s fees, litigation expenses and treble judicial
costs.

The Estate of Menzi and HMHMI filed a Memorandum11 dated March 10, 2005, averring that the Republic
failed to adduce evidence of any kind that the 154 block was ill-gotten wealth of the Marcoses. They claim
that the requirements for a valid transfer of stocks, namely: (1) there must be delivery of the stock
certificate; (2) the certificate must be indorsed by the owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and (3) the transfer must be recorded in the books of the
corporation in order to be valid against third parties, have all been met.

The parties to the sale allegedly confirm the indorsement and delivery of the Bulletin shares of stock
representing the 154 block. The requirement that the transfer be recorded in the books of the
corporation was also met because US Automotive exercised its rights as shareholder.

It is also allegedly immaterial whether it was Menzi or Atty. Montecillo who indorsed the stock
certificates. If it was Menzi, then his indorsement was an act of ownership; if it was Montecillo, then the
indorsement was pursuant to the duly executed General Power of Attorney filed with the SEC and,
subsequently, on the basis of his authority as Special Administrator and Executor of Menzi’s estate.

In his Memorandum12 dated May 10, 2005, Yap also maintains that the sale of the 154 block was valid and
legal. The non-inclusion of the said block of shares in the inventory of Menzi’s estate was purportedly due
to the fact that the same had, by then, been sold to US Automotive. Yap also claims that Atty. Montecillo
was duly authorized to effect the sale by virtue of the General Power of Authority and the Last Will and
Testament executed by Menzi.

The absence of a deed of sale evidencing the sale is allegedly not irregular because the law itself does not
require any deed for the validity of the transfer of shares of stock, it being sufficient that such transfer be
effected by delivery of the stock certificates duly indorsed. At any rate, a duly notarized Receipt covering
the sale was executed.13

Moreover, the BIR certified that the Estate of Menzi paid the final tax on capital gains derived from the
sale of the 154 block and authorized the Corporate Secretary to register the transfer of the said shares in
the name of US Automotive. Further, a stock certificate covering the 154 block was issued to US
Automotive by Quimson himself as Corporate Secretary.

Sec. 63 of the Corporation Code provides the requisites for a valid transfer of shares:

Sec. 63. Certificate of stock and transfer of shares.—The capital stock of stock corporations shall be
divided into shares for which certificates signed by the president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance
with the by-laws. Shares of stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other
person legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation showing the
names of the parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation. [Emphasis supplied]

The Corporation Code acknowledges that the delivery of a duly indorsed stock certificate is sufficient to
transfer ownership of shares of stock in stock corporations. Such mode of transfer is valid between the
parties. In order to bind third persons, however, the transfer must be recorded in the books of the
corporation.

Clearly then, the absence of a deed of assignment is not a fatal flaw which renders the transfer invalid as
the Republic posits. In fact, as has been held in Rural Bank of Lipa City, Inc. v. Court of Appeals,14 the
execution of a deed of sale does not necessarily make the transfer effective.

In that case, petitioners argued that by virtue of the deed of assignment, private respondents had
relinquished to them all their rights as stockholders of the bank. This Court, however, ruled that the
delivery of the stock certificate duly indorsed by the owner is the operative act that transfers the shares.
The absence of delivery is a fatal defect which is not cured by mere execution of a deed of assignment.
Consequently, petitioners, as mere assignees, cannot enjoy the status of a stockholder, cannot vote nor be
voted for, and will not be entitled to dividends, insofar as the assigned shares are concerned.

There appears to be no dispute in this case that the stock certificates covering the 154 block were duly
indorsed and delivered to the buyer, US Automotive. The parties to the sale, in fact, do not question the
validity and legality of the transfer.

The objection raised by the Republic actually concerns the authority of Atty. Montecillo, the executor of
Menzi’s estate, to indorse the said certificates. However, Atty. Montecillo’s authority to negotiate the
transfer and execute the necessary documents for the sale of the 154 block is found in the General Power
of Attorney executed by Menzi on May 23, 1984, which specifically authorizes Atty. Montecillo "[T]o sell,
assign, transfer, convey and set over upon such consideration and under such terms and conditions as he
may deem proper, any and all stocks or shares of stock, now standing or which may thereafter stand in
my name on the books of any and all company or corporation, and for that purpose to make, sign and
execute all necessary instruments, contracts, documents or acts of assignment or transfer."15

Atty. Montecillo’s authority to accept payment of the purchase price for the 154 block sold to US
Automotive after Menzi’s death springs from the latter’s Last Will and Testament and the Order of the
probate court confirming the sale and authorizing Atty. Montecillo to accept payment therefor. Hence,
before and after Menzi’s death, Atty. Montecillo was vested with ample authority to effect the sale of the
154 block to US Automotive.

That the 154 block was not included in the inventory is plausibly explained by the fact that at the time the
inventory of the assets of Menzi’s estate was taken, the sale of the 154 block had already been
consummated. Besides, the non-inclusion of the proceeds of the sale in the inventory does not affect the
validity and legality of the sale itself.

At any rate, the Sandiganbayan’s factual findings that the 154 block was sold to US Automotive while
Menzi was still alive, and that Atty. Montecillo merely accepted payment by virtue of the authority
conferred upon him by Menzi himself are conclusive upon this Court, supported, as they are, by the
evidence on record.16 As held by the Sandiganbayan:
… The sale was made pursuant to the Stock Option executed in 1968 between the parties to the sale,
considering the restrictions contained in Bulletin’s Articles of Incorporation as amended in 1968 limiting
the transferability of its shares. Negotiations for the sale took place and were concluded before the death
of Menzi. After his death, full payment of the entire consideration of the sale, principal and interest, was
made only after judicial confirmation thereof in the Probate Case. The transaction was duly supported by
the corresponding receipt, voucher, cancelled checks, cancelled promissory note, and BIR certification of
payment of the corresponding taxes due thereon.17

The Supreme Court is not a trier of facts. It is not our function to examine and weigh all over again the
evidence presented by the parties in the proceedings before the Sandiganbayan.18

It is also significant that even Quimson’s affidavit does not state, in a categorical manner, that Yap was a
Marcos dummy used by the latter to conceal his Bulletin shareholdings. In contrast, Quimson
unqualifiedly declared that Campos, Cojuangco and Zalamea were the former dictator’s nominees to
Bulletin.19

We, therefore, agree with the Sandiganbayan that the sale of the 154 block to US Automotive was valid
and legal.

198 and 214 blocks

HMHMI was incorporated on May 20, 1982 by Menzi, Campos, Cojuangco, Rolando C. Gapud (Gapud) and
Zalamea, with an authorized capital stock of ₱1,000,000.00 divided into 100,000 shares with par value of
P10.00 each.

A Deed of Transfer and Conveyance was executed by Menzi, Campos, Cojuangco and Zalamea on August
17, 1983, transferring the shares of stock registered in their names in various corporations to HMHMI in
exchange for 6,000,000 shares of the latter’s capital stock, subject to the approval by the SEC of HMHMI’s
Certificate of Increase of Capital Stock. The shares of stock transferred included the 198 block of Bulletin
shares, 90,866.5 of which were registered in the name of Campos; 90,877 in the name of Cojuangco; and
16,309 in the name of Zalamea.

On February 14, 1984, HMHMI amended its Articles of Incorporation by increasing its authorized capital
stock to ₱100,000,000.00 divided into 10,000,000 shares with par value of P10.00 per share.

On January 15, 1986, the law firm of Siguion Reyna, Montecillo & Ongsiako wrote a letter to Bulletin’s
corporate secretary, Atty. Mendoza, requesting that three (3) certificates of stock representing 90,866.5,
90,877, and 16,309 Bulletin shares be issued in favor of HMHMI in exchange for 21 certificates of stock in
HMHMI.

Atty. Mendoza acknowledged receipt of the 21 certificates of stock but replied that the transfer by
Campos, Cojuangco and Zalamea of their Bulletin shares to HMHMI cannot be recorded in the books of
Bulletin because it was made in violation of Bulletin’s Articles of Incorporation which provides
restrictions and limitations on the transferability of the shares of the company by its stockholders.
Bulletin, however, offered to buy the shares at the price fixed in the Articles of Incorporation. The offer
appears to have been accepted by HMHMI through its President, Atty. Montecillo.
Thus, on January 30, 1986, HMHMI’s Board of Directors passed a resolution approving the sale to Bulletin
of the 198 block and authorizing its President or Corporate Secretary to sign and execute the
corresponding deed of sale. Accordingly, a Deed of Sale was executed on February 21, 1986 by Atty.
Montecillo whereby HMHMI sold the 198 block to Bulletin for the amount of ₱23,675,195.85.

On April 22, 1986, the shares of Marcos, Yap, Cojuangco and their nominees or agents in the Bulletin were
sequestered by virtue of a Sequestration Order issued by the PCGG.

The SEC issued a certification to the effect that as of February 21, 1986, the total subscribed shares of
Bulletin was 756,861. Of these, 198,052.5 were treasury shares, leaving the total outstanding shares at
567,808.5. The stockholders of Bulletin and the shares of stock held by each of them were listed as
follows:

Name No. of Shares

Emilio T. Yap 2,617
Menzi Trust Fund 28,977
Estate of Hans M. Menzi 1
U.S. Automotive Co. Inc. 318,084
xxx xxx
Cesar Zalamea 121,178
Jose Campos 46,620.5
Eduardo Cojuangco 46,626
Xxx xxx
Total 567,808.5

On February 12, 1987, another Writ of Sequestration was issued by the PCGG, sequestering all the shares
of stock, as well as the assets, properties, records and documents of HMHMI. Because of this
Sequestration Order, the proceeds from the sale of the 198 block which were deposited with Philtrust
Bank were frozen.20

On March 16, 1987, the sequestration of the 2,617 Bulletin shares of Yap was lifted upon the latter’s
motion.

On April 14, 1987, the PCGG wrote a letter/order to the Corporate Secretary of Bulletin, asking for the
schedule of the annual stockholders’ meeting of the corporation because the sequestered shares
consisting of the 214 block will be voted by the Commission. This letter became the subject of a
petition21 filed by Bulletin with this Court questioning the validity of the PCGG’s letter/order and seeking
to compel PCGG to accept Bulletin’s offer of a cash deposit in the amount of ₱34,592,903.34 representing
the value of the 214 block of sequestered Bulletin shares. The Court issued a temporary restraining order.

On July 31, 1987, the PCGG received from Bulletin the amount of ₱8,173,506.06 as full payment of
46,620.5 Bulletin shares registered in the name of Campos. The receipt stated that "Mr. Jose Y. Campos
has waived the ownership of said shares in favor of the Republic of the Philippines through the
Presidential Commission on Good Government."

A Deed of Assignment was likewise executed by Zalamea on October 15, 1987, assigning and waiving in
favor of the Republic his rights to 121,178 Bulletin shares registered in his name. On the same day,
Bulletin issued in favor of PCGG a check in the amount of ₱21,244,926.96 as full payment of Zalamea’s
shares.

This Court, on April 15, 1988, issued the Teehankee Resolution, the dispositive portion of which
pertinently states:

2. Directing the Commission to accept the cash deposit of P8,174,470.32 offered by petitioner for the
46,626 sequestered shares in the name of Mr. Eduardo M. Cojuangco, Jr. expressly subject to the
alternative conditions (A and B) hereinabove set forth, and likewise directing the Commission to accept
the cash deposit, if it has not actually sold the Cesar C. Zalamea Bulletin shares to petitioner (supra, p. 13,
par [2]) of P21,244,926.96 for the sequestered shares of Bulletin in the name of Mr. Cesar Zalamea under
the same alternatives already mentioned; and

3. Remanding the case regarding the issue of ownership of the said sequestered Bulletin shares for
determination and adjudication to the Sandiganbayan.22

An agreement was thereafter executed between PCGG and Bulletin on June 9, 1988 regarding the 46,626
Bulletin shares of Cojuangco whereby PCGG accepted Bulletin’s deposit in the amount of ₱8,174,470.32,
subject to the alternatives set forth in the Teehankee Resolution, as follows:

Alternative "A"—To standby as full payment plus whatever interest earnings thereon upon final judgment
of the Court declaring the Republic of the Philippines as owners of the 46,626 shares, accompanied by the
corresponding original stock certificates, issued in the name of the government, duly endorsed in favor of
the Bulletin Publishing Corporation, free from liens and encumbrances; or

Alternative "B"—To immediately return to Bulletin Publishing Corporation the cash deposit in the
amount of P8,174,470.32 plus whatever interest earnings thereon upon final judgment by the Court
declaring that Mr. Eduardo Cojuangco, Jr. is the true owner of the 46,626 shares.23

With this factual backdrop, the Sandiganbayan ruled that Campos, Cojuangco and Zalamea were
nominees and dummies of Marcos. Hence, the 198 block which these nominees transferred to HMHMI
and which, in turn, were sold to Bulletin are ill-gotten wealth.

The Sandiganbayan anchored its finding on the Deposition of Campos taken on November 25, 1994
before the Philippine Consulate General in Vancouver, British Columbia, Canada, that he held shares in
Bulletin and HMHMI "per instruction of President Marcos;" that the beneficial owner of these shares
"must be President Marcos;" and that he received three (3) dividend checks from Bulletin "for the benefit
of President Marcos."

Based on the Deed of Assignment executed by Zalamea on October 15, 1987, wherein he manifested that
he "does not claim true and beneficial ownership" of the 121,178 Bulletin shares registered in his name
and that he voluntarily waived and assigned these shares in favor of PCGG, the Sandiganbayan concluded
that Zalamea could not have been a nominee of Menzi, as the latter’s estate claims, but of Marcos.

The Sandiganbayan likewise rejected Cojuangco’s contention that the Bulletin and HMHMI shares
registered in his name "were not acquired and held by him as dummy, nominee and/or agent of
defendants Ferdinand E. Marcos and Imelda Romualdez Marcos, but upon the request, and as nominee, of
the late Hans Menzi who owned and delivered to him said shares." According to the Sandiganbayan,
Cojuangco failed to present evidence necessary to establish his affirmative defense.

As regards the 214 block, the Sandiganbayan ruled that there is no longer any dispute concerning the
ownership of the 46,620.5 shares held by Campos and the 121,178 shares held by Zalamea in view of the
Teehankee Resolution and the fact that these shares have been waived and assigned to PCGG.

The Sandiganbayan went on to declare that the only remaining issue pertaining to Cojuangco’s claim to
his alleged portion of the 214 block should be resolved in favor of the Republic because of Cojuangco’s
consistent disavowal of any "proprietary interest in the shares which are the subject matter of the instant
case" and his claim that he held the shares as nominee of Menzi.

The Sandiganbayan further ruled that Yap’s shares, which were acquired by him in 1961 before Marcos
became President, are not ill-gotten wealth of the Marcoses. Moreover, the one (1) Bulletin share for
which dividend checks were issued to and received by the Estate of Menzi was deemed to belong to the
latter.

In G.R. No. 154487, petitioner Cojuangco assails paragraphs 1 and 2 of the Sandiganbayan Decision.
Allegedly, the Government does not claim that in acquiring the Bulletin shares registered in Cojuangco’s
name, the late President Marcos used government funds or resources. Cojuangco raises several issues,
namely: (a) Were the Bulletin shares, at any time, of government ownership? (b) Were the Bulletin shares
acquired by Marcos and, if so, did he use government funds to acquire them? (c) Did petitioner Cojuangco
act as the "dummy" or "nominee" of Marcos to acquire, or to conceal the acquisition of the shares by the
latter?

In the Memorandum for Eduardo M. Cojuangco, Jr.24 dated May 6, 2005, Cojuangco argues that the
Republic neither alleged nor presented evidence to prove that that the Bulletin shares registered in his
name were owned by the Republic but were taken by the Marcoses "by taking advantage of their public
office and/or using their powers, authority, influence, connections or relationship" or that they were
acquired by the Marcoses from Menzi with the use of government or public funds. Hence, the conclusion
should be sustained that the shares were owned by Menzi and never by the Republic, and no public funds
were used in their acquisition.

Cojuangco attacks the Sandiganbayan’s reliance on Quimson’s affidavit saying that it is hearsay because
Quimson was not presented in court to affirm the contents of his affidavit and was not subjected to cross-
examination as he had already passed away when Civil Case No. 0022 was tried. Quimson’s affidavit is
allegedly double hearsay insofar as it alleges that Marcos owned the Bulletin shares and that Cojuangco
was merely Marcos’ nominee because Quimson had no contact with Marcos and his knowledge of the
latter’s purported ownership of the Bulletin shares was merely relayed to him by Menzi.

Even the supposed corroborating evidence, consisting of the affidavits of Pedro Teodoro, Evelyn S.
Singson, Gapud, and Angelita Reyes, have allegedly been declared as having no probative value inasmuch
as the affiants did not take the witness stand and could not be cross-examined.

The Republic likewise allegedly failed to prove its contention that Bulletin issued checks in favor of
Campos, Cojuangco and Zalamea which were deposited into numbered accounts in Security Bank & Trust
Company owned by the Marcoses. Moreover, the dividend checks supposedly indorsed by Cojuangco in
blank do not conclusively demonstrate that they were indorsed in favor of the Marcoses.
On the other hand, there is allegedly sufficient evidence on record to prove that Cojuangco was a nominee
of Menzi. These documents consist of the testimony of Atty. Montecillo to the effect that, as far as he
knew, Cojuangco "really acted as nominee for the General," and the originals of the stock certificates
covering the Bulletin shares registered in Cojuangco’s name.

Cojuangco further avers that the allegation that the Bulletin shares were registered in his name upon the
request, and as nominee, of Menzi is a specific denial and not an affirmative defense as the
Sandiganbayan declared. As a specific denial, the allegation need not be proven unless the Republic
presents adequate evidence proving the allegations in its complaint which, Cojuangco insists, the
Republic failed to do.

He likewise argues that the Republic is not entitled to damages of any kind because it failed to establish
that it has any proprietary interest in the Bulletin shares registered in his name; that the said shares are
owned by the Marcoses; and that it suffered any pecuniary loss by reason of such ownership.

Based on these allegations, Cojuangco prays that he be declared the owner of the 46,626 Bulletin shares
registered in his name, together with all cash and stock dividends which have accrued in favor of said
shares from October 15, 1987, and ordering the PCGG to return the cash deposit of ₱8,174,470.32 plus
interest to Bulletin.

In its Memorandum25 dated March 17, 2005, the Republic maintains that Cojuangco has consistently
denied any proprietary interest in the Bulletin shares. Hence, he cannot claim ownership of the Bulletin
shares registered in his name. His allegation that that he was a nominee of Menzi was pleaded by way of
defense. Thus, he has the burden of proving this material allegation, set up as new matter, that the shares
were not his but Menzi’s.

Since the Bulletin shares were not included in the inventory of Menzi’s assets, it allegedly follows that
Cojuangco could not have been a nominee of Menzi who did not own the subject Bulletin shares.

As regards the contention that the Republic failed to show that the shares belong to the Government or
were acquired using public funds, the Republic maintains that Marcos acquired the Bulletin shares using
his political clout. His very act of participating in a business enterprise using nominees to conceal his
ownership of Bulletin shares is already a violation of the Constitution.

Furthermore, Campos and Zalamea, who, like Cojuangco, held shares in the 198 and 214 blocks, have
already surrendered and assigned their respective shares to the Government and acknowledged the right
of the Government over the Bulletin registered in their names. Such is allegedly a clear indication that
they acted as dummies of Marcos. The admission of Campos and Zalamea that their shares in the 214
block belonged to Marcos may allegedly be used to prove that the 198 block was likewise held by them as
dummies of the former dictator.

The Sandiganbayan also allegedly did not rely on the Teehankee Resolution to support its conclusion that
the 198 and 214 blocks are ill-gotten wealth but made its own finding after a full-blown trial at which all
the parties, except Cojuangco, presented their respective evidence.

Moreover, the evidence presented by the Republic allegedly preponderates in favor of its theory that the
Bulletin shares in the names of Campos, Cojuangco and Zalamea were actually held in trust for the benefit
of the Marcoses. Notably, the PCGG Resolution dated May 22, 1987, presented by the Republic as its
Exhibit "I" declares that Quimson and Teodoro, close associates of Menzi, stated under oath that when
Marcos allowed the Bulletin to reopen during Martial Law, Menzi was allowed only 20% participation,
and that Marcos put his shares in the names of Campos, Cojuangco and Zalamea.

Besides, Menzi did not execute any deed of trust in his favor as trustor and Campos, Cojuangco and
Zalamea as trustees. Neither did the Estate of Menzi claim that Campos, Cojuangco and Zalamea were
nominees of Menzi as no cross-claim was filed by the Estate of Menzi even as it claimed ownership of the
198 and 214 blocks.

In their Memorandum26 dated March 10, 2005 in G.R. Nos. 154487 and 154518, the Estate of Menzi and
HMHMI argue that the Sandiganbayan erred in not resolving the issue of the ownership of the 198 and
214 blocks. The Sandiganbayan instead allegedly relied on its misinterpretation of the Teehankee
Resolution to the effect that there is no longer any controversy as regards the ownership of the portion of
the 214 block held by Zalamea. According to said respondents, the Teehankee Resolution clearly directed
the Sandiganbayan to resolve the issue of ownership of both the Zalamea and Cojuangco portions of the
214 block.

Respondents Estate of Menzi and HMHMI also contend that the Quimson affidavit should have been
treated as having no probative value with respect to the 154 block and the 198 and 214 blocks alike. The
affidavit was allegedly not at all corroborated by the other documents presented by the Republic and
cited in the assailed Decision.

They insist that Campos, Cojuangco and Zalamea were nominees of Menzi, not dummies of Marcos,
because, as allegedly established during trial, the stock certificates covering the contested blocks of
shares were indorsed in blank and remained in Menzi’s possession. Even Campos allegedly testified that
he was never in possession of the stock certificates.

Assuming that Campos was indeed a Marcos dummy, his admission should apply solely to the Bulletin
shares registered in his name. Likewise, Zalamea allegedly never declared himself to be a Marcos
nominee, only that he does not claim true and beneficial ownership of the Bulletin shares recorded in his
name. The dividend checks for Zalamea’s shareholdings, in fact, allegedly indicate the Estate of Menzi as
the payee, proving that Zalamea was Menzi’s nominee.

Respondents Estate of Menzi and HMHMI further claim that the 198 and 214 blocks were not mentioned
in Menzi’s Last Will and Testament because Menzi knew of the impending promulgation of a decree
which would limit to only 20% the ownership of media enterprises by one person or family. Allegedly, in
order to get around this restriction, Menzi devised the nominee structure whereby he used three (3)
nominees to enable him to retain his 80% stake in Bulletin. Besides, there was allegedly a legal question
as to whether sequestered shares need to be declared for estate tax purposes in the meantime that a case
involving these shares was pending.

Said respondents finally posit that assuming that the 198 and 214 blocks are ill-gotten, the shares
themselves, and not merely the proceeds, should be forfeited in favor of the Government.

Yap, on the other hand, claims in his Memorandum27 dated May 10, 2005 filed in G.R. Nos. 154487 and
154518 that Cojuangco may not raise in his petition a new specific relief consisting of the prayer that he
be declared the owner of the 46,626 Bulletin shares registered in his name which Cojuangco never asked
for during the proceedings before the Sandiganbayan. Cojuangco is allegedly bound by his judicial
admission that he has no proprietary interest over the said Bulletin shares.

Purportedly, because of this judicial admission, Alternative B mentioned in the Teehankee Resolution
was eliminated. The only option which remained was, as held by the Sandiganbayan, to declare that the
Government is the legal owner of the shares and direct the PCGG to execute the necessary documents to
effect the transfer thereof in accordance with Alternative A.

As regards the prayer that the shares themselves be forfeited in favor of the Government, Yap contends
that this cannot be done because the Government is barred by the Constitution from acquiring ownership
of private mass media.

The Estate of Menzi and HMHMI should also not be allowed to claim the portion of the 214 block held by
Campos and Zalamea whose ownership has allegedly been settled by this Court in the Teehankee
Resolution.

Yap also claims that the Estate of Menzi and HMHMI have unlawfully concealed the stock certificates
representing a portion of the shares held by Campos and Zalamea. Their lawyers, specifically Atty.
Montecillo, have also allegedly staked an unfounded claim on the Bulletin shares in violation of their duty,
as lawyers of Bulletin for several years, to protect the latter’s interests.

Cojuangco filed a Reply Memorandum28 dated October 17, 2005, substantially reiterating his argument
that the Sandiganbayan failed to make a finding that the Bulletin shares are ill-gotten as defined by the
pertinent executive orders and that they were owned by the Marcoses. Consequently, he insists that there
is no basis for the Sandiganbayan’s conclusion that the Republic is the legal owner of the said shares.

The Republic also filed a Memorandum29 dated March 17, 2005 in G.R. No. 154518, averring that the
petition raises factual issues not proper in a petition for review under Rule 45 of the Rules of Court.

The Republic insists that the Decision of the Sandiganbayan relative to the 198 and 214 blocks was not
based on Quimson’s affidavit alone but on the totality of the evidence presented to support the complaint.
Quimson’s affidavit was allegedly given prominence because it related in detail how Campos, Cojuangco
and Zalamea came to be nominees of Marcos. The allegations in Quimson’s affidavit were allegedly
confirmed by Menzi’s Last Will and Testament, the initial inventory of his assets, the letters and
correspondence between Marcos and Menzi, Campos’ deposition, and the dividend checks issued to
Campos, Cojuangco and Zalamea even after they have supposedly transferred their Bulletin shares to
HMHMI.

Moreover, Atty. Montecillo did not institute any action against Campos, Cojuangco and Zalamea to
recover the shares. This allegedly indicates that the shares were not owned by Menzi and that Campos,
Cojuangco and Zalamea did not act as Menzi’s nominees.

As regards the claim that Menzi owned the shares registered in the names of Campos, Cojuangco and
Zalamea because the stock certificates covering them were in Menzi’s possession, the Republic maintains
that mere possession of the stock certificates does not operate to vest ownership on Menzi considering
that Campos already declared that Marcos owned those shares and Zalamea surrendered his shares to
the Government.
Furthermore, the Republic alleges that the Sandiganbayan had already ruled with finality that the Estate
of Menzi and HMHMI cannot recover the Campos and Zalamea portions of the 214 block. Specifically, in
the Resolution dated January 2, 1995, the Sandiganbayan declared that the Estate of Menzi cannot
recover the Campos shares because the latter, who was not a co-defendant in the case, had already
voluntarily surrendered the same to the PCGG. Zalamea’s shares could likewise not be recovered because
he was also not a party, either as defendant, cross-defendant or third-party defendant. Moreover, in
another Resolution dated July 10, 1993, the Sandiganbayan held that the Estate of Menzi has not pleaded
any claim of ownership over the Bulletin shares in the names of Campos, Cojuangco and Zalamea, much
less has it intervened to express any prejudice to it should any judgment be rendered for or against
Campos, Cojuangco and Zalamea.

We again affirm the ruling of the Sandiganbayan.

It should be noted at the outset that there is no more dispute as regards the Bulletin shares registered in
the name of Campos. In fact, Campos was not included as a defendant in Civil Case No. 0022. The Bulletin
shares registered in his name have been voluntarily surrendered to the PCGG and the proceeds thereof
have accordingly been forfeited in favor of the Government.

The Pre-Trial Order of the Sandiganbayan dated November 11, 1991 likewise does not mention as an
issue the ownership of the Campos-held Bulletin shares.

The same cannot be said, however, of the Bulletin shares registered in the name of Zalamea. Although he
was dropped as a party-defendant in the Second Amended Complaint dated October 17, 1990
purportedly by reason of the Deed of Assignment he executed on October 15, 1987, the Zalamea-held
shares are clearly still covered by the Teehankee Resolution remanding the issue on the ownership of the
sequestered Cojuangco and Zalamea shares for determination and adjudication by the Sandiganbayan.

Having said that, we now proceed to determine whether the Sandiganbayan committed reversible error
in rendering the assailed Decision.

As with the 154 block, the issues raised by the petitioners assailing the Sandiganbayan’s disposition of
the 198 and 214 blocks are largely factual and, therefore, generally beyond the scope of our review under
Rule 45 of the Rules of Court. Nonetheless, as will be shown in the following disquisition, there is no
cause for this Court to reverse the Sandiganbayan because the evidence on record amply supports its
findings and conclusions.

The 46,626 shares registered in the name of Cojuangco which formed part of the 214 block were declared
to be ill-gotten wealth based on the evidence presented by the Republic to show that Cojuangco acted as a
nominee of Marcos and on Cojuangco’s unsubstantiated allegation that he acted as a nominee not of
Marcos but of Menzi.

Cojuangco counters, however, that the allegation that he acted as Menzi’s nominee is a specific denial
which he does not have the burden of proving.

Notably, in the Answer of Defendant Eduardo M. Cojuangco, Jr. dated March 16, 1989, Cojuangco claimed
as part of his denial that "whatever shares of stock he may have in Bulletin Publishing Corporation
and/or H.M. Holdings and Management, Inc. were not acquired and held by him as dummy, nominee
and/or agent of defendants Ferdinand E. Marcos and Imelda Romualdez Marcos, but upon the request,
and as nominee, of the late Hans Menzi who owned and delivered to him said shares."30

Likewise, in his Pre-Trial Brief dated January 15, 1992, Cojuangco stated that "[I]n regard shares of stock
in the name of defendant Cojuangco in Bulletin Publishing Corporation and/or HM Holdings &
Management, Inc., he was never, and is not, a nominee of any other person but the late Brig. Gen. Hans M.
Menzi. Defendant Cojuangco therefore reiterates that he has no proprietary interest in the shares which
are the subject matter of the instant case. They properly belong to the estate of the late Hans Menzi."31

It is procedurally required for each party in a case to prove his own affirmative allegations by the degree
of evidence required by law. In civil cases such as this one, the degree of evidence required of a party in
order to support his claim is preponderance of evidence, or that evidence adduced by one party which is
more conclusive and credible than that of the other party. It is therefore incumbent upon the plaintiff
who is claiming a right to prove his case. Corollarily, the defendant must likewise prove its own
allegations to buttress its claim that it is not liable.32

The party who alleges a fact has the burden of proving it. The burden of proof33 may be on the plaintiff or
the defendant. It is on the defendant if he alleges an affirmative defense which is not a denial of an
essential ingredient in the plaintiff’s cause of action, but is one which, if established, will be a good
defense – i.e., an "avoidance" of the claim.34

In the instant case, Cojuangco’s allegations are in the nature of affirmative defenses which should be
adequately substantiated. He did not deny that Bulletin shares were registered in his name but alleged
that he held these shares not as nominee of Marcos, as the Republic claimed, but as nominee of Menzi. He
did not, however, present any evidence to support his claim and, in fact, filed a Manifestation dated July
20, 1999 stating that he "sees no need to present any evidence in his behalf."35

In contrast to Cojuangco’s consistent, albeit unsupported, disclaimer, the Sandiganbayan found the
Republic’s evidence to be preponderant. These pieces of evidence consist of: the affidavit of Quimson
detailing how Campos, Cojuangco and Zalamea became Marcos’ nominees in Bulletin; the affidavit
Teodoro relative to the circumstances surrounding the sale of Menzi’s substantial shares in Bulletin to
Marcos’ nominees and Menzi’s retention of only 20% of the corporation; the sworn statement of Gapud
describing the business interests and associates of Marcos and stating that Bulletin checks were
periodically issued to Campos, Cojuangco and Zalamea but were deposited after indorsement to Security
Bank numbered accounts owned by the Marcoses dividend checks issued to Campos, Cojuangco and
Zalamea even after their shares have been transferred to HMHMI; the Certificate of Incorporation,
Articles of Incorporation and Amended Articles of Incorporation of HMHMI showing that Bulletin shares
held by Campos, Cojuangco and Zalamea were used to set up HMHMI; Deed of Transfer and Conveyance
showing that Campos, Cojuangco, Zalamea and Menzi transferred several shares, including Bulletin
shares, to HMHMI in exchange for shares of stock in the latter which shares were not issued; the
Inventory of Menzi’s assets as of May 15, 1985 which does not include Bulletin shares; notes written by
Marcos regarding Menzi’s resignation as aide-de-camp to devote his time to run Bulletin’s operations and
the reduction of his shares in the corporation to 12%; and letters and correspondence between Marcos
and Menzi regarding the affairs of Bulletin.

These pieces of uncontradicted evidence suffice to establish that the 198 and 214 blocks are indeed ill-
gotten wealth as defined under the Rules and Regulations of the PCGG, viz:
Sec. 1. Definition.—(A) "Ill-gotten wealth is hereby defined as any asset, property, business enterprise or
material possession of persons within the purview of Executive Orders Nos. 1 and 2, acquired by them
directly, or indirectly thru dummies, nominees, agents, subordinates and/or business associates by any of
the following means or similar schemes:

(1) Through misappropriation, conversion, misuse or malversation of public funds or raids on the public
treasury;

(2) Through the receipt, directly or indirectly, of any commission, gift, share, percentage, kickbacks or
any other form of pecuniary benefit from any person and/or entity in connection with any government
contract or project or by reason of the office or position of the official concerned;

(3) By the illegal or fraudulent conveyance or disposition of assets belonging to the government or any of
its subdivisions, agencies or instrumentalities or government-owned or controlled corporations;

(4) By obtaining, receiving or accepting directly or indirectly any shares of stock, equity or any other
form of interest or participation in any business enterprise or undertaking;

(5) Through the establishment of agricultural, industrial or commercial monopolies or other combination
and/or by the issuance, promulgation and/or implementation of decrees and orders intended to benefit
particular persons or special interests; and

(6) By taking undue advantage of official position, authority, relationship or influence for personal gain or
benefit.

Cojuangco’s disavowal of any proprietary interest in the Bulletin shares is conclusive upon him. His
prayer that he be declared the owner of the said shares, together with all the cash and stock dividends
which have accrued thereto since October 15, 1987, and that the PCGG be ordered to return the cash
deposit of ₱8,174,470.32 to Bulletin, therefore, has no legal basis and should perforce be denied.

In this connection, it should be said that Cojuangco apparently desisted from presenting evidence and
chose instead to stake his claim with the Estate of Menzi and HMHMI. As found by the Sandiganbayan,
however, the Estate of Menzi and HMHMI failed to prove their allegation that Campos, Cojuangco and
Zalamea were Menzi’s nominees. Neither did the Estate of Menzi and HMHMI institute an action to
recover the shares from Menzi’s nominees.

Significantly, even as they claimed ownership of the Bulletin shares in their Answer to the Republic’s
Second Amended Complaint, the Estate of Menzi and HMHMI did not file any cross-claim against the
purported Menzi nominees.

Quite revealing, too, is the fact that Campos, in his Answers to Direct Interrogatories36 taken before the
Consul General at the Philippine Consulate General in Vancouver, British Columbia, Canada on November
25, 1994, repeatedly declared that he owned a portion of the 198 block "per instruction of President
Marcos"37 and that he "became the shareholder, per instruction of President Marcos."38

Likewise, in his Deed of Assignment dated October 15, 1987, Zalamea manifested that he "does not claim
true and beneficial ownership" of the Bulletin shares registered in his name and that he voluntarily
waived and assigned the same in favor of the PCGG.
These declarations should have alerted the Estate of Menzi and HMHMI to file cross-claims against
Campos and Zalamea. The fact that they did not enfeebles their claim of ownership.

It is also important to note that the Estate of Menzi did not include the 198 and 214 blocks in the
inventory of the estate’s assets dated May 15, 1985. If, as it claims, the Bulletin shares of Campos,
Cojuangco and Zalamea were held by them as nominees of Menzi, then these shares should have been
included in the inventory. The justification advanced for the said non-inclusion, which is that the stock
certificates covering them were not in the possession of Atty. Montecillo, is nothing but a hollow pretext
given the fact that even after the certificates came to Atty. Montecillo’s possession in 1987, an updated
inventory declaring the said shares as part of Menzi’s estate was not filed pursuant to the Order of the
probate court dated November 17, 1992.

Further, the claim that Menzi would need dummies because of the impending promulgation of a decree
which would limit to 20% the ownership of media enterprises by one person or family is incredulous
since no such decree was ever issued.

Parenthetically, the fact that the stock certificates covering the shares registered under the names of
Campos, Cojuangco and Zalamea were found in Menzi’s possession does not necessarily prove that the
latter owned the shares. A stock certificate is merely a tangible evidence of ownership of shares of
stock.39 Its presence or absence does not affect the right of the registered owner to dispose of the shares
covered by the stock certificate. Hence, as registered owners, Campos and Zalamea validly ceded their
shares in favor of the Government. This assignment is now a fait accompli for the benefit of the entire
nation.

The contention that the sale of the 214 block to the Bulletin was null and void as the PCGG failed to obtain
approval from the Sandiganbayan is likewise unmeritorious. While it is true that the PCGG is not
empowered to sell sequestered assets without prior Sandiganbayan approval,40 this case presents a clear
exception because this Court itself, in the Teehankee Resolution, directed the PCGG to accept the cash
deposit offered by Bulletin in payment for the Cojuangco and Zalamea sequestered shares subject to the
alternatives mentioned therein and the outcome of the remand to the Sandiganbayan on the question of
ownership of these sequestered shares.

In light of the foregoing, we are not inclined to disturb the Sandiganbayan’s evaluation of the weight and
sufficiency of the evidence presented by the Republic and its finding that the evidence adduced by the
Estate of Menzi and HMHMI do not prove their allegation that Campos, Cojuangco and Zalamea are
Menzi’s nominees, taking into account the express admission of Campos that he owned the shares upon
Marcos’ instruction, the declaration of Zalamea that he does not claim true and beneficial ownership of
the shares, and the absolute dearth of evidence regarding Cojuangco’s assertion that he is Menzi’s
nominee.

With regard to the Republic’s prayer for damages, we find the same not supported by sufficient evidence.

An award of actual or compensatory damages requires proof of pecuniary loss. In this case, the Republic
has not proven with a reasonable degree of certainty, premised on competent proof and the best
evidence obtainable, that it has suffered any actual pecuniary loss by reason of the acts of the defendants.
Hence, actual or compensatory damages may not be awarded.41
On the other hand, while no proof of pecuniary loss is necessary in order that moral, temperate, nominal
and exemplary damages may be adjudicated, proof of damage or injury should nonetheless be adduced.
As found by the Sandiganbayan, however, the Republic failed to show the factual basis for the award of
moral damages and its causal connection to defendants’ acts. Thus, moral damages, which are designed to
compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer,42 may
not be awarded. Temperate, nominal, and exemplary damages, attorney’s fees, litigation expenses and
judicial costs may likewise not be adjudicated for failure to present sufficient evidence to establish
entitlement to these awards.

WHEREFORE, the petitions in G.R. No. 152578, G.R. No. 154487 and G.R. No. 154518 are DENIED.
The Decision of the Sandiganbayan dated March 14, 2002 is AFFIRMED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

FIRST DIVISION

G.R. No. 164588 October 19, 2005

NAUTICA CANNING CORPORATION, FIRST DOMINION PRIME HOLDINGS, INC. and FERNANDO R.
ARGUELLES, JR., Petitioners
vs.
ROBERTO C. YUMUL, Respondent.

DECISION

YNARES-SANTIAGO, J.:

Petitioners assail the September 26, 2001 Decision1 of the Court of Appeals in CA-G.R. SP No. 61919,
affirming in toto the Decision of the Securities and Exchange Commission (SEC) En Banc in SEC Case No.
10-96-5455, as well as the July 16, 2004 Resolution2 denying the motion for reconsideration.

The facts of the case show that Nautica Canning Corporation (Nautica) was organized and incorporated
on May 11, 1994 with an authorized capital stock of P40,000,000 divided into 400,000 shares with a par
value of P100.00 per share. It had a subscribed capital stock of P10,000,000 with paid-in subscriptions
from its incorporators as follows:3

Name No. of Shares Amount Subscribed Amount Paid

ALVIN Y. DEE 89,991 P8,999,100 P4,499,100

JONATHAN Y. DEE 2 200 200

JOANNA D. LAUREL 2 200 200

DARLENE EDSA MARIE

GONZALES 2 200 200

JENNIFER Y. DEE 2 200 200

ROBERTO C. YUMUL 1 100 100

JERRY ANGPING 10,000 1,000,000 500,000

-------------- -------------------- -------------------

100,000 P10,000,000 P5,000,000

On December 19, 1994, respondent Roberto C. Yumul was appointed Chief Operating Officer/General
Manager of Nautica with a monthly compensation of P85,000 and an additional compensation equal to
5% of the company’s operating profit for the calendar year.4 On the same date, First Dominion Prime
Holdings, Inc., Nautica’s parent company, through its Chairman Alvin Y. Dee, granted Yumul an Option to
Purchase5 up to 15% of the total stocks it subscribed from Nautica.

On June 22, 1995, a Deed of Trust and Assignment6 was executed between First Dominion Prime Holdings,
Inc. and Yumul whereby the former assigned 14,999 of its subscribed shares in Nautica to the latter. The
deed stated that the 14,999 "shares were acquired and paid for in the name of the ASSIGNOR only for
convenience, but actually executed in behalf of and in trust for the ASSIGNEE."

In March 1996, Nautica declared a P35,000,000 cash dividend, P8,250,000 of which was paid to Yumul
representing his 15% share.

After Yumul’s resignation from Nautica on August 5, 1996, he wrote a letter7 to Dee requesting the latter
to formalize his offer to buy Yumul’s 15% share in Nautica on or before August 20, 1996; and demanding
the issuance of the corresponding certificate of shares in his name should Dee refuse to buy the same.
Dee, through Atty. Fernando R. Arguelles, Jr., Nautica’s corporate secretary, denied the request claiming
that Yumul was not a stockholder of Nautica.

On September 6, 19968 and September 9, 1996,9 Yumul requested that the Deed of Trust and
Assignment be recorded in the Stock and Transfer Book of Nautica, and that he, as a stockholder, be
allowed to inspect its books and records.

Yumul’s requests were denied allegedly because he neither exercised the option to purchase the shares
nor paid for the acquisition price of the 14,999 shares. Atty. Arguelles maintained that the cash dividend
received by Yumul is held by him only in trust for First Dominion Prime Holdings, Inc.

Thus, Yumul filed on October 3, 1996, before the SEC a petition for mandamus with damages, with prayer
that the Deed of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica and that the
certificate of stocks corresponding thereto be issued in his name.10

On October 12, 2000, the SEC En Banc rendered the Decision,11 the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the petitioner and against the respondents, as
follows:
1. Declaring petitioner as a stockholder of respondent Nautica;

2. Declaring petitioner as beneficial owner of 14,999 shares of Nautica under the Deed of Trust and
Assignment dated June 22, 1995

3. Declaring petitioner to be entitled to the right of inspection of the books of the corporation pursuant to
the pertinent provisions of the Corporation Code; and

4. Directing the Corporate Secretary of Nautica to recognize and register the Deed of Trust and
Assignment dated June 22, 1995.

SO ORDERED.12

On appeal, the Court of Appeals affirmed the decision of the SEC En Banc. Petitioners’ motion for
reconsideration was denied in a Resolution dated July 16, 2004.

Hence, this petition.

At the outset, we note that petitioners’ recourse to this Court via a "combined" petition under Rule 65 and
an appeal under Rule 45 of the Rules of Court is irregular. A petition for review under Rule 45 is the
proper remedy of a party aggrieved by a decision of the Court of Appeals, which is not identical to a
petition for certiorari under Rule 65. Under Rule 45, decisions, final orders or resolutions of the Court of
Appeals is appealed by filing a petition for review, which is a continuation of the appellate process over
the original case.13 On the other hand, the writ of certiorari under Rule 65 is filed when petitioner has no
plain, speedy and adequate remedy in the ordinary course of law against its perceived grievance. A
remedy is considered "plain, speedy and adequate" if it will promptly relieve the petitioner from the
injurious effects of the judgment and the acts of the lower court or agency.

In this case, petitioners’ speedy, available and adequate remedy is appeal via Rule 45, and not certiorari
under Rule 65. Notwithstanding petitioners’ procedural lapse, we shall treat the petition as one filed
under Rule 45.

The petition is partly meritorious.

Petitioners contend that Yumul was not a stockholder of Nautica; that he was just a nominal owner of one
share as the beneficial ownership belonged to Dee who paid for said share when Nautica was
incorporated. They presented China Banking Corporation Check No. A2620636 and Citibank Check No.
B82642 as proof of payment by Dee; a letter by Dee dated July 15, 1994 requesting the corporate
secretary of Nautica to issue a certificate of stock in Yumul’s name but in trust for Dee; and Stock
Certificate No. 6 with annotation "ITF Alvin Y. Dee" which means that respondent held said stock "In
Trust For Alvin Y. Dee".

We are not persuaded.

Indeed, it is possible for a business to be wholly owned by one individual. The validity of its incorporation
is not affected when such individual gives nominal ownership of only one share of stock to each of the
other four incorporators. This is not necessarily illegal.14 But, this is valid only between or among the
incorporators privy to the agreement. It does bind the corporation which, at the time the agreement is
made, was non-existent. Thus, incorporators continue to be stockholders of a corporation unless,
subsequent to the incorporation, they have validly transferred their subscriptions to the real parties in
interest. As between the corporation on the one hand, and its shareholders and third persons on the
other, the corporation looks only to its books for the purpose of determining who its shareholders are.15

In the case at bar, the SEC and the Court of Appeals correctly found Yumul to be a stockholder of Nautica,
of one share of stock recorded in Yumul’s name, although allegedly held in trust for Dee. Nautica’s
Articles of Incorporation and By-laws, as well as the General Information Sheet filed with the SEC
indicated that Yumul was an incorporator and subscriber of one share.16 Even granting that there was an
agreement between Yumul and Dee whereby the former is holding the share in trust for Dee, the same is
binding only as between them. From the corporation’s vantage point, Yumul is its stockholder with one
share, considering that there is no showing that Yumul transferred his subscription to Dee, the alleged
real owner of the share, after Nautica’s incorporation.

We held in Ponce v. Alsons Cement Corp.17 that:

... [A] transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-
existent as far as the corporation is concerned. As between the corporation on one hand, and its
shareholders and third persons on the other, the corporation looks only to its books for the purpose of
determining who its shareholders are. It is only when the transfer has been recorded in the stock and
transfer book that a corporation may rightfully regard the transferee as one of its stockholders. From this
time, the consequent obligation on the part of the corporation to recognize such rights as it is mandated
by law to recognize arises.

Hence, without such recording, the transferee may not be regarded by the corporation as one among its
stockholders and the corporation may legally refuse the issuance of stock certificates[.]

Moreover, the contents of the articles of incorporation bind the corporation and its stockholders. Its
contents cannot be disregarded considering that it was the basic document which legally triggered the
creation of the corporation.18

The Court of Appeals, in affirming the factual findings of SEC, held that:

The evidence submitted by petitioners to establish trust is palpably incompetent, consisting mainly of the
self-serving allegations by the petitioners and the China Banking Corporation checks issued as payment
for the shares of stock of Nautica. Dee did not testify on the supposed trust relationship between him and
Yumul. While Atty. Arguelles testified, his testimony is barren of probative value since he had no first-
hand knowledge of the relationship in question. The isolated fact that Dee might have paid for the share
in the name of Yumul did not by itself make the latter a man of straw. Such act of payment is so nebulous
and equivocal that it can not yield the meaning which the petitioners would want to squeeze from it
without the clarificatory testimony of Dee.19

We see no cogent reason to set aside the factual findings of the SEC, as upheld by the Court of Appeals.
Findings of fact of quasi-judicial agencies, like the SEC, are generally accorded respect and even finality by
the Supreme Court, if supported by substantial evidence, in recognition of their expertise on the specific
matters under their consideration,20 moreso if the same has been upheld by the appellate court, as in this
case.
Besides, other than petitioners’ self-serving assertion that the beneficial ownership belongs to Dee, they
failed to show that the subscription was transferred to Dee after Nautica’s incorporation. The conduct of
the parties also constitute sufficient proof of Yumul’s status as a stockholder. On April 4, 1995, Yumul was
elected during the regular annual stockholders’ meeting as a Director of Nautica’s Board of
Directors.21 Thereafter, he was elected as president of Nautica.22 Thus, Nautica and its stockholders
knowingly held respondent out to the public as an officer and a stockholder of the corporation.

Section 23 of Batas Pambansa (BP) Blg. 68 or The Corporation Code of the Philippines requires that every
director must own at least one share of the capital stock of the corporation of which he is a director.
Before one may be elected president of the corporation, he must be a director.23 Since Yumul was elected
as Nautica’s Director and as President thereof, it follows that he must have owned at least one share of
the corporation’s capital stock.

Thus, from the point of view of the corporation, Yumul was the owner of one share of stock. As such, the
SEC correctly ruled that he has the right to inspect the books and records of Nautica,24 pursuant to
Section 74 of BP Blg. 68 which states that the records of all business transactions of the corporation and
the minutes of any meetings shall be open to inspection by any director, trustee, stockholder or member
of the corporation at reasonable hours on business days and he may demand, in writing, for a copy of
excerpts from said records or minutes, at his expense.

As to whether or not Yumul is the beneficial owner of the 14,999 shares of stocks of Nautica, petitioners
allege that Yumul was given the option to purchase shares of stocks in Nautica under the Option to
Purchase dated December 19, 1994. However, he failed to exercise the option, thus there was no cause or
consideration for the Deed of Trust and Assignment, which makes it void for being simulated or
fictitious.25

Anent this issue, the SEC did not make a categorical finding on whether Yumul exercised his option and
also on the validity of the Deed of Trust and Assignment. Instead, it held that:

... Although unsubstantiated, the apparent objective of the respondents’ allegation was to refute
petitioners claim over the shares covered by the Deed of Trust and Assignment. This must therefore be
deemed as nothing but a ploy to deprive petitioner of his right over the shares in question, which to us
should not be countenanced.26

Neither did the Court of Appeals rule on the issue as it only held that:

Petitioners also contend that the Deed is a simulated contract.

Simulation is "the declaration of a fictitious will, deliberately made by agreement of the parties, in order
to produce, for the purposes of deception, the appearances of a judicial act which does not exist or is
different with that which was really executed." The characteristic of simulation is that the apparent
contract is not really desired or intended to produce legal effect or in any way alter the juridical situation
of the parties.

The requisites for simulation are: (a) an outward declaration of will different from the will of the parties;
(b) the false appearance must have been intended by mutual agreement; and (c) the purpose is to deceive
third persons. These requisites have not been proven in this case.27
Thus, other than defining and enumerating the requisites of a simulated contract or deed, the Court of
Appeals did not make a determination whether the SEC has the jurisdiction to resolve the issue and
whether the questioned deed was fictitious or simulated.

In Intestate Estate of Alexander T. Ty v. Court of Appeals,28 we held that:

… The question raised in the complaints is whether or not there was indeed a sale in the absence of cause
or consideration. The proper forum for such a dispute is a regular trial court. The Court agrees with the
ruling of the Court of Appeals that no special corporate skill is necessary in resolving the issue of the
validity of the transfer of shares from one stockholder to another of the same corporation. Both actions,
although involving different property, sought to declare the nullity of the transfers of said property to the
decedent on the ground that they were not supported by any cause or consideration, and thus, are
considered void ab initio for being absolutely simulated or fictitious. The determination whether a
contract is simulated or not is an issue that could be resolved by applying pertinent provisions of
the Civil Code, particularly those relative to obligations and contracts. Disputes concerning the
application of the Civil Code are properly cognizable by courts of general jurisdiction. No special
skill is necessary that would require the technical expertise of the SEC. (Emphasis supplied)

Thus, when the controversy involves matters purely civil in character, it is beyond the ambit of the
limited jurisdiction of the SEC. As held in Viray v. Court of Appeals,29 the better policy in determining
which body has jurisdiction over a case would be to consider not only the status or relationship of the
parties, but also the nature of the question that is the subject of their controversy. This, however, is now
moot and academic due to the passage of Republic Act No. 8799 or The Securities Regulation Code which
took effect on August 8, 2000. The Act transferred from the SEC to the regional trial court jurisdiction
over cases involving intra-corporate disputes. Thus, whether or not the issue is intra-corporate, it is now
the regional trial court and no longer the SEC that takes cognizance of the controversy.

Considering that the issue of the validity of the Deed of Trust and Assignment is civil in nature, thus, under
the competence of the regular courts, and the failure of the SEC and the Court of Appeals to make a
determinative finding as to its validity, we are constrained to refrain from ruling on whether or not
Yumul can compel the corporate secretary to register said deed. It is only after an appropriate case is
filed and decision rendered thereon by the proper forum can the issue be resolved.

WHEREFORE, the petition is PARTIALLY GRANTED. The September 26, 2001 Decision of the Court of
Appeals in CA-G.R. SP No. 61919, is AFFIRMED insofar as it declares respondent Roberto C. Yumul as a
subscriber and stockholder of one share of stock of Nautica Canning Corporation. The Decision
is REVERSED and SET ASIDEinsofar as it affirms the validity of the Deed of Trust and Assignment and
orders its registration in the Stock and Transfer Book of Nautica Canning Corporation.

SO ORDERED.

G.R. No. 172556 June 9, 2006

TRANS MIDDLE EAST (PHILS.), Petitioner,

vs.
SANDIGANBAYAN (5th Division) PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG),
The Board of Directors of Equitable PCI Bank, represented by its Chairman, CORAZON DELA PAZ
and SABINO ACUT, JR. (in his capacity as Corporate Secretary of Equitable PCI Bank), Respondents.
 DECISION

TINGA, J.:

The integrity of the judicial system is founded on the soundness and rationality of the judgments
emanating from it. Decisions which are blatantly erroneous or founded on oblique reasoning inevitably
foment doubt within the dispirited public as to the impartiality and judiciousness of the magistrates
concerned. A critical eye must especially be cast on rulings which are not only wrong, haphazardly
grounded and obtusely one-sided, but fortuitously timed to engender the most advantage to the victor
and damage to the loser.

This Petition for Certiorari was filed by petitioner Trans Middle East (Phil.) Equities Inc. (TMEE), the
registered owners of erstwhile sequestered shares in Equitable-PCI Bank (EPCIB) assailing a
Resolution1 promulgated by the Sandiganbayan on 22 May 2006. The Resolution declared that a
Temporary Restraining Order (TRO) initially issued 14 years ago by this Court in cases that were closed
and terminated ten years ago, remained in effect, thus disqualifying TMEE from voting on its shares. The
annual stockholders meeting of EPCIB was scheduled on 23 May 2006, or the day after the Resolution
was promulgated, leaving questions as to the timing of the promulgation. In any event, the Resolution is
rooted in dubious and erroneous legal premises. The writ of certiorari lies.

A narration of the relevant antecedents ensues.

TMEE is the registered owner of 6,119,067 common shares of stock in the then PCBank, now Equitable-
PCI Bank. On 15 April 1986, these shares were sequestered by the Presidential Commission on Good
Government (PCGG) on the theory that as they actually belong to Benjamin Romualdez they constitute
illegally acquired wealth. Thereafter, a complaint, docketed as Civil Case No. 0035, was filed against
Romualdez by the PCGG before the Sandiganbayan for the recovery of these shares. Upon motion, TMEE
was allowed to intervene by the Sandiganbayan, and it sought to enjoin the PCGG from voting these
shares.

In 1991, the Sandiganbayan, upon motion of TMEE, issued resolutions that enjoined the PCGG from
voting the shares of TMEE and authorized TMEE in exercising its voting rights. These resolutions were
challenged before the Supreme Court, through petitions docketed as G.R. Nos. 105808 and 105809. The
Court then issued a TRO enjoining the implementation of the Sandiganbayan resolutions. Subsequently,
G.R. Nos. 105808 and 105809 were consolidated with several other cases, which were collectively
resolved the Court in a 23 January 1995 consolidated decision entitled Republic v. Sandiganbayan.2 The
Court resolved to maintain the TRO it issued enjoining the implementation of the 1991 orders of the
Sandiganbayan, decreeing as follows:

WHEREFORE, judgment is hereby rendered:

xxxx

B. CONFIRMING AND MAINTAINING the temporary restraining orders issued in G.R. Nos. 104883,
105170, 105206, 105808, 105809, 107233, and 107908, which shall continue in force and effect during
the continuation of the proceedings in the corresponding civil actions in the Sandiganbayan, subject to
the latter’s power to modify or terminate the same in the exercise of its sound discretion in light of such
evidence as may subsequently be adduced.3 (Emphasis supplied)
In a subsequent Resolution dated 22 July 1997, concerning pending motions for contempt against PCI
Bank and TMEE, the Court found it necessary to render the following rulings:

WHEREFORE, the Court Resolved:

xxxx

II. To DIRECT the Sandiganbayan, in reiteration of this Court’s prior directives, promptly to adjudicate
after due trial and proper proceedings the ultimate factual issue of whether or not the movant’s are the
legitimate, bona fide owners of the sequestered shares of stock (or the same constitute ill-gotten wealth
which should revert to and be forefeited in favor of the Republic, represented by the PCGG); and pending
such adjudication, resolve, with all deliberate dispatch but not later than sixty (60) days from notice of
this Resolution, the preliminary questions of whether there is prima facie factual foundation for the
sequestration of said stock, and for reasonable ground for apprehension of dissipation, loss or wastage of
assets if the holders of the sequestered stock are permitted to vote them;

III. To COMMAND TMEE and the PCGG forthwith to formally request the Sandiganbayan to set Civil Case
No. 0035 for hearing so that the issues set out in the immediately preceding paragraph hereof may be
determined with all deliberate dispatch; and

IV. To PROHIBIT from this date and until completion by the Sandiganbayan of its determination of the
preliminary questions set out in paragraph II hereof, the exercise of the right to vote pertaining to the
sequestered PCIB shares of stock in question by either the PCGG or TMEE at any meeting of the PCIB.4

Meanwhile, in January and February of 1997, TMEE filed two motions before the Sandiganbayan, both
urging the nullification or lifting of the writ of sequestration. It contended that no valid writ of
sequestration was ever issued, the sequestration having been effected through a letter dated 15 April
1986 addressed to EPCIB signed by only one PCGG commissioner, in violation of the PCGG Rules and
Regulations promulgated on 11 April 1986 that required writs of sequestration to be issued by at least
two commissioners. While TMEE argued that it was entitled to the actual custody and control of the
shares, it nonetheless manifested that it was willing to deposit these shares in escrow to allay any fear of
dissipation, loss or wastage of the subject shares, as well as on all future cash and stock dividends to be
declared on the said shares.

In April of 1998, PCGG filed with the Sandiganbayan a Motion for Issuance of Restraining Order, seeking
to enjoin the holding of the EPCIB stockholders meeting on 30 April 1998, on the ground that since the
1997 Supreme Court Resolution enjoined both the PCGG and TMEE from voting the sequestered stocks,
these shares stood to be diluted considering a proposal in the agenda to increase the authorized capital
stock of EPCIB, among others.

In a Resolution dated 29 April 1998, the Sandiganbayan dismissed these fears of the PCGG as unfounded.
Moreover, in the same Resolution the Sandiganbayan acknowledged that this Court had granted it the
power to modify or terminate this Court’s temporary restraining order in the exercise of its sound
discretion in the light of subsequent evidence. Accordingly, the Sandiganbayan proceeded to recognize
the right of TMEE to vote the shares of stock registered in its name, and to allow it to vote at the
stockholders meeting of 30 April 1998. The Sandiganbayan justified such recognition based on the
following premises: (a) that the PCGG which bore the burden of proof to show prima facie foundation for
the sequestration of TMEE shares had failed to timely do so; (b) that no damage or dissipation of the
sequestered shares would result should TMEE be allowed to vote them; and (c) that on its face, the writ
of sequestration was issued only by one PCGG Commissioner, in violation of the PCGG’s rules and
regulations promulgated on 11 April 1986. Thus, the Sandiganbayan ruled:

UNDER THE PREMISES:

(2) Philippine Commercial and Industrial Bank’s (PCIB) Chairman of the meeting and the secretary
thereof are directed to acknowledge the right of intervenor Trans Middle East (Phil.) Equities, Inc.
(TMEE) to vote the shares of stocks registered in its name and allow it to vote at the Stockholders’
Meeting scheduled on April 30, 1998 at 9:00 o’clock in the morning or at any other time to which said
stockholders’ meeting may be continued or reset. TMEE shall post a bond of ONE HUNDRED FIFTY
THOUSAND (P150,000.00) PESOS to answer for any undue damage that the plaintiff PCGG or the PCIB
shall suffer by reason of the sequestered shares of stock having been voted by and for said intervenor.5

The pending motion for nullification of the writ of sequestration was left unresolved then. On 10 January
2003, the Sandiganbayan issued a Resolution on the motions filed by TMEE in 1997 assailing the
sequestration order. The Sandiganbayan granted the motion to nullify the writ of sequestration of TMEE
shares, ruling that the sequestration order null and void as it was issued only by one PCGG Commissioner.
It cited the decision of this Court in Republic v. Sandiganbayan6 wherein it was ruled that a writ of
sequestration signed by only one PCGG commissioner was an obvious transgression of the PCGG
rules.7 At the same time, based on TMEE’s manifestation that it was willing to deposit the subject shares
in escrow to allay any fear of dissipation, loss or wastage of the subject shares, the Sandiganbayan
ordered that the shares be deposited in escrow with the Land Bank of the Philippines.

The Resolution decreed:

WHEREFORE, in view of the foregoing:

1) The "URGENT MOTION TO NULLIFY WRIT OF SEQUESTRATION" dated January 28, 1997 filed by
movant Trans Middle East (Phils.) Equities, Inc., is hereby GRANTED. Accordingly, Sequestration Order
No. 86-0056 dated April 15, 1986 is hereby declared null and void for having been issued by one PCGG
Commissioner only in direct contravention of Section 3 of the PCGG’s own Rules and Regulations.
Conformably, however, with the manifestation of the movant trans Middle East (Phils.) Equities, Inc.
itself, the Court will not order the return of its shares of stocks sequestered per Sequestration Order No.
86-0056 dated April 15, 1986, but orders that the same, including the interests earned thereon, to be
deposited with the Land Bank of the Philippines in escrow for the persons, natural or judicial, who shall
eventually be adjudged lawfully entitled thereto.8 (emphasis supplied)

PCGG filed motions for the reconsideration of both the 1998 and 2003 resolutions of the Sandiganbayan.
These motions have not yet been resolved to date. In the meantime, TMEE alleged that it has voted the
subject shares from 1998 up to 2005.9

On 2 May 2006, the PCGG filed a Motion for Execution of this Court’s Decision in G.R. Nos. 105808 and
105809, which was promulgated on 23 January 1995, or more than ten (10) years earlier. It was argued
therein that the 1995 Decision became final and executory by virtue of an entry of judgment dated 2 April
1996 which was allegedly received by the PCGG only on 2 March 2006.10 The purported receipt then only
of the entry of judgment came one (1) day after the EPCIB’s proxy validation deadline with closure of the
Record Book of EPCIB. Desiring to "exercise its voting rights as upheld by the Supreme Court", the PCGG
prayed of the Sandiganbayan to issue the appropriate order permitting it to vote the sequestered shares
or, in the alternative, to order "re-enforced and/or reissued" the TRO affirmed by the Supreme Court in
the 1995 Decision, which enjoined TMEE from voting the sequestered shares.

The Motion for Execution was heard on 5 May 2006, with TMEE making no appearance therein. The
Sandiganbayan ordered TMEE to comment on the said motion within ten (10) days.

Then on May 9, 2006, the PCGG filed an Urgent Ex-Parte Motion to Reinforce/Re-issue TRO, praying that
the Sandiganbayan issue an order re-enforcing and/or re-issuing the TRO issued by this Court in G.R. Nos.
105808 and 105809 and to execute the TRO under the Decision of the Supreme Court dated January 13,
1995. The PCGG argued that due to the fact that the stockholders meeting of EPCIB was scheduled on 23
May 2006, there was an urgent need for the re-enforcement or reissuance of the TRO affirmed by the
Supreme Court in its 1995 Decision. The PCGG also alleged that they had received reports that "the
Romualdezes are bent on disposing of their shares in EPCIB," and that should they "gain control of the
bank of (sic) electing themselves and/or their dummies/nominees to the helm of the bank, there is a
danger that the sequestered Equitable-PCI Bank shares might dissipate or be disposed of."11

On 22 May 2006, the Sandiganbayan issued the Resolution now assailed before the Court. The
Sandiganbayan acknowledged that the 1998 and 2003 Resolutions it earlier issued had indeed modified
the TRO issued by this Court, and that it had the authority, as granted by the Court, to modify or
terminate such TRO. Nevertheless, the Sandiganbayan ruled that both resolutions had not yet attained
finality since it itself still had to resolve the motions for reconsideration respectively related thereto filed
by the PCGG in 1998 and 2003. The Sandiganbayan opined that it could not re-issue the TRO since it was
this Court which issued the same. Still, the Sandiganbayan ruled that it could state that the two
resolutions modifying this Court’s TRO "have not attained finality as the motions for reconsiderations
thereto have not been resolved by [the Sandiganbayan]." The dispositive portion of the Resolution read:

WHEREFORE, pertinent to the instant motion, this Court hereby declares that considering that two
resolutions modifying the Supreme Court’s TRO have not attained finality as the motions for
reconsiderations filed thereto have not been resolved by this Court, the TRO, which was issued by the
Supreme Court disqualifying both the PCGG nominees, TMEE, PAH and PAR, from voting the sequestered
shares in the Equitable PCI Bank and Benguet Corporation, respectively is still existing and in full force
and effect.12

On the following day, 23 May 2003, TMEE filed the instant petition with this Court, with a prayer for the
issuance of a Temporary Restraining Order or a Writ of Preliminary Injunction "to preserve and maintain
the status quo wherein TMEE [was] allowed to vote the shares registered in its name and restraining the
respondents from enforcing the [22 May 2003 Sandiganbayan] Resolution granting the motion to re-
enforce/re-issue TRO, until the final resolution" of this Court.

In the absence of an injunctive order restraining the holding of the stockholders’ meeting on 23 May
2006, the meeting was held. Over the objections of TMEE, the election of a new Board of Directors of
EPCIB was held. Since TMEE was not allowed to vote its shares, it was unable to elect any representative
to the Board of Directors despite the fact that it maintained enough shares to be entitled to at least one
board seat. Thus, in its Supplemental Petition attached to a Motion for Leave of Court to File
Supplemental Petition, TMEE prayed for the issuance of a resolution directing the maintenance of the
status quo prior to the disputed election of directors; restraining the new Board and the officers elected
by them from further performing their functions; and directing the Chairman and Corporate Secretary to
recognize and allow the old Board and officers to serve in a hold-over capacity until further orders from
this Court.13

In the course of deliberating the matter of provisional relief sought by TMEE, the self-evident nature of
the correct resolution on the points of law emerged, and a consensus developed within the Court that the
petition be resolved immediately. The challenged Resolution is ostensibly grounded on an earlier
decision of this Court, yet is ultimately oblivious to the full import of that decision and other juridical
precedents as well. The Sandiganbayan in its Resolution likewise sub silencio contradicts earlier rulings it
had previously rendered in connection with the same issues, yet takes refuge from its inconsistency on its
very own inaction on two still pending motions for reconsideration filed eight and three years ago,
respectively.

Considering that all the respondents have duly filed their respective comments, there is no impediment
to the immediate resolution of the case on the merits. We are compelled to act promptly in light of the
highly disturbing circumstances attending this case. This Court cannot countenance unabashed trifling
with the judicial process, turn a blind eye on a patent simulacrum of judicial adjudication and allow a
glaring travesty of justice to go unchecked in time.

The assailed Resolution in this case, promulgated by the Sandiganbayan on 22 May 2006, has been used
to maximum benefit by the respondents, all connected with EPCIB, in an obvious corporate squabble
which saw its apotheosis in the long scheduled annual stockholders meeting on 23 May 2006 wherein
TMEE was deprived of its right to vote its shares despite the fact that it would have been able to elect at
least one (1) seat on the Board of Directors. The Court is also impelled by the recognition that the
annulment of the Sandiganbayan resolution would have a pronounced consequent effect on the financial
community, if not the banking public at large. Hence, the need to resolve this matter promptly.

We now accordingly adjudicate.

The Court first dispenses with procedural issues raised that are ultimately minor. The petition is
denominated as one for certiorari with prayer preliminary injunction and/or temporary restraining
order, under the ambit of Rule 65 of the Rules of Court. Respondent Board of Directors of EPCIB argue
that the failure of TMEE to file a motion for reconsideration with the Sandiganbayan precluded the
immediate resort to the special civil action of certiorari. As a general rule, certiorari as a special civil
action does not lie unless a motion for reconsideration is first filed before the respondent court. However,
this rule does not apply when special circumstances warrant immediate or more direct action.14 It is well-
settled that the availability of appeal does not foreclose recourse to the extraordinary remedies of
certiorari or prohibition where appeal is not adequate, or equally beneficial,

speedy and sufficient.15 Where the exigencies of the case are such that the ordinary methods of appeal
may not prove adequate—either in point of promptness or completeness, so that a partial if not a total
failure of justice could result—a writ of certiorari may still be issued.16

It cannot evade notice that the assailed Sandiganbayan Resolution was promulgated one (1) day before
the scheduled stockholders meeting of EPCIB. Evidently, TMEE could no longer have relied on the
Sandiganbayan to reverse itself literally overnight, in time for the meeting. The filing of a motion for
reconsideration would not have been an adequate or speedy remedy for TMEE. Hence, resort to the
special civil action of certiorari without filing a motion for reconsideration is justified under the
circumstances.
The more consequential procedural objection lies in the failure of TMEE in its petition to pray for the
annulment of the 22 May 2006 Sandiganbayan Resolution despite the denomination of the petition as one
for certiorari, and the arguments therein that the Sandiganbayan acted with grave abuse of discretion in
rendering the Resolution. On this failure, the respondents in their respective comments argue that the
petition, which was accompanied by a prayer for writ of preliminary injunction and/or TRO, is effectively
an original action for injunction beyond the jurisdiction of this Court.

TMEE, in its Supplemental Petition filed seven (7) days after the filing of the petition, did subsequently
pray for the nullification of the Sandiganbayan resolution on the ground of grave abuse of discretion.
TMEE deserves some blame for failing to include such prayer in its original petition, yet given the
attendant circumstances, it would be an act of triviality to dismiss the petition on that ground alone. For
one, even assuming that the petition is indeed an original action for injunction, it was ruled in Del Mar v.
Pagcor17 that "this Court has the discretionary power to take cognizance of the petition at bar if
compelling reasons, or the nature and importance of the issues raised, warrant the immediate exercise of
its jurisdiction."18 Indeed, such compelling reasons, as adverted to before, are present in this case.

More fundamentally, it is evident from the allegations in the petition, replete with imputations of grave
abuse of discretion on the part of the Sandiganbayan when it promulgated its resolution, that the nature
of the petition is one for certiorari, with injunction sought only as an ancillary relief. The nature of an
action, as well as which court or body has jurisdiction over it, is determined based on the material
allegations contained in the petition.19 Any doubts as to whether TMEE seeks the annulment of the
Sandiganbayan resolution are cleared by the Supplemental Petition, which expressly seeks such relief.

The Court is also inclined to view this defect with liberality, considering that TMEE had only one (1)
calendar day to prepare the petition, which sought to vindicate the exercise of its voting rights in the
EPCIB stockholders meeting, which was enjoined by the Sandiganbayan resolution promulgated just the
day before such election. The forced haste under which the petition was prepared cannot be attributed to
the fault of TMEE, and any resulting errors in the petition that are of the non-fatal variety can be
overlooked.

Respondents, particularly the EPCIB Board of Directors, ascribe a few other procedural errors on the part
of the petitioner, but these are so minor that they do not merit the attention of the Court. Suffice it to say,
they do not adduce a compulsory rule that would mandate the dismissal of the petition contrary to the
discretion of the Court to do otherwise.

We now turn to the merits of the case.

The assailed Sandiganbayan resolution was occasioned by an "Urgent Ex-Parte Motion to Reinforce/Re-
issue TRO" filed by the PCGG, which prayed for the issuance of an order re-enforcing and/or re-issuing
the TRO issued by this Court in G.R. Nos. 105808 and 105809. The sort of relief sought is unconventional
to say the least. No such remedy is provided for under the rules of procedure, although it is not expressly
barred. The uniqueness of the relief sought should nonetheless be cause for skepticism on the part of the
court hearing the claim. Procedural rules exist to provide a methodical system that would facilitate the
judicious disposition of cases. A recourse that finds no authorization or support under the rules could in
fact be aimed to subvert orderly procedure, an end that runs contrary to the interest of justice.

The judicial duty, when confronted with such a pleading as the "motion for the
reinforcement/reissuance" of the PCGG, is to look beyond the verbiage and ascertain the real nature of
the action on which the prayer is founded. In this case, it is ineluctable that what the PCGG sought
through its motion was injunctive relief that would refrain TMEE from exercising its voting rights in the
2004 EPCIB stockholders’ meeting, or other meetings for that matter. While the legal basis for such
prayer is suggested on the continued recognition of a provisional remedy granted a long time ago, the
ultimate goal of the motion is to secure injunctive relief. As such, the rules on injunction must apply.

The relevant antecedent facts actually point to three successive recourses to injunctive relief which were
availed of in this case. The first was the 1986 order of sequestration, sequestration being in itself a form
of a provisional remedy, an extraordinary measure intended to prevent the destruction, concealment or
dissipation of sequestered properties and, thereby, to conserve and preserve them, pending the judicial
determination in the appropriate proceeding of whether the property was in truth ill-gotten.20

The second injunctive relief involved in this case came in the form of the TRO issued by this Court in 1992
in G.R. Nos. 105808 and 105809, restraining the implementation of the 1992 Sandiganbayan order
allowing TMEE to vote its shares. The right to the TRO is grounded on the subsistence of the
sequestration order.

The same TRO issued in G.R. Nos. 105808 and 105809 was reaffirmed in the 1995 Supreme Court
Decision in Republic v. Sandiganbayan, an unusual step in itself considering that normally, a provisional
injunctive order survives only as long as the case wherein it was issued. But since the said TRO related to
pending incidents in Civil Case No. 0035 before the Sandiganbayan, the Court ceded control over the TRO
to the anti-graft court, with a specific grant of authority on the latter to "to modify or terminate the same
in the exercise of its sound discretion in light of such evidence as may subsequently be adduced". The
Sandiganbayan did just that through its 1998 and 2003 Resolutions which respectively recognized
TMEE’s rights to vote the shares and nullified the writ of sequestration.

The third mode of injunctive relief involved herein was the PCGG’s motion for the "re-enforcement or
reissuance" of the earlier Supreme Court TRO. Palpably, this motion prayed for the reaffirmation of the
TRO granted by the Supreme Court in G.R. Nos. 105808 & 105809, cases which were closed and
terminated nearly 10 years ago; but at the same time effectively sought to enjoin the 1998 and 2003
Sandiganbayan Resolutions, praying as the PCGG did that TMEE be denied the right to vote its shares
notwithstanding the two Sandiganbayan resolutions.

For injunctive relief to avail to the PCGG, it must be able to demonstrate the existence of a clear legal right
to be entitled to such relief.21 In the absence of a clear legal right, the issuance of the injunctive relief
constitutes grave abuse of discretion.22 There could only be two putative sources of such legal right of the
PCGG — the 1986 sequestration order and the 1995 Decision of this Court which affirmed the 1992 TRO
issued by the Supreme Court. Yet closer scrutiny of either reveals no foundational recognition of a clear
legal right of the PCGG.

It is settled that as a general rule, the registered owner of the shares of a corporation, even if they are
sequestered by the government through the PCGG, exercises the right and the privilege of voting on
them.23 The PCGG as a mere conservator cannot, as a rule, exercise acts of dominion by voting these
shares.24 The registered owner of sequestered shares may only be deprived of these voting rights, and the
PCGG authorized to exercise the same, only if it is able to establish that (1) there is prima facie evidence
showing that the said shares are ill-gotten and thus belong to the State; and (2) there is an imminent
danger of dissipation, thus necessitating the continued sequestration of the shares and authority to vote
thereupon by the PCGG while the main issue is pending before the Sandiganbayan.25
Clearly, the existence of the writ of sequestration alone would not legally justify barring TMEE from
voting its shares. Such preclusion may only occur if there is prima facie evidence showing that the said
shares are ill-gotten and there is an imminent danger of dissipation. The Sandiganbayan or any other
court has yet to pronounce any findings to those effects. In fact, the Sandiganbayan, in its 1998
Resolution, instead declared that TMEE possessed "a prima facie right" as owner of the registered owner
of the sequestered shares, and that there appeared to be "no strong grounds for apprehension of
dissipation or loss of assets of TMEE."26 Concerns over dissipation have likewise been assuaged that the
shares have been deposited in escrow with the Land Bank of the Philippines on the initiative of TMEE
itself. In any event, the nullification in 2003 of the very writ of sequestration by the Sandiganbayan
further militates against any recognition that the sequestration order established a clear legal right that
entitled the PCGG to injunctive relief.

We now examine whether the legal consequences of the 1995 Decision of the Court provide a clear legal
right to injunctive relief to the PCGG.

An examination of the dispositive portion of the 1995 Decision insofar as it pertains to TMEE puts in
doubt whether its "execution" should have resulted in barring TMEE from voting its shares in the 2006
stockholders meeting. While the 1995 Decision maintained the earlier TRO barring TMEE from voting its
shares, it also authorized the Sandiganbayan "to modify or terminate the same in the exercise of its sound
discretion in light of such evidence as may subsequently be adduced."

In that sense, the 1995 Decision consisted of two (2) phases. The first phase consists of the affirmation of
the TRO, a stance that subsisted as a matter of default. The second phase, however, consists of either the
modification or termination of the TRO by the Sandiganbayan in light of the evidence subsequently
adduced. Should the condition set in the second phase – modification or termination by the
Sandiganbayan – then the first phase is ended, and the affirmation of the TRO can no longer be
acknowledged as the default action.

There is no question that the Sandiganbayan did modify the TRO by virtue of its 1998 and 2003
Resolutions. The 1998 Resolution "acknowledge[d] the right of intervenor Trans Middle East (Phil.)
Equities, Inc. (TMEE) to vote the shares of stocks registered in its name." The 2003 Resolution went
even further in declaring null and void the 1986 sequestration order. Both resolutions thoroughly
explained the reasons for granting favorable reliefs to TMEE.27 The 1998 Resolution even specifically
invoked the 1995 Decision of this Court that categorically declared that the Sandiganbayan had the
power to modify or terminate the restraining order in the exercise of its sound discretion in the light of
such evidence as may be subsequently adduced.28

Respondent Board of Directors contest the argument that the 1998 Resolution either lifted or terminated
the 1992 TRO, alleging that the dispositive portion therein29 merely allowed TMEE to votes it shares for
the stockholders meeting on 30 April 1998, and not at other stockholders’ meetings held in previous
years. This claim is belied by a close look at the dispositive portion of the 1998 Resolution, which
directed the then PCI Bank to "xxx acknowledge the right of [TMEE] to vote the shares of stocks
registered in its name and allow it to vote at the Stockholders’ Meeting scheduled on April 30, 1998".30

As evidenced by the use of the conjunctive "and", there were two directives contained in that order,
namely: that the right of TMEE to vote the shares of stocks registered in its name; and to allow TMEE to
vote at the 1998 stockholders’ meeting. The first directive, mandating the recognition of TMEE’s right to
vote its shares, is not subjected to any limitation as to time or particular circumstance. Neither did the
Sandiganbayan’s discussion in the body of the 1998 Resolution support the view that the right of TMEE to
vote the shares was limited to the 1998 stockholders meeting.

Respondents are generally silent as to the effect of the 2003 Resolution nullifying the writ of
sequestration. Yet the import of that ruling is equally important to this case.

The 2003 Resolution nullifying the sequestration order over TMEE’s shares was based on the fact, of
which there appears to be no serious contest, that the said order, dated 15 April 1986, was signed by only
one PCGG commissioner in violation of the PCGG Rules and Regulations promulgated on 11 April
1986.31 The 2003 Resolution particularly cited the Court’s 1998 Decision in Republic v.

Sandiganbayan,32 penned by Chief Justice Panganiban, which categorically ruled that "the writ [of
sequestration] must bear the signatures of two commissioners, because their signatures are the best
evidence of their approval thereof."33 The Court also noted that the PCGG Rules took effect on 11 April
1986, and that "the signing of sequestration orders by two commissioners had already been encouraged
after April 11, 1986."34

The binding effect of the same provision of the PCGG Rules on the PCGG after 11 April 1986 was also
affirmed in the 1996 ruling in Republic v. Sandiganbayan,35 also penned by Chief Justice Panganiban.
Quoting the same provision requiring that the writ of sequestration may be issued upon the authority of
at least two commissioners, the Court said that the provision was "couched in clear and simple language
[and] leaves no room for interpretation".

The finding of the Sandiganbayan that the writ of sequestration was null and void was material to the
determination whether the PCGG had the right to the injunctive relief it sought. This point is especially
relevant, since if the sequestration order against TMEE is declared null and void, the earlier TRO will
become functus officio. The TRO cannot continue to exist if the sequestration order is null and void from
the beginning. Based on the 2003 Sandiganbayan Resolution, the sequestration order against TMEE is
deemed void as of 15 April 1986, or more than 20 years ago. Not only the clarity, but the very existence of
the legal right on which the PCGG grounds its right to relief became controverted as a result of the 2003
Resolution.

These twin resolutions of the Sandiganbayan pose a critical impediment to a determination that the PCGG
had a clear legal right to protect that would justify injunctive relief in its favor. At the very least, these
resolutions, issued within the bounds of authority granted by this Court to the Sandiganbayan, becloud
the continued efficacy to this day of the 1992 TRO; at most, they confirm that the 1992 TRO no longer
subsists. The Court is inclined towards the latter view. Clearly, it would be proper to assert that the 1998
and 2003 Resolutions of the Sandiganbayan were issued not only in compliance with but in execution and
implementation of the 1995 Decision of the Court. Considering that the Sandiganbayan had already
modified or terminated the restraining order, pursuant to the authority granted it by this Court, it may be
very well be that there is nothing left in the 1995 Decision to execute. At bare minimum, considering the
accomplished modification and virtual termination of the restraining order as of 2003, execution of the
1995 Decision in 2006 cannot possibly contemplate the revival of the TRO.

Obviously, the Sandiganbayan failed to consider these points when it rendered the assailed Resolution. It
does not even appear that the Sandiganbayan evaluated the PCGG’s motion within the frame of mind that
a clear legal right must exist to entitle the PCGG’s prayer. Instead, it engaged in a mechanical application
of technicalities in a manner that failed to consider the more crucial issues at hand.
There is an admitted convenience in simply pronouncing, as the Sandiganbayan did, that since the
motions for reconsideration to the 1998 and 2003 Resolutions had not been resolved, the efficacy of
those resolutions cannot yet be recognized. It cannot be denied though that the two resolutions are
properly characterized as interlocutory orders, as they do not finally dispose of Civil Case No. 0035.
In Valarao v. Pascual,36 the Court contended with the question of whether respondents therein were
bound to respect the authority of a special administrator on the ground that the interlocutory order
appointing such administrator was not yet final and executory because of a pending motion for
reconsideration. The Court held:

[R]espondents cannot disobey the reasonable exercise of the authority of a special administrator on the
dubious ground that the order appointing petitioner Valarao as special administratrix had not in the
meantime become final and executory because of a pending motion for reconsideration filed by them.
The fallacy of this reasoning is apparent, for an interlocutory order is not instantly appealable and
therefore there is no period nor action to suspend or interrupt by a motion for reconsideration; it is even
well settled that a special civil action for certiorari does not suspend the immediate enforceability of an
interlocutory order absent a temporary restraining order or an injunction. In the same manner, the
appointment of a special administrator being an interlocutory order is not interrupted by a motion for
reconsideration and thus must be obeyed as the proceedings in the probate court progress.37

The same characteristics of the interlocutory order in Valarao apply in this case. Since the orders
recognizing TMEE to vote its shares and nullifying the writ of sequestration are both unappealable, they
can only be assailed through a special civil action for certiorari, the filing of which however does not ipso
facto inhibit the effectivity of the assailed order unless specifically enjoined. For this reason, it cannot be
said that the 1998 and 2003 Resolutions, interlocutory as they are in character, are not yet susceptible to
enforcement during the motions for reconsideration therefor.

It also bears notice that from the time the 1998 Resolution recognized the right of TMEE to vote its shares
until eight (8) years later, no serious challenges were posed against the right of TMEE to vote those
shares by reason of the pending motion for reconsideration. There is some dispute as to whether during
the last eight years of EPCIB stockholder meetings, TMEE was actually able to formally vote its
shares38 or merely consented to a common slate of nominees previously agreed upon to negate the need
to conduct an actual meeting.39 Yet whatever the fact may be, these stockholders meetings and election of
the Board of Directors were conducted to the satisfaction of TMEE, which was able to successfully elect at
least one nominee to the Board. Those circumstances do not bear the mark of TMEE being deprived of the
right to vote its shares in the stockholders meetings from 1998 to 2005, when the contrary should have
resulted if the position of the respondents were to be believed.

For all intents and purposes, the 1998 and 2003 Resolutions had been respected prior to the current year
by the Sandiganbayan and the parties. Given the pending motions for reconsideration, theoretically it is
still within the power of the Sandiganbayan to reverse or modify the 1998 and 2003 resolutions. Yet if
the Sandiganbayan were so minded to modify or reverse the two earlier resolutions, it should do so
directly and explicitly, not only tangentially or by implication as it actually did, and at that based on
premises which contradict the predicates on which its 1998 and 2003 Resolutions are anchored. In other
words, it may reverse its earlier rulings only on the evidentiary foundations prescribed by this Court in
its 1995 Decision which have to pertain to the existence of a valid basis for sequestration or the danger of
dissipation of the sequestered shares.
Until and unless it reconsiders the 1998 and 2003 Resolutions in that fashion and on that basis, the
Sandiganbayan is bound to respect them, moreso because they are its own rulings. It is thus precluded
from performing any act or promulgate any issuance inconsistent with the letter, tenor and disposition of
those previous rulings which remain extant. It cannot re-enforce the TRO against TMEE or recognizing
the continued legal effects of the nullified sequestration order, as it did through the challenged
resolutions. It can only do so by reconsidering the 1998 and 2003 resolutions.

Thus, it can be appreciated why the Sandiganbayan in the challenged Resolution merely opted to declare
the TRO confirmed in this Court’s 1995 Decision is "is still existing and in full force and effect," desisting
as it did from ordering the execution of the 1995 Decision. Such declaration, however, is not wholly
correct as it is incomplete. It did not include the fact that the TRO had already been modified by the 1998
and 2003 Resolutions of the Sandiganbayan. Moreover, it failed to consider the well-established doctrine
that the registered owner of sequestered shares is generally entitled to vote the shares.40

The Court thus rules, with considerable ease, that the 22 May 2006 Resolution of the Sandiganbayan was
issued with grave abuse of discretion, and must be annulled.

The Court finds the actions of the PCGG in this case distressing. Its actions and resort to unconventional
modes of relief towards the end of depriving TMEE the right to vote its shares, notwithstanding two
Sandiganbayan rulings recognizing such right are tantamount to abuse of the judicial process.

For one, concerning the Motion for Execution of Judgment it had filed on 2 May 2006, it appears highly
suspect that the PCGG would await more than ten years before it would move to execute or enforce the
1995 Decision of the Supreme Court. Entry of Judgment on that Decision was dated 2 April 1996. Under
Article 1144 of the Civil Code, an action based upon a judgment must be brought within ten years from
the time the right of action accrues, or within ten years counted from the time the judgment became
final.41 Under Section 2, Rule 37, the date of finality of the judgment or final order shall be deemed to be
the date of its entry.

Notably, nothing in the rules of procedure provides that the entry of judgment be served on the parties,
or reckons the date of finality of the judgment from the moment the entry of judgment is received by the
parties. Hence, the fact that PCGG allegedly was served the Entry of Judgment only on 2 March 2006 does
not detract from the fact that any action to execute or enforce the 1995 Decision of the Supreme Court
was barred by prescription after 2 April 2006. The filing of the two motions by the PCGG before the
Sandiganbayan was made only in May of 2006.

In its motion to reinforce/reissue TRO before the Sandiganbayan, the PCGG adverted to reports that the
sequestered shares were in danger of dissipation and diminution as the Romualdezes "were bent on
disposing their shares in Equitable-PCI Bank."42 The shares of EPCIB, including the interests earned
thereon, are deposited in escrow with the Land Bank of the Philippines, on order of the Sandiganbayan in
its 2003 Resolution, at the instance of no less than TMEE. Unless otherwise ordered by the
Sandiganbayan, these shares would remain in escrow until Civil Case No. 0035 is finally resolved by the
Sandiganbayan. As such, these shares have been apparently insulated from dissipation and diminution.
They cannot be simply be disposed of, conveyed or encumbered by TMEE, even if the sequestration order
were voided or the TRO lifted.

This being the situation, the only way by which these shares under escrow may be diminished or
dissipated would be through radical corporate changes within EPCIB, such as through the increase of
capital stock, or even through the dissolution or merger of the bank itself. However, it remains highly
dubious that TMEE could, by exercising its right to vote the shares, effect such changes that would
diminish or dissipate those stocks that it could not dispose of. The shares of TMEE comprise only 7.13%
of the outstanding capital stock of EPCIB,43 and would entitle TMEE to only one (1) seat in the 15-person
Board of Directors.44 TMEE is very much a minority stockholder in Equitable-PCI Bank, and on its own,
incapable of imposing its will on the bank.

It is not beyond the realm of possibility that these shares of TMEE in EPCIB, minimal as they may be,
could somehow accord TMEE a significant degree of influence in the policies and decisions of the bank. At
the same time, considering the limited number of shares TMEE holds, this prospect should be considered,
on its face, highly unlikely. Yet the PCGG staked its motion before the Sandiganbayan on the claim that the
allowance of TMEE to vote its shares could somehow diminish or dissipate those shares deposited in
escrow, a highly facile claim considering the circumstances. Still, the Sandiganbayan refused to subject
such claim to any scrutiny at all, and worse, granted the relief sought on the dubious premises.

Our attention is also called to the letter dated 22 May 2006, written by PCGG Commissioner William
Dichoso, and addressed to the Board of Directors of EPCIB.45 The letter, captioned "TRO Issued by the
Sandiganbayan in Civil Case No. 0035 (Republic of the Philippines v. Benjamin Romualdez)", bluntly
states that the Sandiganbayan "has issued a Temporary Restraining Order restraining xxx [TMEE] from
voting in the stockholders meeting of [EPCIB]," and advises that "Copy of the Temporary Restraining
Order will follow."46

No such temporary restraining order was issued by the Sandiganbayan. Certainly, the challenged
Resolution does not contain any directive for the issuance of a separate temporary restraining order. All
the challenged Resolution affirms is the supposed continuing force of the TRO as affirmed by 1995
Decision of the Court. But as earlier discussed, while the 1995 Decision affirmed the earlier TRO issued by
the Court, it also affirmed the right of the Sandiganbayan to modify or terminate such TRO if the evidence
so warranted. The Sandiganbayan has exercised such right and has chosen not to disavow such exercise.
Neither has the modification or termination of the TRO been reversed or set aside by a higher court.

The impression left by the PCGG letter to EPCIB was that the bank had no choice outside of violating a
judicial order but to disallow TMEE from voting its shares. Yet even with the assailed Resolution of the
Sandiganbayan, such a conclusion is not so evident. At the very least, the PCGG letter conveyed the
message that the Sandiganbayan had enjoined the voting of TMEE shares in the 23 May 2006
stockholders meeting when in fact the anti-graft court did not provide for an injunctive relief in such
manner.

Still, ultimate blame must be foisted on the Sandiganbayan. Wittingly or unwittingly, it became complicit
in the denial of justice to TMEE when it issued the assailed Resolution, despite the lack of ample basis to
support it. Had it ruled judiciously on the motion, the resultant farce would not have been staged. More to
the point, had it resolved the pending motions for reconsideration in a timely manner, this entire
controversy could have been avoided.

Finally, we consider the consequences of the annulment of the assailed Resolution on the subsequently
held stockholders’ meeting and election of the Board of Directors of EPCIB. It appears that there is no
serious dispute that TMEE would have been entitled to one seat on the Board had it been able to vote its
shares. TMEE asserts that it has 51,827,640 EPCIB shares,47 equivalent to 7.13% of the outstanding
capital stock of the bank. Respondent Board of Directors admits that the shares of TMEE constitute 7.13%
of the outstanding capital stock of the bank.48Since Section 24 of the Corporation Code allows a
stockholder such as TMEE to cumulate all of his shares in the voting for directors, a 7.13 % stock interest
in the outstanding capital stock is sufficient to elect one seat in the 15-seat EPCIB Board of
Directors.49 However, relying on the null and void Resolution of the Sandiganbayan, respondents Board of
Directors and Corporate Secretary prevented TMEE from voting its shares and electing its nominee or
representative to the Board of Directors.

Clearly, TMEE is entitled to one seat on the Board of Directors of EPCIB. There is the option of annulling
the entire election, but such step would be too drastic in light of the fact that only one of the 15 seats
should be necessarily affected upon the seating of TMEE’s nominee to the Board of Directors. The more
prudent step on the part of the Court is to declare that one nominee or representative of TMEE is entitled
to be seated immediately on the Board of Directors, and to direct the respondents EPCIB Board and
Board Corporate Secretary to admit and recognize said nominee or representative of TMEE to the Board
of Directors in place of the person who was elected to the Board at the 23 May 2006 annual stockholders’
meeting had TMEE not been disallowed to vote its shares.

The Court, as far back as 1998, already admonished the PCGG and the Sandiganbayan to speedily proceed
with the hearings and resolutions of the main cases for recovery and reconveyance of alleged ill-gotten
wealth.50 In ordinary times, what the Court should be resolving right now in the exercise of judicial
review should be the final decisions of the Sandiganbayan on the recovery of sequestered assets, and not
preliminary matters like those now before us. It is this unconscionable delay that has precisely allowed
this unwanted circus to march into this Court. The protracted delay serves no end except to foster
mockery of the judicial system.

WHEREFORE, the PETITION is GRANTED. The Resolution of the Sandiganbayan dated 22 May 2006 is
declared NULL and VOID.

The election at the 23 May 2006 annual stockholders’ meeting of the person to the seat in the Equitable-
PCI Bank Board of Directors to which petitioner Trans Middle East (Phils.), Inc. is entitled is likewise
declared NULL and VOID.

PENDING FINALITY OF THIS DECISION AND IMMEDIATELY UPON RECEIPT HEREOF, respondents Board
of Directors of Equitable-PCI Bank and Corporate Secretary Sabino E. Acut, Jr. are DIRECTED NOT TO
RECOGNIZE said person whose election to the Board of Directors is set aside and nullified herein and TO
RECOGNIZE the nominee or representative of TMEE as a duly elected member of the Board of Directors,
with all the rights and privileges appertaining to the position.

SO ORDERED.

THIRD DIVISION

G.R. No. 143972 August 31, 2007

PACIFIC BASIN SECURITIES CO., INC., Petitioner,

vs.
ORIENTAL PETROLEUM and MINERALS CORP. and EQUITABLE BANKING CORP., Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 144056

ORIENTAL PETROLEUM and MINERALS CORP., EQUITABLE BANKING CORP. and ROBERT COYIUTO,
JR.,Petitioners,
vs.
PACIFIC BASIN SECURITIES CO., INC., Respondent.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 144631

PACIFIC BASIN SECURITIES CO., INC., Petitioner,

vs.
ORIENTAL PETROLEUM and MINERALS CORP., EQUITABLE BANKING CORP., ROBERTO COYIUTO
and ETHELWOLDO FERNANDEZ, Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

By Resolution dated February 21, 2001,1 the Court ordered the consolidation of the Petitions for Review
on Certiorari under Rule 45 of the Rules of Court docketed as G.R. No. 143972,2 G.R. No. 1440563 and G.R.
No. 144631.4

The facts of the case are undisputed:

On May 31, 1991, Pacific Basin Securities, Inc. (Pacific Basin), through the stock brokerage firm First
Resources Management and Securities Corporation (FRMSC), purchased 308,300,000 Class "A" shares of
Oriental Petroleum and Minerals Corporation (OPMC). Pacific Basin fully paid for the OPMC shares in the
total amount of ₱17,727,000.00 or ₱.05750 per share.5 The shares were listed and traded in the Makati
Stock Exchange.

The OPMC shares turned out to be owned by Piedras Petroleum Mining Corporation (Piedras Petroleum),
a sequestered company controlled by the nominees of the Presidential Commission on Good Government
(PCGG). PCGG sent a letter dated June 10, 1991 to Equitable Banking Corporation (EBC), OPMC’s stock
and transfer agent, confirming Piedras Petroleum’s sale of the OPMC shares in favor of Pacific Basin
through FRMSC. In the same letter, PCGG requested EBC to record the acquisition of said shares and to
issue the corresponding certificates of stock in favor of Pacific Basin.6

The requests were left unheeded. EBC informed FRMSC that it cannot effect the transfer of the OPMC s
hares to Pacific Basin on the following grounds: first, that the endorser of the stock certificate, a certain
Mr. Clemente Madarang, was not among the authorized signatories of Piedras Petroleum;
and second, there was no board resolution from Piedras Petroleum which authorized the sale of the
OPMC shares.7

FRMSC complied with the requirements imposed by EBC and consequently renewed its demand for the
transfer of the OPMC shares to Pacific Basin and the issuance of new certificates of stock.8 Again, these
requests proved futile.
Hence, on April 23, 1992, Pacific Basin filed a Petition for Mandamus with Prayer for a Writ of
Preliminary Mandatory Injunction and/or Restraining Order and Writ of Preliminary Prohibitory
Injunction docketed as SEC Case No. 04225.9 Pacific Basin alleged that: it had purchased 308,300,000
Class "A" shares of stock of OPMC; EBC refused to record its acquisition of the shares and to issue the
corresponding certificates of stock, which is in grave neglect of the performance of the ministerial duty
specifically enjoined by Section 63 of the Corporation Code; and there was a violation of Section 1, Article
1 of the Amended By-laws of OPMC which mandates the issuance of certificate of stock to each holder of
fully paid stock.10

In their Answer,11 OPMC and EBC claimed that the government’s title over the subject OPMC shares was
based on the cession made by Mr. Roberto S. Benedicto, an associate of former President Ferdinand
Marcos, in exchange for immunity from prosecution and suit by the government for allegedly amassing
ill-gotten wealth. According to OPMC and EBC, item no. 6 of the annex to the Compromise Agreement
executed between the government (through PCGG) and Mr. Benedicto shows that part of the assets to be
turned over by Mr. Benedicto to the government were all of the OPMC shares owned by Piedras
Petroleum. The Court, however, in G.R. Nos. 108368, 108548-49, and 108550 issued a Temporary
Restraining Order enjoining the enforcement of the Compromise Agreement. Thus, OPMC and EBC
maintained that the basis for PCGG’s claim of title over the OPMC shares disappeared as the effectivity of
the supposed cession made by Mr. Benedicto is suspended.

OPMC and EBC also argued that even on the assumption that the government has a valid and effective
title over the subject OPMC shares, the sale by Piedras Petroleum to Pacific Basin was void as there was
no showing that Piedras Petroleum complied with the legal requirements for the disposition of
government owned assets as embodied in Proclamation No. 50, as amended, and related rules and
regulations on the matter. The non-holding of a public bidding for the sale of the shares was allegedly a
blatant violation of the said law.

The Securities and Exchange Commission Hearing Officer12 ruled in

favor of Pacific Basin. In the Decision13 dated December 28, 1995, the Hearing Officer took judicial notice
of the Court’s January 10, 1993 and January 18, 1994 En Banc Resolutions which dismissed the petition
and denied the Motion for Reconsideration filed by PCGG in G.R. No. 108368. Thus, the issue of the
Temporary Restraining Order on the Compromise Agreement executed between PCGG and Mr. Benedicto
was rendered moot. The Decision further held that since the subject shares have been fully paid by Pacific
Basin, it is the obligation and a ministerial duty of OPMC and EBC to transfer the shares in the corporate
books and issue certificates of stock in favor of Pacific Basin under Section 63 of the Corporation Code
and Section I of Article I of the amended by-laws of OPMC. The corporate officers of OPMC were also
found to have acted in bad faith when they refused to transfer the shares to Pacific Basin. Hence, they
were ordered to jointly and severally pay Pacific Basin the following amounts: ₱20,000,000.00
representing actual damages; ₱300,000.00 representing exemplary damages; ₱300,000.00 representing
attorney’s fees; and ₱50,000.00 for the cost and expenses of the suit.

On December 28, 1995, OPMC and EBC filed their Motion for Reconsideration which was denied by the
Hearing Officer. Later, OPMC and EBC filed their appeal before the SEC en banc. On July 13, 1999, the
SEC en banc rendered its Decision14 which modified the December 28, 1995 Decision of the Hearing
Officer by deleting the awards of actual and exemplary damages in favor of Pacific Basin.
Petitioner Pacific Basin and respondents OPMC and EBC separately went to the Court of Appeals (CA) on
appeal, docketed as CA-G.R. SP No. 54456 and CA-G.R. SP No. 54442, respectively.

In CA-G.R. SP No. 54442, OPMC and EBC contend that the SEC erred in holding that the sale of publicly
listed shares of stock through the stock market is tantamount to a public bidding and that they are
ministerially bound to record said shares in their stock and transfer book.15

On January 26, 2000, the CA rendered a Decision16 which affirmed in toto the July 13, 1999 Decision of
the SEC en banc.17 The CA held that: public bidding signifies a letting of a contract that is open to all
notorious, a letting that furnishes fair and reasonable public notice and secures to the public equal
competition in bidding and becoming contractors; the sale of shares through public stock exchange offers
transparent and fair competition; and the pricing of shares of stock is a highly specialized field that is
better left to the experts. The dispositive portion of the Decision states:

WHEREFORE, the instant petition is hereby DENIED. Accordingly, the Decision dated 13 July 1999 of the
Securities and Exchange Commission is AFFIRMED in toto.

SO ORDERED.18

upon learning the January 26, 2000 Decision of the CA in CA-G.R. SP No. 54442, Pacific Basin filed with
the Court a petition, docketed as G.R. No. 143972, assailing said CA Decision claiming that:

I.

the court of appeals committed grave error when it sustained the SEC’s en banc decision which
deleted the award of actual and compensatory damages in favor of the petitioner. there is clear
and convincing evidence established through the unrebutted testimony of petitioner’s expert
witness that petitioner was deprived of actual profits in the amount of around twenty million
pesos (p20,000,000.00) x x x

II.

THE COURT OF APPEALS COMMITTED GRAVE ERROR WHEN IT FAILED TO AWARD THE
PETITIONER EXEMPLARY DAMAGES, AS FOUND BY THE SEC HEARING OFFICER WHO
CONDUCTED ADVERSARIAL PROCEEDINGS BELOW AND HAD OPPORTUNITY TO EXAMINE THE
PARTIES’ EVIDENCE AND THEIR WITNESSES. RESPONDENTS’ MANIFEST BAD FAITH AND
MALICIOUS REFUSAL TO REGISTER THE PURCHASE OF THE SHARES DESPITE LACK OF
REASONABLE OR JUSTIFIABLE GROUND ENTITLE THE PETITIONER TO EXEMPLARY DAMAGES. x
xx

OPMC and EBC are also before the Court in a petition, docketed as G.R. No. 144056, questioning the CA
Decision, thus:

I.

[g]overnment-owned property, even of [sic] shares of stock which are publicly listed in a stock
exchange, may be disposed of only through a public bidding, that the sale of such shares if made in
violation of the public bidding requirement is not valid and that the disposition of such shares
 through the normal operation of the stock exchange does not satisfy the requirement of public
bidding. x x x

II.

x x x the GOOD FAITH OF THE PETITIONERS HAVING BEEN ESTABLISHED AS A MATTER OF FACT
THERE IS NO LEGAL BASIS TO ASSESS ATTORNEY’S FEES IN FAVOR OF THE RESPONDENT.

On the other hand, in CA-G.R. SP. No. 54456, Pacific Basin questioned SEC en banc’s deletion of the actual
and exemplary damages awarded to it by the SEC Hearing Officer.19

On August 18, 2000, the CA rendered its Decision20 which held that: the testimony given by Ms. Vicky
Chan, the Vice-President of Pacific Basin, is not sufficient to prove actual damages; no exemplary damages
should be awarded since the responsible officers of OPMC did not act in bad faith nor in a wanton,
fraudulent, reckless, oppressive or malevolent manner when they refused to transfer the subject shares
to Pacific Basin’s name; and the responsible officers of OPMC were only taking extra precautions in
verifying the validity of the transfer since it involved a substantial number of shares aside from the highly
controversial matters underlying the transfer which created doubt in their minds. The dispositive portion
of the Decision states:

WHEREFORE, foregoing premises considered, the appealed Decision dated July 13, 1999 of the Securities
and Exchange Commission (SEC) En Banc is hereby AFFIRMED in toto. Costs against the petitioner.

SO ORDERED.21

Pacific Basin is once again before the Court in a petition, docketed as G.R. No. 144631, assailing the CA
Decision claiming that:

I.

IT WAS GRAVE ERROR FOR THE COURT OF APPEALS TO RULE THAT PETITIONER HAS FAILED
TO PROVE ITS CLAIM FOR DAMAGES WITH A REASONABLE DEGREE OF CERTAINTY DESPITE
THE EVIDENCE ON RECORD. EFFECTIVELY, THE COURT OF APPEALS IS REQUIRING ABSOLUTE
CERTAINTY, WHICH IS EVEN BEYOND PROOF BEYOND REASONABLE DOUBT IN CRIMINAL
PROCEEDINGS OR PREPONDERANCE OF EVIDENCE IN CIVIL PROCEEDINGS. SINCE THIS CASE
WAS ORIGINALLY ADMINISTRATIVE IN NATURE, THE PROOF REQUIRED IS MERELY
SUBSTANTIAL EVIDENCE WHICH PETITIONER HAS MORE THAN SUFFICIENTLY ESTABLISHED.

II.

THE COURT OF APPEALS COMMITTED GRAVE ERROR WHEN IT RULED THAT THE TESTIMONY
OF MS. VICKY CHAN, PETITIONER’S VICE-PRESIDENT, IS NOT SUFFICIENT TO PROVE ACTUAL
DAMAGES SUSTAINED BY PETITIONER. THE TESTIMONY OF MS. CHAN WAS UNREBUTTED EVEN
IN THE PROCEEDINGS BEFORE THE SEC. HER EXPERTISE IN STOCK BROKERAGE WAS
ADMITTED AND NEVER QUESTIONED BY THE RESPONDENTS. x x x

III.
 THE COURT OF APPEALS COMMITTED GRAVE ERROR WHEN IT RULED THAT RESPONDENTS
DID NOT ACT IN BAD FAITH, NOR IN WANTON, FRAUDULENT, RECKLESS OR OPPRESSIVE
MANNER. x x x MOREOVER, THIS CASE AFFECTS THE EXPECTATION OF THE INVESTING PUBLIC
ON THE MARKETABILITY OF THE SHARES LISTED AND TRADED IN THE STOCK EXCHANGE. AS
AN EXAMPLE TO THE PUBLIC GOOD, RESPONDENTS SHOULD BE ORDERED TO PAY EXEMPLARY
DAMAGES.

The petitions are without merit.

In G.R. No. 144056, OPMC and EBC argue that the OPMC shares are government-owned and, as
government property, these can be disposed of only through public bidding. Hence, the sale by Piedras
Petroleum of the OPMC shares to Pacific Basin through the stock market is not valid, since it does not
comply with the public bidding requirement.

The argument is baseless.

Prior to the 31 May 1991 sale to Pacific Basin, Piedras Petroleum was the owner of the subject OPMC
shares. Piedras Petroleum is a sequestered company controlled by the nominees of the PCGG. The fact
that Piedras Petroleum was placed under sequestration by the PCGG does not ipso facto make it a
government-owned corporation.

The Court elucidated on the power of the PCGG to issue sequestration orders in Bataan Shipyard &
Engineering Company, Inc. v. Presidential Commission on Good Government.22 The Court held:

By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten"
means to place or cause to be placed under its possession or control said property, or any building or
office wherein any such property and records pertaining thereto may be found, including "business
enterprises and entities,"- for the purpose of preventing the destruction, concealment or dissipation
of, and otherwise conserving and preserving, the same- until it can be determined, through
appropriate judicial proceedings, whether the property was in truth "ill- gotten," i.e., acquired
through or as a result of improper or illegal use of or the conversion of funds belonging to the
Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by
taking undue advantage of official position, authority, relationship, connection or influence, resulting in
unjust enrichment of the ostensible owner and grave damage and prejudice to the State. And this, too, is
the sense in which the term is commonly understood in other jurisdictions. (Emphasis supplied)23

The Court further held:

As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of
preliminary attachment, or receivership. By attachment, a sheriff seizes property of a defendant in a civil
suit so that it may stand as security for the satisfaction of any judgment that may be obtained, and not
disposed of, or dissipated, or lost intentionally or otherwise, pending the action. By receivership,
property, real or personal, which is subject of litigation, is placed in the possession and control of a
receiver appointed by the Court, who shall conserve it pending final determination of the title or
right of possession over it. x x x (Emphasis supplied)24

A sequestration order is similar to the provisional remedy of Receivership under Rule 59 of the Rules of
Court. The PCGG may thus exercise only powers of administration over the property or business
sequestered or provisionally taken over so as to bring and defend actions in its own name; receive rents;
collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary
to fulfill its mission as conservator and administrator.25

The PCGG, as a mere conservator, does not automatically become the owner of a sequestered property in
behalf of the government. There must be a final determination by the courts if the property is in fact "ill-
gotten" and was acquired by using government funds. Thus, OPMC cannot conclusively claim that the
subject shares are government property by virtue of a sequestration order on Piedras Petroleum. Such
conclusion is non sequitur.

OPMC and EBC insist that Proclamation No. 5026 is the law which should govern the sale of the OPMC
shares to Pacific Basin. Under said law, the OPMC shares should be disposed of through public bidding.
We find such argument untenable.

Proclamation No. 50 seeks to "[p]romote privatization through an orderly, coordinated and efficient
programs for the prompt disposition of the large number of non-performing assets of the government
financial institutions, and certain government-owned or controlled corporations which have been found
unnecessary or inappropriate for the government sector to maintain."

The term "assets" is defined under Article I, Sec. 2, Par. 1, of Proclamation No. 50, as:

(i) receivables and other obligations due to government institutions under credit, lease, indemnity
and other agreements together with all collateral security and other rights (including but not
limited to rights in relation to shares of stock in corporations such as voting rights as well as rights
to appoint directors of corporations or otherwise engage in the management thereof) granted to
such institutions by contract or operation of law to secure or enforce the right of payment of such
obligations;

(ii) real and personal property of any kind owned or held by government institutions, including
shares of stock in corporations, obtained by such government institutions, whether directly or
indirectly, through foreclosure or other means, in settlement of such obligations;

(iii) shares of stock and other investments held by government institutions; and

(iv) the government institutions themselves, whether as parent or subsidiary corporations.

The subject OPMC shares do not fall within the ambit of "assets," as the term contemplates properties
which are government-owned. To repeat, the OPMC shares originally owned by Piedras Petroleum, a
sequestered corporation controlled by the nominees of PCGG, remain to be privately owned until such
time when the court declares that the subject shares were acquired through government funds.

Even on the assumption that the OPMC shares are government assets, the Court finds that the sale of the
subject shares through the stock exchange is valid and binding, as there is no law which mandates that
listed shares which are owned by the government be sold only through public bidding.

As conceded by both Pacific Basin and OPMC, the subject OPMC shares are listed and traded in the stock
exchange. OPMC is a listed corporation in the Philippine Stock Exchange (PSE).27 As a listed corporation,
it shall be bound by the provisions of the Revised Listing Rules of the PSE28 the objective of which is "to
provide a fair, orderly, efficient, and transparent market for the trading of securities x x x."

This Court held in Nicolas v. Court of Appeals29 that stock market trading is a technical and highly
specialized institution in the Philippines. Trading of listed shares should therefore be left to the stock
market where knowledge and expertise on securities mechanism can be expected.

Moreover, even if the law indeed requires that the sale of the subject shares undergo public bidding, the
Court finds that sale through the stock exchange is already a substantial compliance with the public
bidding requirement. As correctly held by the CA:

[T]o the mind of the Court, the sale of the sale of shares through public stock exchange offers transparent
and fair competition. Parenthetically, the pricing of shares of stock is a highly specialized field that is
better left to the experts. It involves an inquiry into the earning potential, dividend history, business
risks, capital structure, management, asset values of the company, prevailing business climate, political
and economic conditions, and myriad other factors that bear on the valuation of shares.

xxxx

The Commission on Audit does not require public bidding of publicly listed shares of stock as the stock
market determines the price of the share, hence, by analogy, the stock market itself can be considered as
public bidding. x x x30

It is beyond dispute that OPMC holds no unpaid claim against Pacific Basin for the value of the shares
acquired by the latter. The Court sees no reason why OPMC and EBC consistently and continuously
refused to record the transfer in the stock and transfer books of OPMC and issue new certificates in favor
of Pacific Basin.

Section 63 of the Corporation Code provides:

Sec. 63. x x x Shares of stock so issued are personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized
to make the transfer. No transfer, however, shall be valid except as between the parties, until the transfer
is recorded in the books of the corporation x x x.

Clearly, the right of a transferee/ assignee to have stocks transferred to his name is an inherent right
flowing from his ownership of the stocks.31 The Court had ruled in Rural Bank of Salinas, Inc. v. Court of
Appeals32 that the corporation’s obligation to register is ministerial, citing Fletcher, to wit:

In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to
decide the question of ownership.33

The duty of the corporation to transfer is a ministerial one and if it refuses to make such transaction
without good cause, it may be compelled to do so by mandamus.34

The Court further held in Rural Bank of Salinas that the only limitation imposed by Section 63 of the
Corporation Code is when the corporation holds any unpaid claim against the shares intended to be
transferred.35
Pacific Basin satisfied the condition of full payment of the OPMC shares as evidenced by the FRMC Buy
Invoice No. 14200 dated May 31, 1991.36 This fact was never denied by both OPMC and EBC. Therefore,
upon Pacific Basin’s full payment of the OPMC shares, it became a ministerial duty on the part of OPMC to
record the transfer in the stock and transfer book of OPMC and issue new stock certificates in favor of
Pacific Basin. Thus, OPMC’s and EBC’s refusal to record the transfer is violative of Section 63 of the
Corporation Code and OPMC’s own amended by-laws which states:

Certificate of stock shall be issued to each holder of fully paid stock in numerical order from the
stock certificate book, and shall be signed by the President and countersigned by the Secretary and sealed
with the corporate seal. A record of each certificate issued shall be kept on the stub thereof and upon the
stock register of the company. (Emphasis supplied)

The Court agrees with and adopts the findings of the SEC Hearing Officer in his Decision:37

[t]he rights of an innocent purchaser of shares of stock cannot be prejudiced and has to be protected
especially when the purchase of the shares are coursed through the Stock Market (in this case the Makati
Stock Exchange). An investor when purchasing publicly listed shares of stock in the Stock Market has
every right to presume that the shares of a publicly listed corporation being traded in the Stock Market
are free from any defect, and that upon purchased [sic] of the said shares, it will be registered in his name
in the corporate books.

To rule otherwise would be froth with dangerous consequences. The investing public’s confidence in
purchasing and investing in shares of stocks thru the Stock Market will erode and become a tedious and
burdensome transaction for the buying or selling of shares of stock of publicly listed corporation. An
investor who invests good money in shares in the stock market necessarily expects that the said shares
will be registered in his name upon payment of the full value thereof.

Instead of building investor’s confidence and encourage investment in publicly listed shares in the Stock
Market, every investor will have second thoughts in investing as they will be purchasing shares in the
stock market subject to a caveat that there is no guaranty the shares they buy are good or transferable to
his name. Thus, every potential investor, prior to his purchase of shares of stock in the Stock Market will
have to investigate each and every share he intends to purchase to make sure that it is free from any
defect and that the said shares may be registered in his name after he purchases the same.

In G.R. No. 143972 and G.R. No. 144631, Pacific Basin alleges that the CA erred when it upheld the
Decision of the SEC En Banc which directed the deletion of the actual and exemplary damages awarded by
the SEC Hearing Officer.

As to the issue on actual damages, Pacific Basin contends that the CA erred in ruling that there was failure
to prove its claim for actual damages. Pacific Basin maintains that the testimony of its Vice-President, Ms.
Vicky Chan, is sufficient to establish the loss incurred as a result of OPMC’s refusal to transfer the shares
in their name.

In order that damages may be recovered, the best evidence obtainable by the injured party must be
presented. Actual or compensatory damages cannot be presumed, but must be duly proved, and so
proved with reasonable degree of certainty. A court cannot rely on speculation, conjecture or guesswork
as to the fact and amount of damages, but must depend upon competent proof that they have been
suffered and on evidence of the actual amount thereof. If the proof is flimsy and unsubstantial, no
damages will be awarded.38

The court cannot rely on uncorroborated testimony whose truth is suspect, but must depend upon
competent proof that actual damages have been actually suffered.39 The testimonies should be viewed in
light of claimant’s self-interest and, hence, should not be taken as gospel truth.40

Based on the records, the claim of Pacific Basin for actual damages, in the amount of ₱20,000,000.00 is
not supported by any documentary evidence. We find that the bare testimonial assertions of Ms. Vicky
Chan are not adequate and competent proof of the actual pecuniary loss allegedly suffered by Pacific
Basin.

OPMC and EBC, however, cannot escape liability. The Court awards Pacific Basin temperate damages. 41

Temperate damages are included within the context of compensatory damages. In arriving at a
reasonable level of temperate damages to be awarded, courts are guided by the ruling that there are
cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although the
court is convinced that there has been such loss.42

The nature of stock market trading is speculative where the value of a specific share may vary from time
to time, depending on several factors which may affect the market. Pacific Basin is in the business which
involves marketing of securities; it would buy shares and re-sell them when their value appreciates to
gain profit from the transaction.

OPMC’s and EBC’s refusal to record the transfer in the stock and transfer book and issuance of new
certificates of stock in the name of Pacific Basin prevented Pacific from re-selling the subject shares in the
market. By this non-performance of a ministerial function, the Court is convinced that Pacific Basin
suffered pecuniary loss, the amount of which cannot be proved with certainty.

In lieu of actual damages, the Court finds OPMC and EBC, Mr. Roberto Coyiuto and Ethelwoldo Fernandez
(as president and corporate secretary of OPMC respectively) liable for temperate damages, jointly and
severally43 in the amount of ₱1,000,000.00.

The issue on exemplary damages deserves scant consideration. Well settled is the rule that although
exemplary damages are not recoverable as a matter of right, and although such damages may not be
proved, it must first be shown that the claimant is entitled to moral, temperate or compensatory damages
before a court can favorably consider an award of exemplary damages.44

The Court found earlier that Pacific Basin is not entitled to actual damages.lawph!l Exemplary damages,
as an accessory to actual damages, cannot also be awarded.

Moreover, the Court agrees with the findings of both the SEC en banc45 and the CA46 when it held that
OPMC and EBC did not act in bad faith nor in a wanton, fraudulent reckless, oppressive or malevolent
manner when they refused to transfer the subject shares under Pacific Basin’s name.

It is true that both OPMC and EBC refused to transfer the subject OPMC shares in the name of Pacific
Basin despite the fact that such transfer is ministerial in nature. However, the Court did not find any
proof that such refusal was tainted by bad faith. Pacific Basin alleges that the bad faith of both OPMC and
EBC is manifested by the propensity for shifting their defenses and the deliberate deprivation of the
rights so that OPMC can gain substantial shareholdings in the company and affect the balance of
power.47 All these are mere allegations.

It is axiomatic that good faith is always presumed unless convincing evidence to the contrary is adduced.
It is incumbent upon the party alleging bad faith to sufficiently prove such allegation. Absent enough
proof thereof, the presumption of good faith prevails.48 In the case at bar, the burden of proving alleged
bad faith therefore was on Pacific Basin, which failed to discharge its onus probandi. Without a clear and
persuasive evidence of bad faith, the presumption of good faith in favor of OPMC and EBC stands.

On the issue regarding the award of attorney’s fees, the Court finds

that it is justified. Attorney’s fees may be awarded inter alia when the defendant’s act or omission has
compelled the plaintiff to incur expenses to protect his interests or in any other case where the court
deems it just and equitable that the attorney’s fees and expenses of litigation be recovered.49

Here, Pacific Basin was forced to file a case for Mandamus when the OPMC officers refused to do the
ministerial act of recording the purchase of shares in the stock and transfer book and to issue new
certificates of stock for fully paid shares.

WHEREFORE, the petition in G.R. No. 144056 is DENIED. The petitions in G.R. Nos. 143972 and 144631
are PARTLY GRANTED. The assailed Decisions of the Court of Appeals dated January 26, 2000 and
August 18, 2000 are AFFIRMED with MODIFICATION to the effect that Oriental Petroleum and Minerals
Corporation and Equitable Banking Corporation, Mr. Roberto Coyiuto and Ethelwoldo Fernandez (as
president and corporate secretary of OPMC respectively) are ORDERED to pay Pacific Basin Securities
Co., Inc., jointly and severally, temperate damages in the amount of ₱1,000,000.00.

Costs against Oriental Petroleum and Minerals Corporation and Equitable Banking Corporation.

SO ORDERED.

G.R. No. 158805 April 16, 2009

VALLEY GOLF & COUNTRY CLUB, INC., Petitioner,

vs.
ROSA O. VDA. DE CARAM, Respondent.

DECISION

TINGA, J.:

May a non-stock corporation seize and dispose of the membership share of a fully-paid member on
account of its unpaid debts to the corporation when it is authorized to do so under the corporate by-laws
but not by the Articles of Incorporation? Such is the central issue raised in this petition, which arose after
petitioner Valley Golf & Country Club (Valley Golf) sold the membership share of a member who had been
delinquent in the payment of his monthly dues.

I.
The facts that preceded this petition are simple. Valley Golf & Country Club (Valley Golf) is a duly
constituted non-stock, non-profit corporation which operates a golf course. The members and their
guests are entitled to play golf on the said course and otherwise avail of the facilities and privileges
provided by Valley Golf.1 The shareholders are likewise assessed monthly membership dues.

In 1961, the late Congressman Fermin Z. Caram, Jr. (Caram),2 the husband of the present respondent,
subscribed to purchased and paid for in full one share (Golf Share) in the capital stock of Valley Golf. He
was issued Stock Certificate No. 389 dated 26 January 1961 for the Golf Share.3 The Stock Certificate
likewise indicates a par value of ₱9,000.00.

Valley Golf would subsequently allege that beginning 25 January 1980, Caram stopped paying his
monthly dues, which were continually assessed until 31 June 1987. Valley Golf claims to have sent five (5)
letters to Caram concerning his delinquent account within the period from 27 January 1986 until 3 May
1987, all forwarded to

P.O. Box No. 1566, Makati Commercial Center Post Office, the mailing address which Caram allegedly
furnished Valley Golf.4 The first letter informed Caram that his account as of 31 December 1985 was
delinquent and that his club privileges were suspended pursuant to Section 3, Article VII of the by-laws of
Valley Golf.5 Despite such notice of delinquency, the second letter, dated 26 August 1986, stated that
should Caram’s account remain unpaid for 45 days, his name would be "included in the delinquent list to
be posted on the club’s bulletin board."6 The third letter, dated 25 January 1987, again informed Caram of
his delinquent account and the suspension of his club privileges.7The fourth letter, dated 7 March 1987,
informed Caram that should he fail to settle his delinquencies, then totaling ₱7,525.45, within ten (10)
days from receipt thereof Valley Golf would exercise its right to sell the Golf Share to satisfy the
outstanding amount, again pursuant to the provisions of the by-laws.8 The final letter, dated 3 May 1987,
issued a final deadline until 31 May 1987 for Caram to settle his account, or otherwise face the sale of the
Golf Share to satisfy the claims of Valley Golf.9

The Golf Share was sold at public auction on 11 June 1987 for ₱25,000.00 after the Board of Directors had
authorized the sale in a meeting on 11 April 1987, and the Notice of Auction Sale was published in the 6
June 1987 edition of the Philippine Daily Inquirer.10

As it turned out, Caram had died on 6 October 1986. Respondent initiated intestate proceedings before
the Regional Trial Court (RTC) of Iloilo City, Branch 35, to settle her husband’s estate.11 Unaware of the
pending controversy over the Golf Share, the Caram family and the RTC included the same as part of
Caram’s estate. The RTC approved a project of partition of Caram’s estate on 29 August 1989. The Golf
Share was adjudicated to respondent, who paid the corresponding estate tax due, including that on the
Golf Share.

It was only through a letter dated 15 May 1990 that the heirs of Caram learned of the sale of the Golf
Share following their inquiry with Valley Golf about the share. After a series of correspondence, the
Caram heirs were subsequently informed, in a letter dated 15 October 1990, that they were entitled to
the refund of ₱11,066.52 out of the proceeds of the sale of the Golf Share, which amount had been in the
custody of Valley Golf since 11 June 1987.12

Respondent filed an action for reconveyance of the share with damages before the Securities and
Exchange Commission (SEC) against Valley Golf.13 On 15 November 1996, SEC Hearing Officer Elpidio S.
Salgado rendered a decision in favor of respondent, ordering Valley Golf to convey ownership of the Golf
Share or in the alternative to issue one fully paid share of stock of Valley Golf the same class as the Golf
Share to respondent. Damages totaling ₱90,000.00 were also awarded to respondent.14

The SEC hearing officer noted that under Section 67, paragraph 2 of the Corporation Code, a share stock
could only be deemed delinquent and sold in an extrajudicial sale at public auction only upon the failure
of the stockholder to pay the unpaid subscription or balance for the share. The section could not have
applied in Caram’s case since he had fully paid for the Golf Share and he had been assessed not for the
share itself but for his delinquent club dues. Proceeding from the foregoing premises, the SEC hearing
officer concluded that the auction sale had no basis in law and was thus a nullity.

The SEC hearing officer did entertain Valley Golf’s argument that the sale of the Golf Share was
authorized under the by-laws. However, it was ruled that pursuant to Section 6 of the Corporation Code,
"a provision creating a lien upon shares of stock for unpaid debts, liabilities, or assessments of
stockholders to the corporation, should be embodied in the Articles of Incorporation, and not merely in
the by-laws, because Section 6 (par.1) prescribes that the shares of stock of a corporation may have such
rights, privileges and restrictions as may be stated in the articles of incorporation."15 It was observed that
the Articles of Incorporation of Valley Golf did not impose any lien, liability or restriction on the Golf
Share or, for that matter, even any conditionality that the Golf Share would be subject to assessment of
monthly dues or a lien on the share for non-payment of such dues.16 In the same vein, it was opined that
since Section 98 of the Corporation Code provides that restrictions on transfer of shares should appear in
the articles of incorporation, by-laws and the certificate of stock to be valid and binding on any purchaser
in good faith, there was more reason to apply the said rule to club delinquencies to constitute a lien on
golf shares.17

The SEC hearing officer further held that the delinquency in monthly club dues was merely an ordinary
debt enforceable by judicial action in a civil case. The decision generally affirmed respondent’s assertion
that Caram was not properly notified of the delinquencies, citing Caram’s letter dated 7 July 1978 to
Valley Golf about the change in his mailing address. He also noted that Valley Golf had sent most of the
letters after Caram’s death. In all, the decision concluded that the sale of the Golf Share was effectively a
deprivation of property without due process of law.

On appeal to the SEC en banc,18 said body promulgated a decision19 on 9 May 2000, affirming the hearing
officer’s decision in toto. Again, the SEC found that Section 67 of the Corporation Code could not justify
the sale of the Golf Share since it applies only to unpaid subscriptions and not to delinquent membership
dues. The SEC also cited a general rule, formulated in American jurisprudence, that a corporation has no
right to dispose of shares of stock for delinquent assessments, dues, service fees and other unliquidated
charges unless there is an express grant to do so, either by the statute itself or by the charter of a
corporation.20 Said rule, taken in conjunction with Section 6 of the Corporation Code, militated against
the validity of the sale of the Golf Share, the SEC stressed. In view of these premises, which according to
the SEC entailed the nullity of the sale, the body found it unnecessary to rule on whether there was valid
notice of the sale at public auction.

Valley Golf elevated the SEC’s decision to the Court of Appeals by way of a petition for review.21 On 4
April 2003, the appellate court rendered a decision22 affirming the decisions of the SEC and the hearing
officer, with modification consisting of the deletion of the award of attorney’s fees. This time, Valley Golf’s
central argument was that its by-laws, rather than Section 67 of the Corporation Code, authorized the
auction sale of the Golf Share. Nonetheless, the Court of Appeals found that the by-law provisions cited by
Valley Golf are "of doubtful validity," as they purportedly conflict with Section 6 of the Code, which
mandates that "rights privileges or restrictions attached to a share of stock should be stated in the
articles of incorporation.23 It noted that what or who had become delinquent was "was Mr. Caram himself
and not his golf share," and such being the case, the unpaid account "should have been filed as a money
claim in the proceedings for the settlement of his estate, instead of the petitioner selling his golf share to
satisfy the account."24

The Court of Appeals also adopted the findings of the hearing officer that the notices had not been
properly served on Caram or his heirs, thus effectively depriving respondent of property without due
process of law. While it upheld the award of damages, the appellate court struck down the award of
attorney’s fees since there was no discussion on the basis of such award in the body of the decisions of
both the hearing officer and the SEC.25

There is one other fact of note, mentioned in passing by the SEC hearing officer26 but ignored by the SEC
en banc and the Court of Appeals. Valley Golf’s third and fourth demand letters dated 25 January 1987
and 7 March 1987, respectively, were both addressed to "Est. of Fermin Z. Caram, Jr." The abbreviation
"Est." can only be taken to refer to "Estate." Unlike the first two demand letters, the third and fourth
letters were sent after Caram had died on 6 October 1986. However, the fifth and final demand letter,
dated 3 May 1987 or twenty-eight (28) days before the sale, was again addressed to Fermin Caram
himself and not to his estate, as if he were still alive. The foregoing particular facts are especially
significant to our disposition of this case.

II.

In its petition before this Court, Valley Golf concedes that Section 67 of the Corporation Code, which
authorizes the auction sale of shares with delinquent subscriptions, is not applicable in this case.
Nonetheless, it argues that the by-laws of Valley Golf authorizes the sale of delinquent shares and that the
by-laws constitute a valid law or contractual agreement between the corporation and its stockholders or
their respective successors. Caram, by becoming a member of Valley Golf, bound himself to observe its
by-laws which constitutes "the rules and regulations or private laws enacted by the corporation to
regulate, govern and control its own actions, affairs and concerns and its stockholders or members and
directors and officers with relation thereto and among themselves in their relation to it."27 It also points
out that the by-laws itself had duly passed the SEC’s scrutiny and approval.

Valley Golf further argues that it was error on the part of the Court of Appeals to rely, as it did, upon
Section 6 of the Corporation Code "to nullify the subject provisions of the By-Laws."28 Section 6 referrs to
"restrictions" on the shares of stock which should be stated in the articles of incorporation, as
differentiated from "liens" which under the by-laws would serve as basis for the auction sale of the share.
Since Section 6 refers to restrictions and not to liens, Valley Golf submits that "liens" are excluded from
the ambit of the provision. It further proffers that assuming that liens and restrictions are synonymous,
Section 6 itself utilizes the permissive word "may," thus evincing the non-mandatory character of the
requirement that restrictions or liens be stated in the articles of incorporation.

Valley Golf also argues that the Court of Appeals erred in relying on the factual findings of the hearing
officer, which are allegedly replete with errors and contradictions. Finally, it assails the award of moral
and exemplary damages.

III.
As found by the SEC and the Court of Appeals, the Articles of Incorporation of Valley Golf does not contain
any provision authorizing the corporation to create any lien on a member’s Golf Share as a consequence
of the member’s unpaid assessments or dues to Valley Golf. Before this Court, Valley Golf asserts that
such a provision is contained in its by-laws. We required the parties to submit a certified copy of the by-
laws of Valley Golf in effect as of 11 June 1987.29 In compliance, Valley Golf submitted a copy of its by-
laws, originally adopted on 6 June 195830 and amended on 26 November 1986.31 The amendments bear
no relevance to the issue of delinquent membership dues. The relevant provisions, found in Article VIII
entitled "Club Accounts," are reproduced below:

Section 1. Lien.—The Club has the first lien on the share of the stockholder who has, in his/her/its name,
or in the name of an assignee, outstanding accounts and liabilities in favor of the Club to secure the
payment thereof.

xxx

Section 3. The account of any member shall be presented to such member every month. If any statement
of accounts remains unpaid for a period forty-five (45) days after cut-off date, said member maybe (sic)
posted as deliqnuent (sic). No delinquent member shall be entitled to enjoy the privileges of such
membership for the duration of the deliquency (sic). After the member shall have been posted as
delinquent, the Board may order his/her/its share sold to satisfy the claims of the club; after which the
member loses his/her/its rights and privileges permanently. No member can be indebted to the Club at
any time any amount in excess of the credit limit set by the Board of Directors from time to time. The
unpaid account referred to here includes non-payment of dues, charges and other assessments and non-
payment for subscriptions.32

To bolster its cause, Valley Golf proffers the proposition that by virtue of the by-law provisions a lien is
created on the shares of its members to ensure payment of dues, charges and other assessments on the
members. Both the SEC and the Court of Appeals debunked the tenability or applicability of the
proposition through two common thrusts.

Firstly, they correctly noted that the procedure under Section 67 of the Corporation Code for the stock
corporation’s recourse on unpaid subscriptions is inapt to a non-stock corporation vis-à-vis a member’s
outstanding dues. The basic factual backdrops in the two situations are disperate. In the latter, the
member has fully paid for his membership share, while in the former, the stockholder has not yet fully
paid for the share or shares of stock he subscribed to, thereby authorizing the stock corporation to call on
the unpaid subscription, declare the shares delinquent and subject the delinquent shares to a sale at
public auction.33

Secondly, the two bodies below concluded that following Section 6 of the Corporation Code, which
provides:

The shares of stock of stock corporation may be divided into classes or series of shares, or both, any of
which classes or series of shares may have such rights, privileges or restrictions as may be stated in the
articles of incorporation x x x 34

the lien on the Golf Share in favor of Valley Golf is not valid, as the power to constitute such a lien should
be provided in the articles of incorporation, and not merely in the by-laws.
However, there is a specific provision under the Title XI, on Non-Stock Corporations of the Corporation
Code dealing with termination of membership. Section 91 of the Corporation Code provides:

SEC. 91. Termination of membership.—Membership shall be terminated in the manner and for the causes
provided in the articles of incorporation or the by-laws. Termination of membership shall have the effect
of extinguishing all rights of a member in the corporation or in its property, unless otherwise provided in
the articles of incorporation or the by-laws. (Emphasis supplied)

Clearly, the right of a non-stock corporation such as Valley Golf to expel a member through the forfeiture
of the Golf Share may be established in the by-laws alone, as is the situation in this case. Thus, both the
SEC and the appellate court are wrong in holding that the establishment of a lien and the loss of the Golf
Share consequent to the enforcement of the lien should have been provided for in the articles of
incorporation.

IV.

Given that the cause for termination of membership in a non-stock corporation may be established
through the by-laws alone and need not be set forth in the articles of incorporation, is there any cause to
invalidate the lien and the subsequent sale of the Golf Share by Valley Golf?

Former SEC Chairperson, Rosario Lopez, in her commentaries on the Corporation Code, explains the
import of Section 91 in a manner relevant to this case:

The prevailing rule is that the provisions of the articles of incorporation or by-laws of termination of
membership must be strictly complied with and applied to the letter. Thus, an association whose member
fails to pay his membership due and annual due as required in the by-laws, and which provides for the
termination or suspension of erring members as well as prohibits the latter from intervening in any
manner in the operational activities of the association, must be observed because by-laws are self-
imposed private laws binding on all members, directors and officers of the corporation.35

Examining closely the relevant by-law provisions of Valley Golf,36 it appears that termination of
membership may occur when the following successive conditions are met: (1) presentation of the
account of the member; (2) failure of the member to settle the account within forty-five days after the
cut-off date; (3) posting of the member as delinquent; and (4) issuance of an order by the board of
directors that the share of the delinquent member be sold to satisfy the claims of Valley Golf. These
conditions found in by-laws duly approved by the SEC warrant due respect and we are disinclined to rule
against the validity of the by-law provisions.

At the same time, two points warrant special attention.

A.

Valley Golf has sought to accomplish the termination of Caram’s membership through the sale of the Golf
Share, justifying the sale through the constitution of a lien on the Golf Share under Section 1, Article VIII
of its by-laws. Generally in theory, a non-stock corporation has the power to effect the termination of a
member without having to constitute a lien on the membership share or to undertake the elaborate
process of selling the same at public auction. The articles of incorporation or the by-laws can very well
simply provide that the failure of a member to pay the dues on time is cause for the board of directors to
terminate membership. Yet Valley Golf was organized in such a way that membership is adjunct to
ownership of a share in the club; hence the necessity to dispose of the share to terminate membership.

Share ownership introduces another dimension to the case—the reality that termination of membership
may also lead to the infringement of property rights. Even though Valley Golf is a non-stock corporation,
as evinced by the fact that it is not authorized to distribute to the holder of its shares dividends or
allotments of the surplus profits on the basis of shares held,37 the Golf Share has an assigned value
reflected on the certificate of membership itself.38 Termination of membership in Valley Golf does not
merely lead to the withdrawal of the rights and privileges of the member to club properties and facilities
but also to the loss of the Golf Share itself for which the member had fully paid.

The claim of Valley Golf is limited to the amount of unpaid dues plus incremental costs. On the other
hand, Caram’s loss may encompass not only the amount he had paid for the share but also the price it
would have fetched in the market at the time his membership was terminated.

There is an easy way to remedy what is obviously an unfair situation. Taking the same example, Valley
Golf seizes the share, sells it to itself or a third person for ₱100.000.00, then refunds ₱99,000.00 back to
the delinquent member. On its face, such a mechanism obviates the inequity of the first example, and
assures that the loss sustained by the delinquent member is commensurate to the actual debt owed to
Valley Golf. After all, applying civil law concepts, the pecuniary injury sustained by Valley Golf
attributable to the delinquent member is only to the extent of the unpaid debt, and it would be difficult to
foresee what right under law Valley Golf would have to the remainder of the sale’s proceeds.

A refund mechanism may disquiet concerns of undue loss of property rights corresponding to
termination of membership. Yet noticeably, the by-laws of Valley Golf does not require the Club to refund
to the discharged member the remainder of the proceeds of the sale after the outstanding obligation is
extinguished. After petitioner had filed her complaint though, Valley Golf did inform her that the heirs of
Caram are entitled to such refund.

B.

Let us now turn to the other significant concern.

The by-laws does not provide for a mode of notice to the member before the board of directors puts up
the Golf Share for sale, yet the sale marks the termination of membership. Whatever semblance of a
notice that is afforded is bare at best, ambiguous at most. The member is entitled to receive a statement
of account every month; however, the mode by which the member is to receive such notice is not
elaborated upon. If the member fails to pay within 45 days from the due date, Valley Golf is immediately
entitled to have the member "posted as delinquent." While the assignation of "delinquent status" is
evident enough, it is not as clear what the word "posted" entails. Connotatively, the word could imply the
physical posting of the notice of delinquency within the club premises, such as a bulletin board, which we
recognize is often the case. Still, the actual posting modality is uncertain from the language of the by-laws.

The moment the member is "posted as delinquent," Valley Golf is immediately enabled to seize the share
and sell the same, thereby terminating membership in the club. The by-laws does not require any notice
to the member from the time delinquency is posted to the day the sale of the share is actually held. The
setup is to the extreme detriment to the member, who upon being notified that the lien on his share is
due for execution would be duly motivated to settle his accounts to foreclose such possibility.
Does the Corporation Code permit the termination of membership without due notice to the member?
The Code itself is silent on that matter, and the argument can be made that if no notice is provided for in
the articles of incorporation or in the by-laws, then termination may be effected without any notice at all.
Support for such an argument can be drawn from our ruling in Long v. Basa,39 which pertains to a
religious corporation that is also a non-stock corporation.40 Therein, the Court upheld the expulsion of
church members despite the absence of any provision on prior notice in the by-laws, stating that the
members had "waived such notice by adhering to those by-laws[,] became members of the church
voluntarily[,] entered into its covenant and subscribed to its rules [and by] doing so, they are bound by
their consent."41

However, a distinction should be made between membership in a religious corporation, which ordinarily
does not involve the purchase of ownership shares, and membership in a non-stock corporation such as
Valley Golf, where the purchase of an ownership share is a condition sine qua non. Membership in Valley
Golf entails the acquisition of a property right. In turn, the loss of such property right could also involve
the application of aspects of civil law, in addition to the provisions of the Corporation Code. To put it
simply, when the loss of membership in a non-stock corporation also entails the loss of property rights,
the manner of deprivation of such property right should also be in accordance with the provisions of the
Civil Code.

It has been held that a by-law providing that if a member fails to pay dues for a year, he shall be deemed
to have relinquished his membership and may be excluded from the rooms of the association and his
certificate of membership shall be sold at auction, and any surplus of the proceeds be paid over him, does
not ipso facto terminate the membership of one whose dues are a year in arrears; the remedy given for
non-payment of dues is not exclusive because the corporation, so long as he remains a member, may sue
on his agreement and collect them.42

V.

With these foregoing concerns in mind, were the actions of Valley Golf concerning the Golf Share and
membership of Caram warranted? We believe not.

It may be conceded that the actions of Valley Golf were, technically speaking, in accord with the
provisions of its by-laws on termination of membership, vaguely defined as these are. Yet especially since
the termination of membership in Valley Golf is inextricably linked to the deprivation of property rights
over the Golf Share, the emergence of such adverse consequences make legal and equitable standards
come to fore.

The commentaries of Lopez advert to an SEC Opinion dated 29 September 1987 which we can cite with
approval. Lopez cites:

[I]n order that the action of a corporation in expelling a member for cause may be valid, it is essential, in
the absence of a waiver, that there shall be a hearing or trial of the charge against him, with reasonable
notice to him and a fair opportunity to be heard in his defense. (Fletcher Cyc. Corp., supra) If the method
of trial is not regulated by the by-laws of the association, it should at least permit substantial justice. The
hearing must be conducted fairly and openly and the body of persons before whom it is heard or who are
to decide the case must be unprejudiced. (SEC opinion dated September 29, 1987, Bacalaran-Sucat
Drivers Association)1avvphi1
It is unmistakably wise public policy to require that the termination of membership in a non-stock
corporation be done in accordance with substantial justice. No matter how one may precisely define such
term, it is evident in this case that the termination of Caram’s membership betrayed the dictates of
substantial justice.

Valley Golf alleges in its present petition that it was notified of the death of Caram only in March of
1990,43 a claim which is reiterated in its Reply to respondent’s Comment.44 Yet this claim is belied by the
very demand letters sent by Valley Golf to Caram’s mailing address. The letters dated 25 January 1987
and 7 March 1987, both of which were sent within a few months after Caram’s death are both addressed
to "Est. of Fermin Z. Caram, Jr.;" and the abbreviation "[e]st." can only be taken to refer to "estate." This is
to be distinguished from the two earlier letters, both sent prior to Caram’s death on 6 October 1986,
which were addressed to Caram himself. Inexplicably, the final letter dated 3 May 1987 was again
addressed to Caram himself, although the fact that the two previous letters were directed at the estate of
Caram stands as incontrovertible proof that Valley Golf had known of Caram’s death even prior to the
auction sale.

Interestingly, Valley Golf did not claim before the Court of Appeals that they had learned of Caram’s death
only after the auction sale. It also appears that Valley Golf had conceded before the SEC that some of the
notices it had sent were addressed to the estate of Caram, and not the decedent himself.45

What do these facts reveal? Valley Golf acted in clear bad faith when it sent the final notice to Caram
under the pretense they believed him to be still alive, when in fact they had very well known that he had
already died. That it was in the final notice that Valley Golf had perpetrated the duplicity is especially
blameworthy, since it was that notice that carried the final threat that his Golf Share would be sold at
public auction should he fail to settle his account on or before 31 May 1987.

Valley Golf could have very well addressed that notice to the estate of Caram, as it had done with the third
and fourth notices. That it did not do so signifies that Valley Golf was bent on selling the Golf Share,
impervious to potential complications that would impede its intentions, such as the need to pursue the
claim before the estate proceedings of Caram. By pretending to assume that Caram was then still alive,
Valley Golf would have been able to capitalize on his previous unresponsiveness to their notices and
proceed in feigned good faith with the sale.lawphil.netWhatever the reason Caram was unable to respond
to the earlier notices, the fact remains that at the time of the final notice, Valley Golf knew that Caram,
having died and gone, would not be able to settle the obligation himself, yet they persisted in sending him
notice to provide a color of regularity to the resulting sale.

That reason alone, evocative as it is of the absence of substantial justice in the sale of the Golf Share, is
sufficient to nullify the sale and sustain the rulings of the SEC and the Court of Appeals.

Moreover, the utter and appalling bad faith exhibited by Valley Golf in sending out the final notice to
Caram on the deliberate pretense that he was still alive could bring into operation Articles Articles 19, 20
and 21 under the Chapter on Human Relations of the Civil Code.46 These provisions enunciate a general
obligation under law for every person to act fairly and in good faith towards one another. Non-stock
corporations and its officers are not exempt from that obligation.

VI.
Another point. The by-laws of Valley Golf is discomfiting enough in that it fails to provide any formal
notice and hearing procedure before a member’s share may be seized and sold. The Court would have
been satisfied had the by-laws or the articles of incorporation established a procedure which assures that
the member would in reality be actually notified of the pending accounts and provide the opportunity for
such member to settle such accounts before the membership share could be seized then sold to answer
for the debt. As we have emphasized, membership in Valley Golf and many other like-situated non-stock
corporations actually involves the purchase of a membership share, which is a substantially expensive
property. As a result, termination of membership does not only lead to loss of bragging rights, but the
actual deprivation of property.

The Court has no intention to interfere with how non-stock corporations should run their daily affairs.
The Court also respects the fact that membership is non-stock corporations is a voluntary arrangement,
and that the member who signs up is bound to adhere to what the articles of incorporation or the by-laws
provide, even if provisions are detrimental to the interest of the member. At the same time, in the
absence of a satisfactory procedure under the articles of incorporation or the by-laws that affords a
member the opportunity to defend against the deprivation of significant property rights in accordance
with substantial justice, the terms of the by-laws or articles of incorporation will not suffice. There will be
need in such case to refer to substantive law. Such a flaw attends the articles of incorporation and by-
laws of Valley Golf. The Court deems it judicious to refer to the protections afforded by the Civil Code,
with respect to the preservation, maintenance, and defense from loss of property rights.

The arrangement provided for in the afore-quoted by-laws of Valley Golf whereby a lien is constituted on
the membership share to answer for subsequent obligations to the corporation finds applicable parallels
under the Civil Code. Membership shares are considered as movable or personal property,47 and they can
be constituted as security to secure a principal obligation, such as the dues and fees. There are at least
two contractual modes under the Civil Code by which personal property can be used to secure a principal
obligation. The first is through a contract of pledge,48 while the second is through a chattel mortgage.49 A
pledge would require the pledgor to surrender possession of the thing pledged, i.e., the membership
share, to the pledge in order that the contract of pledge may be constituted.50

Is delivery of the share cannot be effected, the suitable security transaction is the chattel mortgage. Under
Article 2124 of the Civil Code, movables may be the object of a chattel mortgage. The Chattel mortgage is
governed by Act No. 1508, otherwise known The Chattel Mortgage Law,51 and the Civil Code.

In this case, Caram had not signed any document that manifests his agreement to constitute his Golf
Share as security in favor of Valley Golf to answer for his obligations to the club. There is no document we
can assess that it is substantially compliant with the form of chattel mortgages under Section 5 of Act No.
1508. The by-laws could not suffice for that purpose since it is not designed as a bilateral contract
between Caram and Valley Golf, or a vehicle by which Caram expressed his consent to constitute his Golf
Share as security for his account with Valley Golf.

VII.

We finally turn to the matter of damages. The award of damages sustained by the Court of Appeals was
for moral damages in the sum of ₱50,000.00 and exemplary damages in the sum of ₱10,000.00. Both
awards should be sustained. In pretending to give actual notice to Caram despite full knowledge that he
was in fact dead, Valley Golf exhibited utter bad faith.
The award of moral damages was based on a finding by the hearing officer that Valley Golf had
"considerably besmirched the reputation and good credit standing of the plaintiff and her family," such
justification having foundation under Article 2217 of the Civil Code. No cause has been submitted to
detract from such award. In addition, exemplary damages were awarded "to [Valley Golf] defendant from
repeating similar acts in the future and to protect the interest of its stockholders… and by way of example
or correction for the public good." Such conclusion is in accordance with Article 2229 of the Civil Code,
which establishes liability for exemplary damages.

WHEREFORE, the petition is DENIED. Costs against petitioners.

SO ORDERED.

G.R. No. 165443 April 16, 2009

CALATAGAN GOLF CLUB, INC. Petitioner,

vs.
SIXTO CLEMENTE, JR., Respondent.

DECISION

TINGA, J.:

Seeking the reversal of the Decision1 dated 1 June 2004 of the Court of Appeals in CA-G.R. SP No. 62331
and the reinstatement of the Decision dated 15 November 2000 of the Securities and Exchange
Commission (SEC) in SEC Case No. 04-98-5954, petitioner Calatagan Golf Club, Inc. (Calatagan) filed this
Rule 45 petition against respondent Sixto Clemente, Jr. (Clemente).

The key facts are undisputed.

Clemente applied to purchase one share of stock of Calatagan, indicating in his application for
membership his mailing address at "Phimco Industries, Inc. – P.O. Box 240, MCC," complete residential
address, office and residence telephone numbers, as well as the company (Phimco) with which he was
connected, Calatagan issued to him Certificate of Stock No. A-01295 on 2 May 1990 after paying
₱120,000.00 for the share.2

Calatagan charges monthly dues on its members to meet expenses for general operations, as well as costs
for upkeep and improvement of the grounds and facilities. The provision on monthly dues is incorporated
in Calatagan’s Articles of Incorporation and By-Laws. It is also reproduced at the back of each certificate
of stock.3 As reproduced in the dorsal side of Certificate of Stock No. A-01295, the provision reads:

5. The owners of shares of stock shall be subject to the payment of monthly dues in an amount as may be
prescribed in the by-laws or by the Board of Directors which shall in no case be less that [sic] ₱50.00 to
meet the expenses for the general operations of the club, and the maintenance and improvement of its
premises and facilities, in addition to such fees as may be charged for the actual use of the facilities x x x

When Clemente became a member the monthly charge stood at ₱400.00. He paid ₱3,000.00 for his
monthly dues on 21 March 1991 and another ₱5,400.00 on 9 December 1991. Then he ceased paying the
dues. At that point, his balance amounted to ₱400.00.4
Ten (10) months later, Calatagan made the initial step to collect Clemente’s back accounts by sending a
demand letter dated 21 September 1992. It was followed by a second letter dated 22 October 1992. Both
letters were sent to Clemente’s mailing address as indicated in his membership application but were sent
back to sender with the postal note that the address had been closed.5

Calatagan declared Clemente delinquent for having failed to pay his monthly dues for more than sixty
(60) days, specifically ₱5,600.00 as of 31 October 1992. Calatagan also included Clemente’s name in the
list of delinquent members posted on the club’s bulletin board. On 1 December 1992, Calatagan’s board of
directors adopted a resolution authorizing the foreclosure of shares of delinquent members, including
Clemente’s; and the public auction of these shares.

On 7 December 1992, Calatagan sent a third and final letter to Clemente, this time signed by its Corporate
Secretary, Atty. Benjamin Tanedo, Jr. The letter contains a warning that unless Clemente settles his
outstanding dues, his share would be included among the delinquent shares to be sold at public auction
on 15 January 1993. Again, this letter was sent to Clemente’s mailing address that had already been
closed.6

On 5 January 1993, a notice of auction sale was posted on the Club’s bulletin board, as well as on the
club’s premises. The auction sale took place as scheduled on 15 January 1993, and Clemente’s share sold
for ₱64,000.7According to the Certificate of Sale issued by Calatagan after the sale, Clemente’s share was
purchased by a Nestor A. Virata.8 At the time of the sale, Clemente’s accrued monthly dues amounted to
₱5,200.00.9 A notice of foreclosure of Clemente’s share was published in the 26 May 1993 issue of the
Business World.10

Clemente learned of the sale of his share only in November of 1997.11 He filed a claim with the Securities
and Exchange Commission (SEC) seeking the restoration of his shareholding in Calatagan with damages.

On 15 November 2000, the SEC rendered a decision dismissing Clemente’s complaint. Citing Section 69 of
the Corporation Code which provides that the sale of shares at an auction sale can only be questioned
within six (6) months from the date of sale, the SEC concluded that Clemente’s claim, filed four (4) years
after the sale, had already prescribed. The SEC further held that Calatagan had complied with all the
requirements for a valid sale of the subject share, Clemente having failed to inform Calatagan that the
address he had earlier supplied was no longer his address. Clemente, the SEC ruled, had acted in bad faith
in assuming as he claimed that his non-payment of monthly dues would merely render his share
"inactive."

Clemente filed a petition for review with the Court of Appeals. On 1 June 2004, the Court of Appeals
promulgated a decision reversing the SEC. The appellate court restored Clemente’s one share with a
directive to Calatagan to issue in his a new share, and awarded to Clemente a total of ₱400,000.00 in
damages, less the unpaid monthly dues of ₱5,200.00.

In rejecting the SEC’s finding that the action had prescribed, the Court of Appeals cited the SEC’s own
ruling in SEC Case No. 4160, Caram v. Valley Golf Country Club, Inc., that Section 69 of the Corporation
Code specifically refers to unpaid subscriptions to capital stock, and not to any other debt of
stockholders. With the insinuation that Section 69 does not apply to unpaid membership dues in non-
stock corporations, the appellate court employed Article 1140 of the Civil Code as the proper rule of
prescription. The provision sets the prescription period of actions to recover movables at eight (8) years.
The Court of Appeals also pointed out that since that Calatagan’s first two demand letters had been
returned to it as sender with the notation about the closure of the mailing address, it very well knew that
its third and final demand letter also sent to the same mailing address would not be received by
Clemente. It noted the by-law requirement that within ten (10) days after the Board has ordered the sale
at auction of a member’s share of stock for indebtedness, the Corporate Secretary shall notify the owner
thereof and advise the Membership Committee of such fact. Finally, the Court of Appeals ratiocinated that
"a person who is in danger of the imminent loss of his property has the right to be notified and be given
the chance to prevent the loss."12

Hence, the present appeal.

Calatagan maintains that the action of Clemente had prescribed pursuant to Section 69 of the Corporation
Code, and that the requisite notices under both the law and the by-laws had been rendered to Clemente.

Section 69 of the Code provides that an action to recover delinquent stock sold must be commenced by
the filing of a complaint within six (6) months from the date of sale. As correctly pointed out by the Court
of Appeals, Section 69 is part of Title VIII of the Code entitled "Stocks and Stockholders" and refers
specifically to unpaid subscriptions to capital stock, the sale of which is governed by the immediately
preceding Section 68.

The Court of Appeals debunked both Calatagan’s and the SEC’s reliance on Section 69 by citing another
SEC ruling in the case of Caram v. Valley Golf. In connection with Section 69, Calatagan raises a peripheral
point made in the SEC’s Caram ruling. In Caram, the SEC, using as take-off Section 6 of the Corporation
Code which refers to "such rights, privileges or restrictions as may be stated in the articles of
incorporation," pointed out that the Articles of Incorporation of Valley Golf does not "impose any lien,
liability or restriction on the Golf Share [of Caram]," but only its (Valley Golf’s) By-Laws does. Here,
Calatagan stresses that its own Articles of Incorporation does provide that the monthly dues assessed on
owners of shares of the corporation, along with all other obligations of the shareholders to the club, "shall
constitute a first lien on the shares… and in the event of delinquency such shares may be ordered sold by
the Board of Directors in the manner provided in the By-Laws to satisfy said dues or other obligations of
the shareholders."13 With its illative but incomprehensible logic, Calatagan concludes that the
prescriptive period under Section 69 should also apply to the sale of Clemente’s share as the lien that
Calatagan perceives to be a restriction is stated in the articles of incorporation and not only in the by-
laws.

We remain unconvinced.

There are fundamental differences that defy equivalence or even analogy between the sale of delinquent
stock under Section 68 and the sale that occurred in this case. At the root of the sale of delinquent stock is
the non-payment of the subscription price for the share of stock itself. The stockholder or subscriber has
yet to fully pay for the value of the share or shares subscribed. In this case, Clemente had already fully
paid for the share in Calatagan and no longer had any outstanding obligation to deprive him of full title to
his share. Perhaps the analogy could have been made if Clemente had not yet fully paid for his share and
the non-stock corporation, pursuant to an article or by-law provision designed to address that situation,
decided to sell such share as a consequence. But that is not the case here, and there is no purpose for us
to apply Section 69 to the case at bar.
Calatagan argues in the alternative that Clemente’s suit is barred by Article 1146 of the Civil Code which
establishes four (4) years as the prescriptive period for actions based upon injury to the rights of the
plaintiff on the hypothesis that the suit is purely for damages. As a second alternative still, Calatagan
posits that Clemente’s action is governed by Article 1149 of the Civil Code which sets five (5) years as the
period of prescription for all other actions whose prescriptive periods are not fixed in the Civil Code or in
any other law. Neither article is applicable but Article 1140 of the Civil Code which provides that an
action to recover movables shall prescribe in eight (8) years. Calatagan’s action is for the recovery of a
share of stock, plus damages.

Calatagan’s advertence to the fact that the constitution of a lien on the member’s share by virtue of the
explicit provisions in its Articles of Incorporation and By-Laws is relevant but ultimately of no help to its
cause. Calatagan’s Articles of Incorporation states that the "dues, together with all other obligations of
members to the club, shall constitute a first lien on the shares, second only to any lien in favor of the
national or local government, and in the event of delinquency such shares may be ordered sold by the
Board of Directors in the manner provided in the By-Laws to satisfy said dues or other obligations of the
stockholders."14 In turn, there are several provisions in the By-laws that govern the payment of dues, the
lapse into delinquency of the member, and the constitution and execution on the lien. We quote these
provisions:

ARTICLE XII – MEMBER’S ACCOUNT

SEC. 31. (a) Billing Members, Posting of Delinquent Members – The Treasurer shall bill al members
monthly. As soon as possible after the end of every month, a statement showing the account of bill of a
member for said month will be prepared and sent to him. If the bill of any member remains unpaid by the
20th of the month following that in which the bill was incurred, the Treasurer shall notify him that if his
bill is not paid in full by the end of the succeeding month his name will be posted as delinquent the
following day at the Clubhouse bulletin board. While posted, a member, the immediate members of his
family, and his guests, may not avail of the facilities of the Club.

(b) Members on the delinquent list for more than 60 days shall be reported to the Board and their
shares or the shares of the juridical entities they represent shall thereafter be ordered sold by the
Board at auction to satisfy the claims of the Club as provided for in Section 32 hereon. A member
may pay his overdue account at any time before the auction sale.

Sec. 32. Lien on Shares; Sale of Share at Auction- The club shall have a first lien on every share of stock to
secure debts of the members to the Club. This lien shall be annotated on the certificates of stock and may
be enforced by the Club in the following manner:

(a) Within ten (10) days after the Board has ordered the sale at auction of a member’s share of
stock for indebtedness under Section 31(b) hereof, the Secretary shall notify the owner thereof,
and shall advise the Membership Committee of such fact.

(b) The Membership Committee shall then notify all applicants on the Waiting List and all
registered stockholders of the availability of a share of stock for sale at auction at a specified date,
time and place, and shall post a notice to that effect in the Club bulletin board for at least ten (10)
days prior to the auction sale.
 (c) On the date and hour fixed, the Membership Committee shall proceed with the auction by viva
voce bidding and award the sale of the share of stock to the highest bidder.

(d) The purchase price shall be paid by the winning bidder to the Club within twenty-four (24)
hours after the bidding. The winning bidder or the representative in the case of a juridical entity
shall become a Regular Member upon payment of the purchase price and issuance of a new stock
certificate in his name or in the name of the juridical entity he represents. The proceeds of the sale
shall be paid by the Club to the selling stockholder after deducting his obligations to the Club.

(e) If no bids be received or if the winning bidder fails to pay the amount of this bid within twenty-
four (24) hours after the bidding, the auction procedures may be repeated from time to time at the
discretion of the Membership Committee until the share of stock be sold.

(f) If the proceeds from the sale of the share of stock are not sufficient to pay in full the
indebtedness of the member, the member shall continue to be obligated to the Club for the unpaid
balance. If the member whose share of stock is sold fails or refuse to surrender the stock
certificate for cancellation, cancellation shall be effected in the books of the Club based on a record
of the proceedings. Such cancellation shall render the unsurrendered stock certificate null and
void and notice to this effect shall be duly published.

It is plain that Calatagan had endeavored to install a clear and comprehensive procedure to govern the
payment of monthly dues, the declaration of a member as delinquent, and the constitution of a lien on the
shares and its eventual public sale to answer for the member’s debts. Under Section 91 of the Corporation
Code, membership in a non-stock corporation "shall be terminated in the manner and for the causes
provided in the articles of incorporation or the by-laws." The By-law provisions are elaborate in
explaining the manner and the causes for the termination of membership in Calatagan, through the
execution on the lien of the share. The Court is satisfied that the By-Laws, as written, affords due
protection to the member by assuring that the member should be notified by the Secretary of the looming
execution sale that would terminate membership in the club. In addition, the By-Laws guarantees that
after the execution sale, the proceeds of the sale would be returned to the former member after
deducting the outstanding obligations. If followed to the letter, the termination of membership under this
procedure outlined in the By-Laws would accord with substantial justice.

Yet, did Calatagan actually comply with the by-law provisions when it sold Clemente’s share? The
appellate court’s finding on this point warrants our approving citation, thus:

In accordance with this provision, Calatagan sent the third and final demand letter to Clemente on
December 7, 1992. The letter states that if the amount of delinquency is not paid, the share will be
included among the delinquent shares to be sold at public auction. This letter was signed by Atty.
Benjamin Tanedo, Jr., Calatagan Golf’s Corporate Secretary. It was again sent to Clemente’s mailing
address – Phimco Industries Inc., P.O. Box 240, MCC Makati. As expected, it was returned because the
post office box had been closed.

Under the By-Laws, the Corporate Secretary is tasked to "give or cause to be given, all notices required by
law or by these By-Laws. .. and … keep a record of the addresses of all stockholders. As quoted above, Sec.
32 (a) of the By-Laws further provides that "within ten (10) days after the Board has ordered the sale at
auction of a member’s share of stock for indebtedness under Section 31 (b) hereof, the Secretary shall
notify the owner thereof and shall advise the Membership Committee of such fact.," The records do not
disclose what report the Corporate Secretary transmitted to the Membership Committee to comply with
Section 32(a). Obviously, the reason for this mandatory requirement is to give the Membership
Committee the opportunity to find out, before the share is sold, if proper notice has been made to the
shareholder member.

We presume that the Corporate Secretary, as a lawyer is knowledgeable on the law and on the standards
of good faith and fairness that the law requires. As custodian of corporate records, he should also have
known that the first two letters sent to Clemente were returned because the P.O. Box had been closed.
Thus, we are surprised – given his knowledge of the law and of corporate records – that he would send
the third and final letter – Clemente’s last chance before his share is sold and his membership lost – to the
same P.O. Box that had been closed.

Calatagan argues that it "exercised due diligence before the foreclosure sale" and "sent several notices to
Clemente’s specified mailing address." We do not agree; we cannot label as due diligence Calatagan’s act
of sending the December 7, 1992 letter to Clemente’s mailing address knowing fully well that the P.O. Box
had been closed. Due diligence or good faith imposes upon the Corporate Secretary – the chief repository
of all corporate records – the obligation to check Clemente’s other address which, under the By-Laws,
have to be kept on file and are in fact on file. One obvious purpose of giving the Corporate Secretary the
duty to keep the addresses of members on file is specifically for matters of this kind, when the member
cannot be reached through his or her mailing address. Significantly, the Corporate Secretary does not
have to do the actual verification of other addressees on record; a mere clerk can do the very simple task
of checking the files as in fact clerks actually undertake these tasks. In fact, one telephone call to
Clemente’s phone numbers on file would have alerted him of his impending loss.

Ultimately, the petition must fail because Calatagan had failed to duly observe both the spirit and letter of
its own by-laws. The by-law provisions was clearly conceived to afford due notice to the delinquent
member of the impending sale, and not just to provide an intricate façade that would facilitate Calatagan’s
sale of the share. But then, the bad faith on Calatagan’s part is palpable. As found by the Court of Appeals,
Calatagan very well knew that Clemente’s postal box to which it sent its previous letters had already been
closed, yet it persisted in sending that final letter to the same postal box. What for? Just for the exercise, it
appears, as it had known very well that the letter would never actually reach Clemente.1avvphi1

It is noteworthy that Clemente in his membership application had provided his residential address along
with his residence and office telephone numbers. Nothing in Section 32 of Calatagan’s By-Laws requires
that the final notice prior to the sale be made solely through the member’s mailing address. Clemente
cites our aphorism-like pronouncement in Rizal Commercial Banking Corporation v. Court of
Appeals15 that "[a] simple telephone call and an ounce of good faith x x x could have prevented this
present controversy." That memorable observation is quite apt in this case.

Calatagan’s bad faith and failure to observe its own By-Laws had resulted not merely in the loss of
Clemente’s privilege to play golf at its golf course and avail of its amenities, but also in significant
pecuniary damage to him. For that loss, the only blame that could be thrown Clemente’s way was his
failure to notify Calatagan of the closure of the P.O. Box. That lapse, if we uphold Calatagan would cost
Clemente a lot. But, in the first place, does he deserve answerability for failing to notify the club of the
closure of the postal box? Indeed, knowing as he did that Calatagan was in possession of his home
address as well as residence and office telephone numbers, he had every reason to assume that the club
would not be at a loss should it need to contact him. In addition, according to Clemente, he was not even
aware of the closure of the postal box, the maintenance of which was not his responsibility but his
employer Phimco’s.

The utter bad faith exhibited by Calatagan brings into operation Articles 19, 20 and 21 of the Civil
Code,16 under the Chapter on Human Relations. These provisions, which the Court of Appeals did apply,
enunciate a general obligation under law for every person to act fairly and in good faith towards one
another. A non-stock corporation like Calatagan is not exempt from that obligation in its treatment of its
members. The obligation of a corporation to treat every person honestly and in good faith extends even
to its shareholders or members, even if the latter find themselves contractually bound to perform certain
obligations to the corporation. A certificate of stock cannot be a charter of dehumanization.

We turn to the matter of damages. The award of actual damages is of course warranted since Clemente
has sustained pecuniary injury by reason of Calatagan’s wrongful violation of its own By-Laws. It would
not be feasible to deliver Clemente’s original Certificate of Stock because it had already been cancelled
and a new one issued in its place in the name of the purchases at the auction who was not impleaded in
this case. However, the Court of Appeals instead directed that Calatagan to issue to Clemente a new
certificate of stock. That sufficiently redresses the actual damages sustained by Clemente. After all, the
certificate of stock is simply the evidence of the share.

The Court of Appeals also awarded Clemente ₱200,000.00 as moral damages, ₱100,000.00 as exemplary
damages, and ₱100,000.00 as attorney’s fees. We agree that the award of such damages is warranted.

The Court of Appeals cited Calatagan for violation of Article 32 of the Civil Code, which allows recovery of
damages from any private individual "who directly or indirectly obstructs, defeats, violates or in any
manner impedes or impairs" the right "against deprivation of property without due process of laws." The
plain letter of the provision squarely entitles Clemente to damages from Calatagan. Even without Article
32 itself, Calatagan will still be bound to pay moral and exemplary damages to Clemente. The latter was
able to duly prove that he had sustained mental anguish, serious anxiety and wounded feelings by reason
of Calatagan’s acts, thereby entitling him to moral damages under Article 2217 of the Civil Code.
Moreover, it is evident that Calatagan’s bad faith as exhibited in the

course of its corporate actions warrants correction for the public good, thereby justifying exemplary
damages under Article 2229 of the Civil Code.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals is AFFIRMED. Costs against
petitioner.

SO ORDERED.

G.R. No. 177066 September 11, 2009

JOSELITO MUSNI PUNO (as heir of the late Carlos Puno), Petitioner,
vs.
PUNO ENTERPRISES, INC., represented by JESUSA PUNO, Respondent.

DECISION

NACHURA, J.:
Upon the death of a stockholder, the heirs do not automatically become stockholders of the corporation;
neither are they mandatorily entitled to the rights and privileges of a stockholder. This, we declare in this
petition for review on certiorari of the Court of Appeals (CA) Decision1 dated October 11, 2006 and
Resolution dated March 6, 2007 in CA-G.R. CV No. 86137.

The facts of the case follow:

Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno Enterprises, Inc. On
March 14, 2003, petitioner Joselito Musni Puno, claiming to be an heir of Carlos L. Puno, initiated a
complaint for specific performance against respondent. Petitioner averred that he is the son of the
deceased with the latter’s common-law wife, Amelia Puno. As surviving heir, he claimed entitlement to
the rights and privileges of his late father as stockholder of respondent. The complaint thus prayed that
respondent allow petitioner to inspect its corporate book, render an accounting of all the transactions it
entered into from 1962, and give petitioner all the profits, earnings, dividends, or income pertaining to
the shares of Carlos L. Puno.2

Respondent filed a motion to dismiss on the ground that petitioner did not have the legal personality to
sue because his birth certificate names him as "Joselito Musni Muno." Apropos, there was yet a need for a
judicial declaration that "Joselito Musni Puno" and "Joselito Musni Muno" were one and the same.

The court ordered that the proceedings be held in abeyance, ratiocinating that petitioner’s certificate of
live birth was no proof of his paternity and relation to Carlos L. Puno.

Petitioner submitted the corrected birth certificate with the name "Joselito M. Puno," certified by the Civil
Registrar of the City of Manila, and the Certificate of Finality thereof. To hasten the disposition of the case,
the court conditionally admitted the corrected birth certificate as genuine and authentic and ordered
respondent to file its answer within fifteen days from the order and set the case for pretrial.3

On October 11, 2005, the court rendered a Decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering Jesusa Puno and/or Felicidad Fermin to allow the
plaintiff to inspect the corporate books and records of the company from 1962 up to the present
including the financial statements of the corporation.

The costs of copying shall be shouldered by the plaintiff. Any expenses to be incurred by the defendant to
be able to comply with this order shall be the subject of a bill of costs.

SO ORDERED.4

On appeal, the CA ordered the dismissal of the complaint in its Decision dated October 11, 2006.
According to the CA, petitioner was not able to establish the paternity of and his filiation to Carlos L. Puno
since his birth certificate was prepared without the intervention of and the participatory
acknowledgment of paternity by Carlos L. Puno. Accordingly, the CA said that petitioner had no right to
demand that he be allowed to examine respondent’s books. Moreover, petitioner was not a stockholder of
the corporation but was merely claiming rights as an heir of Carlos L. Puno, an incorporator of the
corporation. His action for specific performance therefore appeared to be premature; the proper action to
be taken was to prove the paternity of and his filiation to Carlos L. Puno in a petition for the settlement of
the estate of the latter.5
Petitioner’s motion for reconsideration was denied by the CA in its Resolution6 dated March 6, 2007.

In this petition, petitioner raises the following issues:

I. THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT THE JOSELITO PUNO IS
ENTITLED TO THE RELIEFS DEMANDED HE BEING THE HEIR OF THE LATE CARLOS PUNO, ONE OF THE
INCORPORATORS [OF] RESPONDENT CORPORATION.

II. HONORABLE COURT OF APPEALS ERRED IN RULING THAT FILIATION OF JOSELITO PUNO, THE
PETITIONER[,] IS NOT DULY PROVEN OR ESTABLISHED.

III. THE HONORABLE COURT ERRED IN NOT RULING THAT JOSELITO MUNO AND JOSELITO PUNO
REFERS TO THE ONE AND THE SAME PERSON.

IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT WHAT RESPONDENT MERELY
DISPUTES IS THE SURNAME OF THE PETITIONER WHICH WAS MISSPELLED AND THE FACTUAL
ALLEGATION E.G. RIGHTS OF PETITIONER AS HEIR OF CARLOS PUNO ARE DEEMED ADMITTED
HYPOTHETICALLY IN THE RESPONDENT[’S] MOTION TO DISMISS.

V. THE HONORABLE COURT OF APPEALS THEREFORE ERRED I[N] DECREEING THAT PETITIONER IS
NOT ENTITLED TO INSPECT THE CORPORATE BOOKS OF DEFENDANT CORPORATION.7

The petition is without merit. Petitioner failed to establish the right to inspect respondent corporation’s
books and receive dividends on the stocks owned by Carlos L. Puno.

Petitioner anchors his claim on his being an heir of the deceased stockholder. However, we agree with the
appellate court that petitioner was not able to prove satisfactorily his filiation to the deceased
stockholder; thus, the former cannot claim to be an heir of the latter.

Incessantly, we have declared that factual findings of the CA supported by substantial evidence, are
conclusive and binding.8 In an appeal via certiorari, the Court may not review the factual findings of the
CA. It is not the Court’s function under Rule 45 of the Rules of Court to review, examine, and evaluate or
weigh the probative value of the evidence presented.9

A certificate of live birth purportedly identifying the putative father is not competent evidence of
paternity when there is no showing that the putative father had a hand in the preparation of the
certificate. The local civil registrar has no authority to record the paternity of an illegitimate child on the
information of a third person.10 As correctly observed by the CA, only petitioner’s mother supplied the
data in the birth certificate and signed the same. There was no evidence that Carlos L. Puno
acknowledged petitioner as his son.

As for the baptismal certificate, we have already decreed that it can only serve as evidence of the
administration of the sacrament on the date specified but not of the veracity of the entries with respect to
the child’s paternity.11

In any case, Sections 74 and 75 of the Corporation Code enumerate the persons who are entitled to the
inspection of corporate books, thus —
Sec. 74. Books to be kept; stock transfer agent. — x x x.

The records of all business transactions of the corporation and the minutes of any meeting shall be open
to the inspection of any director, trustee, stockholder or member of the corporation at reasonable hours
on business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at
his expense.

xxxx

Sec. 75. Right to financial statements. — Within ten (10) days from receipt of a written request of any
stockholder or member, the corporation shall furnish to him its most recent financial statement, which
shall include a balance sheet as of the end of the last taxable year and a profit or loss of statement for said
taxable year, showing in reasonable detail its assets and liabilities and the result of its operations.12

The stockholder’s right of inspection of the corporation’s books and records is based upon his ownership
of shares in the corporation and the necessity for self-protection. After all, a shareholder has the right to
be intelligently informed about corporate affairs.13 Such right rests upon the stockholder’s underlying
ownership of the corporation’s assets and property.14

Similarly, only stockholders of record are entitled to receive dividends declared by the corporation, a
right inherent in the ownership of the shares.151avvphi1

Upon the death of a shareholder, the heirs do not automatically become stockholders of the corporation
and acquire the rights and privileges of the deceased as shareholder of the corporation. The stocks must
be distributed first to the heirs in estate proceedings, and the transfer of the stocks must be recorded in
the books of the corporation. Section 63 of the Corporation Code provides that no transfer shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation. 16 During
such interim period, the heirs stand as the equitable owners of the stocks, the executor or administrator
duly appointed by the court being vested with the legal title to the stock.17 Until a settlement and division
of the estate is effected, the stocks of the decedent are held by the administrator or
executor.18 Consequently, during such time, it is the administrator or executor who is entitled to exercise
the rights of the deceased as stockholder.

Thus, even if petitioner presents sufficient evidence in this case to establish that he is the son of Carlos L.
Puno, he would still not be allowed to inspect respondent’s books and be entitled to receive dividends
from respondent, absent any showing in its transfer book that some of the shares owned by Carlos L.
Puno were transferred to him. This would only be possible if petitioner has been recognized as an heir
and has participated in the settlement of the estate of the deceased.

Corollary to this is the doctrine that a determination of whether a person, claiming proprietary rights
over the estate of a deceased person, is an heir of the deceased must be ventilated in a special proceeding
instituted precisely for the purpose of settling the estate of the latter. The status of an illegitimate child
who claims to be an heir to a decedent’s estate cannot be adjudicated in an ordinary civil action, as in a
case for the recovery of property.19 The doctrine applies to the instant case, which is one for specific
performance — to direct respondent corporation to allow petitioner to exercise rights that pertain only
to the deceased and his representatives.
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated October
11, 2006 and Resolution dated March 6, 2007 are AFFIRMED.

SO ORDERED.

G.R. No. 116631 October 28, 1998

MARSH THOMSON, petitioner,

vs.
COURT OF APPEALS and THE AMERICAN CHAMPER OF COMMERCE OF THE PHILIPPINES,
INC, respondents.

QUISUMBING, J.:

This is a petition for review on certiorari seeking the reversal of the Decision 1 of the Court of Appeals
on May 19, 1994, disposing as follows:

WHEREFORE, THE DECISION APPEALED FROM IS HEREBY SET ASIDE. ANOTHER

JUDGMENT IS ENTERED ORDERING DEFENDANT-APPELLEE MARSH THOMSON TO
TRANSFER THE SAID MPC [Manila Polo Club] SHARE TO THE NOMINEE OF THE
APPELLANT.

The facts of the case are:

Petitioner Marsh Thomson (Thomson) was the Executive Vice-President and, later on, the
Management Consultant of private respondent, the American Chamber of Commerce of the
Philippines, Inc. (AmCham) for over ten years, 1979-1989.

While petitioner was still working with private respondent, his superior, A. Lewis Burridge,
retired as AmCham's President. Before Burridge decided to return to his home country, he wanted
to transfer his proprietary share in the Manila Polo Club (MPC) to petitioner. However, through
the intercession of Burridge, private respondent paid for the share but had it listed in petitioner's
name. This was made clear in an employment advice dated January 13, 1986, wherein petitioner
was informed by private respondent as follows:

xxx xxx xxx

11. If you so desire, the Chamber is willing to acquire for your use a
membership in the Manila Polo Club. The timing of such acquisition
shall be subject to the discretion of the Board based on the Chamber's
financial position. All dues and other charges relating to such
membership shall be for your personal account. If the membership is
acquired in your name, you would execute such documents as
necessary to acknowledge beneficial ownership thereof by the
Chamber. 2
 xxx xxx xxx

On April 25, 1986, Burridge transferred said proprietary share to petitioner, as confirmed in a
letter3 of notification to the Manila Polo Club.

Upon his admission as a new member of the MPC, petitioner paid the transfer fee of P40,000.00
from his own funds; but private respondent subsequently reimbursed this amount. On November
19, 1986, MPC issued Proprietary Membership Certificate Number 3398 in favor of petitioner. But
petitioner, however, failed to execute a document recognizing private respondent's beneficial
ownership over said share.

Following AmCham's policy and practice, there was a yearly renewal of employment contract
between the petitioner and private respondent. Separate letters of employment advice dated
October 1, 19864, as well March 4, 19885 and January 7, 19896, mentioned the MPC share. But
petitioner never acknowledged that private respondent is the beneficial owner of the share as
requested in follow-up requests, particularly one dated March 4, 1988 as follows:

Dear Marsh:

xxx xxx xxx

All other provisions of your compensation/benefit package will remain the same and
are summarized as follows:

xxx xxx xxx

9) The Manila Polo Club membership provided by the Chamber for you
and your family will continue on the same basis, to wit: all dues and
other charges relating to such membership shall be for your personal
account and, if you have not already done so, you will execute such
documents as are necessary to acknowledge that the Chamber is the
beneficial owner of your membership in the
Club. 7

When petitioner's contract of employment was up for renewal in 1989, he notified private
respondent that he would no longer be available as Executive Vice President after September 30,
1989. Still, the private respondent asked the petitioner to stay on for another six (6) months.
Petitioner indicated his acceptance of the consultancy arrangement with a counter-proposal in his
letter dated October 8, 1989, among others as follows:

11.) Retention of the Polo Club share, subject to my reimbursing the

purchase price to the Chamber, or one hundred ten thousand pesos
(P110,000.00).8

Private respondent rejected petitioner's counter-proposal.

Pending the negotiation for the consultancy arrangement, private respondent executed on
September 29, 1989 a Release and Quitclaim,9 stating that "AMCHAM, its directors, officers and
assigns, employees and/or representatives do hereby release, waive, abandon and discharge J.
MARSH THOMSON from any and all existing claims that the AMCHAM, its directors, officers and
assigns, employees and/or representatives may have against J. MARSH THOMSON." 10 The
quitclaim, expressed in general terms, did not mention specifically the MPC share.

On April 5, 1990, private respondent, through counsel sent a letter to the petitioner demanding
the return and delivery of the MPC share which "it (AmCham) owns and placed in your
(Thomson's) name." 11

Failing to get a favorable response, private respondent filed on May 15, 1990, a complaint against
petitioner praying, inter alia, that the Makati Regional Trial Court render judgment ordering
Thomson "to return the Manila Polo Club share to the plaintiff and transfer said share to the
nominee of plaintiff." 12

On February 28, 1992, the trial court promulgated its decision, 13 thus:

The foregoing considered judgment is rendered as follows:

1) The ownership of the contested Manila Polo Club share is

adjudicated in favor of defendant Marsh Thomson; and;

2) Defendant shall pay plaintiff the sum of P300,000.00

Because both parties thru their respective faults have somehow contributed to the
birth of this case, each shall bear the incidental expenses incurred. 14

In said decision, the trial court awarded the MPC share to defendant (petitioner now) on the
ground that the Articles of Incorporation and By-laws of Manila Polo Club prohibit artificial
persons, such as corporations, to be club members, ratiocinating in this manner:

An assessment of the evidence adduced by both parties at the trial will show clearly
that it was the intention of the parties that a membership to Manila Polo Club was to
be secured by plaintiff [herein private respondent] for defendant's [herein
petitioner] use. The latter was to execute the necessary documents to acknowledge
ownership of the Polo membership in favor of plaintiff. (Exh. C par 9) However, when
the parties parted ways in disagreement and with some degree of bitterness, the
defendant had second thoughts and decided to keep the membership for himself.
This is evident from the exhibits (E & G) where defendant asked that he retained the
Polo Club membership upon reimbursement of its purchase price; and where he
showed his "profound disappointment, both at the previous Board's unfair action,
and at what I consider to be harsh terms, after my long years of dedication to the
Chamber's interest."

xxx xxx xxx

Notwithstanding all these evidence in favor of plaintiff, however, defendant may not
be declared the owner of the contested membership be compelled to execute
 documents transferring the Polo Membership to plaintiff or the latter's nominee for
the reason that this is prohibited by Polo Club's Articles & By-Laws. . . .

It is for the foregoing reasons that the Court rules that the ownership of the
questioned Polo Club membership be retained by defendant. 15 . . . .

Not satisfied with the trial court's decision, private respondent appealed to the Court of Appeals.

On May 19, 1994, the Court of Appeals (Former Special Sixth Division) promulgated its
decision 16 in said CA-G.R. CV No. 38417, reversing the, trial court's judgment and ordered herein
petitioner to transfer the MPC share to the nominee of private respondent, reasoning thus:

xxx xxx xxx

The significant fact in the instant case is that the appellant [herein private
respondent] purchased the MPC share for the use of the appellee [herein petitioner]
and the latter expressly conformed thereto as shown in Exhibits A-1, B, B-1, C, C-1, D,
D-1. By such express conformity of the appellee, the former was bound to recognize
the appellant as the owner of the said share for a contract has the force of law
between the parties. (Alim vs. CA, 200 SCRA 450; Sasuhura Company, Inc., Ltd. vs. IAC,
205 SCRA 632) Aside from the foregoing, the appellee conceded the true ownership
of the said share to the appellant when (1) he offered to buy the MPC share from the
appellant (Exhs. E and E-1) upon the termination of his employment; (2) he obliged
himself to return the MPC share after his six month consultancy contract had
elapsed, unless its return was earlier requested in writting (Exh. I); and (3) on cross-
examination, he admitted that the proprietary share listed as one of the assets of the
appellant corporation in its 1988 Corporate Income Tax Return, which he signed as
the latter's Executive Vice President (prior to its filing), refers to the Manila Polo
Club Share (tsn., pp. 19-20, August 30, 1991). . . . 17

On 16 June 1994, petitioner filed a motion for reconsideration 18 of said decision. By

resolution 19promulgated on August 4, 1994, the Court of Appeals denied the motion for
reconsideration.

In this petition for review, petitioner alleges the following errors of public respondent as grounds
for our review:

I. The respondent Court of Appeals erred in setting aside the Decision

dated 28 February 1992 of the Regional Trial Court, NCJR, Branch 65,
Makati, Metro Manila, in its Civil Case No. 90-1286, and in not
confirming petitioner's ownership over the MPC membership share.

II. The respondent Court of Appeals erred in ruling that "the Quitclaim
executed by AmCham in favor of petitioner of September 29, 1989 was
superseded by the contractual agreement entered into by the parties on
October 13, 1989 wherein again the appellee acknowledged that the
appellant owned the MPC share, there being absolutely no evidence to
 support such a conclusion and/or such inference is manifestly
mistaken.

III. The respondent Court of Appeals erred in rendering judgment

ordering petitioner to transfer the contested MPC share to a nominee of
respondent AmCham notwithstanding that: (a) AmCham has no
standing in the Manila Polo Club (MPG), and being an artificial person, it
is precluded under MPC's Articles of Incorporation and governing rules
and regulations from owning a proprietary share or from becoming a
member thereof: and (b) even under AmCham's Articles of
Incorporation, the purposes for which it is dedicated, becoming a
stockholder or shareholder in other corporation is not one of the
express implied powers fixed in AmCham's said corporate franchise. 20

As posited above, these assigned errors show the disputed matters herein are mainly factual. As
such they are best left to the trial and appellate courts' disposition. And this Court could have
dismissed the petition outright, were it not for the opposite results reached by the courts below.
Moreover, for the enhanced appreciation of the jural relationship between the parties involving
trust, this Court has given due course to the petition, which we now decide.

After carefully considering the pleadings on record, we find there are two main issues to be
resolved: (1) Did respondent court err in holding that private respondent is the beneficial owner
of the disputed share? (2) Did the respondent court err in ordering petitioner to transfer said
share to private respondent's nominees?

Petitioner claims ownership of the MPC share, asserting that he merely incurred a debt to
respondent when the latter advanced the funds for the purchase of the share. On the other hand,
private respondent asserts beneficial ownership whereby petitioner only holds the share in his
name, but the beneficial title belongs to private respondent. To resolve the first issue, we must
clearly distinguish a debt from a trust.

The beneficiary of a trust has beneficial interest in the trust property, while a creditor has merely
a personal claim against the debtor. In trust, there is a fiduciary relation between a trustee and a
beneficiary, but there is no such relation between a debtor and creditor. While a debt implies
merely an obligation to pay a certain sum of money, a trust refers to a duty to deal with a specific
property for the benefit of another. If a creditor-debtor relationship exists, but not a fiduciary
relationship between the parties, there is no express trust. However, it is understood that when
the purported trustee of funds is entitled to use them as his or her own (and commingle them with
his or her own money), a debtor-creditor relationship exists, not a trust. 21

In the present case, as the Executive Vice-President of AmCham, petitioner occupied a fiduciary
position in the business of AmCham. AmCham released the funds to acquire a share in the Club for
the use of petitioner but obliged him to "execute such document as necessary to acknowledge
beneficial ownership thereof by the Chamber". 22 A trust relationship is, therefore, manifestly
indicated.

Moreover, petitioner failed to present evidence to support his allegation of being merely a debtor
when the private respondent paid the purchase price of the MPC share. Applicable here is the rule
that a trust arises in favor of one who pays the purchase money of property in the name of
another, because of the presumption that he who pays for a thing intends a beneficial interest
therein for himself. 23

Although petitioner initiated the acquisition of the share, evidence on record shows that private
respondent acquired said share with its funds. Petitioner did not pay for said share, although he
later wanted to, but according to his own terms, particularly the price thereof.

Private respondent's evident purpose in acquiring the share was to provide additional incentive
and perks to its chosen executive, the petitioner himself. Such intention was repeated in the
yearly employment advice prepared by AmCham for petitioner's concurrence. In the cited
employment advice, dated March 4, 1988, private respondent once again, asked the petitioner to
execute proof to recognize the trust agreement in writing:

The Manila Polo membership provided by the Chamber for you and your family will
continue on the same basis, to wit: all dues and other charges relating to such
membership shall be for your personal account and, if you have not already done so,
you will execute such documents as are necessary to acknowledge that the Chamber
is the beneficial owner of your membership in the Club. 24

Petitioner voluntarily affixed his signature to conform with the employment advice, including his
obligation stated therein — for him to execute the necessary document to recognize his employer
as the beneficial owner of the MPC share. Now, we cannot hear him claiming otherwise, in
derogation of said undertaking, without legal and equitable justification.

For private respondent's intention to hold on to its beneficial ownership is not only presumed; it
was expressed in writing at the very outset. Although the share was placed in the name of
petitioner, his title is limited to the usufruct, that is, to enjoy the facilities and privileges of such
membership in the club appertaining to the share. Such arrangement reflects a trust relationship
governed by law and equity.

While private respondent paid the purchase price for the share, petitioner was given legal title
thereto. Thus, a resulting trust is presumed as a matter of law. The burden then shifted to the
transferee to show otherwise, that it was just a loan. Such resulting trust could have been rebutted
by proof of a contrary intention by a showing that, in fact, no trust was intended. Petitioner could
have negated the trust agreement by contrary, consistent and convincing evidence on rebuttal.
However, on the witness stand, petitioner failed to do so persuasively.

On cross-examination, the petitioner testified as follows:

ATTY. AQUINO (continuing)

Q. Okay, let me go to the cash advance that you mentioned Mr. Witness,
is there any document proving that you claimed cash advance signed by
an officer of the Chamber?

A. I believe the best evidence is the check.

 Q. Is there any document?

COURT

Other than the Check?

MR. THOMSON

Nothing more.

ATTY. AQUINO

Is there any application filed in the Chamber to avail of this cash

advance?

A. Verbal only.

Q. Nothing written, and can you tell to this Honorable Court what are
the stipulations or conditions, or terms of this transaction of securing
this cash advance or loan?

xxx xxx xxx

COURT

How are you going to repay the cash advance?

MR. THOMSON

The cash advance, we never stipulate when I have to repay it, but I
presume that I would, when able to repay the money. 25

In deciding whether the property was wrongfully appropriated or retained and what the intent of
the parties was at the time of the conveyance, the court must rely upon its impression of the
credibility of the witnesses. 26 Intent is a question of fact, the determination of which is not
reviewable unless the conclusion drawn by the trier is one which could not reasonably be
drawn. 27 Petitioner's denial is not adequate to rebut the trust. Time and again, we have ruled that
denials, if unsubstantiated by clear and convincing evidence, are deemed negative and self-
serving evidence, unworthy of credence. 28

The trust between the parties having been established, petitioner advanced an alternative
defense that the private respondent waived the beneficial ownership of MPC share by issuing the
Release and Quitclaim in his favor.

This argument is less than persuasive. The quitclaim executed by private respondent does not
clearly show the intent to include therein the ownership over the MPC share. Private respondent
even asserts that at the time the Release and Quitclaim was executed on September 29, 1989, the
ownership of the MPC share was not controversial nor contested. Settled is the rule that a waiver
to be valid and effective must, in the first place, be couched in clear and unequivocal terms which
leave no doubt as to the intention of a party to give up a right or benefit which legally pertains to
him. 29 A waiver may not be attributed to a person when the terms thereof do not explicitly and
clearly evidence an intent to abandon a right vested in such person. 30 If we apply the standard
rule that waiver must be cast in clear and unequivocal terms, then clearly the general terms of the
cited release and quitclaim indicates merely a clearance from general accountability, not
specifically a waiver of AmCham's beneficial ownership of the disputed shares.

Additionally, the intention to waive a right or advantage must be shown clearly and convincingly,
and when the only proof of intention rests in what a party does, his act should be so manifestly
consistent with, and indicative of, an intent to voluntarily relinquish the particular right or
advantage that no other reasonable explanation of his conduct is possible. 31 Considering the
terms of the quitclaim executed by the President of private respondent, the tenor of the document
does not lead to the purported conclusion that be intended to renounce private respondent's
beneficial title over its share in the Manila Polo Club. We, therefore, find no reversible error in the
respondent Court's holding that private respondent, AmCham, is the beneficial owner of the share
in dispute.

Turning now to the second issue, the petitioner contends that the Articles of Incorporation and
By-laws of Manila Polo Club prohibit corporate membership. However, private respondent does
not insist nor intend to transfer the club membership in its name but rather to its designated
nominee. For as properly ruled by the Court of Appeals:

The matter prayed for does not involve the transfer of said share to the appellant, an
artificial person. The transfer sought is to the appellant's nominee. Even if the MPC
By-Laws and Articles prohibit corporate membership, there would be no violation of
said prohibition for the appellant's nominee to whom the said share is sought to be
transferred would certainly be a natural person. . . .

As to whether or not the transfer of said share the appellant's nominee would be
disapproved by the MPC, is a matter that should be raised at the proper time, which
is only if such transfer is disapproved by the MPC. 32

The Manila Polo Club does not necessarily prohibit the transfer of proprietary shares by its
members. The Club only restricts membership to deserving applicants in accordance with its
rules, when the amended Articles of Incorporation states that: "No transfer shall be valid except
between the parties, and shall be registered in the Membership Book unless made in accordance
with these Articles and the By-Laws". 33Thus, as between parties herein, there is no question that
a transfer is feasible. Moreover, authority granted to a corporation to regulate the transfer of its
stock does not empower it to restrict the right of a stockholder to transfer his shares, but merely
authorizes the adoption of regulations as to the formalities and procedure to be followed in
effecting transfer. 34

In this case, the petitioner was the nominee of the private respondent to hold the share and enjoy
the privileges of the club. But upon the expiration of petitioner's employment as officer and
consultant of AmCham, the incentives that go with the position, including use of the MPC share,
also ceased to exist. It now behooves petitioner to surrender said share to private respondent's
next nominee, another natural person. Obviously this arrangement of trust and confidence cannot
be defeated by the petitioner's citation of the MPC rules to shield his untenable position, without
doing violence to basic tenets of justice and fair dealing.

However, we still have to ascertain whether the rights of herein parties to the trust still subsist. It
has been held that so long as there has been no denial or repudiation of the trust, the possession
of the trustee of an express and continuing trust is presumed to be that of the beneficiary, and the
statute of limitations does not run between them. 35 With regard to a constructive or a resulting
trust, the statute of limitations does not begin to run until the trustee clearly repudiates or
disavows the trust and such disavowal is brought home to the other party, "cestui que
trust". 36 The statute of limitations runs generally from the time when the act was done by which
the party became chargeable as a trustee by operation of law or when the beneficiary knew that
he had a cause of action, 37 in the absence of fraud or concealment.

Noteworthy in the instant case, there was no declared or explicit repudiation of the trust existing
between the parties. Such repudiation could only be inferred as evident when the petitioner
showed his intent to appropriate the MPC share for himself. Specifically, this happened when he
requested to retain the MPC share upon his reimbursing the purchase price of P110,000, a
request denied promptly by private respondent. Eventually, petitioner refused to surrender the
share despite the written demand of private respondent. This act could then be construed as
repudiation of the trust. The statute of limitation could start to set in at this point in time. But
private respondent took immediate positive action. Thus, on May 15, 1990, private respondent
filed an action to recover the MPC share. Between the time of implicit repudiation of the trust on
October 9, 1989, as evidenced by petitioner's letter of said date, and private respondent's
institution of the action to recover the MPC share on May 15, 1990, only about seven months bad
lapsed. Our laws on the matter provide that actions to recover movables shall prescribe eight
years from the time the possession thereof is lot, 38 unless the possessor has acquired the
ownership by prescription for a less period of four years if in good faith. 39 Since the private
respondent filed the necessary action on time and the defense of good faith is not available to the
petitioner, there is no basis for any purported claim of prescription, after repudiation of the trust,
which will entitle petitioner to ownership of the disputed share. As correctly held by the
respondent court, petitioner has the obligation to transfer now said share to the nominee of
private respondent.

WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals
of May 19, 1994, is AFFIRMED.

COSTS against petitioner.

SO ORDERED.

G.R. No. 172556 June 9, 2006

TRANS MIDDLE EAST (PHILS.), Petitioner,

vs.
SANDIGANBAYAN (5th Division) PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG),
The Board of Directors of Equitable PCI Bank, represented by its Chairman, CORAZON DELA PAZ
and SABINO ACUT, JR. (in his capacity as Corporate Secretary of Equitable PCI Bank), Respondents.
 DECISION

TINGA, J.:

The integrity of the judicial system is founded on the soundness and rationality of the judgments
emanating from it. Decisions which are blatantly erroneous or founded on oblique reasoning inevitably
foment doubt within the dispirited public as to the impartiality and judiciousness of the magistrates
concerned. A critical eye must especially be cast on rulings which are not only wrong, haphazardly
grounded and obtusely one-sided, but fortuitously timed to engender the most advantage to the victor
and damage to the loser.

This Petition for Certiorari was filed by petitioner Trans Middle East (Phil.) Equities Inc. (TMEE), the
registered owners of erstwhile sequestered shares in Equitable-PCI Bank (EPCIB) assailing a
Resolution1 promulgated by the Sandiganbayan on 22 May 2006. The Resolution declared that a
Temporary Restraining Order (TRO) initially issued 14 years ago by this Court in cases that were closed
and terminated ten years ago, remained in effect, thus disqualifying TMEE from voting on its shares. The
annual stockholders meeting of EPCIB was scheduled on 23 May 2006, or the day after the Resolution
was promulgated, leaving questions as to the timing of the promulgation. In any event, the Resolution is
rooted in dubious and erroneous legal premises. The writ of certiorari lies.

A narration of the relevant antecedents ensues.

TMEE is the registered owner of 6,119,067 common shares of stock in the then PCBank, now Equitable-
PCI Bank. On 15 April 1986, these shares were sequestered by the Presidential Commission on Good
Government (PCGG) on the theory that as they actually belong to Benjamin Romualdez they constitute
illegally acquired wealth. Thereafter, a complaint, docketed as Civil Case No. 0035, was filed against
Romualdez by the PCGG before the Sandiganbayan for the recovery of these shares. Upon motion, TMEE
was allowed to intervene by the Sandiganbayan, and it sought to enjoin the PCGG from voting these
shares.

In 1991, the Sandiganbayan, upon motion of TMEE, issued resolutions that enjoined the PCGG from
voting the shares of TMEE and authorized TMEE in exercising its voting rights. These resolutions were
challenged before the Supreme Court, through petitions docketed as G.R. Nos. 105808 and 105809. The
Court then issued a TRO enjoining the implementation of the Sandiganbayan resolutions. Subsequently,
G.R. Nos. 105808 and 105809 were consolidated with several other cases, which were collectively
resolved the Court in a 23 January 1995 consolidated decision entitled Republic v. Sandiganbayan.2 The
Court resolved to maintain the TRO it issued enjoining the implementation of the 1991 orders of the
Sandiganbayan, decreeing as follows:

WHEREFORE, judgment is hereby rendered:

xxxx

B. CONFIRMING AND MAINTAINING the temporary restraining orders issued in G.R. Nos. 104883,
105170, 105206, 105808, 105809, 107233, and 107908, which shall continue in force and effect during
the continuation of the proceedings in the corresponding civil actions in the Sandiganbayan, subject to
the latter’s power to modify or terminate the same in the exercise of its sound discretion in light of such
evidence as may subsequently be adduced.3 (Emphasis supplied)
In a subsequent Resolution dated 22 July 1997, concerning pending motions for contempt against PCI
Bank and TMEE, the Court found it necessary to render the following rulings:

WHEREFORE, the Court Resolved:

xxxx

II. To DIRECT the Sandiganbayan, in reiteration of this Court’s prior directives, promptly to adjudicate
after due trial and proper proceedings the ultimate factual issue of whether or not the movant’s are the
legitimate, bona fide owners of the sequestered shares of stock (or the same constitute ill-gotten wealth
which should revert to and be forefeited in favor of the Republic, represented by the PCGG); and pending
such adjudication, resolve, with all deliberate dispatch but not later than sixty (60) days from notice of
this Resolution, the preliminary questions of whether there is prima facie factual foundation for the
sequestration of said stock, and for reasonable ground for apprehension of dissipation, loss or wastage of
assets if the holders of the sequestered stock are permitted to vote them;

III. To COMMAND TMEE and the PCGG forthwith to formally request the Sandiganbayan to set Civil Case
No. 0035 for hearing so that the issues set out in the immediately preceding paragraph hereof may be
determined with all deliberate dispatch; and

IV. To PROHIBIT from this date and until completion by the Sandiganbayan of its determination of the
preliminary questions set out in paragraph II hereof, the exercise of the right to vote pertaining to the
sequestered PCIB shares of stock in question by either the PCGG or TMEE at any meeting of the PCIB.4

Meanwhile, in January and February of 1997, TMEE filed two motions before the Sandiganbayan, both
urging the nullification or lifting of the writ of sequestration. It contended that no valid writ of
sequestration was ever issued, the sequestration having been effected through a letter dated 15 April
1986 addressed to EPCIB signed by only one PCGG commissioner, in violation of the PCGG Rules and
Regulations promulgated on 11 April 1986 that required writs of sequestration to be issued by at least
two commissioners. While TMEE argued that it was entitled to the actual custody and control of the
shares, it nonetheless manifested that it was willing to deposit these shares in escrow to allay any fear of
dissipation, loss or wastage of the subject shares, as well as on all future cash and stock dividends to be
declared on the said shares.

In April of 1998, PCGG filed with the Sandiganbayan a Motion for Issuance of Restraining Order, seeking
to enjoin the holding of the EPCIB stockholders meeting on 30 April 1998, on the ground that since the
1997 Supreme Court Resolution enjoined both the PCGG and TMEE from voting the sequestered stocks,
these shares stood to be diluted considering a proposal in the agenda to increase the authorized capital
stock of EPCIB, among others.

In a Resolution dated 29 April 1998, the Sandiganbayan dismissed these fears of the PCGG as unfounded.
Moreover, in the same Resolution the Sandiganbayan acknowledged that this Court had granted it the
power to modify or terminate this Court’s temporary restraining order in the exercise of its sound
discretion in the light of subsequent evidence. Accordingly, the Sandiganbayan proceeded to recognize
the right of TMEE to vote the shares of stock registered in its name, and to allow it to vote at the
stockholders meeting of 30 April 1998. The Sandiganbayan justified such recognition based on the
following premises: (a) that the PCGG which bore the burden of proof to show prima facie foundation for
the sequestration of TMEE shares had failed to timely do so; (b) that no damage or dissipation of the
sequestered shares would result should TMEE be allowed to vote them; and (c) that on its face, the writ
of sequestration was issued only by one PCGG Commissioner, in violation of the PCGG’s rules and
regulations promulgated on 11 April 1986. Thus, the Sandiganbayan ruled:

UNDER THE PREMISES:

(2) Philippine Commercial and Industrial Bank’s (PCIB) Chairman of the meeting and the secretary
thereof are directed to acknowledge the right of intervenor Trans Middle East (Phil.) Equities, Inc.
(TMEE) to vote the shares of stocks registered in its name and allow it to vote at the Stockholders’
Meeting scheduled on April 30, 1998 at 9:00 o’clock in the morning or at any other time to which said
stockholders’ meeting may be continued or reset. TMEE shall post a bond of ONE HUNDRED FIFTY
THOUSAND (P150,000.00) PESOS to answer for any undue damage that the plaintiff PCGG or the PCIB
shall suffer by reason of the sequestered shares of stock having been voted by and for said intervenor.5

The pending motion for nullification of the writ of sequestration was left unresolved then. On 10 January
2003, the Sandiganbayan issued a Resolution on the motions filed by TMEE in 1997 assailing the
sequestration order. The Sandiganbayan granted the motion to nullify the writ of sequestration of TMEE
shares, ruling that the sequestration order null and void as it was issued only by one PCGG Commissioner.
It cited the decision of this Court in Republic v. Sandiganbayan6 wherein it was ruled that a writ of
sequestration signed by only one PCGG commissioner was an obvious transgression of the PCGG
rules.7 At the same time, based on TMEE’s manifestation that it was willing to deposit the subject shares
in escrow to allay any fear of dissipation, loss or wastage of the subject shares, the Sandiganbayan
ordered that the shares be deposited in escrow with the Land Bank of the Philippines.

The Resolution decreed:

WHEREFORE, in view of the foregoing:

1) The "URGENT MOTION TO NULLIFY WRIT OF SEQUESTRATION" dated January 28, 1997 filed by
movant Trans Middle East (Phils.) Equities, Inc., is hereby GRANTED. Accordingly, Sequestration Order
No. 86-0056 dated April 15, 1986 is hereby declared null and void for having been issued by one PCGG
Commissioner only in direct contravention of Section 3 of the PCGG’s own Rules and Regulations.
Conformably, however, with the manifestation of the movant trans Middle East (Phils.) Equities, Inc.
itself, the Court will not order the return of its shares of stocks sequestered per Sequestration Order No.
86-0056 dated April 15, 1986, but orders that the same, including the interests earned thereon, to be
deposited with the Land Bank of the Philippines in escrow for the persons, natural or judicial, who shall
eventually be adjudged lawfully entitled thereto.8 (emphasis supplied)

PCGG filed motions for the reconsideration of both the 1998 and 2003 resolutions of the Sandiganbayan.
These motions have not yet been resolved to date. In the meantime, TMEE alleged that it has voted the
subject shares from 1998 up to 2005.9

On 2 May 2006, the PCGG filed a Motion for Execution of this Court’s Decision in G.R. Nos. 105808 and
105809, which was promulgated on 23 January 1995, or more than ten (10) years earlier. It was argued
therein that the 1995 Decision became final and executory by virtue of an entry of judgment dated 2 April
1996 which was allegedly received by the PCGG only on 2 March 2006.10 The purported receipt then only
of the entry of judgment came one (1) day after the EPCIB’s proxy validation deadline with closure of the
Record Book of EPCIB. Desiring to "exercise its voting rights as upheld by the Supreme Court", the PCGG
prayed of the Sandiganbayan to issue the appropriate order permitting it to vote the sequestered shares
or, in the alternative, to order "re-enforced and/or reissued" the TRO affirmed by the Supreme Court in
the 1995 Decision, which enjoined TMEE from voting the sequestered shares.

The Motion for Execution was heard on 5 May 2006, with TMEE making no appearance therein. The
Sandiganbayan ordered TMEE to comment on the said motion within ten (10) days.

Then on May 9, 2006, the PCGG filed an Urgent Ex-Parte Motion to Reinforce/Re-issue TRO, praying that
the Sandiganbayan issue an order re-enforcing and/or re-issuing the TRO issued by this Court in G.R. Nos.
105808 and 105809 and to execute the TRO under the Decision of the Supreme Court dated January 13,
1995. The PCGG argued that due to the fact that the stockholders meeting of EPCIB was scheduled on 23
May 2006, there was an urgent need for the re-enforcement or reissuance of the TRO affirmed by the
Supreme Court in its 1995 Decision. The PCGG also alleged that they had received reports that "the
Romualdezes are bent on disposing of their shares in EPCIB," and that should they "gain control of the
bank of (sic) electing themselves and/or their dummies/nominees to the helm of the bank, there is a
danger that the sequestered Equitable-PCI Bank shares might dissipate or be disposed of."11

On 22 May 2006, the Sandiganbayan issued the Resolution now assailed before the Court. The
Sandiganbayan acknowledged that the 1998 and 2003 Resolutions it earlier issued had indeed modified
the TRO issued by this Court, and that it had the authority, as granted by the Court, to modify or
terminate such TRO. Nevertheless, the Sandiganbayan ruled that both resolutions had not yet attained
finality since it itself still had to resolve the motions for reconsideration respectively related thereto filed
by the PCGG in 1998 and 2003. The Sandiganbayan opined that it could not re-issue the TRO since it was
this Court which issued the same. Still, the Sandiganbayan ruled that it could state that the two
resolutions modifying this Court’s TRO "have not attained finality as the motions for reconsiderations
thereto have not been resolved by [the Sandiganbayan]." The dispositive portion of the Resolution read:

WHEREFORE, pertinent to the instant motion, this Court hereby declares that considering that two
resolutions modifying the Supreme Court’s TRO have not attained finality as the motions for
reconsiderations filed thereto have not been resolved by this Court, the TRO, which was issued by the
Supreme Court disqualifying both the PCGG nominees, TMEE, PAH and PAR, from voting the sequestered
shares in the Equitable PCI Bank and Benguet Corporation, respectively is still existing and in full force
and effect.12

On the following day, 23 May 2003, TMEE filed the instant petition with this Court, with a prayer for the
issuance of a Temporary Restraining Order or a Writ of Preliminary Injunction "to preserve and maintain
the status quo wherein TMEE [was] allowed to vote the shares registered in its name and restraining the
respondents from enforcing the [22 May 2003 Sandiganbayan] Resolution granting the motion to re-
enforce/re-issue TRO, until the final resolution" of this Court.

In the absence of an injunctive order restraining the holding of the stockholders’ meeting on 23 May
2006, the meeting was held. Over the objections of TMEE, the election of a new Board of Directors of
EPCIB was held. Since TMEE was not allowed to vote its shares, it was unable to elect any representative
to the Board of Directors despite the fact that it maintained enough shares to be entitled to at least one
board seat. Thus, in its Supplemental Petition attached to a Motion for Leave of Court to File
Supplemental Petition, TMEE prayed for the issuance of a resolution directing the maintenance of the
status quo prior to the disputed election of directors; restraining the new Board and the officers elected
by them from further performing their functions; and directing the Chairman and Corporate Secretary to
recognize and allow the old Board and officers to serve in a hold-over capacity until further orders from
this Court.13

In the course of deliberating the matter of provisional relief sought by TMEE, the self-evident nature of
the correct resolution on the points of law emerged, and a consensus developed within the Court that the
petition be resolved immediately. The challenged Resolution is ostensibly grounded on an earlier
decision of this Court, yet is ultimately oblivious to the full import of that decision and other juridical
precedents as well. The Sandiganbayan in its Resolution likewise sub silencio contradicts earlier rulings it
had previously rendered in connection with the same issues, yet takes refuge from its inconsistency on its
very own inaction on two still pending motions for reconsideration filed eight and three years ago,
respectively.

Considering that all the respondents have duly filed their respective comments, there is no impediment
to the immediate resolution of the case on the merits. We are compelled to act promptly in light of the
highly disturbing circumstances attending this case. This Court cannot countenance unabashed trifling
with the judicial process, turn a blind eye on a patent simulacrum of judicial adjudication and allow a
glaring travesty of justice to go unchecked in time.

The assailed Resolution in this case, promulgated by the Sandiganbayan on 22 May 2006, has been used
to maximum benefit by the respondents, all connected with EPCIB, in an obvious corporate squabble
which saw its apotheosis in the long scheduled annual stockholders meeting on 23 May 2006 wherein
TMEE was deprived of its right to vote its shares despite the fact that it would have been able to elect at
least one (1) seat on the Board of Directors. The Court is also impelled by the recognition that the
annulment of the Sandiganbayan resolution would have a pronounced consequent effect on the financial
community, if not the banking public at large. Hence, the need to resolve this matter promptly.

We now accordingly adjudicate.

The Court first dispenses with procedural issues raised that are ultimately minor. The petition is
denominated as one for certiorari with prayer preliminary injunction and/or temporary restraining
order, under the ambit of Rule 65 of the Rules of Court. Respondent Board of Directors of EPCIB argue
that the failure of TMEE to file a motion for reconsideration with the Sandiganbayan precluded the
immediate resort to the special civil action of certiorari. As a general rule, certiorari as a special civil
action does not lie unless a motion for reconsideration is first filed before the respondent court. However,
this rule does not apply when special circumstances warrant immediate or more direct action.14 It is well-
settled that the availability of appeal does not foreclose recourse to the extraordinary remedies of
certiorari or prohibition where appeal is not adequate, or equally beneficial,

speedy and sufficient.15 Where the exigencies of the case are such that the ordinary methods of appeal
may not prove adequate—either in point of promptness or completeness, so that a partial if not a total
failure of justice could result—a writ of certiorari may still be issued.16

It cannot evade notice that the assailed Sandiganbayan Resolution was promulgated one (1) day before
the scheduled stockholders meeting of EPCIB. Evidently, TMEE could no longer have relied on the
Sandiganbayan to reverse itself literally overnight, in time for the meeting. The filing of a motion for
reconsideration would not have been an adequate or speedy remedy for TMEE. Hence, resort to the
special civil action of certiorari without filing a motion for reconsideration is justified under the
circumstances.
The more consequential procedural objection lies in the failure of TMEE in its petition to pray for the
annulment of the 22 May 2006 Sandiganbayan Resolution despite the denomination of the petition as one
for certiorari, and the arguments therein that the Sandiganbayan acted with grave abuse of discretion in
rendering the Resolution. On this failure, the respondents in their respective comments argue that the
petition, which was accompanied by a prayer for writ of preliminary injunction and/or TRO, is effectively
an original action for injunction beyond the jurisdiction of this Court.

TMEE, in its Supplemental Petition filed seven (7) days after the filing of the petition, did subsequently
pray for the nullification of the Sandiganbayan resolution on the ground of grave abuse of discretion.
TMEE deserves some blame for failing to include such prayer in its original petition, yet given the
attendant circumstances, it would be an act of triviality to dismiss the petition on that ground alone. For
one, even assuming that the petition is indeed an original action for injunction, it was ruled in Del Mar v.
Pagcor17 that "this Court has the discretionary power to take cognizance of the petition at bar if
compelling reasons, or the nature and importance of the issues raised, warrant the immediate exercise of
its jurisdiction."18 Indeed, such compelling reasons, as adverted to before, are present in this case.

More fundamentally, it is evident from the allegations in the petition, replete with imputations of grave
abuse of discretion on the part of the Sandiganbayan when it promulgated its resolution, that the nature
of the petition is one for certiorari, with injunction sought only as an ancillary relief. The nature of an
action, as well as which court or body has jurisdiction over it, is determined based on the material
allegations contained in the petition.19 Any doubts as to whether TMEE seeks the annulment of the
Sandiganbayan resolution are cleared by the Supplemental Petition, which expressly seeks such relief.

The Court is also inclined to view this defect with liberality, considering that TMEE had only one (1)
calendar day to prepare the petition, which sought to vindicate the exercise of its voting rights in the
EPCIB stockholders meeting, which was enjoined by the Sandiganbayan resolution promulgated just the
day before such election. The forced haste under which the petition was prepared cannot be attributed to
the fault of TMEE, and any resulting errors in the petition that are of the non-fatal variety can be
overlooked.

Respondents, particularly the EPCIB Board of Directors, ascribe a few other procedural errors on the part
of the petitioner, but these are so minor that they do not merit the attention of the Court. Suffice it to say,
they do not adduce a compulsory rule that would mandate the dismissal of the petition contrary to the
discretion of the Court to do otherwise.

We now turn to the merits of the case.

The assailed Sandiganbayan resolution was occasioned by an "Urgent Ex-Parte Motion to Reinforce/Re-
issue TRO" filed by the PCGG, which prayed for the issuance of an order re-enforcing and/or re-issuing
the TRO issued by this Court in G.R. Nos. 105808 and 105809. The sort of relief sought is unconventional
to say the least. No such remedy is provided for under the rules of procedure, although it is not expressly
barred. The uniqueness of the relief sought should nonetheless be cause for skepticism on the part of the
court hearing the claim. Procedural rules exist to provide a methodical system that would facilitate the
judicious disposition of cases. A recourse that finds no authorization or support under the rules could in
fact be aimed to subvert orderly procedure, an end that runs contrary to the interest of justice.

The judicial duty, when confronted with such a pleading as the "motion for the
reinforcement/reissuance" of the PCGG, is to look beyond the verbiage and ascertain the real nature of
the action on which the prayer is founded. In this case, it is ineluctable that what the PCGG sought
through its motion was injunctive relief that would refrain TMEE from exercising its voting rights in the
2004 EPCIB stockholders’ meeting, or other meetings for that matter. While the legal basis for such
prayer is suggested on the continued recognition of a provisional remedy granted a long time ago, the
ultimate goal of the motion is to secure injunctive relief. As such, the rules on injunction must apply.

The relevant antecedent facts actually point to three successive recourses to injunctive relief which were
availed of in this case. The first was the 1986 order of sequestration, sequestration being in itself a form
of a provisional remedy, an extraordinary measure intended to prevent the destruction, concealment or
dissipation of sequestered properties and, thereby, to conserve and preserve them, pending the judicial
determination in the appropriate proceeding of whether the property was in truth ill-gotten.20

The second injunctive relief involved in this case came in the form of the TRO issued by this Court in 1992
in G.R. Nos. 105808 and 105809, restraining the implementation of the 1992 Sandiganbayan order
allowing TMEE to vote its shares. The right to the TRO is grounded on the subsistence of the
sequestration order.

The same TRO issued in G.R. Nos. 105808 and 105809 was reaffirmed in the 1995 Supreme Court
Decision in Republic v. Sandiganbayan, an unusual step in itself considering that normally, a provisional
injunctive order survives only as long as the case wherein it was issued. But since the said TRO related to
pending incidents in Civil Case No. 0035 before the Sandiganbayan, the Court ceded control over the TRO
to the anti-graft court, with a specific grant of authority on the latter to "to modify or terminate the same
in the exercise of its sound discretion in light of such evidence as may subsequently be adduced". The
Sandiganbayan did just that through its 1998 and 2003 Resolutions which respectively recognized
TMEE’s rights to vote the shares and nullified the writ of sequestration.

The third mode of injunctive relief involved herein was the PCGG’s motion for the "re-enforcement or
reissuance" of the earlier Supreme Court TRO. Palpably, this motion prayed for the reaffirmation of the
TRO granted by the Supreme Court in G.R. Nos. 105808 & 105809, cases which were closed and
terminated nearly 10 years ago; but at the same time effectively sought to enjoin the 1998 and 2003
Sandiganbayan Resolutions, praying as the PCGG did that TMEE be denied the right to vote its shares
notwithstanding the two Sandiganbayan resolutions.

For injunctive relief to avail to the PCGG, it must be able to demonstrate the existence of a clear legal right
to be entitled to such relief.21 In the absence of a clear legal right, the issuance of the injunctive relief
constitutes grave abuse of discretion.22 There could only be two putative sources of such legal right of the
PCGG — the 1986 sequestration order and the 1995 Decision of this Court which affirmed the 1992 TRO
issued by the Supreme Court. Yet closer scrutiny of either reveals no foundational recognition of a clear
legal right of the PCGG.

It is settled that as a general rule, the registered owner of the shares of a corporation, even if they are
sequestered by the government through the PCGG, exercises the right and the privilege of voting on
them.23 The PCGG as a mere conservator cannot, as a rule, exercise acts of dominion by voting these
shares.24 The registered owner of sequestered shares may only be deprived of these voting rights, and the
PCGG authorized to exercise the same, only if it is able to establish that (1) there is prima facie evidence
showing that the said shares are ill-gotten and thus belong to the State; and (2) there is an imminent
danger of dissipation, thus necessitating the continued sequestration of the shares and authority to vote
thereupon by the PCGG while the main issue is pending before the Sandiganbayan.25
Clearly, the existence of the writ of sequestration alone would not legally justify barring TMEE from
voting its shares. Such preclusion may only occur if there is prima facie evidence showing that the said
shares are ill-gotten and there is an imminent danger of dissipation. The Sandiganbayan or any other
court has yet to pronounce any findings to those effects. In fact, the Sandiganbayan, in its 1998
Resolution, instead declared that TMEE possessed "a prima facie right" as owner of the registered owner
of the sequestered shares, and that there appeared to be "no strong grounds for apprehension of
dissipation or loss of assets of TMEE."26 Concerns over dissipation have likewise been assuaged that the
shares have been deposited in escrow with the Land Bank of the Philippines on the initiative of TMEE
itself. In any event, the nullification in 2003 of the very writ of sequestration by the Sandiganbayan
further militates against any recognition that the sequestration order established a clear legal right that
entitled the PCGG to injunctive relief.

We now examine whether the legal consequences of the 1995 Decision of the Court provide a clear legal
right to injunctive relief to the PCGG.

An examination of the dispositive portion of the 1995 Decision insofar as it pertains to TMEE puts in
doubt whether its "execution" should have resulted in barring TMEE from voting its shares in the 2006
stockholders meeting. While the 1995 Decision maintained the earlier TRO barring TMEE from voting its
shares, it also authorized the Sandiganbayan "to modify or terminate the same in the exercise of its sound
discretion in light of such evidence as may subsequently be adduced."

In that sense, the 1995 Decision consisted of two (2) phases. The first phase consists of the affirmation of
the TRO, a stance that subsisted as a matter of default. The second phase, however, consists of either the
modification or termination of the TRO by the Sandiganbayan in light of the evidence subsequently
adduced. Should the condition set in the second phase – modification or termination by the
Sandiganbayan – then the first phase is ended, and the affirmation of the TRO can no longer be
acknowledged as the default action.

There is no question that the Sandiganbayan did modify the TRO by virtue of its 1998 and 2003
Resolutions. The 1998 Resolution "acknowledge[d] the right of intervenor Trans Middle East (Phil.)
Equities, Inc. (TMEE) to vote the shares of stocks registered in its name." The 2003 Resolution went
even further in declaring null and void the 1986 sequestration order. Both resolutions thoroughly
explained the reasons for granting favorable reliefs to TMEE.27 The 1998 Resolution even specifically
invoked the 1995 Decision of this Court that categorically declared that the Sandiganbayan had the
power to modify or terminate the restraining order in the exercise of its sound discretion in the light of
such evidence as may be subsequently adduced.28

Respondent Board of Directors contest the argument that the 1998 Resolution either lifted or terminated
the 1992 TRO, alleging that the dispositive portion therein29 merely allowed TMEE to votes it shares for
the stockholders meeting on 30 April 1998, and not at other stockholders’ meetings held in previous
years. This claim is belied by a close look at the dispositive portion of the 1998 Resolution, which
directed the then PCI Bank to "xxx acknowledge the right of [TMEE] to vote the shares of stocks
registered in its name and allow it to vote at the Stockholders’ Meeting scheduled on April 30, 1998".30

As evidenced by the use of the conjunctive "and", there were two directives contained in that order,
namely: that the right of TMEE to vote the shares of stocks registered in its name; and to allow TMEE to
vote at the 1998 stockholders’ meeting. The first directive, mandating the recognition of TMEE’s right to
vote its shares, is not subjected to any limitation as to time or particular circumstance. Neither did the
Sandiganbayan’s discussion in the body of the 1998 Resolution support the view that the right of TMEE to
vote the shares was limited to the 1998 stockholders meeting.

Respondents are generally silent as to the effect of the 2003 Resolution nullifying the writ of
sequestration. Yet the import of that ruling is equally important to this case.

The 2003 Resolution nullifying the sequestration order over TMEE’s shares was based on the fact, of
which there appears to be no serious contest, that the said order, dated 15 April 1986, was signed by only
one PCGG commissioner in violation of the PCGG Rules and Regulations promulgated on 11 April
1986.31 The 2003 Resolution particularly cited the Court’s 1998 Decision in Republic v.

Sandiganbayan,32 penned by Chief Justice Panganiban, which categorically ruled that "the writ [of
sequestration] must bear the signatures of two commissioners, because their signatures are the best
evidence of their approval thereof."33 The Court also noted that the PCGG Rules took effect on 11 April
1986, and that "the signing of sequestration orders by two commissioners had already been encouraged
after April 11, 1986."34

The binding effect of the same provision of the PCGG Rules on the PCGG after 11 April 1986 was also
affirmed in the 1996 ruling in Republic v. Sandiganbayan,35 also penned by Chief Justice Panganiban.
Quoting the same provision requiring that the writ of sequestration may be issued upon the authority of
at least two commissioners, the Court said that the provision was "couched in clear and simple language
[and] leaves no room for interpretation".

The finding of the Sandiganbayan that the writ of sequestration was null and void was material to the
determination whether the PCGG had the right to the injunctive relief it sought. This point is especially
relevant, since if the sequestration order against TMEE is declared null and void, the earlier TRO will
become functus officio. The TRO cannot continue to exist if the sequestration order is null and void from
the beginning. Based on the 2003 Sandiganbayan Resolution, the sequestration order against TMEE is
deemed void as of 15 April 1986, or more than 20 years ago. Not only the clarity, but the very existence of
the legal right on which the PCGG grounds its right to relief became controverted as a result of the 2003
Resolution.

These twin resolutions of the Sandiganbayan pose a critical impediment to a determination that the PCGG
had a clear legal right to protect that would justify injunctive relief in its favor. At the very least, these
resolutions, issued within the bounds of authority granted by this Court to the Sandiganbayan, becloud
the continued efficacy to this day of the 1992 TRO; at most, they confirm that the 1992 TRO no longer
subsists. The Court is inclined towards the latter view. Clearly, it would be proper to assert that the 1998
and 2003 Resolutions of the Sandiganbayan were issued not only in compliance with but in execution and
implementation of the 1995 Decision of the Court. Considering that the Sandiganbayan had already
modified or terminated the restraining order, pursuant to the authority granted it by this Court, it may be
very well be that there is nothing left in the 1995 Decision to execute. At bare minimum, considering the
accomplished modification and virtual termination of the restraining order as of 2003, execution of the
1995 Decision in 2006 cannot possibly contemplate the revival of the TRO.

Obviously, the Sandiganbayan failed to consider these points when it rendered the assailed Resolution. It
does not even appear that the Sandiganbayan evaluated the PCGG’s motion within the frame of mind that
a clear legal right must exist to entitle the PCGG’s prayer. Instead, it engaged in a mechanical application
of technicalities in a manner that failed to consider the more crucial issues at hand.
There is an admitted convenience in simply pronouncing, as the Sandiganbayan did, that since the
motions for reconsideration to the 1998 and 2003 Resolutions had not been resolved, the efficacy of
those resolutions cannot yet be recognized. It cannot be denied though that the two resolutions are
properly characterized as interlocutory orders, as they do not finally dispose of Civil Case No. 0035.
In Valarao v. Pascual,36 the Court contended with the question of whether respondents therein were
bound to respect the authority of a special administrator on the ground that the interlocutory order
appointing such administrator was not yet final and executory because of a pending motion for
reconsideration. The Court held:

[R]espondents cannot disobey the reasonable exercise of the authority of a special administrator on the
dubious ground that the order appointing petitioner Valarao as special administratrix had not in the
meantime become final and executory because of a pending motion for reconsideration filed by them.
The fallacy of this reasoning is apparent, for an interlocutory order is not instantly appealable and
therefore there is no period nor action to suspend or interrupt by a motion for reconsideration; it is even
well settled that a special civil action for certiorari does not suspend the immediate enforceability of an
interlocutory order absent a temporary restraining order or an injunction. In the same manner, the
appointment of a special administrator being an interlocutory order is not interrupted by a motion for
reconsideration and thus must be obeyed as the proceedings in the probate court progress.37

The same characteristics of the interlocutory order in Valarao apply in this case. Since the orders
recognizing TMEE to vote its shares and nullifying the writ of sequestration are both unappealable, they
can only be assailed through a special civil action for certiorari, the filing of which however does not ipso
facto inhibit the effectivity of the assailed order unless specifically enjoined. For this reason, it cannot be
said that the 1998 and 2003 Resolutions, interlocutory as they are in character, are not yet susceptible to
enforcement during the motions for reconsideration therefor.

It also bears notice that from the time the 1998 Resolution recognized the right of TMEE to vote its shares
until eight (8) years later, no serious challenges were posed against the right of TMEE to vote those
shares by reason of the pending motion for reconsideration. There is some dispute as to whether during
the last eight years of EPCIB stockholder meetings, TMEE was actually able to formally vote its
shares38 or merely consented to a common slate of nominees previously agreed upon to negate the need
to conduct an actual meeting.39 Yet whatever the fact may be, these stockholders meetings and election of
the Board of Directors were conducted to the satisfaction of TMEE, which was able to successfully elect at
least one nominee to the Board. Those circumstances do not bear the mark of TMEE being deprived of the
right to vote its shares in the stockholders meetings from 1998 to 2005, when the contrary should have
resulted if the position of the respondents were to be believed.

For all intents and purposes, the 1998 and 2003 Resolutions had been respected prior to the current year
by the Sandiganbayan and the parties. Given the pending motions for reconsideration, theoretically it is
still within the power of the Sandiganbayan to reverse or modify the 1998 and 2003 resolutions. Yet if
the Sandiganbayan were so minded to modify or reverse the two earlier resolutions, it should do so
directly and explicitly, not only tangentially or by implication as it actually did, and at that based on
premises which contradict the predicates on which its 1998 and 2003 Resolutions are anchored. In other
words, it may reverse its earlier rulings only on the evidentiary foundations prescribed by this Court in
its 1995 Decision which have to pertain to the existence of a valid basis for sequestration or the danger of
dissipation of the sequestered shares.
Until and unless it reconsiders the 1998 and 2003 Resolutions in that fashion and on that basis, the
Sandiganbayan is bound to respect them, moreso because they are its own rulings. It is thus precluded
from performing any act or promulgate any issuance inconsistent with the letter, tenor and disposition of
those previous rulings which remain extant. It cannot re-enforce the TRO against TMEE or recognizing
the continued legal effects of the nullified sequestration order, as it did through the challenged
resolutions. It can only do so by reconsidering the 1998 and 2003 resolutions.

Thus, it can be appreciated why the Sandiganbayan in the challenged Resolution merely opted to declare
the TRO confirmed in this Court’s 1995 Decision is "is still existing and in full force and effect," desisting
as it did from ordering the execution of the 1995 Decision. Such declaration, however, is not wholly
correct as it is incomplete. It did not include the fact that the TRO had already been modified by the 1998
and 2003 Resolutions of the Sandiganbayan. Moreover, it failed to consider the well-established doctrine
that the registered owner of sequestered shares is generally entitled to vote the shares.40

The Court thus rules, with considerable ease, that the 22 May 2006 Resolution of the Sandiganbayan was
issued with grave abuse of discretion, and must be annulled.

The Court finds the actions of the PCGG in this case distressing. Its actions and resort to unconventional
modes of relief towards the end of depriving TMEE the right to vote its shares, notwithstanding two
Sandiganbayan rulings recognizing such right are tantamount to abuse of the judicial process.

For one, concerning the Motion for Execution of Judgment it had filed on 2 May 2006, it appears highly
suspect that the PCGG would await more than ten years before it would move to execute or enforce the
1995 Decision of the Supreme Court. Entry of Judgment on that Decision was dated 2 April 1996. Under
Article 1144 of the Civil Code, an action based upon a judgment must be brought within ten years from
the time the right of action accrues, or within ten years counted from the time the judgment became
final.41 Under Section 2, Rule 37, the date of finality of the judgment or final order shall be deemed to be
the date of its entry.

Notably, nothing in the rules of procedure provides that the entry of judgment be served on the parties,
or reckons the date of finality of the judgment from the moment the entry of judgment is received by the
parties. Hence, the fact that PCGG allegedly was served the Entry of Judgment only on 2 March 2006 does
not detract from the fact that any action to execute or enforce the 1995 Decision of the Supreme Court
was barred by prescription after 2 April 2006. The filing of the two motions by the PCGG before the
Sandiganbayan was made only in May of 2006.

In its motion to reinforce/reissue TRO before the Sandiganbayan, the PCGG adverted to reports that the
sequestered shares were in danger of dissipation and diminution as the Romualdezes "were bent on
disposing their shares in Equitable-PCI Bank."42 The shares of EPCIB, including the interests earned
thereon, are deposited in escrow with the Land Bank of the Philippines, on order of the Sandiganbayan in
its 2003 Resolution, at the instance of no less than TMEE. Unless otherwise ordered by the
Sandiganbayan, these shares would remain in escrow until Civil Case No. 0035 is finally resolved by the
Sandiganbayan. As such, these shares have been apparently insulated from dissipation and diminution.
They cannot be simply be disposed of, conveyed or encumbered by TMEE, even if the sequestration order
were voided or the TRO lifted.

This being the situation, the only way by which these shares under escrow may be diminished or
dissipated would be through radical corporate changes within EPCIB, such as through the increase of
capital stock, or even through the dissolution or merger of the bank itself. However, it remains highly
dubious that TMEE could, by exercising its right to vote the shares, effect such changes that would
diminish or dissipate those stocks that it could not dispose of. The shares of TMEE comprise only 7.13%
of the outstanding capital stock of EPCIB,43 and would entitle TMEE to only one (1) seat in the 15-person
Board of Directors.44 TMEE is very much a minority stockholder in Equitable-PCI Bank, and on its own,
incapable of imposing its will on the bank.

It is not beyond the realm of possibility that these shares of TMEE in EPCIB, minimal as they may be,
could somehow accord TMEE a significant degree of influence in the policies and decisions of the bank. At
the same time, considering the limited number of shares TMEE holds, this prospect should be considered,
on its face, highly unlikely. Yet the PCGG staked its motion before the Sandiganbayan on the claim that the
allowance of TMEE to vote its shares could somehow diminish or dissipate those shares deposited in
escrow, a highly facile claim considering the circumstances. Still, the Sandiganbayan refused to subject
such claim to any scrutiny at all, and worse, granted the relief sought on the dubious premises.

Our attention is also called to the letter dated 22 May 2006, written by PCGG Commissioner William
Dichoso, and addressed to the Board of Directors of EPCIB.45 The letter, captioned "TRO Issued by the
Sandiganbayan in Civil Case No. 0035 (Republic of the Philippines v. Benjamin Romualdez)", bluntly
states that the Sandiganbayan "has issued a Temporary Restraining Order restraining xxx [TMEE] from
voting in the stockholders meeting of [EPCIB]," and advises that "Copy of the Temporary Restraining
Order will follow."46

No such temporary restraining order was issued by the Sandiganbayan. Certainly, the challenged
Resolution does not contain any directive for the issuance of a separate temporary restraining order. All
the challenged Resolution affirms is the supposed continuing force of the TRO as affirmed by 1995
Decision of the Court. But as earlier discussed, while the 1995 Decision affirmed the earlier TRO issued by
the Court, it also affirmed the right of the Sandiganbayan to modify or terminate such TRO if the evidence
so warranted. The Sandiganbayan has exercised such right and has chosen not to disavow such exercise.
Neither has the modification or termination of the TRO been reversed or set aside by a higher court.

The impression left by the PCGG letter to EPCIB was that the bank had no choice outside of violating a
judicial order but to disallow TMEE from voting its shares. Yet even with the assailed Resolution of the
Sandiganbayan, such a conclusion is not so evident. At the very least, the PCGG letter conveyed the
message that the Sandiganbayan had enjoined the voting of TMEE shares in the 23 May 2006
stockholders meeting when in fact the anti-graft court did not provide for an injunctive relief in such
manner.

Still, ultimate blame must be foisted on the Sandiganbayan. Wittingly or unwittingly, it became complicit
in the denial of justice to TMEE when it issued the assailed Resolution, despite the lack of ample basis to
support it. Had it ruled judiciously on the motion, the resultant farce would not have been staged. More to
the point, had it resolved the pending motions for reconsideration in a timely manner, this entire
controversy could have been avoided.

Finally, we consider the consequences of the annulment of the assailed Resolution on the subsequently
held stockholders’ meeting and election of the Board of Directors of EPCIB. It appears that there is no
serious dispute that TMEE would have been entitled to one seat on the Board had it been able to vote its
shares. TMEE asserts that it has 51,827,640 EPCIB shares,47 equivalent to 7.13% of the outstanding
capital stock of the bank. Respondent Board of Directors admits that the shares of TMEE constitute 7.13%
of the outstanding capital stock of the bank.48Since Section 24 of the Corporation Code allows a
stockholder such as TMEE to cumulate all of his shares in the voting for directors, a 7.13 % stock interest
in the outstanding capital stock is sufficient to elect one seat in the 15-seat EPCIB Board of
Directors.49 However, relying on the null and void Resolution of the Sandiganbayan, respondents Board of
Directors and Corporate Secretary prevented TMEE from voting its shares and electing its nominee or
representative to the Board of Directors.

Clearly, TMEE is entitled to one seat on the Board of Directors of EPCIB. There is the option of annulling
the entire election, but such step would be too drastic in light of the fact that only one of the 15 seats
should be necessarily affected upon the seating of TMEE’s nominee to the Board of Directors. The more
prudent step on the part of the Court is to declare that one nominee or representative of TMEE is entitled
to be seated immediately on the Board of Directors, and to direct the respondents EPCIB Board and
Board Corporate Secretary to admit and recognize said nominee or representative of TMEE to the Board
of Directors in place of the person who was elected to the Board at the 23 May 2006 annual stockholders’
meeting had TMEE not been disallowed to vote its shares.

The Court, as far back as 1998, already admonished the PCGG and the Sandiganbayan to speedily proceed
with the hearings and resolutions of the main cases for recovery and reconveyance of alleged ill-gotten
wealth.50 In ordinary times, what the Court should be resolving right now in the exercise of judicial
review should be the final decisions of the Sandiganbayan on the recovery of sequestered assets, and not
preliminary matters like those now before us. It is this unconscionable delay that has precisely allowed
this unwanted circus to march into this Court. The protracted delay serves no end except to foster
mockery of the judicial system.

WHEREFORE, the PETITION is GRANTED. The Resolution of the Sandiganbayan dated 22 May 2006 is
declared NULL and VOID.

The election at the 23 May 2006 annual stockholders’ meeting of the person to the seat in the Equitable-
PCI Bank Board of Directors to which petitioner Trans Middle East (Phils.), Inc. is entitled is likewise
declared NULL and VOID.

PENDING FINALITY OF THIS DECISION AND IMMEDIATELY UPON RECEIPT HEREOF, respondents Board
of Directors of Equitable-PCI Bank and Corporate Secretary Sabino E. Acut, Jr. are DIRECTED NOT TO
RECOGNIZE said person whose election to the Board of Directors is set aside and nullified herein and TO
RECOGNIZE the nominee or representative of TMEE as a duly elected member of the Board of Directors,
with all the rights and privileges appertaining to the position.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 165887 June 6, 2011

MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION, Petitioners,
vs.
MIGUEL LIM, in his personal capacity as Stockholder of Ruby Industrial Corporation and
representing the MINORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION and the
MANAGEMENT COMMITTEE OF RUBY INDUSTRIAL CORPORATION, Respondents.

x-----------------------x

G.R. No. 165929

CHINA BANKING CORPORATION, Petitioner,

vs.
MIGUEL LIM, in his personal capacity as a stockholder of Ruby Industrial Corporation and
representing the MINORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION, Respondent.

DECISION

VILLARAMA, JR., J.:

This case is brought to us on appeal for the fourth time, involving the same parties and interests litigating
on issues arising from rehabilitation proceedings initiated by Ruby Industrial Corporation wayback in
1983.

Following is the factual backdrop of the present controversy, as culled from the records and facts set
forth in the ponencia of Chief Justice Reynato S. Puno in Ruby Industrial Corporation v. Court of Appeals.1

The Antecedents

Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing. Reeling
from severe liquidity problems beginning in 1980, RUBY filed on December 13, 1983 a petition for
suspension of payments with the Securities and Exchange Commission (SEC) docketed as SEC Case No.
2556. On December 20, 1983, the SEC issued an order declaring RUBY under suspension of payments and
enjoining the disposition of its properties pending hearing of the petition, except insofar as necessary in
its ordinary operations, and making payments outside of the necessary or legitimate expenses of its
business.

On August 10, 1984, the SEC Hearing Panel created the management committee (MANCOM) for RUBY,
composed of representatives from Allied Leasing and Finance Corporation (ALFC), Philippine Bank of
Communications (PBCOM), China Banking Corporation (China Bank), Pilipinas Shell Petroleum
Corporation (Pilipinas Shell), and RUBY represented by Mr. Yu Kim Giang. The MANCOM was tasked to
perform the following functions: (1) undertake the management of RUBY; (2) take custody and control
over all existing assets and liabilities of RUBY; (3) evaluate RUBY’s existing assets and liabilities, earnings
and operations; (4) determine the best way to salvage and protect the interest of its investors and
creditors; and (5) study, review and evaluate the proposed rehabilitation plan for RUBY.

Subsequently, two (2) rehabilitation plans were submitted to the SEC: the BENHAR/RUBY Rehabilitation
Plan of the majority stockholders led by Yu Kim Giang, and the Alternative Plan of the minority
stockholders represented by Miguel Lim (Lim).
Under the BENHAR/RUBY Plan, Benhar International, Inc. (BENHAR) -- a domestic corporation engaged
in the importation and sale of vehicle spare parts which is wholly owned by the Yu family and headed by
Henry Yu, who is also a director and majority stockholder of RUBY -- shall lend its ₱60 million credit line
in China Bank to RUBY, payable within ten (10) years. Moreover, BENHAR shall purchase the credits of
RUBY’s creditors and mortgage RUBY’s properties to obtain credit facilities for RUBY. Upon approval of
the rehabilitation plan, BENHAR shall control and manage RUBY’s operations. For its service, BENHAR
shall receive a management fee equivalent to 7.5% of RUBY’s net sales.

The BENHAR/RUBY Plan was opposed by 40% of the stockholders, including Lim, a minority shareholder
of RUBY. ALFC, the biggest unsecured creditor of RUBY and chairman of the management committee, also
objected to the plan as it would transfer RUBY’s assets beyond the reach and to the prejudice of its
unsecured creditors.

On the other hand, the Alternative Plan of RUBY’s minority stockholders proposed to: (1) pay all RUBY’s
creditors without securing any bank loan; (2) run and operate RUBY without charging management fees;
(3) buy-out the majority shares or sell their shares to the majority stockholders; (4) rehabilitate RUBY’s
two plants; and (5) secure a loan at 25% interest, as against the 28% interest charged in the loan under
the BENHAR/RUBY Plan.

Both plans were endorsed by the SEC to the MANCOM for evaluation.

On October 28, 1988, the SEC Hearing Panel approved the BENHAR/RUBY Plan. The minority
stockholders thru Lim appealed to the SEC En Banc which, in its November 15, 1988 Order, enjoined the
implementation of the BENHAR/RUBY Plan. On December 20, 1988 after the expiration of the temporary
restraining order (TRO), the SEC En Banc granted the writ of preliminary injunction against the
enforcement of the BENHAR/RUBY Plan. BENHAR, Henry Yu, RUBY and Yu Kim Giang questioned the
issuance of the writ in their petition filed in the Court of Appeals (CA), docketed as CA-G.R. SP No. 16798.
The CA denied their appeal.2 Upon elevation to this Court (G.R. No. L-88311), we issued a minute
resolution dated February 28, 1990 denying the petition and upholding the injunction against the
implementation of the BENHAR/RUBY Plan.

Meanwhile, BENHAR paid off Far East Bank & Trust Company (FEBTC), one of RUBY’s secured creditors.
By May 30, 1988, FEBTC had already executed a deed of assignment of credit and mortgage rights in
favor of BENHAR. BENHAR likewise paid the other secured creditors who, in turn, assigned their rights in
favor of BENHAR. These acts were done by BENHAR despite the SEC’s TRO and injunction and even
before the SEC Hearing Panel approved the BENHAR/RUBY Plan on October 28, 1988.

ALFC and Miguel Lim moved to nullify the deeds of assignment executed in favor of BENHAR and cite the
parties thereto in contempt for willful violation of the December 20, 1983 SEC order enjoining RUBY from
disposing its properties and making payments pending the hearing of its petition for suspension of
payments. They also charged that in paying off FEBTC’s credits, FEBTC was given undue preference over
the other creditors of RUBY. Acting on the motions, the SEC Hearing Panel nullified the deeds of
assignment executed by RUBY’s creditors in favor of BENHAR and declared the parties thereto guilty of
indirect contempt. BENHAR and RUBY appealed to the SEC En Banc which denied their appeal. BENHAR
and RUBY joined by Henry Yu and Yu Kim Giang appealed to the CA (CA-G.R. SP No. 18310). By
Decision3 dated August 29, 1990, the CA affirmed the SEC ruling nullifying the deeds of assignment. The
CA also declared its decision final and executory as to RUBY and Yu Kim Giang for their failure to file their
pleadings within the reglementary period. By Resolution dated August 26, 1991 in G.R. No. 96675,4 this
Court affirmed the CA’s decision.

Earlier, on May 29, 1990, after the SEC En Banc enjoined the implementation of BENHAR/RUBY Plan,
RUBY filed with the SEC En Banc an ex parte petition to create a new management committee and to
approve its revised rehabilitation plan (Revised BENHAR/RUBY Plan). Under the revised plan, BENHAR
shall receive ₱34.068 million of the ₱60.437 Million credit facility to be extended to RUBY, as
reimbursement for BENHAR’s payment to some of RUBY’s creditors. The SEC En Banc directed RUBY to
submit its revised rehabilitation plan to its creditors for comment and approval while the petition for the
creation of a new management committee was remanded for further proceedings to the SEC Hearing
Panel. The Alternative Plan of RUBY’s minority stockholders was also forwarded to the hearing panel for
evaluation.

On April 26, 1991, over ninety percent (90%) of RUBY’s creditors objected to the Revised BENHAR/RUBY
Plan and the creation of a new management committee. Instead, they endorsed the minority
stockholders’ Alternative Plan. At the hearing of the petition for the creation of a new management
committee, three (3) members of the original management committee (Lim, ALFC and Pilipinas Shell)
opposed the Revised BENHAR/RUBY Plan on grounds that: (1) it would legitimize the entry of BENHAR, a
total stranger, to RUBY as BENHAR would become the biggest creditor of RUBY; (2) it would put RUBY’s
assets beyond the reach of the unsecured creditors and the minority stockholders; and (3) it was not
approved by RUBY’s stockholders in a meeting called for the purpose.

Notwithstanding the objections of 90% of RUBY’s creditors and three members of the MANCOM, the SEC
Hearing Panel approved on September 18, 1991 the Revised BENHAR/RUBY Plan and dissolved the
existing management committee. It also created a new management committee and appointed BENHAR
as one of its members. In addition to the powers originally conferred to the management committee
under Presidential Decree (P.D.) No. 902-A, the new management committee was tasked to oversee the
implementation by the Board of Directors of the revised rehabilitation plan for RUBY.

The original management committee (MANCOM), Lim and ALFC appealed to the SEC En Banc which
affirmed the approval of the Revised BENHAR/RUBY Plan and the creation of a new management
committee on July 30, 1993. To ensure that the management of RUBY will not be controlled by any group,
the SEC appointed SEC lawyers Ruben C. Ladia and Teresita R. Siao as additional members of the new
management committee. Further, it declared that BENHAR’s membership in the new management
committee is subject to the condition that BENHAR will extend its credit facilities to RUBY without using
the latter’s assets as security or collateral.

Lim, ALFC and MANCOM moved for reconsideration while RUBY and BENHAR asked the SEC to
reconsider the portion of its Order prohibiting BENHAR from utilizing RUBY’s assets as collateral. On
October 15, 1993, the SEC denied the motion of Lim, ALFC and the original management committee but
granted RUBY and BENHAR’s motion and allowed BENHAR to use RUBY’s assets as collateral for loans,
subject to the approval of the majority of all the members of the new management committee. Lim, ALFC
and MANCOM appealed to the CA (CA-G.R. SP Nos. 32404, 32469 & 32483) which by Decision5 dated
March 31, 1995 set aside the SEC’s approval of the Revised BENHAR/RUBY Plan and remanded the case
to the SEC for further proceedings. The CA ruled that the revised plan circumvented its earlier decision
(CA-G.R. SP No. 18310) nullifying the deeds of assignment executed by RUBY’s creditors in favor of
BENHAR. Since under the revised plan, BENHAR was to receive ₱34.068 Million of the ₱60.437 Million
credit facility to be extended to RUBY, as settlement for its advance payment to RUBY’s seven (7) secured
creditors, such payments made by BENHAR under the void Deeds of Assignment, in effect were
recognized as payable to BENHAR under the revised plan. The motion for reconsideration filed by
BENHAR and RUBY was likewise denied by the CA.6

Undaunted, RUBY and BENHAR filed a petition for review in this Court (G.R. Nos. 124185-87 entitled
Ruby Industrial Corporation v. Court of Appeals) alleging that the CA gravely abused its discretion in
substituting its judgment for that of the SEC, and in allowing Lim, ALFC and MANCOM to file separate
petitions prepared by lawyers representing themselves as belonging to different firms. By
Decision7 dated January 20, 1998, we sustained the CA’s ruling that the Revised BENHAR/RUBY Plan
contained provisions which circumvented its final decision in CA-G.R. SP No. 18310, nullifying the deeds
of assignment of credits and mortgages executed by RUBY’s creditors in favor of BENHAR, as well as this
Court’s Resolution in G.R. No. 96675, affirming the said CA’s decision. We thus held:

…Specifically, the Revised BENHAR/RUBY Plan considered as valid the advance payments made by
BENHAR in favor of some of RUBY’s creditors. The nullity of BENHAR’s unauthorized dealings with
RUBY’s creditors is settled. The deeds of assignment between BENHAR and RUBY’s creditors had been
categorically declared void by the SEC Hearing Panel in two (2) orders issued on January 12, 1989 and
March 15, 1989. x x x

xxxx

These orders were upheld by the SEC en banc and the Court of Appeals. In CA-G.R. SP No. 18310, the
Court of Appeals ruled as follows:

"x x x xxx xxx

"1) x x x when the Deed of Assignment was executed on May 30, 1988 by and between Ruby
Industrial Corp., Benhar International, Inc., and FEBTC, the Rehabilitation Plan proposed by
petitioner Ruby Industrial Corp. for Benhar International, Inc. to assume all petitioner’s obligation
has not been approved by the SEC. The Rehabilitation Plan was not approved until October 28,
1988. There was a willful and blatant violation of the SEC order dated December 20, 1983 on the
part of petitioner Ruby Industrial Corp., represented by Yu Kim Giang, by Benhar International,
Inc., represented by Henry Yu and by FEBTC….

"2) The magnitude and coverage of the transactions involved were such that Yu Kim Giang and the
other signatories cannot feign ignorance or pretend lack of knowledge thereto in view of the fact
that they were all signatories to the transaction and privy to all the negotiations leading to the
questioned transactions. In executing the Deeds of Assignment, the petitioners totally disregarded
the mandate contained in the SEC order not to dispose the properties of Ruby Industrial Corp. in
any manner whatsoever pending the approval of the Rehabilitation Plan and rendered illusory the
SEC efforts to rehabilitate the petitioner corporation to the best interests of all the creditors.

"3) The assignments were made without prior approval of the Management Committee created by
the SEC in an Order dated August 10, 1984. Under Sec. 6, par. d, sub. par. (2) of P.D. 902-A as
amended by P.D. 1799, the Management Committee, rehabilitation receiver, board or body shall
have the power to take custody and control over all existing assets of such entities under
management notwithstanding any provision of law, articles of incorporation or by-law to the
contrary. The SEC therefore has the power and authority, through a Management Committee
 composed of petitioner’s creditors or through itself directly, to declare all assignment of assets of
the petitioner Corporation declared under suspension of payments, null and void, and to conserve
the same in order to effect a fair, equitable and meaningful rehabilitation of the insolvent
corporation."

"4) x x x. The acts for which petitioners were held in indirect contempt by the SEC arose from the
failure or willful refusal by petitioners to obey the lawful order of the SEC not to dispose of any of
its properties in any manner whatsoever without authority or approval of the SEC. The execution
of the Deeds of Assignment tend to defeat or obstruct the administration of justice. Such acts are
offenses against the SEC because they are calculated to embarrass, hinder and obstruct the
tribunal in the administration of justice or lessen its authority.

"x x x

Even the SEC en banc, in its July 30, 1993 Order affirming the approval of the Revised BENHAR/RUBY
Plan, has acknowledged the invalidity of the subject deeds of assignment. However, to justify it’s approval
of the plan and the appointment of BENHAR to the new management committee, it gave the lame excuse
that BENHAR became RUBY’s creditor for having paid RUBY’s debts. x x x

xxxx

For its part, the Court of Appeals noted that the approved Revised BENHAR/RUBY Plan gave undue
preference to BENHAR. The records, indeed, show that BENHAR’s offer to lend its credit facility in favor
of RUBY is conditioned upon the payment of the amount it advanced to RUBY’s creditors, x x x

xxxx

In fact, BENHAR shall receive P34.068 Million out of the P60.437 Million credit facility to be extended to
RUBY for the latter’s rehabilitation.

Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and
reinstate the corporation to its former position of successful operation and solvency. When a distressed
company is placed under rehabilitation, the appointment of a management committee follows to avoid
collusion between the previous management and creditors it might favor, to the prejudice of the other
creditors. All assets of a corporation under rehabilitation receivership are held in trust for the equal
benefit of all creditors to preclude one from obtaining an advantage or preference over another by the
expediency of attachment, execution or otherwise. As between the creditors, the key phrase is equality in
equity. Once the corporation threatened by bankruptcy is taken over by a receiver, all the creditors ought
to stand on equal footing. Not any one of them should be paid ahead of the others. This is precisely the
reason for suspending all pending claims against the corporation under receivership.8(Additional
emphasis supplied.)

Aside from the undue preference that would have been given to BENHAR under the Revised
BENHAR/RUBY Plan, we also found RUBY’s dealing with BENHAR highly irregular and its proposed
financing scheme more costly and ultimately prejudicial to RUBY. Thus:

Parenthetically, BENHAR is a domestic corporation engaged in importing and selling vehicle spare parts
with an authorized capital stock of thirty million pesos. Yet, it offered to lend its credit facility in the
amount of sixty to eighty million pesos to RUBY. It is to be noted that BENHAR is not a lending or
financing corporation and lending its credit facilities, worth more than double its authorized
capitalization, is not one of the powers granted to it under its Articles of Incorporation. Significantly,
Henry Yu, a director and a majority stockholder of RUBY is, at the same time, a stockholder of BENHAR, a
corporation owned and controlled by his family. These circumstances render the deals between BENHAR
and RUBY highly irregular.

xxxx

Moreover, when RUBY initiated its petition for suspension of payments with the SEC, BENHAR was not
listed as one of RUBY’s creditors. BENHAR is a total stranger to RUBY. If at all, BENHAR only served as a
conduit of RUBY. As aptly stated in the challenged Court of Appeals decision:

"Benhar’s role in the Revised Benhar/Ruby Plan, as envisioned by the majority stockholders, is to
contract the loan for Ruby and, serving the role of a financier, relend the same to Ruby. Benhar is merely
extending its credit line facility with China Bank, under which the bank agrees to advance funds to the
company should the need arise. This is unlikely a loan in which the entire amount is made available to the
borrower so that it can be used and programmed for the benefit of the company’s financial and
operational needs. Thus, it is actually China Bank which will be the source of the funds to be relent to
Ruby. Benhar will not shell out a single centavo of its own funds. It is the assets of Ruby which will be
mortgaged in favor of Benhar. Benhar’s participation will only make the rehabilitation plan more costly
and, because of the mortgage of its (Ruby’s) assets to a new creditor, will create a situation which is
worse than the present. x x x"

We need not say more.9 (Additional emphasis supplied.)

After the finality of the above decision, the SEC set the case for further proceedings.10 On March 14, 2000,
Bank of the Philippine Islands (BPI), one of RUBY’s secured creditors, filed a Motion to Vacate Suspension
Order11 on grounds that there is no existing management committee and that no decision has been
rendered in the case for more than 16 years already, which is beyond the period mandated by Sec. 3-8 of
the Rules of Procedure on Corporate Recovery. RUBY filed its opposition,12 asserting that the MANCOM
never relinquished its status as the duly appointed management committee as it resisted the orders of
the second and third management committees subsequently created, which have been nullified by the CA
and later this Court. As to the applicability of the cited rule under the Rules on Corporate Recovery, RUBY
pointed out that this case was filed long before the effectivity of said rules. It also pointed out that the
undue delay in the approval of the rehabilitation plan being due to the numerous appeals taken by the
minority stockholders and MANCOM to the CA and this Court, from the SEC approval of the
BENHAR/RUBY Plan. Since there have already been steps taken to finally settle RUBY’s obligations with
its creditors, it was contended that the application of the mandatory period under the cited provision
would cause prejudice and injustice to RUBY.

It appears that even earlier during the pendency of the appeals in the CA, BENHAR and RUBY have
performed other acts in pursuance of the BENHAR/RUBY Plan approved by the SEC.

On September 1, 1996, Lim received a Notice of Stockholders’ Meeting scheduled on September 3, 1996
signed by a certain Mr. Edgardo M. Magtalas, the "Designated Secretary" of RUBY and stating the matters
to be taken up in said meeting, which include the extension of RUBY’s corporate term for another twenty-
five (25) years and election of Directors.13 At the scheduled stockholders’ meeting of September 3, 1996,
Lim together with other minority stockholders, appeared in order to put on record their objections on the
validity of holding thereof and the matters to be taken therein. Specifically, they questioned the
percentage of stockholders present in the meeting which the majority claimed stood at 74.75% of the
outstanding capital stock of RUBY.

The aforesaid stockholders meeting was the subject of the Motion to Cite For Contempt14 and Supplement
to Motion to Cite For Contempt15 filed by Lim before the CA where their petitions for review (CA-G.R. Nos.
32404, 32469 and 32483) were then pending. Lim argued that the majority stockholders claimed to have
increased their shares to 74.75% by subscribing to the unissued shares of the authorized capital stock
(ACS). Lim pointed out that such move of the majority was in implementation of the BENHAR/RUBY Plan
which calls for capital infusion of ₱11.814 Million representing the unissued and unsubscribed portion of
the present ACS of ₱23.7 Million, and the Revised BENHAR/RUBY Plan which proposed an additional
subscription of ₱30 Million. Since the implementation of both majority plans have been enjoined by the
SEC and CA, the calling of the special stockholders meeting by the majority stockholders clearly violated
the said injunction orders. This circumstance certainly affects the determination of quorum, the voting
requirements for corporate term extension, as well as the election of Directors pursuant to the July 30,
1993 Order and October 15, 1993 Resolution of the SEC enjoining not only the implementation of the
revised plan but also the doing of any act that may render the appeal from the approval of the said plan
moot and academic.

The aforementioned capital infusion was taken up by RUBY’s board of directors in a special
meeting16 held on October 2, 1991 following the issuance by the SEC of its Order dated September 18,
199117 approving the Revised BENHAR/RUBY Plan and creating a new management committee to
oversee its implementation. During the said meeting, the board asserted its authority and resolved to
take over the management of RUBY’s funds, properties and records and to demand an accounting from
the MANCOM which was ordered dissolved by the SEC. The board thus resolved that:

The corporation be authorized to issue out of the unissued portion of the authorized capital stocks of the
corporation in the form of common stocks 11.8134.00 [Million] after comparing this with the audited
financial statement prepared by SGV as of December 31, 1982, to be subscribed and paid in full by the
present stockholders in proportion to their present stockholding in the corporation on staggered basis
starting October 28, December 27 then February 28 and April 28 as the last installment date at 25% for
each period. It was also moved and seconded that should any of the stockholders fail to exercise their
rights to buy the number of shares they are qualified to buy by making the first installment payment of
25% on or before October 13, 1991, then the other stockholders may buy the same and that only when
none of the present stockholders are interested in the shares may there be a resort to selling them by
public auction.18

As reflected in the Minutes of the special board meeting, a representative of the absent directors (Tan
Chai, Tomas Lim, Miguel Lim and Yok Lim) came to submit their letter addressed to the Chairman
suggesting that said meeting be deferred until the September 18, 1991 SEC Order becomes final and
executory. The directors present nevertheless proceeded with the meeting upon their belief that neither
appeal nor motion for reconsideration can stay the SEC order.19

The resolution to extend RUBY’s corporate term, which was to expire on January 2, 1997, was approved
during the September 3, 1996 stockholders meeting, as recommended by the board of directors
composed of Henry Yu (Chairman), James Yu, David Yukimteng, Harry L. Yu, Yu Kim Giang, Mary L. Yu
and Vivian L. Yu. The board certified that said resolution was approved by stockholders representing
two-thirds (2/3) of RUBY’s outstanding capital stock.20 Per Certification21 dated August 31, 1995 issued
by Yu Kim Giang as Executive Vice-President of RUBY, the majority stockholders own 74.75% of RUBY’s
outstanding capital stock as of October 27, 1991. The Amended Articles of Incorporation was filed with
the SEC on September 24, 1996.22

On March 17, 2000, Lim filed a Motion23 informing the SEC of acts being performed by BENHAR and
RUBY through directors who were illegally elected, despite the pendency of the appeal before this Court
questioning the SEC approval of the BENHAR/RUBY Plan and creation of a new management committee,
and after this Court had denied their motion for reconsideration of the January 20, 1998 decision in G.R.
Nos. 124185-87. Lim reiterated that before the matter of extension of corporate life can be passed upon
by the stockholders, it is necessary to determine the percentage ownership of the outstanding shares of
the corporation. The majority stockholders claimed that they have increased their shareholdings from
59.828% to 74.75% as a result of the illegal and invalid stockholders’ meeting on September 3, 1996. The
additional subscription of shares cannot be done as it implements the BENHAR/RUBY Plan against which
an existing injunction is still effective based on the SEC Order dated January 6, 1989, and which was
struck down under the final decision of this Court in G.R. Nos. 124185-87. Hence, the implementation of
the new percentage stockholdings of the majority stockholders and the calling of stockholders’ meeting
and the subsequent resolution approving the extension of corporate life of RUBY for another twenty-five
(25) years, were all done in violation of the decisions of the CA and this Court, and without compliance
with the legal requirements under the Corporation Code. There being no valid extension of corporate
term, RUBY’s corporate life had legally ceased. Consequently, Lim moved that the SEC: (1) declare as null
and void the infusion of additional capital made by the majority stockholders and restore the capital
structure of RUBY to its original structure prior to the time injunction was issued; and (2) declare as null
and void the resolution of the majority stockholders extending the corporate life of RUBY for another
twenty-five (25) years.

The MANCOM concurred with Lim and made a similar manifestation/comment24 regarding the irregular
and invalid capital infusion and extension of RUBY’s corporate term approved by stockholders
representing only 60% of RUBY’s outstanding capital stock. It further stated that the foregoing acts were
perpetrated by the majority stockholders without even consulting the MANCOM, which technically
stepped into the shoes of RUBY’s board of directors. Since RUBY was still under a state of suspension of
payment at the time the special stockholders’ meeting was called, all corporate acts should have been
made in consultation and close coordination with the MANCOM.

Lim likewise filed an Opposition25 to BPI’s Motion to Vacate Suspension Order, asserting that the
management committee originally created by the SEC continues to control the corporate affairs and
properties of RUBY. He also contended that the SEC Rules of Procedure on Corporate Recovery cannot
apply in this case which was filed long before the effectivity of said rules.

On the other hand, RUBY filed its Opposition26 to the Motion filed by Lim denying the allegation of Lim
that RUBY’s corporate existence had ceased. RUBY claimed that due notice were given to all stockholders
of the October 2, 1991 special meeting in which the infusion of additional capital was discussed. It further
contended that the CA decision setting aside the SEC orders approving the Revised BENHAR/RUBY Plan,
which was subsequently affirmed by this Court on January 20, 1998, did not nullify the resolution of
RUBY’s board of directors to issue the previously unissued shares. The amendment of its articles of
incorporation on the extension of RUBY’s corporate term was duly submitted with and approved by the
SEC as per the Certification dated September 24, 1996.
The MANCOM also filed its Opposition27 to BPI’s Motion to Vacate Suspension Order, stating that it has
continuously performed its primary function of preserving the assets of RUBY and undertaken the
management of RUBY’s day-to-day affairs. It expressed belief that between chaotic foreclosure
proceedings and collection suits that would be triggered by the vacation of the suspension order and an
orderly settlement of creditors’ claims before the SEC, the latter path is the more prudent and logical
course of action. On April 28, 2000, it submitted to the court copies of the minutes of meetings held from
January 18, 1999 to December 1, 1999 in pursuance of its mandate to preserve the assets and administer
the business affairs of RUBY.28

On August 23, 2000, China Bank filed a Manifestation29 echoing the contentions of BPI that as there is no
existing management committee and no rehabilitation plan approved even after the 240-day period,
warrants the application of Sec. 4-9 of the SEC Rules of Procedure on Corporate Recovery such that the
petition is "deemed ipso facto denied and dismissed." China Bank lamented that the length of time that
has lapsed, as well as the parties’ actuations, completely betrays a genuine attempt to rehabilitate RUBY’s
moribund operations – all to the dismay, damage and prejudice of RUBY’s creditors. It stressed that the
proceedings cannot be prolonged nor used as a ploy to defer indefinitely the payment of long overdue
obligations of RUBY to its creditors. With the case having been ipso facto dismissed, there is no need of
further action from the parties or an order from the SEC. Consequently, RUBY’s creditors may now take
whatever legal action they may deem appropriate to protect their rights including, but not limited to
extrajudicial foreclosure.

On September 11, 2000, the SEC granted Lim’s request for the issuance of subpoena duces tecum/ad
testificandum to Ms. Jocelyn Sta. Ana of BPI for the latter to testify and bring all documents and records
pertaining to RUBY.30Earlier, Lim moved for a hearing to verify the information that China Bank and BPI
had separately executed deeds of assignment in favor of Greener Investment Corporation, a company
owned by Yu Kim Giang, one of RUBY’s majority stockholders.31 Said hearing, however, did not push
through in view of RUBY’s proposal for a compromise agreement.32 Lim submitted his comments on the
Proposed Compromise Agreement, but there was no response from RUBY and the majority
stockholders.33 The minority stockholders likewise served a copy of the revised Compromise Agreement
to the majority stockholders.34 Lim moved that the case be assigned to a new Panel of Hearing Officers
and the majority stockholders be made to declare in a hearing whether they accept the counterproposals
of the minority in their draft Amicable Settlement in order that the case can proceed immediately to
liquidation.35

On January 25, 2001, the MANCOM filed with the SEC its Resolution unanimously adopted on January 19,
2001 affirming that: (1) MANCOM was never informed nor advised of the supposed capital infusion by
the majority stockholders in October 1991 and it never actually received any such additional subscription
nor signed any document attesting to or authorizing the said increase of RUBY’s capital stock or the
extension of its corporate life; (2) MANCOM continuously recognizes the 60%-40% ratio of shareholding
profile between the majority and minority stockholders, with the majority having 59.828% while the
minority holds 40.172% shareholding; (3) as there was no valid increase in the shareholding of the
majority and consequently no valid extension of corporate term, the liquidation of RUBY is thus in order;
(4) to date, the majority stockholders or Yu Kim Giang have not complied with the December 22, 1989
SEC order for them to turn over the cash including bank deposits, all other financial records and
documents of RUBY including transfer certificates of title over its real properties, and render an
accounting of all the money received by RUBY; and (5) pursuant to this Court’s ruling in G.R. No. 96675
dated August 26, 1991, the previous deeds of assignment made in favor of BENHAR by Florence Damon,
Philippine Bank of Communications, Philippine Commercial International Bank, Philippine Trust
Company, PCI Leasing and Finance, Inc. and FEBTC, having been earlier declared void by the SEC Hearing
Panel, and the CA decision in CA-G.R. SP No. 18310 affirmed by this Court – have no legal effect and are
deemed void.36

On the other hand, Lim filed a Supplement (to Manifestation and Motion dated January 18,
2001)37 reiterating his pending motion filed on March 15, 2000 for the SEC to implement this Court’s
January 20, 1998 Decision in G.R. Nos. 124185-87 which states in part that "[t]he SEC therefore has the
power and authority, directly to declare all assignment of assets of the petitioner Corporation declared
under suspension of payments, null and void, and to conserve the same in order to effect a fair, equitable
and meaningful rehabilitation of the insolvent corporation." Lim contended that the SEC retains
jurisdiction over pending suspension of payment/rehabilitation cases filed as of June 30, 2000 until these
are finally disposed, pursuant to Sec. 5.2 of the Securities Regulation Code (Republic Act [R.A.] No. 8799).
Considering that the Management Committee is intact, the majority stockholders cannot act in an illegal
manner with regard to RUBY’s assets. He thus concluded that the continued disobedience of the majority
stockholders to the orders and decisions of the SEC and CA, as affirmed by this Court, have certainly
rendered any additional assignments, such as the Deeds of Assignment executed by BPI and China Bank
with BENHAR, Henry Yu or conduits of the majority stockholders, null and void.

The MANCOM manifested that it is adopting in toto the Manifestation and Motion dated January 18, 2001
filed by Lim. It also moved for the SEC to conduct further proceedings as directed by this Court.
Considering that there is no chance at all for the proposed rehabilitation of RUBY in light of strict
implementation by government authorities of environmental laws particularly on pollution control, and
MANCOM’s assent to effect a liquidation, the MANCOM asserted that a hearing should focus on the
eventual liquidation of RUBY. It added that a dismissal under the circumstances would be tantamount to
a perceived shirking by the SEC of its mandate to afford all creditors ample opportunity to recover on
their respective financial exposure with RUBY.38

On May 15, 2001, the MANCOM submitted copies of minutes of meetings held from April 13, 2000 to
December 29, 2000.39

On September 20, 2001, the SEC issued an Order directing the Management Committee to submit a
detailed report – not mere minutes of meetings -- on the status of the rehabilitation process and financial
condition of RUBY, which should contain a statement on the feasibility of the rehabilitation plan.40 The
MANCOM complied with the said order on February 15, 2002.41 The majority stockholders and RUBY
moved to dismiss the petition and strike from the records the Compliance/Report. MANCOM filed its
omnibus opposition to the said motions. There was further exchange of pleadings by the parties on the
matter of whether the SEC should already dismiss the petition of RUBY as prayed for by the majority
stockholders and RUBY, or proceed with supervised liquidation of RUBY as proposed by the MANCOM
and minority stockholders.

The SEC’s Ruling

On September 18, 2002, the SEC issued its Order42 denying the petition for suspension of payments, as
follows:

WHEREFORE, in view of the foregoing, the Commission hereby resolves to terminate the proceedings and
DENY the instant petition.
Accordingly, pursuant to Sec. 5-5 of the SEC’s Rules of Procedure on Corporate Recovery, which provides:

"Discharge of the Management Committee -- The Management Committee shall be discharged and
dissolved under the following circumstances:

a. Whenever the Commission, on motion or motu prop[r]io, has determined that the necessity for
the Management Committee no longer exists;

b. Upon the appointment of a liquidator under these Rules;

c. By agreement of the parties;

d. Upon termination of the proceedings.

Upon its discharge and dissolution, the Management Committee shall submit its final report and render
an accounting of its management within such reasonable time as the Commission may allow."

the Management Committee is hereby DISSOLVED. It is likewise ordered to:

(1) Make an inventory of the assets, funds and properties of the petitioner;

(2) Turn-over the aforementioned assets, funds and properties to the proper party(ies);

(3) Render an accounting of its management; and

(4) Submit its Final Report to the Commission.

The MANCOM is ordered to comply with the foregoing within a non-extendible period of thirty (30) days
from receipt of this Order. Relative to any compensation owing to the MANCOM, it is left to the
determination of the parties concerned.

No pronouncement as to costs.

SO ORDERED.43

The SEC declared that since its order declaring RUBY under a state of suspension of payments was issued
on December 20, 1983, the 180-day period provided in Sec. 4-9 of the Rules of Procedure on Corporate
Recovery had long lapsed. Being a remedial rule, said provision can be applied retroactively in this case.
The SEC also overruled the objections raised by the minority stockholders regarding the questionable
issuance of shares of stock by the majority stockholders and extension of RUBY’s corporate term, citing
the presumption of regularity in the act of a government entity which obtains upon the SEC’s approval of
RUBY’s amendment of articles of incorporation. It pointed out that Lim raised the issue only in the year
2000. Moreover, the SEC found that notwithstanding his allegations of fraud, Lim never proved the
illegality of the additional infusion of the capitalization by RUBY so as to warrant a finding that there was
indeed an unlawful act.44
Lim, in his personal capacity and in representation of the minority stockholders of RUBY, filed a petition
for review with prayer for a temporary restraining order and/or writ of preliminary injunction before the
CA (CA-G.R. SP No. 73195) assailing the SEC order dismissing the petition and dissolving the MANCOM.

Ruling of the CA

On May 26, 2004, the CA rendered its Decision,45 the dispositive portion of which states:

WHEREFORE, the Questioned Order dated 18 September 2002 issued by the Securities and Exchange
Commission in SEC Case No. 2556 entitled "In the Matter of the Petition for Suspension of Payments,
Ruby Industrial Corporation, Petitioner," is hereby SET ASIDE, and consequently:

(1) the infusion of additional capital made by the majority stockholders be declared null and void
and restoring the capital structure of Ruby to its original structure prior to the time the injunction
was issued, that is, majority stockholders – 59.828% and the minority stockholders – 40.172% of
the authorized capital stock of Ruby Industrial Corporation.

(2) the resolution of the majority stockholders, who represents only 59.828% of the outstanding
capital stock of Ruby, extending the corporate life of Ruby for another twenty-five (25) years
which was made during the supposed stockholders’ meeting held on 03 September 1996 be
declared null and void;

(3) implementing the invalidation of any and all illegal assignments of credit/purchase of credits
and the cancellation of mortgages connected therewith made by the creditors of Ruby Industrial
Corporation during the effectivity of the suspension of payments order including that of China
Bank and BPI and to deliver to MANCOM or the Liquidator all the original of the Deeds of
Assignments and the registered titles thereto and any other documents related thereto; and order
their unwinding and requiring the majority stockholders to account for all illegal assignments
(amounts, dates, interests, etc. and present the original documents supporting the same); and

(4) ordering the Securities and Exchange Commission to supervise the liquidation of Ruby
Industrial Corporation after the foregoing steps shall have been undertaken.

SO ORDERED.46

According to the CA, the SEC erred in not finding that the October 2, 1991 meeting held by RUBY’s board
of directors was illegal because the MANCOM was neither involved nor consulted in the resolution
approving the issuance of additional shares of RUBY.

The CA further noted that the October 2, 1991 board meeting was conducted on the basis of the
September 18, 1991 order of the SEC Hearing Panel approving the Revised BENHAR/RUBY Plan, which
plan was set aside under this Court’s January 20, 1998 Decision in G.R. Nos. 124185-87. The CA pointed
out that records confirmed the proposed infusion of additional capital for RUBY’s rehabilitation,
approved during said meeting, as implementing the Revised BENHAR/RUBY Plan. Necessarily then, such
capital infusion is covered by the final injunction against the implementation of the revised plan. It must
be recalled that this Court affirmed the CA’s ruling that the revised plan not only recognized the void
deeds of assignments entered into with some of RUBY’s creditors in violation of the CA’s decision in CA-
G.R. SP No. 18310, but also maintained a financing scheme which will just make the rehabilitation plan
more costly and create a worse situation for RUBY.

On the supposed delay of the minority stockholders in raising the issue of the validity of the infusion of
additional capital effected by the board of directors, the CA held that laches is inapplicable in this case. It
noted that Lim sought relief while the case is still pending before the SEC. If ever there was delay, the
same is not fatal to the cause of the minority stockholders.

The CA likewise faulted the SEC in relying on the presumption of regularity on the matter of the extension
of RUBY’s corporate term through the filing of amended articles of incorporation. In doing so, the CA
totally disregarded the evidence which rebutted said presumption, as demonstrated by Lim: (1) it was
the board of directors and not the stockholders which conducted the meeting without the approval of the
MANCOM; (2) there was no written waivers of the minority stockholders’ pre-emptive rights and thus it
was irregular to merely notify them of the board of directors’ meeting and ask them to exercise their
option; (3) there was an existing permanent injunction against any additional capital infusion on the
BENHAR/RUBY Plan, while the CA and this Court both rejected the Revised BENHAR/RUBY Plan; (4)
there was no General Information Sheet reports made to the SEC on the alleged capital infusion, as per
certification by the SEC; (5) the Certification stating the present percentage of majority shareholding,
dated December 21, 1993 and signed by Yu Kim Giang -- which was not sworn to before a Notary Public --
was supposedly filed in 1996 with the SEC but it does not bear a stamped date of receipt, and was only
attached in a 2000 motion long after the October 1991 board meeting; (6) said Certification was
contradicted by the SEC list of all stockholders of RUBY, in which the majority remained at 59.828% and
the minority shareholding at 40.172% as of October 27, 1991; (7) certain receipts for the amount of ₱1.7
million was presented by the majority stockholders only in the year 2000, long after Lim questioned the
inclusion of extension of corporate term in the Notice of Meeting when Lim filed before the CA a motion
to cite for contempt (CA-G.R. Nos. 32404, 32469 and 32483); and (8) this Court’s decisions in the cases
elevated to it had recognized the 40% stockholding of the minority. Upon the foregoing grounds, the CA
said that the SEC should have invalidated the resolution extending the corporate term of RUBY for
another twenty-five (25) years.

With the expiration of the RUBY’s corporate term, the CA ruled that it was error for the SEC in not
commencing liquidation proceedings. As to the dismissal of RUBY’s petition for suspension of payments,
the CA held that the SEC erred when it retroactively applied Sec. 4-9 of the Rules of Procedure on
Corporate Recovery. Such retroactive application of procedural rules admits of exceptions, as when it
would impair vested rights or cause injustice. In this case, the CA emphasized that the two decisions of
this Court still have to be implemented by the SEC, but to date the SEC has failed to unwound the illegal
assignments and order the assignees to surrender the Deeds of Assignment to the MANCOM.

On the issue of violation of the rule against forum shopping, the CA held that this is not applicable
because the parties in CA-G.R. SP No. 73169 (filed by MANCOM) and CA-G.R. SP No. 73195 (filed by Lim)
are not the same and they do not have the same interest. This issue was in fact already resolved in G.R.
Nos. 124185-87 wherein this Court, citing Ramos, Sr. v. Court of Appeals47 declared that private
respondents Lim, the unsecured creditors (ALFC) and MANCOM cannot be considered to have engaged in
forum shopping in filing separate petitions with the CA as each have distinct rights to protect.

The CA also found that the belated submission of the special power of attorney executed by the other
minority stockholders representing 40.172% of RUBY’s ownership has no bearing to the continuation of
the petition filed with the appellate court. Moreover, since the petition is in the nature of a derivative suit,
Lim clearly can file the same not only in representation of the minority stockholders but also in behalf of
the corporation itself which is the real party in interest. Thus, notwithstanding that Lim’s ownership in
RUBY comprises only 1.4% of the outstanding capital stock, as claimed by the majority stockholders, his
petition may not be dismissed on this ground.

The Consolidated Petitions

From the Decision of the CA, China Bank and the Majority Stockholder joined by RUBY, filed separate
petitions before this Court.

In G.R. No. 165887, petitioners Majority Stockholders and RUBY raised the following grounds for the
reversal of the assailed decision and the reinstatement of the SEC’s September 18, 2002 Order:

First Reason

THE COURT OF APPEALS ERRED – AND WHEN IT DID, IT ACTED CONTRARY TO LAW AND
PRECEDENTS – WHEN IT GAVE DUE COURSE TO, AND, THEREAFTER, SUSTAINED, A FORMALLY
AND SUBSTANTIALLY DEFECTIVE PETITION FOR REVIEW.

Second Reason

THE COURT OF APPEALS ERRED – AND WHEN IT DID, IT ACTED IN A MANNER AT WAR WITH
ORDERLY PROCEDURE AND APPLICABLE JURISPRUDENCE – WHEN IT REVERSED THE ORDER
OF DISMISSAL OF THE SECURITIES AND EXCHANGE COMMISSION AND SUBSTITUTED ITS
JUDGMENT FOR THAT OF THE LATTER IN THE DETERMINATION OF ISSUES WELL WITHIN THE
EXPERTISE OF THE COMMISSION.

Third Reason

THE COURT OF APPEALS ERRED – AND WHEN IT DID, IT ACTED IN GRAVE ABUSE OF ITS
DISCRETION AND, IN FACT, IN EXCESS OR LACK OF JURISDICTION -- WHEN IT SUSTAINED
COLLATERAL ATTACKS OF FINAL ADJUDICATIONS OF THE SECURITIES AND EXCHANGE
COMMISSION.48

On the other hand, petitioner China Bank in G.R. No. 165929 puts forth the argument that the principle of
stare decisis cannot be given effect in this case considering the prevailing factual circumstances, as to do
so would result in manifest injustice. It contends that the reason for the declaration of nullity of the Deed
of Assignment pronounced more than a decade ago, has become legally inefficacious by its obsolescence.
The creditors of RUBY have the right to recover their credit. But when the CA ordered the nullification of
China Bank’s Deed of Assignment in favor of Greener Investment Corporation, it practically dashed its
last hope for ever recovering its credit.

China Bank is of the view that the CA overstretched the import of this Court’s January 20, 1998 decision
in G.R. Nos. 124185-87 when the SEC was ordered to "conduct further proceedings," as to include the
unwinding of the alleged illegal assignment of credits. The rehabilitation of RUBY, if it still may be capable
of, is not made dependent on the unwinding by the SEC of the illegal assignments, as the same concerns
only the issue of who shall now become the creditors of RUBY, and does not alter the fact that RUBY has
hefty loan obligations and it has not enough cash flow to pay for the same.
Deploring the principal parties’ penchant for prolonged litigation resulting considerably in irreversible
losses to RUBY, China Bank maintains that from the report submitted by the MANCOM to the SEC, it can
be clearly seen that no attempt at rehabilitation whatsoever had been pursued. Given the current
situation, China Bank prays that the CA Decision be reversed and its Deed of Assignment in favor of
Greener Investment Corporation be recognized and given full legal effect.

In fine, main issues to be resolved are: (1) whether private respondents MANCOM and Lim engaged in
forum shopping when they filed separate petitions before the CA assailing the September 18, 2002 SEC
Order; (2) whether the defects in the certification of non-forum shopping submitted by Lim warrant the
dismissal of his petition before the CA; (3) whether the CA was correct in reversing the SEC’s order
dismissing the petition for suspension of payment.

Our Ruling

The petitions have no merit.

On the charge of forum shopping, we have already ruled on the matter in G.R. Nos. 124185-87. Thus:

We hold that private respondents are not guilty of forum-shopping. In Ramos, Sr. v. Court of Appeals, we
ruled:

"The private respondents can be considered to have engaged in forum shopping if all of them, acting as
one group, filed identical special civil actions in the Court of Appeals and in this Court. There must be
identity of parties or interests represented, rights asserted and relief sought in different tribunals. In the
case at bar, two groups of private respondents appear to have acted independently of each other when
they sought relief from the appellate court. Both groups sought relief from the same tribunal.

"It would not matter even if there are several divisions in the Court of Appeals. The adverse party can
always ask for the consolidation of the two cases. x x x"

In the case at bar, private respondents represent different groups with different interests – the minority
stockholders’ group, represented by private respondent Lim; the unsecured creditors group, Allied
Leasing & Finance Corporation; and the old management group. Each group has distinct rights to protect.
In line with our ruling in Ramos, the cases filed by private respondents should be consolidated. In fact,
BENHAR and RUBY did just that – in their urgent motions filed on December 1, 1993 and December 6,
1993, respectively, they prayed for the consolidation of the cases before the Court of Appeals.49

In the present case, no consolidation of CA-G.R. SP Nos. 73169 (filed by MANCOM) which was earlier
assigned to the Thirteenth Division and CA-G.R. SP No. 73195 (filed by Lim) decided by the Second
Division, took place. In their Comment filed before CA-G.R. SP No. 73169, the Majority Stockholders and
RUBY (private respondents therein) prayed for the dismissal of said case arguing that MANCOM, of which
Lim is a member, circumvented the proscription against forum shopping. The CA’s Thirteenth Division,
however, disagreed with private respondents and granted the motion to withdraw petition filed by
MANCOM which manifested that the Second Division in CA-G.R. SP No. 73195 by Decision dated May 26,
2004 had granted the reliefs similar to those prayed for in their petition, said decision being binding on
MANCOM which was also impleaded in said case (CA-G.R. SP No. 73195). The Thirteenth Division also
cited our pronouncement in G.R. Nos. 124185-87 to the effect that there was no violation on the rule on
forum shopping because MANCOM and Lim or the minority shareholders of RUBY represent different
interests.50

As to the alleged defects in the certificate of non-forum shopping submitted by Lim, we find no error
committed by the CA in holding that the belated submission of a special power of attorney executed in
Lim’s favor by the minority stockholders has no bearing to the continuation of the case as supported by
ample jurisprudence. To appreciate the liberal stance adopted by the CA, one must take into account the
previous history of the petitions for review before the CA involving the SEC September 18, 2002 Order. It
was actually the third time that Lim and/or MANCOM have challenged certain acts perpetrated by the
majority stockholders which are prejudicial to RUBY, such as the execution of deeds of assignment during
the effectivity of the suspension order in pursuit of two rehabilitation plans submitted by them together
with BENHAR. The assignment of RUBY’s credits to BENHAR gave the secured creditors undue advantage
over RUBY’s prime properties and put these assets beyond the reach of the unsecured creditors. Each
time they go to court, Lim and MANCOM essentially advance the interest of the corporation itself. They
have consistently taken the position that RUBY’s assets should be preserved for the equal benefit of all its
creditors, and vigorously resisted any attempt of the controlling stockholders to favor any or some of its
creditors by entering into questionable deals or financing schemes under two BENHAR/RUBY Plans.
Viewed in this light, the CA was therefore correct in recognizing Lim’s right to institute a stockholder’s
action in which the real party in interest is the corporation itself.

A derivative action is a suit by a shareholder to enforce a corporate cause of action.51 It is a remedy

designed by equity and has been the principal defense of the minority shareholders against abuses by the
majority.52 For this purpose, it is enough that a member or a minority of stockholders file a derivative suit
for and in behalf of a corporation.53 An individual stockholder is permitted to institute a derivative suit on
behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever officials of the corporation refuse to sue or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as the nominal party, with the corporation
as the party in interest.54

Now, on the third and substantive issue concerning the SEC’s dismissal of RUBY’s petition for suspension
of payment.

The SEC based its action on Sec. 4-9 of the Rules of Procedure on Corporate Recovery,55 which provides:

SEC. 4-9. Period of Suspension Order. – The suspension order shall be effective for a period of sixty (60)
days from the date of its issuance. The order shall be automatically vacated upon the lapse of the sixty-
day period unless extended by the Commission. Upon motion, the Commission may grant an extension
thereof for a period of not more than sixty (60) days in each application if the Commission is satisfied
that the debtor and its officers have been acting in good faith and with due diligence, and that the debtor
would likely be able to make a viable rehabilitation plan. After the lapse of one hundred and eighty (180)
days from the issuance of the suspension order, no extension of the said order shall be granted by the
Commission if opposed in writing by a majority of any class of creditors. The Commission may grant an
extension beyond one hundred eighty (180) days only if it appears by convincing evidence that there is a
good chance for the successful rehabilitation of the debtor and the opposition thereto by the creditor
appears manifestly unreasonable.

In any event, the petition is deemed ipso facto denied and dismissed if no Rehabilitation Plan was
approved by the Commission upon the lapse of the order or the last extension thereof. In such case, the
debtor shall come under the dissolution and liquidation proceedings of Rule V of these Rules. (Emphasis
supplied.)

According to the SEC, even if the 180 days maximum period of suspension order is counted from the
finality of this Court’s decision in G.R. Nos. 124185-87 in December 1998, still this case had gone beyond
the period mandated in the Rules for a corporation under suspension of payment to have a rehabilitation
plan approved by the Commission.

While it is true that the Rules of Procedure on Corporate Recovery authorizes the dismissal of a petition
for suspension of payment where there is no rehabilitation plan approved within the maximum period of
the suspension order, it must be recalled that there was in fact not one, but two rehabilitation plans
(BENHAR/RUBY Plan and Revised BENHAR/RUBY Plan) submitted by the majority stockholders which
were approved by the SEC. The implementation of the first plan was enjoined when it was seriously
challenged in the courts by the minority stockholders through Lim. The second revised plan superseded
the first plan, but eventually nullified by the CA and the CA decision declaring it void was affirmed by this
Court in G.R. Nos. 124185-87. Given this factual milieu, the automatic application of the lifting of the
suspension order as interpreted by the SEC in its September 18, 2002 Order would be unfair and highly
prejudicial to the financially distressed corporation.

Moreover, records reveal that the delay in the proceedings after the case was set for hearing following
this Court’s final judgment in G.R. Nos. 124185-87, was not due to any fault or neglect on the part of
MANCOM or the minority stockholders. The idea propounded by the petitioners majority stockholders
that this case is about a minority in a corporation holding hostage the majority indefinitely by simple
assertion that the former’s rights have been transgressed by the latter is, downright misleading.

First, the SEC did not even mention in its September 18, 2002 Order that when this Court remanded to it
the case for further proceedings, there remained only the Alternative Plan of RUBY’s minority
stockholders which had earlier been forwarded to the SEC Hearing Panel. With the CA Decision setting
aside the SEC approval of the Revised BENHAR/RUBY Plan, as affirmed by this Court, it behooves on the
SEC to recognize the fact that the Alternative Plan was endorsed by 90% of the RUBY’s creditors who had
objected to the Revised BENHAR/RUBY Plan. Yet, not a single step was taken by the SEC to address those
findings and conclusions made by the CA and this Court on the highly disadvantageous and onerous
provisions of the Revised BENHAR/RUBY Plan.

Moreover, the SEC failed to act on motions filed by Lim and MANCOM to implement this Court’s January
20, 1998 Decision in G.R. Nos. 124185-87, by declaring all deeds of assignment with BENHAR and/or the
conduits of Henry Yu of no force and legal effect, which of course necessitates the surrender by the
concerned creditors of those void deeds of assignment. Petitioner China Bank dismisses it as unnecessary
and immaterial to the continued inability of RUBY to settle its long overdue debts. However, the CA said
that the foregoing acts should have been done by the SEC for proper documentation and orderly
settlement after proper accounting of the assignment transactions. The appellate court then concluded
that dismissal of the petition under Sec. 4-9 of the Rules of Procedure on Corporate Recovery would
impair the vested rights of the minority stockholders under this Court’s decision invalidating the
aforesaid deeds of assignment, thus:

We agree with the observations of the petition that if the illegal assignments not having been unwound
and the mortgages not canceled, the majority, their alter ego, and/or cohorts will claim to be secured
creditors and freely collect extra-judicially the obligations covered by the illegal assignments. Ruby has
very little money compared to the P200 Million probable liability to the illegal assignees as unilaterally
stated by Ruby without audit (previously merely totaled to P34 Million in 1998 as stated in the revised
rehabilitation plan). Foreclosure of the mortgages by the illegal assignees will follow; Ruby will lose all its
prime properties; there will be no assets left for unsecured creditors; and there will be no residual P600
Million assets to divide.56

Evidently, the minority stockholders and MANCOM had already foreseen the impossibility of
implementing a viable rehabilitation plan if the illegal assignments made by its creditors with BENHAR
and the majority stockholders, and subsequently, with conduits of RUBY or Henry Yu, are not properly
unwound and those directors responsible for the void transactions not required to make a full
accounting. Contrary to petitioner China Bank’s insinuation that the minority stockholders merely want
to prolong the litigation to the great prejudice and damage to RUBY’s creditors, MANCOM and Lim had
determined and moved for SEC-supervised liquidation proceedings as the more prudent course of action
for an orderly and equitable settlement of RUBY’s liabilities.

Records likewise revealed that the SEC chose to keep silent and failed to assist the MANCOM and
minority stockholders in their efforts to demand compliance from the majority stockholders or Yu Kim
Giang (who headed the first MANCOM) with the December 22, 1989 Order directing them to turn over
the cash, financial records and documents of RUBY, including certificates of title over RUBY’s real
properties, and render an accounting of all moneys received and payments made by RUBY. On January
18, 2002, the MANCOM even filed a Motion57 to require Yu Kim Giang to render report/accounting of
RUBY from 1983 to the 1st quarter of 1990, stating that despite a commitment from Mr. Giang, he has
seemingly delayed his compliance, hence frustrating the desire of MANCOM to submit a comprehensive
and complete report for the whole period of 1983 up to the present. To underscore the importance of
making the said records available for scrutiny of the SEC and MANCOM, Lim manifested before the SEC
that--

Indeed, the majority is actually unwilling (and not merely unable) to submit such records because these
will show, among others:

(1) The majority to minority ratio in the corporate ownership is 59.828% :40.172%;

(2) The actual amounts of the bank loans paid off by Benhar International[,] Inc. and/or Henry Yu
would be very low;

(3) The illegal payment of the bank loans and illegal assignments of the mortgages to
Benhar/Henry Yu are contrary to the Honorable Commission’s Order of 20 December 1983 for
suspension of payments;

(4) The earnings of the corporation from 1983 to 1989 amounted to millions and cannot be
accounted for by the majority and the first Mancom;

(5) The money may have been spent to pay off some of the loans to the bank but Benhar and
Henry Yu fraudulently claim credit therefor.58

It must be noted that MANCOM had rejected the two rehabilitation plans proposed by BENHAR and the
majority stockholders. In shifting the blame to the MANCOM and minority stockholders for the delay in
the approval of a viable rehabilitation plan, the SEC apparently overlooked that from the time the SEC
approved the Revised BENHAR/RUBY Plan and dissolved the MANCOM, the majority stockholders has
denied MANCOM access to corporate papers, documents evidencing the amounts actually paid to creditor
banks/assignors, financial statements and titles over RUBY’s real properties.

Although the SEC granted MANCOM and Lim’s request for a hearing and direct a representative from BPI
to bring all documents relative to the assignment of RUBY’s credit, said hearing did not materialize after
the majority stockholders proposed a compromise agreement with the minority stockholders. But as it
turned out, this development only caused further delay because the majority stockholders were unwilling
to turn over documents, funds and properties in their possession, and would neither make a full
accounting or disclosure of RUBY’s transactions, especially the actual amounts paid and rates of interest
on the loan assignments. In this state of things, the MANCOM and minority stockholders resolved that the
more reasonable and practical option is to move for a SEC-supervised liquidation proceedings.

The other ground invoked by Lim and MANCOM for the propriety of liquidation is the expiration of
RUBY’s corporate term. The SEC, however, held that the filing of the amendment of articles of
incorporation by RUBY in 1996 complied with all the legal requisites and hence the presumption of
regularity stands. Records show that the validity of the infusion of additional capital which resulted in the
alleged increase in the shareholdings of petitioners majority stockholders in October 1991 was
questioned by MANCOM and Lim even before the majority stockholders filed their motion to dismiss in
the year 2000.

A stock corporation is expressly granted the power to issue or sell stocks.59 The power to issue shares of
stock in a corporation is lodged in the board of directors and no stockholders’ meeting is required to
consider it because additional issuances of shares of stock does not need approval of the
stockholders.60 What is only required is the board resolution approving the additional issuance of shares.
The corporation shall also file the necessary application with the SEC to exempt these from the
registration requirements under the Revised Securities Act (now the Securities Regulation Code).

The new management committee created pursuant to SEC Order dated September 18, 1991 apparently
had no participation in the October 2, 1991 board resolution approving the issuance of additional shares.
The move was part of the board’s assertion of control over the management in RUBY following the
approval of the Revised BENHAR/RUBY Plan. The minority stockholders registered their objection
during the said meeting by asking the board to defer action as the SEC September 18, 1991 Order was
still on appeal with the SEC En Banc. When the SEC En Banc denied their appeal and motion for
reconsideration under its July 30, 1993 and October 15, 1993 orders, Lim, MANCOM and ALFC filed
petitions for review with the CA which set aside the said orders. As already mentioned, this Court
affirmed the CA ruling in G.R. Nos. 124185-87.

Contrary to the assertion of petitioners majority stockholders, our decision in G.R. Nos. 124185-87
nullified the deeds of assignment not solely on the ground of violation of the injunction orders issued by
the SEC and CA. As earlier mentioned, we affirmed the CA’s finding that the re-lending scheme under the
Revised BENHAR/RUBY Plan will not only make rehabilitation more costly for RUBY, but also worsen its
financial condition because of the mortgage of its assets to a new creditor. To better illumine this point,
we quote from the CA decision in CA-G.R. SP Nos. 32404, 32469 and 32483 comparing the provisions of
the rehabilitation proposals submitted by the majority stockholders (Revised BENHAR/RUBY Plan) and
the minority stockholders (Alternative Plan):
…there is no need for Benhar to act as financier, as Ruby itself can very well secure such credit
accommodation using its assets as collateral. Verily, Benhar’s pretext at magnanimity is deception of the
highest order considering that: (1) as embodied in the heading Sources and Uses of Funds in the Revised
Benhar/Ruby Plan, the ₱80-Million loan/credit facility to be extended by Benhar will be used to pay
₱60.437-Million loans of Ruby. Of the ₱60.437-Million, ₱34.068-Million will be paid to Benhar as payment
for the amounts it paid in consideration of the nullified assignments; (2) The Deed of Assignment of
Credit Facility will be executed by Benhar in favor of Ruby only upon payment of Ruby of such amount
already advanced by Benhar, i.e. the ₱34.068-Million credit assigned to Benhar by the seven (7) secured
creditors.

The Revised Benhar/Ruby Plan, in fact, gives Benhar undue preference on the matter of repayment.
Under the said plan, the creditors of Ruby will be paid in accordance with the following schedules:

"Secured ₱17.022M To be paid in cash with

Creditors 12% interest p.a.
China Banking
Corp.
BPI
Philippine Orient
Unsecured ₱ 9.347M To be paid in cash
Creditors Allied interest-f[r]ee
Leasing
Filcor Finance
Benhar ₱34.068M To be paid in cash
For having paid with interest charge
Ruby obligations
to 7 creditors
Trade/Other ₱2.871M Totalling ₱8.614M to be
Creditors (p.a. for 3 paid in 3- year
years) installment, interest-
free"

(Rollo, CA-G.R. SP No. 32404, p. 727)

Needless to state, the foregoing payment schedules as embodied in the said plan which gives Benhar
undue advantage over the other creditors goes against the very essence of rehabilitation, which requires
that no creditor should be preferred over the other. Indeed, a comparison of the salient features of the
Revised Benhar/Ruby Plan and the Alternative Plan will readily show just how stacked in favor of Benhar
are the provisions of the former plan:

1âwphi1
Benhar/Ruby Plan Alternative Plan

1. Benhar plays a major role. It 1. The original creditors are the

will be paid ₱34.068M out of ones recognized. The amount
₱60.437 M total amount due to payable is lower because
creditors but not explained as interests are not capitalized.
to how arrived at.

2. Benhar will not assign the 2. Direct credit of P80M loan

credit facility of ₱80M unless and will be borrowed from the
the ₱34.068M above stated is bank(s) like Allied, UCPB,
paid. Metrobank or Equitable Bank
or even China Bank.

3. The main assets are to be 3. Mortgaged

mortgaged to the creditor- to bank(s) directly.
assignor of Benhar and if the
illegal assignments are
recognized, then Benhar shall
have to be recognized as
mortgagee even when it is a
disqualified creditor and/or
mortgagee.

4. Start up cost ₱16,880 and 4. Plant B = ₱25,640

based on 1988 figures and
projections. Year IV estimated ₱40. M

Plant A = 22.40

Year V estimated ₱30. M

5. Rehabilitation only of Plant 5. Rehabilitation of both plants.

B.

6. Recognition of Benhar re- 6. None

lender/financier.

7. Because of the SEC Order he 7. Pilipinas Shell representative

got an MC seat and and the be retained.
Pilipinas Shell representative
of trade creditors was retained.

8. Credit facility is being 8. Credit facility directly to

assigned or re-lent by Benhar. Ruby.

9. Authorized Benhar to 9. None going to the minority

mortgage assets of Ruby itself. but to actual lenders.
Only remaining unencumbered
asset is one (1) real property.
Two (2) prime properties
already encumbered to
Assignor of Benhar.

10. Capacity of only one (1) 10. Capacity of two (2) plants
plant stated at 72% progressive to 75% or 80%
(overrated) with purchase of new
machines.

11. Projection figures based on 11. Minority RP can be updated

May, 1990 forex exchange rate. at current foreign exchange
Cost of importation and other rate.
local supplier currently cannot
be met.

12. Market and economic slow 12. Taken into consideration so

down not taken into will upgrade to meet
consideration. competition.

13. Discriminatory to creditors 13. Not discriminatory.

Benhar-capitalized with
undisclosed rates of interest.

14. Original Figures of illegally 14. Original figures will be used

assigned loans from FEBTC, original figures plans 12%
PCIB, PTC which totaled to interest only.
₱11,419,036.87 but now
entered as ₱21,378,002.71. The
interest is undisclosed and may
have been capitalized. Figures
for the other four (4) secured
lenders not available
individually. Total of seven (7)
secured lenders given as
₱34.068 M.

15. Interest is 28% with 15. Interest is 25% payable to

Benhar as conduit. the bank. This is still subject to
current market rates to be
negotiated by the minority.

16. Call on unissued shares for 15. Additional subscription of

₱11.814 M and if minority will ₱16M within 6 months by the
take up their pre-emptive minority stockholders.
 rights and dilute minority
shareholdings.

x x x x61

Prior to the September 18, 1991 Order approving the Revised BENHAR/RUBY Plan and dissolving the
MANCOM, majority of RUBY’s creditors (90%) have already withdrawn their support to the revised plan
and manifested that they were only lately informed about another plan submitted by the minority
stockholders. Hence, these creditors wrote individual letters to the SEC Hearing Panel expressing their
agreement with and endorsement of the Alternative Plan of the minority stockholders.62

The Revised BENHAR/RUBY Plan had proposed the calling for subscription of unissued shares through a
Board Resolution from the ₱11.814 million of the ₱23.7 million ACS "in order to allow the long overdue
program of the REHAB Program." RUBY will offer for subscription 118,140 shares of stocks at par value
of ₱100 each to all stockholders on record, payable within 15 days, or within a reasonable period from
SEC approval of the revised plan.63 This was implemented by the October 2, 1991 meeting of the Board of
Directors led by Yu Kim Giang. The minority directors claimed they were not notified of said board
meeting. At any rate, the CA decision nullifying the Revised BENHAR/RUBY Plan was affirmed by this
Court on January 20, 1998. Hence, the legitimate concerns of the minority stockholders and MANCOM
who objected to the capital infusion which resulted in the dilution of their shareholdings, the expiration
of RUBY’s corporate term and the pending incidents on the void deeds of assignment of credit – all these
should have been duly considered and acted upon by the SEC when the case was remanded to it for
further proceedings. With the final rejection of the courts of the Revised BENHAR/RUBY Plan, it was
grave error for the SEC not to act decisively on the motions filed by the minority stockholders who have
maintained that the issuance of additional shares did not help improve the situation of RUBY except to
stifle the opposition coming from the MANCOM and minority stockholders by diluting the latter’s
shareholdings. Worse, the SEC ignored the evidence adduced by the minority stockholders indicating that
the correct amount of subscription of additional shares was not paid by the majority stockholders and
that SEC official records still reflect the 60%-40% percentage of ownership of RUBY.

The SEC remained indifferent to the reliefs sought by the minority stockholders, saying that the issue of
the validity of the additional capital infusion was belatedly raised. Even assuming the October 2, 1991
board meeting indeed took place, the SEC did nothing to ascertain whether indeed, as the minority
claimed: (1) the minority stockholders were not given notice as required and reasonable time to exercise
their pre-emptive rights; and (2) the capital infusion was not for the purpose of rehabilitation but a mere
ploy to divest the minority stockholders of their 40.172% shareholding and reduce it to a mere 25.25%.

The foregoing matters, along with the persistent refusal of the majority stockholders, led by Yu Kim
Giang, to give a full accounting of their transactions involving RUBY’s credits and properties, were
extensively argued by the minority stockholders in their opposition to the motions to dismiss/vacate
suspension order filed by the majority stockholders and BPI, as follows:

Their receipts only show supposed payment by the majority of a total of P1,759,150.00 out of the correct
amount of P7,068,079.92.00 (sic) (59.828% of P11.814 million required capital infusion under the MRP
and RRP) which should have been the amount paid by them under the RRP which requires full payment.
Thus, they sought to attain a 74.75% equity from a 59.828% original equity by playing more tricks and
stating that, under the general rule, they are supposedly allowed to pay-up only 25% of their
subscription. Unfortunately for them, in a rehabilitation supervised by the SEC and with an existing
Mancom, the general rule does not apply. What is stated in the rehabilitation plan must be strictly
followed provided the rehabilitation plan has been finally approved.

It must be remembered that in October 2 to 17, 1991, the amounts owed by Ruby to the banks who
illegally assigned their loans/credit was stated at P34 Million. Operations needed another P20 Million
plus. A capital infusion of P1,759,150.00 was so miniscule and clearly not for rehabilitation but was
intended to deprive the minority of its blocking position and property rights since distribution after
liquidation is based on the percentage of stockholdings. It is not only unfair, inequitable and not
meaningful – it is clearly dishonest.

xxxx

Assuming arguendo that the Board of Directors could act independently and this did not violate any
injunction, if the capital infusion was actually made, the Board of Directors had the duty to report this to
the Mancom because they would then fall under "existing assets" and would be part of the evaluation of
the proposed RRP, necessary for management and in the overall plan of rehabilitation. Nothing of this
kind happened and the belated proof cannot correct this situation.

xxxx

It is not true that there is benevolence on the part of the majority when they maneuvered the illegal
assignments and paid the banks. The loan obligations remain as accounts payable of Ruby and have even
been bloated to gigantic proportions and yet the SEC does not even ask them to account how much these
obligations are now and the majority should have reported these to the Mancom, but the majority has
not. These anomalous situations have been made to continue long enough and, we pray, should be
addressed by the Honorable Commission.

xxxx

…The SEC must understand that, being head of the first Mancom, YU KIM GIANG had the same obligation
to render a report to the SEC as the present Mancom now. To single out the present Mancom to do this
when a complete report cannot be made without these starting records is discriminatory, unfair and
violates the rules of accountancy. For example, where is the report on the illegal assignments and
mortgages complete with details? Where did the rentals for the period from 1983 to 1989 go? This
amounted to millions. There are no reports on these. By not requiring the first Mancom to Report, the
SEC is preventing the complete picture on the liabilities and finances of Ruby from being seen and is
sheltering Ruby and the majority.64 (Additional emphasis supplied.)

Pre-emptive right under Sec. 39 of the Corporation Code refers to the right of a stockholder of a stock
corporation to subscribe to all issues or disposition of shares of any class, in proportion to their
respective shareholdings. The right may be restricted or denied under the articles of incorporation, and
subject to certain exceptions and limitations. The stockholder must be given a reasonable time within
which to exercise their preemptive rights. Upon the expiration of said period, any stockholder who has
not exercised such right will be deemed to have waived it.65

The validity of issuance of additional shares may be questioned if done in breach of trust by the
controlling stockholders. Thus, even if the pre-emptive right does not exist, either because the issue
comes within the exceptions in Section 39 or because it is denied or limited in the articles of
incorporation, an issue of shares may still be objectionable if the directors acted in breach of trust and
their primary purpose is to perpetuate or shift control of the corporation, or to "freeze out" the minority
interest.66 In this case, the following relevant observations should have signaled greater circumspection
on the part of the SEC -- upon the third and last remand to it pursuant to our January 20, 1998 decision --
to demand transparency and accountability from the majority stockholders, in view of the illegal
assignments and objectionable features of the Revised BENHAR/RUBY Plan, as found by the CA and as
affirmed by this Court:

There can be no gainsaying the well-established rule in corporate practice and procedure that the will of
the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted
by-laws not proscribed by law. It is, however, equally true that other stockholders are afforded the right
to intervene especially during critical periods in the life of a corporation like reorganization, or in this
case, suspension of payments, more so, when the majority seek to impose their will and through
fraudulent means, attempt to siphon off Ruby’s valuable assets to the great prejudice of Ruby itself, as
well as the minority stockholders and the unsecured creditors.

Certainly, the minority stockholders and the unsecured creditors are given some measure of protection
by the law from the abuses and impositions of the majority, more so in this case, considering the give-
away signs of private respondents’ perfidy strewn all over the factual landscape. Indeed, equity cannot
deprive the minority of a remedy against the abuses of the majority, and the present action has been
instituted precisely for the purpose of protecting the true and legitimate interests of Ruby against the
Majority Stockholders. On this score, the Supreme Court, has ruled that:

"Generally speaking, the voice of the majority of the stockholders is the law of the corporation, but there
are exceptions to this rule. There must necessarily be a limit upon the power of the majority. Without
such a limit the will of the majority will be absolute and irresistible and might easily degenerate into
absolute tyranny. x x x"67 (Additional emphasis supplied.)

Lamentably, the SEC refused to heed the plea of the minority stockholders and MANCOM for the SEC to
order RUBY to commence liquidation proceedings, which is allowed under Sec. 4-9 of the Rules on
Corporate Recovery. Under the circumstances, liquidation was the only hope of the minority stockholders
for effecting an orderly and equitable settlement of RUBY’s obligations, and compelling the majority
stockholders to account for all funds, properties and documents in their possession, and make full
disclosure on the nullified credit assignments. Oblivious to these pending incidents so crucial to the
protection of the interest of the majority of creditors and minority shareholders, the SEC simply stated
that in the interim, RUBY’s corporate term was validly extended, as if such extension would provide the
solution to RUBY’s myriad problems.

Extension of corporate term requires the vote of 2/3 of the outstanding capital stock in a stockholders’
meeting called for the purpose.68 The actual percentage of shareholdings in RUBY as of September 3,
1996 -- when the majority stockholders allegedly ratified the board resolution approving the extension of
RUBY’s corporate life to another 25 years – was seriously disputed by the minority stockholders, and we
find the evidence of compliance with the notice and quorum requirements submitted by the majority
stockholders insufficient and doubtful. Consequently, the SEC had no basis for its ruling denying the
motion of the minority stockholders to declare as without force and effect the extension of RUBY’s
corporate existence.
Liquidation, or the settlement of the affairs of the corporation, consists of adjusting the debts and claims,
that is, of collecting all that is due the corporation, the settlement and adjustment of claims against it and
the payment of its just debts.69 It involves the winding up of the affairs of the corporation, which means
the collection of all assets, the payment of all its creditors, and the distribution of the remaining assets, if
any, among the stockholders thereof in accordance with their contracts, or if there be no special contract,
on the basis of their respective interests.70

Section 122 of the Corporation Code, which is applicable to the present case, provides:

SEC. 122. Corporate liquidation. -- Every corporation whose charter expires by its own limitation or is
annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any
other manner, shall nevertheless be continued as a body corporate for three (3) years after the time
when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it
and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its
assets, but not for the purpose of continuing the business for which it was established.

At any time during said three (3) years, said corporation is authorized and empowered to convey all of its
property to trustees for the benefit of stockholders, members, creditors, and other persons in interest.
From and after any such conveyance by the corporation of its property in trust for the benefit of its
stockholders, members, creditors and others in interest, all interests which the corporation had in the
property terminates, the legal interest vests in the trustees, and the beneficial interest in the
stockholders, members, creditors or other persons in interest.

Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder or
member who is unknown or cannot be found shall be escheated to the city or municipality where such
assets are located.

Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute
any of its assets or property except upon lawful dissolution and after payment of all its debts and
liabilities.

Since the corporate life of RUBY as stated in its articles of incorporation expired, without a valid
extension having been effected, it was deemed dissolved by such expiration without need of further
action on the part of the corporation or the State.71 With greater reason then should liquidation ensue
considering that the last paragraph of Sec. 4-9 of the Rules of Procedure on Corporate Recovery mandates
the SEC to order the dissolution and liquidation proceedings under Rule VI. Sec. 6-1, Rule VI likewise
authorizes the SEC on motion or motu proprio, or upon recommendation of the management committee,
to order dissolution of the debtor corporation and the liquidation of its remaining assets, appointing a
Liquidator for the purpose, if "the continuance in business of the debtor is no longer feasible or profitable
or no longer works to the best interest of the stockholders, parties-litigants, creditors, or the general
public."

It cannot be denied that with the current divisiveness, distrust and antagonism between the majority and
minority stockholders, the long agony and extreme prejudice caused by numerous litigations to the
creditors, and the bleak prospects for business recovery in the light of problems with the local
government which are implementing more restrictions and anti-pollution measures that practically
banned the operation of RUBY’s glass plant – liquidation becomes the only viable course for RUBY to
stave off any further losses and dissipation of its assets. Liquidation would also ensure an orderly and
equitable settlement of all creditors of RUBY, both secured and unsecured.

The SEC’s utter disregard of the rights of the minority in applying the provisions of the Rules of
Procedure on Corporate Recovery is inconsistent with the policy of liberal construction of the said rules
"to assist the parties in obtaining a just, expeditious and inexpensive settlement of cases.72 Petitioners
majority stockholders, however, assert that the findings and conclusions of the SEC on the matter of the
dismissal of RUBY’s petition are binding and conclusive upon the CA and this Court. They contend that
reviewing courts are not supposed to substitute their judgment for those made by administrative bodies
specifically clothed with authority to pass upon matters over which they have acquired expertise.73 Given
our foregoing findings clearly showing that the SEC acted arbitrarily and committed patent errors and
grave abuse of discretion, this case falls under the exception to the general rule.

As we held in Ruby Industrial Corporation v. Court of Appeals:

The settled doctrine is that factual findings of an administrative agency are accorded respect and, at
times, finality for they have acquired the expertise inasmuch as their jurisdiction is confined to specific
matters. Nonetheless, these doctrines do not apply when the board or official has gone beyond his
statutory authority, exercised unconstitutional powers or clearly acted arbitrarily and without regard to
his duty or with grave abuse of discretion. In Leongson vs. Court of Appeals, we held: "once the actuation
of the administrative official or administrative board or agency is tainted by a failure to abide by the
command of the law, then it is incumbent on the courts of justice to set matters right, with this Tribunal
having the last say on the matter."74

Petitioners majority stockholders further insist that the minority stockholders were mistaken when they
contended that the rehabilitation of RUBY is dependent on the unwinding by the SEC of the illegal
assignments and mortgages. They assert that aside from the fact that the SEC had nothing to unwind
because the alleged illegal assignments and mortgages were already declared null and void, the said
assignments and mortgages will not affect the rehabilitation of Ruby; the same affecting only the issue of
how, as to who will be its creditors.

Such contention is untenable and contrary to our previous ruling in G.R. Nos. 124185-87. With the
nullification of the deeds of assignments of credit executed by some of Ruby’s secured creditors in favor
of BENHAR, it logically follows that the assignors or the original bank creditors remain as the creditors on
record of RUBY. We have noted that BENHAR, which is controlled by the family of Henry Yu who is also a
director and stockholder of RUBY, was not listed as one of RUBY’s creditors at the time RUBY filed the
petition for suspension of payment. Petitioners majority stockholders’ insinuation that RUBY’s credits
may have been assigned to third parties, if not referring to BENHAR or its conduits, implies two things:
either the assignments declared void by this Court’s January 20, 1998 decision continues to be recognized
by the majority stockholders, in violation of the said decision, or other third parties in connivance with
BENHAR and/or the controlling stockholders had subsequently entered the picture, without approval of
the SEC and while the SEC December 20, 1983 Order enjoining the disposition of RUBY’s properties was
in force.

The majority stockholders’ eagerness to have the suspension order lifted or vacated by the SEC without
any order for its liquidation evinces a total disregard of the mandate of Sec. 4-9 of the Rules of Procedure
on Corporate Recovery, and their obvious lack of any intent to render an accounting of all funds,
properties and details of the unlawful assignment transactions to the prejudice of RUBY, minority
stockholders and the majority of RUBY’s creditors. The majority stockholders and BENHAR’s conduits
must not be allowed to evade the duty to make such full disclosure and account any money due to RUBY
to enable the latter to effect a fair, orderly and equitable settlement of all its obligations, as well as
distribution of any remaining assets after paying all its debtors.

In fine, no error was committed by the CA when it set aside the September 18, 2002 Order of the SEC and
declared the nullity of the acts of majority stockholders in implementing capital infusion through
issuance of additional shares in October 1991, the board resolution approving the extension of RUBY’s
corporate term for another 25 years, and any illegal assignment of credit executed by RUBY’s creditors in
favor of third parties and/or conduits of the controlling stockholders. The CA likewise correctly ordered
the delivery of all documents relative to the said assignment of credits to the MANCOM or the Liquidator,
the unwinding of these void deeds of assignment, and their full accounting by the majority stockholders.

The petitioners majority stockholders and China Bank cannot be permitted to raise any issue again
regarding the validity of any assignment of credit made during the effectivity of the suspension order and
before the finality of the September 18, 2002 Order lifting the same. While China Bank is not precluded
from questioning the validity of the December 20, 1983 suspension order on the basis of res judicata, it is,
however, barred from doing so by the principle of law of the case. We have held that when the validity of
an interlocutory order has already been passed upon on appeal, the Decision of the Court on appeal
becomes the law of the case between the same parties. Law of the case has been defined as "the opinion
delivered on a former appeal. More specifically, it means that whatever is once irrevocably established as
the controlling legal rule of decision between the same parties in the same case continues to be the law of
the case, whether correct on general principles or not, so long as the facts on which such decision was
predicated continue to be the facts of the case before the court."75

The unwinding process of all such illegal assignment of RUBY’s credits is critical and necessary, in
keeping with good faith and as a matter of fairness and justice to all parties affected, particularly the
unsecured creditors who stands to suffer most if left with nothing of the assets of RUBY, and the minority
stockholders who waged legal battles to defend the interest of RUBY and protect the rights of the
minority from the abuses of the controlling stockholders. As correctly stated by the CA:

Liquidation is imperative because the unsecured creditor must negotiate the amount of the imputable
interest rate on its long unpaid credit, the decision on which assets are to be sold to liquidate the illegally
assigned credits must be made, the other secured credits and the trade credits must be determined, and
most importantly, the restoration of the 40.172% minority percentage of ownership must be done. 76

However, we do not agree that it is the SEC which has the authority to supervise RUBY’s liquidation.

In the case of Union Bank of the Philippines v. Concepcion,77 the Court is presented with the issue of
whether the SEC had jurisdiction to proceed with insolvency proceedings after it was shown that the
debtor corporation can no longer be rehabilitated. We held that although jurisdiction over a petition to
declare a corporation in a state of insolvency strictly lies with regular courts, the SEC possessed ample
power under P.D. No. 902-A, as amended, to declare a corporation insolvent as an incident of and in
continuation of its already acquired jurisdiction over the petition to be declared in a state of suspension
of payments in the two instances provided in Sec. 5 (d)78 thereof.

Subsequently, in Consuelo Metal Corporation v. Planters Development Bank79 the Court was again
confronted with the same issue. The original petition filed by the debtor corporation was for suspension
of payment, rehabilitation and appointment of a rehabilitation receiver or management committee.
Finding the petition sufficient in form and substance, the SEC issued an order suspending immediately all
actions for claims against the petitioner pending before any court, tribunal or body until further orders
from the court. It also created a management committee to undertake petitioner’s rehabilitation. Four
years later, upon the management committee’s recommendation, the SEC issued an omnibus order
directing the dissolution and liquidation of the petitioner, and that the proceedings on and
implementation of the order of liquidation be commenced at the Regional Trial Court to which the case
was transferred. However, the trial court refused to act on the motion filed by the petitioner who
requested for the issuance of a TRO against the extrajudicial foreclosure initiated by one of its creditors.
The trial court ruled that since the SEC had already terminated and decided on the merits the petition for
suspension of payment, the trial court no longer had legal basis to act on petitioner’s motion. It likewise
denied the motion for reconsideration stating that petition for suspension of payment could not be
converted into a petition for dissolution and liquidation because they covered different subject matters
and were governed by different rules. Petitioner’s remedy thus was to file a new petition for dissolution
and liquidation either with the SEC or the trial court.

When the case was elevated to the CA, the petition was dismissed affirming that under Sec. 121 of
the Corporation Code, the SEC had jurisdiction to hear the petition for dissolution and liquidation. On
motion for reconsideration, the CA remanded the case to the SEC for proceedings under Sec. 121 of
the Corporation Code. The CA denied the motion for reconsideration filed by the respondent creditor,
who then filed a petition for review with this Court.1âwphi1

We ruled that the SEC observed the correct procedure under the present law, in cases where it merely
retained jurisdiction over pending cases for suspension of payments/rehabilitation, thus:

Republic Act No. 8799 (RA 8799) transferred to the appropriate regional trial courts the SEC’s
jurisdiction defined under Section 5(d) of Presidential Decree No. 902-A. Section 5.2 of RA 8799 provides:

The Commission’s jurisdiction over all cases enumerated under Sec. 5 of Presidential Decree No. 902-A is
hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided,
That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches
that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending
cases involving intra-corporate disputes submitted for final resolution which should be resolved within
one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending
suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally
disposed. (Emphasis supplied)

The SEC assumed jurisdiction over CMC’s petition for suspension of payment and issued a suspension
order on 2 April 1996 after it found CMC’s petition to be sufficient in form and substance. While CMC’s
petition was still pending with the SEC as of 30 June 2000, it was finally disposed of on 29 November
2000 when the SEC issued its Omnibus Order directing the dissolution of CMC and the transfer of the
liquidation proceedings before the appropriate trial court. The SEC finally disposed of CMC’s petition for
suspension of payment when it determined that CMC could no longer be successfully rehabilitated.

However, the SEC’s jurisdiction does not extend to the liquidation of a corporation. While the SEC has
jurisdiction to order the dissolution of a corporation, jurisdiction over the liquidation of the corporation
now pertains to the appropriate regional trial courts. This is the reason why the SEC, in its 29 November
2000 Omnibus Order, directed that "the proceedings on and implementation of the order of liquidation
be commenced at the Regional Trial Court to which this case shall be transferred." This is the correct
procedure because the liquidation of a corporation requires the settlement of claims for and against the
corporation, which clearly falls under the jurisdiction of the regular courts. The trial court is in the best
position to convene all the creditors of the corporation, ascertain their claims, and determine their
preferences.80 (Additional emphasis supplied.)

In view of the foregoing, the SEC should now be directed to transfer this case to the proper RTC which
shall supervise the liquidation proceedings under Sec. 122 of the Corporation Code. Under Sec. 6 (d) of
P.D. 902-A, the SEC is empowered, on the basis of the findings and recommendations of the management
committee or rehabilitation receiver, or on its own findings, to determine that the continuance in
business of a debtor corporation under suspension of payment or rehabilitation would not be feasible or
profitable nor work to the best interest of the stockholders, parties-litigants, creditors, or the general
public, order the dissolution of such corporation and its remaining assets liquidated accordingly. As
mentioned earlier, the procedure is governed by Rule VI of the SEC Rules of Procedure on Corporate
Recovery.

However, R.A. No. 1014281 otherwise known as the Financial Rehabilitation and Insolvency Act (FRIA) of
2010, now provides for court proceedings in the rehabilitation or liquidation of debtors, both juridical
and natural persons, in a manner that will "ensure or maintain certainty and predictability in commercial
affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights and
respect priority of claims, and ensure equitable treatment of creditors who are similarly situated."
Considering that this case was still pending when the new law took effect last year, the RTC to which this
case will be transferred shall be guided by Sec. 146 of said law, which states:

SEC. 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation Cases. – This Act
shall govern all petitions filed after it has taken effect. All further proceedings in insolvency, suspension
of payments and rehabilitation cases then pending, except to the extent that in opinion of the court their
application would not be feasible or would work injustice, in which event the procedures set forth in
prior laws and regulations shall apply.

WHEREFORE, the petitions for review on certiorari are DENIED. The Decision dated May 26, 2004 and
Resolution dated November 4, 2004 of the Court of Appeals in CA-G.R. SP No. 73195 are hereby
AFFIRMED with MODIFICATION in that the Securities and Exchange Commission is hereby ordered to
TRANSFER SEC Case No. 2556 to the appropriate Regional Trial Court which is hereby DIRECTED to
supervise the liquidation of Ruby Industrial Corporation under the provisions of R.A. No. 10142.

With costs against the petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 172222 November 11, 2013

VICTOR AFRICA, Petitioner,
vs.
THE HONORABLE SANDIGANBAYAN and BARBARA ANNE C. MIGALLOS, Respondents.

x-----------------------x

G.R. No. 174493

EASTERN TELECOMMUNICATIONS PHILS., INC., (ETPI)-PCGG, Petitioner,

vs.
VICTOR V. AFRICA, Respondent.

x-----------------------x

G.R. No. 184636

VICTOR AFRICA, Petitioner,

vs.
THE HONORABLE SANDIGANBAYAN and EASTERN TELECOMMUNICATIONS PHILIPPINES,
INC.,Respondents.

DECISION

ABAD, J.:

These consolidated petitions stem from Civil Case 0009, an action that the government filed with the
Sandiganbayan for reversion, forfeiture, and accounting of ill-gotten wealth involving the sequestered
shares of stock of Eastern Telecommunications Philippines, Inc.

The Antecedents

In 1972, Eastern Extension Australasia and China Telegraph Company, Ltd. (Eastern Extension), a
subsidiary of foreign-owned Cable & Wireless, Ltd., got instructions from the Marcos government to
reorganize its telecommunications business in the Philippines into a 60/40 corporation in favor of
Filipinos. This prompted Eastern Extension to negotiate with Philippine Overseas Telecoms Corporation,
a company controlled by Manuel Nieto, Jr. and represented by Atty. Jose Africa, for the formation of
Eastern Telecommunications Philippines, Inc. (ETPI), 60% of the capital stock of which went to the group
consisting of Roberto Benedicto, Atty. Africa, and Nieto (at times referred to as the BAN group) while
40% remained with Cable & Wireless. The latter company took charge of operations pursuant to a
management contract with ETPI.

In the aftermath, ETPI generated substantial dividends for the BAN group. Eventually, the latter spread
its shares to three corporations: a) Aerocom Investors, b) Universal Molasses, and c) Polygon Investors
and Managers. With their combined holdings, the BAN group managed to fill up key management
positions and issue shares to relatives and associates.

On March 14, 1986, following the fall of the Marcos government, the Presidential Commission on Good
Government (PCGG) sequestered the ETPI shares of the BAN group and their corporations, relatives, and
associates upon a prima facie finding that these belonged to favored Marcos cronies. On July 22, 1987,
PCGG filed with the Sandiganbayan Civil Case 009 to recover these shares.

The suit gave rise to various incidents. In one, petitioner Victor Africa (Africa), who took the cudgels for
his fellow registered stockholders, filed a motion with the Sandiganbayan for the holding of ETPI’s 1992
annual stockholders’ meeting to settle the conflict between two sets of ETPI Board of Directors: one
elected on August 7, 1991 in which the PCGG voted the sequestered shares and the other on a subsequent
date where the registered stockholders elected a second board. Apparently, however, the PCGG Board
acquired control of ETPI’s operations.

On November 13, 1992 the Sandiganbayan granted Africa’s motion and ordered the holding of a
stockholders’ meeting to elect a new Board of Directors, at which meeting the PCGG was to vote only (a)
the Benedicto shares (12.8% of total) that were voluntarily ceded to the Government; (b) the shares
seized from Malacañang (3.1%), and (c) the shares that Nieto admitted as belonging to President Marcos
(8.0%). On November 26, 1992, however, upon the PCGG’s petition in G.R. 107789 this Court temporarily
enjoined that stockholders’ meeting.

Meantime, because of the need to comply with Executive Order 1091 and Republic Act (R.A.) 7925,2 on
December 13, 1996 the PCGG, acting on referral from this Court, granted its petition to hold a special
stockholders’ meeting to increase ETPI’s authorized capital stock. PCGG voted the sequestered shares of
stock3 in the meeting held on March 17, 1997 to approve the increase in ETPI’s authorized capital stock.
Africa contested the validity of PCGG’s vote in that stockholders’ meeting before this Court in G.R.
147214.

G.R. 172222

Four years later on January 8, 2001 Aerocom Investors and Managers, Inc. (Aerocom) served notice on
ETPI of its intent to sell its Class "B" shares to A.G.N. Philippines, Inc. (AGNP) as to enable ETPI to decide
whether to exercise its option of first refusal. On January 25, 2001 the ETPI Board decided to waive the
option. Upon notice to the shareholders, the Africa-led group wrote ETPI a letter, reserving the exercise
of their own options until after a validly constituted ETPI Board could waive the company’s option. 4 This
notwithstanding, Aerocom transferred its shares to AGNP on April 5, 2001 for US$20 million.5

Eventually, on April 30, 2003 this Court held in G.R. 107789 and G.R. 1472146 that, to be able to vote
sequestered shares and elect the ETPI Board or amend its Articles of Incorporation to increase its
authorized capital stock, the PCGG needed to satisfy the two-tiered test that the Court applied in PCGG v.
Securities and Exchange Commission,7 namely, that (1) there is prima facie evidence that the shares are
ill-gotten and (2) there is an imminent danger of dissipation. With this ruling, the Court referred the
various incidents pending before it to the Sandiganbayan for the latter to determine after hearing
whether the PCGG met the test. The dispositive portion of the Court’s Resolution reads:8

WHEREFORE, this Court Resolved to REFER the petitions at bar to the Sandiganbayan for reception of
evidence to determine whether there is a prima facie evidence showing that the sequestered shares in
question are ill-gotten and there is an imminent danger of dissipation to entitle the PCGG to vote them in
a stockholders meeting to elect the ETPI Board of Directors and to amend the ETPI Articles of
Incorporation for the sole purpose of increasing the authorized capital stock of ETPI.
The Sandiganbayan shall render a decision thereon within sixty (60) days from receipt of this Resolution
and in conformity herewith. x x x.9

Meantime, Aerocom’s transfer of its shares to AGNP in the Stock and Transfer Book (STB) was delayed by
the need to secure the Bureau of Internal Revenue Certificate Authorizing Registration and Tax Clearance
which was issued only on September 27, 2005 more than four years after the sale. To complete the
transfer, the ETPI’s corporate secretary filed with the Sandiganbayan a motion dated October 10, 2005,
for the issuance of new stock certificates and the recording of entries in its STB. On February 1, 2006 the
Sandiganbayan granted the motion10 upon a finding that there had been "due compliance with the
requirements of the ETPI’s Articles of Incorporation."11

But petitioner Africa filed a motion for reconsideration alleging that the Sandiganbayan should first
determine, before allowing the transfer in its book, whether the PCGG validly voted the sequestered
shares that elected the ETPI’s board. He reasoned that if the votes were invalid, the board’s waiver of its
right of first refusal would be void. The Sandiganbayan denied the motion on February 27, 2006.

G.R. 174493

On May 15, 2006, the Sandiganbayan ruled after hearing that the PCGG’s votes during the ETPI
stockholders’ meetings were invalid for failure to satisfy the two-tiered test. It found that, while the
sequestered shares were prima facie ill-gotten, the PCGG failed to prove that ETPI’s assets were in such
imminent danger of dissipation as to warrant PCGG’s intervention in the August 7, 1991 and March 17,
1997 stockholders’ meetings. The Sandiganbayan said:

Apparently, the question of dissipation should be viewed within the parameters of two time frames, i.e.,
at the time the sequestered shares were voted on August 7, 1991, and again on March 17, 1997 when the
capital stock of ETPI was increased from ₱250 Million to ₱2.6 Billion. Hence, the more important question
here is whether at the time when the PCGG voted the sequestered ETPI Class A shares on August 7, 1991
and on March 17, 1997, there was evidence that the BAN-controlled Board of Directors were dissipating
ETPI’s assets.12

After the Sandiganbayan denied ETPI’s motion for partial reconsideration on August 28, 2006, the PCGG-
dominated Board of Directors13 filed a petition for certiorari before this Court in G.R. 174493, claiming
that the two-tiered test did not apply to ETPI. They alleged that, while the company was in no imminent
danger of dissipation, this became possible only because the PCGG had ousted the BAN group from
control. Prior to this, that group allowed management acts that prejudiced ETPI’s interests. The PCGG
acted as conservator and saved ETPI from dissipation.

The PCGG directors claimed that the Sandiganbayan’s finding of December 13, 1996 is proof that the
second tier had been satisfied. They said:

However, the propriety and legality of allowing the PCGG to cause the holding of a stockholders’ meeting
of the ETPI for the purpose of electing a new Board of Directors or effecting changes in the policy,
program and practices of said corporation (except for the specified purpose of amending the right of first
refusal clause in ETPI’s Articles of Incorporation and By-Laws) and impliedly to vote the sequestered
shares of stocks has been upheld by the Supreme Court in the case of "PCGG vs. SEC; PCGG vs.
Sandiganbayan, et al.", G.R. No. 82188, promulgated June 30, 1988. x x x Thus the Supreme Court en banc
held in said G.R. No. 82188 that:
"But while we find that Sandiganbayan to have acted properly in enjoining the PCGG from holding the
stockholders’ meeting for the special purpose of amending the ‘right of first refusal’ clause in ETPI’s
Articles of Incorporation and By-Laws. We find the general injunction imposed by it on the PCGG to desist
and refrain from calling a stockholders’ meeting for the purpose of electing a new Board of Directors or
effecting substantial changes in the policy, program or practice of the corporation to be too broad as to
taint said order with grave abuse of discretion. Said order completely ties the hands of PCGG, rendering it
virtually helpless in the exercise of its power of conserving and preserving the assets of the corporation.
Indeed, of what use is the PCGG if it cannot even do this?"14

On November 22, 2006, this Court ordered the consolidation of G.R. 174493 with G.R. 172222.

G.R. 184636

Prodded by the Sandiganbayan’s May 15, 2006 Resolution that invalidated the PCGG directors’ votes
during the 1991 and 1997 stockholders’ meetings,15 on November 28, 2006 Africa filed a petition in G.R.
184636 to allow him to hold a stockholders’ meeting to elect a new ETPI Board of Directors. On
December 5, 2006 the Court referred Africa’s petition to the Sandiganbayan for "appropriate action
considering that these cases had already been decided and judgment had become final."16

On December 7, 2007 the Sandiganbayan denied Africa’s petition,17 stating that the holding of a
stockholders’ meeting was not within its powers to decide. Assuming it had the power, the
Sandiganbayan said that Africa had no authority to call the meeting since he did not hold at least 20% of
the corporation’s outstanding capital stock, a requirement of ETPI’s by-laws. With the denial of his
motion for reconsideration on July 29, 2008, Africa filed a petition on October 13, 2008 before this Court
in G.R. 184636 questioning the Sandiganbayan’s actions. On November 11, 2008 the Court consolidated
the case with G.R. 174493 and G.R. 172222, now subject of the present Decision.

The Issues

These consolidated cases present the following issues:

1. In G.R. 174493, whether or not the two-tiered test regarding PCGG’s right to vote the
sequestered shares as established in Cojuangco v. Calpo18 could be made to apply to the ETPI
stockholders’ meetings in 1991 and 1997;

2. In G.R. 172222, whether or not the Sandiganbayan acted with grave abuse of discretion in
allowing the transfer of Aerocom’s shares to AGNP in its book and in issuing new stock certificates
to the latter; and

3. In G.R. 184636, whether or not the Sandiganbayan has jurisdiction to order the holding of a
stockholders’ meeting at the call of petitioner Africa.

The Court’s Ruling

G.R. 174493

To recall, the Court ordered the Sandiganbayan19 on April 30, 2003 to determine whether there is prima
facie evidence that the sequestered shares in ETPI were ill-gotten and the company assets were in
imminent danger of dissipation as to entitle the PCGG to vote the sequestered shares and elect the ETPI
Board of Directors in 1991 and 1997.

Evidently, whether or not the PCGG’s vote using sequestered shares validly elected a PCGG-dominated
Board should by now be academic considering that such board had been performing its functions for the
past 22 years from 1991 to this date with neither the Sandiganbayan nor this Court enjoining it from
doing so or ordering the holding of a new election.

Besides the second tier of the two-tiered test assumes a situation where the registered shareholders had
been dissipating company assets and the PCGG wanted to step in, vote the sequestered shares, and seize
control of its board of directors to save those assets. Apparently, this was the situation obtaining at ETPI
before 1991. The BAN group was then in control but the PCGG held a stockholders’ meeting that year,
sanctioned by this Court, and voted the sequestered shares to elect a new Board of Directors. Were the
company’s assets in danger of dissipation in 1991 as to warrant the PCGG’s actions?

The Sandiganbayan said 15 years later in its Resolution of May 15, 2006 that no such dissipation
threatened the company assets in 1991. Evidently, however, it overlooked the fact that when the BAN
group was still in control of the company, this Court had occasion to admonish the Sandiganbayan for
prohibiting the PCGG from calling a stockholders’ meeting to elect a new Board of Directors. This Court
was adamant that the Sandiganbayan was unduly preventing the PCGG from taking steps to conserve
ETPI’s assets.20

The clear implication of that admonition is that the PCGG was justified in seeking a change in the
management of the company. Thus, when the stockholders’ meeting took place on August 7, 1991, it was
simply assumed that the PCGG could vote the sequestered shares it held. It in fact did so and elected a
new Board of Directors. Since neither the Sandiganbayan nor this Court enjoined that Board from
assuming control, it cannot now be said that the PCGG had cast an invalid vote, rendering void all the
Board’s actions in the last 22 years.

How about the ETPI stockholders’ meeting held in 1997 to approve the proposed increase in its
authorized capital? The Sandiganbayan held that since the company assets were not in danger of
dissipation in that year, the PCGG should not have voted the sequestered shares to approve the increase
in its authorized capital stock. The Sandiganbayan would, therefore, invalidate the PCGG’s vote during
that stockholders’ meeting.

But again the Sandiganbayan apparently misses the point. The two- tiered test contemplates a situation
where the registered stockholders were in control and had been dissipating company assets and the
PCGG wanted to vote the sequestered shares to save the company. This was not the situation in ETPI in
1997. It was the PCGG elected board that remained in control during that year and it apparently had done
well in the preceding years guarding company assets. Indeed, the Sandiganbayan found that there was no
danger that those assets were being dissipated at that point of time. So why penalize the PCGG by
restoring to the BAN group the right to vote those sequestered shares in that 1997 shareholders’
meeting?

Besides the 1997 shareholders’ meeting had a limited purpose: to approve the increase in ETPI’s
authorized capital stock in order to comply with the requirements of Executive Order 109 and R.A. 7925.
There is no allegation that such increase was irregular or had prejudiced the company’s interest.
This is not to say that the PCGG should henceforth be allowed to vote the sequestered shares at every
shareholder’s meeting. The Court will deal with that issue further down below.

G.R. 172222

Africa also assails the Sandiganbayan’s action in allowing the registration in the book of ETPI of
Aerocom’s sale of its shares to AGNP, given that he had challenged before this Court the validity of the
ETPI Board of Directors’ waiver of its option of first refusal in relation to that sale. Africa claims that the
Sandiganbayan should have first resolved the question of the legitimacy of the ETPI Board of Directors
that the PCGG put into office in 1991 by voting the sequestered shares.

But, as this Court found above, the PCGG voted the sequestered shares during the 1991 stockholders’
meeting, having assumed that this could be implied from the order of this Court which allowed it to hold
that meeting in order to elect a new Board of Directors. And, since neither the Sandiganbayan nor this
Court enjoined that Board from performing its functions, no legal impediment prevented it in 2001 from
waiving ETPI’s right of first refusal when Aerocom gave notice of its intent to sell its shares to AGNP. For
the same reason, the Sandiganbayan committed no error in allowing the subsequent registration of the
sale in the book of the corporation in 2006 following some delays.

The fact that the corporate secretary asked for leave to register the transfer five years after the sale did
not make the transfer irregular. This Court held in Lee E. Won v. Wack Wack Golf & Country Club,
Inc.,21 that since the law does not prescribe a period for such kind of registration, the action to enforce the
right to have it done does not begin to toll until a demand for it had been made and was refused. This did
not happen in this case.

G.R. 184636

After the Sandiganbayan rejected his motion to be allowed to call a stockholders’ meeting to elect a new
Board of Directors at ETPI, Africa came to this Court seeking a reversal of the Sandiganbayan’s adverse
order. The Sandiganbayan based its denial on two grounds: a) it has no authority to call a stockholders’
meeting since ETPI’s articles of incorporation has given that authority to its Board of Directors; and b)
Africa has no right to call for such meeting since he does not hold at least 20% of the shares of stock of
the corporation.

In fact, however, the Sandiganbayan has the authority to order the holding of a stockholders’ meeting at
ETPI.1âwphi1 The PCGG had sequestered the substance of that company’s shares of stock. And, since
Section 2 of Executive Order 14 dated May 7, 1986 vests in the Sandiganbayan exclusive jurisdiction over
all cases regarding "the Funds, Moneys, Assets and Properties Illegally Acquired or Misappropriated by
Former President Ferdinand Marcos, Mrs. Imelda Romualdez Marcos, their Close Relatives, Subordinates,
Business Associates, Dummies, Agents or Nominees" including "all incidents arising from, incidental to, or
related to, such cases," it follows that the Sandiganbayan can issue the requested order. Besides, with the
PCGG in effective control of ETPI, it is expected to obey the Sandiganbayan’s orders as it has always done.

Ultimately, the issue in case such a stockholders’ meeting is called would still be whether or not the PCGG
can vote the sequestered shares as it did in 1991. It brought an action before the Sandiganbayan on July
22, 1987 to have those shares forfeited allegedly for having been unlawfully obtained during martial law
in connivance with the late President Marcos. There may be prima facie evidence to warrant their
sequestration initially but the Sandiganbayan cannot let the case continue to drag on after the passage of
26 years. Any further delay is simply inexcusable. It is probably among the most delayed cases in
Philippine history, a black mark in the record of its judiciary.

The Sandiganbayan should, therefore, set an irrevocable deadline for the PCGG to complete the
presentation of its evidence, using judicial affidavits in lieu of direct testimonies, to prove its allegations
after which that court should provisionally determine whether there is sufficient evidence to allow the
sequestration to continue for all or some of the shares, without prejudice to the taking of further
proceedings to conclude the action. The Sandiganbayan may afterwards order the holding of a
stockholders’ meeting to elect a new Board of Directors, where the sequestered shares may be voted
based on that court’s provisional findings.

WHEREFORE, the Court DENIES the petition in G.R. 172222 for lack of merit and AFFIRMS the Resolution
of the Sandiganbayan dated February 1 and 27, 2006 that allowed the registration in the books of Eastern
Telecommunications Philippines, Inc. (ETPI) of the transfer of the shares of stock of Aerocom Investors
and Managers, Inc. to A.G.N. Philippines, Inc.

In G.R. 174493, the Court GRANTS the petition of the PCGG-dominated Board of Directors-ETPI and SETS
ASIDE a) the Sandiganbayan’s Resolution dated May 15, 2006 that invalidated the PCGG’s vote using
sequestered shares of ETPI at its August 7, 1991 and March 17, 1997 stockholders’ meetings; and b)
Resolution dated August 28, 2006 denying ETPI’s motion for reconsideration of such resolution.

Finally, in G.R. 184616, the Court SETS ASIDE the Sandiganhayan’s Resolution dated December 7, 2007
denying petitioner Victor Africa’s petition for the holding of a stockholders’ meeting to elect a new ETPI
Board of Directors and Resolution dated July 29, 2008 denying his motion for reconsideration.

The Court DIRECTS the Sandiganbayan to immediately set an irrevocable deadline for the PCGG to
complete the presentation of its evidence in the forfeiture case involving sequestered ETPI shares of
stock and, thereafter, to provisionally determine whether there is sufficient evidence to allow the
sequestration to continue for all or some of the shares, without prejudice to the taking of further
proceedings to conclude the action. The Sandiganbayan shall then order the holding of a stockholders
meeting at ETPI to elect a new Board of Directors, where the sequestered shares may be voted based on
that court s provisional findings.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 51765 March 3, 1997

REPUBLIC PLANTERS BANK, petitioner,

vs.
HON. ENRIQUE A. AGANA, SR., as Presiding Judge, Court of First Instance of Rizal, Branch XXVIII,
Pasay City, ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION and ADALIA F.
ROBES, respondents.

HERMOSISIMA, JR., J.:

This is a petition for certiorari seeking the annulment of the Decision1 of the then Court of First Instance
of Rizal2 for having been rendered in grave abuse of discretion. Private respondents Robes-Francisco
Realty and Development Corporation (hereafter, "the Corporation") and Adalia F. Robes filed in the
court a quo, an action for specific performance to compel petitioner to redeem 800 preferred shares of
stock with a face value of P8,000.00 and to pay 1% quarterly interest thereon as quarterly dividend
owing them under the terms and conditions of the certificates of stock.

The court a quo rendered judgment in favor of private respondents; hence, this instant petition.

Herein parties debate only legal issues, no issues of fact having been raised by them in the court a quo.
For ready reference, however, the following narration of pertinent transactions and events is in order:

On September 18, 1961, private respondent Corporation secured a loan from petitioner in the amount of
P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were issued to private
respondent Corporation, through its officers then, private respondent Adalia F. Robes and one Carlos F.
Robes. In other words, instead of giving the legal tender totaling to the full amount of the loan, which is
P120,000.00, petitioner lent such amount partially in the form of money and partially in the form of stock
certificates numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for
P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of private respondent
Adalia F. Robes and Carlos F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F.
Robes.

Said certificates of stock bear the following terms and conditions:

The Preferred Stock shall have the following rights, preferences, qualifications and
limitations, to wit:

1. Of the right to receive a quarterly dividend of One Per Centum (1%), cumulative and
participating.

xxx xxx xxx

2. That such preferred shares may be redeemed, by the system of drawing lots, at any time
after two (2) years from the date of issue at the option of the Corporation. . . .

On January 31, 1979, private respondents proceeded against petitioner and filed a Complaint anchored
on private respondents' alleged rights to collect dividends under the preferred shares in question and to
have petitioner redeem the same under the terms and conditions of the stock certificates. Private
respondents attached to their complaint, a letter-demand dated January 5, 1979 which, significantly, was
not formally offered in evidence.
Petitioner filed a Motion to Dismiss3 private respondents' Complaint on the following grounds: (1) that
the trial court had no jurisdiction over the subject-matter of the action; (2) that the action was
unenforceable under substantive law; and (3) that the action was barred by the statute of limitations
and/or laches.

Petitioner's Motion to Dismiss was denied by the trial court in an Order dated March 16, 1979. 4 Petitioner
then filed its Answer on May 2, 1979. 5 Thereafter, the trial court gave the parties ten (10) days from July
30, 1979 to submit their respective memoranda after the submission of which the case would be deemed
submitted for resolution.6

On September 7, 1979, the trial court rendered the herein assailed decision in favor of private
respondents. In ordering petitioner to pay private respondents the face value of the stock certificates as
redemption price, plus 1% quarterly interest thereon until full payment, the trial court ruled:

There being no issue of fact raised by either of the parties who filed their respective
memoranda delineating their respective contentions, a judgment on the pleadings,
conformably with an earlier order of the Court, appears to be in order.

From a further perusal of the pleadings, it appears that the provision of the stock
certificates in question to the effect that the plaintiffs shall have the right to receive a
quarterly dividend of One Per Centum(1%), cumulative and participating, clearly and
unequivocably [sic] indicates that the same are "interest bearing stocks" which are stocks
issued by a corporation under an agreement to pay a certain rate of interest thereon (5
Thompson, Sec. 3439). As such, plaintiffs become entitled to the payment thereof as a
matter of right without necessity of a prior declaration of dividend.

On the question of the redemption by the defendant of said preferred shares of stock, the
very wordings of the terms and conditions in said stock certificates clearly allows the same.

To allow the herein defendant not to redeem said preferred shares of stock and/or pay the
interest due thereon despite the clear import of said provisions by the mere invocation of
alleged Central Bank Circulars prohibiting the same is tantamount to an impairment of the
obligation of contracts enshrined in no less than the fundamental law itself.

Moreover, the herein defendant is considered in estoppel from taking shelter behind a
General Banking Act provision to the effect that it cannot buy its own shares of stocks
considering that the very terms and conditions in said stock certificates allowing their
redemption are its own handiwork.

As to the claim by the defendant that plaintiffs' cause of action is barred by prescription,
suffice it to state that the running of the prescriptive period was considered interrupted by
the written extrajudicial demands made by the plaintiffs from the defendant.7

Aggrieved by the decision of the trial court, petitioner elevated the case before us essentially on pure
questions of law. Petitioner's statement of the issues that it submits for us to adjudicate upon, is as
follows:
 A. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION IN ORDERING PETITIONER TO PAY RESPONDENT
ADALIA F. ROBES THE AMOUNT OF P8213.69 AS INTERESTS FROM 1961 TO 1979 ON HER
PREFERRED SHARES.

B. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO

LACK OR EXCESS OF JURISDICTION IN ORDERING PETITIONER TO REDEEM RESPONDENT
ADALIA F. ROBES' PREFERRED SHARES FOR P8,000.00.

C. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO

LACK OR EXCESS OF JURISDICTION IN DISREGARDING THE ORDER OF THE CENTRAL
BANK TO PETITIONER TO DESIST FROM REDEEMING ITS PREFERRED SHARES AND
FROM PAYING DIVIDENDS THEREON . . . .

D. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE COMPLAINT DOES NOT STATE
A CAUSE OF ACTION.

E. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE CLAIM OF RESPONDENT
ADALIA F. ROBES IS BARRED BY PRESCRIPTION OR LACHES. 8

The petition is meritorious.

Before passing upon the merits of this petition, it may be pertinent to provide an overview on the nature
of preferred shares and the redemption thereof, considering that these issues lie at the heart of the
dispute.

A preferred share of stock, on one hand, is one which entitles the holder thereof to certain preferences
over the holders of common stock. The preferences are designed to induce persons to subscribe for
shares of a corporation.9 Preferred shares take a multiplicity of forms. The most common forms may be
classified into two: (1) preferred shares as to assets; and (2) preferred shares as to dividends. The former
is a share which gives the holder thereof preference in the distribution of the assets of the corporation in
case of liquidation; 10 the latter is a share the holder of which is entitled to receive dividends on said
share to the extent agreed upon before any dividends at all are paid to the holders of common
stock. 11 There is no guaranty, however, that the share will receive any dividends. Under the old
Corporation Law in force at the time the contract between the petitioner and the private respondents
was entered into, it was provided that "no corporation shall make or declare any dividend except from
the surplus profits arising from its business, or distribute its capital stock or property other than actual
profits among its members or stockholders until after the payment of its debts and the termination of its
existence by limitation or lawful dissolution." 12 Similarly, the present Corporation Code 13 provides that
the board of directors of a stock corporation may declare dividends only out of unrestricted retained
earnings. 14 The Code, in Section 43, adopting the change made in accounting terminology, substituted the
phrase "unrestricted retained earnings," which may be a more precise term, in place of "surplus profits
arising from its business" in the former law. Thus, the declaration of dividends is dependent upon the
availability of surplus profit or unrestricted retained earnings, as the case may be. Preferences granted to
preferred stockholders, moreover, do not give them a lien upon the property of the corporation nor make
them creditors of the corporation, the right of the former being always subordinate to the latter.
Dividends are thus payable only when there are profits earned by the corporation and as a general rule,
even if there are existing profits, the board of directors has the discretion to determine whether or not
dividends are to be declared. 15 Shareholders, both common and preferred, are considered risk takers
who invest capital in the business and who can look only to what is left after corporate debts and
liabilities are fully paid. 16

Redeemable shares, on the other hand, are shares usually preferred, which by their terms are redeemable
at a fixed date, or at the option of either issuing corporation, or the stockholder, or both at a certain
redemption price.17 A redemption by the corporation of its stock is, in a sense, a repurchase of it for
cancellation. 18 The present Code allows redemption of shares even if there are no unrestricted retained
earnings on the books of the corporation. This is a new provision which in effect qualifies the general rule
that the corporation cannot purchase its own shares except out of current retained earnings. 19 However,
while redeemable shares may be redeemed regardless of the existence of unrestricted retained earnings,
this is subject to the condition that the corporation has, after such redemption, assets in its books to
cover debts and liabilities inclusive of capital stock. Redemption, therefore, may not be made where the
corporation is insolvent or if such redemption will cause insolvency or inability of the corporation to
meet its debts as they mature. 20

We come now to the merits of the case. The petitioner argues that it cannot be compelled to redeem the
preferred shares issued to the private respondent. We agree. Respondent judge, in ruling that petitioner
must redeem the shares in question, stated that:

On the question of the redemption by the defendant of said preferred shares of stock, the
very wordings of the terms and conditions in said stock certificates clearly allows the
same. 21

What respondent judge failed to recognize was that while the stock certificate does allow
redemption, the option to do so was clearly vested in the petitioner bank. The redemption
therefore is clearly the type known as "optional". Thus, except as otherwise provided in the stock
certificate, the redemption rests entirely with the corporation and the stockholder is without right
to either compel or refuse the redemption of its stock. 22Furthermore, the terms and conditions set
forth therein use the word "may". It is a settled doctrine in statutory construction that the word
"may" denotes discretion, and cannot be construed as having a mandatory effect. We fail to see
how respondent judge can ignore what, in his words, are the "very wordings of the terms and
conditions in said stock certificates" and construe what is clearly a mere option to be his legal
basis for compelling the petitioner to redeem the shares in question.

The redemption of said shares cannot be allowed. As pointed out by the petitioner, the Central Bank
made a finding that said petitioner has been suffering from chronic reserve deficiency, 23 and that such
finding resulted in a directive, issued on January 31, 1973 by then Gov. G.S. Licaros of the Central Bank, to
the President and Acting Chairman of the Board of the petitioner bank prohibiting the latter from
redeeming any preferred share, on the ground that said redemption would reduce the assets of the Bank
to the prejudice of its depositors and creditors. 24Redemption of preferred shares was prohibited for a
just and valid reason. The directive issued by the Central Bank Governor was obviously meant to
preserve the status quo, and to prevent the financial ruin of a banking institution that would have
resulted in adverse repercussions, not only to its depositors and creditors, but also to the banking
industry as a whole. The directive, in limiting the exercise of a right granted by law to a corporate entity,
may thus be considered as an exercise of police power. The respondent judge insists that the directive
constitutes an impairment of the obligation of contracts. It has, however, been settled that the
Constitutional guaranty of non-impairment of obligations of contract is limited by the exercise of the
police power of the state, the reason being that public welfare is superior to private rights. 25

The respondent judge also stated that since the stock certificate granted the private respondents the right
to receive a quarterly dividend of One Per Centum (1%) cumulative and participating, it "clearly and
unequivocably (sic) indicates that the same are "interest bearing stocks" or stocks issued by a
corporation under an agreement to pay a certain rate of interest thereon. As such, plaintiffs (private
respondents herein) become entitled to the payment thereof as a matter of right without necessity of a
prior declaration of dividend." 26 There is no legal basis for this observation. Both Sec. 16 of the
Corporation Law and Sec. 43 of the present Corporation Code prohibit the issuance of any stock dividend
without the approval of stockholders, representing not less than two-thirds (2/3) of the outstanding
capital stock at a regular or special meeting duly called for the purpose. These provisions underscore the
fact that payment of dividends to a stockholder is not a matter of right but a matter of consensus.
Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay interest before
dividends are paid to common stockholders, is legal only when construed as requiring payment of
interest as dividends from net earnings or surplus only. 27 Clearly, the respondent judge, in compelling
the petitioner to redeem the shares in question and to pay the corresponding dividends, committed grave
abuse of discretion amounting to lack or excess of jurisdiction in ignoring both the terms and conditions
specified in the stock certificate, as well as the clear mandate of the law.

Anent the issue of prescription, this Court so holds that the claim of private respondent is already barred
by prescription as well as laches. Art. 1144 of the New Civil Code provides that a right of action that is
founded upon a written contract prescribes in ten (10) years. The letter-demand made by the private
respondents to the petitioner was made only on January 5, 1979, or almost eighteen years after receipt of
the written contract in the form of the stock certificate. As noted earlier, this letter-demand, significantly,
was not formally offered in evidence, nor were any other evidence of demand presented. Therefore, we
conclude that the only time the private respondents saw it fit to assert their rights, if any, to the preferred
shares of stock, was after the lapse of almost eighteen years. The same clearly indicates that the right of
the private respondents to any relief under the law has already prescribed. Moreover, the claim of the
private respondents is also barred by laches. Laches has been defined as the failure or neglect, for an
unreasonable length of time, to do that which by exercising due diligence could or should have been done
earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption
that the party entitled to assert it either has abandoned it or declined to assert it. 28

Considering that the terms and conditions set forth in the stock certificate clearly indicate that
redemption of the preferred shares may be made at any time after the lapse of two years from the date of
issue, private respondents should have taken it upon themselves, after the lapse of the said period, to
inquire from the petitioner the reason why the said shares have not been redeemed. As it is, not only two
years had lapsed, as agreed upon, but an additional sixteen years passed before the private respondents
saw it fit to demand their right. The petitioner, at the time it issued said preferred shares to the private
respondents in 1961, could not have known that it would be suffering from chronic reserve deficiency
twelve years later. Had the private respondents been vigilant in asserting their rights, the redemption
could have been effected at a time when the petitioner bank was not suffering from any financial crisis.

WHEREFORE, the instant petition, being impressed with merit, is hereby GRANTED. The challenged
decision of respondent judge is set aside and the complaint against the petitioner is dismissed.

Costs against the private respondents.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 165443 April 16, 2009

CALATAGAN GOLF CLUB, INC. Petitioner,

vs.
SIXTO CLEMENTE, JR., Respondent.

DECISION

TINGA, J.:

Seeking the reversal of the Decision1 dated 1 June 2004 of the Court of Appeals in CA-G.R. SP No. 62331
and the reinstatement of the Decision dated 15 November 2000 of the Securities and Exchange
Commission (SEC) in SEC Case No. 04-98-5954, petitioner Calatagan Golf Club, Inc. (Calatagan) filed this
Rule 45 petition against respondent Sixto Clemente, Jr. (Clemente).

The key facts are undisputed.

Clemente applied to purchase one share of stock of Calatagan, indicating in his application for
membership his mailing address at "Phimco Industries, Inc. – P.O. Box 240, MCC," complete residential
address, office and residence telephone numbers, as well as the company (Phimco) with which he was
connected, Calatagan issued to him Certificate of Stock No. A-01295 on 2 May 1990 after paying
₱120,000.00 for the share.2

Calatagan charges monthly dues on its members to meet expenses for general operations, as well as costs
for upkeep and improvement of the grounds and facilities. The provision on monthly dues is incorporated
in Calatagan’s Articles of Incorporation and By-Laws. It is also reproduced at the back of each certificate
of stock.3 As reproduced in the dorsal side of Certificate of Stock No. A-01295, the provision reads:

5. The owners of shares of stock shall be subject to the payment of monthly dues in an amount as may be
prescribed in the by-laws or by the Board of Directors which shall in no case be less that [sic] ₱50.00 to
meet the expenses for the general operations of the club, and the maintenance and improvement of its
premises and facilities, in addition to such fees as may be charged for the actual use of the facilities x x x

When Clemente became a member the monthly charge stood at ₱400.00. He paid ₱3,000.00 for his
monthly dues on 21 March 1991 and another ₱5,400.00 on 9 December 1991. Then he ceased paying the
dues. At that point, his balance amounted to ₱400.00.4

Ten (10) months later, Calatagan made the initial step to collect Clemente’s back accounts by sending a
demand letter dated 21 September 1992. It was followed by a second letter dated 22 October 1992. Both
letters were sent to Clemente’s mailing address as indicated in his membership application but were sent
back to sender with the postal note that the address had been closed.5

Calatagan declared Clemente delinquent for having failed to pay his monthly dues for more than sixty
(60) days, specifically ₱5,600.00 as of 31 October 1992. Calatagan also included Clemente’s name in the
list of delinquent members posted on the club’s bulletin board. On 1 December 1992, Calatagan’s board of
directors adopted a resolution authorizing the foreclosure of shares of delinquent members, including
Clemente’s; and the public auction of these shares.

On 7 December 1992, Calatagan sent a third and final letter to Clemente, this time signed by its Corporate
Secretary, Atty. Benjamin Tanedo, Jr. The letter contains a warning that unless Clemente settles his
outstanding dues, his share would be included among the delinquent shares to be sold at public auction
on 15 January 1993. Again, this letter was sent to Clemente’s mailing address that had already been
closed.6

On 5 January 1993, a notice of auction sale was posted on the Club’s bulletin board, as well as on the
club’s premises. The auction sale took place as scheduled on 15 January 1993, and Clemente’s share sold
for ₱64,000.7According to the Certificate of Sale issued by Calatagan after the sale, Clemente’s share was
purchased by a Nestor A. Virata.8 At the time of the sale, Clemente’s accrued monthly dues amounted to
₱5,200.00.9 A notice of foreclosure of Clemente’s share was published in the 26 May 1993 issue of the
Business World.10

Clemente learned of the sale of his share only in November of 1997.11 He filed a claim with the Securities
and Exchange Commission (SEC) seeking the restoration of his shareholding in Calatagan with damages.

On 15 November 2000, the SEC rendered a decision dismissing Clemente’s complaint. Citing Section 69 of
the Corporation Code which provides that the sale of shares at an auction sale can only be questioned
within six (6) months from the date of sale, the SEC concluded that Clemente’s claim, filed four (4) years
after the sale, had already prescribed. The SEC further held that Calatagan had complied with all the
requirements for a valid sale of the subject share, Clemente having failed to inform Calatagan that the
address he had earlier supplied was no longer his address. Clemente, the SEC ruled, had acted in bad faith
in assuming as he claimed that his non-payment of monthly dues would merely render his share
"inactive."

Clemente filed a petition for review with the Court of Appeals. On 1 June 2004, the Court of Appeals
promulgated a decision reversing the SEC. The appellate court restored Clemente’s one share with a
directive to Calatagan to issue in his a new share, and awarded to Clemente a total of ₱400,000.00 in
damages, less the unpaid monthly dues of ₱5,200.00.

In rejecting the SEC’s finding that the action had prescribed, the Court of Appeals cited the SEC’s own
ruling in SEC Case No. 4160, Caram v. Valley Golf Country Club, Inc., that Section 69 of the Corporation
Code specifically refers to unpaid subscriptions to capital stock, and not to any other debt of
stockholders. With the insinuation that Section 69 does not apply to unpaid membership dues in non-
stock corporations, the appellate court employed Article 1140 of the Civil Code as the proper rule of
prescription. The provision sets the prescription period of actions to recover movables at eight (8) years.

The Court of Appeals also pointed out that since that Calatagan’s first two demand letters had been
returned to it as sender with the notation about the closure of the mailing address, it very well knew that
its third and final demand letter also sent to the same mailing address would not be received by
Clemente. It noted the by-law requirement that within ten (10) days after the Board has ordered the sale
at auction of a member’s share of stock for indebtedness, the Corporate Secretary shall notify the owner
thereof and advise the Membership Committee of such fact. Finally, the Court of Appeals ratiocinated that
"a person who is in danger of the imminent loss of his property has the right to be notified and be given
the chance to prevent the loss."12

Hence, the present appeal.

Calatagan maintains that the action of Clemente had prescribed pursuant to Section 69 of the Corporation
Code, and that the requisite notices under both the law and the by-laws had been rendered to Clemente.

Section 69 of the Code provides that an action to recover delinquent stock sold must be commenced by
the filing of a complaint within six (6) months from the date of sale. As correctly pointed out by the Court
of Appeals, Section 69 is part of Title VIII of the Code entitled "Stocks and Stockholders" and refers
specifically to unpaid subscriptions to capital stock, the sale of which is governed by the immediately
preceding Section 68.

The Court of Appeals debunked both Calatagan’s and the SEC’s reliance on Section 69 by citing another
SEC ruling in the case of Caram v. Valley Golf. In connection with Section 69, Calatagan raises a peripheral
point made in the SEC’s Caram ruling. In Caram, the SEC, using as take-off Section 6 of the Corporation
Code which refers to "such rights, privileges or restrictions as may be stated in the articles of
incorporation," pointed out that the Articles of Incorporation of Valley Golf does not "impose any lien,
liability or restriction on the Golf Share [of Caram]," but only its (Valley Golf’s) By-Laws does. Here,
Calatagan stresses that its own Articles of Incorporation does provide that the monthly dues assessed on
owners of shares of the corporation, along with all other obligations of the shareholders to the club, "shall
constitute a first lien on the shares… and in the event of delinquency such shares may be ordered sold by
the Board of Directors in the manner provided in the By-Laws to satisfy said dues or other obligations of
the shareholders."13 With its illative but incomprehensible logic, Calatagan concludes that the
prescriptive period under Section 69 should also apply to the sale of Clemente’s share as the lien that
Calatagan perceives to be a restriction is stated in the articles of incorporation and not only in the by-
laws.

We remain unconvinced.

There are fundamental differences that defy equivalence or even analogy between the sale of delinquent
stock under Section 68 and the sale that occurred in this case. At the root of the sale of delinquent stock is
the non-payment of the subscription price for the share of stock itself. The stockholder or subscriber has
yet to fully pay for the value of the share or shares subscribed. In this case, Clemente had already fully
paid for the share in Calatagan and no longer had any outstanding obligation to deprive him of full title to
his share. Perhaps the analogy could have been made if Clemente had not yet fully paid for his share and
the non-stock corporation, pursuant to an article or by-law provision designed to address that situation,
decided to sell such share as a consequence. But that is not the case here, and there is no purpose for us
to apply Section 69 to the case at bar.

Calatagan argues in the alternative that Clemente’s suit is barred by Article 1146 of the Civil Code which
establishes four (4) years as the prescriptive period for actions based upon injury to the rights of the
plaintiff on the hypothesis that the suit is purely for damages. As a second alternative still, Calatagan
posits that Clemente’s action is governed by Article 1149 of the Civil Code which sets five (5) years as the
period of prescription for all other actions whose prescriptive periods are not fixed in the Civil Code or in
any other law. Neither article is applicable but Article 1140 of the Civil Code which provides that an
action to recover movables shall prescribe in eight (8) years. Calatagan’s action is for the recovery of a
share of stock, plus damages.

Calatagan’s advertence to the fact that the constitution of a lien on the member’s share by virtue of the
explicit provisions in its Articles of Incorporation and By-Laws is relevant but ultimately of no help to its
cause. Calatagan’s Articles of Incorporation states that the "dues, together with all other obligations of
members to the club, shall constitute a first lien on the shares, second only to any lien in favor of the
national or local government, and in the event of delinquency such shares may be ordered sold by the
Board of Directors in the manner provided in the By-Laws to satisfy said dues or other obligations of the
stockholders."14 In turn, there are several provisions in the By-laws that govern the payment of dues, the
lapse into delinquency of the member, and the constitution and execution on the lien. We quote these
provisions:

ARTICLE XII – MEMBER’S ACCOUNT

SEC. 31. (a) Billing Members, Posting of Delinquent Members – The Treasurer shall bill al members
monthly. As soon as possible after the end of every month, a statement showing the account of bill of a
member for said month will be prepared and sent to him. If the bill of any member remains unpaid by the
20th of the month following that in which the bill was incurred, the Treasurer shall notify him that if his
bill is not paid in full by the end of the succeeding month his name will be posted as delinquent the
following day at the Clubhouse bulletin board. While posted, a member, the immediate members of his
family, and his guests, may not avail of the facilities of the Club.

(b) Members on the delinquent list for more than 60 days shall be reported to the Board and their
shares or the shares of the juridical entities they represent shall thereafter be ordered sold by the
Board at auction to satisfy the claims of the Club as provided for in Section 32 hereon. A member
may pay his overdue account at any time before the auction sale.

Sec. 32. Lien on Shares; Sale of Share at Auction- The club shall have a first lien on every share of stock to
secure debts of the members to the Club. This lien shall be annotated on the certificates of stock and may
be enforced by the Club in the following manner:

(a) Within ten (10) days after the Board has ordered the sale at auction of a member’s share of
stock for indebtedness under Section 31(b) hereof, the Secretary shall notify the owner thereof,
and shall advise the Membership Committee of such fact.

(b) The Membership Committee shall then notify all applicants on the Waiting List and all
registered stockholders of the availability of a share of stock for sale at auction at a specified date,
time and place, and shall post a notice to that effect in the Club bulletin board for at least ten (10)
days prior to the auction sale.

(c) On the date and hour fixed, the Membership Committee shall proceed with the auction by viva
voce bidding and award the sale of the share of stock to the highest bidder.
 (d) The purchase price shall be paid by the winning bidder to the Club within twenty-four (24)
hours after the bidding. The winning bidder or the representative in the case of a juridical entity
shall become a Regular Member upon payment of the purchase price and issuance of a new stock
certificate in his name or in the name of the juridical entity he represents. The proceeds of the sale
shall be paid by the Club to the selling stockholder after deducting his obligations to the Club.

(e) If no bids be received or if the winning bidder fails to pay the amount of this bid within twenty-
four (24) hours after the bidding, the auction procedures may be repeated from time to time at the
discretion of the Membership Committee until the share of stock be sold.

(f) If the proceeds from the sale of the share of stock are not sufficient to pay in full the
indebtedness of the member, the member shall continue to be obligated to the Club for the unpaid
balance. If the member whose share of stock is sold fails or refuse to surrender the stock
certificate for cancellation, cancellation shall be effected in the books of the Club based on a record
of the proceedings. Such cancellation shall render the unsurrendered stock certificate null and
void and notice to this effect shall be duly published.

It is plain that Calatagan had endeavored to install a clear and comprehensive procedure to govern the
payment of monthly dues, the declaration of a member as delinquent, and the constitution of a lien on the
shares and its eventual public sale to answer for the member’s debts. Under Section 91 of the Corporation
Code, membership in a non-stock corporation "shall be terminated in the manner and for the causes
provided in the articles of incorporation or the by-laws." The By-law provisions are elaborate in
explaining the manner and the causes for the termination of membership in Calatagan, through the
execution on the lien of the share. The Court is satisfied that the By-Laws, as written, affords due
protection to the member by assuring that the member should be notified by the Secretary of the looming
execution sale that would terminate membership in the club. In addition, the By-Laws guarantees that
after the execution sale, the proceeds of the sale would be returned to the former member after
deducting the outstanding obligations. If followed to the letter, the termination of membership under this
procedure outlined in the By-Laws would accord with substantial justice.

Yet, did Calatagan actually comply with the by-law provisions when it sold Clemente’s share? The
appellate court’s finding on this point warrants our approving citation, thus:

In accordance with this provision, Calatagan sent the third and final demand letter to Clemente on
December 7, 1992. The letter states that if the amount of delinquency is not paid, the share will be
included among the delinquent shares to be sold at public auction. This letter was signed by Atty.
Benjamin Tanedo, Jr., Calatagan Golf’s Corporate Secretary. It was again sent to Clemente’s mailing
address – Phimco Industries Inc., P.O. Box 240, MCC Makati. As expected, it was returned because the
post office box had been closed.

Under the By-Laws, the Corporate Secretary is tasked to "give or cause to be given, all notices required by
law or by these By-Laws. .. and … keep a record of the addresses of all stockholders. As quoted above, Sec.
32 (a) of the By-Laws further provides that "within ten (10) days after the Board has ordered the sale at
auction of a member’s share of stock for indebtedness under Section 31 (b) hereof, the Secretary shall
notify the owner thereof and shall advise the Membership Committee of such fact.," The records do not
disclose what report the Corporate Secretary transmitted to the Membership Committee to comply with
Section 32(a). Obviously, the reason for this mandatory requirement is to give the Membership
Committee the opportunity to find out, before the share is sold, if proper notice has been made to the
shareholder member.

We presume that the Corporate Secretary, as a lawyer is knowledgeable on the law and on the standards
of good faith and fairness that the law requires. As custodian of corporate records, he should also have
known that the first two letters sent to Clemente were returned because the P.O. Box had been closed.
Thus, we are surprised – given his knowledge of the law and of corporate records – that he would send
the third and final letter – Clemente’s last chance before his share is sold and his membership lost – to the
same P.O. Box that had been closed.

Calatagan argues that it "exercised due diligence before the foreclosure sale" and "sent several notices to
Clemente’s specified mailing address." We do not agree; we cannot label as due diligence Calatagan’s act
of sending the December 7, 1992 letter to Clemente’s mailing address knowing fully well that the P.O. Box
had been closed. Due diligence or good faith imposes upon the Corporate Secretary – the chief repository
of all corporate records – the obligation to check Clemente’s other address which, under the By-Laws,
have to be kept on file and are in fact on file. One obvious purpose of giving the Corporate Secretary the
duty to keep the addresses of members on file is specifically for matters of this kind, when the member
cannot be reached through his or her mailing address. Significantly, the Corporate Secretary does not
have to do the actual verification of other addressees on record; a mere clerk can do the very simple task
of checking the files as in fact clerks actually undertake these tasks. In fact, one telephone call to
Clemente’s phone numbers on file would have alerted him of his impending loss.

Ultimately, the petition must fail because Calatagan had failed to duly observe both the spirit and letter of
its own by-laws. The by-law provisions was clearly conceived to afford due notice to the delinquent
member of the impending sale, and not just to provide an intricate façade that would facilitate Calatagan’s
sale of the share. But then, the bad faith on Calatagan’s part is palpable. As found by the Court of Appeals,
Calatagan very well knew that Clemente’s postal box to which it sent its previous letters had already been
closed, yet it persisted in sending that final letter to the same postal box. What for? Just for the exercise, it
appears, as it had known very well that the letter would never actually reach Clemente.1avvphi1

It is noteworthy that Clemente in his membership application had provided his residential address along
with his residence and office telephone numbers. Nothing in Section 32 of Calatagan’s By-Laws requires
that the final notice prior to the sale be made solely through the member’s mailing address. Clemente
cites our aphorism-like pronouncement in Rizal Commercial Banking Corporation v. Court of
Appeals15 that "[a] simple telephone call and an ounce of good faith x x x could have prevented this
present controversy." That memorable observation is quite apt in this case.

Calatagan’s bad faith and failure to observe its own By-Laws had resulted not merely in the loss of
Clemente’s privilege to play golf at its golf course and avail of its amenities, but also in significant
pecuniary damage to him. For that loss, the only blame that could be thrown Clemente’s way was his
failure to notify Calatagan of the closure of the P.O. Box. That lapse, if we uphold Calatagan would cost
Clemente a lot. But, in the first place, does he deserve answerability for failing to notify the club of the
closure of the postal box? Indeed, knowing as he did that Calatagan was in possession of his home
address as well as residence and office telephone numbers, he had every reason to assume that the club
would not be at a loss should it need to contact him. In addition, according to Clemente, he was not even
aware of the closure of the postal box, the maintenance of which was not his responsibility but his
employer Phimco’s.
The utter bad faith exhibited by Calatagan brings into operation Articles 19, 20 and 21 of the Civil
Code,16 under the Chapter on Human Relations. These provisions, which the Court of Appeals did apply,
enunciate a general obligation under law for every person to act fairly and in good faith towards one
another. A non-stock corporation like Calatagan is not exempt from that obligation in its treatment of its
members. The obligation of a corporation to treat every person honestly and in good faith extends even
to its shareholders or members, even if the latter find themselves contractually bound to perform certain
obligations to the corporation. A certificate of stock cannot be a charter of dehumanization.

We turn to the matter of damages. The award of actual damages is of course warranted since Clemente
has sustained pecuniary injury by reason of Calatagan’s wrongful violation of its own By-Laws. It would
not be feasible to deliver Clemente’s original Certificate of Stock because it had already been cancelled
and a new one issued in its place in the name of the purchases at the auction who was not impleaded in
this case. However, the Court of Appeals instead directed that Calatagan to issue to Clemente a new
certificate of stock. That sufficiently redresses the actual damages sustained by Clemente. After all, the
certificate of stock is simply the evidence of the share.

The Court of Appeals also awarded Clemente ₱200,000.00 as moral damages, ₱100,000.00 as exemplary
damages, and ₱100,000.00 as attorney’s fees. We agree that the award of such damages is warranted.

The Court of Appeals cited Calatagan for violation of Article 32 of the Civil Code, which allows recovery of
damages from any private individual "who directly or indirectly obstructs, defeats, violates or in any
manner impedes or impairs" the right "against deprivation of property without due process of laws." The
plain letter of the provision squarely entitles Clemente to damages from Calatagan. Even without Article
32 itself, Calatagan will still be bound to pay moral and exemplary damages to Clemente. The latter was
able to duly prove that he had sustained mental anguish, serious anxiety and wounded feelings by reason
of Calatagan’s acts, thereby entitling him to moral damages under Article 2217 of the Civil Code.
Moreover, it is evident that Calatagan’s bad faith as exhibited in the

course of its corporate actions warrants correction for the public good, thereby justifying exemplary
damages under Article 2229 of the Civil Code.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals is AFFIRMED. Costs against
petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 80039 April 18, 1989

ERNESTO M. APODACA, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, JOSE M. MIRASOL and INTRANS PHILS.,
INC., respondents.
Diego O. Untalan for petitioner.

The Solicitor General for public respondent.

Barcelona, Perlas, Joven & Academia Law Offices for private respondents.

GANCAYCO, J.:

Does the National Labor Relations Commission (NLRC) have jurisdiction to resolve a claim for non-
payment of stock subscriptions to a corporation? Assuming that it has, can an obligation arising
therefrom be offset against a money claim of an employee against the employer? These are the issues
brought to this court through this petition for review of a decision of the NLRC dated September 18,
1987.

The only remedy provided for by law from such a decision is a special civil action for certiorari under
Rule 65 of the Rules of Court based on jurisdictional grounds or on alleged grave abuse of discretion
amounting to lack or excess of jurisdiction, not by way of an appeal by certiorari. Nevertheless, in the
interest of justice, this petition is treated as a special civil action for certiorari.

Petitioner was employed in respondent corporation. On August 28, 1985, respondent Jose M. Mirasol
persuaded petitioner to subscribe to 1,500 shares of respondent corporation at P100.00 per share or a
total of P150,000.00. He made an initial payment of P37,500.00. On September 1, 1975, petitioner was
appointed President and General Manager of the respondent corporation. However, on January 2, 1986,
he resigned.

On December 19, 1986, petitioner instituted with the NLRC a complaint against private respondents for
the payment of his unpaid wages, his cost of living allowance, the balance of his gasoline and
representation expenses and his bonus compensation for 1986. Petitioner and private respondents
submitted their position papers to the labor arbiter. Private respondents admitted that there is due to
petitioner the amount of P17,060.07 but this was applied to the unpaid balance of his subscription in the
amount of P95,439.93. Petitioner questioned the set-off alleging that there was no call or notice for the
payment of the unpaid subscription and that, accordingly, the alleged obligation is not enforceable.

In a decision dated April 28, 1987, the labor arbiter sustained the claim of petitioner for P17,060.07 on
the ground that the employer has no right to withhold payment of wages already earned under Article
103 of the Labor Code. Upon the appeal of the private respondents to public respondent NLRC, the
decision of the labor arbiter was reversed in a decision dated September 18, 1987. The NLRC held that a
stockholder who fails to pay his unpaid subscription on call becomes a debtor of the corporation and that
the set-off of said obligation against the wages and others due to petitioner is not contrary to law, morals
and public policy.

Hence, the instant petition.

The petition is impressed with merit.

Firstly, the NLRC has no jurisdiction to determine such intra-corporate dispute between the stockholder
and the corporation as in the matter of unpaid subscriptions. This controversy is within the exclusive
jurisdiction of the Securities and Exchange Commission. 1

Secondly, assuming arguendo that the NLRC may exercise jurisdiction over the said subject matter under
the circumstances of this case, the unpaid subscriptions are not due and payable until a call is made by
the corporation for payment. 2 Private respondents have not presented a resolution of the board of
directors of respondent corporation calling for the payment of the unpaid subscriptions. It does not even
appear that a notice of such call has been sent to petitioner by the respondent corporation.

What the records show is that the respondent corporation deducted the amount due to petitioner from
the amount receivable from him for the unpaid subscriptions. 3 No doubt such set-off was without lawful
basis, if not premature. As there was no notice or call for the payment of unpaid subscriptions, the same
is not yet due and payable.

Lastly, assuming further that there was a call for payment of the unpaid subscription, the NLRC cannot
validly set it off against the wages and other benefits due petitioner. Article 113 of the Labor Code allows
such a deduction from the wages of the employees by the employer, only in three instances, to wit:

ART. 113. Wage Deduction. — No employer, in his own behalf or in behalf of any person,
shall make any deduction from the wages of his employees, except:

(a) In cases where the worker is insured with his consent by the employer, and the
deduction is to recompense the employer for the amount paid by him as premium on the
insurance;

(b) For union dues, in cases where the right of the worker or his union to checkoff has been
recognized by the employer or authorized in writing by the individual worker concerned;
and

(c) In cases where the employer is authorized by law or regulations issued by the Secretary
of Labor. 4

WHEREFORE, the petition is GRANTED and the questioned decision of the NLRC dated September 18,
1987 is hereby set aside and another judgment is hereby rendered ordering private respondents to pay
petitioner the amount of P17,060.07 plus legal interest computed from the time of the filing of the
complaint on December 19, 1986, with costs against private respondents.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-18216 October 30, 1962

STOCKHOLDERS OF F. GUANZON AND SONS, INC., petitioners-appellants,
vs.
REGISTER OF DEEDS OF MANILA, respondent-appellee.

Ramon C. Fernando for petitioners-appellants.

Office of the Solicitor General for respondent-appellee.

BAUTISTA ANGELO, J.:

On September 19, 1960, the five stockholders of the F. Guanzon and Sons, Inc. executed a certificate of
liquidation of the assets of the corporation reciting, among other things, that by virtue of a resolution of
the stockholders adopted on September 17, 1960, dissolving the corporation, they have distributed
among themselves in proportion to their shareholdings, as liquidating dividends, the assets of said
corporation, including real properties located in Manila.

The certificate of liquidation, when presented to the Register of Deeds of Manila, was denied registration
on seven grounds, of which the following were disputed by the stockholders:

3. The number of parcels not certified to in the acknowledgment;

5. P430.50 Reg. fees need be paid;

6. P940.45 documentary stamps need be attached to the document;

7. The judgment of the Court approving the dissolution and directing the disposition of the assets
of the corporation need be presented (Rules of Court, Rule 104, Sec. 3).

Deciding the consulta elevated by the stockholders, the Commissioner of Land Registration overruled
ground No. 7 and sustained requirements Nos. 3, 5 and 6.

The stockholders interposed the present appeal.

As correctly stated by the Commissioner of Land Registration, the propriety or impropriety of the three
grounds on which the denial of the registration of the certificate of liquidation was predicated hinges on
whether or not that certificate merely involves a distribution of the corporation's assets or should be
considered a transfer or conveyance.

Appellants contend that the certificate of liquidation is not a conveyance or transfer but merely a
distribution of the assets of the corporation which has ceased to exist for having been dissolved. This is
apparent in the minutes for dissolution attached to the document. Not being a conveyance the certificate
need not contain a statement of the number of parcel of land involved in the distribution in the
acknowledgment appearing therein. Hence the amount of documentary stamps to be affixed thereon
should only be P0.30 and not P940.45, as required by the register of deeds. Neither is it correct to require
appellants to pay the amount of P430.50 as registration fee.

The Commissioner of Land Registration, however, entertained a different opinion. He concurred in the
view expressed by the register of deed to the effect that the certificate of liquidation in question, though it
involves a distribution of the corporation's assets, in the last analysis represents a transfer of said assets
from the corporation to the stockholders. Hence, in substance it is a transfer or conveyance.

We agree with the opinion of these two officials. A corporation is a juridical person distinct from the
members composing it. Properties registered in the name of the corporation are owned by it as an entity
separate and distinct from its members. While shares of stock constitute personal property they do not
represent property of the corporation. The corporation has property of its own which consists chiefly of
real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share
of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to
that extent when distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala 398,
56 So., 235), but its holder is not the owner of any part of the capital of the corporation (Bradley v.
Bauder 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its property or
assets (Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-
owner or tenant in common of the corporate property (Halton v. Hohnston, 166 Ala 317, 51 So 992).

On the basis of the foregoing authorities, it is clear that the act of liquidation made by the stockholders of
the F. Guanzon and Sons, Inc. of the latter's assets is not and cannot be considered a partition of
community property, but rather a transfer or conveyance of the title of its assets to the individual
stockholders. Indeed, since the purpose of the liquidation, as well as the distribution of the assets of the
corporation, is to transfer their title from the corporation to the stockholders in proportion to their
shareholdings, — and this is in effect the purpose which they seek to obtain from the Register of Deeds of
Manila, — that transfer cannot be effected without the corresponding deed of conveyance from the
corporation to the stockholders. It is, therefore, fair and logical to consider the certificate of liquidation as
one in the nature of a transfer or conveyance.

WHEREFORE, we affirm the resolution appealed from, with costs against appellants.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 95696 March 3, 1992

ALFONSO S. TAN, Petitioner,

vs.
SECURITIES AND EXCHANGE COMMISSION, VISAYAN EDUCATIONAL SUPPLY CORP., TAN SU CHING,
ALFREDO B. UY, ANGEL S. TAN and PATRICIA AGUILAR, Respondents.

PARAS, J.:

Petitioner filed a petition for certiorari against the public respondent Securities and Exchange
Commission and its co-respondents, after the former in an en banc Order, overturned with modification,
the decision of its Cebu SEC Extension hearing officer, Felix Chan, in SEC Case No. C-0096, dated May 23,
1989, on October 10, 1990, under SEC-AC No. 263. (Rollo, pp. 3 and 4)
Sought to be reversed by petitioner, is the ruling of the Commission, specifically declaring that:

1. Confirming the validity of the resolution of the board of directors of the Visayan
Educational Supply Corporation so far as it cancelled Stock Certificate No. 2 and split the
same into Stock Certificates No. 6 (for Angel S. Tan) and No. 8 (for Alfonso S. Tan);

2. Invalidating the sale of shares represented under Stock Certificate No. 8 between Alfonso
S. Tan and the respondent corporation which converted the said stocks into treasury
shares, as well as those transactions involved in the withdrawal of the stockholders from
the respondent corporation for being contrary to law, but ordering the neither party may
recover pursuant to Article 1412 (1) Civil Code of the Philippines; and

3. Revoking the Order of Hearing Officer Felix Chan to reinstate complainant's original 400
shares of stock in the books of the corporation in view of the validity of the sale of 50
shares represented under stock certificate No. 6; and the nullity of the sale 350 shares
represented under stock certificate No. 8, pursuant to the "in pari delicto" doctrine
aforecited. (Rollo, p. 4)

The antecedent facts of the case are as follows:

Respondent corporation was registered on October 1, 1979. As incorporator, petitioner had four hundred
(400) shares of the capital stock standing in his name at the par value of P100.00 per share, evidenced by
Certificate of Stock No. 2. He was elected as President and subsequently reelected, holding the position as
such until 1982 but remained in the Board of Directors until April 19, 1983 as director. (Rollo, p. 5)

On January 31, 1981, while petitioner was still the president of the respondent corporation, two other
incorporators, namely, Antonia Y. Young and Teresita Y. Ong, assigned to the corporation their shares,
represented by certificate of stock No. 4 and 5 after which, they were paid the corresponding 40%
corporate stock-in-trade. (Rollo, p. 43)

Petitioner's certificate of stock No. 2 was cancelled by the corporate secretary and respondent Patricia
Aguilar by virtue of Resolution No. 1981 (b), which was passed and approved while petitioner was still a
member of the Board of Directors of the respondent corporation. (Rollo, p. 6)

Due to the withdrawal of the aforesaid incorporators and in order to complete the membership of the five
(5) directors of the board, petitioner sold fifty (50) shares out of his 400 shares of capital stock to his
brother Angel S. Tan. Another incorporator, Alfredo B. Uy, also sold fifty (50) of his 400 shares of capital
stock to Teodora S. Tan and both new stockholders attended the special meeting, Angel Tan was elected
director and on March 27, 1981, the minutes of said meeting was filed with the SEC. These facts stand
unchallenged. (Rollo, p. 43)

Accordingly, as a result of the sale by petitioner of his fifty (50) shares of stock to Angel S. Tan on April
16, 1981, Certificate of Stock No. 2 was cancelled and the corresponding Certificates Nos. 6 and 8 were
issued, signed by the newly elected fifth member of the Board, Angel S. Tan as Vice-president, upon
instruction of Alfonso S. Tan who was then the president of the Corporation.(Memorandum of the Private
Respondent, p. 15)
With the cancellation of Certificate of stock No. 2 and the subsequent issuance of Stock Certificate No. 6 in
the name of Angel S. Tan and for the remaining 350 shares, Stock Certificate No. 8 was issued in the name
of petitioner Alfonso S. Tan, Mr. Buzon, submitted an Affidavit (Exh. 29), alleging that:

9. That in view of his having taken 33 1/3 interest, I was personally requested by Mr. Tan
Su Ching to request Mr. Alfonso Tan to make proper endorsement in the cancelled
Certificate of Stock No. 2 and Certificate No. 8, but he did not endorse, instead he kept the
cancelled (1981) Certificate of Stock No. 2 and returned only to me Certificate of Stock No.
8, which I delivered to Tan Su Ching.

10. That the cancellation of his stock (Stock No. 2) was known by him in 1981; that it was
Stock No. 8, that was delivered in March 1983 for his endorsement and cancellation. (Ibid,
p. 18)

From the same Affidavit, it was alleged that Atty. Ramirez prepared a Memorandum of Agreement with
respect to the transaction of the fifty (50) shares of stock part of the Stock Certificate No. 2 of petitioner,
which was submitted to its former owner, Alfonso Tan, but which the purposely did not return. (Ibid., p.
18)

On January 29, 1983, during the annual meeting of the corporation, respondent Tan Su Ching was elected
as President while petitioner was elected as Vice-president. He, however, did not sign the minutes of said
meeting which was submitted to the SEC on March 30, 1983. (Rollo, p. 43)

When petitioner was dislodged from his position as president, he withdrew from the corporation on
February 27, 1983, on condition that he be paid with stocks-in-trade equivalent to 33.3% in lieu of the
stock value of his shares in the amount of P35,000.00. After the withdrawal of the stocks, the board of the
respondent corporation held a meeting on April 19, 1983, effecting the cancellation of Stock Certificate
Nos. 2 and 8 (Exh. 278-C) in the corporate stock and transfer book 1 (Exh. 1-1-A) and submitted the
minutes thereof to the SEC on May 18, 1983. (Rollo, p. 44)

Five (5) years and nine (9) months after the transfer of 50 shares to Angel S. Tan, brother of petitioner
Alfonso S. Tan, and three (3) years and seven (7) months after effecting the transfer of Stock Certificate
Nos. 2 and 8 from the original owner (Alfonso S. Tan) in the stock and transfer book of the corporation,
the latter filed the case before the Cebu SEC Extension Office under SEC Case No. C-0096, more
specifically on December 3, 1983, questioning for the first time, the cancellation of his aforesaid Stock
Certificates Nos. 2 and 8. (Rollo, p. 44)

The bone of centention raised by the petitioner is that the deprivation of his shares despite the non-
endorsement or surrender of his Stock Certificate Nos. 2 and 8, was without the process contrary to the
provision of Section 63 of the Corporation Code (Batas Pambansa Blg. 68), which requires that:

. . . No transfer, however, shall be valid, except as between the parties, until the transfer is
recorded to the books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred.

After hearing, the Cebu SEC Extension Office Hearing Officer, Felix Chan ruled, that:
 a) The cancellation of the complainant's shares of stock with the Visayan Educational
Supply Corporation is null and void;

b) The earlier cancellation of stock certificate No. 2 and the subsequent issuance of stock
certificate No. 8 is also hereby declared null and void;

c) The Secretary of the Corporation is hereby ordered to make the necessary corrections in
the books of the corporation reinstating thereto complainant's original 400 shares of stock.
(Rollo, pp. 39-40)

Private respondent in the original complaint went to the Securities and Exchange and Commission on
appeal, and on October 10, 1990, the commission en banc unanimously overturned the Decision of the
Hearing Officer under SEC-AC No. 263. (Order, Rollo, pp. 42-49)

The petition for certiorari centered on three major issues, with other issues considered as subordinate to
them, to wit:

1. The meaning of shares of stock are personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized
to make the transfer. (Rollo, p. 10)

The case of Nava vs. peers Marketing corporation (74 SCRA 65) was cited by petitioner making the
reference to commentaries taken from 18 C.J.S. 928-930, that the transfer by delivery to the transferee of
the certificate should be properly indorsed, and that "There should be compliance with the mode of
transfer prescribed by law." Using Section 35, now Section 63 of the Corporation Code, the provision of
the law, reads:

SEC. 63. Certificate of stock and transfer of shares. — The capital stock and stock and
corporations shall be divided into shares for which certificates signed by the president and
vice president, countersigned by the secretary or assistant secretary, and sealed with the
seal of the corporation shall be issued in accordance with the by-laws. Shares of stocks so
issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person legally authorized
to make the transfer. No transfer, however, shall be valid, except as between the parties,
until the transfer is recorded in the books of the corporation so as to show the names of the
parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.

No shares of stocks against which the corporation holds any unpaid claim shall be
transferable in the books of the corporations.

There is no doubt that there was delivery of Stock Certificate No. 2 made by the petitioner to the
Corporation before its replacement with the Stock Certificate No. 6 for fifty (50) shares to Angel S. Tan
and Stock Certificate No. 8 for 350 shares to the petitioner, on March 16, 1981. The problem arose when
petitioner was given back Stock Certificate No. 2 for him to endorse and he deliberately witheld it for
reasons of his own. That the Stock Certificate in question was returned to him for his purpose was
attested to by Mr. Buzon in his Affidavit, the pertinent portion of which has been earlier quoted.
The proof that Stock Certificate No. 2 was split into two (2) consisting of Stock Certificate No. 6 for fifty
(50) shares and Stock Certificate No. 8 for 350 shares, is the fact that petitioner surrendered the latter
stock (No. 8) in lieu of P2 million pesos 1 worth of stocks, which the board passed in a resolution in its
meeting on April 19, 1983. Thus, on February 27, 1983, petitioner indicated he was withdrawing from the
corporation on condition that he be paid with stock-in-trade corresponding to 33.3% (Exh. 294), which
had only a par value of P35,000.00. In this same meeting, the transfer of Stock Certificate Nos. 2 and 8
from the original owner, Alfonso S. Tan was ordered to be recorded in the corporate stock and transfer
book (Exh. "I-1-A") thereafter submitting the minutes of said meeting to the SEC on May 18, 1983 (Exhs.
12 and I). (Order, Rollo, p. 44)

It is also doubtless that Stock Certificate No. 8 was exchanged by petitioner for stocks-in-trade since he
was operating his own enterprise engaged in the same business, otherwise, why would a businessman be
interested in acquiring P2,000,000.00 worth of goods which could possibly at that time, fill up
warehouse? In fact, he even padlocked the warehouse of the respondent corporation, after withdrawing
the thirty-three and one-third (33 1/3%) percent stocks. Accordingly, the Memorandum of Agreement
prepared by the respondents' counsel, Atty. Ramirez evidencing the transaction, was also presented to
petitioner for his signature, however, this document was never returned by him to the corporate officer
for the signature of the other officers concerned. (Rollo, p. 28)

At the time the warehouse was padlocked by the petitioner, the remaining stock inventory was valued at
P7,454,189.05 of which 66 2/3 percent thereof belonged to the private respondents. (Ibid., p. 28)

It was very obvious that petitioner devised the scheme of not returning the cancelled Stock Certificate No.
2 which was returned to him for his endorsement, to skim off the largesse of the corporation as shown by
the trading of his Stock Certificate No. 8 for goods of the corporation valued at P2 million when the par
value of the same was only worth P35,000.00. (Ibid., p. 470) He also used this scheme to renege on his
indebtedness to respondent Tan Su Ching in the amount of P1 million. (Decision, p. 6)

It is not remote that if petitioner could have cashed in on Stock Certificate No. 2 with the remainder of the
goods that he padlocked, he would have done so, until the respondent corporation was bled entirely.

Along this line, petitioner put up the argument that he was responsible for the growth of the corporation
by the alleging that during his incumbency, the corporation grew, prospered and flourished in the court
of business as evidenced by its audited financial statements, and grossed the following incomes from:
1980 — P8,658,414.10, 1981 — P8,039,816.67, 1982 — P7,306,168.67, 1983 — P5,874,453.55, 1984 —
P3,911,667.76. (Ibid., Rollo, p. 24)

Moreover, petitioner asserted that he was ousted from the corporation by reason of his efforts to
establish fiscal controls and to demand an accounting of corporate funds which were accordingly being
transferred and diverted to certain of private respondents' personal accounts which were allegedly
misapplied, misappropriated and converted to their own personal use and benefit. (Ibid., p. 125)

2. Petitioner further claims that "(T)he cancellation and transfer of petitioner's shares and Certificate of
Stock No. 2 (Exh. A) as well as the issuance and cancellation of Certificate of Stock No. 8 (Exh. M) was
patently and palpably unlawful, null and void, invalid and fraudulent." (Rollo, p. 9) And, that Section 63 of
the Corporation Code of the Philippines is "mandatory in nature", meaning that without the actual
delivery and endorsement of the certificate in question, there can be no transfer, or that such transfer is
null and void. (Rollo, p. 10)
These arguments are all motivated by self-interest, using foreign authorities that are slanted in his favor
and even misquoting local authorities to prop up his erroneous posture and all these attempts are
intended to stifle justice, truth and equity.

Contrary to the understanding of the petitioner with respect to the use of the word "may", in the case
of Shauf v. Court of Appeals, (191 SCRA 713, 27 November 1990), this Court held, that "Remedial law
statues are to be construed liberally." The term 'may' as used in adjective rules, is only permissive and
not mandatory. In several earlier cases, the usage of the word "may" was described as follows:

The word "may"is an auxilliary verb showing among others, opportunity or possibility. Under
ordinary circumstances, the phrase "may be" implies the possible existence of something. In
this case, the "something" is a law governing sectoral representation. The phrase in
question should, therefore, be understood to mean as prescribed by such law that governs
the matter at the time . . . The phrase does not and cannot, by its very wording, restrict itself
to the uncertainly of future legislation. (Legaspi v. Estrella, 189 SCRA 58, 24 Aug. 1990, En
Banc)

Years before the above rulings concerning the interpretation of the word "may", this Court held in Chua v.
Samahang Magsasaka, that "the word "may" indicates that the transfer may be effected in a manner
different from that provided for in the law." (62 Phil. 472)

Moreover, it is safe to infer from the facts deduced in the instant case that, there was already delivery of
the unendorsed Stock Certificate No. 2, which is essential to the issuance of Stock Certificate Nos. 6 and 8
to angel S. Tan and petitioner Alfonso S. Tan, respectively. What led to the problem was the return of the
cancelled certificate (No. 2) to Alfonso S. Tan for his endorsement and his deliberate non-endorsement.

For all intents and purposes, however, since this was already cancelled which cancellation was also
reported to the respondent Commission, there was no necessity for the same certificate to be endorsed
by the petitioner. All the acts required for the transferee to exercise its rights over the acquired stocks
were attendant and even the corporation was protected from other parties, considering that said transfer
was earlier recorded or registered in the corporate stock and transfer book.

Following the doctrine enunciated in the case of Tuazon v. La Provisora Filipina, where this Court held,
that:

But delivery is not essential where it appears that the persons sought to be held as
stockholders are officers of the corporation, and have the custody of the stock book . . . (67
Phi. 36).

Furthermore, there is a necessity to delineate the function of the stock itself from the actual delivery or
endorsement of the certificate of stock itself as is the question in the instant case. A certificate of stock is
not necessary to render one a stockholder in corporation.

Nevertheless, a certificate of stock is the paper representative or tangible evidence of the stock itself and
of the various interests therein. The certificate is not stock in the corporation but is merely evidence of
the holder's interest and status in the corporation, his ownership of the share represented thereby, but 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 in stock or the nation of the relation of
shareholder to the corporation. (13 Am. Jur. 2d, 769)

Under the instant case, the fact of the matter is, the new holder, Angel S. Tan has already exercised his
rights and prerogatives as stockholder and was even elected as member of the board of directors in the
respondent corporation with the full knowledge and acquiescence of petitioner. Due to the transfer of
fifty (50) shares, Angel S. Tan was clothed with rights and responsibilities in the board of the respondent
corporation when he was elected as officer thereof.

Besides, in Philippine jurisprudence, a certificate of stock is not a negotiable instrument. "Although it is

sometime regarded as quasi-negotiable, in the sense that it may be transferred by endorsement, coupled
with delivery, it is well-settled that it is non-negotiable, because the holder thereof takes it without
prejudice to such rights or defenses as the registered owner/s or transferror's creditor may have under
the law, except insofar as such rights or defenses are subject to the limitations imposed by the principles
governing estoppel." (De los Santos vs. McGrath, 96 Phil. 577)

To follow the argument put up by petitioner which was upheld by the Cebu SEC Extension Office Hearing
Officer, Felix Chan, that the cancellation of Stock Certificate Nos. 2 and 8 was null and void for lack of
delivery of the cancelled "mother" Certificate No. 2 whose endorsement was deliberately withheld by
petitioner, is to prescribe certain restrictions on the transfer of stock in violation of the corporation law
itself as the only law governing transfer of stocks. While Section 47(s) grants a stock corporations the
authority to determine in the by-laws "the manner of issuing certificates" of shares of stock, however,
the power to regulate is not the power to prohibit, or to impose unreasonable restrictions of the right of
stockholders to transfer their shares. (Emphasis supplied)

In Fleisher v. Botica Nolasco Co., Inc., it was held that a by-law which prohibits a transfer of stock without
the consent or approval of all the stockholders or of the president or board of directors is illegal as
constituting undue limitation on the right of ownership and in restraint of trade. (47 Phil. 583)

3. Attempt to mislead — Petitioner should be held guilty of manipulating the provision of Section 63 of
the Corporation Law for contumaciously withholding the endorsement of Stock Certificate No. 2 which
was returned to him for the purpose, wasting time and resources of the Court, even after he had received
the stocks-in-trade equivalent to P2,000,000.00 in lieu of his 350 shares of stock with a par value of
P35,000.00 only, and thereafter withdrawing from the respondent corporation.

Not content with the fantastic return of his investment in the corporation and bent on sucking out the
corporate resources by filing the instant case for damages and seeking the nullity of the cancellation of
his Certificate of Stock Nos. 2 and 8, petitioner even attempted to mislead the Court by erroneously
quoting the ruling of the Court in C. N. Hodges v. Lezama, which has some parallelism with the instant case
was the parties involved therein were also close relatives as in this case.

The quoted portion appearing on p. 11 of the petition, was cut short in such a way that relevant portions
thereof were purposely left out in order to impress upon the Court that the unendorsed and uncancelled
stock certificate No. 17, was unconditionally declared null and void, flagrantly omitting the justifying
circumstances regarding its acquisition and the reason given by the Court why it was declared so. The
history of certificate No. 17 is quoted below, showing the reason why the certificate in question was
considered null and void, as follows:
 (P)etitioner Hodges did not cause to be entered in the books of the corporation as he had
his stock certificate No. 17 which, therefore had not been endorsed by him to anybody or
cancelled and which he considered still subsisting. On September 18, 1958, petitioner
Hodges again sold his aforesaid 2,230 shares of stock covered by his stock certificate No. 17 on
installment basis to his co-petitioner Ricardo Gurrea, but continued keeping the stock
certificate in his possession without endorsing it to Gurrea or causing the sale to be entered in
the books of the corporation, believing that said shares of stock were his until fully paid for.
Up to the present, petitioner Hodges has in his possession and under his control his aforesaid
stock certificate No. 17, unendorsed and uncancelled (Exhs. A & A-1), a fact known to the
respondents. (14 SCRA p. 1032)

The pertinent misquoted portion follows:

Before the stockholders' meeting of the La Paz ice Plant & Cold Storage Co., Inc., —
hereinafter referred to as the Corporation - which was scheduled to be held on August 6,
1959, petitioners C.N. Hodges and Ricardo Gurrea filed with the CFI of Iloilo, a petition —
docketed as Civil Case No. 5261 of said court — for a writ of prohibition with preliminary
injunction, to restrain respondents Jose Manuel Lezama, as president and secretary,
respectively, of said Corporation from allowing their brother-in-law and brother,
respectively, respondent Benjamin L. Borja, to vote in said meeting on the aforementioned
2,230 shares of stock. Upon the filing of said petition and of a bond in the sum of P1,000,
the writ of preliminary injunction prayed for was issued. After due trial, or on March 28,
1960, (start of petitioner's quotation) "The court of origin rendered a decision holding that,
in view of the provision in stock certificate no. 17, in the name of Hodges, to the effect that
he

. . . is the owner of Two Thousand Two Hundred Thirty shares of the capital
stock of La Paz Ice Plant & Cold Storage Co., Inc., transferrable only on the
books of the corporation by the holder hereof in person or by attorney upon
surrender of this certificate properly endorsed.

stock certificate no. 18, issued in favor of Borja and the entry thereof at his instance in the
books of the corporation without stock certificate no. 17 being first properly endorsed,
surrendered and cancelled, is null and void. . . . " (end of quotation by petitioner, but the
ruling, continues without the period after the word void.) "and that it would be
unconscionable and for Borja to vote on said shares of stock, knowing that he had ceased to
have actual interest therein since September 17, 1958, when Hodges bought such interest
at the public auction held in the proceedings for the foreclosure of his chattel was rendered
making said preliminary injunction permanent and declaring Hodges as the one entitled to
vote on the shares of stock in question.

Petitioner ought to have even included the following which was the reason for declaring the following
which was the reason for declaring the unedorsed, unsurrendered and uncancelled stock certificate, null
and void:

. . . It is, moreover, obvious that Hodges retained it (stock certificate no. 17) with Borja's
consent. It was evidently part of their agreement, or implied therein, that Hodges would
keep the stock certificate and thus remain in the records of the Corporation as owner of the
 shares, despite the aforementioned sale thereof and the chattel mortgage thereon. In other
words, the parties thereto intended Hodges to continue, for all intents and purposes, as owner
of said share, until Borja shall have fully paid its stipulated price. (Ibid, pp. 1033-1034)

Other issues raised by the petitioner, subordinate to the principal issues above, (except the ruling by the
respondent Commission with respect to the "pari delicto" doctrine which is not acceptable to this Court)
are of no moment.

Considering the circumstances of the case, it appearing that petitioner is guilty of manipulation, and high-
handedness, circumventing the clear provisions of law in shielding himself from his wrongdoing contrary
to the protective mantle that the law intended for innocent parties, the Court finds the excuses of the
petitioner as unworthy of belief.

WHEREFORE, in view of the foregoing, the Order of the Commission under SEC-AC No. 263 dated October
10, 1990 is hereby AFFIRMED but modified with respect to the "nullity of the sale of 350 shares
represented under stock certification No. 8, pursuant to the "in pari delicto" doctrine. The court holds
that the conversion of the 350 shares with a par value of only P35,000.00 at P100.00 per share into
treasury stocks after petitioner exchanged them with P2,000,000.00 worth of stocks-in-trade of the
corporation, is valid and lawful. With regard to the damages being claimed by the petitioner, the
respondent Commission is not empowered to award such, other than the imposition of fine and
imprisonment under Section 56 of the Corporation Code of the Philippines, as amended.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 123553 July 13, 1998

(CA-G.R. No. 33291) July 13, 1998

NORA A. BITONG, petitioner,

vs.

COURT OF APPEALS (FIFTH DIVISION), EUGENIA D. APOSTOL, JOSE A. APOSTOL, MR. & MS.
PUBLISHING CO., LETTY J. MAGSANOC, AND ADORACION G. NUYDA, respondents.

(CA-G.R. No. 33873) July 13, 1998

NORA A. BITONG, petitioner,

vs.
COURT OF APPEALS (FIFTH DIVISION) and EDGARDO B. ESPIRITU, respondents.

BELLOSILLO, J.:

These twin cases originated from a derivative suit 1 filed by petitioner Nora A. Bitong before
the Securities and Exchange Commission (SEC hereafter) allegedly for the benefit of private
respondent Mr. & Ms. Publishing Co., Inc. (Mr. & Ms. hereafter), among others, to hold respondent
spouses Eugenia D. Apostol and Jose A. Apostol 2 liable for fraud, misrepresentation, disloyalty,
evident bad faith, conflict of interest and mismanagement in directing the affairs of Mr. & Ms. to
the damage and prejudice of Mr. & Ms. and its stockholders, including petitioner.

Alleging before the SEC that she had been the Treasurer and a Member of the Board of Directors of
Mr. & Ms. from the time it was incorporated on 29 October 1976 to 11 April 1989, and was the
registered owner of 1,000 shares of stock out of the 4,088 total outstanding shares, petitioner
complained of irregularities committed from 1983 to 1987 by Eugenia D. Apostol, President and
Chairperson of the Board of Directors. Petitioner claimed that except for the sale of the
name Philippine Inquirer to Philippine Daily Inquirer (PDI hereafter) all other transactions and
agreements entered into by Mr. & Ms. with PDI were not supported by any bond and/or
stockholders' resolution. And, upon instructions of Eugenia D. Apostol, Mr. & Ms. made several
cash advances to PDI on various occasions amounting to P3.276 million. On some of these
borrowings PDI paid no interest whatsoever. Despite the fact that the advances made by Mr. & Ms.
to PDI were booked as advances to an affiliate, there existed no board or stockholders' resolution,
contract nor any other document which could legally authorize the creation of and support to an
affiliate.

Petitioner further alleged that respondents Eugenia and Jose Apostol were stockholders, directors
and officers in both Mr. & Ms. and PDI. In fact on 2 May 1986 respondents Eugenia D. Apostol,
Leticia J. Magsanoc and Adoracion G. Nuyda subscribed to PDI shares of stock at P50,000.00 each
or a total of P150,000.00. The stock subscriptions were paid for by Mr. & Ms. and initially treated,
as receivables from officers and employees. But, no payments were ever received from
respondents, Magsanoc and Nuyda.

The petition principally sought to (a) enjoin respondents Eugenia D. Apostol and Jose A. Apostol
from further acting as president-director and director, respectively, of Mr. & Ms. and disbursing
any money or funds except for the payment of salaries and similar expenses in the ordinary
course of business, and from disposing of their Mr. & Ms. shares; (b) enjoin respondents Apostol
spouses, Magsanoc and Nuyda from disposing of the PDI shares of stock registered in their names;
(c) compel respondents Eugenia and Jose Apostol to account for and reconvey all profits and
benefits accruing to them as a result of their improper and fraudulent acts; (d) compel
respondents Magsanoc and Nuyda to account for and reconvey to Mr. & Ms. all shares of stock paid
from cash advances from it and all accessions or fruits thereof; (e) hold respondents Eugenia and
Jose Apostol liable for damages suffered by Mr. & Ms. and the other stockholders, including
petitioner, by reason of their improper and fraudulent acts; (f) appoint a management committee
for Mr. & Ms. during the pendency of the suit to prevent further dissipation and loss of its assets
and funds as well as paralyzation of business operations; and, (g) direct the management
committee for Mr. & Ms. to file the necessary action to enforce its rights against PDI and other
third parties.

Private respondents Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms., on the other hand, refuted
the allegations of petitioner by starting with a narration of the beginnings of Mr. & Ms. They
recounted that on 9 March 1976 Ex Libris Publishing Co., Inc. (Ex Libris hereafter) was
incorporated for the purpose of publishing a weekly magazine. Its original principal stockholders
were spouses Senator Juan Ponce Enrile (then Minister of National Defense) and Cristina Ponce
Enrile through Jaka Investments Corporation (JAKA hereafter), and respondents Eugenia and Jose
Apostol. When Ex Libris suffered financial difficulties, JAKA and the Apostols, together with new
investors Luis Villafuerte and Ramon Siy, restructured Ex Libris by organizing a new corporation
known as Mr. & Ms.

The original stockholders of Mr. & Ms., i.e., JAKA, Luis Villafuerte, Ramon Siy, the Apostols and Ex
Libriscontinued to be virtually the same up to 1989. Thereafter it was agreed among them that,
they being close friends, Mr. & Ms. would be operated as a partnership or a close corporation;
respondent Eugenia D. Apostol would manage the affairs of Mr. & Ms.; and, no shares of stock
would be sold to third parties without first offering the shares to the other stockholders so that
transfers would be limited to and only among the original stockholders.

Private respondents also asserted that respondent Eugenia D. Apostol had been informing her
business partners of her actions as manager, and obtaining their advice and consent.
Consequently the other stockholders consented, either expressly or impliedly, to her
management. They offered no objections. As a result, the business prospered. Thus, as shown in a
statement prepared by the accounting firm Punongbayan and Araullo, there were increases from
1976 to 1988 in the total assets of Mr. & Ms. from P457,569.00 to P10,143,046.00; in the total
stockholders' equity from P203,378.00 to P2,324,954.00; and, in the net sales, from P301,489.00
to P16,325,610.00. Likewise, cash dividends were distributed and received by the stockholders.

Private respondents further contended that petitioner, being merely a holder-in-trust of JAKA
shares, only represented and continued to represent JAKA in the board. In the beginning,
petitioner cooperated with and assisted the management until mid-1986 when relations between
her and her principals on one hand, and respondent Eugenia D. Apostol on the other, became
strained due to political differences. Hence from mid-1986 to mid-1988 petitioner refused to
speak with respondent Eugenia D. Apostol, and in 1988 the former became openly critical of the
management of the latter. Nevertheless, respondent Eugenia D. Apostol always made available to
petitioner and her representatives all the books of the corporation.

Private respondents averred that all the PDI shares owned by respondents Eugenia and Jose
Apostol were acquired through their own private funds and that the loan of P750,000.00 by PDI
from Mr. & Ms. had been fully paid with 20% interest per annum. And, it was PDI, not Mr. & Ms.,
which loaned off P250,000.00 each to respondents Magsanoc and Nuyda. Private respondents
further argued that petitioner was not the true party to this case, the real party being JAKA which
continued to be the true stockholder of Mr. & Ms.; hence, petitioner did not have the personality to
initiate and prosecute the derivative suit which, consequently, must be dismissed.

On 6 December 1990, the SEC Hearing Panel 3 issued a writ of preliminary injunction enjoining
private respondents from disbursing any money except for the payment of salaries and other
similar expenses in the regular course of business. The Hearing Panel also enjoined respondent
Apostol spouses, Nuyda and Magsanoc from disposing of their PDI shares, and further ruled —

. . . respondents' contention that petitioner is not entitled to the provisional reliefs

prayed for because she is not the real party in interest . . . is bereft of any merit. No
less than respondents' Amended Answer, specifically paragraph V, No. 8 on
Affirmative Allegations/Defenses states that "The petitioner being herself a minor
stockholder and holder-in-trust of JAKA shares represented and continues to
represent JAKA in the Board." This statement refers to petitioner sitting in the board
of directors of Mr. & Ms. in two capacities, one as a minor stockholder and the other
as the holder in trust of the shares of JAKA in Mr. & Ms. Such reference alluded to by
the respondents indicates an admission on respondents' part of the petitioner's legal
personality to file a derivative suit for the benefit of the respondent Mr. & Ms.
Publishing Co., Inc.

The Hearing Panel however denied petitioner's prayer for the constitution of a
management committee.

On 25 March 1991 private respondents filed a Motion to Amend Pleadings to Conform to

Evidence alleging that the issue of whether petitioner is the real party-in-interest had been tried
by express or implied consent of the parties through the admission of documentary exhibits
presented by private respondents proving that the real party-in-interest was JAKA, not petitioner
Bitong. As such, No. 8, par. V (Affirmative Allegations/Defenses), Answer to the Amended Petition,
was stipulated due to inadvertence and excusable mistake and should be amended. On 10 October
1991 the Hearing Panel denied the motion for amendment.

Petitioner testified at the trial that she became the registered and beneficial owner of 997 shares
of stock of Mr. & Ms. out of the 4,088 total outstanding shares after she acquired them from JAKA
through a deed of sale executed on 25 July 1983 and recorded in the Stock and Transfer Book of
Mr. & Ms. under Certificate of Shares of Stock No. 008. She pointed out that Senator Enrile decided
that JAKA should completely divest itself of its holdings in Mr. & Ms. and this resulted in the sale to
her of JAKA's interest and holdings in that publishing firm.

Private respondents refuted the statement of petitioner that she was a stockholder of Mr. & Ms.
since 25 July 1983 as respondent Eugenia D. Apostol signed Certificate of Stock No. 008 only on 17
March 1989, and not on 25 July 1983. Respondent Eugenia D. Apostol explained that she stopped
using her long signature (Eugenia D. Apostol) in 1987 and changed it to E.D. Apostol, the signature
which appeared on the face of Certificate of Stock No. 008 bearing the date 25 July 1983. And,
since the Stock and Transfer Book which petitioner presented in evidence was not registered with
the SEC, the entries therein including Certificate of Stock No. 008 were fraudulent. Respondent
Eugenia D. Apostol claimed that she had not seen the Stock and Transfer Book at anytime until 21
March 1989 when it was delivered by petitioner herself to the office of Mr. & Ms., and that
petitioner repeatedly referred to Senator Enrile as "my principal" during the Mr. & Ms. board
meeting of 22 September 1988, seven (7) times no less.

On 3 August 1993, after trial on the merits, the SEC Hearing Panel dismissed the derivative suit
filed by petitioner and dissolved the writ of preliminary injunction barring private respondents
from disposing of their PDI shares and any of Mr. & Ms. assets. The Hearing Panel ruled that there
was no serious mismanagement of Mr. & Ms. which would warrant drastic corrective measures. It
gave credence to the assertion of respondent Eugenia D. Apostol that Mr. & Ms. was operated like
a close corporation where important matters were discussed and approved through informal
consultations at breakfast conferences. The Hearing Panel also concluded that while the evidence
presented tended to show that the real party-in-interest indeed was JAKA and/or Senator Enrile,
it viewed the real issue to be the alleged mismanagement, fraud and conflict of interest on the
part of respondent Eugenia D. Apostol, and allowed petitioner to prosecute the derivative suit if
only to resolve the real issues. Hence, for this purpose, the Hearing Panel considered petitioner to
be the real party-in-interest.

On 19 August 1993 respondent Apostol spouses sold the PDI shares registered in the name of
their holding company, JAED Management Corporation, to Edgardo B. Espiritu. On 25 August 1993
petitioner Bitong appealed to the SEC En Banc.

On 24 January 1994 the SEC En Banc 4 reversed the decision of the Hearing Panel and, among
others, ordered private respondents to account for, return and deliver to Mr. & Ms. any and all
funds and assets that they disbursed from the coffers of the corporation including shares of stock,
profits, dividends and/or fruits that they might have received as a result of their investment in
PDI, including those arising from the P150,000.00 advanced to respondents Eugenia D. Apostol,
Leticia J. Magsanoc and Adoracion G. Nuyda; account for and return any profits and fruits of all
amounts irregularly or unlawfully advanced to PDI and other third persons; and, cease and desist
from managing the affairs of Mr. & Ms. for reasons of fraud, mismanagement, disloyalty and
conflict of interest.

The SEC En Banc also declared the 19 August 1993 sale of the PDI shares of JAED Management
Corporation to Edgardo B. Espiritu to be tainted with fraud, hence, null and void, and considered
Mr. & Ms. as the true and lawful owner of all the PDI shares acquired by respondents Eugenia D.
Apostol, Magsanoc and Nuyda. It also declared all subsequent transferees of such shares as
trustees for the benefit of Mr. & Ms. and ordered them to forthwith deliver said shares to Mr. & Ms.

Consequently, respondent Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms. filed a petition for
review before respondent Court of Appeals, docketed as CA-GR No. SP 33291, while respondent
Edgardo B. Espiritu filed a petition for certiorari and prohibition also before respondent Court of
Appeals, docketed as CA-GR No. SP 33873. On 8 December 1994 the two (2) petitions were
consolidated.

On 31 August 1995 respondent appellate court rendered a decision reversing the SEC En Banc and
held that from the evidence on record petitioner was not the owner of any share of stock in Mr. &
Ms. and therefore not the real party-in-interest to prosecute the complaint she had instituted
against private respondents. Accordingly, petitioner alone and by herself as an agent could not
file a derivative suit in behalf of her principal. For not being the real party-in-interest, petitioner's
complaint did not state a cause of action, a defense which was never waived; hence, her petition
should have been dismissed. Respondent appellate court ruled that the assailed orders of the SEC
were issued in excess of jurisdiction, or want of it, and thus were null and void. 5 On 18 January
1996, petitioner's motion for reconsideration was denied for lack of merit.

Before this Court, petitioner submits that in paragraph 1 under the caption "I. The Parties" of
her Amended Petition before the SEC, she stated that she was a stockholder and director of Mr. &
Ms. In par. 1 under the caption "II. The Facts" she declared that she "is the registered owner of
1,000 shares of stock of Mr. & Ms. out of the latter's 4,088 total outstanding shares" and that she
was a member of the Board of Directors of Mr. & Ms. and treasurer from its inception until 11
April 1989. Petitioner contends that private respondents did not deny the above allegations in
their answer and therefore they are conclusively bound by this judicial admission. Consequently,
private respondents' admission that petitioner has 1,000 shares of stock registered in her name
in the books of Mr. & Ms. forecloses any question on her status and right to bring a derivative suit
on behalf of Mr. & Ms.

Not necessarily. A party whose pleading is admitted as an admission against interest is entitled to
overcome by evidence the apparent inconsistency, and it is competent for the party against whom
the pleading is offered to show that the statements were inadvertently made or were made under
a mistake of fact. In addition, a party against whom a single clause or paragraph of a pleading is
offered may have the right to introduce other paragraphs which tend to destroy the admission in
the paragraph offered by the adversary. 6

The Amended Petition before the SEC alleges —

I. THE PARTIES

1. Petitioner is a stockholder and director of Mr. & Ms. . . . .

II. THE FACTS

1. Petitioner is the registered owner of 1,000 shares of stock of Mr. & Ms. out of the
latter's 4,088 total outstanding shares. Petitioner, at all times material to this
petition, is a member of the Board of Directors of Mr. & Ms. and from the inception of
Mr. & Ms. until 11 April 1989 was its treasurer . . .

On the other hand, the Amended Answer to the Amended Petition states —

I. PARTIES

1. Respondents admit the allegations contained in Caption I, pars. 1 to 4 of the

Petition referring to the personality, addresses and capacity of the parties to the
petition except . . . but qualify said admission insofar as they are limited, qualified
and/or expanded by allegations in the Affirmative Allegations/Defenses . . .

II. THE FACTS

1. Respondents admit paragraph 1 of the Petition, but qualify said admission as to

the beneficial ownership of the shares of stock registered in the name of the
petitioner, the truth being as stated in the Affirmative Allegations/Defenses of this
Answer . . .

V. AFFIRMATIVE ALLEGATIONS/DEFENSES

Respondents respectfully allege by way of Affirmative Allegations/Defenses, that . . . .

 3. Fortunately, respondent Apostol was able to convince Mr. Luis Villafuerte to take
interest in the business and he, together with the original investors, restructured the
Ex Libris Publishing Company by organizing a new corporation known as Mr. & Ms.
Publishing Co., Inc. . . . Mr. Luis Villafuerte contributed his own P100,000.00. JAKA
and respondent Jose Z. Apostol, original investors of Ex Libris contributed
P100,000.00 each; Ex Libris Publishing Company was paid 800 shares for the name
of Mr. & Ms. magazine and goodwill. Thus, the original stockholders of respondent
Mr. & Ms. were:

Cert./No./Date Name of Stockholder No. of Shares %

001-9-15-76 JAKA Investments Corp. 1,000 21%

002-9-15-76 Luis Villafuerte 1,000 21%

003-9-15-76 Ramon L. Siy 1,000 21%

004-9-15-76 Jose Z. Apostol 1,000 21%

005-9-15-76 Ex Libris Publishing Co. 800 16%

—— ——

4,800 96%

4. The above-named original stockholders of respondent Mr. & Ms. continue to be

virtually the same stockholders up to this date . . . .

8. The petitioner being herself a minor stockholder and holder-in-trust of JAKA

shares, represented and continues to represent JAKA in the Board . . . .

21. Petitioner Nora A. Bitong is not the true party to this case, the true party being
JAKA Investments Corporation which continues to be the true stockholder of
respondent Mr. & Ms. Publishing Co., Inc., consequently, she does not have the
personality to initiate and prosecute this derivative suit, and should therefore be
dismissed . . . .

The answer of private respondents shows that there was no judicial admission that petitioner was
a stockholder of Mr. & Ms. to entitle her to file a derivative suit on behalf of the corporation.
Where the statements of the private respondents were qualified with phrases such as, "insofar as
they are limited, qualified and/or expanded by," "the truth being as stated in the Affirmative
Allegations/Defenses of this Answer" they cannot be considered definite and certain enough,
cannot be construed as judicial admissions. 7

More so, the affirmative defenses of private respondents directly refute the representation of
petitioner that she is a true and genuine stockholder of Mr. & Ms. by stating unequivocally that
petitioner is not the true party to the case but JAKA which continues to be the true stockholder of
Mr. & Ms. In fact, one of the reliefs which private respondents prayed for was the dismissal of the
petition on the ground that petitioner did not have the legal interest to initiate and prosecute the
same.

When taken in its totality, the Amended Answer to the Amended Petition, or even the Answer to
the Amended Petition alone, clearly raises an issue as to the legal personality of petitioner to file
the complaint. Every alleged admission is taken as an entirety of the fact which makes for the one
side with the qualifications which limit, modify or destroy its effect on the other side. The reason
for this is, where part of a statement of a party is used against him as an admission, the court
should weigh any other portion connected with the statement, which tends to neutralize or
explain the portion which is against interest.

In other words, while the admission is admissible in evidence, its probative value is to be
determined from the whole statement and others intimately related or connected therewith as an
integrated unit. Although acts or facts admitted do not require proof and cannot be contradicted,
however, evidence aliunde can be presented to show that the admission was made through
palpable mistake. 8 The rule is always in favor of liberality in construction of pleadings so that the
real matter in dispute may be submitted to the judgment of the court. 9

Petitioner also argues that since private respondents failed to appeal the 6 December 1990 Order
and the 3 August 1993 Decision of the SEC Hearing Panel declaring that she was the real party-in-
interest and had legal personality to sue, they are now estopped from questioning her personality.

Not quite. The 6 December 1990 Order is clearly an interlocutory order which cannot be
considered as having finally resolved on the merits the issue of legal capacity of petitioner. The
SEC Hearing Panel discussed the issue of legal capacity solely for the purpose of ruling on the
application for writ of preliminary injunction as an incident to the main issues raised in the
complaint. Being a mere interlocutory order, it is not appealable.

For, an interlocutory order refers to something between the commencement and end of the suit
which decides some point or matter but it is not the final decision of the whole
controversy. 10 Thus, even though the 6 December 1990 Order was adverse to private
respondents, they had the legal right and option not to elevate the same to the SEC En Banc but
rather to await the decision which resolves all the issues raised by the parties and to appeal
therefrom by assigning all errors that might have been committed by the Hearing Panel.

On the other hand, the 3 August 1993 Decision of the Hearing Panel dismissing the derivative suit
for failure to prove the charges of mismanagement, fraud, disloyalty and conflict of interest and
dissolving the writ of preliminary injunction, was favorable to private respondents. Hence, they
were not expected to appeal therefrom.

In fact, in the 3 August 1993 Decision, the Hearing Panel categorically stated that the evidence
presented showed that the real party-in-interest was not petitioner Bitong but JAKA and/or
Senator Enrile. Petitioner was merely allowed to prosecute her complaint so as not to sidetrack
"the real issue to be resolved (which) was the allegation of mismanagement, fraud and conflict of
interest allegedly committed by respondent Eugenia D. Apostol." It was only for this reason that
petitioner was considered to be capacitated and competent to file the petition.
Accordingly, with the dismissal of the complaint of petitioner against private respondents, there
was no compelling reason for the latter to appeal to the SEC En Banc. It was in fact petitioner's
turn as the aggrieved party to exercise her right to appeal from the decision. It is worthy to note
that even during the appeal of petitioner before the SEC En Banc private respondents maintained
their vigorous objection to the appeal and reiterated petitioner's lack of legal capacity to sue
before the SEC.

Petitioner then contends that she was a holder of the proper certificates of shares of stock and
that the transfer was recorded in the Stock and Transfer Book of Mr. & Ms. She invokes Sec. 63
of The Corporation Code which provides that no transfer shall be valid except as between the
parties until the transfer is recorded in the books of the corporation, and upon its recording the
corporation is bound by it and is estopped to deny the fact of transfer of said shares. Petitioner
alleges that even in the absence of a stock certificate, a stockholder solely on the strength of the
recording in the stock and transfer book can exercise all the rights as stockholder, including the
right to file a derivative suit in the name of the corporation. And, she need not present a separate
deed of sale or transfer in her favor to prove ownership of stock.

Sec. 63 of The Corporation Code expressly provides —

Sec. 63. Certificate of stock and transfer of shares. — The capital stock of stock
corporations shall be divided into shares for which certificates signed by the
president or vice president, countersigned by the secretary or assistant secretary,
and sealed with the seal of the corporation shall be issued in accordance with the by-
laws. Shares of stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his attorney-in-
fact or other person legally authorized to make the transfer. No transfer however
shall be valid except as between the parties until the transfer is recorded in the
books of the corporation showing the names of the parties to the transaction, the
date of the transfer, the number of the certificate or certificates and the number of
shares transferred . . . .

This provision above quoted envisions a formal certificate of stock which can be issued only upon
compliance with certain requisites. First, the certificates must be signed by the president or vice-
president, countersigned by the secretary or assistant secretary, and sealed with the seal of the
corporation. A mere typewritten statement advising a stockholder of the extent of his ownership
in a corporation without qualification and/or authentication cannot be considered as a formal
certificate of stock. 11 Second, delivery of the certificate is an essential element of its issuance.
Hence, there is no issuance of a stock certificate where it is never detached from the stock books
although blanks therein are properly filled up if the person whose name is inserted therein has no
control over the books of the company. 12 Third, the par value, as to par value shares, or the full
subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must
be surrendered where the person requesting the issuance of a certificate is a transferee from a
stockholder.

The certificate of stock itself once issued is a continuing affirmation or representation that the
stock described therein is valid and genuine and is at least prima facie evidence that it was legally
issued in the absence of evidence to the contrary. However, this presumption may be
rebutted. 13 Similarly, books and records of a corporation which include even the stock and
transfer book are generally admissible in evidence in favor of or against the corporation and its
members to prove the corporate acts, its financial status and other matters including one's status
as a stockholder. They are ordinarily the best evidence of corporate acts and proceedings.

However, the books and records of a corporation are not conclusive even against the corporation
but areprima facie evidence only. Parol evidence may be admitted to supply omissions in the
records, explain ambiguities, or show what transpired where no records were kept, or in some
cases where such records were contradicted. 14 The effect of entries in the books of the
corporation which purport to be regular records of the proceedings of its board of directors or
stockholders can be destroyed by testimony of a more conclusive character than mere suspicion
that there was an irregularity in the manner in which the books were kept. 15

The foregoing considerations are founded on the basic principle that stock issued without
authority and in violation of law is void and confers no rights on the person to whom it is issued
and subjects him to no liabilities. 16 Where there is an inherent lack of power in the corporation to
issue the stock, neither the corporation nor the person to whom the stock is issued is estopped to
question its validity since an estopped cannot operate to create stock which under the law cannot
have existence. 17

As found by the Hearing Panel and affirmed by respondent Court of Appeals, there is
overwhelming evidence that despite what appears on the certificate of stock and stock and
transfer book, petitioner was not a bona fide stockholder of Mr. & Ms. before March 1989 or at the
time the complained acts were committed to qualify her to institute a stockholder's derivative
suit against private respondents. Aside from petitioner's own admissions, several corporate
documents disclose that the true party-in-interest is not petitioner but JAKA.

Thus, while petitioner asserts in her petition that Certificate of Stock No. 008 dated 25 July 1983
was issued in her name, private respondents argue that this certificate was signed by respondent
Eugenia D. Apostol as President only in 1989 and was fraudulently antedated by petitioner who
had possession of the Certificate Book and the Stock and Transfer Book. Private respondents
stress that petitioner's counsel entered into a stipulation on record before the Hearing Panel that
the certificate was indeed signed by respondent Apostol only in 1989 and not in 1983.

In her reply, petitioner admits that while respondent Eugenia D. Apostol signed the Certificate of
Stock No. 008 in petitioner's name only in 1989, it was issued by the corporate secretary in 1983
and that the other certificates covering shares in Mr. & Ms. had not yet been signed by respondent
Eugenia D. Apostol at the time of the filing of the complaint with the SEC although they were
issued years before.

Based on the foregoing admission of petitioner, there is no truth to the statement written in
Certificate of Stock No. 008 that the same was issued and signed on 25 July 1983 by its duly
authorized officers specifically the President and Corporate Secretary because the actual date of
signing thereof was 17 March 1989. Verily, a formal certificate of stock could not be considered
issued in contemplation of law unless signed by the president or vice-president and
countersigned by the secretary or assistant secretary.

In this case, contrary to petitioner's submission, the Certificate of Stock No. 008 was only legally
issued on 17 March 1989 when it was actually signed by the President of the corporation, and not
before that date. While a certificate of stock is not necessary to make one a stockholder, e.g.,
where he is an incorporator and listed as stockholder in the articles of incorporation although no
certificate of stock has yet been issued, it is supposed to serve as paper representative of the stock
itself and of the owner's interest therein. Hence, when Certificate of Stock No. 008 was admittedly
signed and issued only on 17 March 1989 and not on 25 July 1983, even as it indicates that
petitioner owns 997 shares of stock of Mr. & Ms., the certificate has no evidentiary value for the
purpose of proving that petitioner was a stockholder since 1983 up to 1989.

And even the factual antecedents of the alleged ownership by petitioner in 1983 of shares of stock
of Mr. & Ms. are indistinctive if not enshrouded in inconsistencies. In her testimony before the
Hearing Panel, petitioner said that early in 1983, to relieve Mr. & Ms. from political pressure,
Senator Enrile decided to divest the family holdings in Mr. & Ms. as he was then part of the
government and Mr. & Ms. was evolving to be an opposition newspaper. The JAKA shares
numbering 1,000 covered by Certificate of Stock No. 001 were thus transferred to respondent
Eugenia D. Apostol in trust or in blank. 18

Petitioner now claims that a few days after JAKA's shares were transferred to respondent Eugenia
D. Apostol, Senator Enrile sold to petitioner 997 shares of JAKA. For this purpose, a deed of sale
was executed and antedated to 10 May 1983. 19 This submission of petitioner is however
contradicted by the records which show that a deed of sale was executed by JAKA transferring
1,000 shares of Mr. & Ms. to respondent Apostol on 10 May 1983 and not to petitioner. 20

Then Senator Enrile testified that in May or June 1983 he was asked at a media interview if his
family owned shares of stock in Mr. & Ms. Although he and his family were stockholders at that
time he denied it so as not to embarrass the magazine. He called up petitioner and instructed her
to work out the documentation of the transfer of shares from JAKA to respondent Apostol to be
covered by a declaration of trust. His instruction was to transfer the shares of JAKA in Mr. & Ms.
and Ex Libris to respondent Apostol as a nominal holder. He then finally decided to transfer the
shareholdings to petitioner. 21

When asked if there was any document or any written evidence of that divestment in favor of
petitioner, Senator Enrile answered that there was an endorsement of the shares of stock. He said
that there was no other document evidencing the assignment to petitioner because the stocks
were personal property that could be transferred even orally. 22 Contrary to Senator Enrile's
testimony, however, petitioner maintains that Senator Enrile executed a deed of sale in her favor.

A careful perusal of the records shows that neither the alleged endorsement of Certificate of Stock
No. 001 in the name of JAKA nor the alleged deed of sale executed by Senator Enrile directly in
favor of petitioner could have legally transferred or assigned on 25 July 1983 the shares of stock
in favor of petitioner because as of 10 May 1983 Certificate of Stock No. 001 in the name of JAKA
was already cancelled and a new one, Certificate of Stock No. 007, issued in favor of respondent
Apostol by virtue of a Declaration of Trust and Deed of Sale. 23

It should be emphasized that on 10 May 1983 JAKA executed, a deed of sale over 1,000 Mr. & Ms.
shares in favor of respondent Eugenio D. Apostol. On the same day, respondent Apostol signed a
declaration of trust stating that she was the registered owner of 1,000 Mr. & Ms. shares covered by
Certificate of Stock No. 007.
The declaration of trust further showed that although respondent Apostol was the registered
owner, she held the shares of stock and dividends which might be paid in connection therewith
solely in trust for the benefit of JAKA, her principal. It was also stated therein that being a trustee,
respondent Apostol agreed, on written request of the principal, to assign and transfer the shares
of stock and any and all such distributions or dividends unto the principal or such other person as
the principal would nominate or appoint.

Petitioner was well aware of this trust, being the person in charge of this documentation and
being one of the witnesses to the execution of this
document. 24 Hence, the mere alleged endorsement of Certificate of Stock No. 001 by Senator
Enrile or by a duly authorized officer of JAKA to effect the transfer of shares of JAKA to petitioner
could not have been legally feasible because Certificate of Stock No. 001 was already canceled by
virtue of the deed of sale to respondent Apostol.

And, there is nothing in the records which shows that JAKA had revoked the trust it reposed on
respondent Eugenia D. Apostol. Neither was there any evidence that the principal had requested
her to assign and transfer the shares of stock to petitioner. If it was true that the shares of stock
covered by Certificate of Stock No. 007 had been transferred to petitioner, the person who could
legally endorse the certificate was private respondent Eugenia D. Apostol, she being the
registered owner and trustee of the shares of stock covered by Certificate of Stock No. 007. It is a
settled rule that the trustee should endorse the stock certificate to validate the cancellation of her
share and to have the transfer recorded in the books of the corporation. 25

In fine, the records are unclear on how petitioner allegedly acquired the shares of stock of JAKA.
Petitioner being the chief executive officer of JAKA and the sole person in charge of all business
and financial transactions and affairs of JAKA 26 was supposed to be in the best position to show
convincing evidence on the alleged transfer of shares to her, if indeed there was a transfer.
Considering that petitioner's status is being questioned and several factual circumstances have
been presented by private respondents disproving petitioner's claim, it was incumbent upon her
to submit rebuttal evidence on the manner by which she allegedly became a stockholder. Her
failure to do so taken in the light of several substantial inconsistencies in her evidence is fatal to
her case.

The rule is that the endorsement of the certificate of stock by the owner or his attorney-in-fact or
any other person legally authorized to make the transfer shall be sufficient to effect the transfer of
shares only if the same is coupled with delivery. The delivery of the stock certificate duly
endorsed by the owner is the operative act of transfer of shares from the lawful owner to the new
transferee.

Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of
the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or
other persons legally authorized to make the transfer; and, (c) to be valid against third parties,
the transfer must be recorded in the books of the corporation. 27 At most, in the instant case,
petitioner has satisfied only the third requirement. Compliance with the first two requisites has
not been clearly and sufficiently shown.

Considering that the requirements provided under Sec. 63 of The Corporation Code should be
mandatorily complied with, the rule on presumption of regularity cannot apply. The regularity
and validity of the transfer must be proved. As it is, even the credibility of the stock and transfer
book and the entries thereon relied upon by petitioner to show compliance with the third
requisite to prove that she was a stockholder since 1983 is highly doubtful.

The records show that the original stock and transfer book and the stock certificate book of Mr. &
Ms. were in the possession of petitioner before their custody was transferred to the Corporate
Secretary, Atty. Augusto San Pedro. 28 On 25 May 1988, Assistant Corporate Secretary Renato Jose
Unson wrote Mr. & Ms. about the lost stock and transfer book which was also noted by the
corporation's external auditors, Punongbayan and Araullo, in their audit. Atty. Unson even
informed respondent Eugenia D. Apostol as President of Mr. & Ms. that steps would be undertaken
to prepare and register a new Stock and Transfer Book with the SEC. Incidentally, perhaps
strangely, upon verification with the SEC, it was discovered that the general file of the corporation
with the SEC was missing. Hence, it was even possible that the original Stock and Transfer Book
might not have been registered at all.

On 20 October 1988 respondent Eugenia D. Apostol wrote Atty. Augusto San Pedro noting the
changes he had made in the Stock and Transfer Book without prior notice to the corporate
officers. 29 In the 27 October 1988 directors' meeting, respondent Eugenia D. Apostol asked about
the documentation to support the changes in the Stock and Transfer Book with regard to the JAKA
shares. Petitioner answered that Atty. San Pedro made the changes upon her instructions
conformably with established practice. 30

This simply shows that as of 1988 there still existed certain issues affecting the ownership of the
JAKA shares, thus raising doubts whether the alleged transactions recorded in the Stock and
Transfer Book were proper, regular and authorized. Then, as if to magnify and compound the
uncertainties in the ownership of the shares of stock in question, when the corporate secretary
resigned, the Stock and Transfer Book was delivered not to the corporate office where the book
should be kept but to petitioner. 31

That JAKA retained its ownership of its Mr. & Ms. shares was clearly shown by its receipt of the
dividends issued in December 1986. 32 This only means, very obviously, that Mr. & Ms. shares in
question still belonged to JAKA and not to petitioner. For, dividends are distributed to
stockholders pursuant to their right to share in corporate profits. When a dividend is declared, it
belongs to the person who is the substantial and beneficial owner of the stock at the time
regardless of when the distribution profit was earned. 33

Finally, this Court takes notice of the glaring and open admissions of petitioner made, not just
seven (7) but nine (9) times, during the 22 September 1988 meeting of the board of directors that
the Enriles were her principals or shareholders, as shown by the minutes thereof which she duly
signed 34 —

5. Mrs. E. Apostol explained to the Directors that through her efforts, the asset base
of the Company has improved and profits were realized. It is for this reason that the
Company has declared a 100% cash dividend in 1986. She said that it is up for the
Board to decide based on this performance whether she should continue to act as
Board Chairman or not. In this regard, Ms. N.A. Bitong expressed her recollection of
how Ex-Libris/Mr. & Ms. were organized and her participation for and on behalf
of her principals, as follows: She recalled that her principalswere invited by Mrs. E.
 Apostol to invest in Ex-Libris and eventually Mr. & Ms. The relationship between her
principals and Mrs. E. Apostol made it possible for the latter to have access to several
information concerning certain political events and issues. In many instances, her
principals supplied first hand and newsworthy information that made Mr. & Ms. a
popular
paper . . . .

6. According to Ms. Bitong, her principals were instrumental in helping Mr. & Ms.
survive during those years that it was cash strapped . . . . Ms. N.A. Bitong pointed out
that the practice of using the former Minister's influence and stature in the
government is one thing which her principalsthemselves are strongly against . . . .

7. . . . . At this point, Ms. N. Bitong again expressed her recollection of the subject
matter as follows: (a) Mrs. E. Apostol, she remembers, brought up the concept of a
cooperative-ran newspaper company in one of her breakfast session with her
principals sometime during the end of 1985. Her principals when asked for an
opinion, said that they recognized the concept as something very noble and visible . .
. . Then Ms. Bitong asked a very specific question — "When you conceptualized Ex-
Libris and Mr. & Ms., did you not think of my shareholders the Ponce Enriles as
liabilities? How come you associated yourself with them then and not now? What is
the difference?" Mrs. Apostol did not answer the question.

The admissions of a party against his interest inscribed upon the record books of a corporation
are competent and persuasive evidence against him. 35 These admissions render nugatory any
argument that petitioner is a bona fide stockholder of Mr. & Ms. at any time before 1988 or at the
time the acts complained of were committed. There is no doubt that petitioner was an employee
of JAKA as its managing officer, as testified to by Senator Enrile himself. 36 However, in the
absence of a special authority from the board of directors of JAKA to institute a derivative suit for
and in its behalf, petitioner is disqualified by law to sue in her own name. The power to sue and be
sued in any court by a corporation even as a stockholder is lodged in the board of directors that
exercises its corporate powers and not in the president or officer thereof. 37

It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust,
not of mere error of judgment or abuse of discretion, and intracorporate remedy is futile or
useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the
benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the
corporation and indirectly upon the stockholders. 38The stockholder's right to institute a
derivative suit is not based on any express provision of The Corporation Code but is impliedly
recognized when the law makes corporate directors or officers liable for damages suffered by the
corporation and its stockholders for violation of their fiduciary duties.

Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets
because of a special injury to him for which he is otherwise without redress. 39 In effect, the suit is
an action for specific performance of an obligation owed by the corporation to the stockholders to
assist its rights of action when the corporation has been put in default by the wrongful refusal of
the directors or management to make suitable measures for its protection. 40
The basis of a stockholder's suit is always one in equity. However, it cannot prosper without first
complying with the legal requisites for its institution. The most important of these is the bona
fide ownership by a stockholder of a stock in his own right at the time of the transaction
complained of which invests him with standing to institute a derivative action for the benefit of
the corporation. 41

WHEREFORE, the petition is DENIED. The 31 August 1995 Decision of the Court of Appeals
dismissing the complaint of petitioner Nora A. Bitong in CA-G.R. No. SP 33291, and granting the
petition for certiorari and prohibition filed by respondent Edgardo U. Espiritu as well as annulling
the 5 November 1993, 24 January 1993 and 18 February 1994 Orders of the SEC En Banc in CA-
G.R. No. SP 33873, is AFFIRMED. Costs against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 74306 March 16, 1992

ENRIQUE RAZON, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and VICENTE B. CHUIDIAN, in his capacity as Administrator of
the Estate of the Deceased JUAN T. CHUIDIAN, respondents.

G.R. No. 74315 March 16, 1992

VICENTE B. CHUIDIAN, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, ENRIQUE RAZ0N, and E. RAZON, INC., respondents.

GUTIERREZ, JR., J.:

The main issue in these consolidated petitions centers on the ownership of 1,500 shares of stock in E.
Razon, Inc. covered by Stock Certificate No. 003 issued on April 23, 1966 and registered under the name
of Juan T. Chuidian in the books of the corporation. The then Court of First Instance of Manila, now
Regional Trial Court of Manila, declared that Enrique Razon, the petitioner in G.R. No. 74306 is the owner
of the said shares of stock. The then Intermediate Appellate Court, now Court of Appeals, however,
reversed the trial court's decision and ruled that Juan T. Chuidian, the deceased father of petitioner
Vicente B. Chuidian in G.R. No. 74315 is the owner of the shares of stock. Both parties filed separate
motions for reconsideration. Enrique Razon wanted the appellate court's decision reversed and the trial
court's decision affirmed while Vicente Chuidian asked that all cash and stock dividends and all the pre-
emptive rights accruing to the 1,500 shares of stock be ordered delivered to him. The appellate court
denied both motions. Hence, these petitions.

The relevant Antecedent facts are as follows:

In his complaint filed on June 29, 1971, and amended on November 16, 1971, Vicente B.
Chuidian prayed that defendants Enrique B. Razon, E. Razon, Inc., Geronimo Velasco,
Francisco de Borja, Jose Francisco, Alfredo B. de Leon, Jr., Gabriel Llamas and Luis M. de
Razon be ordered to deliver certificates of stocks representing the shareholdings of the
deceased Juan T. Chuidian in the E. Razon, Inc. with a prayer for an order to restrain the
defendants from disposing of the said shares of stock, for a writ of preliminary attachment
v. properties of defendants having possession of shares of stock and for receivership of the
properties of defendant corporation . . .

xxx xxx xxx

In their answer filed on June 18, 1973, defendants alleged that all the shares of stock in the
name of stockholders of record of the corporation were fully paid for by defendant, Razon;
that said shares are subject to the agreement between defendants and incorporators; that
the shares of stock were actually owned and remained in the possession of Razon.
Appellees also alleged . . . that neither the late Juan T. Chuidian nor the appellant had paid
any amount whatsoever for the 1,500 shares of stock in question . . .

xxx xxx xxx

The evidence of the plaintiff shown that he is the administrator of the intestate estate of
Juan Telesforo Chuidian in Special Proceedings No. 71054, Court of First Instance of Manila.

Sometime in 1962, Enrique Razon organized the E. Razon, Inc. for the purpose of bidding
for the arrastre services in South Harbor, Manila. The incorporators consisted of Enrique
Razon, Enrique Valles, Luisa M. de Razon, Jose Tuason, Jr., Victor Lim, Jose F. Castro and
Salvador Perez de Tagle.

On April 23, 1966, stock certificate No. 003 for 1,500 shares of stock of defendant
corporation was issued in the name of Juan T. Chuidian.

On the basis of the 1,500 shares of stock, the late Juan T. Chuidian and after him, the
plaintiff-appellant, were elected as directors of E. Razon, Inc. Both of them actually served
and were paid compensation as directors of E. Razon, Inc.

From the time the certificate of stock was issued on April 1966 up to April 1971, Enrique
Razon had not questioned the ownership by Juan T. Chuidian of the shares of stock in
question and had not brought any action to have the certificate of stock over the said
shares cancelled.

The certificate of stock was in the possession of defendant Razon who refused to deliver
said shares to the plaintiff, until the same was surrendered by defendant Razon and
deposited in a safety box in Philippine Bank of Commerce.
 Defendants allege that after organizing the E. Razon, Inc., Enrique Razon distributed shares
of stock previously placed in the names of the withdrawing nominal incorporators to some
friends including Juan T. Chuidian

Stock Certificate No. 003 covering 1,500 shares of stock upon instruction of the late
Chuidian on April 23, 1986 was personally delivered by Chuidian on July 1, 1966 to the
Corporate Secretary of Attorney Silverio B. de Leon who was himself an associate of the
Chuidian Law Office (Exhs. C & 11). Since then, Enrique Razon was in possession of said
stock certificate even during the lifetime of the late Chuidian, from the time the late
Chuidian delivered the said stock certificate to defendant Razon until the time (sic) of
defendant Razon. By agreement of the parties (sic) delivered it for deposit with the bank
under the joint custody of the parties as confirmed by the trial court in its order of August
7, 1971.

Thus, the 1,500 shares of stook under Stock Certificate No. 003 were delivered by the late
Chuidian to Enrique because it was the latter who paid for all the subscription on the
shares of stock in the defendant corporation and the understanding was that he (defendant
Razon) was the owner of the said shares of stock and was to have possession thereof until
such time as he was paid therefor by the other nominal incorporators/stockholders (TSN.,
pp. 4, 8, 10, 24-25, 25-26, 28-31, 31-32, 60, 66-68, July 22, 1980, Exhs. "C", "11", "13" "14").
(Ro11o — 74306, pp. 66-68)

In G.R. No. 74306, petitioner Enrique Razon assails the appellate court's decision on its alleged
misapplication of the dead man's statute rule under Section 20(a) Rule 130 of the Rules of Court.
According to him, the "dead man's statute" rule is not applicable to the instant case. Moreover, the private
respondent, as plaintiff in the case did not object to his oral testimony regarding the oral agreement
between him and the deceased Juan T. Chuidian that the ownership of the shares of stock was actually
vested in the petitioner unless the deceased opted to pay the same; and that the petitioner was subjected
to a rigid cross examination regarding such testimony.

Section 20(a) Rule 130 of the Rules of Court (Section 23 of the Revised Rules on Evidence) States:

Sec. 20. Disqualification by reason of interest or relationship — The following persons

cannot testify as to matters in which they are interested directly or indirectly, as herein
enumerated.

(a) Parties or assignors of parties to a case, or persons in whose behalf a case is

prosecuted, against an executor or administrator or other representative of a deceased
person, or against a person of unsound mind, upon a claim or demand against the estate of
such deceased person or against such person of unsound mind, cannot testify as to any
matter of fact accruing before the death of such deceased person or before such person
became of unsound mind." (Emphasis supplied)

xxx xxx xxx

The purpose of the rule has been explained by this Court in this wise:
 The reason for the rule is that if persons having a claim against the estate of the deceased
or his properties were allowed to testify as to the supposed statements made by him
(deceased person), many would be tempted to falsely impute statements to deceased
persons as the latter can no longer deny or refute them, thus unjustly subjecting their
properties or rights to false or unscrupulous claims or demands. The purpose of the law is
to "guard against the temptation to give false testimony in regard to the transaction in
question on the part of the surviving party." (Tongco v. Vianzon, 50 Phil. 698; Go Chi Gun, et
al. v. Co Cho, et al., 622 [1955])

The rule, however, delimits the prohibition it contemplates in that it is applicable to a case against the
administrator or its representative of an estate upon a claim against the estate of the deceased person.
(See Tongco v. Vianzon, 50 Phil. 698 [1927])

In the instant case, the testimony excluded by the appellate court is that of the defendant (petitioner
herein) to the affect that the late Juan Chuidian, (the father of private respondent Vicente Chuidian, the
administrator of the estate of Juan Chuidian) and the defendant agreed in the lifetime of Juan Chuidian
that the 1,500 shares of stock in E. Razon, Inc. are actually owned by the defendant unless the deceased
Juan Chuidian opted to pay the same which never happened. The case was filed by the administrator of
the estate of the late Juan Chuidian to recover shares of stock in E. Razon, Inc. allegedly owned by the late
Juan T. Chuidian.

It is clear, therefore, that the testimony of the petitioner is not within the prohibition of the rule. The case
was not filed against the administrator of the estate, nor was it filed upon claims against the estate.

Furthermore, the records show that the private respondent never objected to the testimony of the
petitioner as regards the true nature of his transaction with the late elder Chuidian. The petitioner's
testimony was subject to cross-examination by the private respondent's counsel. Hence, granting that the
petitioner's testimony is within the prohibition of Section 20(a), Rule 130 of the Rules of Court, the
private respondent is deemed to have waived the rule. We ruled in the case of Cruz v. Court of
Appeals (192 SCRA 209 [1990]):

It is also settled that the court cannot disregard evidence which would ordinarily be
incompetent under the rules but has been rendered admissible by the failure of a party to
object thereto. Thus:

. . . The acceptance of an incompetent witness to testify in a civil suit, as well as the

allowance of improper questions that may be put to him while on the stand is a matter
resting in the discretion of the litigant. He may assert his right by timely objection or he
may waive it, expressly or by silence. In any case the option rests with him. Once admitted,
the testimony is in the case for what it is worth and the judge has no power to disregard it for
the sole reason that it could have been excluded, if it had been objected to, nor to strike it out
on its own motion (Emphasis supplied). (Marella v. Reyes, 12 Phil. 1.)

The issue as to whether or not the petitioner's testimony is admissible having been settled, we now
proceed to discuss the fundamental issue on the ownership of the 1,500 shares of stock in E. Razon, Inc.

E. Razon, Inc. was organized in 1962 by petitioner Enrique Razon for the purpose of participating in the
bidding for the arrastre services in South Harbor, Manila. The incorporators were Enrique Razon,
Enrique Valles, Luisa M. de Razon, Jose Tuazon, Jr., Victor L. Lim, Jose F. Castro and Salvador Perez de
Tagle. The business, however, did not start operations until 1966. According to the petitioner, some of the
incorporators withdrew from the said corporation. The petitioner then distributed the stocks previously
placed in the names of the withdrawing nominal incorporators to some friends, among them the late Juan
T. Chuidian to whom he gave 1,500 shares of stock. The shares of stock were registered in the name of
Chuidian only as nominal stockholder and with the agreement that the said shares of stock were owned
and held by the petitioner but Chuidian was given the option to buy the same. In view of this
arrangement, Chuidian in 1966 delivered to the petitioner the stock certificate covering the 1,500 shares
of stock of E. Razon, Inc. Since then, the Petitioner had in his possession the certificate of stock until the
time, he delivered it for deposit with the Philippine Bank of Commerce under the parties' joint custody
pursuant to their agreement as embodied in the trial court's order.

The petitioner maintains that his aforesaid oral testimony as regards the true nature of his agreement
with the late Juan Chuidian on the 1,500 shares of stock of E. Razon, Inc. is sufficient to prove his
ownership over the said 1,500 shares of stock.

The petitioner's contention is not correct.

In the case of Embassy Farms, Inc. v. Court of Appeals (188 SCRA 492 [1990]) we ruled:

. . . For an effective, transfer of shares of stock the mode and manner of transfer as
prescribed by law must be followed (Navea v. Peers Marketing Corp., 74 SCRA 65).
As provided under Section 3 of Batas Pambansa Bilang, 68 otherwise known as the
Corporation Code of the Philippines, shares of stock may be transferred by delivery to the
transferee of the certificate properly indorsed. Title may be vested in the transferee by the
delivery of the duly indorsed certificate of stock (18 C.J.S. 928, cited in Rivera v. Florendo,
144 SCRA 643). However, no transfer shall be valid, except as between the parties until the
transfer is properly recorded in the books of the corporation (Sec. 63, Corporation Code of
the Philippines; Section 35 of the Corporation Law)

In the instant case, there is no dispute that the questioned 1,500 shares of stock of E. Razon, Inc. are in the
name of the late Juan Chuidian in the books of the corporation. Moreover, the records show that during
his lifetime Chuidian was ellected member of the Board of Directors of the corporation which clearly
shows that he was a stockholder of the corporation. (See Section 30, Corporation Code) From the point of
view of the corporation, therefore, Chuidian was the owner of the 1,500 shares of stock. In such a case,
the petitioner who claims ownership over the questioned shares of stock must show that the same were
transferred to him by proving that all the requirements for the effective transfer of shares of stock in
accordance with the corporation's by laws, if any, were followed (See Nava v. Peers Marketing
Corporation, 74 SCRA 65 [1976]) or in accordance with the provisions of law.

The petitioner failed in both instances. The petitioner did not present any by-laws which could show that
the 1,500 shares of stock were effectively transferred to him. In the absence of the corporation's by-laws
or rules governing effective transfer of shares of stock, the provisions of the Corporation Law are made
applicable to the instant case.

The law is clear that in order for a transfer of stock certificate to be effective, the certificate must be
properly indorsed and that title to such certificate of stock is vested in the transferee by the delivery of
the duly indorsedcertificate of stock. (Section 35, Corporation Code) Since the certificate of stock covering
the questioned 1,500 shares of stock registered in the name of the late Juan Chuidian was never indorsed
to the petitioner, the inevitable conclusion is that the questioned shares of stock belong to Chuidian. The
petitioner's asseveration that he did not require an indorsement of the certificate of stock in view of his
intimate friendship with the late Juan Chuidian can not overcome the failure to follow the procedure
required by law or the proper conduct of business even among friends. To reiterate, indorsement of the
certificate of stock is a mandatory requirement of law for an effective transfer of a certificate of stock.

Moreover, the preponderance of evidence supports the appellate court's factual findings that the shares
of stock were given to Juan T. Chuidian for value. Juan T. Chuidian was the legal counsel who handled the
legal affairs of the corporation. We give credence to the testimony of the private respondent that the
shares of stock were given to Juan T. Chuidian in payment of his legal services to the corporation.
Petitioner Razon failed to overcome this testimony.

In G.R. No. 74315, petitioner Vicente B. Chuidian insists that the appellate court's decision declaring his
deceased father Juan T. Chuidian as owner of the 1,500 shares of stock of E. Razon, Inc. should have
included all cash and stock dividends and all the pre-emptive rights accruing to the said 1,500 shares of
stock.

The petition is impressed with merit.

The cash and stock dividends and all the pre-emptive rights are all incidents of stock ownership.

The rights of stockholders are generally enumerated as follows:

xxx xxx xxx

. . . [F]irst, to have a certificate or other evidence of his status as stockholder issued to him;
second, to vote at meetings of the corporation; third, to receive his proportionate share of
the profits of the corporation; and lastly, to participate proportionately in the distribution
of the corporate assets upon the dissolution or winding up. (Purdy's Beach on Private
Corporations, sec. 554) (Pascual v. Del Saz Orozco, 19 Phil. 82, 87)

WHEREFORE, judgment is rendered as follows:

a) In G.R. No. 74306, the petition is DISMISSED. The questioned decision and resolution of the then
Intermediate Appellate Court, now the Court of Appeals, are AFFIRMED. Costs against the petitioner.

b) In G.R. No. 74315, the petition is GRANTED. The questioned Resolution insofar as it denied the
petitioner's motion to clarify the dispositive portion of the decision of the then Intermediate Appellate
Court, now Court of Appeals is REVERSED and SET ASIDE. The decision of the appellate court is
MODIFIED in that all cash and stock dividends as, well as all pre-emptive rights that have accrued and
attached to the 1,500 shares in E. Razon, Inc., since 1966 are declared to belong to the estate of Juan T.
Chuidian.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 96674 June 26, 1992

RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and FRANCISCO
TRIAS, petitioners,

vs.

COURT OF APPEALS*, SECURITIES AND EXCHANGE COMMISSION, MELANIA A. GUERRERO, LUZ

ANDICO, WILHEMINA G. ROSALES, FRANCISCO M. GUERRERO, JR., and FRANCISCO GUERRERO ,
SR., respondents.

PARAS, J.:

The basic controversy in this case is whether or not the respondent court erred in sustaining the
Securities and Exchange Commission when it compelled by Mandamus the Rural Bank of Salinas to
register in its stock and transfer book the transfer of 473 shares of stock to private respondents.
Petitioners maintain that the Petition for Mandamus should have been denied upon the following
grounds.

(1) Mandamus cannot be a remedy cognizable by the Securities and Exchange Commission when the
purpose is to register certificates of stock in the names of claimants who are not yet stockholders of a
corporation:

(2) There exist valid reasons for refusing to register the transfer of the subject of stock, namely:

(a) a pending controversy over the ownership of the certificates of stock with the Regional
Trial Court;

(b) claims that the Deeds of Assignment covering the subject certificates of stock were
fictitious and antedated; and

(c) claims on a resultant possible deprivation of inheritance share in relation with a

conflicting claim over the subject certificates of stock.

The facts are not disputed.

On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special
Power of Attorney in favor of his wife, private respondent Melania Guerrero, giving and granting the latter
full power and authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the Bank
registered in his name (represented by the Bank's stock certificates nos. 26, 49 and 65), to execute the
proper documents therefor, and to receive and sign receipts for the dispositions.

On February 27, 1980, and pursuant to said Special Power of Attorney, private respondent Melania
Guerrero, as Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the 473 shares, in
favor of private respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco
Guerrero, Jr. (5 shares).

Almost four months later, or two (2) days before the death of Clemente Guerrero on June 24, 1980,
private respondent Melania Guerrero, pursuant to the same Special Power of Attorney, executed a Deed of
Assignment for the remaining one (1) share of stock in favor of private respondent Francisco Guerrero, Sr.

Subsequently, private respondent Melania Guerrero presented to petitioner Rural Bank of Salinas the two
(2) Deeds of Assignment for registration with a request for the transfer in the Bank's stock and transfer
book of the 473 shares of stock so assigned, the cancellation of stock certificates in the name of Clemente
G. Guerrero, and the issuance of new stock certificates covering the transferred shares of stocks in the
name of the new owners thereof. However, petitioner Bank denied the request of respondent Melania
Guerrero.

On December 5, 1980, private respondent Melania Guerrero filed with the Securities and Exchange
Commission" (SEC) an action for mandamus against petitioners Rural Bank of Salinas, its President and
Corporate Secretary. The case was docketed as SEC Case No. 1979.

Petitioners filed their Answer with counterclaim on December 19, 1980 alleging the upon the death of
Clemente G. Guerrero, his 473 shares of stock became the property of his estate, and his property and
that of his widow should first be settled and liquidated in accordance with law before any distribution
can be effected so that petitioners may not be a party to any scheme to evade payment of estate or
inheritance tax and in order to avoid liability to any third persons or creditors of the late Clemente G.
Guerrero.

On January 29, 1981, a motion for intervention was filed by Maripol Guerrero, a legally adopted daughter
of the late Clemente G. Guerrero and private respondent Melania Guerrero, who stated therein that on
November 26, 1980 (almost two weeks before the filing of the petition for Mandamus) a Petition for the
administration of the estate of the late Clemente G. Guerrero had been filed with the Regional Trial Court,
Pasig, Branch XI, docketed as Special Proceedings No. 9400. Maripol Guerrero further claimed that the
Deeds of Assignment for the subject shares of stock are fictitious and antedated; that said conveyances
are donations since the considerations therefor are below the book value of the shares, the
assignees/private respondents being close relatives of private respondent Melania Guerrero; and that the
transfer of the shares in question to assignees/private respondents, other than private respondent
Melania Guerrero, would deprive her (Maripol Guerrero) of her rightful share in the inheritance. The SEC
hearing officer denied the Motion for Intervention for lack of merit. On appeal, the SEC En Banc affirmed
the decision of the hearing officer.

Intervenor Guerrero filed a complaint before the then Court of First Instance of Rizal, Quezon City
Branch, against private respondents for the annulment of the Deeds of Assignment, docketed as Civil Case
No. Q-32050. Petitioners, on the other hand, filed a Motion to Dismiss and/or to Suspend Hearing of SEC
Case No. 1979 until after the question of whether the subject Deeds of Assignment are fictitious, void or
simulated is resolved in Civil Case No. Q-32050. The SEC Hearing Officer denied said motion.

On December 10, 1984, the SEC Hearing Officer rendered a Decision granting the writ
of Mandamus prayed for by the private respondents and directing petitioners to cancel stock certificates
nos. 26, 49 and 65 of the Bank, all in the name of Clemente G. Guerrero, and to issue new certificates in
the names of private respondents, except Melania Guerrero. The dispositive, portion of the decision
reads:

WHEREFORE, judgment is hereby rendered in favor of the petitioners and against the
respondents, directing the latter, particularly the corporate secretary of respondent Rural
Bank of Salinas, Inc., to register in the latter's Stock and Transfer Book the transfer of 473
shares of stock of respondent Bank and to cancel Stock Certificates Nos. 26, 45 and 65 and
issue new Stock Certificates covering the transferred shares in favor of petitioners, as
follows:

1. Luz Andico 457 shares

2. Wilhelmina Rosales 10 shares

3. Francisco Guerrero, Jr. 5 shares

4. Francisco Guerrero, Sr. 1 share

and to pay to the above-named petitioners, the dividends for said shares corresponding to
the years 1981, 1982, 1983 and 1984 without interest.

No pronouncement as to costs.

SO ORDERED. (p. 88, Rollo)

On appeal, the SEC En Banc affirmed the decision of the Hearing Officer. Petitioner filed a petition for
review with the Court of Appeals but said Court likewise affirmed the decision of the SEC.

We rule in favor of the respondents.

Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to hear and decide
cases involving intracorporate controversies. An intracorporate controversy has been defined as one
which arises between a stockholder and the corporation. There is no distinction, qualification, nor any
exception whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The case at bar involves shares of
stock, their registration, cancellation and issuances thereof by petitioner Rural Bank of Salinas. It is
therefore within the power of respondent SEC to adjudicate.

Respondent SEC correctly ruled in favor of the registering of the shares of stock in question in private
respondent's names. Such ruling finds support under Section 63 of the Corporation Code, to wit:

Sec. 63. . . . Shares of stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or
 other person legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation
...

In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in his wise:

Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation Code]) contemplates no
restriction as to whom the stocks may be transferred. It does not suggest that any
discrimination may be created by the corporation in favor of, or against a certain
purchaser. The owner of shares, as owner of personal property, is at liberty, under said
section to dispose them in favor of whomever he pleases, without limitation in this respect,
than the general provisions of law. . . .

The only limitation imposed by Section 63 of the Corporation Code is when the corporation holds
any unpaid claim against the shares intended to be transferred, which is absent here.

A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock
transfers, because:

. . . Restrictions in the traffic of stock must have their source in legislative enactment, as the
corporation itself cannot create such impediment. By-laws are intended merely for the
protection of the corporation, and prescribe regulation, not restriction; they are always
subject to the charter of the corporation. The corporation, in the absence of such power,
cannot ordinarily inquire into or pass upon the legality of the transactions by which its
stock passes from one person to another, nor can it question the consideration upon which
a sale is based. . . . (Tomson on Corporation Sec. 4137, cited in Fleisher vs. Nolasco, Supra).

The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing
from his ownership of the stocks. Thus:

Whenever a corporation refuses to transfer and register stock in cases like the
present, mandamus will lie to compel the officers of the corporation to transfer said stock
in the books of the corporation" (26, Cyc. 347, Hyer vs. Bryan, 19 Phil. 138; Fleisher vs.
Botica Nolasco, 47 Phil. 583, 594).

The corporation's obligation to register is ministerial.

In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and
does not try to decide the question of ownership. (Fletcher, Sec. 5528, page 434).

The duty of the corporation to transfer is a ministerial one and if it refuses to make such
transaction without good cause, it may be compelled to do so by mandamus. (See. 5518, 12
Fletcher 394)

For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in its stock and
transfer book, which duty is ministerial on its part, is to render nugatory and ineffectual the spirit and
intent of Section 63 of the Corporation Code. Thus, respondent Court of Appeals did not err in upholding
the Decision of respondent SEC affirming the Decision of its Hearing Officer directing the registration of
the 473 shares in the stock and transfer book in the names of private respondents. At all events, the
registration is without prejudice to the proceedings in court to determine the validity of the Deeds of
Assignment of the shares of stock in question.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 117604 March 26, 1997

CHINA BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS, and VALLEY GOLF and COUNTRY CLUB, INC., respondents.

KAPUNAN, J.:

Through a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner China
Banking Corporation seeks the reversal of the decision of the Court of Appeals dated 15 August 1994
nullifying the Securities and Exchange Commission's order and resolution dated 4 June 1993 and 7
December 1993, respectively, for lack of jurisdiction. Similarly impugned is the Court of Appeals'
resolution dated 4 September 1994 which denied petitioner's motion for reconsideration.

The case unfolds thus:

On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of private respondent
Valley Golf & Country Club, Inc. (VGCCI, for brevity), pledged his Stock Certificate No. 1219 to petitioner
China Banking Corporation (CBC, for brevity).1

On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned pledge agreement be
recorded in its books.2

In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed by Calapatia in
petitioner's favor was duly noted in its corporate books.3

On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was
secured by the aforestated pledge agreement still existing between Calapatia and petitioner.4
Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985, filed a petition for
extrajudicial foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to
conduct a public auction sale of the pledged stock.5

On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure proceedings and
requested that the pledged stock be transferred to its (petitioner's) name and the same be recorded in
the corporate books. However, on 15 July 1985, VGCCI wrote petitioner expressing its inability to accede
to petitioner's request in view of Calapatia's unsettled accounts with the club.6

Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and petitioner
emerged as the highest bidder at P20,000.00 for the pledged stock. Consequently, petitioner was issued
the corresponding certificate of sale.7

On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue account in
the amount of P18,783.24. 8 Said notice was followed by a demand letter dated 12 December 1985 for the
same amount9 and another notice dated 22 November 1986 for P23,483.24. 10

On 4 December 1986, VGCCI caused to be published in the newspaper Daily Express a notice of auction
sale of a number of its stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein
was Calapatia's own share of stock (Stock Certificate No. 1219).

Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination of his
membership due to the sale of his share of stock in the 10 December 1986 auction. 11

On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate No.
1219 by virtue of being the highest bidder in the 17 September 1985 auction and requested that a new
certificate of stock be issued in its name. 12

On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public
auction held on 10 December 1986 for P25,000.00. 13

On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of stock and thereafter filed
a case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and
for the issuance of a new stock certificate in its name. 14

On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over
the subject matter on the theory that it involves an intra-corporate dispute and on 27 August 1990
denied petitioner's motion for reconsideration.

On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission (SEC)
for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate
issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages,
attorney's fees and costs of litigation.

On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in
the main that "(c)onsidering that the said share is delinquent, (VGCCI) had valid reason not to transfer
the share in the name of the petitioner in the books of (VGCCI) until liquidation of
delinquency." 15 Consequently, the case was dismissed. 16
On 14 April 1992, Hearing Officer Perea denied petitioner's motion for reconsideration. 17

Petitioner appealed to the SEC en banc and on 4 June 1993, the Commission issued an order reversing the
decision of its hearing officer. It declared thus:

The Commission en banc believes that appellant-petitioner has a prior right over the
pledged share and because of pledgor's failure to pay the principal debt upon maturity,
appellant-petitioner can proceed with the foreclosure of the pledged share.

WHEREFORE, premises considered, the Orders of January 3, 1992 and April 14, 1992 are
hereby SET ASIDE. The auction sale conducted by appellee-respondent Club on December
10, 1986 is declared NULL and VOID. Finally, appellee-respondent Club is ordered to issue
another membership certificate in the name of appellant-petitioner bank.

SO ORDERED. 18

VGCCI sought reconsideration of the abovecited order. However, the SEC denied the same in its
resolution dated 7 December 1993. 19

The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the
Court of Appeals rendered its decision nullifying and setting aside the orders of the SEC and its hearing
officer on ground of lack of jurisdiction over the subject matter and, consequently, dismissed petitioner's
original complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is not
intra-corporate. It ruled as follows:

In order that the respondent Commission can take cognizance of a case, the controversy
must pertain to any of the following relationships: (a) between the corporation,
partnership or association and the public; (b) between the corporation, partnership or
association and its stockholders, partners, members, or officers; (c) between the
corporation, partnership or association and the state in so far as its franchise, permit or
license to operate is concerned, and (d) among the stockholders, partners or associates
themselves (Union Glass and Container Corporation vs. SEC, November 28, 1983, 126 SCRA
31). The establishment of any of the relationship mentioned will not necessarily always
confer jurisdiction over the dispute on the Securities and Exchange Commission to the
exclusion of the regular courts. The statement made in Philex Mining Corp. vs. Reyes, 118
SCRA 602, that the rule admits of no exceptions or distinctions is not that absolute. The
better policy in determining which body has jurisdiction over a case would be to consider
not only the status or relationship of the parties but also the nature of the question that is
the subject of their controversy (Viray vs. Court of Appeals, November 9, 1990, 191 SCRA
308, 322-323).

Indeed, the controversy between petitioner and respondent bank which involves
ownership of the stock that used to belong to Calapatia, Jr. is not within the competence of
respondent Commission to decide. It is not any of those mentioned in the aforecited case.

WHEREFORE, the decision dated June 4, 1993, and order dated December 7, 1993 of
respondent Securities and Exchange Commission (Annexes Y and BB, petition) and of its
hearing officer dated January 3, 1992 and April 14, 1992 (Annexes S and W, petition) are all
 nullified and set aside for lack of jurisdiction over the subject matter of the case.
Accordingly, the complaint of respondent China Banking Corporation (Annex Q, petition) is
DISMISSED. No pronouncement as to costs in this instance.

SO ORDERED. 20

Petitioner moved for reconsideration but the same was denied by the Court of Appeals in its resolution
dated 5 October 1994. 21

Hence, this petition wherein the following issues were raised:

II

ISSUES

WHETHER OR NOT RESPONDENT COURT OF APPEALS (Former Eighth Division) GRAVELY

ERRED WHEN:

1. IT NULLIFIED AND SET ASIDE THE DECISION DATED JUNE 04, 1993 AND ORDER
DATED DECEMBER 07, 1993 OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC,
AND WHEN IT DISMISSED THE COMPLAINT OF PETITIONER AGAINST RESPONDENT
VALLEY GOLF ALL FOR LACK OF JURISDICTION OVER THE SUBJECT MATTER OF THE
CASE;

2. IT FAILED TO AFFIRM THE DECISION OF THE SECURITIES AND EXCHANGE

COMMISSION EN BANC DATED JUNE 04, 1993 DESPITE PREPONDERANT EVIDENCE
SHOWING THAT PETITIONER IS THE LAWFUL OWNER OF MEMBERSHIP CERTIFICATE
NO. 1219 FOR ONE SHARE OF RESPONDENT VALLEY GOLF.

The petition is granted.

The basic issue we must first hurdle is which body has jurisdiction over the controversy, the regular
courts or the SEC.

P. D. No. 902-A conferred upon the SEC the following pertinent powers:

Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all
corporations, partnerships or associations, who are the grantees of primary franchises
and/or a license or permit issued by the government to operate in the Philippines, and in
the exercise of its authority, it shall have the power to enlist the aid and support of and to
deputize any and all enforcement agencies of the government, civil or military as well as
any private institution, corporation, firm, association or person.

xxx xxx xxx

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
 registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:

a) Devices or schemes employed by or any acts of the board of directors,

business associates, its officers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, members of associations or
organizations registered with the Commission.

b) Controversies arising out of intra-corporate or partnership relations,

between and among stockholders, members, or associates; between any or
all of them and the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between such
corporation, partnership or association and the State insofar as it concerns
their individual franchise or right to exist as such entity;

c) Controversies in the election or appointment of directors, trustees,

officers, or managers of such corporations, partnerships or associations.

d) Petitions of corporations, partnerships or associations to be declared in

the state of suspension of payments in cases where the corporation,
partnership or association possesses property to cover all of its debts but
foresees the impossibility of meeting them when they respectively fall due or
in cases where the corporation, partnership or association has no sufficient
assets to cover its liabilities, but is under the Management Committee
created pursuant to this Decree.

The aforecited law was expounded upon in Viray v. CA 22 and in the recent cases of Mainland Construction
Co., Inc. v. Movilla 23 and Bernardo v. CA, 24 thus:

. . . .The better policy in determining which body has jurisdiction over a case would be to
consider not only the status or relationship of the parties but also the nature of the
question that is the subject of their controversy.

Applying the foregoing principles in the case at bar, to ascertain which tribunal has jurisdiction we have
to determine therefore whether or not petitioner is a stockholder of VGCCI and whether or not the nature
of the controversy between petitioner and private respondent corporation is intra-corporate.

As to the first query, there is no question that the purchase of the subject share or membership certificate
at public auction by petitioner (and the issuance to it of the corresponding Certificate of Sale) transferred
ownership of the same to the latter and thus entitled petitioner to have the said share registered in its
name as a member of VGCCI. It is readily observed that VGCCI did not assail the transfer directly and has
in fact, in its letter of 27 September 1974, expressly recognized the pledge agreement executed by the
original owner, Calapatia, in favor of petitioner and has even noted said agreement in its corporate
books. 25 In addition, Calapatia, the original owner of the subject share, has not contested the said
transfer.
By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and, therefore,
the conflict that arose between petitioner and VGCCI aptly exemplies an intra-corporate controversy
between a corporation and its stockholder under Sec. 5(b) of P.D. 902-A.

An important consideration, moreover, is the nature of the controversy between petitioner and private
respondent corporation. VGCCI claims a prior right over the subject share anchored mainly on Sec. 3, Art
VIII of its by-laws which provides that "after a member shall have been posted as delinquent, the Board
may order his/her/its share sold to satisfy the claims of the Club. . ." 26 It is pursuant to this provision that
VGCCI also sold the subject share at public auction, of which it was the highest bidder. VGCCI caps its
argument by asserting that its corporate by-laws should prevail. The bone of contention, thus, is the
proper interpretation and application of VGCCI's aforequoted by-laws, a subject which irrefutably calls
for the special competence of the SEC.

We reiterate herein the sound policy enunciated by the Court in Abejo v. De la Cruz 27:

6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in
administrative commissions and boards the power to resolve specialized disputes in the
field of labor (as in corporations, public transportation and public utilities) ruled that
Congress in requiring the Industrial Court's intervention in the resolution of labor-
management controversies likely to cause strikes or lockouts meant such jurisdiction to be
exclusive, although it did not so expressly state in the law. The Court held that under the
"sense-making and expeditious doctrine of primary jurisdiction . . . the courts cannot or will
not determine a controversy involving a question which is within the jurisdiction of an
administrative tribunal, where the question demands the exercise of sound administrative
discretion requiring the special knowledge, experience, and services of the administrative
tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is
essential to comply with the purposes of the regulatory statute administered.

In this era of clogged court dockets, the need for specialized administrative boards or
commissions with the special knowledge, experience and capability to hear and determine
promptly disputes on technical matters or essentially factual matters, subject to judicial
review in case of grave abuse of discretion, has become well nigh indispensable. Thus, in
1984, the Court noted that "between the power lodged in an administrative body and a
court, the unmistakable trend has been to refer it to the former. 'Increasingly, this Court
has been committed to the view that unless the law speaks clearly and unequivocably, the
choice should fall on [an administrative agency.]'" The Court in the earlier case of Ebon
v. De Guzman, noted that the lawmaking authority, in restoring to the labor arbiters and the
NLRC their jurisdiction to award all kinds of damages in labor cases, as against the previous
P.D. amendment splitting their jurisdiction with the regular courts, "evidently, . . . had
second thoughts about depriving the Labor Arbiters and the NLRC of the jurisdiction to
award damages in labor cases because that setup would mean duplicity of suits, splitting
the cause of action and possible conflicting findings and conclusions by two tribunals on
one and the same claim."

In this case, the need for the SEC's technical expertise cannot be over-emphasized involving as it does the
meticulous analysis and correct interpretation of a corporation's by-laws as well as the applicable
provisions of the Corporation Code in order to determine the validity of VGCCI's claims. The SEC,
therefore, took proper cognizance of the instant case.
VGCCI further contends that petitioner is estopped from denying its earlier position, in the first complaint
it filed with the RTC of Makati (Civil Case No. 90-1112) that there is no intra-corporate relations between
itself and VGCCI.

VGCCI's contention lacks merit.

In Zamora v. Court of Appeals, 28 this Court, through Mr. Justice Isagani A. Cruz, declared that:

It follows that as a rule the filing of a complaint with one court which has no jurisdiction
over it does not prevent the plaintiff from filing the same complaint later with the
competent court. The plaintiff is not estopped from doing so simply because it made a
mistake before in the choice of the proper forum. . . .

We remind VGCCI that in the same proceedings before the RTC of Makati, it categorically stated (in its
motion to dismiss) that the case between itself and petitioner is intra-corporate and insisted that it is the
SEC and not the regular courts which has jurisdiction. This is precisely the reason why the said court
dismissed petitioner's complaint and led to petitioner's recourse to the SEC.

Having resolved the issue on jurisdiction, instead of remanding the whole case to the Court of Appeals,
this Court likewise deems it procedurally sound to proceed and rule on its merits in the same
proceedings.

It must be underscored that petitioner did not confine the instant petition for review on certiorari on the
issue of jurisdiction. In its assignment of errors, petitioner specifically raised questions on the merits of
the case. In turn, in its responsive pleadings, private respondent duly answered and countered all the
issues raised by petitioner.

Applicable to this case is the principle succinctly enunciated in the case of Heirs of Crisanta Y. Gabriel-
Almoradie v. Court of Appeals, 29 citing Escudero v. Dulay 30 and The Roman Catholic Archbishop of Manila
v. Court of Appeals. 31

In the interest of the public and for the expeditious administration of justice the issue on
infringement shall be resolved by the court considering that this case has dragged on for
years and has gone from one forum to another.

It is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a
single proceeding leaving no root or branch to bear the seeds of future litigation. No useful
purpose will be served if a case or the determination of an issue in a case is remanded to
the trial court only to have its decision raised again to the Court of Appeals and from there
to the Supreme Court.

We have laid down the rule that the remand of the case or of an issue to the lower court for
further reception of evidence is not necessary where the Court is in position to resolve the
dispute based on the records before it and particularly where the ends of justice would not
be subserved by the remand thereof. Moreover, the Supreme Court is clothed with ample
authority to review matters, even those not raised on appeal if it finds that their
consideration is necessary in arriving at a just disposition of the case.
In the recent case of China Banking Corp., et al. v. Court of Appeals, et al., 32 this Court, through Mr. Justice
Ricardo J. Francisco, ruled in this wise:

At the outset, the Court's attention is drawn to the fact that since the filing of this suit
before the trial court, none of the substantial issues have been resolved. To avoid and gloss
over the issues raised by the parties, as what the trial court and respondent Court of
Appeals did, would unduly prolong this litigation involving a rather simple case of
foreclosure of mortgage. Undoubtedly, this will run counter to the avowed purpose of the
rules, i.e., to assist the parties in obtaining just, speedy and inexpensive determination of
every action or proceeding. The Court, therefore, feels that the central issues of the case,
albeit unresolved by the courts below, should now be settled specially as they involved
pure questions of law. Furthermore, the pleadings of the respective parties on file have
amply ventilated their various positions and arguments on the matter necessitating prompt
adjudication.

In the case at bar, since we already have the records of the case (from the proceedings before the SEC)
sufficient to enable us to render a sound judgment and since only questions of law were raised (the
proper jurisdiction for Supreme Court review), we can, therefore, unerringly take cognizance of and rule
on the merits of the case.

The procedural niceties settled, we proceed to the merits.

VGCCI assails the validity of the pledge agreement executed by Calapatia in petitioner's favor. It contends
that the same was null and void for lack of consideration because the pledge agreement was entered into
on 21 August
1974 33 but the loan or promissory note which it secured was obtained by Calapatia much later or only on
3 August 1983. 34

VGCCI's contention is unmeritorious.

A careful perusal of the pledge agreement will readily reveal that the contracting parties explicitly
stipulated therein that the said pledge will also stand as security for any future advancements (or
renewals thereof) that Calapatia (the pledgor) may procure from petitioner:

xxx xxx xxx

This pledge is given as security for the prompt payment when due of all loans, overdrafts,
promissory notes, drafts, bills or exchange, discounts, and all other obligations of every
kind which have heretofore been contracted, or which may hereafter be contracted, by the
PLEDGOR(S) and/or DEBTOR(S) or any one of them, in favor of the PLEDGEE, including
discounts of Chinese drafts, bills of exchange, promissory notes, etc., without any further
endorsement by the PLEDGOR(S) and/or Debtor(s) up to the sum of TWENTY THOUSAND
(P20,000.00) PESOS, together with the accrued interest thereon, as hereinafter provided,
plus the costs, losses, damages and expenses (including attorney's fees) which PLEDGEE
may incur in connection with the collection thereof. 35 (Emphasis ours.)
The validity of the pledge agreement between petitioner and Calapatia cannot thus be held suspect by
VGCCI. As candidly explained by petitioner, the promissory note of 3 August 1983 in the amount of
P20,000.00 was but a renewal of the first promissory note covered by the same pledge agreement.

VGCCI likewise insists that due to Calapatia's failure to settle his delinquent accounts, it had the right to
sell the share in question in accordance with the express provision found in its by-laws.

Private respondent's insistence comes to naught. It is significant to note that VGCCI began sending
notices of delinquency to Calapatia after it was informed by petitioner (through its letter dated 14 May
1985) of the foreclosure proceedings initiated against Calapatia's pledged share, although Calapatia has
been delinquent in paying his monthly dues to the club since 1975. Stranger still, petitioner, whom VGCCI
had officially recognized as the pledgee of Calapatia's share, was neither informed nor furnished copies of
these letters of overdue accounts until VGCCI itself sold the pledged share at another public auction. By
doing so, VGCCI completely disregarded petitioner's rights as pledgee. It even failed to give petitioner
notice of said auction sale. Such actuations of VGCCI thus belie its claim of good faith.

In defending its actions, VGCCI likewise maintains that petitioner is bound by its by-laws. It argues in this
wise:

The general rule really is that third persons are not bound by the by-laws of a corporation
since they are not privy thereto (Fleischer v. Botica Nolasco, 47 Phil. 584). The exception to
this is when third persons have actual or constructive knowledge of the same. In the case at
bar, petitioner had actual knowledge of the by-laws of private respondent when petitioner
foreclosed the pledge made by Calapatia and when petitioner purchased the share
foreclosed on September 17, 1985. This is proven by the fact that prior thereto, i.e., on May
14, 1985 petitioner even quoted a portion of private respondent's by-laws which is
material to the issue herein in a letter it wrote to private respondent. Because of this actual
knowledge of such by-laws then the same bound the petitioner as of the time when
petitioner purchased the share. Since the by-laws was already binding upon petitioner
when the latter purchased the share of Calapatia on September 17, 1985 then the
petitioner purchased the said share subject to the right of the private respondent to sell the
said share for reasons of delinquency and the right of private respondent to have a first lien
on said shares as these rights are provided for in the by-laws very very clearly. 36

VGCCI misunderstood the import of our ruling in Fleischer v. Botica Nolasco Co.: 37

And moreover, the by-law now in question cannot have any effect on the appellee. He had no
knowledge of such by-law when the shares were assigned to him. He obtained them in good
faith and for a valuable consideration. He was not a privy to the contract created by said by-
law between the shareholder Manuel Gonzales and the Botica Nolasco, Inc. Said by-law
cannot operate to defeat his rights as a purchaser.

An unauthorized by-law forbidding a shareholder to sell his shares without first offering
them to the corporation for a period of thirty days is not binding upon an assignee of the
stock as a personal contract, although his assignor knew of the by-law and took part in its
adoption. (10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.)
 When no restriction is placed by public law on the transfer of corporate stock, a purchaser
is not affected by any contractual restriction of which he had no notice. (Brinkerhoff-Farris
Trust & Savings Co. vs. Home Lumber Co., 118 Mo., 447.)

The assignment of shares of stock in a corporation by one who has assented to an

unauthorized by-law has only the effect of a contract by, and enforceable against, the
assignor; the assignee is not bound by such by-law by virtue of the assignment alone.
(Ireland vs. Globe Milling Co., 21 R.I., 9.)

A by-law of a corporation which provides that transfers of stock shall not be valid unless
approved by the board of directors, while it may be enforced as a reasonable regulation for
the protection of the corporation against worthless stockholders, cannot be made available
to defeat the rights of third persons. (Farmers' and Merchants' Bank of Lineville vs.
Wasson, 48 Iowa, 336.) (Emphasis ours.)

In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time
the transaction or agreement between said third party and the shareholder was entered into, in this case,
at the time the pledge agreement was executed. VGCCI could have easily informed petitioner of its by-
laws when it sent notice formally recognizing petitioner as pledgee of one of its shares registered in
Calapatia's name. Petitioner's belated notice of said by-laws at the time of foreclosure will not suffice. The
ruling of the SEC en banc is particularly instructive:

By-laws signifies the rules and regulations or private laws enacted by the corporation to
regulate, govern and control its own actions, affairs and concerns and its stockholders or
members and directors and officers with relation thereto and among themselves in their
relation to it. In other words, by-laws are the relatively permanent and continuing rules of
action adopted by the corporation for its own government and that of the individuals
composing it and having the direction, management and control of its affairs, in whole or in
part, in the management and control of its affairs and activities. (9 Fletcher 4166, 1982 Ed.)

The purpose of a by-law is to regulate the conduct and define the duties of the members
towards the corporation and among themselves. They are self-imposed and, although
adopted pursuant to statutory authority, have no status as public law. (Ibid.)

Therefore, it is the generally accepted rule that third persons are not bound by by-laws,
except when they have knowledge of the provisions either actually or constructively. In the
case of Fleisher v. Botica Nolasco, 47 Phil. 584, the Supreme Court held that the by-law
restricting the transfer of shares cannot have any effect on the transferee of the shares in
question as he "had no knowledge of such by-law when the shares were assigned to him.
He obtained them in good faith and for a valuable consideration. He was not a privy to the
contract created by the by-law between the shareholder . . .and the Botica Nolasco, Inc. Said
by-law cannot operate to defeat his right as a purchaser. (Emphasis supplied.)

By analogy of the above-cited case, the Commission en banc is of the opinion that said case
is applicable to the present controversy. Appellant-petitioner bank as a third party can not
be bound by appellee-respondent's by-laws. It must be recalled that when appellee-
respondent communicated to appellant-petitioner bank that the pledge agreement was
duly noted in the club's books there was no mention of the shareholder-pledgor's unpaid
 accounts. The transcript of stenographic notes of the June 25, 1991 Hearing reveals that the
pledgor became delinquent only in 1975. Thus, appellant-petitioner was in good faith when
the pledge agreement was contracted.

The Commission en banc also believes that for the exception to the general accepted rule
that third persons are not bound by by-laws to be applicable and binding upon the pledgee,
knowledge of the provisions of the VGCI By-laws must be acquired at the time the pledge
agreement was contracted. Knowledge of said provisions, either actual or constructive, at
the time of foreclosure will not affect pledgee's right over the pledged share. Art. 2087 of
the Civil Code provides that it is also of the essence of these contracts that when the
principal obligation becomes due, the things in which the pledge or mortgage consists
maybe alienated for the payment to the creditor.

In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc., the Commission issued
an opinion to the effect that:

According to the weight of authority, the pledgee's right is entitled to full

protection without surrender of the certificate, their cancellation, and the
issuance to him of new ones, and when done, the pledgee will be fully
protected against a subsequent purchaser who would be charged with
constructive notice that the certificate is covered by the pledge. (12-A
Fletcher 502)

The pledgee is entitled to retain possession of the stock until the pledgor
pays or tenders to him the amount due on the debt secured. In other words,
the pledgee has the right to resort to its collateral for the payment of the
debts. (Ibid, 502)

To cancel the pledged certificate outright and the issuance of new certificate
to a third person who purchased the same certificate covered by the pledge,
will certainly defeat the right of the pledgee to resort to its collateral for the
payment of the debt. The pledgor or his representative or registered
stockholders has no right to require a return of the pledged stock until the
debt for which it was given as security is paid and satisfied, regardless of the
length of time which have elapsed since debt was created. (12-A Fletcher
409)

A bona fide pledgee takes free from any latent or secret equities or liens in favor either of
the corporation or of third persons, if he has no notice thereof, but not otherwise. He also
takes it free of liens or claims that may subsequently arise in favor of the corporation if it
has notice of the pledge, although no demand for a transfer of the stock to the pledgee on
the corporate books has been made. (12-A Fletcher 5634, 1982 ed., citing Snyder v. Eagle
Fruit Co., 75 F2d739) 38

Similarly, VGCCI's contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of
the Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of
a good father of a family, fails to convince. The case of Cruz & Serrano v. Chua A. H. Lee, 39 is clearly not
applicable:
 In applying this provision to the situation before us it must be borne in mind that the
ordinary pawn ticket is a document by virtue of which the property in the thing pledged
passes from hand to hand by mere delivery of the ticket; and the contract of the pledge is,
therefore, absolvable to bearer. It results that one who takes a pawn ticket in pledge
acquires domination over the pledge; and it is the holder who must renew the pledge, if it is
to be kept alive.

It is quite obvious from the aforequoted case that a membership share is quite different in
character from a pawn ticket and to reiterate, petitioner was never informed of Calapatia's unpaid
accounts and the restrictive provisions in VGCCI's by-laws.

Finally, Sec. 63 of the Corporation Code which provides that "no shares of stock against which the
corporation holds any unpaid claim shall be transferable in the books of the corporation" cannot be
utilized by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid subscription,
and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any
other transaction." 40 In the case at bar, the subscription for the share in question has been fully paid as
evidenced by the issuance of Membership Certificate No. 1219. 41 What Calapatia owed the corporation
were merely the monthly dues. Hence, the aforequoted provision does not apply.

WHEREFORE, premises considered, the assailed decision of the Court of Appeals is REVERSED and the
order of the SEC en banc dated 4 June 1993 is hereby AFFIRMED.

SO ORDERED.

G.R. No. 133969 January 26, 2000

NEMESIO GARCIA, petitioner,

vs.
NICOLAS JOMOUAD, Ex-officio Provincial Sheriff of Cebu and SPOUSES JOSE ATINON & SALLY
ATINON,respondents.

KAPUNAN, J.:

In this petition for review on certiorari, Nemesio Garcia (herein petitioner) seeks the reversal of the
Decision, dated 27 October 1997, of the Court of Appeals in CA G.R. CV No. 52255 and its Resolution,
dated 22 April 1998, denying petitioner's motion for reconsideration of said decision.

Petitioner filed with the Regional Trial Court, Branch 23 of Cebu, an action for injunction with prayer for
preliminary injunction against respondents spouses Jose and Sally Atinon and Nicolas Jomouad, ex-
officio sheriff of Cebu. Said action stemmed from an earlier case for collection of sum of money, docketed
as Civil Case No. CEB-10433, before the RTC, Branch 10 of Cebu, filed by the spouses Atinon against Jaime
Dico. In that case (collection of sum of money), the trial court rendered judgment ordering Dico to pay the
spouses Atinon the sum of P900,000.00 plus interests. After said judgment became final and executory,
respondent sheriff proceeded with its execution. In the course thereof, the Proprietary Ownership
Certificate (POC) No. 0668 in the Cebu Country Club, which was in the name of Dico, was levied on and
scheduled for public auction. Claiming ownership over the subject certificate, petitioner filed the
aforesaid action for injunction with prayer for preliminary injunction to enjoin respondents from
proceeding with the auction.
After trial, the lower court rendered its Decision, dated 28 July 1995, dismissing petitioner's complaint
for injunction for lack of merit. On appeal, the CA affirmed in toto the decision of the RTC upon finding
that it committed no reversible error in rendering the same. Hence, this petition.1âwphi1.nêt

Petitioner avers that Dico, the judgment debtor of the spouses Atinon, was employed as manager of his
(petitioner's) Young Auto Supply. In order to assist him in entertaining clients, petitioner "lent" his POC,
then bearing the number 1459, in the Cebu Country Club to Dico so the latter could enjoy the "signing"
privileges of its members. The Club issued POC No. 0668 in the name of Dico. Thereafter, Dico resigned as
manager of petitioner's business. Upon demand of petitioner, Dico returned POC No. 0668 to him. Dico
then executed a Deed of Transfer, dated 18 November 1992, covering the subject certificate in favor of
petitioner. The Club was furnished with a copy of said deed but the transfer was not recorded in the
books of the Club because petitioner failed to present proof of payment of the requisite capital gains tax.

In assailing the decision of the CA, petitioner mainly argues that the appellate court erroneously relied on
Section 63 of the Corporation Code in upholding the levy on the subject certificate to satisfy the judgment
debt of Dico in Civil Case No. CEB-14033. Petitioner contends that the subject stock of certificate, albeit in
the name of Dico, cannot be levied upon the execution to satisfy his judgment debt because even prior to
the institution of the case for collection of sum of money against him:

1. The spouses Atinon had knowledge that Dico already conveyed back the ownership of the
subject, certificate to petitioner;

2. Dico executed a deed of transfer, dated 18 November 1992, covering the subject certificate in
favor of petitioner and the Club was furnished with a copy thereof; and

3. Dico resigned as a proprietary member of the Club and his resignation was accepted by the
board of directors at their meeting on 4 May 1993.

The petition is without merit.

Sec. 63 of the Corporation Code reads:

Sec. 63 Certificate of stock and transfer of shares. — The capital stock of corporations shall be
divided into shares for which certificates signed by the president or vice-president, countersigned
by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued
in accordance with the by-laws. Shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-
fact or other person legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation
showing the names of the parties to the transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation.

The sole issue in this case is similar to that raised in Uson vs. Diosomito,1 i.e., "whether a bona fide transfer
of the shares of a corporation, not registered or noted in the books of the corporation, is valid as against a
subsequent lawful attachment of said shares, regardless of whether the attaching creditor had actual
notice of said transfer or not."2 In that case, we held that the attachment prevails over the unrecorded
transfer stating thus —

[w]e think that the true meaning of the language is, and the obvious intention of the legislature in
using it was, that all transfers of shares should be entered, as here required, on the books of the
corporation. And it is equally clear to us that all transfers of shares not so entered are invalid as to
attaching or execution creditors of the assignors, as well as to the corporation and to subsequent
purchasers in good faith, and, indeed, as to all persons interested, except the parties to such
transfers. All transfers not so entered on the books of the corporation are absolutely void; not
because they are without notice or fraudulent in law or fact, but because they are made so void by
statute.3

Applying the foregoing jurisprudence in this case, we hold that the transfer of the subject certificate made
by Dico to petitioner was not valid as to the spouses Atinon, the judgment creditors, as the same still
stood in the name of Dico, the judgment debtor, at the time of the levy on execution. In addition, as
correctly ruled by the CA, the entry in the minutes of the meeting of the Club's board of directors noting
the resignation of Dico as proprietary member thereof does not constitute compliance with Section 63 of
the Corporation Code. Said provision of law strictly requires the recording of the transfer in the books of
the corporation, and not elsewhere, to be valid as against third parties. Accordingly, the CA committed no
reversible error in rendering the assailed decision.

IN VIEW OF THE FOREGOING, the Court RESOLVED to DENY the petition.

SO ORDERED.1âwphi1.nêt

G.R. No. 124535 September 28, 2001

THE RURAL BANK OF LIPA CITY, INC., THE OFFICERS AND DIRECTORS, BERNARDO BAUTISTA,
JAIME CUSTODIO, OCTAVIO KATIGBAK, FRANCISCO CUSTODIO, and JUANITA BAUTISTA OF THE
RURAL BANK OF LIPA CITY, INC., petitioners,
vs.
HONORABLE COURT OF APPEALS, HONORABLE COMMISSION EN BANC, SECURITIES AND
EXCHANGE COMMISSION, HONORABLE ENRIQUE L. FLORES, JR., in his capacity as Hearing Officer,
REYNALDO VILLANUEVA, SR, AVELINA M. VILLANUEVA, CATALINO VILLANUEVA, ANDRES
GONZALES, AURORA LACERNA, CELSO LAYGO, EDGARDO REYES, ALEJANDRA TONOGAN and ELENA
USI, respondents.

YNARES-SANTIAGO, J.:

Before us is a petition for review on certiorari assailing the Decision of the Court of Appeals dated
February 27, 1996, as well as the Resolution dated March 29, 1996, in CA-G.R. SP No. 38861.

The instant controversy arose from a dispute between the Rural Bank of Lipa City, Incorporated
(hereinafter referred to as the Bank), represented by its officers and members of its Board of Directors,
and certain stockholders of the said bank. The records reveal the following antecedent facts:

Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed a Deed
of Assignment,1 wherein he assigned his shares, as well as those of eight (8) other shareholders under his
control with a total of 10,467 shares, in favor of the stockholders of the Bank represented by its directors
Bernardo Bautista, Jaime Custodio and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr.
and his wife, Avelina, executed an Agreement2 wherein they acknowledged their indebtedness to the
Bank in the amount of Four Million Pesos (P4,000,000.00), and stipulated that said debt will be paid out
of the proceeds of the sale of their real property described in the Agreement.

At a meeting of the Board of Directors of the Bank on November 15, 1993, the Villanueva spouses assured
the Board that their debt would be paid on or before December 31 of that same year; otherwise, the Bank
would be entitled to liquidate their shareholdings, including those under their control. In such an event,
should the proceeds of the sale of said shares fail to satisfy in full the obligation, the unpaid balance shall
be secured by other collateral sufficient therefor.

When the Villanueva spouses failed to settle their obligation to the Bank on the due date, the Board sent
them a letter3 demanding: (1) the surrender of all the stock certificates issued to them; and (2) the
delivery of sufficient collateral to secure the balance of their debt amounting to P3,346,898.54. The
Villanuevas ignored the bank's demands, whereupon their shares of stock were converted into Treasury
Stocks. Later, the Villanuevas, through their counsel, questioned the legality of the conversion of their
shares.4

On January 15, 1994, the stockholders of the Bank met to elect the new directors and set of officers for
the year 1994. The Villanuevas were not notified of said meeting. In a letter dated January 19, 1994, Atty.
Amado Ignacio, counsel for the Villanueva spouses, questioned the legality of the said stockholders'
meeting and the validity of all the proceedings therein. In reply, the new set of officers of the Bank
informed Atty. Ignacio that the Villanuevas were no longer entitled to notice of the said meeting since
they had relinquished their rights as stockholders in favor of the Bank.

Consequently, the Villanueva spouses filed with the Securities and Exchange Commission (SEC), a
petition for annulment of the stockholders' meeting and election of directors and officers on January 15,
1994, with damages and prayer for preliminary injunction5 , docketed as SEC Case No. 02-94-4683.
Joining them as co-petitioners were Catalino Villanueva, Andres Gonzales, Aurora Lacerna, Celso Laygo,
Edgardo Reyes, Alejandro Tonogan, and Elena Usi. Named respondents were the newly-elected officers
and directors of the Rural Bank, namely: Bernardo Bautista, Jaime Custodio, Octavio Katigbak, Francisco
Custodio and Juanita Bautista.

The Villanuevas' main contention was that the stockholders' meeting and election of officers and
directors held on January 15, 1994 were invalid because: (1) they were conducted in violation of the by-
laws of the Rural Bank; (2) they were not given due notice of said meeting and election notwithstanding
the fact that they had not waived their right to notice; (3) they were deprived of their right to vote
despite their being holders of common stock with corresponding voting rights; (4) their names were
irregularly excluded from the list of stockholders; and (5) the candidacy of petitioner Avelina Villanueva
for directorship was arbitrarily disregarded by respondent Bernardo Bautista and company during the
said meeting

On February 16, 1994, the SEC issued a temporary restraining order enjoining the respondents,
petitioners herein, from acting as directors and officers of the Bank, and from performing their duties and
functions as such.6

In their joint Answer,7 the respondents therein raised the following defenses:
 1) The petitioners have no legal capacity to sue;

2) The petition states no cause of action;

3) The complaint is insufficient;

4) The petitioners' claims had already been paid, waived, abandoned, or otherwise extinguished;

5) The petitioners are estopped from challenging the conversion of their shares.

Petitioners, respondents therein, thus moved for the lifting of the temporary restraining order and the
dismissal of the petition for lack of merit, and for the upholding of the validity of the stockholders'
meeting and election of directors and officers held on January 15, 1994. By way of counterclaim,
petitioners prayed for actual, moral and exemplary damages.

On April 6, 1994, the Villanuevas' application for the issuance of a writ of preliminary injunction was
denied by the SEC Hearing Officer on the ground of lack of sufficient basis for the issuance thereof.
However, a motion for reconsideration8 was granted on December 16, 1994, upon finding that since the
Villanuevas' have not disposed of their shares, whether voluntarily or involuntarily, they were still
stockholders entitled to notice of the annual stockholders' meeting was sustained by the SEC.
Accordingly, a writ of preliminary injunction was issued enjoining the petitioners from acting as directors
and officers of the bank.9

Thereafter, petitioners filed an urgent motion to quash the writ of preliminary injunction,10 challenging
the propriety of the said writ considering that they had not yet received a copy of the order granting the
application for the writ of preliminary injunction.

With the impending 1995 annual stockholders' meeting only nine (9) days away, the Villanuevas filed an
Omnibus Motion11 praying that the said meeting and election of officers scheduled on January 14, 1995
be suspended or held in abeyance, and that the 1993 Board of Directors be allowed, in the meantime, to
act as such. One (1) day before the scheduled stockholders meeting, the SEC Hearing Officer granted the
Omnibus Motion by issuing a temporary restraining order preventing petitioners from holding the
stockholders meeting and electing the board of directors and officers of the Bank.12

A petition for Certiorari and Annulment with Damages was filed by the Rural Bank, its directors and
officers before the SEC en banc,13 naming as respondents therein SEC Hearing Officer Enrique L. Flores,
Jr., and the Villanuevas, erstwhile petitioners in SEC Case No. 02-94-4683. The said petition alleged that
the orders dated December 16, 1994 and January 13, 1995, which allowed the issuance of the writ of
preliminary injunction and prevented the bank from holding its 1995 annual stockholders' meeting,
respectively, were issued by the SEC Hearing Officer with grave abuse of discretion amounting to lack or
excess of jurisdiction. Corollarily, the Bank, its directors and its officers questioned the SEC Hearing
Officer's right to restrain the stockholders' meeting and election of officers and directors considering that
the Villanueva spouses and the other petitioners in SEC Case No. 02-94-4683 were no longer
stockholders with voting rights, having already assigned all their shares to the Bank.

In their Comment/Opposition, the Villanuevas and other private respondents argued that the filing of the
petition for certiorari was premature and there was no grave abuse of discretion on the part of the SEC
Hearing Officer, nor did he act without or in excess of his jurisdiction.
On June 7, 1995, the SEC en banc denied the petition for certiorari in an Order,14 which stated:

In the case now before us, petitioners could not show any proof of despotic or arbitrary exercise of
discretion committed by the hearing officer in issuing the assailed orders save and except the
allegation that the private respondents have already transferred their stockholdings in favor of the
stockholders of the Bank. This, however, is the very issue of the controversy in the case a quo and
which, to our mind, should rightfully be litigated and proven before the hearing officer. This is so
because of the undisputed fact the (sic) private respondents are still in possession of the stock
certificates evidencing their stockholdings and as held by the Supreme Court in Embassy Farms,
Inc. v. Court of Appeals, et al., 188 SCRA 492, citing Nava v. Peers Marketing Corp., the non-delivery
of the stock certificate does not make the transfer of the shares of stock effective. For an effective
transfer of stock, the mode of transfer as prescribed by law must be followed.

We likewise find that the provision of the Corporation Code cited by the herein petitioner,
particularly Section 83 thereof, to support the claim that the private respondents are no longer
stockholders of the Bank is misplaced. The said law applies to acquisition of shares of stock by the
corporation in the exercise of a stockholder's right of appraisal or when the said stockholder opts
to dissent on a specific corporate act in those instances provided by law and demands the
payment of the fair value of his shares. It does not contemplate a "transfer" whereby the
stockholder, in the exercise of his right to dispose of his shares (jus disponendi) sells or assigns his
stockholdings in favor of another person where the provisions of Section 63 of the same Code
should be complied with.

The hearing officer, therefore, had a basis in issuing the questioned orders since the private
respondents' rights as stockholders may be prejudiced should the writ of injunction not be issued.
The private respondents are presumably stockholders of the Bank in view of the fact that they
have in their possession the stock certificates evidencing their stockholdings. Until proven
otherwise, they remain to be such and the hearing officer, being the one directly confronted with
the facts and pieces of evidence in the case, may issue such orders and resolutions which may be
necessary or reasonable relative thereto to protect their rights and interest in the meantime that
the said case is still pending trial on the merits.

A subsequent motion for reconsideration15 was likewise denied by the SEC en banc in a
Resolution16 dated September 29, 1995.

A petition for review was thus filed before the Court of Appeals, which was docketed as CA-G.R. SP No.
38861, assailing the Order dated June 7, 1995 and the Resolution dated September 29, 1995 of the SEC en
banc in SEC EB No. 440. The ultimate issue raised before the Court of Appeals was whether or not the
SEC en banc erred in finding:

1. That the Hon. Hearing Officer in SEC Case No. 02-94-4683 did not commit any grave abuse of
discretion that would warrant the filing of a petition for certiorari;

2. That the private respondents are still stockholders of the subject bank and further stated that "it
does not contemplate a transfer" whereby the stockholders, in the exercise of his right to dispose
of his shares (Jus Disponendi) sells or assigns his stockholdings in favor of another person where
the provisions of Sec. 63 of the same Code should be complied with; and
 3. That the private respondents are presumably stockholders of the bank in view of the fact that
they have in their possession the stock certificates evidencing their stockholdings.

On February 27, 1996, the Court of Appeals rendered the assailed Decision17 dismissing the petition for
review for lack of merit. The appellate court found that:

The public respondent is correct in holding that the Hearing Officer did not commit grave abuse of
discretion. The officer, in exercising his judicial functions, did not exercise his judgment in a
capricious, whimsical, arbitrary or despotic manner. The questioned Orders issued by the Hearing
Officer were based on pertinent law and the facts of the case.

Section 63 of the Corporation Code states: "x x x Shares of stock so issued are personal property
and may be transferred by delivery of the certificate or certificates indorsed by the owner x x x. No
transfer, however, shall be valid, except as between the parties, until the transfer is recorded in
the books of the corporation so as to show the names of the parties to the transaction, the date of
the transfer, the number of the certificate or certificates and the number of shares transferred."

In the case at bench, when private respondents executed a deed of assignment of their shares of
stocks in favor of the Stockholders of the Rural Bank of Lipa City, represented by Bernardo
Bautista, Jaime Custodio and Octavio Katigbak, title to such shares will not be effective unless the
duly indorsed certificate of stock is delivered to them. For an effective transfer of shares of stock,
the mode and manner of transfer as prescribed by law should be followed. Private respondents
are still presumed to be the owners of the shares and to be stockholders of the Rural Bank.

We find no reversible error in the questioned orders.

Petitioners' motion for reconsideration was likewise denied by the Court of Appeals in an Order18 dated
March 29, 1996.

Hence, the instant petition for review seeking to annul the Court of Appeals' decision dated February 27,
1996 and the resolution dated March 29, 1996. In particular, the decision is challenged for its ruling that
notwithstanding the execution of the deed of assignment in favor of the petitioners, transfer of title to
such shares is ineffective until and unless the duly indorsed certificate of stock is delivered to them.
Moreover, petitioners faulted the Court of Appeals for not taking into consideration the acts of disloyalty
committed by the Villanueva spouses against the Bank.

We find no merit in the instant petition.

The Court of Appeals did not err or abuse its discretion in affirming the order of the SEC en banc, which in
turn upheld the order of the SEC Hearing Officer, for the said rulings were in accordance with law and
jurisprudence.

The Corporation Code specifically provides:

SECTION 63. Certificate of stock and transfer of shares. — The capital stock of stock corporations
shall be divided into shares for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation
shall be issued in accordance with the by-laws. Shares of stocks so issued are personal property and
 may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-
in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation so as to
show the names of the parties to the transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in
the books of the corporation. (Emphasis ours)

Petitioners argue that by virtue of the Deed of Assignment,19 private respondents had relinquished to
them any and all rights they may have had as stockholders of the Bank. While it may be true that there
was an assignment of private respondents' shares to the petitioners, said assignment was not sufficient to
effect the transfer of shares since there was no endorsement of the certificates of stock by the owners,
their attorneys-in-fact or any other person legally authorized to make the transfer. Moreover, petitioners
admit that the assignment of shares was not coupled with delivery, the absence of which is a fatal defect.
The rule is that the delivery of the stock certificate duly endorsed by the owner is the operative act of
transfer of shares from the lawful owner to the transferee.20 Thus, title may be vested in the transferee
only by delivery of the duly indorsed certificate of stock.21

We have uniformly held that for a valid transfer of stocks, there must be strict compliance with the mode
of transfer prescribed by law.22 The requirements are: (a) There must be delivery of the stock certificate:
(b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally
authorized to make the transfer; and (c) To be valid against third parties, the transfer must be recorded
in the books of the corporation. As it is, compliance with any of these requisites has not been clearly and
sufficiently shown.

It may be argued that despite non-compliance with the requisite endorsement and delivery, the
assignment was valid between the parties, meaning the private respondents as assignors and the
petitioners as assignees. While the assignment may be valid and binding on the petitioners and private
respondents, it does not necessarily make the transfer effective. Consequently, the petitioners, as mere
assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not be entitled
to dividends, insofar as the assigned shares are concerned Parenthetically, the private respondents
cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of ownership and
transfer of the shares in question is resolved with finality.

There being no showing that any of the requisites mandated by law23 was complied with, the SEC Hearing
Officer did not abuse his discretion in granting the issuance of the preliminary injunction prayed for by
petitioners in SEC Case No. 02-94-4683 (herein private respondents). Accordingly, the order of the SEC
en banc affirming the ruling of the SEC Hearing Officer, and the Court of Appeals decision upholding the
SEC en banc order, are valid and in accordance with law and jurisprudence, thus warranting the denial of
the instant petition for review.

To enable the shareholders of the Rural Bank of Lipa City, Inc. to meet and elect their directors, the
temporary restraining order issued by the SEC Hearing Officer on January 13, 1995 must be lifted.
However, private respondents shall be notified of the meeting and be allowed to exercise their rights as
stockholders thereat.
While this case was pending, Republic Act No. 879924 was enacted, transferring to the courts of general
jurisdiction or the appropriate Regional Trial Court the SEC's jurisdiction over all cases enumerated
under Section 5 of Presidential Decree No. 902-A.25 One of those cases enumerated is any controversy
"arising out of intra-corporate or partnership relations, between and among stockholders, members, or
associates, between any and/or all of them and the corporation, partnership or association of which they
are stockholders, members or associates, respectively; and between such corporation, partnership or
association and the state insofar as it concerns their individual franchise or right to exist as such entity."
The instant controversy clearly falls under this category of cases which are now cognizable by the
Regional Trial Court.

Pursuant to Section 5.2 of R.A. No. 8799, this Court designated specific branches of the Regional Trial
Courts to try and decide cases formerly cognizable by the SEC. For the Fourth Judicial Region, specifically
in the Province of Batangas, the RTC of Batangas City, Branch 32 is the designated court.26

WHEREFORE, in view of all the foregoing, the instant petition for review on certiorari is DENIED. The
Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 38861 are hereby AFFIRMED. The case
is ordered REMANDED to the Regional Trial Court of Batangas City, Branch 32, for proper disposition.
The temporary restraining order issued by the SEC Hearing Officer dated January 13, 1995 is ordered
LIFTED.

SO ORDERED.

G.R. NO. 139802 December 10, 2002

VICENTE C. PONCE, petitioner,

vs.
ALSONS CEMENT CORPORATION, and FRANCISCO M. GIRON, JR., respondents.

DECISION

QUISUMBING, J.:

This petition for review seeks to annul the decision1 of the Court of Appeals, in CA-G.R. SP No. 46692,
which set aside the decision2 of the Securities and Exchange Commission (SEC) En Banc in SEC-AC No.
545 and reinstated the order3 of the Hearing Officer dismissing herein petitioner’s complaint. Also
assailed is the CA’s resolution4 of August 10, 1999, denying petitioner’s motion for reconsideration.

On January 25, 1996, plaintiff (now petitioner) Vicente C. Ponce, filed a complaint5 with the SEC for
mandamus and damages against defendants (now respondents) Alsons Cement Corporation and its
corporate secretary Francisco M. Giron, Jr. In his complaint, petitioner alleged, among others, that:

xxx

5. The late Fausto G. Gaid was an incorporator of Victory Cement Corporation (VCC), having
subscribed to and fully paid 239,500 shares of said corporation.

6. On February 8, 1968, plaintiff and Fausto Gaid executed a "Deed of Undertaking" and
"Indorsement" whereby the latter acknowledges that the former is the owner of said shares and
 he was therefore assigning/endorsing the same to the plaintiff. A copy of the said
deed/indorsement is attached as Annex "A".

7. On April 10, 1968, VCC was renamed Floro Cement Corporation (FCC for brevity).

8. On October 22, 1990, FCC was renamed Alsons Cement Corporation (ACC for brevity) as shown
by the Amended Articles of Incorporation of ACC, a copy of which is attached as Annex "B".

9. From the time of incorporation of VCC up to the present, no certificates of stock corresponding
to the 239,500 subscribed and fully paid shares of Gaid were issued in the name of Fausto G. Gaid
and/or the plaintiff.

10. Despite repeated demands, the defendants refused and continue to refuse without any
justifiable reason to issue to plaintiff the certificates of stocks corresponding to the 239,500 shares
of Gaid, in violation of plaintiff’s right to secure the corresponding certificate of stock in his name.6

Attached to the complaint was the Deed of Undertaking and Indorsement7 upon which petitioner based
his petition for mandamus. Said deed and indorsement read as follows:

DEED OF UNDERTAKING

KNOW ALL MEN BY THESE PRESENTS:

I, VICENTE C. PONCE, is the owner of the total subscription of Fausto Gaid with Victory Cement
Corporation in the total amount of TWO HUNDRED THIRTY NINE THOUSAND FIVE HUNDRED
(P239,500.00) PESOS and that Fausto Gaid does not have any liability whatsoever on the subscription
agreement in favor of Victory Cement Corporation.

(SGD.) VICENTE C. PONCE

February 8, 1968

CONFORME:

(SGD.) FAUSTO GAID

INDORSEMENT

I, FAUSTO GAID is indorsing the total amount of TWO HUNDRED THIRTY NINE THOUSAND FIVE
HUNDRED (239,500.00) stocks of Victory Cement Corporation to VICENTE C. PONCE.

(SGD.) FAUSTO GAID

With these allegations, petitioner prayed that judgment be rendered ordering respondents (a) to issue in
his name certificates of stocks covering the 239,500 shares of stocks and its legal increments and (b) to
pay him damages.8
Instead of filing an answer, respondents moved to dismiss the complaint on the grounds that: (a) the
complaint states no cause of action; mandamus is improper and not available to petitioner; (b) the
petitioner is not the real party in interest; (c) the cause of action is barred by the statute of limitations;
and (d) in any case, the petitioner’s cause of action is barred by laches.9 They argued, inter alia, that there
being no allegation that the alleged "INDORSEMENT" was recorded in the books of the corporation, said
indorsement by Gaid to the plaintiff of the shares of stock in question—assuming that the indorsement
was in fact a transfer of stocks—was not valid against third persons such as ALSONS under Section 63 of
the Corporation Code.10 There was, therefore, no specific legal duty on the part of the respondents to
issue the corresponding certificates of stock, and mandamus will not lie.11

Petitioner filed his opposition to the motion to dismiss on February 19, 1996 contending that: (1)
mandamus is the proper remedy when a corporation and its corporate secretary wrongfully refuse to
record a transfer of shares and issue the corresponding certificates of stocks; (2) he is the proper party in
interest since he stands to be benefited or injured by a judgment in the case; (3) the statute of limitations
did not begin to run until defendant refused to issue the certificates of stock in favor of the plaintiff on
April 13, 1992.

After respondents filed their reply, SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to
dismiss in an Order dated February 29, 1996, which held that:

xxx

Insofar as the issuance of certificates of stock is concerned, the real party in interest is Fausto G. Gaid, or
his estate or his heirs. Gaid was an incorporator and an original stockholder of the defendant corporation
who subscribed and fully paid for 239,500 shares of stock (Annex "B"). In accordance with Section 37 of
the old Corporation Law (Act No. 1459) obtaining in 1968 when the defendant corporation was
incorporated, as well as Section 64 of the present Corporation Code (Batas Pambansa Blg. 68), a
stockholder who has fully paid for his subscription together with interest and expenses in case of
delinquent shares, is entitled to the issuance of a certificate of stock for his shares. According to
paragraph 9 of the Complaint, no stock certificate was issued to Gaid.

Comes now the plaintiff who seeks to step into the shoes of Gaid and thereby become a stockholder of the
defendant corporation by demanding issuance of the certificates of stock in his name. This he cannot do,
for two reasons: there is no record of any assignment or transfer in the books of the defendant
corporation, and there is no instruction or authority from the transferor (Gaid) for such assignment or
transfer. Indeed, nothing is alleged in the complaint on these two points.

xxx

In the present case, there is not even any indorsement of any stock certificate to speak of. What the
plaintiff possesses is a document by which Gaid supposedly transferred the shares to him. Assuming the
document has this effect, nevertheless there is neither any allegation nor any showing that it is recorded
in the books of the defendant corporation, such recording being a prerequisite to the issuance of a stock
certificate in favor of the transferee.12

Petitioner appealed the Order of dismissal. On January 6, 1997, the Commission En Banc reversed the
appealed Order and directed the Hearing Officer to proceed with the case. In ruling that a transfer or
assignment of stocks need not be registered first before it can take cognizance of the case to enforce the
petitioner’s rights as a stockholder, the Commission En Banc cited our ruling in Abejo vs. De la Cruz, 149
SCRA 654 (1987) to the effect that:

xxx As the SEC maintains, "There is no requirement that a stockholder of a corporation must be a
registered one in order that the Securities and Exchange Commission may take cognizance of a suit
seeking to enforce his rights as such stockholder". This is because the SEC by express mandate has
"absolute jurisdiction, supervision and control over all corporations" and is called upon to enforce the
provisions of the Corporation Code, among which is the stock purchaser’s right to secure the
corresponding certificate in his name under the provisions of Section 63 of the Code. Needless to say, any
problem encountered in securing the certificates of stock representing the investment made by the buyer
must be expeditiously dealt with through administrative mandamus proceedings with the SEC, rather
than through the usual tedious regular court procedure. xxx

Applying this principle in the case on hand, a transfer or assignment of stocks need not be registered first
before the Commission can take cognizance of the case to enforce his rights as a stockholder. Also, the
problem encountered in securing the certificates of stock made by the buyer must be expeditiously taken
up through the so-called administrative mandamus proceedings with the SEC than in the regular courts.13

The Commission En Banc also found that the Hearing Officer erred in holding that petitioner is not the
real party in interest.

xxx

As appearing in the allegations of the complaint, plaintiff-appellant is the transferee of the shares of stock
of Gaid and is therefore entitled to avail of the suit to obtain the proper remedy to make him the rightful
owner and holder of a stock certificate to be issued in his name. Moreover, defendant-appellees failed to
show that the transferor nor his heirs have refuted the ownership of the transferee. Assuming these
allegations to be true, the corporation has a mere ministerial duty to register in its stock and transfer
book the shares of stock in the name of the plaintiff-appellant subject to the determination of the validity
of the deed of assignment in the proper tribunal. 14

Their motion for reconsideration having been denied, herein respondents appealed the decision15 of the
SEC En Banc and the resolution16 denying their motion for reconsideration to the Court of Appeals.

In its decision, the Court of Appeals held that in the absence of any allegation that the transfer of the
shares between Fausto Gaid and Vicente C. Ponce was registered in the stock and transfer book of
ALSONS, Ponce failed to state a cause of action. Thus, said the CA, "the complaint for mandamus should be
dismissed for failure to state a cause of action."17 petitioner’s motion for reconsideration was likewise
denied in a resolution18 dated August 10, 1999.

Hence, the instant petition for review on certiorari alleging that:

I. … THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPLAINT FOR
ISSUANCE OF A CERTIFICATE OF STOCK FILED BY PETITIONER FAILED TO STATE A CAUSE OF
ACTION BECAUSE IT DID NOT ALLEGE THAT THE TRANSFER OF THE SHARES (SUBJECT MATTER
OF THE COMPLAINT) WAS REGISTERED IN THE STOCK AND TRANSFER BOOK OF THE
CORPORATION, CITING SECTION 63 OF THE CORPORATION CODE.
 II. … THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASES OF "ABEJO VS.
DE LA CRUZ", 149 SCRA 654 AND "RURAL BANK OF SALINAS, INC., ET AL VS. COURT OF APPEALS,
ET AL.", G.R. NO. 96674, JUNE 26, 1992.

III. … THE HONORABLE COURT OF APPEALS ERRED IN APPLYING A 1911 CASE, "HAGER VS.
BRYAN", 19 PHIL. 138, TO DISMISS THE COMPLAINT FOR ISSUANCE OF A CERTIFICATE OF
STOCK.19

At issue is whether the Court of Appeals erred in holding that herein petitioner has no cause of action for
a writ of mandamus.

Petitioner first contends that the act of recording the transfer of shares in the stock and transfer book and
that of issuing a certificate of stock for the transferred shares involves only one continuous process. Thus,
when a corporate secretary is presented with a document of transfer of fully paid shares, it is his duty to
record the transfer in the stock and transfer book of the corporation, issue a new stock certificate in the
name of the transferee, and cancel the old one. A transferee who requests for the issuance of a stock
certificate need not spell out each and every act that needs to be done by the corporate secretary, as a
request for issuance of stock certificates necessarily includes a request for the recording of the transfer.
Ergo, the failure to record the transfer does not mean that the transferee cannot ask for the issuance of
stock certificates.

Secondly, according to petitioner, there is no law, rule or regulation requiring a transferor of shares of
stock to first issue express instructions or execute a power of attorney for the transfer of said shares
before a certificate of stock is issued in the name of the transferee and the transfer registered in the
books of the corporation. He contends that Hager vs. Bryan, 19 Phil. 138 (1911), and Rivera vs. Florendo,
144 SCRA 643 (1986), cited by respondents, do not apply to this case. These cases contemplate a
situation where a certificate of stock has been issued by the company whereas in this case at bar, no stock
certificates have been issued even in the name of the original stockholder, Fausto Gaid.

Finally, petitioner maintains that since he is under no compulsion to register the transfer or to secure
stock certificates in his name, his cause of action is deemed not to have accrued until respondent ALSONS
denied his request.

Respondents, in their comment, maintain that the transfer of shares of stock not recorded in the stock
and transfer book of the corporation is non-existent insofar as the corporation is concerned and no
certificate of stock can be issued in the name of the transferee. Until the recording is made, the transfer
cannot be the basis of issuance of a certificate of stock. They add that petitioner is not the real party in
interest, the real party in interest being Fausto Gaid since it is his name that appears in the records of the
corporation. They conclude that petitioner’s cause of action is barred by prescription and laches since 24
years elapsed before he made any demand upon ALSONS.

We find the instant petition without merit. The Court of Appeals did not err in ruling that petitioner had
no cause of action, and that his petition for mandamus was properly dismissed.

There is no question that Fausto Gaid was an original subscriber of respondent corporation’s 239,500
shares. This is clear from the numerous pleadings filed by either party. It is also clear from the Amended
Articles of Incorporation20 approved on August 9, 199521 that each share had a par value of P1.00 per
share. And, it is undisputed that petitioner had not made a previous request upon the corporate secretary
of ALSONS, respondent Francisco M. Giron Jr., to record the alleged transfer of stocks.

The Corporation Code states that:

SEC. 63. Certificate of stock and transfer of shares.–The capital stock of stock corporations shall be
divided into shares for which certificates signed by the president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance
with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of
the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until
the transfer is recorded in the books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the number of shares
transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation.

Pursuant to the foregoing provision, a transfer of shares of stock not recorded in the stock and transfer
book of the corporation is non-existent as far as the corporation is concerned.22 As between the
corporation on the one hand, and its shareholders and third persons on the other, the corporation looks
only to its books for the purpose of determining who its shareholders are.23 It is only when the transfer
has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee
as one of its stockholders. From this time, the consequent obligation on the part of the corporation to
recognize such rights as it is mandated by law to recognize arises.

Hence, without such recording, the transferee may not be regarded by the corporation as one among its
stockholders and the corporation may legally refuse the issuance of stock certificates in the name of the
transferee even when there has been compliance with the requirements of Section 6424 of the
Corporation Code. This is the import of Section 63 which states that "No transfer, however, shall be valid,
except between the parties, until the transfer is recorded in the books of the corporation showing the
names of the parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred." The situation would be different if the petitioner was
himself the registered owner of the stock which he sought to transfer to a third party, for then he would
be entitled to the remedy of mandamus.25

From the corporation’s point of view, the transfer is not effective until it is recorded. Unless and until
such recording is made the demand for the issuance of stock certificates to the alleged transferee has no
legal basis. As between the corporation on the one hand, and its shareholders and third persons on the
other, the corporation looks only to its books for the purpose of determining who its shareholders
are.26 In other words, the stock and transfer book is the basis for ascertaining the persons entitled to the
rights and subject to the liabilities of a stockholder. Where a transferee is not yet recognized as a
stockholder, the corporation is under no specific legal duty to issue stock certificates in the transferee’s
name.

It follows that, as held by the Court of Appeals:

x x x until registration is accomplished, the transfer, though valid between the parties, cannot be effective
as against the corporation. Thus, in the absence of any allegation that the transfer of the shares between
Gaid and the private respondent [herein petitioner] was registered in the stock and transfer book of the
petitioner corporation, the private respondent has failed to state a cause of action.27

Petitioner insists that it is precisely the duty of the corporate secretary, when presented with the
document of fully paid shares, to effect the transfer by recording the transfer in the stock and transfer
book of the corporation and to issue stock certificates in the name of the transferee. On this point, the SEC
En Banc cited Rural Bank of Salinas, Inc. vs. Court of Appeals, 28 where we held that:

For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in its stock and
transfer book, which duty is ministerial on its part, is to render nugatory and ineffectual the spirit and
intent of Section 63 of the Corporation Code. Thus, respondent Court of Appeals did not err in upholding
the decision of respondent SEC affirming the Decision of its Hearing Officer directing the registration of
the 473 shares in the stock and transfer book in the names of private respondents. At all events, the
registration is without prejudice to the proceedings in court to determine the validity of the Deeds of
Assignment of the shares of stock in question.

In Rural Bank of Salinas, Inc., however, private respondent Melania Guerrero had a Special Power of
Attorney executed in her favor by Clemente Guerrero, the registered stockholder. It gave Guerrero full
authority to sell or otherwise dispose of the 473 shares of stock registered in Clemente’s name and to
execute the proper documents therefor. Pursuant to the authority so given, Melania assigned the 473
shares of stock owned by Guerrero and presented to the Rural Bank of Salinas the deeds of assignment
covering the assigned shares. Melania Guerrero prayed for the transfer of the stocks in the stock and
transfer book and the issuance of stock certificates in the name of the new owners thereof. Based on
those circumstances, there was a clear duty on the part of the corporate secretary to register the 473
shares in favor of the new owners, since the person who sought the transfer of shares had express
instructions from and specific authority given by the registered stockholder to cause the disposition of
stocks registered in his name.

That cannot be said of this case. The deed of undertaking with indorsement presented by petitioner does
not establish, on its face, his right to demand for the registration of the transfer and the issuance of
certificates of stocks. In Hager vs. Bryan, 19 Phil. 138 (1911), this Court held that a petition for
mandamus fails to state a cause of action where it appears that the petitioner is not the registered
stockholder and there is no allegation that he holds any power of attorney from the registered
stockholder, from whom he obtained the stocks, to make the transfer, thus:

It appears, however, from the original as well as the amended petition, that this petitioner is not the
registered owner of the stock which he seeks to have transferred, and except in so far as he alleges that
he is the owner of the stock and that it was "indorsed" to him on February 5 by the Bryan-Landon
Company, in whose name it is registered on the books of the Visayan Electric Company, there is no
allegation that the petitioner holds any power of attorney from the Bryan-Landon Company authorizing
him to make demand on the secretary of the Visayan Electric Company to make the transfer which
petitioner seeks to have made through the medium of the mandamus of this court.

Without discussing or deciding the respective rights of the parties which might be properly asserted in an
ordinary action or an action in the nature of an equitable suit, we are all agreed that in a case such as that
at bar, a mandamus should not issue to compel the secretary of a corporation to make a transfer of the
stock on the books of the company, unless it affirmatively appears that he has failed or refused so to do,
upon the demand either of the person in whose name the stock is registered, or of some person holding a
power of attorney for that purpose from the registered owner of the stock. There is no allegation in the
petition that the petitioner or anyone else holds a power of attorney from the Bryan-Landon Company
authorizing a demand for the transfer of the stock, or that the Bryan-Landon Company has ever itself
made such demand upon the Visayan Electric Company, and in the absence of such allegation we are not
able to say that there was such a clear indisputable duty, such a clear legal obligation upon the
respondent, as to justify the issuance of the writ to compel him to perform it.

Under the provisions of our statute touching the transfer of stock (secs. 35 and 36 of Act No. 1459),29 the
mere indorsement of stock certificates does not in itself give to the indorsee such a right to have a
transfer of the shares of stock on the books of the company as will entitle him to the writ of mandamus to
compel the company and its officers to make such transfer at his demand, because, under such
circumstances the duty, the legal obligation, is not so clear and indisputable as to justify the issuance of
the writ. As a general rule and especially under the above-cited statute, as between the corporation on
the one hand, and its shareholders and third persons on the other, the corporation looks only to its books
for the purpose of determining who its shareholders are, so that a mere indorsee of a stock certificate,
claiming to be the owner, will not necessarily be recognized as such by the corporation and its officers, in
the absence of express instructions of the registered owner to make such transfer to the indorsee, or a
power of attorney authorizing such transfer.30

In Rivera vs. Florendo, 144 SCRA 643, 657 (1986), we reiterated that a mere indorsement by the
supposed owners of the stock, in the absence of express instructions from them, cannot be the basis of an
action for mandamus and that the rights of the parties have to be threshed out in an ordinary action. That
Hager and Rivera involved petitions for mandamus to compel the registration of the transfer, while this
case is one for issuance of stock, is of no moment. It has been made clear, thus far, that before a transferee
may ask for the issuance of stock certificates, he must first cause the registration of the transfer and
thereby enjoy the status of a stockholder insofar as the corporation is concerned. A corporate secretary
may not be compelled to register transfers of shares on the basis merely of an indorsement of stock
certificates. With more reason, in our view, a corporate secretary may not be compelled to issue stock
certificates without such registration.31

Petitioner’s reliance on our ruling in Abejo vs. De la Cruz, 149 SCRA 654 (1987), that notice given to the
corporation of the sale of the shares and presentation of the certificates for transfer is equivalent to
registration is misplaced. In this case there is no allegation in the complaint that petitioner ever gave
notice to respondents of the alleged transfer in his favor. Moreover, that case arose between and among
the principal stockholders of the corporation, Pocket Bell, due to the refusal of the corporate secretary to
record the transfers in favor of Telectronics of the corporation’s controlling 56% shares of stock which
were covered by duly endorsed stock certificates. As aforesaid, the request for the recording of a transfer
is different from the request for the issuance of stock certificates in the transferee’s name. Finally, in
Abejo we did not say that transfer of shares need not be recorded in the books of the corporation before
the transferee may ask for the issuance of stock certificates. The Court’s statement, that "there is no
requirement that a stockholder of a corporation must be a registered one in order that the Securities and
Exchange Commission may take cognizance of a suit seeking to enforce his rights as such stockholder
among which is the stock purchaser’s right to secure the corresponding certificate in his name,"32 was
addressed to the issue of jurisdiction, which is not pertinent to the issue at hand.
Absent an allegation that the transfer of shares is recorded in the stock and transfer book of respondent
ALSONS, there appears no basis for a clear and indisputable duty or clear legal obligation that can be
imposed upon the respondent corporate secretary, so as to justify the issuance of the writ of mandamus
to compel him to perform the transfer of the shares to petitioner. The test of sufficiency of the facts
alleged in a petition is whether or not, admitting the facts alleged, the court could render a valid judgment
thereon in accordance with the prayer of the petition.33 This test would not be satisfied if, as in this case,
not all the elements of a cause of action are alleged in the complaint.34 Where the corporate secretary is
under no clear legal duty to issue stock certificates because of the petitioner’s failure to record earlier the
transfer of shares, one of the elements of the cause of action for mandamus is clearly missing.

That petitioner was under no obligation to request for the registration of the transfer is not in issue. It
has no pertinence in this controversy. One may own shares of corporate stock without possessing a stock
certificate. In Tan vs. SEC, 206 SCRA 740 (1992), we had occasion to declare that a certificate of stock is
not necessary to render one a stockholder in a corporation. But a certificate of stock is the tangible
evidence of the stock itself and of the various interests therein. The certificate is the evidence of the
holder’s interest and status in the corporation, his ownership of the share represented thereby. The
certificate is in law, so to speak, an equivalent of such ownership. It expresses the contract between the
corporation and the stockholder, but it is not essential to the existence of a share in stock or the creation
of the relation of shareholder to the corporation.35 In fact, it rests on the will of the stockholder whether
he wants to be issued stock certificates, and a stockholder may opt not to be issued a certificate. In Won
vs. Wack Wack Golf and Country Club, Inc., 104 Phil. 466 (1958), we held that considering that the law
does not prescribe a period within which the registration should be effected, the action to enforce the
right does not accrue until there has been a demand and a refusal concerning the transfer. In the present
case, petitioner’s complaint for mandamus must fail, not because of laches or estoppel, but because he
had alleged no cause of action sufficient for the issuance of the writ.

WHEREFORE, the petition is DENIED for lack of merit. The decision of the Court of Appeals, in CA-G.R. SP
No. 46692, which set aside that of the Securities and Exchange Commission En Banc in SEC-AC No. 545
and reinstated the order of the Hearing Officer, is hereby AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 202079 June 10, 2013

FIL-ESTATE GOLF AND DEVELOPMENT, INC. and FILESTATE LAND, INC., Petitioners,
vs.
VERTEX SALES AND TRADING, INC., Respondent.

DECISION

BRION, J.:

Before the Court is the petition for review on certiorari1 under Rule 45 of the Rules of Court, filed by
petitioners Fil-Estate Golf and Development, Inc. (FEGDI) and Fil-Estate Land, Inc. (FELl), assailing the
decision2 dated February 22, 2012 and the resolution3 dated May 31, 2012 of the Court of Appeals (CA) in
CA-G.R. CV No. 89296. The assailed CA rulings reversed the decision dated March 1, 2007 of the Regional
Trial Court (RTC) of Pasig City, Branch 161, in Civil Case No. 68791.4

THE FACTS

FEGDI is a stock corporation whose primary business is the development of golf courses. FELI is also a
stock corporation, but is engaged in real estate development. FEGDI was the developer of the Forest Hills
Golf and Country Club (Forest Hills) and, in consideration for its financing support and construction
efforts, was issued several shares of stock of Forest Hills.

Sometime in August 1997, FEGDI sold, on installment, to RS Asuncion Construction Corporation (RSACC)
one Class "C" Common Share of Forest Hills for ₱1,100,000.00. Prior to the full payment of the purchase
price, RSACC sold, on February 11, 1999,5 the Class "C" Common Share to respondent Vertex Sales and
Trading, Inc. (Vertex). RSACC advised FEGDI of the sale to Vertex and FEGDI, in turn, instructed Forest
Hills to recognize Vertex as a shareholder. For this reason, Vertex enjoyed membership privileges in
Forest Hills.

Despite Vertex’s full payment, the share remained in the name of FEGDI. Seventeen (17) months after the
sale (or on July 28, 2000), Vertex wrote FEDGI a letter demanding the issuance of a stock certificate in its
name. FELI replied, initially requested Vertex to first pay the necessary fees for the transfer. Although
Vertex complied with the request, no certificate was issued. This prompted Vertex to make a final
demand on March 17, 2001. As the demand went unheeded, Vertex filed on January 7, 2002 a Complaint
for Rescission with Damages and Attachment against FEGDI, FELI and Forest Hills. It averred that the
petitioners defaulted in their obligation as sellers when they failed and refused to issue the stock
certificate covering the subject share despite repeated demands. On the basis of its rights under Article
1191 of the Civil Code, Vertex prayed for the rescission of the sale and demanded the reimbursement of
the amount it paid (or ₱1,100,000.00), plus interest. During the pendency of the rescission action (or on
January 23, 2002), a certificate of stock was issued in Vertex’s name, but Vertex refused to accept it.

RULING OF THE RTC

The RTC dismissed the complaint for insufficiency of evidence. It ruled that delay in the issuance of stock
certificates does not warrant rescission of the contract as this constituted a mere casual or slight breach.
It also observed that notwithstanding the delay in the issuance of the stock certificate, the sale had
already been consummated; the issuance of the stock certificate is just a collateral matter to the sale and
the stock certificate is not essential to "the creation of the relation of shareholder."6

RULING OF THE CA

Vertex appealed the dismissal of its complaint. In its decision, the CA reversed the RTC and rescinded the
sale of the share. Citing Section 63 of the Corporation Code, the CA held that there can be no valid transfer
of shares where there is no delivery of the stock certificate. It considered the prolonged issuance of the
stock certificate a substantial breach that served as basis for Vertex to rescind the sale. 7 The CA ordered
the petitioners to return the amounts paid by Vertex by reason of the sale.

THE PARTIES’ ARGUMENTS

FEGDI and FELI filed the present petition for review on certiorari to assail the CA rulings. They contend
that the CA erred when it reversed the RTC’s dismissal of Vertex’s complaint, declaring that the delay in
the issuance of a stock certificate constituted as substantial breach that warranted a rescission.

FEGDI argued that the delay cannot be considered a substantial breach because Vertex was unequivocally
recognized as a shareholder of Forest Hills. In fact, Vertex’s nominees became members of Forest Hills
and fully enjoyed and utilized all its facilities. It added that RSACC also used its shareholder rights and
eventually sold its share to Vertex despite the absence of a stock certificate. In light of these
circumstances, delay in the issuance of a stock certificate cannot be considered a substantial breach.

For its part, FELI stated that it is not a party to the contract sought to be rescinded. It argued that it was
just recklessly dragged into the action due to a mistake committed by FEGDI’s staff on two instances. The
first was when their counsel used the letterhead of FELI instead of FEGDI in its reply-letter to Vertex; the
second was when they used the receipt of FELI for receipt of the documentary stamp tax paid by Vertex.

In its comment to the petition,8 Vertex alleged that the fulfillment of its obligation to pay the purchase
price called into action the petitioners’ reciprocal obligation to deliver the stock certificate. Since there
was delay in the issuance of a certificate for more than three years, then it should be considered a
substantial breach warranting the rescission of the sale. Vertex further alleged that its use and enjoyment
of Forest Hills’ facilities cannot be considered delivery and transfer of ownership.

THE ISSUE

Given the parties’ arguments, the sole issue for the Court to resolve is whether the delay in the issuance
of a stock certificate can be considered a substantial breach as to warrant rescission of the contract of
sale.

THE COURT’S RULING

The petition lacks merit.

Physical delivery is necessary to

transfer ownership of stocks

The factual backdrop of this case is similar to that of Raquel-Santos v. Court of Appeals,9 where the Court
held that in "a sale of shares of stock, physical delivery of a stock certificate is one of the essential
requisites for the transfer of ownership of the stocks purchased."

In that case, Trans-Phil Marine Ent., Inc. (Trans-Phil) and Roland Garcia bought Piltel shares from Finvest
Securities Co., Inc. (Finvest Securities) in February 1997. Since Finvest Securities failed to deliver the
stock certificates, Trans-Phil and Garcia filed an action first for specific performance, which was later on
amended to an action for rescission. The Court ruled that Finvest Securities’ failure to deliver the shares
of stock constituted substantial breach of their contract which gave rise to a right on the part of Trans-
Phil and Garcia to rescind the sale.

Section 63 of the Corporation Code provides:

SEC. 63. Certificate of stock and transfer of shares. – The capital stock of stock corporations shall be
divided into shares for which certificates signed by the president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance
with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of
the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer.1âwphi1 No transfer, however, shall be valid, except as between the
parties, until the transfer is recorded in the books of the corporation showing the names of the parties to
the transaction, the date of the transfer, the number of the certificate or certificates and the number of
shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation.

In this case, Vertex fully paid the purchase price by February 11, 1999 but the stock certificate was only
delivered on January 23, 2002 after Vertex filed an action for rescission against FEGDI.

Under these facts, considered in relation to the governing law, FEGDI clearly failed to deliver the stock
certificates, representing the shares of stock purchased by Vertex, within a reasonable time from the
point the shares should have been delivered. This was a substantial breach of their contract that entitles
Vertex the right to rescind the sale under Article 1191 of the Civil Code. It is not entirely correct to say
that a sale had already been consummated as Vertex already enjoyed the rights a shareholder can
exercise. The enjoyment of these rights cannot suffice where the law, by its express terms, requires a
specific form to transfer ownership.

"Mutual restitution is required in cases involving rescission under Article 1191" of the Civil Code; such
restitution is necessary to bring back the parties to their original situation prior to the inception of the
contract.10 Accordingly, the amount paid to FEGDI by reason of the sale should be returned to Vertex. On
the amount of damages, the CA is correct in not awarding damages since Vertex failed to prove by
sufficient evidence that it suffered actual damage due to the delay in the issuance of the certificate of
stock.

Regarding the involvement of FELI in this case, no privity of contract exists between Vertex and FELI. "As
a general rule, a contract is a meeting of minds between two persons.1âwphi1 The Civil Code upholds the
spirit over the form; thus, it deems an agreement to exist, provided the essential requisites are present. A
contract is upheld as long as there is proof of consent, subject matter and cause. Moreover, it is generally
obligatory in whatever form it may have been entered into. From the moment there is a meeting of minds
between the parties, [the contract] is perfected."11

In the sale of the Class "C" Common Share, the parties are only FEGDI, as seller, and Vertex, as buyer. As
can be seen from the records, FELl was only dragged into the action when its staff used the wrong
letterhead in replying to Vertex and issued the wrong receipt for the payment of transfer taxes. Thus FELl
should be absolved from any liability.

WHEREFORE, we hereby DENY the petition. The decision dated February 22, 2012 and the resolution
dated May 31, 2012 of the Court of Appeals in CA-G.R. CV No. 89296 are AFFIRMED with the
MODIFICATION that Fil-Estate Land, Inc. is ABSOLVED from any liability.

SO ORDERED.
G.R. No. 202205 March 6, 2013

FOREST HILLS GOLF & COUNTRY CLUB, Petitioner,

vs.
VERTEX SALES AND TRADING, INC., Respondent.

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari,1 filed under Rule 45 of the Rules of Court, assailing
the decision2 dated February 22, 2012 and the resolution3dated May 31, 2012 of the Court of Appeals
(CA) in CA-G.R. CV No. 89296.

The Facts

Petitioner Forest Hills Golf & Country Club (Forest Hills) is a domestic non-profit stock corporation that
operates and maintains a golf and country club facility in Antipolo City. Forest Hills was created as a
result of a joint venture agreement between Kings Properties Corporation (Kings) and Fil-Estate Golf and
Development, Inc. (FEGDI). Accordingly, Kings and FEGDI owned the shares of stock of Forest Hills,
holding 40% and 60% of the shares, respectively.

In August 1997, FEGDI sold to RS Asuncion Construction Corporation (RSACC) one (1) Class "C" common
share of Forest Hills for ₱1.1 million. Prior to the full payment of the purchase price, RSACC transferred
its interests over FEGDI's Class "C" common share to respondent Vertex Sales and Trading, Inc.
(Vertex).4 RSACC advised FEGDI of the transfer and FEGDI, in turn, requested Forest Hills to recognize
Vertex as a shareholder. Forest Hills acceded to the request, and Vertex was able to enjoy membership
privileges in the golf and country club.

Despite the sale of FEGDI's Class "C" common share to Vertex, the share remained in the name of FEGDI,
prompting Vertex to demand for the issuance of a stock certificate in its name.5 As its demand went
unheeded, Vertex filed a complaint6 for rescission with damages against defendants Forest Hills, FEGDI,
and Fil-Estate Land, Inc. (FELI) – the developer of the Forest Hills golf course. Vertex averred that the
defendants defaulted in their obligation as sellers when they failed and refused to issue the stock
certificate covering the Class "C" common share. It prayed for the rescission of the sale and the return of
the sums it paid; it also claimed payment of actual damages for the defendants’ unjustified refusal to issue
the stock certificate.

Forest Hills denied transacting business with Vertex and claimed that it was not a party to the sale of the
share; FELI claimed the same defense. While admitting that no stock certificate was issued, FEGDI alleged
that Vertex nonetheless was recognized as a stockholder of Forest Hills and, as such, it exercised rights
and privileges of one. FEGDI added that during the pendency of Vertex's action for rescission, a stock
certificate was issued in Vertex's name,7 but Vertex refused to accept it.

The RTC Ruling

In its March 1, 2007 decision,8 the Regional Trial Court (RTC) dismissed Vertex's complaint after finding
that the failure to issue a stock certificate did not constitute a violation of the essential terms of the
contract of sale that would warrant its rescission. The RTC noted that the sale was already consummated
notwithstanding the non-issuance of the stock certificate. The issuance of a stock certificate is a collateral
matter in the consummated sale of the share; the stock certificate is not essential to the creation of the
relation of a shareholder. Hence, the RTC ruled that the non-issuance of the stock certificate is a mere
casual breach that would not entitle Vertex to rescind the sale.9

The CA Ruling

Vertex appealed the RTC's dismissal of its complaint. In its February 22, 2012 decision,10 the CA reversed
the RTC. It declared that "in the sale of shares of stock, physical delivery of a stock certificate is one of the
essential requisites for the transfer of ownership of the stocks purchased."11 It based its ruling on Section
63 of the Corporation Code,12 which requires for a valid transfer of stock –

(1) the delivery of the stock certificate;

(2) the endorsement of the stock certificate by the owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and

(3) to be valid against third parties, the transfer must be recorded in the books of the corporation.

Without the issuance of the stock certificate and despite Vertex’s full payment of the purchase price, the
share cannot be considered as having been validly transferred. Hence, the CA rescinded the sale of the
share and ordered the defendants to return the amount paid by Vertex by reason of the sale. The
dispositive portion reads:

WHEREFORE, in view of the foregoing premises, the appeal is hereby GRANTED and the March 1, 2007
Decision of the Regional Trial Court, Branch 161, Pasig City in Civil Case No. 68791 is hereby REVERSED
AND SET ASIDE. Accordingly, the sale of x x x one (1) Class "C" Common Share of Forest Hills Golf and
Country Club is hereby rescinded and defendants-appellees are hereby ordered to return to Vertex Sales
and Trading, Inc. the amount it paid by reason of the said sale.13 (emphasis ours)

The CA denied Forest Hills' motion for reconsideration in its resolution of May 31, 2012.14

The Parties’ Arguments

Forest Hills filed the present petition for review on certiorari to assail the CA rulings. It argues that
rescission should be allowed only for substantial breaches that would defeat the very object of the parties
making the agreement.

The delay in the issuance of the stock certificate could not be considered as a substantial breach,
considering that Vertex was recognized as, and enjoyed the privileges of, a stockholder.

Forest Hills also objects to the CA ruling that required it to return the amount paid by Vertex for the share
of stock. It claims that it was not a party to the contract of sale; hence, it did not receive any amount from
Vertex which it would be obliged to return on account of the rescission of the contract.

In its comment to the petition,15 Vertex disagrees and claims that its compliance with its obligation to pay
the price and the other fees called into action the defendants’ compliance with their reciprocal obligation
to deliver the stock certificate, but the defendants failed to discharge this obligation. The defendants’
three (3)-year delay in issuing the stock certificate justified the rescission of the sale of the share of stock.
On account of the rescission, Vertex claims that mutual restitution should take place. It argues that Forest
Hills should be held solidarily liable with FEGDI and FELI, since the delay was caused by Forest Hills’
refusal to issue the share of FEGDI, from whom Vertex acquired its share.

The Court’s Ruling

The assailed CA rulings (a) declared the rescission of the sale of one (1) Class "C" common share of Forest
Hills to Vertex and (b) ordered the return by Forest Hills, FEGDI, and FELI to Vertex of the amount the
latter paid by reason of the sale. While Forest Hills argues that the ruling rescinding the sale of the share
is erroneous, its ultimate prayer was for the reversal and setting aside of the ruling holding it liable to
return the amount paid by Vertex for the sale.16

The Court finds Forest Hills’ prayer justified.

Ruling on rescission of sale is a

settled matter

At the outset, we declare that the question of rescission of the sale of the share is a settled matter that the
Court can no longer review in this petition. While Forest Hills questioned and presented its arguments
against the CA ruling rescinding the sale of the share in its petition, it is not the proper party to appeal
this ruling.

As correctly pointed out by Forest Hills, it was not a party to the sale even though the subject of the sale
was its share of stock. The corporation whose shares of stock are the subject of a transfer transaction
(through sale, assignment, donation, or any other mode of conveyance) need not be a party to the
transaction, as may be inferred from the terms of Section 63 of the Corporation Code. However, to bind
the corporation as well as third parties, it is necessary that the transfer is recorded in the books of the
corporation. In the present case, the parties to the sale of the share were FEGDI as the seller and Vertex
as the buyer (after it succeeded RSACC). As party to the sale, FEGDI is the one who may appeal the ruling
rescinding the sale. The remedy of appeal is available to a party who has "a present interest in the subject
matter of the litigation and is aggrieved or prejudiced by the judgment. A party, in turn, is deemed
aggrieved or prejudiced when his interest, recognized by law in the subject matter of the lawsuit, is
injuriously affected by the judgment, order or decree."17 The rescission of the sale does not in any
way prejudice Forest Hills in such a manner that its interest in the subject matter – the share of stock – is
injuriously affected. Thus, Forest Hills is in no position to appeal the ruling rescinding the sale of the
share. Since FEGDI, as party to the sale, filed no appeal against its rescission, we consider as final the CA’s
ruling on this matter.

Ruling on return of amounts paid by

reason of the sale modified

The CA’s ruling ordering the "return to [Vertex] the amount it paid by reason of the sale"18 did not specify
in detail what the amount to be returned consists of and it did not also state the extent of Forest Hills,
FEGDI, and FELI’s liability with regard to the amount to be returned. The records, however, show that the
following amounts were paid by Vertex to Forest Hills, FEGDI, and FELI by reason of the sale:
 Date of
Payee Purpose Amount Paid
Payment
FEGDI February 9, Purchase price ₱780,000.0019
1999 for one (1) Class
"C" common
share
FEGDI February 9, Transfer fee P 60,000.0020
1999
Forest Hills February 23, Membership P 150,000.0021
1999 fee
FELI September 25, Documentary P 6,300.0022
2000 Stamps
FEGDI September 25, Notarial fees P 200.0023
2000

A necessary consequence of rescission is restitution: the parties to a rescinded contract must be brought
back to their original situation prior to the inception of the contract; hence, they must return what they
received pursuant to the contract.24 Not being a party to the rescinded contract, however, Forest Hills is
under no obligation to return the amount paid by Vertex by reason of the sale. Indeed, Vertex failed to
present sufficient evidence showing that Forest Hills received the purchase price for the share or any
other fee paid on account of the sale (other than the membership fee which we will deal with after) to
make Forest Hills jointly or solidarily liable with FEGDI for restitution.

Although Forest Hills received ₱150,000.00 from Vertex as membership fee, it should be allowed to
retain this amount. For three years prior to the rescission of the sale, the nominees of Vertex enjoyed
membership privileges and used the golf course and the amenities of Forest Hills.25 We consider the
amount paid as sufficient consideration for the privileges enjoyed by Vertex's nominees as members of
Forest Hills.

WHEREFORE, in view of the foregoing, the Court PARTIALLY GRANTS the petition for review on
certiorari. The decision dated February 22, 2012 and the resolution dated May 31, 2012 of the Court of
Appeals in CA-G.R. CV No. 89296 are hereby MODIFIED. Petitioner Forest Hills Golf & Country Club is
ABSOLVED from liability for any amount paid by Vertex Sales and Trading, Inc. by reason of the rescinded
sale of one (1) Class "C" common share of Forest Hills Golf & Country Club.

SO ORDERED.

February 17, 2016

G.R. No. 184332

ANNA TENG, Petitioner,

vs.
SECURITIES AND EXCHANGE COMMISSION (SEC) and TING PING LAY, Respondents.

DECISION
REYES, J.:

This petition for review on certiorari1 under Rule 45 of the Rules of Court seeks the reversal of the
Decision2 dated April 29, 2008 and the Resolution3 dated August 28, 2008 rendered by the Court of
Appeals (CA) in CA-G.R. SP No. 99836. The CA affirmed the orders of the Securities and Exchange
Commission (SEC) granting the issuance of an alias writ of execution, compelling petitioner Anna Teng
(Teng) to register and issue new certificates of stock in favor of respondent Ting Ping Lay (Ting Ping).

The Facts

This case has its origin in G.R. No. 1297774 entitled TCL Sales Corporation and Anna Teng v. Hon. Court of
Appeals and Ting Ping Lay. Herein respondent Ting Ping purchased 480 shares of TCL Sales Corporation
(TCL) from Peter Chiu (Chiu) on February 2, 1979; 1,400 shares on September 22, 1985 from his brother
Teng Ching Lay (Teng Ching), who was also the president and operations manager of TCL; and 1,440
shares from Ismaelita Maluto (Maluto) on September 2, 1989.5

Upon Teng Ching's death in 1989, his son Henry Teng (Henry) took over the management of TCL. To
protect his shareholdings with TCL, Ting Ping on August 31, 1989 requested TCL's Corporate Secretary,
herein petitioner Teng, to enter the transfer in the Stock and Transfer Book of TCL for the proper
recording of his acquisition. He also demanded the issuance of new certificates of stock in his favor. TCL
and Teng, however, refused despite repeated demands. Because of their refusal, Ting Ping filed a petition
for mandamus with the SEC against TCL and Teng, docketed as SEC Case No. 3900.6

In its Decision7 dated July 20, 1994, the SEC granted Ting Ping's petition, ordering as follows:

WHEREFORE, in view of all the foregoing facts and circumstances, judgment is hereby rendered.

A. Ordering [TCL and Teng] to record in the Books of the Corporation the following shares:

1. 480 shares acquired by [Ting Ping] from [Chiu] per Deed of Sales [sic] dated February 20, 1979;

2. 1,400 shares acquired by [Ting Ping] from [Teng Ching] per Deed of Sale dated September 22,
1985; and

3. 1,440 shares acquired by [Ting Ping] from [Maluto] per Deed of Assignment dated Sept 2, 1989
[sic].

B. Ordering [TCL and Teng] to issue corresponding new certificates of stocks (sic) in the name of [Ting
Ping].

C. Ordering [TCL and Teng] to pay [Ting Ping] moral damages in the amount of One Hundred Thousand
(P 100,000.00) Pesos and Fifty Thousand (P 50,000.00) Pesos for attorney's fees.

SO ORDERED. 8

TCL and Teng appealed to the SEC en banc, which, in its Order9 dated June 11, 1996, affirmed the SEC
decision with modification, in that Teng was held solely liable for the payment of moral damages and
attorney's fees.
Not contented, TCL and Teng filed a petition for review with the CA, docketed as CA-G.R. SP. No. 42035.
On January 31, 1997, the CA, however, dismissed the petition for having been filed out of time and for
finding no cogent and justifiable grounds to disturb the findings of the SEC en banc. 10 This prompted TCL
and Teng to come to the Court via a petition for review on certiorari under Rule 45.

On January 5, 2001, the Court promulgated its Decision in G.R. No. 129777, the dispositive portion of
which states:

WHEREFORE, the petition is DENIED, and the Decision dated January 31, 1997, as well as the Resolution
dated July 3, 1997 of [the CA] are hereby AFFIRMED. Costs against [TCL and Teng].

SO ORDERED.11

After the finality of the Court's decision, the SEC issued a writ of execution addressed to the Sheriff of the
Regional Trial Court (RTC) of Manila. Teng, however, filed on February 4, 2004 a complaint for
interpleader with the RTC of Manila, Branch 46, docketed as Civil Case No. 02-102776, where Teng
sought to compel Henry and Ting Ping to interplead and settle the issue of ownership over the 1,400
shares, which were previously owned by Teng Ching. Thus, the deputized sheriff held in abeyance the
further implementation of the writ of execution pending outcome of Civil Case No. 02-102776. 12

On March 13, 2003, the RTC of Manila, Branch 46, rendered its Decision13 in Civil Case No. 02-102776,
finding Henry to have a better right to the shares of stock formerly owned by Teng Ching, except as to
those covered by Stock Certificate No. 011 covering 262.5 shares, among others. 14

Thereafter, an Ex Parte Motion for the Issuance of Alias Writ of Execution15 was filed by Ting Ping where
he sought the partial satisfaction of SEC en banc Order dated June 11, 1996 ordering TCL and Teng to
record the 480 shares he acquired from Chiu and the 1,440 shares he acquired from Maluto, and for
Teng's payment of the damages awarded in his favor.

Acting upon the motion, the SEC issued an Order16 dated August 9, 2006 granting partial enforcement
and satisfaction of the Decision dated July 20, 1994, as modified by the SEC en banc's Order dated June 11,
1996.17 On the same date, the SEC issued an alias writ of execution. 18

Teng and TCL filed their respective motions to quash the alias writ of execution, 19 which was opposed by
Ting Ping,20 who also expressed his willingness to surrender the original stock certificates of Chiu and
Maluto to facilitate and expedite the transfer of the shares in his favor. Teng pointed out, however, that
the annexes in Ting Ping's opposition did not include the subject certificates of stock, surmising that they
could have been lost or destroyed.21Ting Ping belied this, claiming that his counsel Atty. Simon V. Lao
already communicated with TCL's counsel regarding the surrender of the said certificates of
stock. 22 Teng then filed a counter manifestation where she pointed out a discrepancy between the total
shares of Maluto based on the annexes, which is only 1305 shares, as against the 1440 shares acquired by
Ting Ping based on the SEC Order dated August 9, 2006.23

On May 25, 2007, the SEC denied the motions to quash filed by Teng and TCL, and affinned its Order
dated August 9, 2006.24
Unperturbed, Teng filed a petition for certiorari and prohibition under Rule 65 of the Rules of Court,
docketed as CA-G.R. SP No. 99836.25 The SEC, through the Office of the Solicitor General (OSG), filed a
Comment dated June 30, 2008,26 which, subsequently, Teng moved to expunge.27

On April 29, 2008, the CA promulgated the assailed decision dismissing the petition and denying the
motion to expunge the SEC's comment.28

Hence, Teng filed the present petition, raising the following grounds:

I. THE RESPONDENT [CA] GRAVELY ERRED IN DECLARING THAT THERE WAS NO NEED TO
SURRENDER THE STOCK CERTIFICATES (REPRESENTING THE SHARES CONVEYED BY [MALUTO]
TO [TING PING] TO RECORD THE TRANSFER THEREOF IN THE CORPORATE BOOKS AND ISSUE
NEW STOCK CERTIFICATES[;]

II. THE RESPONDENT [CA] GRAVELY ERRED IN UPHOLDING THE POSE THAT THERE WAS
NEITHER AMENDMENT NOR ALTERATION OF THE FINAL DECISION OF THE SUPREME COURT IN
"TCL SALE[S] CORP., ET AL. VS. CA, ET AL.", G.R. NO. 129777, DESPITE THE CONTRARY RECORD
THERETO[;]

III. THE RESPONDENT [CA] GRAVELY ERRED IN DECLARING THAT THE [OSG] WAS ALREADY
REQUIRED TO COMMENT ON [TENG'S] MOTION FOR RECONSIDERATION.29

The core question before the Court is whether the surrender of the certificates of stock is a requisite
before registration of the transfer may be made in the corporate books and for the issuance of new
certificates in its stead. Note at this juncture that the present dispute involves the execution of the Court's
decision in G.R. No. 129777 but only with regard to Chiu's and Maluto's respective shares. The subject of
the orders of execution issued by the SEC pertained only to these shares and the Court's decision will
revolve only on these shares.

Teng argues, among others, that the CA erred when it held that the surrender of Maluto's stock
certificates is not necessary before their registration in the corporate books and before the issuance of
new stock certificates. She contends that prior to registration of stocks in the corporate books, it is
mandatory that the stock certificates are first surrendered because a corporation will be liable to a bona
fide holder of the old certificate if, without demanding the said certificate, it issues a new one. She also
claims that the CA's reliance on Tan v. SEC30 is misplaced since therein subject stock certificate was
allegedly surrendered.31

On the other hand, Ting Ping contends that Section 63 of the Corporation Code does not require the
surrender of the stock certificate to the corporation, nor make such surrender an indispensable condition
before any transfer of shares can be registered in the books of the corporation. Ting Ping considers
Section 63 as a permissive mode of transferring shares in the corporation. Citing Rural Bank of Salinas,
Inc. v. CA,32 he claims that the only limitation imposed by Section 63 is when the corporation holds any
unpaid claim against the shares intended to be transferred. Thus, for as long as the shares of stock are
validly transferred, the corporate secretary has the ministerial duty to register the transfer of such shares
in the books of the corporation, especially in this case because no less than this Court has affirmed the
validity of the transfer of the shares in favor of Ting Ping. 33

Ruling of the Court

To restate the basics -

A certificate of stock is a written instrument signed by the proper officer of a corporation stating or
acknowledging that the person named in the document is the owner of a designated number of shares of
its stock. It is prima facie evidence that the holder is a shareholder of a corporation. 34 A certificate,
however, is merely a tangible evidence of ownership of shares of stock. 35 It is not a stock in the
corporation and merely expresses the contract between the corporation and the stockholder. 36 The
shares of stock evidenced by said certificates, meanwhile, are regarded as property and the owner of such
shares may, as a general rule, dispose of them as he sees fit, unless the corporation has been dissolved, or
unless the right to do so is properly restricted, or the owner's privilege of disposing of his shares has
been hampered by his own action. 37

Section 63 of the Corporation Code prescribes the manner by which a share of stock may be transferred.
Said provision is essentially the same as Section 35 of the old Corporation Law, which, as held
in Fleisher v. Botica Nolasco Co.,38 defines the nature, character and transferability of shares of
stock. Fleisher also stated that the provision on the transfer of shares of stocks contemplates no
restriction as to whom they may be transferred or sold. As owner of personal property, a shareholder is
at liberty to dispose of them in favor of whomsoever he pleases, without any other limitation in this
respect, than the general provisions of law. 39

Section 63 provides:

Sec. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shall be divided
into shares for which certificates signed by the president or vice president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance
with the by-laws. Shares of stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other
person legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation showing the
names of the parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation. (Emphasis and underscoring ours)

Under the provision, certain minimum requisites must be complied with for there to be a valid transfer of
stocks, to wit: (a) there must be delivery of the stock certificate; (b) the certificate must be endorsed by
the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and (c) to be
valid against third parties, the transfer must be recorded in the books of the corporation.40

It is the delivery of the certificate, coupled with the endorsement by the owner or his duly authorized
representative that is the operative act of transfer of shares from the original owner to the
transferee.41 The Court even emphatically declared. in Fil-Estate Golf and Development, Inc., et al. v. Vertex
Sales and Trading, Inc. 42 that in "a sale of shares of stock, physical delivery of a stock certificate is one of
the essential requisites for the transfer of ownership of the stocks purchased."43 The delivery
contemplated in Section 63, however, pertains to the delivery of the certificate of shares by the
transferor to the transferee, that is, from the original stockholder named in the certificate to the person
or entity the stockholder was transferring the shares to, whether by sale or some other valid form of
absolute conveyance of ownership.44 "[S]hares of stock may be transferred by delivery to the transferee
of the certificate properly indorsed. Title may be vested in the transferee by the delivery of the duly
indorsed certificate of stock."45

It is thus clear that Teng's position - that Ting Ping must first surrender Chiu's and Maluto's respective
certificates of stock before the transfer to Ting Ping may be registered in the books of the corporation -
does not have legal basis. The delivery or surrender adverted to by Teng, i.e., from Ting Ping to TCL, is not
a requisite before the conveyance may be recorded in its books. To compel Ting Ping to deliver to the
corporation the certificates as a condition for the registration of the transfer would amount to a
restriction on the right of Ting Ping to have the stocks transferred to his name, which is not sanctioned by
law. The only limitation imposed by Section 63 is when the corporation holds any unpaid claim against
the shares intended to be transferred.

In Rural Bank of Salinas,46 the Court ruled that the right of a transferee/assignee to have stocks
transferred to his name is an inherent right flowing from his ownership of the stocks.47 In said case, the
private respondent presented to the bank the deeds of assignment for registration, transfer of the shares
assigned in the bank's books, cancellation of the stock certificates, and issuance of new stock certificates,
which the bank refused. In ruling favorably for the private respondent, the Court stressed that a
corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in
stock transfers. In transferring stock, the secretary of a corporation acts in purely ministerial capacity,
and does not try to decide the question of ownership. 48 If a corporation refuses to make such transfer
without good cause, it may, in fact, even be compelled to do so by mandamus.49 With more reason in this
case where the Court, in G.R. No. 129777, already upheld Ting Ping's definite and uncontested titles to the
subject shares, viz:

Respondent Ting Ping Lay was able to establish prima facie ownership over the shares of stocks in
question, through deeds of transfer of shares of stock of TCL Corporation. Petitioners could not repudiate
these documents. Hence, the transfer of shares to him must be recorded on the corporation's stock
and transfer book.50(Emphasis and underscoring ours)

In the same vein, Teng cannot refuse registration of the transfer on the pretext that the photocopies of
Maluto 's certificates of stock submitted by Ting Ping covered only 1,305 shares and not 1,440. As earlier
stated, the respective duties of the corporation and its secretary to transfer stock are purely
ministerial.51 Aside from this, Teng's argument on this point was adequately explained by both the SEC
and CA in this wise:

In explaining the alleged discrepancy, the public respondent, in its 25 May 2007 order, cited the order of
the Commission En Banc, thus:

"An examination of this decision, however, reveals, no categorical pronouncements of fraud. The refusal
to credit in [Ting Ping's] favor five hundred eighty-five (585) shares in excess of what [Maluto] owned
and the two hundred forty (240) shares that [Ting Ping] bought from the corporation, is a mere product
of the failure of the corporation to register with the [SEC] the increase in the subscribed capital stock by
4000 shares last 1981. Surely, [Ting Ping] cannot be faulted for this." 52

Nevertheless, to be valid against third parties and the corporation, the transfer must be recorded or
registered in the books of corporation. There are several reasons why registration of the transfer is
necessary: one, to enable the transferee to exercise all the rights of a stockholder;53 two, to inform the
corporation of any change in share ownership so that it can ascertain the persons entitled to the rights
and subject to the liabilities of a stockholder;54and three, to avoid fictitious or fraudulent
transfers, 55 among others. Thus, in Chua Guan v. Samahang Mags as aka, Inc., 56 the Court stated that the
only safe way to accomplish the hypothecation of share of stock is for the transferee [a creditor, in this
case] to insist on the assignment and delivery of the certificate and to obtain the transfer of the legal title
to him on the books of the corporation by the cancellation of the certificate and the issuance of a new one
to him.57 In this case, given the Court's decision in GR. No. 129777, registration of the transfer of Chiu's
and Maluto's shares in Ting Ping's favor is a mere formality in confirming the latter's status as a
stockholder of TCL. 58

Upon registration of the transfer in the books of the corporation, the transferee may now then exercise all
the rights of a stockholder, which include the right to have stocks transferred to his name. 59 In Ponce v.
Alsons Cement Corporation,60 the Court stated that "[f]rom the corporation's point of view, the transfer is
not effective until it is recorded. Unless and until such recording is made[,] the demand for the issuance of
stock certificates to the alleged transferee has no legal basis. x x x [T]he stock and transfer book is the
basis for ascertaining the persons entitled to the rights and subject to the liabilities of a stockholder.
Where a transferee is not yet recognized as a stockholder, the corporation is under no specific legal duty
to issue stock certificates in the transferee's name."61

The manner of issuance of certificates of stock is generally regulated by the corporation's by-laws.
Section 47 of the Corporation Code states: "a private corporation may provide in its by-laws for x x x the
manner of issuing stock certificates." Section 63, meanwhile, provides that "[t]he capital stock of stock
corporations shall be divided into shares for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be
issued in accordance with the by-laws." In Bitong v. CA,62 the Court outlined the procedure for the
issuance of new certificates of stock in the name of a transferee:

First, the certificates must be signed by the president or vice-president, countersigned by the secretary or
assistant secretary, and sealed with the seal of the corporation. x x x Second, delivery of the certificate is
an essential element of its issuance. x x x Third, the par value, as to par value shares, or the full
subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must be
surrendered where the person requesting the issuance of a certificate is a transferee from a
stockholder. 63 (Emphasis ours and citations omitted)

The surrender of the original certificate of stock is necessary before the issuance of a new one so that the
old certificate may be cancelled. A corporation is not bound and cannot be required to issue a new
certificate unless the original certificate is produced and surrendered.64 Surrender and cancellation of the
old certificates serve to protect not only the corporation but the legitimate shareholder and the public as
well, as it ensures that there is only one document covering a particular share of stock.

In the case at bench, Ting Ping manifested from the start his intention to surrender the subject
certificates of stock to facilitate the registration of the transfer and for the issuance of new certificates in
his name. It would be sacrificing substantial justice if the Court were to grant the petition simply because
Ting Ping is yet to surrender the subject certificates for cancellation instead of ordering in this case such
surrender and cancellation, and the issuance of new ones in his name. 65

On the other hand, Teng, and TCL for that matter, have already deterred for so long Ting Ping's
enjoyment of his rights as a stockholder. As early as 1989, Ting Ping already requested Teng to enter the
transfer of the subject shares in TCL's Stock and Transfer Book; in 2001, the Court, in G.R. No. 129777,
resolved Ting Ping's rights as a valid transferee and shareholder; in 2006, the SEC ordered partial
execution of the judgment; and in 2008, tμe CA affirmed the SEC's order of execution. The Court will not
allow Teng and TCL to frustrate Ting Ping's rights any longer. Also, the Court will not dwell on the other
issues raised by Teng as it becomes irrelevant in light of the Court's disquisition.

WHEREFORE, the petition is DENIED. The Decision dated April 29, 2008 and Resolution dated August
28, 2008 of the Court of Appeals in CA-G.R. SP No. 99836 are AFFIRMED.

Respondent Ting Ping Lay is hereby ordered to surrender the certificates of stock covering the shares
respectively transferred by Ismaelita Maluto and Peter Chiu. Petitioner Anna Teng or the incumbent
corporate secretary of TCL Sales Corporation, on the other hand, is hereby ordered, under pain of
contempt, to immediately cancel Ismaelita Maluto's and Peter Chiu's certificates of stock and to issue new
ones in the name of Ting Ping Lay, which shall include Ismaelita Maluto's shares not covered by any
existing certificate of stock but otherwise validly transferred to Ting Ping Lay.

Costs against petitioner Anna Teng.

SO ORDERED.

FIRST DIVISION

G.R. No. 188769, August 03, 2016

JOSEPH OMAR O. ANDAY A, Petitioner, v. RURAL BANK OF CABADBARAN, INC., DEMOSTHENES P.

ORAIZ and RICARDO D. GONZALEZ, Respondents.

RESOLUTION

SERENO, C.J.:

This case concerns the dismissal1 of an action for mandamus that sought to compel respondents Rural
Bank of Cabadbaran, Inc., Demosthenes P. Oraiz, and Ricardo D. Gonzalez to register the transfer of shares
of stock and issue the corresponding stock certificates in favor of petitioner Joseph Omar O. Andaya. The
Cabadbaran City Regional Trial Court (RTC) ifuled that petitioner Andaya was not entitled to the remedy
of mandamus, s|ince the transfer of the subject shares of stock had not yet been recorded in the
corporation's stock and transfer book, and the registered owner, Conception O. Chute, had not given him
a special power of attorney to makq the transfer. Andaya has filed a Rule 45 petition directly before this
Court, insisting that he has a cause of action to institute the suit.

FACTS

Andaya bought from Chute 2,200 shares of stock in the Rural Bank of Cabadbaran for P220,000.2 The
transaction was evidenced by a notarized document denominated as Sale of Shares of Stocks.3 Chute duly
endorsed and delivered the certificates of stock to Andaya and, subsequently, requested the bank to
register the transfer and issue new stock certificates in favor of the latter.4 Andaya also separately
communicated5 with the bank's corporate secretary, respondent Oraiz, reiterating Chute's request for the
issuance of new stock certificates in petitioner's favor.
A few days later, the bank's corporate secretary wrote6 Chute to inform her that he could not register the
transfer. He explained that under a previous stockholders' Resolution, existing stockholders were given
priority to buy the shares of others in the event that the latter offered those shares for sale (i.e., a right of
first refusal). He then asked Chute if she, instead, wished to have her shares offered to existing
stockholders. He told her that if no other stockholder would buy them, she could then proceed to sell her
shares to outsiders.

Meanwhile, the bank's legal counsel, respondent Gonzalez, informed7 Andaya that the latter's request
had been referred to the bank's board of directors for evaluation. Gonzalez also furnished him a copy of
the bank's previous reply to Chute concerning a similar request from her. Andaya responded8 by
reiterating his earlier request for the registration of the transfer and the issuance of new certificates of
stock in his favor. Citing Section 98 of the Corporation Code, he claimed that the purported restriction on
the transfer of shares of stock agreed upon during the 2001 stockholders' meeting could not deprive him
of his right as a transferee. He pointed out that the restriction did not appear in the bank's articles of
incorporation, bylaws, or certificates of stock.

The bank eventually denied the request of Andaya.9 It reasoned that he had a conflict of interest, as he
was then president and chief executive officer of the Green Bank of Caraga, a competitor bank.
Respondent bank concluded that the purchase of shares was not in good faith, and that the purchase
"could be the beginning of a hostile bid to take-over control of the [Rural Bank of
Cabadbaran]."10 Citing Gokongwei v. Securities and Exchange Commission,11 respondent insisted that it
may refuse to accept a competitor as one of its stockholders. It also maintained that Chute should have
first offered her shares to the other stockholders, as agreed upon during the 2001 stockholders' meeting.

Consequently, Andaya instituted an action for mandamus and damages12 against the Rural Bank of
Cabadbaran; its corporate secretary, Oraiz; and its legal counsel, Gonzalez. Petitioner sought to compel
them to record the transfer in the bank's stock and transfer book and to issue new certificates of stock in
his name.

The RTC issued a Decision dismissing the complaint. Citing Porice v. Alsons Cement Corporation13 the trial
court ruled that Andaya had no standing to compel the bank to register the transfer and issue stock
certificates in his name.14 It explained that he had failed "[to show] that the transfer of subject shares of
stock [was] recorded in the stock and transfer book of [the] bank or that [he was] authorized by [Chute]
to make the transfer."15 According to the trial court, Ponce requires that a person seeking to transfer
shares must appear to have an express instruction and a specific authority from the registered
stockholder, such as a special power of attorney, to cause the disposition of stocks registered in the
stockholder's name. It ruled that "[w]ithout the sale first registered or an authority from the transferor, it
[was] therefore unmistakably clear that [Andaya had] no cause of action for mandamus against [the]
bank."

Consequently, Andaya directly filed with this Court a Rule 45 petition for review on certiorari assailing
the RTC Decision on pure questions of law.

ISSUES

The Court culls the issues raised by petitioner as follows:

 1. Whether Andaya, as a transferee of shares of stock, may initiate an action for mandamus
compelling the Rural Bank of Cabadbaran to record the transfer of shares in its stock and
transfer book, as well as issue new stock certificates in his name

2. Whether a writ of mandamus should issue in favor of petitioner

OUR RULING

The petition is partly meritorious.

It is already settled jurisprudence16 that the registration of a transfer of shares of stock is a ministerial
duty on the part of the corporation. Aggrieved parties may then resort to the remedy of mandamus to
compel corporations that wrongfully or unjustifiably refuse to record the transfer or to issue new
certificates of stock. This remedy is available even upon the instance of a bona fide transferee17 who is
able to establish a clear legal right to the registration of the transfer.18 This legal right inherently flows
from the transferee's established ownership of the stocks, a right that has been recognized by this Court
as early as in Price v. Martin:19
A person who has purchased stock, and who desires to be recognized as a stockholder, for the purpose
of voting, must secure a standing by having the transfer recorded upon the books. If the transfer is not
duly made upon request, he has, as his remedy, to compel it to be made.20 (Emphases supplied)
Thus, in Pacific Basin Securities Co., Inc., v. Oriental Petroleum and Minerals Corp.,21this Court stressed that
the registration of a transfer of shares is ministerial on the part of the
corporation:ChanRoblesVirtualawlibrary
Clearly, the right of a transferee/assignee to have stocks transferred to his name is an inherent
right flowing from his ownership of the stocks. The Court had ruled in Rural Bank of Salinas, Inc. v.
Court of Appeals that the corporation's obligation to register is ministerial, citing Fletcher, to
wit:ChanRoblesVirtualawlibrary
In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to
decide the question of ownership.

The duty of the corporation to transfer is a ministerial one and if it refuses to make such transaction
without good cause, it may be compelled to do so by mandamus.
The Court further held in Rural Bank of Salinas that the only limitation imposed by Section 63 of the
Corporation Code is when the corporation holds any unpaid claim against the shares intended to
be transferred.22 (Emphasis supplied; citations omitted)
Consequently, transferees of shares of stock are real parties in interest having a cause of action for
mandamus to compel the registration of the transfer and the corresponding issuance of stock certificates.

We also rule that Andaya has been able to establish that he is a bona fide transferee of the shares of stock
of Chute. In proving this fact, he presented to the RTC the following documents evidencing the sale: (1) a
notarized Sale of Shares of Stocks23 showing Chute's sale of 2,200 shares of stock to petitioner; (2) a
Documentary Stamp Tax Declaration/Return24 (3) Capital Gains Tax Return;25cralawred and (4) stock
certificates26 covering the subject shares duly endorsed by Chute. The existence, genuineness, and
due execution of these documents have been admitted27 and remain undisputed. There is no doubt that
Andaya had the standing to initiate an action for mandamus to compel the Rural Bank of Cabadbaran to
record the transfer of shares in its stock and transfer book and to issue new stock certificates in his name.
As the transferee of the shares, petitioner stands to be benefited or injured by the judgment in the instant
petition, a judgment that will either order the bank to recognize the legitimacy of the transfer and
petitioner's status as stockholder or to deny the legitimacy thereof.

This Court further finds that the reliance of the RTC on Ponce in finding that petitioner had no cause of
action for mandamus against the defendant bank was misplaced. In Ponce, the issue resolved by this
Court was whether the petitioner therein had a cause of action for mandamus to compel the issuance of
stock certificates, not the registration of the transfer. Ruling in the negative, the Court said in that case
that without any record of the transfer of shares in the stock and transfer book of the corporation, there
would be no clear basis to compel that corporation to issue a stock certificate. By the import of Section 63
of the Corporation Code, the stock and transfer book would be the main reference book in ascertaining a
person's entitlement to the rights of a stockholder. Consequently, without the registration of the transfer,
the alleged transferee could not yet be recognized as a stockholder who is entitled to be given a stock
certificate.

In contrast, at the crux of this petition are the registration of the transfer and the issuance of the
corresponding stock certificates. Requiring petitioner to register the transaction before he could institute
a mandamus suit in supposed abidance by the ruling in Ponce was a palpable error. It led to an absurd,
circuitous situation in which Andaya was prevented from causing the registration of the transfer,
ironically because the shares had not been registered. With the logic resorted to by the RTC, transferees
of shares of stock would never be able to compel the registration of the transfer and the issuance of new
stock certificates in their favor. They would first be required to show the registration of the transfer in
their names — the ministerial act that is the subject of the mandamus suit in the first place. The trial
court confuses the application of the dicta in Ponce, which is pertinent only to the issuance of new stock
certificates, and not to the registration of a transfer of shares. As Ponce itself provides, these two are
entirely different events. The RTC's anomalous reasoning cannot be given legal imprimatur by this Court.

With regard to the requisite authorization from the transferor, the Court stresses that the concern in
Ponce was rooted in whether or not the alleged right of the petitioner therein to compel the issuance of
new stock certificates was clearly established. Reiterating the ruling in Rivera v. FIorendo28 and Eager v.
Bryan,29 the Court therein maintained that a mere endorsement of stock certificates by the supposed
owners of the stock could not be the basis of an action for mandamus in the absence of express
instructions from them. According to the Court, the reason behind this ruling was that the corporation's
duty and legal obligation therein were not so clear and indisputable as to justify the issuance of the writ.
The ambiguity of the alleged transferee's deed of undertaking with endorsement led the Court in Ponce to
rule that mandamus would have issued had the registered owner himself requested the registration of
the transfer, or had the person requesting the registration secured a special power of attorney from the
registered owner.

In the instant case, however, the submitted documents did not merely consist of an endorsement. Rather,
petitioner presented several undisputed documents,30 among which was respondent Oraiz's letter to
Chute denying her request to transfer the stock standing in her name in favor of Andaya. This letter
clearly indicated that the registered owner herself had requested the registration of the transfer of shares
of stock. There was therefore no sensible reason for the RTC to perfunctorily extract the pronouncement
in Ponce and then disregard it in the face of admitted facts in addition to the duly endorsed stock
certificates.

On whether the writ of mandamus should issue, Section 3, Rule 65 of the Rules of Court, provides for the
rules governing a petition for mandamus, viz:
SECTION 3. Petition for mandamus. — When any tribunal, corporation, board, officer or person
unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting from
an office, trust, or station, or unlawfully excludes another from the use and enjoyment of a right or
office to which such other is entitled, and there is no other plain, speedy and adequate remedy in the
ordinary course of law, the person aggrieved thereby may file a verified petition in the proper court,
alleging the facts with certainty and praying that judgment be rendered commanding the respondent,
immediately or at some other time to be specified by the court, to do the act required to be done to
protect the rights of the petitioner, and to pay the damages sustained by the petitioner by reason of the
wrongful acts of the respondent.

The petition shall also contain a sworn certification of non-forum shopping as provided in the third
paragraph of Section 3, Rule 46. (Emphases supplied)
Accordingly, a writ of mandamus to enforce a ministerial act may issue only when petitioner is able to
establish the presence of the following: (1) right clearly founded in law and is not doubtful; (2) a legal
duty to perform the act; (3) unlawful neglect in performing the duty enjoined by law; (4) the ministerial
nature of the act to be performed; and (5) the absence of other plain, speedy, and adequate remedy in the
ordinary course of law.31chanrobleslaw

Respondents primarily challenge the mandamus suit on the grounds that the transfer violated the bank
stockholders' right of first refusal and that petitioner was a buyer in bad faith. Both parties refer to
Section 98 of the Corporation Code to support their arguments, which reads as
follows:ChanRoblesVirtualawlibrary
SECTION 98. Validity of restrictions on transfer of shares. — Restrictions on the right to transfer shares
must appear in the articles of incorporation and in the by-laws as well as in the certificate of
stock; otherwise, the same shall not be binding on any purchaser thereof in good faith. Said
restrictions shall not be more than onerous than granting the existing stockholders or the corporation
the option to purchase the shares of the transferring stockholder with such reasonable terms, conditions
or period stated therein. If upon the expiration of said period, the existing stockholders or the
corporation fails to exercise the option to purchase, the transferring stockholder may sell his shares to
any third person. (Emphases supplied)
It must be noted that Section 98 applies only to close corporations. Hence, before the Court can allow the
operation of this section in the case at bar, there must first be a factual determination that respondent
Rural Bank of Cabadbaran is indeed a close corporation. There needs to be a presentation of evidence on
the relevant restrictions in the articles of incorporation j and bylaws of the said bank. From the records
or the RTC Decision, there is apparently no such determination or even allegation that would assist this
Court in ruling on these two major factual matters. With the foregoing, the validity of the transfer cannot
yet be tested using that provision. These are the factual matters that the parties must first thresh out
before the RTC.

After finding that petitioner has legal standing to initiate an action for mandamus, the Court now
reinstates the action he filed and remands the case to the RTC to resolve the propriety of issuing a writ of
mandamus. The resolution of the case must include the determination of all relevant factual matters in
connection with the issues at bar. The RTC must also resolve petitioner's prayer for the payment of
attorney's fees, litigation expenses, moral damages, and exemplary damages.

WHEREFORE, premises considered, the instant petition I is GRANTED. The Decision dated 17 April 2009
and the Order dated 15 July 2009 of the Regional Trial Court, Branch 34, Cabadbaran City, which
dismissed petitioner's action for mandamus, are SET ASIDE. The action is hereby REINSTATED and the
case REMANDED to the court of origin for further proceedings. The trial court is further enjoined to
proceed with [the resolution of this case with dispatch.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-16236 June 30, 1965

IRINEO S. BALTAZAR, plaintiff-appellee,

vs.
LINGAYEN GULF ELECTRIC POWER, CO., INC., DOMINADOR C. UNGSON, BRIGIDO G. ESTRADA,
MANUEL L. FERNANDEZ, BENEDICTO C. YUSON and BERNARDO ACENA, defendants-appellants.

-----------------------------

G.R. No. L-16237 June 30, 1965

MARVIN O. ROSE, plaintiff-appellee,

vs.
LINGAYEN GULF ELECTRIC CO., INC., DOMINADOR, C. UNGSON, BRIGIDO G. ESTRADA, MANTEL L.
FERNANDEZ, BENEDICTO C. YUSON and BERNARDO C. ACENA, defendants-appellants.

-----------------------------

G.R. No. L-16238 June 30, 1965.

IRINEO S. BALTAZAR and MARVIN O. ROSE, plaintiffs-appellees,

vs.
BERNARDO ACENA, defendant-appellant.

Primicias and Del Castillo for plaintiffs-appellees.

Manuel L. Fernandez and Brigido G. Estrada for and in their own behalf as defendants-appellants.

PAREDES, J.:

In Civil Case G.R. No. L-16236 (CFI No. 13211), Irineo S. Baltazar, filed the complaint against Lingayen
Gulf Electric Power Co., Inc., Dominador C. Ungson, Brigido G. Estrada, Manuel L. Fernandez, Benedicto C.
Yuson and Bernardo Acena.

In Civil Case G.R. No. L-16237 (CFI No. 13212), Marvin O. Rose filed the complaint against the same
defendants.
In Civil Case G.R. No. L-16238 (CFI No. 13340), Baltazar and Rose filed their complaint against Bernardo
Acena alone.

The Lingayen Gulf Electric Power Co., Inc., hereinafter referred to as Corporation, was doing business in
the Philippines, with principal offices at Lingayen, Pangasinan, and with an authorized capital stock of
P300.000.00 divided into 3,000 shares of voting stock at P100.00 par value, per share. Plaintiffs Baltazar
and Rose were among the incorporators, having subscribed to 600 and 400 shares of the capital stock, or
a total par value of P60,000.00 and P40.000.00, respectively. It is alleged that it has always been the
practice and procedure of the Corporation to issue certificates of stock to its individual subscribers for
unpaid shares of stock. Of the 600 shares of capital stock subscribed by Baltazar, he had fully paid 535
shares of stock, and the Corporation issued to him several fully paid up and non-assessable certificates of
stock, corresponding to the 535 shares. After having made transfers to third persons and acquired new
ones, Baltazar had to his credit, on the filing of the complaint 341 shares fully paid and non-assessable.
He had also 65 shares with par value of P6,500.00, for which no certificate was issued to him. Of the 400
shares of stock subscribed by Rose, he had 375 shares of fully paid stock, duly covered by certificates of
stock issued to him.

The respondents Ungson, Estrada, Fernandez and Yuson were small stockholders of the Corporation, all
holding a total number of fully paid-up shares of stock, of not more than 100 shares, with a par value of
P10,000.00 and the defendant Acena, was likewise an incorporator and stockholder, holding 600 shares
of stock, for which certificate of stock were issued to him and as such, was the largest individual
stockholder thereof. Defendants Ungson, Estrada, Fernandez and Yuzon, constituted the majority of the
holdover seven-member Board of Directors of the Corporation, in 1955, two (2) of said defendants
having been elected as members of the Board in the annual stockholders' meeting held in May 1954,
largely on the vote of their co-defendant Acena, while the other two (2) were elected mainly on the vote
of the plaintiffs and their group of stockholders. Let the first group be called the Ungson groupand the
second, the Baltazar group.

The date of the annual stockholders' meeting of the Corporation had been fixed, under its by-laws, on the
first Tuesday of February of every year, but for one reason or another, the meeting was to be held on May
1, 1955, principally for the purpose of electing new officers and Board of Directors for the calendar year
1955. In connection with said meeting since January 1, 1955, there was a realignment effected, and the
fight for control of the management and property of the corporation was close and keen. The total
number of fully paid-up shares held by stockholders of one group, was almost equal the number of fully
paid-up shares held by the other group.

The Ungson group (specially defendant Acena), which had been in complete control of the management
and property of the Corporation since January 1, 1955, in order to continue retaining such control, over
the objection oil three majority members of the Board, in the regular meeting of the Board of Directors,
held on January 30, 1955, passed three (3) resolutions (Exhs. A, B, C).

Resolution No. 2 (Exh. A), declared all watered stocks issued to Acena, Baltazar, Rose and
Jubenville, "of no value and consequently cancelled from the books of the Corporation.

Resolution No. 3 (Exh. B) resolved that "... all unpaid subscriptions should bear interest annually
from the year of subscription on the basis of quarterly payment, and any or all payments already
made on said unpaid subscriptions should be credited to pay interest first, then the capital debt
after all interest is fully paid.
 All shares of stock issued to and in favor of any stockholder or stockholders of the Lingayen Gulf
Electric Power Co., Inc., on account of payments on unpaid subscriptions without the interest
thereon — accrued and collectible having been fully paid from the date of subscription as required
by the Corporation Law, shall be declared of no value and cancelled from its books, and if the
payments already made exceeded the interest accrued and collectible by virtue of the provision of
law and the previous resolution of its board of directors, the excess should be applied to the
payment of the unpaid subscription. For this purpose, the accountant of the corporation is
directed to make and report the proper computation of the interest.

Resolution No. 4 (Exh. C) resolved that "any and all shares of stock of the Lingayen Gulf Electric
Power Co., Inc., issued as fully paid-up to stockholders whose subscription to a number of shares
have been declared delinquent with the accrued interest on the unpaid thereof per Resolution No.
42, S. 1954, of the Board of Directors which has been duly published in the "Manila Chronicle," are
hereby incapacitated to utilize or avail of the voting power until such delinquency with the
accrued interest is fully paid up as indicated in Resolution No. 3, S. 1955.

On the authority of these resolutions, the Ungson group was threatening and procuring to expel and oust
the plaintiffs and their companion stockholders, for the ultimate purpose of depriving them of their right
to vote in the said annual stockholders' meeting scheduled for May 1, 1955.

In their complaint, Baltazar and Rose prayed that a writ of preliminary injunction be issued against the
defendants, enjoining them to desist and refrain from carrying out the objects and purposes of the three
resolutions aforestated, and commanding them to allow plaintiffs and companions to vote in the
stockholders' meeting, on May 1, 1955, their fully paid up shares of stocks, as evidenced by stock
certificates issued to them and outstanding on the stock book of the defendant Corporation, on or before
January 30, 1955, to declare said three resolutions illegal and invalid, and to pay plaintiffs the sum of
P10,000.00 each, as damages. On April 29, 1955, the trial court, after due hearing, issued Preliminary
Injunction, as prayed for.

The defendants, in their answers, allege that during the years that plaintiffs and their allies were in
control of the Corporation, no serious effort was attempted to retrieve it from its financial collapse,
caused by accumulated indebtedness and by poor and inefficient management, resulting in losses of big
sums of money from vicious manipulation of funds, nepotism, unconscionable grant of big salaries and
allowances, illegal payments, unaccounted funds of Caltex business and sales department store, etc.; that
during the time the management was in the hands of plaintiffs (Rose, as manager); attempts were made
to release themselves from liability of their unpaid subscriptions; that the three resolutions were merely
functional instruments to bolster the faith in the assets of the defendant Corporation and did not deprive
the plaintiffs of their property without due process of law; that the issuance of a writ of injunction for the
purpose of arresting the holding of the election of the Board, was beyond the jurisdiction of the court.
They set up counterclaims. They prayed that the resolutions be declared legal and valid, thus invalidating
the "watered stocks" of plaintiffs, if not paid, and disqualifying the delinquent subscribers, among whom
were the plaintiffs, from voting totally or partially, their subscriptions; to order plaintiffs to pay the
defendant Corporation first, the interest due and payable quarterly at 6% per annum from January 11,
1946 to December 31, 1954, on their liability under their delinquent subscriptions, out of the installment
made therein; to pay defendant entity damages under the counterclaims and expenses for the
enforcement of the collection; and that after complete payment of the interests and the balance of their
unpaid subscriptions, the defendant Corporation should issue the shares of stock to plaintiffs for their full
subscription. Plaintiffs filed their answer to defendants' counterclaims, with counterclaims against
defendants. On August 8, 1955, the lower court issued an order dismissing plaintiffs' counterclaims
against Acena, Ungson and Fernandez "without prejudice to filing the proper separate actions therefor by
the parties." Consequently, and as heretofore mentioned, Baltazar and Rose filed Case No. 13340 (supra).

The following tentative amicable settlement, dated September 13, 1958, formulated and entered into
by some of the parties and their respective attorneys, before presiding Judge Jesus P. Morfe, in the three
cases, was submitted:

1. As to the so-called water stocks P30,000.00 each of the holders of said stock, namely, Irineo
Baltazar, Marvin Rose, and Bernardo Acena, will return to the corporation P3,500 each of said
stocks, thereby retaining P6,500 worth of stocks to be considered as valid for each under this
compromise;

2. With respect to Dr. Bernardo Acena, of the certificates of stock allegedly representing, his profit,
he will return to the corporation P3,500 of said share of stock and retain P7,500 worth thereof ;

3. With respect to the interest on unpaid balance of subscription it is agreed that the subscribers
with unpaid subscription be given the opportunity to pay in two installments, the first installment
to cover one-half of the unpaid balance to be paid in three months, and the second installment will
be for the remaining unpaid half payable in another three months, from the time of the approval of
this agreements, with the understanding that those who comply with this arrangement will not
pay interest on the balance of their subscription, for the date of incorporation up to the grant of
franchise on February 24, 1948, which shall be deemed as condoned, and from 1948 they will pay
only as interest 3% compounded annually, it being understood that failure of any subscriber to
pay any of the installment here provided will subject the stockholders concerned to the provision
of the corporation law of the payment of 6% interest compounded quarterly.

4. All claims and counterclaims other than those covered by the preceding paragraph of
stipulation will be deemed dismissed without prejudice, in all these three cases;

5. All the resolutions of the Board and the stockholders involved in these instant cases will be
deemed modified in accordance with this agreement.

On February 20, 1959, the lower court rendered a decision, approving the agreement and requiring the
parties to comply with the same, and dissolved the writ of preliminary injunction, with costs. The
pertinent portions of the decision are:

In view of the agreement of the parties transcribed above, this Court is called upon to decide
whether or not any of the agreements of the parties as above transcribed is contrary to law or
public policy. First, as regards pars. 1 and 2, of said agreement, the legal capacity of the parties to
sue and be sued carries with it the power to enter into an amicable settlement of pending
litigations and to expressly or impliedly make admissions of facts; and they could, therefore, agree
and recognize as fully paid for and valid the shares of stocks mentioned in said paragraphs of their
agreement, which agreement must be held valid and binding among the parties, and even as
against their persons who have no proof that said agreement was entered into in fraud of
creditors.
 The next question for decision is whether or not a corporation may validly condone interest on
unpaid subscriptions to its capital stock. The fact that our Corporation Law authorizes provisions
in the by-laws of a corporation different from that set out in Sec. 37 of said law, shows that the
provision of said law is to interest of unpaid stock subscriptions is merely directory, so that a
corporation may fix a different interest rate, or condone the payment of interest altogether if such
condonation would, as in the instant cases, serve as inducement for early payment of stock
subscriptions. The condonation and reduction of interest agreed upon in par. 3 of the aforequoted
agreement is, therefore, valid in the absence of proof that said agreement was entered into in
fraud of creditors.

In connection with par. 5 of the aforequoted agreement, in relation to par. 3 thereof, this, Court is
of the opinion, and so holds, that the periods of time allowed for making payments under par. 3 of
said agreement, must be counted from date of receipt of a copy of this decision by counsel of the
parties, this decision constituting the final approval of said agreement, and as to stockholders who
are not parties to these cases, from date of notice of the said time extension. The extension of time
to pay, as granted in par. 3 of the repealing previous declaration of delinquency of the
corresponding shares of stock, and all subscribed shares of stock, except those ordered to be
returned as provided in pars. 1 and 2 of said agreement, will therefore be entitled to vote until
once again declared delinquent after the expiration of the periods of time set out in par. 3 of said
agreement.

Defendants on March 14, 1959 filed a motion for reconsideration, alleging that the decision was partly
against the spirit and intention of the parties to the agreement and portions of the decision, carried
"prejudicial eventualities," and asking that the same be amended in the sense that "the payment of
obligations of delinquent incorporators has been reduced by the agreement as stated in paragraphs 3 and
5" of said agreement; that delinquent stocks cannot be voted until fully paid in accordance with the
agreement and that if the plaintiffs in the above entitled cases could not pay in full their obligations
within the periods stated in the agreement, the resolutions of delinquency would automatically stand.

On March 18, 1959, plaintiffs, in cases Nos. 13211 and 13212, filed a petition for immediate execution and
for preliminary injunction and/or mandamus, praying that a writ be issued, ordering the defendants, as
controlling majority of hold-over board of directors, to hold immediately the long delayed stockholders'
meeting, and to allow the plaintiffs and all the stockholders, with still unpaid subscriptions, to vote all
their stocks and subscriptions at said stockholders' meeting, as directed in the decision.

On March 25, 1959, the Court issued an amending decision, pertinent portions of which are hereunder
reproduced —

... . After hearing the parties in extensive oral argument, this Court agrees with the defendants that
par. 5 of the compromise agreement of the parties, dated September 13, 1958, contemplates a
modification and not a repeal of the resolutions of the Board of Directors and of the Stockholders
referred to in said agreement. The question is, therefore, to what extent has said resolutions been
modified? Considering that the primary intention of each of said resolutions was to effect an early
collection of unpaid balance of stock subscriptions and interest thereon, and the moving
consideration for a compromise settlement of the instant cases is likewise the early collection of
the obligations of stockholders of the defendant corporation, the extension of time to pay, as
granted in par. 3 of said agreement, was clearly intended to cover not only the accrued interest but
also the unpaid stock subscription of the stockholders, for to hold otherwise would be to defeat
 the primary purpose of early collection of said obligations. Considering the same paramount
intention of said resolution, and of the aforesaid compromise agreement, it likewise follows that
the extension of time to pay and the reduction of interest embodied in the said agreement must
apply to all stockholders similarly situated.

Regarding the right to vote, this Court likewise agrees with the defends its that the facts
considered during the negotiations for settlement effected by the parties in the Chambers of the
presiding judge do not warrant repeal of the declaration of delinquency and complete restoration
of voting rights until full payment of the unpaid stock subscriptions and interest within the time
and to the extent mentioned in par. 3 of the aforesaid compromise agreement. To rule otherwise
would be to encourage non-payment of the balance of stock subscriptions and thus defeat the
paramount intention of the compromise agreement. Stated differently, this Court now holds that
the extension of time to pay, as granted in par. 3 of the aforesaid compromise agreement, has the
effect of lifting the previous declaration of delinquency effective as of full payment of the balance
of said stock subscriptions and interest within the periods of time mentioned in par. 3 of said
compromise agreement.

In view of the uncertainty brought about by the motion for reconsideration and the motion for
execution aforementioned, it would be unjust to count the periods of time mentioned in the
aforesaid compromise agreement from the date of receipt of the original decision of this Court in
these cases. The extension of time to pay should, therefore, be counted from receipt by counsel for
the parties of a copy of this amending decision, and from receipt by the other stockholders of
notice of said extension of time; and the injunction in the instant case should be deemed in force
for the duration of said extension of time to pay.

WHEREFORE, the decision of this Court rendered in these cases on February 20, 1959 is hereby
modified in the manner set out above, maintaining said decision in all other respects.

On April 4, 1959 , plaintiffs filed a motion for reconsideration and/or new trial, praying that the
amending decision dated March 25, 1959, be reconsidered and/or further clarified. On July 16, 1959, the
trial court reversed its amending decision in an order, the relevant parts thereof follow:

WHEREFORE, by way of amendment to both the original and amending decisions of this Court in
the instant case, this Court hereby expressly rules that all shares of the capital stock of the defendant
corporation covered by fully paid capital stock shares certificates are entitled to vote in all meetings
of the stockholders of this corporation, and Resolutions Nos. 2, 3 and 4 (Exhs. C, C-1 and C-2) of
defendant's corporation's Board of Directors are hereby nullified insofar as they are inconsistent the
this ruling.

The extensions of time to pay, referred to in par. 3 of the settlement agreement of the parties, will
start to run from the date of receipt by counsel for the parties of a copy of this Order, and from
receipt by the other stockholders of notice of said extension of time.

The injunction granted in the instant case is hereby dissolved, and the injunction bond filed by the
plaintiffs is hereby cancelled and released.

Defendants on August 14, 1959 perfected their appeal against the above ruling, on purely questions of
law. Plaintiffs-appellees did not file any brief, manifesting that they were relying on their arguments
contained in their motion for reconsideration, dated April 4, 1959 filed with the trial court. (pp. 213 to
218, rec. on appeal) and on the reasons set forth in the trial court's order, dated July 16, 1959, third
decision (pp. 219 to 230 R.A.).

Pending decision, the parties were required to show cause why the cases should not be dismissed for
having become moot or academic, in view of the fact that the appellees, taking advantage of the decision
of the trial court, "had paid all other delinquencies and interest thereon," but the appellants manifested
that these cases should be decided on the issues raised, to determine, once and for all, the voting rights of
the other delinquent subscribers, in the election of the company's Board of Directors which had been
suspended since May 1, 1955, because of the litigation.

The questions posted in the appeal, in view of the above facts would, therefore, be:

1. If a stockholder, in a stock corporation, subscribes to a certain number of shares of stock, and he

pays only partially, for which he is issued certificates of stock, is he entitled to vote the latter,
notwithstanding the fact that he has not paid the balance of his subscription, which has been
called for payment or declared delinquent?

2. If a stockholder subscribes to a certain number of shares of stock and makes partial payment
only and declared delinquent as to the rest, with interest, should previous payments on account of
the capital, be first applied to interest, thus diminishing the voting power of the shares of stock
already paid? In other words, if the entire subscribed shares of stock are not paid, will the paid
shares of stock be deprived of the right to vote, until the entire subscribed shares of stock are fully
paid, including interest?

3. Has estoppel or waiver, by virtue of the settlement agreement, set in?

Defendants-appellants claim that resolution No. 4 (Exh. C-2), withdrawing or nullifying the voting power
of all the aforesaid shares of stock is valid, notwithstanding the existence of partial payments, evidenced
by certificates duly issued therefor. They invoke the ruling laid down by the Court in the Fua Cun v.
Summers case (44 Phil, 705, March 27, 1923) pertinent portion of which states:

In the absence of special agreement to the contrary, a subscriber for a certain number of shares of
stock does not, upon payment of one-half of the subscription price, become entitled to the
issuance of certificates for one-half of the number of shares subscribed for; the subscriber's right
consists only in equity entitling him to a certificate for the total number of shares subscribed for by
him upon payment of the remaining portion of the subscription price.

The cited case connotes the principle that a partial payment of a subscription does not entitle the
stockholder to a certificate for the total number of shares subscribed by him; his right consists only in
equity to a certificate of the total number of shares subscribed for, upon payment of the remaining
portion of the subscription price. In other words, it is contended, as in the present case, that if Baltazar
subscribed to 600 shares of stock in a single subscription, and he merely paid for 300 shares, for which
he was given fully paid certificates for 300 shares, he cannot vote said 300 shares, in any meeting of the
Corporation, until he shall have paid the remaining 300 shares of stock. The saving clause in the quoted
pronouncement, "in the absence of special agreement to the contrary," reveals that the doctrine is not
mandatory, but merely directory, which is not violative of law, the rigor of the pronouncement may be
relaxed. The plaintiffs-appellees seem to sustain an adverse concept, postulating that once a stockholder
has subscribed to a certain number of shares, although he has made partial payments only, but is issued a
certificate for the paid-up shares of stock, he is entitled to vote the whole number of shares subscribed by
him, paid or not, until the said unpaid shares shall have been called for payment or declared delinquent.

The cases at bar do not come under the aegis of the principle enunciated in the Fua Cun v. Summers case,
because it was the practice and procedure, since the inception of the corporation, to issue certificates of
stock to its individual subscribers for unpaid shares of stock and gave voting power to shares of stock
fully paid. And even though no agreement existed, the ruling in said case, does not now reflect the correct
view on the matter, for better than an agreement or practice, there is the law, which renders the said case
of Fua Cun-Summers, obsolescent.

Section 37 of the Corporation Law, as amended by Act No. 3518, approved on March 1, 1929, six (6)
years after the promulgation of the Fua-Summers case (decided in 1923), provides:

SEC. 37. ... . No certificate of stock shall be issued to a subscriber as fully paid up until the full par
value thereof, or the full subscription in the case of no par stock, has been paid by him to the
corporation. Subscribed shares not fully paid up may be voted provided no subscription is unpaid
and delinquent.

The law just quoted was originally section 36 of the Corporation Law of 1906, which reads as follows:

SEC. 36. ... . No certificate of stock shall be issued to a subscriber as fully paid up until the full par
value thereof has been paid by him to the corporation. Subscribed shares not fully paid up may be
voted provided no subscription is unpaid and delinquent.

As may readily be seen, said Section 37 makes payment of the "par value" as prerequisite for the issuance
of certificates of par value stocks, and makes payment of the "full subscription" as prerequisite for the
issuance of certificates of no par value stocks. No such distinction was contained in section 36 of our
Corporation Law of 1906, corresponding to section 37 now. The present law could have simply provided
that no certificate of par value and no par value stock shall be issued to a subscriber, as fully paid up, until
the full subscription has been paid by him to the corporation, if full payment of subscription were
intended is the criterion in the issuance of certificates, for both thepar value and no par value stocks.
Stated in another way, the present law requires as a condition before a share holder can vote his shares,
that his full subscription be paid in the case of no par value stock; and in case of stock corporation with par
value, the stockholder can vote the shares fully paid by him only, irrespective of the unpaid delinquent
shares. As well-observed by the trial court, a corporation may now, in the absence of provisions in their
by-laws to the contrary, apply payment made by , subscribers-stockholders, either as: "(a) full payment
for the corresponding number of shares of stock, the par value of each of which is covered by such
payment; or (b) as payment pro-rata to each and all the entire number of shares subscribed for"
(amended decision). In the cases at bar, the defendant-corporation had chosen to apply payments by its
stockholders to definite shares of the capital stock of the corporation and had fully paid capital stock
shares certificates for said payments; its call for payment of unpaid subscription and its declaration of
delinquency for non-payment of said call affecting only the remaining number of shares of its capital
stock for which no fully paid capital stock shares certificates have been issued, "and only these have been
legally shorn of their voting rights by said declaration of delinquency" (amended decision).

The third paragraph of the settlement agreement relates to interest on the unpaid balance of subscription
to the capital stock. The second paragraph of resolution No. 3 (Exh. C-1), unilaterally declared as of no
value and cancelled all capital stock shares certificates issued as fully paid up, upon payments made by
stockholders, when interests on unpaid subscription from date of subscription were not previously
and/or then and there paid. Defendants-appellants, invoking Art. 1253 NCC (Art. 1173 of the Old Civil
Code) which provides that "if the debt produces interest, payment of the principal shall not be deemed to
have been made until the interests have been covered," and relying on an opinion of the Securities and
Exchange Commission, claim that said unilateral nullification and/or cancellation of previously issued
capital stock shares certificates was valid. This provision of law only applies in the absence of verbal or
written agreement, to the contrary (8 Manresa, p. 317); it is likewise merely directory, and not
mandatory. (Art. 1252 NCC). In the present case, the defendant-corporation had applied the payments
made by the stockholders to the full par value of the shares of stock subscribed by them, instead of the
accepted interest, as shown by the capital stock shares certificate issued for the payments made, and the
stockholders had accepted such certificates issued for such payments. This being the case, the said
application of payments must be deemed to have been agreed upon by the Corporation and the
stockholders, and the same cannot now be changed without the consent of the stockholders concerned.
The Corporation Law and the by-laws of the defendant Corporation do not contain any provision,
prohibiting the application of stockholders' payments to the full par value of a corporation's capital stock,
ahead of the payment of accrued interest for unpaid subscriptions. It would, therefore, result that a
corporation may, upon request of an interested stockholder, as his option, apply payment by them to the
full par value of shares of capital leaving its collection later of the accrued interest on unpaid
subscriptions, and that once such option has been exercised and the corresponding stock certificates
have been issued, the corporation cannot, by a unilateral act, legally nullify and cancel the capital stock
certificates so issued.

It is finally argued by defendants-appellants that the plaintiffs-appellees waived, under the agreement
heretofore quoted, the right to enforce the voting power they were claiming to exercise, and upon the
principle of estoppel, they are now prohibited from insisting on the existence of such power, ending with
the exhortation, that "they should lie upon the bed they helped built, for a lasting peace in the interest of
the corporation." It should, however, be stated as heretofore exposed, that certain clauses of the
agreement are contrary to law and public policy and would cause injury to plaintiffs-appellees and other
stockholders similarly situated. Estoppel cannot be predicated on acts which are prohibited by law or are
against public policy (Benguet Cons. Mining Co. v. Pineda, 52 Off. Gaz. 1961, L-7231, March 28, 1956;
Eugenio v. Perdido L-7083, May 19, 1955; III Rep. of the Philippines Digest, p. 269-270).

WHEREFORE, the order of the trial court of July 16, 1959, (1) Expressly ruling "that all shares of the
capital stocks of the defendant corporation covered by fully paid capital stock shares of certificates
are entitled to vote in all meetings of the stockholders of this corporation and resolutions Nos. 2, 3 and 4
(Exhs. C, C-1 and C-2) of defendant corporation's Board of Directors are hereby nullified insofar as they
are inconsistent with this ruling"; and (2) Dissolving the injunction granted in the cases and releasing the
injunction bond filed by the plaintiffs-appellees, is correct and the same should be, as it is hereby
affirmed. Costs taxed against the defendants- appellants.

SECOND DIVISION

G.R. No. 131394 March 28, 2005

JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES, Petitioner,
vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, DOLORES ONRUBIA, ELENITA
NOLASCO, JUAN O. NOLASCO III, ESTATE OF FAUSTINA M. ONRUBIA, PHILIPPINE MERCHANT
MARINE SCHOOL, INC., Respondents.

DECISION

TINGA, J.:

Presented in the case at bar is the apparently straight-forward but complicated question: What should be
the basis of quorum for a stockholders’ meeting—the outstanding capital stock as indicated in the articles
of incorporation or that contained in the company’s stock and transfer book?

Petitioners seek to nullify the Court of Appeals’ Decision in CA–G.R. SP No. 414731 promulgated on 18
August 1997, affirming the SEC Order dated 20 June 1996, and the Resolution2 of the Court of Appeals
dated 31 October 1997 which denied petitioners’ motion for reconsideration.

The antecedents are not disputed.

In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred
(700) founders’ shares and seventy-six (76) common shares as its initial capital stock subscription
reflected in the articles of incorporation. However, private respondents and their predecessors who were
in control of PMMSI registered the company’s stock and transfer book for the first time in 1978,
recording thirty-three (33) common shares as the only issued and outstanding shares of PMMSI.
Sometime in 1979, a special stockholders’ meeting was called and held on the basis of what was
considered as a quorum of twenty-seven (27) common shares, representing more than two-thirds (2/3)
of the common shares issued and outstanding.

In 1982, the heirs of one of the original incorporators, Juan Acayan, filed a petition with the Securities and
Exchange Commission (SEC) for the registration of their property rights over one hundred (120)
founders’ shares and twelve (12) common shares owned by their father. The SEC hearing officer held that
the heirs of Acayan were entitled to the claimed shares and called for a special stockholders’ meeting to
elect a new set of officers.3 The SEC En Bancaffirmed the decision. As a result, the shares of Acayan were
recorded in the stock and transfer book.

On 06 May 1992, a special stockholders’ meeting was held to elect a new set of directors. Private
respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992
stockholders’ meeting, alleging that the quorum for the said meeting should not be based on the 165
issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital
stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation. The
petition was dismissed.4 Appeal was made to the SEC En Banc, which granted said appeal, holding that
the shares of the deceased incorporators should be duly represented by their respective administrators
or heirs concerned. The SEC directed the parties to call for a stockholders meeting on the basis of the
stockholdings reflected in the articles of incorporation for the purpose of electing a new set of officers for
the corporation.5

Petitioners, who are PMMSI stockholders, filed a petition for review with the Court of Appeals.6 Rebecca
Acayan, Jayne O. Abuid, Willie O. Abuid and Renato Cervantes, stockholders and directors of PMMSI,
earlier filed another petition for review of the same SEC En Banc’s orders. The petitions were thereafter
consolidated.7 The consolidated petitions essentially raised the following issues, viz: (a) whether the
basis the outstanding capital stock and accordingly also for determining the quorum at stockholders’
meetings it should be the 1978 stock and transfer book or if it should be the 1952 articles of
incorporation; and (b) whether the Court of Appeals "gravely erred in applying the Espejo Decision to the
benefit of respondents."8 The "Espejo Decision" is the decision of the SEC en banc in SEC Case No. 2289
which ordered the recording of the shares of Jose Acayan in the stock and transfer book.

The Court of Appeals held that for purposes of transacting business, the quorum should be based on the
outstanding capital stock as found in the articles of incorporation.9 As to the second issue, the Court of
Appeals held that the ruling in the Acayan case would ipso facto benefit the private respondents, since to
require a separate judicial declaration to recognize the shares of the original incorporators would entail
unnecessary delay and expense. Besides, the Court of Appeals added, the incorporators have already
proved their stockholdings through the provisions of the articles of incorporation.10

In the instant petition, petitioners claim that the 1992 stockholders’ meeting was valid and legal. They
submit that reliance on the 1952 articles of incorporation for determining the quorum negates the
existence and validity of the stock and transfer book which private respondents themselves prepared. In
addition, they posit that private respondents cannot avail of the benefits secured by the heirs of Acayan,
as private respondents must show and prove entitlement to the founders and common shares in a
separate and independent action/proceeding.

In private respondents’ Memorandum11 dated 08 March 2000, they point out that the instant petition
raises the same facts and issues as those raised in G.R. No. 13131512, which was denied by the First
Division of this Court on 18 January 1999 for failure to show that the Court of Appeals committed any
reversible error. They add that as a logical consequence, the instant petition should be dismissed on the
ground of res judicata. Furthermore, private respondents claim that in view of the applicability of the rule
on res judicata, petitioners’ counsel should be cited for contempt for violating the rule against forum-
shopping.13

For their part, petitioners claim that the principle of res judicata does not apply to the instant case. They
argue that the instant petition is separate and distinct from G.R. No. 131315, there being no identity of
parties, and more importantly, the parties in the two petitions have their own distinct rights and interests
in relation to the subject matter in litigation. For the same reasons, they claim that counsel for petitioners
cannot be found guilty of forum-shopping.14

In their Manifestation and Motion15 dated 22 September 2004, private respondents moved for the
dismissal of the instant petition in view of the dismissal of G.R. No. 131315. Attached to the said
manifestation is a copy of the Entry of Judgment16 issued by the First Division dated 01 December 1999.

The petition must be denied, not on res judicata, but on the ground that like the petition in G.R. No.
131315 it fails to impute reversible error to the challenged Court of Appeals’ Decision.

Res judicata does not apply in

the case at bar.

Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter settled
by judgment.17 The doctrine of res judicata provides that a final judgment, on the merits rendered by a
court of competent jurisdiction is conclusive as to the rights of the parties and their privies and
constitutes an absolute bar to subsequent actions involving the same claim, demand, or cause of
action.18 The elements of res judicata are (a) identity of parties or at least such as representing the same
interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on
the same facts; and (c) the identity in the two (2) particulars is such that any judgment which may be
rendered in the other action will, regardless of which party is successful, amount to res judicata in the
action under consideration.19

There is no dispute as to the identity of subject matter since the crucial point in both cases is the
propriety of including the still unproven shares of respondents for purposes of determining the quorum.
Petitioners, however, deny that there is identity of parties and causes of actions between the two
petitions.

The test often used in determining whether causes of action are identical is to ascertain whether the
same facts or evidence would support and establish the former and present causes of action.20 More
significantly, there is identity of causes of action when the judgment sought will be inconsistent with the
prior judgment.21 In both petitions, petitioners assert that the Court of Appeals’ Decision effectively
negates the existence and validity of the stock and transfer book, as well as automatically grants private
respondents’ shares of stocks which they do not own, or the ownership of which remains to be unproved.
Petitioners in the two petitions rely on the entries in the stock and transfer book as the proper basis for
computing the quorum, and consequently determine the degree of control one has over the company.
Essentially, the affirmance of the SEC Order had the effect of diminishing their control and interests in the
company, as it allowed the participation of the individual private respondents in the election of officers of
the corporation.

Absolute identity of parties is not a condition sine qua non for res judicata to apply—a shared identity of
interest is sufficient to invoke the coverage of the principle.22 However, there is no identity of parties
between the two cases. The parties in the two petitions have their own rights and interests in relation to
the subject matter in litigation. As stated by petitioners in their Reply to Respondents’
Memorandum,23 there are no two separate actions filed, but rather, two separate petitions for review
on certiorari filed by two distinct parties with the Court and represented by their own counsels, arising
from an adverse consolidated decision promulgated by the Court of Appeals in one action or
proceeding.24 As such, res judicata is not present in the instant case.

Likewise, there is no basis for declaring petitioners or their counsel guilty of violating the rules against
forum-shopping. In the Verification/Certification25 portion of the petition, petitioners clearly stated that
there was then a pending motion for reconsideration of the 18 August 1997 Decision of the Court of
Appeals in the consolidated cases (CA-G.R. SP No. 41473 and CA-G.R. SP No. 41403) filed by the Abuids, as
well as a motion for clarification. Moreover, the records indicate that petitioners filed
their Manifestation26 dated 20 January 1998, informing the Court of their receipt of the petition in G.R. No.
131315 in compliance with their duty to inform the Court of the pendency of another similar petition.
The Court finds that petitioners substantially complied with the rules against forum-shopping.

The Decision of the Court of

Appeals must be upheld.

The petition in this case involves the same facts and substantially the same issues and arguments as those
in G.R. No. 131315 which the First Division has long denied with finality. The First Division found the
petition before it inadequate in failing to raise any reversible error on the part of the Court of Appeals.
We reach a similar conclusion as regards the present petition.
The crucial issue in this case is whether it is the company’s stock and transfer book, or its 1952 Articles of
Incorporation, which determines stockholders’ shareholdings, and provides the basis for computing the
quorum.

We agree with the Court of Appeals.

The articles of incorporation has been described as one that defines the charter of the corporation and
the contractual relationships between the State and the corporation, the stockholders and the State, and
between the corporation and its stockholders.27 When PMMSI was incorporated, the prevailing law was
Act No. 1459, otherwise known as "The Corporation Law." Section 6 thereof states:

Sec. 6. Five or more persons, not exceeding fifteen, a majority of whom are residents of the
Philippines, may form a private corporation for any lawful purpose or purposes by filing with the
Securities and Exchange Commission articles of incorporation duly executed and acknowledged
before a notary public, setting forth:

....

(7) If it be a stock corporation, the amount of its capital stock, in lawful money of the Philippines,
and the number of shares into which it is divided, and if such stock be in whole or in part without
par value then such fact shall be stated; Provided, however, That as to stock without par value the
articles of incorporation need only state the number of shares into which said capital stock is
divided.

(8) If it be a stock corporation, the amount of capital stock or number of shares of no-par stock
actually subscribed, the amount or number of shares of no-par stock subscribed by each and the
sum paid by each on his subscription. . . .28

A review of PMMSI’s articles of incorporation29 shows that the corporation complied with the
requirements laid down by Act No. 1459. It provides in part:

7. That the capital stock of the said corporation is NINETY THOUSAND PESOS (P90,000.00)
divided into two classes, namely:

FOUNDERS’ STOCK - 1,000 shares at P20 par value- P 20,000.00

COMMON STOCK- 700 shares at P 100 par value – P 70,000.00

TOTAL ---------------------1,700 shares----------------------------P 90,000.00

....

8. That the amount of the entire capital stock which has been actually subscribed is TWENTY ONE
THOUSAND SIX HUNDRED PESOS (P21,600.00) and the following persons have subscribed for the
number of shares and amount of capital stock set out after their respective names:

SUBSCRIBER SUBSCRIBED AMOUNT

 SUBSCRIBED

No. of Shares Par Value

Crispulo J. 120 Founders P 2,400.00

Onrubia

Juan H. Acayan 120 " 2, 400.00

Martin P. 100 " 2, 000.00

Sagarbarria

Mauricio G. 50 " 1, 000.00

Gallaga

Luis Renteria 50 " 1, 000.00

Faustina M. de 140 " 2, 800.00

Onrubia

Mrs. Ramon 40 " 800.00

Araneta

Carlos M. Onrubia 80 " 1,600.00

700 P 14,000.00

SUBSCRIBER SUBSCRIBED AMOUNT

SUBSCRIBED
No. of Shares
Par Value

Crispulo J. 12 Common P 1,200.00

Onrubia

Juan H. Acayan 12 " 1,200.00

Martin P. 8" 800.00

Sagarbarria

Mauricio G. 8" 800.00

Gallaga

Luis Renteria 8" 800.00

Faustina M. de 12 " 1,200.00

Onrubia

Mrs. Ramon 8" 800.00

Araneta
 Carlos M. Onrubia 8" 800.00

76 P7,600.0030

There is no gainsaying that the contents of the articles of incorporation are binding, not only on the
corporation, but also on its shareholders. In the instant case, the articles of incorporation indicate that at
the time of incorporation, the incorporators were bona fide stockholders of seven hundred (700)
founders’ shares and seventy-six (76) common shares. Hence, at that time, the corporation had 776
issued and outstanding shares.

On the other hand, a stock and transfer book is the book which records the names and addresses of all
stockholders arranged alphabetically, the installments paid and unpaid on all stock for which
subscription has been made, and the date of payment thereof; a statement of every alienation, sale or
transfer of stock made, the date thereof and by and to whom made; and such other entries as may be
prescribed by law.31 A stock and transfer book is necessary as a measure of precaution, expediency and
convenience since it provides the only certain and accurate method of establishing the various corporate
acts and transactions and of showing the ownership of stock and like matters.32 However, a stock and
transfer book, like other corporate books and records, is not in any sense a public record, and thus is not
exclusive evidence of the matters and things which ordinarily are or should be written therein.33 In fact, it
is generally held that the records and minutes of a corporation are not conclusive even against the
corporation but are prima facie evidence only,34 and may be impeached or even contradicted by other
competent evidence.35 Thus, parol evidence may be admitted to supply omissions in the records or
explain ambiguities, or to contradict such records.36

In 1980, Batas Pambansa Blg. 68, otherwise known as "The Corporation Code of the Philippines"
supplanted Act No. 1459. BP Blg. 68 provides:

Sec. 24. Election of directors or trustees.—At all elections of directors or trustees, there must be
present, either in person or by representative authorized to act by written proxy, the owners of a
majority of the outstanding capital stock, or if there be no capital stock, a majority of the members
entitled to vote. . . .

Sec. 52. Quorum in meetings.- Unless otherwise provided for in this Code or in the by-laws, a
quorum shall consist of the stockholders representing a majority of the outstanding capital stock
or majority of the members in the case of non-stock corporation.

Outstanding capital stock, on the other hand, is defined by the Code as:

Sec. 137. Outstanding capital stock defined.— The term "outstanding capital stock" as used in this
code, means the total shares of stock issued to subscribers or stockholders whether or not fully or
partially paid (as long as there is binding subscription agreement) except treasury shares.

Thus, quorum is based on the totality of the shares which have been subscribed and issued, whether it be
founders’ shares or common shares.37 In the instant case, two figures are being pitted against each
other— those contained in the articles of incorporation, and those listed in the stock and transfer book.

To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer
book, and completely disregarding the issued and outstanding shares as indicated in the articles of
incorporation would work injustice to the owners and/or successors in interest of the said shares. This
case is one instance where resort to documents other than the stock and transfer books is necessary. The
stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does
not reflect the totality of shares which have been subscribed, more so when the articles of incorporation
show a significantly larger amount of shares issued and outstanding as compared to that listed in the
stock and transfer book. As aptly stated by the SEC in its Order dated 15 July 1996:38

It is to be explained, that if at the onset of incorporation a corporation has 771 shares subscribed,
the Stock and Transfer Book should likewise reflect 771 shares. Any sale, disposition or even
reacquisition of the company of its own shares, in which it becomes treasury shares, would not
affect the total number of shares in the Stock and Transfer Book. All that will change are the
entries as to the owners of the shares but not as to the amount of shares already subscribed.

This is precisely the reason why the Stock and Transfer Book was not given probative value. Did
the shares, which were not recorded in the Stock and Transfer Book, but were recorded in the
Articles of Iincorporation just vanish into thin air? . . . .39

As shown above, at the time the corporation was set-up, there were already seven hundred seventy-six
(776) issued and outstanding shares as reflected in the articles of incorporation. No proof was adduced
as to any transaction effected on these shares from the time PMMSI was incorporated up to the time the
instant petition was filed, except for the thirty-three (33) shares which were recorded in the stock and
transfer book in 1978, and the additional one hundred thirty-two (132) in 1982. But obviously, the
shares so ordered recorded in the stock and transfer book are among the shares reflected in the articles
of incorporation as the shares subscribed to by the incorporators named therein.

One who is actually a stockholder cannot be denied his right to vote by the corporation merely because
the corporate officers failed to keep its records accurately.40 A corporation’s records are not the only
evidence of the ownership of stock in a corporation.41 In an American case,42 persons claiming
shareholders status in a professional corporation were listed as stockholders in the amendment to the
articles of incorporation. On that basis, they were in all respects treated as shareholders. In fact, the acts
and conduct of the parties may even constitute sufficient evidence of one’s status as a shareholder or
member.43 In the instant case, no less than the articles of incorporation declare the incorporators to have
in their name the founders and several common shares. Thus, to disregard the contents of the articles of
incorporation would be to pretend that the basic document which legally triggered the creation of the
corporation does not exist and accordingly to allow great injustice to be caused to the incorporators and
their heirs.

Petitioners argue that the Court of Appeals "gravely erred in applying the Espejo decision to the benefit of
respondents." The Court believes that the more precise statement of the issue is whether in its
assailed Decision, the Court of Appeals can declare private respondents as the heirs of the incorporators,
and consequently register the founders shares in their name. However, this issue as recast is not actually
determinative of the present controversy as explained below.

Petitioners claim that the Decision of the Court of Appeals unilaterally divested them of their shares in
PMMSI as recorded in the stock and transfer book and instantly created inexistent shares in favor of
private respondents. We do not agree.
The assailed Decision merely declared that a separate judicial declaration to recognize the shares of the
original incorporators would entail unnecessary delay and expense on the part of the litigants,
considering that the incorporators had already proved ownership of such shares as shown in the articles
of incorporation.44 There was no declaration of who the individual owners of these shares were on the
date of the promulgation of the Decision. As properly stated by the SEC in its Order dated 20 June 1996, to
which the appellate court’s Decision should be related, "if at all, the ownership of these shares should only
be subjected to the proper judicial (probate) or extrajudicial proceedings in order to determine the
respective shares of the legal heirs of the deceased incorporators."45

WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 120138 September 5, 1997

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.

KAPUNAN, J.:

In this petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioners
seek to annul the decision of the Court of Appeals in CA-G.R. SP. No. 31748 dated 23 May 1994 and
its subsequent resolution dated 10 May 1995 denying petitioners' motion for reconsideration.

The present case involves two separate but interrelated conflicts. The facts leading to the first
controversy are as follows:

The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority stockholder of Tormil
Realty & Development Corporation while private respondents who are the children of Judge
Torres' deceased brother Antonio A. Torres, constituted the minority stockholders. In particular,
their respective shareholdings and positions in the corporation were as follows:

Name of Stockholder Number of Percentage Position(s)

Shares
 Manuel A. Torres, Jr. 100,120 57.21 Dir./Pres./Chair
Milagros P. Torres 33,430 19.10 Dir./Treasurer
Josefina P. Torres 8,290 4.73 Dir./Ass. Cor-Sec.
Ma. Cristina T. Carlos 8,290 4.73 Dir./Cor-Sec.
Antonio P. Torres, Jr. 8,290 4.73 Director
Ma. Jacinta P. Torres 8,290 4.73 Director
Ma. Luisa T. Morales 7,790 4.45 Director
Dante D. Morales 500 .28 Director1

In 1984, Judge Torres, in order to make substantial savings in taxes, adopted an "estate planning" scheme
under which he assigned to Tormil Realty & Development Corporation (Tormil for brevity) various real
properties he owned and his shares of stock in other corporations in exchange for 225,972 Tormil Realty
shares. Hence, on various dates in July and August of 1984, ten (10) deeds of assignment were executed
by the late Judge Torres:

ASSIGNMENT DATE PROPERTY ASSIGNED LOCATION SHARES TO BE

ISSUED

1. July 13, 1984 TCT 81834 Quezon City 13,252

TCT 144240 Quezon City

2. July 13, 1984 TCT 77008 Manila

TCT 65689 Manila 78,493
TCT 109200 Manila

3. July 13, 1984 TCT 374079 Makati 8,307

4. July 24, 1984 TCT 41527 Pasay

TCT 41528 Pasay 9,855
TCT 41529 Pasay

5. Aug. 06, 1984 El Hogar Filipino Stocks 2,000

6. Aug. 06, 1984 Manila Jockey Club Stocks 48,737

7. Aug. 07, 1984 San Miguel Corp. Stocks 50,283

8. Aug. 07, 1984 China banking Corp. Stocks 6,300

9. Aug. 20, 1984 Ayala Corp. Stocks 7,468

10. Aug. 29, 1984 Ayala Fund Stocks 1,322

———
225,9722
Consequently, the aforelisted properties were duly recorded in the inventory of assets of Tormil Realty
and the revenues generated by the said properties were correspondingly entered in the corporation's
books of account and financial records.

Likewise, all the assigned parcels of land were duly registered with the respective Register of Deeds in
the name of Tormil Realty, except for the ones located in Makati and Pasay City.

At the time of the assignments and exchange, however, only 225,000 Tormil Realty shares remained
unsubscribed, all of which were duly issued to and received by Judge Torres (as evidenced by stock
certificates Nos. 17, 18, 19, 20, 21, 22, 23, 24 & 25).3

Due to the insufficient number of shares of stock issued to Judge Torres and the alleged refusal of private
respondents to approve the needed increase in the corporation's authorized capital stock (to cover the
shortage of 972 shares due to Judge Torres under the "estate planning" scheme), on 11 September 1986,
Judge Torres revoked the two (2) deeds of assignment covering the properties in Makati and Pasay City.4

Noting the disappearance of the Makati and Pasay City properties from the corporation's inventory of
assets and financial records private respondents, on 31 March 1987, were constrained to file a complaint
with the Securities and Exchange Commission (SEC) docketed as SEC Case No. 3153 to compel Judge
Torres to deliver to Tormil corporation the two (2) deeds of assignment covering the aforementioned
Makati and Pasay City properties which he had unilaterally revoked and to cause the registration of the
corresponding titles in the name of Tormil. Private respondents alleged that following the disappearance
of the properties from the corporation's inventory of assets, they found that on October 24, 1986, Judge
Torres, together with Edgardo Pabalan and Graciano Tobias, then General Manager and legal counsel,
respectively, of Tormil, formed and organized a corporation named "Torres-Pabalan Realty and
Development Corporation" and that as part of Judge Torres' contribution to the new corporation, he
executed in its favor a Deed of Assignment conveying the same Makati and Pasay City properties he had
earlier transferred to Tormil.

The second controversy — involving the same parties — concerned the election of the 1987 corporate
board of directors.

The 1987 annual stockholders meeting and election of directors of Tormil corporation was scheduled on
25 March 1987 in compliance with the provisions of its by-laws.

Pursuant thereto, Judge Torres assigned from his own shares, one (l) share each to petitioners Tobias,
Jocson, Jurisprudencia, Azura and Pabalan. These assigned shares were in the nature of "qualifying
shares," for the sole purpose of meeting the legal requirement to be able to elect them (Tobias and
company) to the Board of Directors as Torres' nominees.

The assigned shares were covered by corresponding Tormil Stock Certificates Nos. 030, 029, 028, 027,
026 and at the back of each certificate the following inscription is found:

The present certificate and/or the one share it represents, conformably to the purpose and
intention of the Deed of Assignment dated March 6, 1987, is not held by me under any
claim of ownership and I acknowledge that I hold the same merely as trustee of Judge
Manuel A. Torres, Jr. and for the sole purpose of qualifying me as Director;
 (Signature of Assignee)5

The reason behind the aforestated action was to remedy the "inequitable lopsided set-up obtaining in the
corporation, where, notwithstanding his controlling interest in the corporation, the late Judge held only a
single seat in the nine-member Board of Directors and was, therefore, at the mercy of the minority, a
combination of any two (2) of whom would suffice to overrule the majority stockholder in the Board's
decision making functions."6

On 25 March 1987, the annual stockholders meeting was held as scheduled. What transpired therein was
ably narrated by Attys. Benito Cataran and Bayani De los Reyes, the official representatives dispatched by
the SEC to observe the proceedings (upon request of the late Judge Torres) in their report dated 27
March 1987:

xxx xxx xxx

The undersigned arrived at 1:55 p.m. in the place of the meeting, a residential bungalow in
Urdaneta Village, Makati, Metro Manila. Upon arrival, Josefina Torres introduced us to the
stockholders namely: Milagros Torres, Antonio Torres, Jr., Ma. Luisa Morales, Ma. Cristina
Carlos and Ma. Jacinta Torres. Antonio Torres, Jr. questioned our authority and personality
to appear in the meeting claiming subject corporation is a family and private firm. We
explained that our appearance there was merely in response to the request of Manuel
Torres, Jr. and that SEC has jurisdiction over all registered corporations. Manuel Torres, Jr.,
a septuagenarian, argued that as holder of the major and controlling shares, he approved of
our attendance in the meeting.

At about 2:30 p.m., a group composed of Edgardo Pabalan, Atty. Graciano Tobias, Atty.
Rodolfo Jocson, Jr., Atty. Melvin Jurisprudencia, and Atty. Augustus Cesar Azura
arrived. Atty. Azura told the body that they came as counsels of Manuel Torres, Jr. and as
stockholders having assigned qualifying shares by Manuel Torres, Jr.

The stockholders' meeting started at 2:45 p.m. with Mr. Pabalan presiding after verbally
authorized by Manuel Torres, Jr., the President and Chairman of the Board. The secretary
when asked about the quorum, said that there was more than a quorum. Mr. Pabalan
distributed copies of the president's report and the financial statements. Antonio Torres,
Jr. requested time to study the said reports and brought out the question of auditing the
finances of the corporation which he claimed was approved previously by the board. Heated
arguments ensued which also touched on family matters. Antonio Torres, Jr. moved for the
suspension of the meeting but Manuel Torres, Jr. voted for the continuation of the
proceedings.

Mr. Pabalan suggested that the opinion of the SEC representatives be asked on the
propriety of suspending the meeting but Antonio Torres, Jr. objected reasoning out that we
were just observers.

When the Chairman called for the election of directors, the Secretary refused to write down
the names of nominees prompting Atty. Azura to initiate the appointment of Atty. Jocson, Jr.
as Acting Secretary.
 Antonio Torres, Jr. nominated the present members of the Board. At this juncture, Milagros
Torres cried out and told the group of Manuel Torres, Jr. to leave the house.

Manuel Torres, Jr., together with his lawyers-stockholders went to the residence of Ma.
Jacinta Torres in San Miguel Village, Makati, Metro Manila. The undersigned joined them
since the group with Manuel Torres, Jr. the one who requested for S.E.C. observers,
represented the majority of the outstanding capital stock and still constituted a quorum.

At the resumption of the meeting, the following were nominated and elected as directors
for the year 1987-1988:

1. Manuel Torres, Jr.

2. Ma. Jacinta Torres

3. Edgardo Pabalan

4. Graciano Tobias

5. Rodolfo Jocson, Jr.

6. Melvin Jurisprudencia

7. Augustus Cesar Azura

8. Josefina Torres

9. Dante Morales

After the election, it was resolved that after the meeting, the new board of directors shall
convene for the election of officers.

xxx xxx xxx7

Consequently, on 10 April 1987, private respondents instituted a complaint with the SEC (SEC Case No.
3161) praying in the main, that the election of petitioners to the Board of Directors be annulled.

Private respondents alleged that the petitioners-nominees were not legitimate stockholders of Tormil
because the assignment of shares to them violated the minority stockholders' right of pre-emption as
provided in the corporation's articles and by-laws.

Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 were consolidated for joint hearing and
adjudication.

On 6 March 1991, the Panel of Hearing Officers of the SEC rendered a decision in favor of private
respondents. The dispositive portion thereof states, thus:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

 1. Ordering and directing the respondents, particularly respondent Manuel A. Torres, Jr., to
turn over and deliver to TORMIL through its Corporate Secretary, Ma. Cristina T. Carlos: (a)
the originals of the Deeds of Assignment dated July 13 and 24, 1984 together with the
owner's duplicates of Transfer Certificates of Title Nos. 374079 of the Registry of Deeds for
Makati, and 41527, 41528 and 41529 of the Registry of Deeds for Pasay City and/or to
cause the formal registration and transfer of title in and over such real properties in favor
of TORMIL with the proper government agency; (b) all corporate books of account, records
and papers as may be necessary for the conduct of a comprehensive audit examination, and
to allow the examination and inspection of such accounting books, papers and records by
any or all of the corporate directors, officers and stockholders and/or their duly authorized
representatives or auditors;

2. Declaring as permanent and final the writ of preliminary injunction issued by the
Hearing Panel on February 13, 1989;

3. Declaring as null and void the election and appointment of respondents to the Board of
Directors and executive positions of TORMIL held on March 25, 1987, and all their acts and
resolutions made for and in behalf of TORMIL by authority of and pursuant to such invalid
appointment & election held on March 25, 1987;

4. Ordering the respondents jointly and severally, to pay the complainants the sum of ONE
HUNDRED THOUSAND PESOS (P100,000.00) as and by way of attorney's fees.8

Petitioners promptly appealed to the SEC en banc (docketed as SEC-AC No. 339). Thereafter, on 3 April
1991, during the pendency of said appeal, petitioner Manuel A. Torres, Jr. died. However, notice thereof
was brought to the attention of the SEC not by petitioners' counsel but by private respondents in a
Manifestation dated 24 April 1991.9

On 8 June 1993, petitioners filed a Motion to Suspend Proceedings on grounds that no administrator or
legal representative of the late Judge Torres' estate has yet been appointed by the Regional Trial Court of
Makati where Sp. Proc. No. M-1768 ("In Matter of the Issuance of the Last Will and Testament of Manuel
A Torres, Jr.") was pending. Two similar motions for suspension were filed by petitioners on 28 June
1993 and 9 July 1993.

On 19 July 1993, the SEC en banc issued an Order denying petitioners' aforecited motions on the
following ground:

Before the filing of these motions, the Commission en banc had already completed all
proceedings and had likewise ruled on the merits of the appealed cases. Viewed in this
light, we thus feel that there is nothing left to be done except to deny these motions to
suspend proceedings. 10

On the same date, the SEC en banc rendered a decision, the dispositive portion of which reads, thus:

WHEREFORE, premises considered, the appealed decision of the hearing panel is hereby
affirmed and all motions pending before us incident to this appealed case are necessarily
DISMISSED.
 SO ORDERED. 11

Undaunted, on 10 August 1993, petitioners proceeded to plead its cause to the Court of Appeals by way of
a petition for review (docketed as CA-G.R. SP No. 31748).

On 23 May 1994, the Court of Appeals rendered a decision, the dispositive portion of which states:

WHEREFORE, the petition for review is DISMISSED and the appealed decision is
accordingly affirmed.

SO ORDERED. 12

From the said decision, petitioners filed a motion for reconsideration which was denied in a resolution
issued by the Court of Appeals dated 10 May 1995. 13

Insisting on their cause, petitioners filed the present petition for review alleging that the Court of Appeals
committed the following errors in its decision:

(1)

WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A FULL LENGTH DECISION,
WITHOUT THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C. — AC NO. 339 BEING
PROPERLY BROUGHT BEFORE IT FOR REVIEW AND RE-EXAMINATION, AN OMISSION
RESULTING IN A CLEAR TRANSGRESSION OR CURTAILMENT OF THE RIGHTS OF THE
HEREIN PETITIONERS TO PROCEDURAL DUE PROCESS;

(2)

WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE RESPONDENT S.E.C., WHICH
IS VOID FOR HAVING BEEN RENDERED WITHOUT THE PROPER SUBSTITUTION OF THE
DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.-AC NO. 339 AND CONSEQUENTLY,
FOR WANT OF JURISDICTION OVER THE SAID DECEASED'S TESTATE ESTATE, AND
MOREOVER, WHEN IT SOUGHT TO JUSTIFY THE NON-SUBSTITUTION BY ITS
APPLICATION OF THE CIVIL LAW CONCEPT OF NEGOTIORUM GESTIO;

(3)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL

RECORD OF S.E.C. — AC NO. 339 NOT HAVING ACTUALLY BEEN RE-EXAMINED, THAT
S.E.C. CASE NO. 3153 INVOLVED A SITUATION WHERE PERFORMANCE WAS IMPOSSIBLE
(AS CONTEMPLATED UNDER ARTICLE 1191 OF THE CIVIL CODE) AND WAS NOT A MERE
CASE OF LESION OR INADEQUACY OF CAUSE (UNDER ARTICLE 1355 OF THE CIVIL CODE)
AS SO ERRONEOUSLY CHARACTERIZED BY THE RESPONDENT S.E.C.; and,

(4)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL

RECORD OF S.E.C. — AC NO. 339 NOT HAVING ACTUALLY BEEN EXAMINED, THAT THE
 RECORDING BY THE LATE JUDGE MANUEL A. TORRES, JR. OF THE QUESTIONED
ASSIGNMENT OF QUALIFYING SHARES TO HIS NOMINEES, WAS AFFIRMED IN THE STOCK
AND TRANSFER BOOK BY AN ACTING CORPORATE SECRETARY AND MOREOVER, THAT
ACTUAL NOTICE OF SAID ASSIGNMENT WAS TIMELY MADE TO THE OTHER
STOCKHOLDERS. 14

We shall resolve the issues in seriatim.

Petitioners insist that the failure to transmit the original records to the Court of Appeals deprived them of
procedural due process. Without the evidence and the original records of the proceedings before the SEC,
the Court of Appeals, petitioners adamantly state, could not have possibly made a proper appreciation
and correct determination of the issues, particularly the factual issues, they had raised on appeal.
Petitioners also assert that since the Court of Appeals allegedly gave due course to their petition, the
original records should have been forwarded to said court.

Petitioners anchor their argument on Secs. 8 and 11 of SC Circular 1-91 (dated 27 February 1991) which
provides that:

8. WHEN PETITION GIVEN DUE COURSE. — The Court of Appeals shall give due course to
the petition only when it shows prima facie that the court, commission, board, office or
agency concerned has committed errors of fact or law that would warrant reversal or
modification of the order, ruling or decision sought to be reviewed. The findings of fact of
the court commission, board, office or agency concerned when supported by substantial
evidence shall be final.

xxx xxx xxx

11. TRANSMITTAL OF RECORD. — Within fifteen (15) days from notice that the petition has
been given due course, the court, commission, board, office or agency concerned shall
transmit to the Court of Appeals the original or a certified copy of the entire record of the
proceeding under review. The record to be transmitted may be abridged by agreement of
all parties to the proceeding. The Court of Appeals may require or permit subsequent
correction or addition to the record.

Petitioners contend that the Court of Appeals had given due course to their petition as allegedly indicated
by the following acts:

a) it granted the restraining order applied for by the herein petitioners, and
after hearing, also the writ of preliminary injunction sought by them; under
the original SC Circular No. 1-91, a petition for review may be given due
course at the onset (paragraph 8) upon a mereprima facie finding of errors of
fact or law having been committed, and such prima faciefinding is but
consistent with the grant of the extra-ordinary writ of preliminary
injunction;
 b) it required the parties to submit "simultaneous memoranda" in its
resolution dated October 15, 1993 (this is in addition to the comment
required to be filed by the respondents) and furthermore declared in the
same resolution that the petition will be decided "on the merits," instead of
outrightly dismissing the same;

c) it rendered a full length decision, wherein: (aa) it expressly declared the

respondent S.E.C. as having erred in denying the pertinent motions to
suspend proceedings; (bb) it declared the supposed error as having become
a non-issue when the respondent C.A. "proceeded to hear (the) appeal"; (cc) it
formulated and applied its own theory of negotiorum gestio in justifying the
non-substitution of the deceased principal party in S.E.C. — AC No. 339 and
moreover, its theory of di minimis non curat lex (this, without first
determining the true extent of and the correct legal characterization of the
so-called "shortage" of Tormil shares;
and, (dd) it expressly affirmed the assailed decision of respondent S.E.C. 15

Petitioners' contention is unmeritorious.

There is nothing on record to show that the Court of Appeals gave due course to the petition. The fact
alone that the Court of Appeals issued a restraining order and a writ of preliminary injunction and
required the parties to submit their respective memoranda does not indicate that the petition was given
due course. The office of an injunction is merely to preserve the status quo pending the disposition of the
case. The court can require the submission of memoranda in support of the respective claims and
positions of the parties without necessarily giving due course to the petition. The matter of whether or
not to give due course to a petition lies in the discretion of the court.

It is worthy to mention that SC Circular No. 1-91 has been replaced by Revised Administrative Circular
No. 1-95 (which took effect on 1 June 1995) wherein the procedure for appeals from quasi-judicial
agencies to the Court of Appeals was clarified thus:

10. Due course. — If upon the filing of the comment or such other pleadings or documents
as may be required or allowed by the Court of Appeals or upon the expiration of the period
for the filing thereof, and on the bases of the petition or the record the Court of Appeals
finds prima facie that the court or agency concerned has committed errors of fact or law
that would warrant reversal or modification of the award, judgment, final order or
resolution sought to be reviewed, it may give due course to the petition; otherwise, it shall
dismiss the same. The findings of fact of the court or agency concerned, when supported by
substantial evidence, shall be binding on the Court of Appeals.

11. Transmittal of record. — Within fifteen (15) days from notice that the petition has been
given due course, the Court of Appeals may require the court or agency concerned to transmit
the original or a legible certified true copy of the entire record of the proceeding under
review. The record to be transmitted may be abridged by agreement of all parties to the
proceeding. The Court of Appeals may require or permit subsequent correction of or
addition to the record. (Emphasis ours.)
The aforecited circular now formalizes the correct practice and clearly states that in resolving appeals
from quasi judicial agencies, it is within the discretion of the Court of Appeals to have the original records
of the proceedings under review be transmitted to it. In this connection petitioners' claim that the Court
of Appeals could not have decided the case on the merits without the records being brought before it is
patently lame. Indubitably, the Court of Appeals decided the case on the basis of the uncontroverted facts
and admissions contained in the pleadings, that is, the petition, comment, reply, rejoinder, memoranda,
etc. filed by the parties.

II

Petitioners contend that the decisions of the SEC and the Court of Appeals are null and void for being
rendered without the necessary substitution of parties (for the deceased petitioner Manuel A. Torres, Jr.)
as mandated by Sec. 17, Rule 3 of the Revised Rules of Court, which provides as follows:

Sec. 17. Death of party. — After a party dies and the claim is not thereby extinguished, the
court shall order, upon proper notice, the legal representative of the deceased to appear
and to be substituted for the deceased, within a period of thirty (30) days, or within such
time as may be granted. If the legal representative fails to appear within said time, the
court may order the opposing party to procure the appointment of a legal representative of
the deceased within a time to be specified by the court, and the representative shall
immediately appear for and on behalf of the interest of the deceased. The court charges
involved in procuring such appointment, if defrayed by the opposing party, may be
recovered as costs. The heirs of the deceased may be allowed to be substituted for the
deceased, without requiring the appointment of an executor or administrator and the court
may appoint guardian ad litemfor the minor heirs.

Petitioners insist that the SEC en banc should have granted the motions to suspend they filed based as
they were on the ground that the Regional Trial Court of Makati, where the probate of the late Judge
Torres' will was pending, had yet to appoint an administrator or legal representative of his estate.

We are not unaware of the principle underlying the aforequoted provision:

It has been held that when a party dies in an action that survives, and no order is issued by
the Court for the appearance of the legal representative or of the heirs of the deceased to be
substituted for the deceased, and as a matter of fact no such substitution has ever been
effected, the trial held by the court without such legal representative or heirs, and the
judgment rendered after such trial, are null and void because the court acquired no
jurisdiction over the persons of the legal representative or of the heirs upon whom the trial
and the judgment are not binding. 16

As early as 8 April 1988, Judge Torres instituted Special Proceedings No. M-1768 before the Regional
Trial Court of Makati for the ante-mortem probate of his holographic will which he had executed on 31
October 1986. Testifying in the said proceedings, Judge Torres confirmed his appointment of petitioner
Edgardo D. Pabalan as the sole executor of his will and administrator of his estate. The proceedings,
however, were opposed by the same parties, herein private respondents Antonio P. Torres, Jr., Ma. Luisa
T. Morales and Ma. Cristina T. Carlos, 17 who are nephew and nieces of Judge Torres, being the children of
his late brother Antonio A. Torres.
It can readily be observed therefore that the parties involved in the present controversy are virtually the
same parties fighting over the representation of the late Judge Torres' estate. It should be recalled that
the purpose behind the rule on substitution of parties is the protection of the right of every party to due
process. It is to ensure that the deceased party would continue to be properly represented in the suit
through the duly appointed legal representative of his estate. In the present case, this purpose has been
substantially fulfilled (despite the lack of formal substitution) in view of the peculiar fact that both
proceedings involve practically the same parties. Both parties have been fiercely fighting in the probate
proceedings of Judge Torres' holographic will for appointment as legal representative of his estate. Since
both parties claim interests over the estate, the rights of the estate were expected to be fully protected in
the proceedings before the SEC en banc and the Court of Appeals. In either case, whoever shall be
appointed legal representative of Judge Torres' estate (petitioner Pabalan or private respondents) would
no longer be a stranger to the present case, the said parties having voluntarily submitted to the
jurisdiction of the SEC and the Court of Appeals and having thoroughly participated in the proceedings.

The foregoing rationate finds support in the recent case of Vda. de Salazar v. CA, 18 wherein the Court
expounded thus:

The need for substitution of heirs is based on the right to due process accruing to every
party in any proceeding. The rationale underlying this requirement in case a party dies
during the pendency of proceedings of a nature not extinguished by such death, is that . . .
the exercise of judicial power to hear and determine a cause implicitly presupposes in the
trial court, amongst other essentials, jurisdiction over the persons of the parties. That
jurisdiction was inevitably impaired upon the death of the protestee pending the
proceedings below such that unless and until a legal representative is for him duly named
and within the jurisdiction of the trial court, no adjudication in the cause could have been
accorded any validity or binding effect upon any party, in representation of the deceased,
without trenching upon the fundamental right to a day in court which is the very essence of
the constitutionally enshrined guarantee of due process.

We are not unaware of several cases where we have ruled that a party having died in an
action that survives, the trial held by the court without appearance of the deceased's legal
representative or substitution of heirs and the judgment rendered after such trial, are null
and void because the court acquired no jurisdiction over the persons of the legal
representatives or of the heirs upon whom the trial and the judgment would be binding.
This general rule notwithstanding, in denying petitioner's motion for reconsideration, the
Court of Appeals correctly ruled that formal substitution of heirs is not necessary when the
heirs themselves voluntarily appeared, participated in the case and presented evidence in
defense of deceased defendant. Attending the case at bench, after all, are these particular
circumstances which negate petitioner's belated and seemingly ostensible claim of
violation of her rights to due process. We should not lose sight of the principle underlying
the general rule that formal substitution of heirs must be effectuated for them to be bound
by a subsequent judgment. Such had been the general rule established not because the rule
on substitution of heirs and that on appointment of a legal representative are jurisdictional
requirements per se but because non-compliance therewith results in the undeniable
violation of the right to due process of those who, though not duly notified of the
proceedings, are substantially affected by the decision rendered therein . . . .
It is appropriate to mention here that when Judge Torres died on April 3, 1991, the SEC en banc had
already fully heard the parties and what remained was the evaluation of the evidence and rendition of the
judgment.

Further, petitioners filed their motions to suspend proceedings only after more than two (2) years from
the death of Judge Torres. Petitioners' counsel was even remiss in his duty under Sec. 16, Rule 3 of the
Revised Rules of Court. 19 Instead, it was private respondents who informed the SEC of Judge Torres'
death through a manifestation dated 24 April 1991.

For the SEC en banc to have suspended the proceedings to await the appointment of the legal
representative by the estate was impractical and would have caused undue delay in the proceedings and
a denial of justice. There is no telling when the probate court will decide the issue, which may still be
appealed to the higher courts.

In any case, there has been no final disposition of the properties of the late Judge Torres before the SEC.
On the contrary, the decision of the SEC en banc as affirmed by the Court of Appeals served to protect and
preserve his estate. Consequently, the rule that when a party dies, he should be substituted by his legal
representative to protect the interests of his estate in observance of due process was not violated in this
case in view of its peculiar situation where the estate was fully protected by the presence of the parties
who claim interests therein either as directors, stockholders or heirs.

Finally, we agree with petitioners' contention that the principle of negotiorum gestio 20 does not apply in
the present case. Said principle explicitly covers abandoned or neglected property or business.

III

Petitioners find legal basis for Judge Torres' act of revoking the assignment of his properties in Makati
and Pasay City to Tormil corporation by relying on Art. 1191 of the Civil Code which provides that:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

Petitioners' contentions cannot be sustained. We see no justifiable reason to disturb the findings of SEC,
as affirmed by the Court of Appeals:

We sustain the ruling of respondent SEC in the decision appealed from (Rollo, pp. 45-46)
that —
 . . . the shortage of 972 shares would not be valid ground for respondent
Torres to unilaterally revoke the deeds of assignment he had executed on
July 13, 1984 and July 24, 1984 wherein he voluntarily assigned to TORMIL
real properties covered by TCT No. 374079 (Makati) and TCT No. 41527,
41528 and 41529 (Pasay) respectively.

A comparison of the number of shares that respondent Torres received from

TORMIL by virtue of the "deeds of assignment" and the stock certificates
issued by the latter to the former readily shows that TORMIL had
substantially performed what was expected of it. In fact, the first two
issuances were in satisfaction to the properties being revoked by respondent
Torres. Hence, the shortage of 972 shares would never be a valid ground for
the revocation of the deeds covering Pasay and Quezon City properties.

In Universal Food Corp. vs. CA, the Supreme Court held:

The general rule is that rescission of a contract will not be

permitted for a slight or carnal breach, but only for such
substantial and fundamental breach as would defeat the very
object of the parties in making the agreement.

The shortage of 972 shares definitely is not substantial and fundamental

breach as would defeat the very object of the parties in entering into
contract. Art. 1355 of the Civil Code also provides: "Except in cases specified
by law, lesion or inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influences." There being no fraud,
mistake or undue influence exerted on respondent Torres by TORMIL and
the latter having already issued to the former of its 225,000 unissued shares,
the most logical course of action is to declare as null and void the deed of
revocation executed by respondent Torres. (Rollo, pp. 45-46.) 21

The aforequoted Civil Code provision does not apply in this particular situation for the obvious reason
that a specific number of shares of stock (as evidenced by stock certificates) had already been issued to
the late Judge Torres in exchange for his Makati and Pasay City properties. The records thus disclose:

DATE OF PROPERTY LOCATION NO. OF SHARES ORDER OF

ASSIGNMENT ASSIGNED TO BE ISSUED COMPLIANCE*

1. July 13, 1984 TCT 81834 Quezon City) 13,252 3rd

TCT 144240 Quezon City)

2. July 13, 1984 TCT 77008 Manila)

TCT 65689 Manila) 78,493 2nd
TCT 102200 Manila)

3. July 13, 1984 TCT 374079 Makati 8,307 1st

 4. July 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay) 9,855 4th
TCT 41529 Pasay)

5. August 6, 1984 El Hogar Filipino Stocks 2,000 7th

6. August 6, 1984 Manila Jockey Club Stocks 48,737 5th

7. August 7, 1984 San Miguel Corp. Stocks 50,238 8th

8. August 7, 1984 China Banking Corp. Stocks 6,300 6th

9. August 20, 1984 Ayala Corp. Stocks 7,468.2) 9th

10. August 29, 1984 Ayala Fund Stocks 1,322.1)

—————
TOTAL 225,972.3

*Order of stock certificate issuances by TORMIL to respondent Torres relative to the Deeds
of Assignment he executed sometime in July and August, 1984. 22 (Emphasis ours.)

Moreover, we agree with the contention of the Solicitor General that the shortage of shares should not
have affected the assignment of the Makati and Pasay City properties which were executed in 13 and 24
July 1984 and the consideration for which have been duly paid or fulfilled but should have been applied
logically to the last assignment of property — Judge Torres' Ayala Fund shares — which was executed on
29 August 1984. 23

IV

Petitioners insist that the assignment of "qualifying shares" to the nominees of the late Judge Torres
(herein petitioners) does not partake of the real nature of a transfer or conveyance of shares of stock as
would call for the "imposition of stringent requirements (with respect to the) recording of the transfer of
said shares." Anyway, petitioners add, there was substantial compliance with the above-stated
requirement since said assignments were entered by the late Judge Torres himself in the corporation's
stock and transfer book on 6 March 1987, prior to the 25 March 1987 annual stockholders meeting and
which entries were confirmed on 8 March 1987 by petitioner Azura who was appointed Assistant
Corporate Secretary by Judge Torres.

Petitioners further argue that:

10.10. Certainly, there is no legal or just basis for the respondent S.E.C. to penalize the late
Judge Torres by invalidating the questioned entries in the stock and transfer book, simply
because he initially made those entries (they were later affirmed by an acting corporate
secretary) and because the stock and transfer book was in his possession instead of the
elected corporate secretary, if the background facts herein-before narrated and the serious
animosities that then reigned between the deceased Judge and his relatives are to be taken
into account;
 xxx xxx xxx

10.12. Indeed it was a practice in the corporate respondent, a family corporation with only
a measly number of stockholders, for the late judge to have personal custody of corporate
records; as president, chairman and majority stockholder, he had the prerogative of
designating an acting corporate secretary or to himself make the needed entries, in
instances where the regular secretary, who is a mere subordinate, is unavailable or
intentionally defaults, which was the situation that obtained immediately prior to the 1987
annual stockholders meeting of Tormil, as the late Judge Torres had so indicated in the
stock and transfer book in the form of the entries now in question;

10.13. Surely, it would have been futile nay foolish for him to have insisted under those
circumstances, for the regular secretary, who was then part of a group ranged against him,
to make the entries of the assignments in favor of his nominees; 24

Petitioners' contentions lack merit.

It is precisely the brewing family discord between Judge Torres and private respondents — his nephew
and nieces that should have placed Judge Torres on his guard. He should have been more careful in
ensuring that his actions (particularly the assignment of qualifying shares to his nominees) comply with
the requirements of the law. Petitioners cannot use the flimsy excuse that it would have been a vain
attempt to force the incumbent corporate secretary to register the aforestated assignments in the stock
and transfer book because the latter belonged to the opposite faction. It is the corporate secretary's duty
and obligation to register valid transfers of stocks and if said corporate officer refuses to comply, the
transferor-stockholder may rightfully bring suit to compel performance. 25 In other words, there are
remedies within the law that petitioners could have availed of, instead of taking the law in their own
hands, as the cliche goes.

Thus, we agree with the ruling of the SEC en banc as affirmed by the Court of Appeals:

We likewise sustain respondent SEC when it ruled, interpreting Section 74 of the

Corporation Code, as follows (Rollo, p. 45):

In the absence of (any) provision to the contrary, the corporate secretary is

the custodian of corporate records. Corollarily, he keeps the stock and
transfer book and makes proper and necessary entries therein.

Contrary to the generally accepted corporate practice, the stock and transfer
book of TORMIL was not kept by Ms. Maria Cristina T. Carlos, the corporate
secretary but by respondent Torres, the President and Chairman of the Board
of Directors of TORMIL. In contravention to the above cited provision, the
stock and transfer book was not kept at the principal office of the corporation
either but at the place of respondent Torres.

These being the obtaining circumstances, any entries made in the stock and
transfer book on March 8, 1987 by respondent Torres of an alleged transfer
of nominal shares to Pabalan and Co. cannot therefore be given any valid
effect. Where the entries made are not valid, Pabalan and Co. cannot
 therefore be considered stockholders of record of TORMIL. Because they are
not stockholders, they cannot therefore be elected as directors of TORMIL. To
rule otherwise would not only encourage violation of clear mandate of Sec.
74 of the Corporation Code that stock and transfer book shall be kept in the
principal office of the corporation but would likewise open the flood gates of
confusion in the corporation as to who has the proper custody of the stock
and transfer book and who are the real stockholders of records of a certain
corporation as any holder of the stock and transfer book, though not the
corporate secretary, at pleasure would make entries therein.

The fact that respondent Torres holds 81.28% of the outstanding capital
stock of TORMIL is of no moment and is not a license for him to arrogate unto
himself a duty lodged to (sic) the corporate secretary. 26

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.

WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED.

SO ORDERED.