Razon v. IAC | G.R. No. 74306 | March 16, 1992 | Antonio, J.

Nature: ORIGINAL ACTION in the Supreme Court. Certiorari, mandamus and injunction.
Plaintiff-Appellant: Vicente Chuidian (as administrator of the estate of the deceased Juan Chuidian)
Defendant-Appellant: Enrique Razon
[Defendants: E.Razon, Inc. and its directors]
TOPIC: Chapter 15: Transfer of Shares
SUMMARY: 1,500 shares of stocks of E.Razon, Inc. were issued and registered under the name of Juan Chuidian.
When he died, his son Plaintiff Vicente sought to get the stock certificate from Defendant Enrique Razon, et al, but
they refused to deliver it. Enrique claims that he and Juan had an agreement/understanding that the shares are
actually owned by Enrique. By applying the rules of evidence, it was proved that Juan was the owner. Issue arose as
to whether or not the act of Juan of delivering the stock certificate to E.Razon’s Corporate Secretary was enough to
validly transfer the shares from Juan to Enrique. The SC held that no, there was no valid transfer, because Juan never
indorsed the stock certificate in favor of Enrique.

RULE: Shares of stock may be transferred by delivery to the transferee of the certificate properly indorsed. Title
may be vested in the transferee by the delivery of the duly indorsed certificate of stock. However, no transfer shall
be valid, except as between the parties until the transfer is properly recorded in the books of the corporation. In
order for a transfer of stock certificate to be effective, the certificate must be properly indorsed and that title to
such certificate of stock is vested in the transferee by the delivery of the duly indorsed certificate of stock.
Indorsement of the certificate of stock is a mandatory requirement of law for an effective transfer of a certificate
of stock.

FACTS
 Enrique Razon organized the E.Razon, Inc. in 1962 for the purpose of bidding for the arrastre services in
South Harbor, Manila. He had 6 other incorporators.
 Operations did not start until 1966, since some of E.Razon’s incorporators withdrew. So, Enrique distributed
the shares of the withdrawing incorporators to some friends, one of whom is Juan Chuidian.
o They had an agreement that the said 1,500 shares of stock were owned and held by Enrique, as he
paid for them. Juan was given an option to buy the same.
 The Certificate of Stock for the 1,500 shares was issued and registered in the company books in Juan’s name,
but Enrique kept it in his possession until it was delivered to Philippine Bank of Commerce under the parties’
joint custody.
 Juan was elected and served as director of E.Razon. Enrique never questioned the ownership of Juan over
the shares in question and had not brought any action to have the Certificates in Juan’s name cancelled.
 Juan personally delivered his stock certificate to the Corporate Secretary.
 Juan died, and herein petitioner Vicente Chuidian (Juan’s son) is the administrator of his intestate estate.
Vicente sought to obtain the stock certificate in Juan’s name, but Enrique refused to deliver it to him.
 Thus, Vicente filed a complaint against Enrique, E.Razon, and others [who, I assume, are directors/officers].
o [This is actually 2 consolidated cases, but I don’t know where the other one came from. I think it’s
Enrique seeking to declare himself owner.]
o RTC declared that Enrique is the owner the shares.
o CA reversed and declared Juan the owner.
o Enrique appealed to the SC to have him declared as owner (GR 74306).  Dismissed by SC
o Vicente appealed to include all cash and stock dividends and all pre-emptive rights accruing to Juan’s
shares in the delivery to him (GR 74315).  Granted by SC

ISSUE: Who is the owner of the shares? – Juan Chuidian

[You can skip #1 because it’s all about evidence.]
1. WON Enrique’s testimony is covered by the prohibition of the Dead Man’s Statute Rule? – NO
 Enrique testified that he and Juan had an agreement/understanding that the shares are owned by Enrique,
despite being registered in the name of Juan. Since Juan is dead, he has no way of answering this claim.
 Rule 130, ROC: Disqualification by reason of interest or relationship — The following persons cannot testify
as to matters in which they are interested directly or indirectly, as herein enumerated.
(a) Parties or assignors of parties to a case, or persons in whose behalf a case is prosecuted, against an
executor or administrator or other representative of a deceased person, or against a person of unsound
mind, upon a claim or demand against the estate of such deceased person or against such person of
unsound mind, cannot testify as to any matter of fact accruing before the death of such deceased.
 The reason for the rule is to prevent people from falsely imputing statements to deceased persons as the
later can no longer refute them. It prevents people from unjustly subjecting the property rights of deceased
persons.
 BUT, the rule contemplates a situation where the case is against the administrator upon a claim against the
estate of the deceased.
o Here, the claim is by the administrator for the estate. Therefore, the rule does not apply.
 Assuming arguendo that the rule applies, Vicente is deemed to have waived the prohibition when their side
failed to object to the testimony when it was offered.
o The court cannot disregard evidence which would ordinarily be incompetent but was rendered
admissible by the failure of a party to object thereto.
o When a party fails to object, he is deemed to have accepted it, which is in his discretion to do.

2. Effect of the admissibility of the testimony: Enrique WAS intended as the owner of the certificates, initially.
a. But Juan was given an option to buy. Preponderance of evidence shows that the stocks were given to
Juan for value. Vicente’s testimony showed that the stocks were given as payment for Juan’s legal
services to the corporation.
b. Juan was elected as member of the Board of Directors, which clearly shows that he was a SH.
c. CONCLUSION: Juan WAS the owner of the stocks.

3. WON the shares of Juan were transferred to Enrique? – NO

 Embassy Farms, Inc. v. Court of Appeals: For an effective transfer of shares of stock the mode and manner of
transfer as prescribed by law must be followed.
 Corp Code (and the Corp Law) provides that shares of stock may be transferred by delivery to the
transferee of the certificate properly indorsed. Title may be vested in the transferee by the delivery of the
duly indorsed certificate of stock. However, no transfer shall be valid, except as between the parties until
the transfer is properly recorded in the books of the corporation.
o In the books of the corporation, the 1,500 shares are registered in the name of Juan. Therefore, from
its point of view Juan is the owner.
 Enrique who claims ownership must show that the shares were transferred to him b proving ALL the
requirements for the effective transfer of shares.
o Enrique failed to show any By-Laws that govern the transfer of shares in E.Razon, and that would
show that the shares were transferred to him. Therefore, the Corporation Law applies.
o Enrique failed to show compliance.
 In order for a transfer of stock certificate to be effective, the certificate must be properly indorsed and that
title to such certificate of stock is vested in the transferee by the delivery of the duly indorsed certificate of
stock.
o The stock certificate here was never indorsed by Juan in favor of Enrique.
 Enrique claims that he did not require an indorsement in view of his intimate friendship with Juan.
o But this cannot overcome the failure to follow the procedure required by the law or the proper
conduct of business even among friends.
 Indorsement of the certificate of stock is a mandatory requirement of law for an effective transfer of a
certificate of stock.
4. WON all cash and stock dividends and preemptive rights accruing to Juan’s share from 1966 must be delivered to
Vicente? – YES
 Having proved that Juan is the owner, Vicente’s appeal to include these is impressed with merit.
 Rights of a SH include:
o To have a certificate or other evidence of his status as stockholder issued to him;
o To vote at meetings of the corporation;
o To receive his proportionate share of the profits of the corporation; and
o To participate proportionately in the distribution of the corporate assets upon the dissolution or
winding up.
 The cash and stock dividends and all the pre-emptive rights are all incidents of stock ownership.

DISPOSITION: WHEREFORE, judgment is rendered as follows:

a) In G.R. No. 74306, the petition is DISMISSED. The questioned decision and resolution of the then
Intermediate Appellate Court, now the Court of Appeals, are AFFIRMED. Costs against the petitioner.
b) In G.R. No. 74315, the petition is GRANTED. The questioned Resolution insofar as it denied the petitioner’s
motion to clarify the dispositive portion of the decision of the then Intermediate Appellate Court, now Court
of Appeals is REVERSED and SET ASIDE. The decision of the appellate court is MODIFIED in that all cash and
stock dividends as well as all pre-emptive rights that have accrued and attached to the 1,500 shares in E.
Razon, Inc., since 1966 are declared to belong to the estate of Juan T. Chuidian.