APOLINARIO G.

DE LOS SANTOS and ISABELO ASTRAQUILLO, plaintiffs-appellees,

vs.
J. HOWARD MCGRATH ATTORNEY GENERAL OF THE UNITED STATES, SUCCESSOR TO
THE PHILIPPINE ALIEN PROPERTY ADMINISTRATION OF THE UNITED STATES, defendant-
appellant.
REPUBLIC OF THE PHILIPPINES, intervenor-appellant.
Jose P. Laurel, Adolfo A. Scheerer, Antonio Quirino, and J. C. Orendain, for appellees.
Harold I. Baynton, Stanley Gilbert, Juan T. Santos, and Lino M. Patajo, and Perkins, Ponce Enrile &
Associates, for appellant.
Office of the Solicitor General Pompeyo Diaz and Solicitor Pacifico P. de Castro for intervenor-
appellant.
CONCEPCION, J .:
This action involves the title to 1,600,000 shares of stock of the Lepanto Consolidated Mining Co.,
Inc., a corporation duly organized and existing under the laws of the Philippines, hereinafter referred
to, for the sake of brevity, as the Lepanto. Originally, one-half of said shares of stock were claimed by
plaintiff, Apolinario de los Santos, and the other half, by his co-plaintiff Isabelo Astraquillo. During the
pendency of this case, the latter has allegedly conveyed and assigned his interest in and to said half
claimed by him to the former. The shares of stock in question are covered by several stock
certificates issued in favor of Vicente Madrigal, who is registered in the books of the Lepanto as
owner of said stocks and whose indorsement in blank appears on the back of said certificates, all of
which, except certificates No. 2279 marked Exhibit 2 covering 55,000 shares, are in plaintiffs'
possession. So was said Exhibit 2, up to sometime in 1945 or 1946 when said possession was lost
under the conditions set forth in subsequent pages.
Briefly stated, plaintiffs contend that De los Santos bought 55,000 shares from Juan Campos, in
Manila, early in December, 1942; that he bought 300,000 shares from Carl Hess, in the same city,
several days later; and that, before Christmas of 1942, be bought 800,000 shares from Carl Hess,
this time for the account and benefit of Astraquillo. By virtue of vesting P-12, dated February 18,
1945, title to the 1,600,000 shares of stock in dispute was, however, vested in the Alien Property
Custodian of the U. S. (hereinafter referred to as the Property Custodian) as Japanese property.
Hence, plaintiffs filed their respective claims with the Property Custodian. In due course, the Vested
Property Claims Committee of the Philippine Alien Property Administration made a "determination,"
dated March 9, 1948, allowing said claims, which were considered and heard jointly as Claim No.
535, but, upon personal review, the Philippine Alien Property Administration made by said Committee
and decreed that "title to the shares in question shall remain in the name of the Philippine Alien
Property Administrator." Consequently, plaintiffs instituted the present action to establish title to the
aforementioned shares of stock. In their complaint, they pray that judgment be rendered declaring
them lawful owners of said shares of stock, with such dividends, profits and rights as may have
accrued thereto; requiring the defendant to render accounts and to transfer said shares of stock to
plaintiffs' names; and sentencing the former to pay the costs.
The defendant herein is the Attorney General of the U. S., successor to the "Administrator". He
contends, substantially, that, prior to the outbreak of the war in the Pacific, said shares of stock
were bought by Vicente Madrigal, in trust for, and for the benefit of, the Mitsui Bussan Kaisha
(hereinafter referred to as the "Mitsuis"), a corporation organized in accordance with the laws of
Japan, the true owner thereof, with branch office in the Philippines; that on or before March, 1942,
Madrigal delivered the corresponding stock certificates, with his blank indorsement thereon, to the
Mitsuis, which kept said certificates, in the files of its office in Manila, until the liberation of the latter by
the American forces early in 1945; that the Mitsuis had never sold, or otherwise disposed of, said
shares of stock; and that the stock certificates aforementioned must have been stolen or looted,
therefore, during the emergency resulting from said liberation.
Inasmuch as, pursuant to the Philippine Property Act, all property vested in the United States, or any
of its officials, under the Trading with the Enemy Act, as amended, located in the Philippines at the
time of such vesting, or the proceeds thereof, shall be transferred to the Republic of the Philippines,
the latter sought permission, and was allowed, to intervene in this case and filed an answer adopting
in substance the theory of the defendant.
After due hearing, the Court of First Instance of Manila, presided over by Honorable Higinio B.
Macadaeg, Judge, rendered a decision the dispositive part of which reads, as follows:
In view of the foregoing consideration, judgment is hereby rendered in favor of the plaintiffs
and against the defendant, declaring the former the absolute owners of the shares of stock of
the Lepanto consolidated Mining Company, covered by the certificates of stock, respectively,
in their (plaintiffs') possession. The transfer of said shares of stock in favor of the Alien
Property Custodian of the U. S. of America, now Philippine Alien Property Administration, is
hereby declared null and void and of no effect. Consequently, the Lepanto consolidated mining
Company is ordered to cancel the certificates of stock issued in the name of the Philippine
Alien Property Custodian or Philippine Alien Property Administrator, as the case may be.
Defendant shall pay the cost of the proceeding. (p. 67, R.A.)
The defendant and the intervenor have appealed from this decision. The main question for
determination in this appeal is whether or not plaintiffs had purchased the shares of stock in
question. In support of the negative answer, appellants have introduced the testimony of Vicente
Madrigal, Matsune Kitajima, Kingy Miwa, Miguel Simon, E. A. Perkins and Victor E. Lednicky, as well
as several pieces of documentary evidence.
Mr. Madrigal, whose testimony before the claims Committee of the Philippine Alien Property
Administration was admitted with plaintiffs' consent, stated that he purchased the shares of stock in
question, among others, for the Mitsuis and at their request; that he paid with his own funds the
corresponding price, which was later reimbursed to him by the Mitsuis; that he held the corresponding
stock certificates, which were issued in his name, with the understanding that he would effect the
necessary transfer, to the Mitsuis, upon demand; and that, shortly before the outbreak of war, he
delivered said stock certificates, with his blank endorsement thereon, to the Mitsuis, to whom said
stock belonged.
Matsune Kitajima declared that in June 1941 he relieved one Kobayashi, as manager of the branch
office of the Mitsuis in Manila; that he then receive from Kobayashi the stock certificates for about
1,900,000 shares of the Lepanto, belonging to the Mitsuis, but issued in favor of the Vicente Madrigal,
except the certificates for 200,000 shares, which were in the name of the Mitsuis; that all these
certificates were in kept in a steel safe in said office of the Mitsuis; that, in July 1941, he returned the
stock certificates to Madrigal, with the request that he buy for the Mitsuis, from time to time, some
more shares of stock, in small lots; that Madrigal bought 200,000 additional shares of the Lepanto for
the Mitsuis; that, late in November or early in December, 1941, the stock certificates of the
aforementioned 2,100,000 shares were returned to the Mitsuis, which had decided to stop buying, in
view of the strained international situation then prevailing; that, as branch manager of the Mitsuis, he
was the only official authorized to dispose of the shares in question, none of which was alienated by
him; and that he had the aforementioned stock certificates in his possession continuously until early
in April 1943, when he delivered the same to his successor in office, Kingy Miwa.
Apart from corroborating Kitajima's testimony relative to said delivery of stock certificates in April
1943, Kingy Miwa testified that he kept the latter in his possession, as branch manager of the Mitsuis;
that said shares of stock were never sold or otherwise disposed of by the Mitsuis; that, late in
September 1944, he bade his assistant, one Miyazawa, to transfer all important documents to their
residence and headquarters, at Taft Avenue, Manila, although he did not know personally whether or
not the transfer was actually carried out; and that in January 1945, when the Japanese were about to
evacuate Manila, he told his Assistant Manager, one Shinoda, to burn all important papers before
leaving the city.
Miguel Simon, brother of Carl Hess, from whom plaintiffs claim to have purchased 1,100,000 shares
of stock, affirmed that Hess lived in front of his (Simon's) house; that they were close to each other
and had long been associated in business; that he was the office manager of "Hess and Zeitling"
before the war; that Hess used to tell him his daily transactions during the occupation; that at that
time, Hess did not have in possession any certificates of stock of the Lepanto in the name of Vicente
Madrigal; that neither did Hess, during that period, operate as broker, for being American, he was
under Japanese surveillance, and that Hess had made, during the occupation, no transaction
involving mining shares, except when he sold 12,000 shares of the Benguet Consolidated, inherited
from his mother, sometime in 1943.
E. A. Perkins, a member of the law firm DeWitt, Perkins & Ponce Enrile testified substantially as
follows: On October 27, 1945, Leonardo Recio brought stock certificate no. 2279 (Exhibit 2) and
offered the same for sale to Clyde DeWitt, who in turn, asked Perkins, whose room adjoined that of
DeWitt, to join them. Recio showed Exhibit 2 to DeWitt stating that he (Recio) wanted P0.13 per
share. DeWitt handed Exhibit 2 over to Perkins, who, after examining the instrument, returned it to
DeWitt. The latter, thereafter, checked it with a communication of the Property Custodian and then
advised Recio that said Exhibit 2 was one of the stock certificates looted from the Mitsuis and that he
(DeWitt) would have to report the matter to said official. As DeWitt, thereupon, telephoned one Mr.
Erickson, of the Property Custodian's office, Recio stepped out of the room without Exhibit 2, which
neither he or plaintiffs had ever tried to recover.
Victor E. Lednicky, one of the organizers and prewar directors of the Lepanto, and present vice-
president and member of its board of director, asserted that, having learned from a soldier of the
existence of mining papers and securities of the Lepanto in the offices of the Mitsuis at the Ayala
Building, formerly known as the National city Bank Building in Manila, he went thereto in February
1945 and saw many documents scattered on the desks and floor of said premises. Among said
papers, he noticed two stock certificates of the Lepanto, one, in the name of either a Japanese or
Chinese, and the other, in the name of Vicente Madrigal, endorsed in blank. Soon, however, he heard
voices from the stairs, whereupon he departed hurriedly, for fear of being mistaken for a looter.
After analyzing the foregoing evidence for the defense, the lower court found the same "inherently
improbable" and seemingly concluded that, as a consequence, it should accept plaintiffs' version, for
which reason judgment was rendered as above stated. It is well settled, in this jurisdiction, that the
findings of fact particularly those relating to the credibility of the opposing witnesses made by
the Judge a quo, should not be disturbed on appeal, in the absence of strong and cogent reasons
therefor. This policy is predicated upon the circumstance that the trial court has had an opportunity,
denied to the appellate court to observe the behaviour of the witnesses during the hearing, a potent
factor in gauging their bias and veracity. In the case at bar, however, we notice that, rejecting the
theory of the defense, the court of origin was guided, not by the conduct of the witnesses in the name
course of their testimony, but by what His Honor, the trial Judge, regarded as the inherent weakness
thereof, in the evaluation of which court does not enjoy the advantage already adverted to.
Moreover, the decision appealed from appears to have assumed that plaintiffs' pretense must
necessarily be relied upon, owing to the infirmities said to have been found in the theory of the
defense. This view suffers from a fatal defect. It overlooks that fact that the burden of proof is upon
the plaintiffs, and that, accordingly, a decision in their favor is not in order unless a preponderance of
the evidence supports their claim. To put it differently, the alleged improbabilities in the testimony of
the witnesses for the defense will not justify a judgment against the latter, if the evidence for the
plaintiffs is more improbable than, or, at least, as improbable as, that of the defense. Such is the
situation obtaining in the case at bar. Indeed, upon careful examination of the record before us, we
find it impossible to share the conclusions, made in the decision appealed from, relative to the alleged
flaws in the version of the defense.
Let us, first, examine the evidence for the plaintiffs, consisting, mainly, of their own testimony and that
of Primitivo Javier and Leonardo Recio.
According to De los Santos, on or about December 8, 1942, he purchased from Juan Campos, in
Manila, 500,000 shares of stock of the Lepanto, for the aggregate sum of P30,000.00, or about P0.06
each share, paid in cash, in exchange for the corresponding stock certificates, which were delivered
to him. Several days later, he bought from Carl Hess, in Manila, 300,000 shares of the Lepanto, at the
same rate. Soon after, he visited his daughter in Baguio, where he, likewise, saw his co-plaintiff, and
former secretary, Isabelo Astraquillo. Before leaving Astraquillo's house, De los Santos happened to
mention his aforesaid purchases of Lepanto shares, at P0.06 each, whereupon, Astraquillo
expressed the wish to buy 800,000 shares at the same price, the amount of which he delivered to De
los Santos the next day. Upon his return to Manila, De los Santos purchased from Hess said 800,000
shares, the certificates of which were turned over by the former to Astraquillo, in Baguio, at about
Christmas time. Over 3 years later, or in January 1946, De los Santos repaired to the offices of the
Lepanto in Manila to ascertain whether it accepted certificates of stock for registration. He then
received a negative answer. Upon further inquiry, he learned, in February 1946, that the shares in the
name of Madrigal were blocked. So engaged the services of Atty. A. Scheerer, who secured an order
of release from the Freezing Control Office of the United States Treasury Department. As he brought
a copy of this order to the offices of the Lepanto, on or about May 1, 1946, he was advised that no
transfer could be affected without the authority of Clyde DeWitt, the company president. Thereupon,
De los Santos caused to be filed, with the offices of the Property Custodian, the corresponding claim
for the shares of stock in question, with the result already adverted to.
Astraquillo tried to corroborate the testimony of De los Santos, concerning the purchase of 800,000
shares of stock on behalf of the former. Moreover, Astraquillo declared that, being in need of money,
he came to Manila in November or December 1945, and delivered to stock broker Leonardo Recio
stock certificate No. 2279 (Exhibit 2) for 55,000 shares, with a view to disposing of the same at a
price ranging from P0.13 to P0.15 each. He advised Recio that, in the absence of any buyer, hew
could see Mr. DeWitt, who, probably, would be interested in purchasing the shares. Sometime later,
Astraquillo learned that, according to Recio, upon seeing Exhibit 2, DeWitt retained it upon the
ground that the shares represented therein had been blocked by the United States and that he
(Recio) got therefor a receipt, which was subsequently lost in a fire that destroyed his (Recio's)
dwelling. As Astraquillo hurried to Manila, he was told that representatives of the CIC would go to
Baguio to investigate. So, he returned to Baguio, but he did not wait for the investigation in that city.
Late in February or early in March, 1946, he came back to Manila and asked the assistance of De los
Santos, whereupon both contacted Atty. Scheerer for the purpose already stated.
Primitivo Javier narrated that, late in 1945, he received Exhibit 2 from his uncle, Astraquillo, who
wanted to sell the 55,000 shares represented by said stock certificate (No. 2279) at a price ranging
from P0.12 to P0.15 each share. He, in turn, delivered the certificate to Recio, a licensed broker.
Subsequently, Recio reported to him that he (Recio) had brought Exhibit 2 to the office of Mr. DeWitt,
whom he did not see on his first visit; that he then left Exhibit 2 in the hands of a person who worked
in said office, one Atty. Orlina, who issued a receipt therefor; that, when Recio came back, later on,
DeWitt told him that Exhibit 2 was defective; and that, accordingly, Exhibit 2 was left in the
possession of Mr. DeWitt. Javier relayed this information to Astraquillo, who, thereupon, came to
Manila. Both went to the temporary residence of Recio in Sampaloc, his house in San Juan del
Monte, Rizal, having been destroyed by fire late in December 1945. Recio then advised them that
said receipt had been burned with his house.
Leonardo Recio said that sometime in 1945, Javier gave him Exhibit 2, stating that it belonged to his
uncle, who wanted to alienate the corresponding shares of stock at P0.15, more or less, each, and
suggesting that he offer the same to Mr. DeWitt: In the latter's office, Atty. Orlina told Recio that
DeWitt was busy and bade him (Recio) to return later. Recio delivered Exhibit 2 to Orlina, who gave
him a receipt, which, subsequently, he showed to Javier. When, soon after, he went back to Orlina,
the latter introduced him to Mr. DeWitt, who stated that the shares of stock covered by Exhibit 2 were
included in the list of questioned shares. DeWitt, also, asked him whether he would leave the
certificate, to which Recio replied affirmatively. While he was away, several months later, or shortly
before Christmas, his house at Blumentrit Street, San Juan del Monte, Rizal, and everything
contained therein, including the aforementioned receipt, which was in his wallet, were destroyed by
fire.
It thus appears that the only evidence on the alleged sale of the shares of stock in question to the
plaintiffs the main issue in the case at bar is the testimony of Apolinario de los Santos, who now
claims to be the sole owner thereof. Juan Campos and Carl Hess, the alleged vendors, could not take
the witness stand, for Hess was executed by the Japanese, and Campos died during the liberation of
Manila. Thus, death has sealed the lips of the only persons who could have positively corroborated or
contradicted the aforementioned testimony of De los Santos. Was this a mere accident of fate, as
plaintiffs would have us believe? Or were Campos and Hess named by the plaintiffs as their
immediate predecessors in interest precisely because, as contended by appellants, said deceased
persons could no longer said testimony?
For obvious reasons, the Court can not answer these questions with absolute certainty. It can only
explore the possibilities and probabilities of the case, in the light of human experience. And, viewed
from this angle, it can not be denied that the demise of Campos and Hess before the filing of plaintiffs
claim seriously impairs the weight thereof. That the Grim Reaper had chosen to strike at one of the
alleged predecessors of the plaintiffs is a matter that may be attributed to sheer fortuitousness. When,
as in the case at bar, not one, but both have thus been eliminated,, it is clear, however, that this
circumstances is most unusual, and most place the Court on guard.
The need for caution becomes more imperative when we bear in mind that an important piece of
documentary evidence, which allegedly existed after liberation, and could have effectively
corroborated one phase of the plaintiff's contention, had, according to their evidence, disappeared
through still another unfortunate turn of the wheel of fate. It will be recalled that late in 1945, Leonardo
Recio, allegedly acting on behalf of Astraquillo, offered to sell to Atty. DeWitt the 55,000 shares
represented by stock certificate No. 2279 (Exhibit 2). Recio testified that, having been unable to see
DeWitt, when he (Recio) went to the latter's office, for the first time, said Exhibit 2 was left by him
(Recio) in the hands of Atty. Orlina who worked therein and gave him a receipt therefor. This receipt,
if produced, would have surely afforded us tangible proof of the veracity of, at least this part of
plaintiffs' story. Yet, we are now told that, one day in December, 1945, Recio's house accidentally
caught fire, and that the latter consumed, also, said receipt, kept in a wallet, which, by accident, he
had failed to bring with him. Aren't there too many accidents in plaintiffs' version? At any rate, we
have thus been deprived of all means to check with reasonable certainty the truth of any of the
controverted portions of their pretense. In other words, the same is based, and must stand or fall,
therefore, upon the uncorroborated testimony of plaintiff Apolinario de los Santos, and the credence
and weight that may be given thereto. Upon a review of the record, we find, however, that said
testimony is highly improbable and inherently weak, for, among other things:
(1) De los Santos declared that, in December, 1942, he purchased 300,000 shares from Juan
Campos and 1,300,000 shares from Carl Hess, at P0.06 each share. As an enterprise controlled by
Americans, the Lepanto had been seized by the Japanese who, accordingly, were operating it. At that
time, there were no clear, or, even, substantial, indications that changes would take place, either in
the local or in the international situation in the near of foreseeable future. In deed, the morale of the
population in democratic countries, particularly in the Philippines, was then at its lowest ebb. Both in
Europe and in the Pacific, the Axis powers had reached in enemy territories the highest degree of
penetration attained during the last war. Before the world had recovered from the shock produced by
the German blitzkrieg operations in the low countries and in France, the Nazis were already knocking
at the gates of Stalingrad entrenched in New Guinea and the Soloman Islands. The people had a
hazy notion about the facts pertinent to the Battle of Midway (June 3-6, 1942) and the implications
thereof were by and large unknown. In other words, the conditions were such as to warrant the
general belief that the Lepanto would remain under the authority and management of the Japanese
Imperial forces for an indefinite period of time. As a consequence, the Lepanto stock had not merely a
doubtful value, but as admitted by Santos even, no market value at all (p. 132, t.s.n). Indeed,
the stockholders could neither collect dividends nor exercise their voting power, or otherwise
participate in the operation of the enterprise. Moreover, there was a possibility of its assets being fully
confiscated, for all practical purposes, should Japan emerge victorious in the was in the Pacific, which
it appeared to be winning easily up to that time (December, 1942).
(2) Inasmuch as citizens of the United States held a majority of the shares of stock of the Lepanto,
the same had from the view point of the Japanese, an enemy character, and the purchase of said
stocks was, therefore, a hostile act. As a matter of fact, in the proceedings before the Vested Property
Claims Committee, the parties including plaintiffs herein had stipulated "that such transfers and
dealings in said stock were prohibited by the Japanese during the occupation and hence were
dangerous." (Record on Appeal, p. 110). Said transactions could jeopardize the life of the parties
thereto and De los Santos was aware of the "highly dangerous" or "very risky" nature of the "mere
possession" of the stock certificates in question. (pp. 141, 143, t. s. n.)
(3) Astraquillo is merely a former employee of De los Santos, who had, therefore, no reason to risk
his neck, not only by allegedly buying 800,000 shares of stock for Astraquillo, but, also, by avowedly
bringing with him (De los Santos) the corresponding stock certificates from Manila to Baguio, to make
delivery thereof to Astraquillo, as the defense would have us believe, notwithstanding the many
Japanese check points in the 250 kilometers highway connecting both cities and the absence of any
monetary or other gain he could have derived from the acts he professes to have performed.
(4) According to the Ballantyne schedule the accuracy of which has not been impugned by
plaintiffs herein the Japanese war notes in the Philippines had the same exchange of purchase
value as the currency of our legitimate government, in December, 1942 and this was conceded by
De los Santos (p. 136, t. s. n.) when they claim to have purchased the Lepanto stocks. The
P48,000 supposedly paid by the De los Santos, and the identical sum allegedly disbursed by
Astraquillo, for their respective stock, represented, therefore, the same amount in legal tender of the
Commonwealth of the Philippines. In fact, according to the evidence for the plaintiffs, part of the price
allegedly paid by Astraquillo, or P6,000, were in the genuine Philippine money, representing his
savings for 25 years. Said sum of P6,000 being insufficient to cover the cost of 800,000 shares of
stock, Astraquillo, it is urged, alienated other properties to raise the amount necessary thereof. It is
very difficult to believe that the plaintiffs would have parted with P48,000 each precisely when,
owing to the abnormal conditions brought about by the occupation, said funds might be needed, at
any time, to meet unforeseen emergencies of the gravest and most vital nature for shares of stock
of dubious value then and in the foreseeable future.
(5) We are not satisfied that either De los Santos or Astraquillo possessed enough resources to have
P48,000, in cash, each, in December 1942. Their evidence on this point is too general apart from
being based exclusively upon their respective oral testimonies, which are absolutely uncorroborated
to support their contention. At any rate, De los Santos admitted that he is "not yet" rich (p. 134, t. s.
n.), and his testimony suggests that he did not even own the house in which he lived.
(6) Campos offered to sell his stocks, according to De los Santos, at P0.06 each (although its par
value was P0.10), stating that "he (Campos) needed money" (p. 43, t.s.n.), and advised him that
Hess was, also, willing to dispose of his own stocks at the same price. Being, accordingly, aware that
Campos and Hess were in need of money and considering the risks attending the transaction, it is but
logical to expect De los Santos, an experienced trader in stocks, to bargain for a lower price. Yet, the
evidence for the plaintiffs shows that neither he nor Astraquillo tried to do so, contrary to the normal
course of events.
(7) De los Santos could not have purchased 1,300,000 shares of stock, from Hess, and received from
him the corresponding stock certificates, endorsed in blank by Vicente Madrigal, for Hess had never
had such stock certificates in his possession during the occupation. There is no plausible reason to
doubt the veracity of the testimony of Miguel Simon to this effect, for the latter had no possible motive
to commit perjury, and was in a position to know what he was talking about. Apart from being a
brother-in-law of Hess, Simon was manager of the firm Hess & Zeitling, of which Hess was the senior
partner, who used to inform him (Simon) of his (Hess) business transactions.
(8) Campos and Hess could not have delivered the stock certificates for the 1,600,000 shares of
stock in question, and, consequently, said shares of stock could not have been sold by them, to De
los Santos in December 1942, inasmuch as from December 1941 to April 1943, said stock certificates
were continuously in the custody of Matsume Kitajima, manager of the Mitsuis in Manila, whose
testimony was corroborated by his successor in office, Kingy Miwa, to whom Kitajima turned over the
stock certificates in April 1943. The sincerity of Matsume Kitajima and Kingy Miwa can not doubted,
for neither appears to have any possible reason to trifle with the facts. Indeed, their testimony, if
accepted as true, would ultimately result in the confiscation, by the Republic of the Philippines, of the
shares of stock in question and, thus, place the same beyond the reach of the Mitsuis.
It has been intimated that Kitajima and Kingy may have testified as they did, either to protect
themselves, because they might have disposed of the shares of stock in question for their personal
benefit, or because there had been undue influence or pressure from the authorities presumably
officers of the government of the United States. But these are mere speculations, without sufficient
basis. Besides, judicial notice may be taken of the circumstance that, during the occupation, even
minor Japanese officials could easily make money, in the Japanese properties. Again, in December,
1942, the Japanese in the Philippines appeared to have no doubts that, in effect, Japan had already
won the war. In short, Kitajima and Kingy must have thought that, sooner or later, Japan would own
the Lepanto and that, therefore, they would have to account for the shares of stock under
consideration. Consequently, it is most unlikely that neither would have misappropriated said shares
of stock as suggested by the plaintiffs.
The benefits which the Mitsuis and Japan may derive from a decision against the plaintiffs
inasmuch as the value of the shares of stock in question would then be credited in payment of the
reparation which may be demanded by the Philippines and/or the United States has been pointed
out, in the dissenting opinion, as a possible motive for the commission of perjury by Kitajima and
Kingy. Besides being purely conjectural in nature, this line of thought which not even the plaintiffs
have taken would have no leg to stand on, unless we assume that the Mitsuis had sold or otherwise
disposed of said stocks during the year 1942, but before the alleged transactions between Campos
and Hess, on the one hand, and the plaintiffs on the other, in December of that year. It is
inconceivable, however, that the Mitsuis would part with the stocks in question, precisely when
Japanese was at the crest of its military and political victories. Indeed, even if its officers had already
foreseen, at the time, the eventual defeat of the axis powers and everything then appeared to
indicate the contrary the Mitsuis could not have disposed of said stocks without thereby revealing
their own lack of faith in the ability of Japan to achieve final victory. Thus, the Mitsuis would have
caused a grave injury upon the Japanese propaganda and thereby earned severe punishment from
the Imperial Government. Nothing, absolutely nothing, in the record, or in contemporary history,
warrants the belief that the Mitsuis, who were closely associated with the Japanese Government,
could be guilty of such folly.
Let us now turn our attention to the evidence for the defense, beginning with the testimony of Victor
E. Lednicky. It will be recalled that this witness claimed to have gone to the premises of the Mitsuis,
sometime in February 1945, including two (2) Lepanto certificates of stock, one of which was in the
name of Vicente Madrigal, whose blank indorsement appeared thereon. Thus, the defense sought to
prove that the certificates of the shares of stock involved in this case have probably been looted. The
lower court found Lednicky's story inherently improbable and then concluded that the theory of the
looting must, consequently, be "ruled out". To our mind, however, the testimony of Lednicky is not
inherently improbable. Besides, it is a matter of common knowledge, of which judicial notice may be
taken, that many offices and dwellings were looted during the liberation of Manila. The possibility that
possession of the stock certificates in question may have been secured by looting should not be
"ruled out," therefore, irrespective of the credence and weight given to the testimony of Lednicky.
Actually, said certificates are included in the list of stocks certificates of the Lepanto which, soon after
liberation, were reported and considered looted from the Mitsuis, and, accordingly, "blocked" or
"frozen" by the authorities. Irrespective of the foregoing, De los Santos could not have obtained those
certificates from Campos and Hess in December 1942, inasmuch, as, from December 1941 to April
1943, Kitajima had been continuously in possession of said documents, none of which had been held
by Hess during the occupation.
The lower court considered against the defense the circumstance that Lednicky, Simon and Perkins
had not testified before the Vested Property Claims Committee. There is no evidence, however, that
any of them knew of the proceedings before said committee. Furthermore, none of them has any
personal interest in the outcome of this action. Consequently, they have no possible motive to distort
the truth, unlike De los Santos, who, as the present claimant of all shares of stock in dispute, will de
directly affected by the outcome of the case at bar. His testimony, therefore, cannot be more weighty
than that of the aforementioned witnesses for the defense.
The decision appealed from criticizes the testimony of Perkins upon the following grounds:
(1) Having taken no part in the alleged looting of Exhibit 2, Recio had nothing to fear in connection
therewith and, so, he could not have left the office of Mr. DeWitt, while the latter was talking over the
telephone with a representative of the Alien Property Custodian; .
(2) Inasmuch as DeWitt had stated that Exhibit 2 was included in the list of looted stock certificates,
Perkins should have known that, as holder of the certificate, Recio is presumed to be the one who
stole the same. Why then plaintiffs inquire did Perkins fail to prevent Recio from leaving said
office?
As regards the first observation, suffice it to say that, as bearer of the Exhibit 2, Recio who,
according to the lower court, is an intelligent man must have realized the danger, probably
unforeseen by him, of being considered a privy to the looting of said stock certificates, of which he
might have been unaware before the conference with Mr. DeWitt. Hence, Recio's fright and virtual
flight. Verily, the testimony of Perkins on this point is borne out by the undisputed fact that Exhibit 2
was left by Recio in the hands of DeWitt, and that neither Astraquillo, nor his alleged successor in
interest, De los Santos, has ever demand from DeWitt the return of said certificate, or even
recriminated Recio for having voluntarily parted with its possession, as he would have us believe,
without authority therefor, as a broker or agent who was supposed merely to find a buyer.
As to the second observation, Perkins knew that Recio was acting solely as a broker or agent. As
such, he was not the real holder of Exhibit 2, and, consequently, the presumption adverted to did not
apply to him. Even if it did, however, what could Perkins have done? Use force or violence upon the
person of Recio, or ask a policeman to detain him? Neither step, however, could have been taken
without some risks. To begin with, Perkins could not have properly taken the law in his own hands.
Had he done so, Recio could have legally used force against force. Moreover, said presumption is
rebuttable and would have easily been offset by the undeniable fact that Recio had acted merely in a
representative capacity. Again, why should Perkins take the initiative in the matter? Was it not being
handled by his associate in the law firm, Mr. DeWitt, one of the most able members of the Philippine
Bar? It may not be amiss to add that the record before us discloses absolutely nothing that may cast
even a shadow of doubt upon the honesty of Mr. Perkins.
The language of the lower court in commenting on the testimony of Miwa was:
. . . In general, the testimony of Miwa is unreliable. His behaviour in Court in denying first and
then in accepting later his own signature throws him to a position where the Court must look
upon him with suspicion and distrust. His prevarication before the Court as to the genuineness
of his own signature was probably due to the conscience of a man who came to the Court with
a mental reservation, but who may have been compelled under the circumstances to play the
role of a willing tool. (p. 54, R.A.)
The following portion of Miwa's testimony illustrates the point referred to in the decision appealed
from:
ATTY. QUIRINO:
Q. Will you please go over this paper which for purposes of identification we request that it
be marked as Exhibit M for the plaintiffs and which was marked Exhibit 6-b before the Vested
Property Claims Committee, and tell us if you know that document? A. No. I do not
remember this paper.
Q. Mr. Miwa, at the bottom of this certificate or Exhibit M, which was Exhibit 6b in the
committee and submitted by the Alien Property Administration, there is a typewritten name,
Kingy Miwa, and above it is a signature. Will you kindly tell the Court if that is your signature or
not? Please look over it again. A. No. It is not mine.
Q. Please examine it carefully and tell the Court afterwards if you recognize that signature.
Examine it carefully. A. It looks very similar to my signature.
Q. But would you want or are you willing to go on record and say that it is not your
signature? A. I can not say. I don't exactly remember that I signed this, but it looks
very similar to my signature.
Q. You will not testify under oath that this is your signature? A. Yes. sir.
Q. What do you mean to say by "yes, sir"? Do you swear that this is your signature or not
your signature? A. I think this is my signature.
Q. So, you are willing to go on record now that that signature appearing in Exhibit "M" is
your signature? A. Yes, I think so. (pp. 125-126, t. s. n.)
We do not agree with its appraisal by the lower court. It is clear that, as he did not remember the
execution of Exhibit M several years before the hearing of this case, Miwa had doubts about the
genuineness of the signature thereon, but the appearance thereof, similar or identical to that of his
own signature, prevented him from denying its authenticity. This does not indicate lack of veracity on
his part. At any rate, plaintiffs claim to have bought the shares of stock in question in December,
1942, or during the management of Kitajima, who held the corresponding stock certificates
continuously from December, 1941, to April, 1943, when Miwa substituted him, so that neither
Campos nor Hess could have delivered those certificates to De los Santos in December 1942. Apart
from this, if there are flaws in the proof for the defense, those of the evidence for the plaintiffs are
much bigger and more substantial and vital. Consequently, we hold that plaintiffs have not
established their pretense by a preponderance of the evidence.
Even, however, if Juan Campos and Carl Hess had sold the shares of stock in question, as testified
to by De los Santos, the result, insofar as plaintiffs are concerned, would be the same. It is not
disputed that said shares of stock were registered, in the records of the Lepanto, in the name of
Vicente Madrigal. Neither it is denied that the latter was, as regards said shares of stock, a mere
trustee for the benefit of the Mitsuis. The record shows and there is no evidence to the contrary
that Madrigal had never disposed of said shares of stock in any manner whatsoever, except by
turning over the corresponding stock certificates, late in 1941, to the Mitsuis, the beneficial and true
owners thereof. It has, moreover, been established,, by the uncontradicted testimony of Kitajima and
Miwa, the managers of the Mitsuis in the Philippines, from 1941 to 1945, that the Mitsuis had neither
sold, conveyed, or alienated said shares of stock, nor delivered the aforementioned stock certificates,
to anybody during said period. Section 35 of the Corporation Law reads:
The capital stock corporations shall be divided into shares for which certificates signed by the
president or the vice-president, countersigned by the secretary or clerk 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 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, until the transfer is entered
and noted upon 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, and the number of shares
transferred.
No shares of stock against which the corporation holds any unpaid claim shall be transferable
on the books of the corporation. (Emphasis supplied.)
Pursuant to this provision, a share of stock may be transferred by endorsement of the corresponding
stock certificate, coupled with its delivery. However, the transfer shall "not be valid, except as
between the parties," until it is "entered and noted upon the books of the corporation." no such entry
in the name of the plaintiffs herein having been made, it follows that the transfer allegedly effected by
Juan Campos and Carl Hess in their favor is "not valid, except as between" themselves. It does not
bind either Madrigal or the Mitsuis, who are not parties to said alleged transaction. What is more, the
same is "not valid," or, in the words of the Supreme Court of Wisconsin (Re Murphy, 51 Wisc. 519, 8
N. W. 419) which were quoted approval in Uson vs. Diosomito (61 Phil., 535) "absolutely void"
and, hence, as good as non-existent, insofar as Madrigal and the Mitsuis are concerned. For this
reason, although a stock certificate is sometimes regarded as quasi-negotiable, in the sense that it
may be transferred by endorsement, coupled with 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.
Certificates of stock are not negotiable instruments (post, Par. 102), consequently, a transferee
under a forged assignment acquires no title which can be asserted against the true owner,
unless his own negligence has been such as to create an estoppel against him (Clarke on
Corporations, Sec. Ed. p. 415). If the owner of the certificate has endorsed it in blank, and it is
stolen from him, no title is acquired by an innocent purchaser for value (East Birmingham Land
Co. vs. Dennis, 85 Ala. 565, 2 L.R.A. 836; Sherwood vs. mining co., 50 Calif. 412). As was
said by the Supreme Court of the United States in a leading case (Western Union Telegraph
Co. vs. Davenfort, 97 U. S. 369; 24 L. Ed. 1047)
"Neither the absence of blame on the part of the officers of the company in allowing an
unauthorized transfer of stock, nor the good faith of the purchaser of stolen property, will avail
as an answer to the demand of the true owner. The great principle that no one can deprived of
his property without his assent, except by processes of the law, requires, in the case
mentioned, that the property wrongfully transferred or stolen should be restored to its rightful
owner." (The Philippine Law of Stock Corporations by Fisher, p. 132.) (Emphasis supplied.)
In the language of Fletcher's Cyclopedia Corporations (Vol. 12, pp. 521-534):
The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer
acquires no title as against the true owner does not apply where the circumstances are such
as to estop the latter from asserting his title. . . .
x x x x x x x x x
A reason often given for the rule is that it is a case for the application of the maxim that where
one of two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss
must fall on the one who first trusted the wrongdoer and put in his hands the means of inflicting
such loss. But "negligence which will work an estoppel of this kind must be a proximate cause
of the purchase or advancement of money by the holder of the property, and must enter into
the transaction itself "; the negligence must be in or immediately connected with the transfer
itself . Furthermore, "to establish this estoppel it must appear that the true owner had conferred
upon the person who has diverted the security the indicia of ownership, or an apparent title or
authority to transfer the title." So the owner is not guilty of negligence in merely entrusting
another with the possession of his certificate of stock, if he does not, by assignment or
otherwise, clothe him with the apparent title. Nor is he deprived of his title or his remedy
against the corporation because he intrusts a third person with the key of a box in which the
certificate are kept, where the latter takes them from the box and by forging the owner's name
to a power of attorney procures their transfer on the corporate books. Nor is the mere
indorsement of an assignment and power of attorney in blank on a certificate of stock, which is
afterwards lost or stolen, such negligence as will estop the owner from asserting his title as
against a bona fide purchaser from the finder or thief, or from holding the corporation liable for
allowing a transfer on its books, where the loss or theft of the certificate was not due to any
negligence on the part of the owner, although there is some dangerous and wholly unjustifiable
dictum to the contrary. So it has been held that the fact that stock pledged to a bank is
endorsed in blank by the owner does not estop him from asserting title thereto as against a
bona fide purchaser for value who derives his title from one who stole the certificate from the
pledgee. And this has also been held to be true though the thief was an officer of the pledgee,
since his act in wrongfully appropriating the certificate cannot be regarded as a
misappropriation by the bank to whose custody the certificate was intrusted by the owner, even
though the bank may be liable to the pledgor. . . . . A person is not guilty of negligence in
leaving a certificate of stock endorsed in blank in a safe deposit box used by himself and
another jointly, so as to be estopped from asserting his title after the certificate has been stolen
by the other, and sold or pledged to a bona fide purchaser or pledgee. Nor is he negligent in
putting a certificate so endorsed in a place to which an employee had access, where he has no
reason to doubt the latter's honesty, . . . . (Emphasis supplied.)
In the leading case of Knox vs. Eden Muscee American Co. (42 N. E. 988, 992-993), the rule has
been forcefully stated as follows:
The courts have been frequently importuned to extend the qualities of negotiability of stock
certificates beyond the limits mentioned, and clothe them with the same character of complete
negotiability as attaches to commercial paper, so as to make a transfer to a purchaser in good
faith for value equivalent to actual title, although there was no agency in the transferor, and the
certificate had been lost without the fault of the true owner, or had been obtained by theft or
robbery. But the courts have refused to accede to this view, and we have found no case
entitled to be regarded as authority which denies to the owner of a stock certificate which has
been lost without his negligence, or stolen, the right to reclaim it from the hands of any person
in whose possession it subsequently comes, although the holder may have taken it in good
faith and for value. The precise question has not often been presented to the courts, for the
reason, probably, that they have with great uniformity held that stock certificates were not
negotiable instruments in the broad meaning of that phrase; but whenever the question has a
risen it has been held that the title of the true owner of a lost or stolen certificate may be
asserted against any one subsequently its possession although the holder may be bona fide
purchaser. Anderson vs. Nicholas, 28 N. Y. 600; Power vs. Robinson, 52 Fed. 520; Biddle vs.
Bayard, 13 Pa. St. 150; Barstow vs. mining Co., 64 Cal. 388, 1 Pac. 349. See Shaw vs.
Railroad Co., 101 U. S. 557. . . . It is plain, we think, that the argument in support of the
judgment in this case, base on the complete negotiability of stock certificates, is not supported
by, but is contrary to, the decisions. If public policy requires that a further advance should be
made in more completely assimilating them to commercial paper in the qualities of
negotiability, the legislature, and not the courts, should so declare. Under the law as it has
hitherto prevailed there does not seem to have been any serious hindrance in dealing with
property of this character. It may, perhaps, be doubted, taking into consideration the interests
of investors as well as dealers, whether it would be wise to remove the protection which the
true owner of a stock certificate now has against accident, theft, or robbery. The system of
registry of negotiable bonds, which prevails to a considerable extent, authorized by statutes of
some of the states and of the United States, seems to indicate a tendency to restrict, rather
than to extend, the range of negotiable instruments. (Emphasis supplied.)
The status of quasi-negotiability generally accorded to, and at present enjoyed by, certificates of
stock, under the Philippine law, is in itself a recognition of the fact that the certificates are non-
negotiable. Instead of sustaining appellees' claim, section 5 of the uniform Stock Transfer Act, which
"gives full negotiability to certificates of stock," refutes said claim and confirms the non-negotiable
character of stock certificates in the absence of said Unifrom Act, for, obviously, the same could not
have given, negotiability to an instrument already possessing this attribute prior thereto. Again, apart
from being distinct from the general Corporation Law, the aforementioned Uniform Act is not in force
in the Philippines. In this connection, it should be noted that this special piece of legislation was
adopted in some states of the union as early as the year 1910. The failure of the Philippine
government to incorporate its provisions in our statute books, for a period of almost 45 years, is, to
our mind, clear proof of the unwillingness of our department to change the policy set forth in section
35 of Act No. 1459. Needless to say, this fact negates our authority which is limited to the
interpretation of the law, and its application, with all its imperfections to abandon what the
dissenting opinion characterizes as the "civil law standpoint," and substitute, in lieu thereof, the
commercial viewpoint, by applying said section 5 of the Uniform Stock Transfer Act, although not a
part of the law of the land. Indeed, even in matters generally considered as falling within "commercial
territory", the Roman Law concept has not given way in the Philippines to the Common Law
approach, except when there is explicit statutory provision to the contrary.
In the case at bar, neither madrigal nor the Mitsuis had alienated shares of stock in question. It is not
even claimed that either had, through negligence, given occasion for an improper or irregular
disposition of the corresponding stock certificates. Plaintiffs merely argue without any evidence
whatsoever thereon that Kitajima might have, or must have, assigned the certificates on or before
December 1942, although, as above stated, this is, not only, improbable, under the conditions, then
obtaining, but, also., impossible, considering that, in April 1943, Kitajima delivered the instruments to
Miwa, who kept them in its possession until 1945. At any rate, such assignment by Miwa granting
for the sake of argument the accuracy of the surmise of plaintiffs herein was unauthorized by the
mitsuis, who, in the light of the precedents cited above, are not chargeable with negligence. In other
words, assuming that Kitajima had been guilty of embezzlement, by negotiating the stock certificates
in question for his personal benefit, as claimed by the plaintiffs, the title of his assignees and
successors in interest would still be subject to the rights of the registered owner, namely, Madrigal,
and consequently, of the party for whose benefit and account the latter held the corresponding shares
of stock, that is to say, the Mitsuis.
At any rate, at the time of the alleged sales in their favor, plaintiffs were aware of sufficient facts to put
them on notice of the need of inquiring into the regularity of the transactions and the title of the
supposed vendors. Indeed, the certificates of stock in question were in the name of madrigal.
Obviously, therefore, the alleged sellers (Campos and Hess) were not registered owners of the
corresponding shares of stock. Being presumed to know the law particularly the provisions of
section 35 of Act No. 1459 and, as experienced traders in shares of stock, plaintiffs must have,
accordingly, been conscious of the consequent infirmities in the title of the supposed vendors, or of
the handicaps thereof. Moreover, the aforementioned sales were admittedly hostile to the Japanese,
who had prohibited it and plaintiffs had actual knowledge of these facts and of the risks attendant to
the alleged transaction. In other words, plaintiffs advisedly assumed those risks and, hence, they can
not validly claim, against the registered stockholder, the status of purchasers in good faith.
The lower court held, and plaintiffs maintain that, not being the registered owners of the shares of
stock in question, the Mitsuis can not assert a better right than said plaintiffs. This pretense is
untenable. Inasmuch as Madrigal, the registered owner of said shares of stock, has always
acknowledged that he held the same merely as an agent of, or trustee for, the mitsuis and this is
not denied it follows that the latter are entitled to invoke such rights as Madrigal had as registered
stockholder. Upon the other hand, even the alleged sale by Juan Campos and Carl Hess to plaintiffs
herein is contested by the defense and, to our mind, has not been established by a preponderance of
the evidence. Hence, as the undisputed principal or beneficiary of the registered owner (Madrigal),
the Mitsuis may claim his rights, which cannot be exercised by the plaintiffs, not only because their
alleged title is not derived either from madrigal or from the Mitsuis, but, also, because it is in
derogation, of said rights. madrigal and the Mitsuis are not privies to the alleged sales by Campos
and Hess to the plaintiffs, contrary to the latter's pretense.
In conclusion, when the Property Custodian issued the Vesting Order complained of, the shares of
stock in question belonged to the Mitsuis, admittedly an enemy corporation, so that Vesting Order is
in conformity with law and should be upheld. Wherefore, the decision appealed from is hereby
reversed, and the complaint, accordingly, dismissed, with costs against the plaintiffs-appellees. It is
so ordered.
Paras, C. J., Pablo, Padilla, Montemayor, Reyes, A., Jugo and Labrador, JJ., concur.

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
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
Libris continued 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
are prima 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 principals were 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 principals themselves 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.
38
The 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.

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 Agreement
2
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 letter
3
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 injunction
5
, 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 reconsideration
8
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 Motion
11
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 reconsideration
15
was likewise denied by the SEC en banc in a Resolution
16

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 Decision
17
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 Order
18

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 law
23
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. 8799
24
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.

RINEO 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.
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 group and 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 the par
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.

JOSEFA SANTAMARIA, assisted by her husband, FRANCISCO SANTAMARIA, Jr., plaintiff-
appellee,
vs.
THE HONGKONG AND SHANGHAI BANKING CORPORATION and R. W. TAPLIN, defendants-
appellant.
Nicodemus L. Dasig and Sotto and Sotto for plaintiff and appellant.
Quijano, Rosete and Tizon for defendants and appellants.
BAUTISTA ANGELO, J .:
This is an appeal from a decision of the Court of First Instance of Manila ordering the Hongkong and
Shanghai Banking Corporation to pay the plaintiff the sum of P8,041.20 plus the costs of suit. The
case was certified to this Court of Appeals.
The facts of this case found by the Court of Appeals are as follows:
Sometime in February, 1937, Mrs. Josefa T. Santamaria bought 10,000 shares of the
Batangas Minerals, Inc., through the offices of Woo, Uy-Tioco & Naftaly, a stock brokerage
firm and pay therefore the sum of P8,041.20 as shown by receipt Exh. B. The buyer received
Stock Certificate No. 517, Exh. "F", issued in the name of Woo, Uy-Tioco & Naftaly and
indorsed in bank by this firm.
On March 9, 1937, Mrs. Santamaria placed an order for the purchase of 10,000 shares of the
Crown Mines, Inc. with R.J. Campos & Co., a brokerage firm, and delivered Certificate No. 517
to the latter as security therefor with the understanding that said certificate would be returned
to her upon payment of the 10,000 Crown Mines, Inc. shares. Exh. D. is the receipt of the
certificate in question signed by one Mr. Cosculluela, Manager of the R.J. Campos & Co., Inc.
According to certificate Exh. E, R. J. Campos & Co., Inc. bought for Mrs. Josefa Santamaria
10,000 shares of the Crown Mines, Inc. at .225 a share, or the total amount of P2,250.
At the time of the delivery of a stock Certificate No. 517 to R.J. Campos & Co., Inc. this
certificate was in the same condition as that when Mrs. Santamaria received from Woo, Uy-
Tioco & Naftaly, with the sole difference that her name was later written in lead pencil on the
upper right hand corner thereof.
Two days later, on March 11, Mrs. Santamaria went to R.J. Campos & Co., Inc. to pay for her
order of 10,000 Crown Mines shares and to get back Certificate No. 517. Cosculluela then
informed her that R.J. Campos & Co., Inc. was no longer allowed to transact business due to a
prohibition order from Securities and Exchange Commission. She was also inform that her
Stock certificate was in the possession of the Hongkong and Shanghai Banking Corporation.
Certificate No. 517 came into possession of the Hongkong and Shanghai Banking Corporation
because R.J. Campos & Co., Inc. had opened an overdraft account with this bank and to this
effect it had executed on April 16, 1936 a document of hypothecation, Exhibit 1, by the term of
which R.J. Campos & Co., Inc. pledged to the said bank "all stocks, shares and securities
which I/we may hereafter come into their possession of my/our account and whether originally
deposited for safe custody only or for any other purpose whatever or which may hereinafter be
deposited by me/us in lieu of or in addition to the Stocks Shares and Securities now deposited
or for any other purposes whatsoever."
On March 11, 1937, as shown by Exhibit G. Certificate No. 517, already indorsed by R.J.
Campos Co. Inc. to the Hongkong & Shanghai Banking Corporation, was sent by the latter to
the office of the Batangas Minerals, Inc. with the request that the same be cancelled and a
new certificate be issued in the name of R.W. Taplin as trustee and nominee of the banking
corporation. Robert W. Taplin was an officer of this institution in charge of the securities
belonging to or claimed by the bank. As per this request the Batangas Minerals, Inc. on March
12, 1937, issued Certificate No. 715 in lieu of Certificate No. 517, in the name of Robert W.
Taplin as trustee and nominee of the Hongkong & Shanghai Banking Corporation. (Exhibits G,
H, I, J, 1, 4 and 5.)
According to Mrs. Santamaria, she made the claim to the bank for her certificate, though she
did not remember the exact date, but it was most likely on the following day of that when she
went to Cosculluela for the purpose of paying her order for 10,000 shares of the Crown Mines,
Inc., or else on March 13, 1937. In her interview with Taplin, the bank's representative, she
informed him that the certificate belonged to her, and she demanded that it be returned to her.
Taplin then replied that the bank did not know anything about the transaction had between her
and R.J. Campos & Co., Inc., and that he could not do anything until the case of the bank with
Campos shall have been terminated. This declaration was not contradicted by the adverse
party.
"In Civil Case No. 51224, R.J. Campos & Co., Inc. was declared insolvent, and on July 12,
1937, the Hongkong & Shanghai Banking Corporation asked permission in the insolvency
court to sell the R.J. Campos & Co., Inc., securities listed in its motion by virtue of the
document of hypothecation Exhibit 1. In an order dated July 15, 1937, the insolvency court
granted this motion.
"On June 3, 1938, to 10,000 shares of Batangas Minerals, Inc. represented by Certificate No.
715, were sold to the same bank by the Sheriff for P300 at the foreclosure sale authorized by
said order. (Exhibits F, 2 and 3.)
R.J. Campos, the president of R.J. Campos & Co., Inc., was prosecuted for estafa and found
guilty of this crime and was sentenced by the Manila Court of First Instance in Criminal Case
No. 54428, to an imprisonment and to indemnify the offended party, Mrs. Josefa Santamaria,
in the amount of P8,041.20 representing the value of the 10,000 shares of Batangas Minerals,
Inc. (Exhibits I and J.) The decision was later confirmed by the Court of Appeals. (Exhibits J.)
The offended party and R. W. Taplin were among the witnesses for the prosecution in this
criminal case No. 54428. (Exhibits 4.).
When Mrs. Santamaria failed in her efforts to force the civil judgment rendered in her favor in
the criminal case because the accused became insolvent, she filed her complaint in this case
on October 11, 1940. At the trial both parties agreed that the 10,000 Batangas Minerals shares
formerly represented by Certificate No. 517 and thereafter by Certificate No. 715, have no
actual market value.
The errors assigned by the defendants-appellants as committed by the lower court are:
I
The trial court erred in finding that the plaintiff-appellee was not chargeable with negligence in
the transaction which gave rise to this case.
II
The trial court erred in holding that it was the obligation of the bank to have inquired into the
ownership of the certificate when it received it from R.J. Campos & Company and in
concluding that the bank was negligent for not having done so.
III
The trial court erred on ordering defendants-appellants to pay to plaintiff the sum of P8,041.20.
1. Defendants-appellants contend in the first place that the trial court erred in finding that the plaintiff-
appellee was not chargeable with negligence in the transaction which gave rise to this case.
A careful analysis of the facts seems to justify this contention. Certificate of stock No. 517 was made
out in the name of Wo, Uy-Tioco & Naftaly, brokers, and was duly indorsed in bank by said brokers.
This certificate of stock was delivered by plaintiff to R.J. Campos & Co., Inc. to comply with a
requirement that she deposit something on account if she wanted to buy 10,000 shares of Crown
Mines Inc. In making said deposit, plaintiff did not take any precaution to protect herself against the
possible misuse of the shares represented by the certificate of stock. Plaintiff could have asked the
corporation that had issued said certificate to cancel it and issue another in lieu thereof in her name to
apprise the holder that she was the owner of said certificate. This she failed to do, and instead she
delivered said certificate, as it was, to R.J. Campos & Co., Inc., thereby clothing the latter with
apparent title to the shares represented by said certificate including apparent authority to negotiate it
by delivering it to said company while it was indorsed in blank by the person or firm appearing on its
face as the owner thereof. The defendant Bank had no knowledge of the circumstances under which
the certificate of stock was delivered to R.J. Campos & Co., Inc., and had a perfect right to assume
that R.J. Campos & Co., Inc. was lawfully in possession of the certificate in view of the fact that it was
a street certificate, and was in such form as would entitle any possessor thereof to a transfer of the
stock on the books of the corporation concerned. There is no question that, in this case, plaintiff made
the negotiation of the certificate of stock to other parties possible and the confidence she placed in
R.J. Campos & Co., Inc. made the wrong done possible. This was the proximate cause of the
damage suffered by her. She is, therefore, estopped from claiming further title to or interest therein as
against a bona fide pledge or transferee thereof, for it is a well-known rule that a bona fide pledgee or
transferee of a stock from the apparent owner is not chargeable with knowledge of the limitations
placed on it by the real owner, or of any secret agreement relating to the use which might be made of
the stock by the holder (Fletcher, Cyclopedia of Corporations, section 5562, Vol. 12, p. 521).
On the other hand, it appears that this certificate of stock, indorsed as it was in blank by Woo, Uy-
Tioco & Naftaly, stock brokers, was delivered to The Hongkong and Shanghai Banking Corporation
by R.J. Campos & Co., Inc., duly indorsed by the latter, pursuant to a letter of hypothecation executed
by R.J. Campos & Co., Inc., in favor of said Bank (Exhibit "1"). The said certificate was delivered to
the Bank in the ordinary course of business, together with many other securities, and at the time it
was delivered, the Bank had no Knowledge that the shares represented by the certificate belonged to
the plaintiff for, as already said, it was in the form of street certificate which was transferable by mere
delivery. The rule is "where one of two innocent parties must suffer by reason of a wrongful or
unauthorized act, the loss must fall on the one who first trusted the wrong doer and put in his hands
the means of inflicting such loss" (Fletcher Cyclopedia of Corporations, supra).
It is therefore clear that plaintiff, in failing to take the necessary precautions upon delivering the
certificate of stock to her broker, was chargeable with negligence in the transaction which resulted to
her own prejudice, and as such, she is estopped from asserting title to it as against the defendant
Bank.
2. The next contention of the defendant is that the trial court erred in holding that it was the obligation
of the defendant Bank to have inquired into the ownership of the certificate when it received it from
R.J. Campos & Co., Inc. and in concluding that the Bank was negligent for not having done so,
contrary to the claim of the plaintiff that defendant Bank acted negligently, if not in bad faith, in
accepting delivery of said certificate from RJ. Campos & Co., Inc.
Let us now see the material facts on this point. Certificate No. 517 came into the possession of the
defendant Bank because R.J. Campos & Co., Inc. had opened an overdraft account with said Bank
and to this effect it had executed on April 16, 1946, a letter of hypothecation by the terms of which
R.J. Campos & Co., Inc. pledged to the said Bank "all Stocks, Shares and Securities which I/we may
hereafter come into their possession on my/our account and whether originally deposited for safe
custody only or for any other purpose whatever or which may hereafter be deposited by me/us in lieu
of or in addition to the Stocks, Shares, and Securities now deposited or for any other purpose
whatsoever." On March 13, 1937, plaintiff went to the office of the Bank to claim for her certificate. In
her interview with one Robert W. Taplin, the officer in charge of the securities of that institution, she
informed him that the certificate belonged to her and she demanded that it be returned to her. Taplin
then replied that the Bank did not know anything about the transaction had between her and that he
could not do anything until the case of the Bank with R.J. Campos & Co., Inc. had been terminated. It
further appears that when the certificate of stock was delivered by plaintiff to R.J. Campos & Co., Inc.,
the manager thereof, Sebastian Cosculluela, wrote in pencil on the right margin the name of Josefa T.
Santamaria, pursuant to the practice followed by said firm to write on that part of the certificate the
name of the owner for purposes of identification. Upon the facts thus stated, the question that asserts
itself is: was the defendants Bank obligated to inquire who was the real owner of the shares
represented by the certificate of stock, and could it be charged with negligence for having failed to do
so?
It should be noted that the certificate of stock in question was issued in the name of the brokerage
firm-Woo, Uy-Tioco & Naftaly and that it was duly indorsed in blank by said firm, and that said
indorsement was guaranteed by R.J. Campos & Co., Inc., which in turn indorsed it in blank. This
certificate is what it is known as street certificate. Upon its face, the holder was entitled to demand its
transfer into his name from the issuing corporation. The Bank was not obligated to look beyond the
certificate to ascertain the ownership of the stock at the time it received the same from R.J. Campos
& Co., Inc., for it was given to the Bank pursuant to their letter of hypothecation. Even if said
certificate had been in the name of the plaintiff but indorsed in blank, the Bank would still have been
justified in believing that R.J. Campos & Co., Inc. had title thereto for the reason that it is a well-
known practice that a certificate of stock, indorsed in blank, is deemed quasi negotiable, and as such
the transferee thereof is justified in believing that it belongs to the holder and transferor (Heyman vs.
Hamilton National Bank, 266 S.W. 1043; Fletcher, Cyclopedia of Corporations, Vol. 12, pp. 521-524,
525-527; McNeil vs. Tenth National Bank, 7 Am. Rep. 341).
The only evidence in the record to show that the certificate of stock in question may not have
belonged to R.J. Campos & Co., Inc. is the testimony of the plaintiff to the effect that she had
approached Robert W. Taplin on March 13, 1937, and informed him that she was the true owner of
said certificate and demanded the return thereof, or its value, but even assuming for the sake of
argument that what plaintiff has stated is true, such an incident would merely show that plaintiff has
an adverse claim to the ownership of said certificate of stock, but that would not necessarily place the
Bank in the position to inquire as to the real basis of her claim, nor would it place the Bank in the
obligation to recognize her claim and return to her the certificate outright. A mere claim and of
ownership does not establish the fact of ownership. The right of the plaintiff in such a case would be
against the transferor. In fact, this is the attitude plaintiff has adopted when she filed a charge for
estafa against Rafael J. Campos, which culminated in his prosecution and conviction, and it is only
when she found him to be insolvent that she decided to go against the Bank. The fact that on the right
margin of the said certificate the name of the plaintiff appeared written, granting it to be true, can not
be considered sufficient reason to indicate that its owner was the plaintiff considering that said
certificate was indorsed in blank by her brokers Woo, Uy-Tioco & Naftaly, was guaranteed by
indorsement in blank by R.J. Campos & Co., Inc., and was transferred in due course by the latter to
the Bank under their letter of hypothecation. Said indicium could at best give the impression that the
plaintiff was the original holder of the certificate.
The Court has noticed that the defendant Bank was willing from the very beginning to compromise
this case by delivering to the plaintiff certificate of stock No. 715 that was issued to said Bank by the
issuer corporation in lieu of the original as alleged and prayed for in its amended answer to the
complaint dated April 2, 1941. Considering that in the light of the law and precedents applicable in
this case, the most that plaintiff could claim is the return to her of the said certificate of stock (Howson
vs. Mechanics Sav. Bank, 183 Atl., p. 697), the Court, regardless of the conclusions arrived at as
above stated, is inclined to grant the formal tender made by the defendant to the plaintiff of said
certificate.
Wherefore, the decision of the lower court is hereby modified in the sense of ordering the defendant
to deliver to the plaintiff certificate of stock No. 715, without pronouncement as to costs.

NEUGENE MARKETING INC., LEONCIO TAN, NICANOR MARTIN, SONNY MORENO, JOHNSON
LEE and SECURITIES AND EXCHANGE COMMISSION, petitioners,
vs.
COURT OF APPEALS, ARSENIO YANG, JR., CHARLES O. SY, LOK CHUN SUEN, BAN HUA U.
FLORES, BAN HA U. CHUA and ROGER REYES, respondents.

PURISIMA, J .:
At bar is a petition for review of the decision
1
of the Special Fifth Division of the Court of Appeals
which reversed the decision of the Securities and Exchange Commission (SEC) annulling the
dissolution of Neugene Marketing, Inc. (NEUGENE, for short).
The SEC Hearing Panel gathered the facts, as follows:
On January 27, 1978, NEUGENE was duly registered with this Commission to engage
in trading business for a term of fifty (50) years with the following as
incorporators/directors, namely:
1. Johnson Lee (one of the petitioners);
2. Lok Chun Suen (one of the respondents);
3. Charles O. Sy (one of the respondents);
4. Eugenio Flores, Jr. (husband of respondent Ban Hua U.
Flores)
5. Arsenio Yang, Jr. (one of the respondents)
The authorized capital stock of NEUGENE is THREE MILLION PESOS (P3,000.000.00)
divided into THIRTY THOUSAND (P30,000) shares with a par value of ONE HUNDRED
PESOS (P100.00) each. Out of this authorized capital stock, SIX HUNDRED
THOUSAND PESOS (P600.000.00) had been subscribed by the following subscribers,
namely:
NAME NO. OF AMOUNT

SHARES SUBSCRIBED

Johnson Lee 600 P 60,000.00
Lok Chun Suen 1,200 120,000.00
Charles O. Sy 1,800 180,000.00
Eugenio Flores, Jr. 2,100 210,000.00
Arsenio Yang, Jr. 300 30,000.00

TOTAL 6,000.00 P600,000.00
====== ==========
Out of the aforesaid subscription, ONE HUNDRED FIFTY THOUSAND PESOS
(P150,000.00) had been paid by the following subscribers as follows:
NAME AMOUNT PAID UP

Johnson Lee P15,000.00
Lok Chun Suen 30,000.00
Charles O. Sy 45,000.00
Eugenio Flores, Jr. 52,500.00
Arsenio Yang, Jr. 7,500.00

TOTAL P150,000.00
===========
The original shareholdings of the incorporators/stockholders of NEUGENE were
increased by ten percent (10%) each by virtue of stock dividend declaration in the
amount of SIXTY THOUSAND PESOS (P60,000.00) made by its board of directors in a
special meeting held on June 7, 1980. . . .
Again, on May 2, 1981, the Board of directors of NEUGENE declared a stock dividend
in the amount of FORTY THOUSAND PESOS (P40,000.00) in proportion to the
shareholdings of the stockholders of record of NEUGENE as of April 30, 1981. . . .
xxx xxx xxx
The outstanding capital stock of NEUGENE became, SEVEN HUNDRED THOUSAND
PESOS (P700,000.00) represented by SEVEN THOUSAND (7,000) shares.
On May 15, 1986, Eugenio Flores, Jr. assigned transferred and conveyed his entire
shareholdings of TWO THOUSAND FOUR HUNDRED FIFTY (2,450) shares in
NEUGENE to the following, to wit.
Pet. Sonny Moreno 1,050 shares (Exh. "B")
Resp. Arsenio Yang, Jr., 700 shares (Exh. "C")
Resp. Charles O. Sy 700 shares (Exh. "D")

TOTAL 2,450
====
Thus, immediately after the assignment of the entire shareholdings of Egenio Flores, Jr,
to petitioner Sonny Moreno and respondents Arsenio Yang, Jr., and Charles O. Sy, the
stockholders of record of NEUGENE, as appearing in the Stock and Transfer Book
(Exhibit, "A"), particularly Exhihits "A-8 " to "A-12 " thereof were as follows:
NAME NO. OF SHARES

Johnson Lee. 700
Lok Chun Suen 1,400
Sonny Moreno 1,050
Charles O. Sy 2,800
Arsenio Yang, Jr. 1,050

TOTAL 7,000
2

======
On October 24, 1987, the private respondents, Charles O. Sy, Arsenio Yang, Jr. and Lok Chun Suen,
holders of 5,250 shares of NEUGENE (representing at least two-thirds (2/3) of the outstanding capital
stock of 7,000 shares) sent notice to the directors of NEUGENE for a board meeting to be held on
November 30, 1987. They also sent notice for a special stockholders' meeting on the same day,
November 30, 1987, to consider the dissolution of NEUGENE.
At the said meetings held on November 30, 1987, the private respondents, Charles O. Sy, Arsenio
Yang, Jr. and Lok Chun Suen, the directors and stockholders then present, voted for and approved a
resolution dissolving NEUGENE.
On March 1, 1988, acting upon private respondents's Petition for Dissolution, SEC issued a
Certificate of Dissolution of NEUGENE.
On March 22, 1988, the petitioners brought an action to annul or set aside the said SEC Certification
on the Dissolution of Neugene. In their Amended Petition, petitioners stated, among others, that they
are the majority stockholders of NEUGENE, owning eighty percent (80%) of its outstanding capital
stock, at the time of the adoption and approval of the Resolution for the Dissolution of NEUGENE, on
November 30, 1987; that prior thereto or on July 1, 1987, to be precise, the private respondents had
divested themselves of their stockholdings when they endorsed their stock certificates in blank and
delivered the same to the Uy Family, the beneficial owners of NEUGENE; that at the meetings held
on February 11, 12 and 13, 1987, in order to settle family squabbles, the Uy family agreed to award
NEUGENE's stock certificates to Johnny K. H. Uy, who, in turn, authorized Johnson Lee to dispose of
the same; and that Johnson Lee sold the said shares of stock to the petitioners, Leoncio Tan and
Nicanor Martin, such that, as reflected in the Stock and Transfer Book of NEUGENE, respondent Lok
Chun Suen had assigned all of his 1,400 shares of stock to petitioner Nicanor Martin, respondent
Charles O. SY assigned 2,100 shares out of his 2,800 shares of stock to petitioner Leoncio Tan, and
respondent Arsenio Yang, Jr. assigned 350 shares of his 1,050 shares of stock to petitioner Leoncio
Tan; that in view of the said transfers of shares of stock, private respondents Arsenio Yang, Jr., and
Charles O. Sy (each the holder of only 700 shares or 10% each of the outstanding capital stock of
NEUGENE) and Lok Chun Suen (who had ceased to be a stockholder as July 1, 1987) could no
longer validly vote for the dissolution of EUGENE on November 30, 1987, under Section 118 of the
Corporation Code, and all the proceedings of the meetings held on November 30, 1987, which were
improperly called and held without a quorum, are null void.
3

On the other hand, the private respondents, Charles O. Sy, Arsenio Yang, Jr. and Lok Chun Suen,
theorized that the alleged assignments of shares of stock in favor of petitioners were simulated and
fraudulently effected, as there never was any agreement entered into by the Uy family to award
NEUGENE'S stock certificates to Johnny K. H. Uy, because subject stock certificates of the private
respondents covering their shares of stock were endorsed in blank by them and delivered to the Uy
family, who were the beneficial owners of NEUGENE, for safe keeping and the said certificates of
stock were kept inside the confidential vault of the Uy family at 225 D. Tuazon St., Quezon City, but
the same were stolen by the spouses, Johnny K. H. Uy and Magdalena Go-Uy, without the
knowledge and authority of the Uy family; that petitioner Sonny Moreno, a co-conspirator in such
fraudulent transfer of stocks in question, recorded the Simulated and fraudulent assignments in the
Stock and Transfer Book of the corporation, which book he obtained from Johnny K. H. Uy and
Magdalena Go-Uy, together with other corporate records of NEUGENE, including the stock
certificates endorsed in blank by petitioner Johnson Lee and respondents Arsenio Yang, Jr., Charles
O. Sy and Lok Chun Suen; that the petitioners, Nicanor Martin and Leoncio Tan, are co-conspirators
of Johnson Lee and Sonny Moreno in effecting the said simulated and fraudulent transfers of shares
of stock; that the private respondents never sold their shares of stock in NEUGENE to any of the
petitioners or other stockholders of record, prior to the dissolution of the corporation, so that they
(private respondents) represented at least two-thirds (2/3) of the outstanding capital stock of
NEUGENE when they voted to dissolve NEUGENE, on November 30, 1987.
4

In its decision of June 19, 1990, the SEC Panel of Hearing Officers nullified the Certification on the
Dissolution of NEUGENE issued by SEC, holding that the private respondents were no longer holders
of at least two-thirds (2/3) of the outstanding capital stock of NEUGENE at the time they presented
the petition for dissolution, as required under Section 118 of the Corporation Code. (Annex "O"). The
said decision of the SEC Panel of Hearing Officers was affirmed in toto by the SEC En Banc in a
Decision promulgated on January 14, 1993.
5
Portions of the decision of the SEC Hearing Panel read:
The resolution to dissolve NEUGENE was adopted by only two (2) of its incumbent
directors, namely: respondent Charles O. Sy and Arsenio Yang, Jr. Respondent Lok
Chun Suen had already ceased to be a stockholder of NEUGENE as of July 1, 1987, by
the endorsement and delivery and cancellation of his stock certificates (Exhs. "E", "F",
and "G") and the entries in the Stock and Transfer Book (Exhs. "A", "A-1" to "A-24").
Hence, there was no quorum at said board of directors' meeting on November 30, 1987.
There was no quorum also at the November 30, 1987 meeting of the stockholders of
NEUGENE since only the following stockholders, namely: respondent Charles O. Sy
and Arsenio Yang, Jr., who own 10% each of the stockholding of NEUGENE, could be
considered officially present at said meeting. On this score alone, the case for the
petitioners should be upheld.
xxx xxx xxx
WHEREFORE, judgement is hereby rendered:
1. Declaring as null and void the Certificate of Filing of Resolution of Voluntary
Dissolution of NEUGENE MARKETING, INC. issued by this Commission on March 1,
1988 for violation of Section 118 of the Corporate Code of the Philippines;
2. Ordering the respondents, particularly respondent Roger Z. Reyes or any other
persons acting as trustees of NEUGENE from representing himself/themeselves from
acting as such;
3. Directing the respondents, particularly respondents Ban Ha U. Chua, Ban Hua U.
Flores, Charles O. Sy and Arsenio Yang, Jr., or whoever is in possession of the
corporate books and records of NEUGENE, to turn over the same to its Secretary,
petitioner Sonny Moreno, within ten (10) days from the finality of this Decision; and to
revert back NEUGENE the Cash on Hand appearing in the Balance Sheet as of
November 30, 1987 in the amount of P860,591.98;
4. Ordering the respondents to pay attorney's fees to the petitioners in the amount of
FOUR HUNDRED THOUSAND PESOS (P400,000.00).
6

xxx xxx xxx
On June 10, 1993, the aforesaid judgment of SEC was reversed by the Court of Appeals. Upholding
the validity of NEUGENE's dissolution, the Court of Appeals found that at the time of dissolution of
NEUGENE on November 30, 1987, the private respondents owned at least two-thirds (2/3) of
NEUGENE's stocks, it appearing that the certificates of stock of private respondents, which were
endorsed in blank, as earlier mentioned, were not validly transferred to petitioners herein.
The Court of Appeals ratiocinated and concluded:
xxx xxx xxx
The constitute a valid transfer, a stock certificate must be delivered and its delivery must
be coupled with an intention of constituting the person to whom the stock is delivered
the transferred (sic) thereof. (Fetcher Cyc Corp., Sec. 5484)
Furthermore, in order that there is a valid transfer, the person to whom the stock
certificates are endrosed (sic) must be a bona fide transferee and for value.
In the case at bar, Nicanor Martin and Leoncio Tan were not bona fide trasferees for
value and in good faith. Private respondent alleged that petitioners Sy, Lok and Yang,
Jr. indorsed and delivered their stock certificates to Nicanor Martin and Leoncio Tan.
However, private respondent Johnson Lee testified that he acquired his shares of stock
from Johnny Uy, who in turn sold them to Nocanor Martin and Leoncio Tan (tsn, pp., 49-
50, July 18, 1989). Likewise, evidence shows that no consideration was paid by Leoncio
Tan and Nicanor Martin when they allegedly acquired the stock certificates from the Uy
Family. Johnson Lee failed to produce any document evidencing the transaction or a
receipt showing his payment for the stocks. Therefore, it is clear that they were not bona
fide transferees for value and in good faith. Consequently, they cannot be considered
stockholders for the purpose of determining the 2/3 votes of the outstanding capital
stock required to dissolve Neugene, in accordance with Sec. 118 of the Corporate
Code.
xxx xxx xxx
After a careful examination of the documentary evidence, We find that the supposed
document evidencing the partition and division of the properties of the Uy Family (Exh.
"A"), is a mere xerox copy whose original copy was never produced before the hearing
panel. Moreover, it contained erasures and/or insertions, and it is written in the Chinese
Language, with no official translation submitted. Consequently, We find no basis for the
respondent Commission's finding that Neugene belongs to Johnny K. H. Uy.
Considering the above findings, there is likewise no basis for the Commission's ruling
that the amount of P60,591.98 should be returned by the petitioners to Neugene. Lastly,
the award of attorney's fees has no basis, considering Our findings that private
respondent have no cause of action against the petitioners, hence, they are not entitled
to attorney's fees.
WHEREFORE, the decision dated January 14, 1992 of the respondent Commission is
hereby REVERSED and SET ASIDE. No
costs.
7

In Its Resolution dated December 9, 1993, the Court of Appeals denied petitioners' motion for
reconsideration, and further ruled that the transfers of stock in question could not be valid and
effective for the simple reason that there is a complete absence of proof that the alleged transfers
were recorded in the books of the corporation. It relied on Section 63 of the Corporation Code of the
Philippines which provides that no transfer shall be valid except as between the parties, until the
transfer is recorded in the books of the corporation.
8

In the Petition under scrutiny, petitioners contend that the Court of Appeals: "(1) misapprehended the
facts of the case and (2) failed to consider the evidence on record showing that the private
respondents were no longer holders of the necessary number of shares of stock at the time of the
dissolution of NEUGENE.
9

The pivot of inquiry here is whether or not the private respondents lacked the requisite number of
shares of stock or had divested themselves of their stockholdings as of November 30, 1987 when
they voted for the resolution dissolving NEUGENE.
After a careful study, a finding in favor of private respondents is indicated. In short, the Petition is
barren of merit.
Entries in the Stock and Transfer Book of NEUGENE, particularly on the right hand portion of Exhibits
"A-9", "A-10" and "A-12", support the disquisition and conclusion arrived at by the Court of Appeals
that at the time of dissolution of NEUGENE on November 30, 1987, the private respondents, Lok
Chun Suen, Charles O. Sy and Arsenio Yang, Jr., owned at least two-thirds (2/3) of NEUGENE's
outstanding capital stock, in sufficient compliance with the germane provision of Section 118 of the
Corporation Code of the Philippines.
As shown in the Stock and Transfer Book of NEUGENE, the right hand portion of Exhibit "A-9", under
the column "Certificates Issued", private respondent Lok Chun Suen is the holder of a total of 1,400
shares of stock, issued on February 23, 1979, October 1, 1980 and May 2, 1981, respectively.
(Records, p. 662) Exhibit "A-10", on its right hand portion and under the column "Certificates Issued"
reflects private respondent Charles O. Sy as the holder of a total of 2,800 shares of stock, issued on
the abovementioned dates except those acquired from Eugenio Flores, Jr. which were issued on May
15, 1986. (Records, p. 663) While the right hand portion of Exhibit "A-12", under the column
"Certificates Issued", shows that private respondent Arsenio Yang, Jr. is the holder of 1,050 shares,
issued on the abovementioned dates, except those acquired from Eugenio Flores, Jr. which were
issued on May 15, 1986. (Records, p. 665)
Therefore, the entries on the right hand portion of NEUGENE'S Stock and Transfer Book, under the
column "Certificates Issued", indubitably record the private respondents as the holders of 5,250
shares, constituting at least two-thirds (2/3) of NEUGENE's outstanding capital stock of 7,000 shares.
Petitioners introduced in evidence the very same exhibits pertaining to the Stock and Transfer Book
of NEUGENE (more specifically Exhibits "A-9", "A-10", and "A-12") to prove that the private
respondents were no longer the majority stockholders at the time of the dissolution of NEUGENE. It
should be noted, however, that on the left hand portion of the said exhibits, under the colum
"Certificates Cancelled", entries on July 1, 1987 disclose that all of Lok Chun Suen's 1,400 certificates
of stock were cancelled, Charles O. Sy's 2, 100 shares out of 2,800 shares were cancelled, and
Arsenio Yang, Jr.'s 350 shares out of his 1,050 shares were likewise cancelled, thereby leaving
Arsenio Yang, Jr. and Charles O. Sy the holders of only 700 shares each or 10 % of the outstanding
capital stock of NEUGENE when its dissolution was approved and voted for.
In light of the foregoing and after a careful examination of the evidence on record, and a judicious
study of the provisions of law and jurisprudence in point, we are with the Court of Appeals on the
finding and conclusion that the certificates of stock of the private respondents were stolen and
therefore not validly transferred, and the transfers of stock relied upon by petitioners were fraudulently
recorded in the Stock and Transfer Book of NEUGENE under the column "Certificates Cancelled".
Although well-established is the rule that the appellate court will not generally disturb the factual
findings by the trial court for the reason that the trial court heard the testimonies of the witnesses and
observed their deportment and manner of testifying during the trial and was afforded the singular
chance to assess the probative value of the evidence. The rule does not apply where, as in this case,
the SEC overlooked certain facts of substance and value which if considered would affect the result
of the case. (Tomas vs. CA, 185 SCRA 627 [1990]; People vs. Alforte, 219 SCRA 458 [1993])
In the case under consideration, records reveal that the SEC En Banc and its Panel Of Hearing
Officers misappreciated the true nature of the relationship between the stockholders of NEUGENE
and the Uy family, who had the understanding that the beneficial ownership of NEUGENE would
remain with the Uy family, such that subject shares of stock were, immediately upon issuance,
endorsed in blank by the shareholders and entrusted to the Uy family, through Ban Ha Chua, for
safekeeping. Such beneficial ownership of the Uy family is admitted not only in the testimonies of
private respondents but also of the petitioners, Sonny Moreno and Johnson Lee.
10

Both the petitioners Johnson Lee (a member of the Uy family himself), and Sony Moreno, the
corporate secretary, were aware of the real import or significance of the indorsements in blank on the
stock certificates of the private respondent. Obviously, then, they (Lee and Moreno) acted in bad faith
in assigning subject certificates of stock to the petitioners, Nicanor Martin and Leoncio Tan, and in
recording the said transfers in dispute in the Stock and Transfer book of NEUGENE.
Then, too, as nominees of the Uy family, the approval by the private respondents, Charles O. Sy, Lok
Chun Suen and Arsenio Yang, Jr., Jr., was necessary for the validity and effectivity of the transfer of
the stock certificates registered under their (private respondents) names. In the case under
consideration, not only did the transfers of stock in question lack the requisite approval, the private
respondents categorically declared under oath that subject certificates of stock of theirs were stolen
from the confidential vault of the Uy family and illegally transferred to the names of petitioners in the
Stock and Transfer Book of NEUGENE.
As stressed by the Court of Appeals, there is no reliable showing of any valuable consideration for the
supposed transfer of subject stocks to petitioners. Fundamental and crucial is the rule that if a
contract has no cause, it does not produce any effect whatsoever and is inexistent or void from the
beginning. The complete absence of a cause or consideration renders the contract absolutely void
and inexistent. (Robleza vs. Court of Appeals, 174 SCRA 362 [1989]), citing Arts. 1352 and 1409 of
the New Civil Code)
All things studiedly evaluated in proper perspective, we are of the irresistible conclusion that the
private respondents herein are the legitimate holders and owners of at least-two-thirds (2/3) of the
outstanding capital stock of NEUGENE, with the corresponding right to vote for its dissolution, in
accordance with Section 118 of the Corporation Code of the Philippines.
WHEREFORE, the Petition is DISMISSED for lack of merit and the Decision of the Court of Appeals
AFFIRMED, in its entirety, No pronouncement as to costs