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FRST DVSON

G.R. No. 124535 September 28, 2001


THE RURAL BANK OF LIPA CITY, INC., THE OFFICERS AND DIRECTORS, BERNARDO BAUTISTA, JAIME CUSTODIO, OCTAVIO KATIGBAK,
FRANCISCO CUSTODIO, and JUANITA BAUTISTA OF THE RURAL BANK OF LIPA CITY, INC., petitioners,
vs.
HONORABLE COURT OF APPEALS, HONORABLE COMMISSION EN BANC, SECURITIES AND EXCHANGE COMMISSION, HONORABLE ENRIQUE L.
FLORES, JR., in his capacity as Hearing Officer, REYNALDO VILLANUEVA, SR, AVELINA M. VILLANUEVA, CATALINO VILLANUEVA, ANDRES
GONZALES, AURORA LACERNA, CELSO LAYGO, EDGARDO REYES, ALEJANDRA TONOGAN and ELENA USI, respondents.
YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari assailing the Decision of the Court of Appeals dated February 27, 1996, as well as the Resolution dated March 29,
1996, in CA-G.R. SP No. 38861.
The instant controversy arose from a dispute between the Rural Bank of Lipa City, ncorporated (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. n 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. n a letter dated January 19, 1994, Atty. Amado gnacio, counsel for the Villanueva spouses, questioned the legality of the said stockholders' meeting and
the validity of all the proceedings therein. n reply, the new set of officers of the Bank informed Atty. gnacio 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

n 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.
n 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:
n 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. t 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."
n 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. n
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:
SECTON 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.
t 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, nc. 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 DENED. The Decision and Resolution of the Court of Appeals in CA-G.R.
SP No. 38861 are hereby AFFRMED. 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 LFTED.
SO ORDERED.




























Case Digest on SANTAMARA V. HONGKONG AND SHANGHA BANKNG CORP.
89 PHL 780 (1951)
Facts: Around February 1937, Santamaria bought ten thousand shares for the sum of about P8,000.00 of the Batangas Minerals, nc. through the offices of Woo, Uy-Tioco and Naftaly, a stock
brokerage firm. The buyer received the stock certificates in the name of Woo, Uy-Tioco and Naftaly and indorsed in blank by the firm. Subsequently, Santamaria placed an order for ten
thousand shares of the Crown Mines, nc. This time through another brokerage firm by the name of R.J. Campos and Company. To secure the transaction, she submitted the stock certificate
representing her prior purchase of Batangas Minerals, nc. stocks which certificate was still in the same condition as Santamaria received it.
Upon Santamaria's return to R.J. Campos and Company for payment, she found out that the firm was desisted by the SEC to continue transacting business. She also learned that the
certificate that was forwarded as security was in the possession of Hongkong and Shanghai Banking Corporation by virtue of a document of hypothecation wherein all shares in the brokerage
firm's custody was pledged to the bank. n this aspect, HKSBC sent the certificate to Batangas Minerals, nc. for registration. Hence, this civil action.
ssue: Whether or not the contested certificate of stock should be returned to Santamaria.
Decision: The Supreme Court ruled that it should not be returned. Santamaria was negligent in the transaction and is stopped from claiming further title against the bona fide transfer to
HKSBC. The latter was justified in believing that R.J. Campos and Company had title thereto considering it was indorsed in blank, and, therefore, deemed quasi-negotiable. Thus, HKSBC
cannot be blamed for believing that such belonged to the holder and transferor. Furthermore, 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 and Company, for it was given to the bank pursuant to their letter of hypothecation.

G.R. No. L-2808 August 31, 1951
1OSEFA SANTAMARIA, assisted by her husband, FRANCISCO
SANTAMARIA, 1r., plaintiII-appellee,
-versus-
THE HONGKONG AND SHANGHAI BANKING CORPORATION and R. W.
TAPLIN, deIendants-appellant.
Nicodemus L. Dasig and Sotto and Sotto for plaintiff and appellant.
Quifano, Rosete and Ti:on for defendants and appellants.
BAUTISTA ANGELO, :
This is an appeal Irom a decision oI the Court oI First Instance oI Manila ordering the
Hongkong and Shanghai Banking Corporation to pay the plaintiII the sum oI
P8,041.20 plus the costs oI suit. The case was certiIied to this Court oI Appeals.
The Iacts oI this case Iound by the Court oI Appeals are as Iollows:
Sometime in February, 1937, Mrs. JoseIa T. Santamaria bought 10,000 shares
oI the Batangas Minerals, Inc., through the oIIices oI Woo, Uy-Tioco &
NaItaly, a stock brokerage Iirm and pay thereIore the sum oI P8,041.20 as
shown by receipt Exh. B. The buyer received Stock CertiIicate No. 517, Exh.
"F", issued in the name oI Woo, Uy-Tioco & NaItaly and indorsed in bank by
this Iirm.
On March 9, 1937, Mrs. Santamaria placed an order Ior the purchase oI 10,000
shares oI the Crown Mines, Inc. with R.J. Campos & Co., a brokerage Iirm, and
delivered CertiIicate No. 517 to the latter as security thereIor with the
understanding that said certiIicate would be returned to her upon payment oI
the 10,000 Crown Mines, Inc. shares. Exh. D. is the receipt oI the certiIicate in
question signed by one Mr. Cosculluela, Manager oI the R.J. Campos & Co.,
Inc. According to certiIicate Exh. E, R. J. Campos & Co., Inc. bought Ior Mrs.
JoseIa Santamaria 10,000 shares oI the Crown Mines, Inc. at .225 a share, or
the total amount oI P2,250.
At the time oI the delivery oI a stock CertiIicate No. 517 to R.J. Campos & Co.,
Inc. this certiIicate was in the same condition as that when Mrs. Santamaria
received Irom Woo, Uy-Tioco & NaItaly, with the sole diIIerence that her
name was later written in lead pencil on the upper right hand corner thereoI.
Two days later, on March 11, Mrs. Santamaria went to R.J. Campos & Co., Inc.
to pay Ior her order oI 10,000 Crown Mines shares and to get back CertiIicate
No. 517. Cosculluela then inIormed her that R.J. Campos & Co., Inc. was no
longer allowed to transact business due to a prohibition order Irom Securities
and Exchange Commission. She was also inIorm that her Stock certiIicate was
in the possession oI the Hongkong and Shanghai Banking Corporation.
CertiIicate No. 517 came into possession oI the Hongkong and Shanghai
Banking Corporation because R.J. Campos & Co., Inc. had opened an overdraIt
account with this bank and to this eIIect it had executed on April 16, 1936 a
document oI hypothecation, Exhibit 1, by the term oI which R.J. Campos &
Co., Inc. pledged to the said bank "all stocks, shares and securities which I/we
may hereaIter come into their possession oI my/our account and whether
originally deposited Ior saIe custody only or Ior any other purpose whatever or
which may hereinaIter be deposited by me/us in lieu oI or in addition to the
Stocks Shares and Securities now deposited or Ior any other purposes
whatsoever."
On March 11, 1937, as shown by Exhibit G. CertiIicate No. 517, already
indorsed by R.J. Campos Co. Inc. to the Hongkong & Shanghai Banking
Corporation, was sent by the latter to the oIIice oI the Batangas Minerals, Inc.
with the request that the same be cancelled and a new certiIicate be issued in
the name oI R.W. Taplin as trustee and nominee oI the banking corporation.
Robert W. Taplin was an oIIicer oI this institution in charge oI the securities
belonging to or claimed by the bank. As per this request the Batangas Minerals,
Inc. on March 12, 1937, issued CertiIicate No. 715 in lieu oI CertiIicate No.
517, in the name oI Robert W. Taplin as trustee and nominee oI 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 Ior her
certiIicate, though she did not remember the exact date, but it was most likely
on the Iollowing day oI that when she went to Cosculluela Ior the purpose oI
paying her order Ior 10,000 shares oI the Crown Mines, Inc., or else on March
13, 1937. In her interview with Taplin, the bank's representative, she inIormed
him that the certiIicate 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 oI 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 oI the document oI hypothecation
Exhibit 1. In an order dated July 15, 1937, the insolvency court granted this
motion.
"On June 3, 1938, to 10,000 shares oI Batangas Minerals, Inc. represented by
CertiIicate No. 715, were sold to the same bank by the SheriII Ior P300 at the
Ioreclosure sale authorized by said order. (Exhibits F, 2 and 3.)
R.J. Campos, the president oI R.J. Campos & Co., Inc., was prosecuted Ior
estaIa and Iound guilty oI this crime and was sentenced by the Manila Court oI
First Instance in Criminal Case No. 54428, to an imprisonment and to
indemniIy the oIIended party, Mrs. JoseIa Santamaria, in the amount oI
P8,041.20 representing the value oI the 10,000 shares oI Batangas Minerals,
Inc. (Exhibits I and J.) The decision was later conIirmed by the Court oI
Appeals. (Exhibits J.) The oIIended party and R. W. Taplin were among the
witnesses Ior the prosecution in this criminal case No. 54428. (Exhibits 4.).
When Mrs. Santamaria Iailed in her eIIorts to Iorce the civil judgment rendered
in her Iavor in the criminal case because the accused became insolvent, she
Iiled her complaint in this case on October 11, 1940. At the trial both parties
agreed that the 10,000 Batangas Minerals shares Iormerly represented by
CertiIicate No. 517 and thereaIter by CertiIicate No. 715, have no actual market
value.
The errors assigned by the deIendants-appellants as committed by the lower court are:
I
The trial court erred in Iinding that the plaintiII-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 oI the bank to have
inquired into the ownership oI the certiIicate when it received it Irom R.J.
Campos & Company and in concluding that the bank was negligent Ior not
having done so.
III
The trial court erred on ordering deIendants-appellants to pay to plaintiII the
sum oI P8,041.20.
1. DeIendants-appellants contend in the Iirst place that the trial court erred in Iinding
that the plaintiII-appellee was not chargeable with negligence in the transaction which
gave rise to this case.
A careIul analysis oI the Iacts seems to justiIy this contention. CertiIicate oI stock No.
517 was made out in the name oI Wo, Uy-Tioco & NaItaly, brokers, and was duly
indorsed in bank by said brokers. This certiIicate oI stock was delivered by plaintiII to
R.J. Campos & Co., Inc. to comply with a requirement that she deposit something on
account iI she wanted to buy 10,000 shares oI Crown Mines Inc. In making said
deposit, plaintiII did not take any precaution to protect herselI against the possible
misuse oI the shares represented by the certiIicate oI stock. PlaintiII could have asked
the corporation that had issued said certiIicate to cancel it and issue another in lieu
thereoI in her name to apprise the holder that she was the owner oI said certiIicate.
This she Iailed to do, and instead she delivered said certiIicate, as it was, to R.J.
Campos & Co., Inc., thereby clothing the latter with apparent title to the shares
represented by said certiIicate including apparent authority to negotiate it by
delivering it to said company while it was indorsed in blank by the person or Iirm
appearing on its Iace as the owner thereoI. The deIendant Bank had no knowledge oI
the circumstances under which the certiIicate oI stock was delivered to R.J. Campos
& Co., Inc., and had a perIect right to assume that R.J. Campos & Co., Inc. was
lawIully in possession oI the certiIicate in view oI the Iact that it was a street
certiIicate, and was in such Iorm as would entitle any possessor thereoI to a transIer oI
the stock on the books oI the corporation concerned. There is no question that, in this
case, plaintiII made the negotiation oI the certiIicate oI stock to other parties possible
and the conIidence she placed in R.J. Campos & Co., Inc. made the wrong done
possible. This was the proximate cause oI the damage suIIered by her. She is,
thereIore, estopped Irom claiming Iurther title to or interest therein as against a -ona
fide pledge or transIeree thereoI, Ior it is a well-known rule that a -ona fide pledgee or
transIeree oI a stock Irom the apparent owner is not chargeable with knowledge oI the
limitations placed on it by the real owner, or oI any secret agreement relating to the
use which might be made oI the stock by the holder (Fletcher, Cyclopedia oI
Corporations, section 5562, Vol. 12, p. 521).
On the other hand, it appears that this certiIicate oI stock, indorsed as it was in blank
by Woo, Uy-Tioco & NaItaly, 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 oI hypothecation executed by R.J. Campos & Co., Inc., in
Iavor oI said Bank (Exhibit "1"). The said certiIicate was delivered to the Bank in the
ordinary course oI business, together with many other securities, and at the time it was
delivered, the Bank had no Knowledge that the shares represented by the certiIicate
belonged to the plaintiII Ior, as already said, it was in the Iorm oI street certiIicate
which was transIerable by mere delivery. The rule is "where one oI two innocent
parties must suIIer by reason oI a wrongIul or unauthorized act, the loss must Iall on
the one who Iirst trusted the wrong doer and put in his hands the means oI inIlicting
such loss" (Fletcher Cyclopedia oI Corporations, supra).
It is thereIore clear that plaintiII, in Iailing to take the necessary precautions upon
delivering the certiIicate oI stock to her broker, was chargeable with negligence in the
transaction which resulted to her own prejudice, and as such, she is estopped Irom
asserting title to it as against the deIendant Bank.
2. The next contention oI the deIendant is that the trial court erred in holding that it
was the obligation oI the deIendant Bank to have inquired into the ownership oI the
certiIicate when it received it Irom R.J. Campos & Co., Inc. and in concluding that the
Bank was negligent Ior not having done so, contrary to the claim oI the plaintiII that
deIendant Bank acted negligently, iI not in bad Iaith, in accepting delivery oI said
certiIicate Irom RJ. Campos & Co., Inc.
Let us now see the material Iacts on this point. CertiIicate No. 517 came into the
possession oI the deIendant Bank because R.J. Campos & Co., Inc. had opened an
overdraIt account with said Bank and to this eIIect it had executed on April 16, 1946,
a letter oI hypothecation by the terms oI which R.J. Campos & Co., Inc. pledged to
the said Bank "all Stocks, Shares and Securities which I/we may hereaIter come into
their possession on my/our account and whether originally deposited Ior saIe custody
only or Ior any other purpose whatever or which may hereaIter be deposited by me/us
in lieu oI or in addition to the Stocks, Shares, and Securities now deposited or Ior any
other purpose whatsoever." On March 13, 1937, plaintiII went to the oIIice oI the
Bank to claim Ior her certiIicate. In her interview with one Robert W. Taplin, the
oIIicer in charge oI the securities oI that institution, she inIormed him that the
certiIicate 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 oI the Bank with R.J. Campos & Co.,
Inc. had been terminated. It Iurther appears that when the certiIicate oI stock was
delivered by plaintiII to R.J. Campos & Co., Inc., the manager thereoI, Sebastian
Cosculluela, wrote in pencil on the right margin the name oI JoseIa T. Santamaria,
pursuant to the practice Iollowed by said Iirm to write on that part oI the certiIicate the
name oI the owner Ior purposes oI identiIication. Upon the Iacts thus stated, the
question that asserts itselI is: was the deIendants Bank obligated to inquire who was
the real owner oI the shares represented by the certiIicate oI stock, and could it be
charged with negligence Ior having Iailed to do so?
It should be noted that the certiIicate oI stock in question was issued in the name oI
the brokerage Iirm-Woo, Uy-Tioco & NaItaly and that it was duly indorsed in blank
by said Iirm, and that said indorsement was guaranteed by R.J. Campos & Co., Inc.,
which in turn indorsed it in blank. This certiIicate is what it is known as street
certiIicate. Upon its Iace, the holder was entitled to demand its transIer into his name
Irom the issuing corporation. The Bank was not obligated to look beyond the
certiIicate to ascertain the ownership oI the stock at the time it received the same Irom
R.J. Campos & Co., Inc., Ior it was given to the Bank pursuant to their letter oI
hypothecation. Even iI said certiIicate had been in the name oI the plaintiII but
indorsed in blank, the Bank would still have been justiIied in believing that R.J.
Campos & Co., Inc. had title thereto Ior the reason that it is a well-known practice that
a certiIicate oI stock, indorsed in blank, is deemed 6uasi negotiable, and as such the
transIeree thereoI is justiIied in believing that it belongs to the holder and transIeror
(Heyman vs. Hamilton National Bank, 266 S.W. 1043; Fletcher, Cyclopedia oI
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 certiIicate oI stock in question may
not have belonged to R.J. Campos & Co., Inc. is the testimony oI the plaintiII to the
eIIect that she had approached Robert W. Taplin on March 13, 1937, and inIormed
him that she was the true owner oI said certiIicate and demanded the return thereoI, or
its value, but even assuming Ior the sake oI argument that what plaintiII has stated is
true, such an incident would merely show that plaintiII has an adverse claim to the
ownership oI said certiIicate oI stock, but that would not necessarily place the Bank in
the position to inquire as to the real basis oI her claim, nor would it place the Bank in
the obligation to recognize her claim and return to her the certiIicate outright. A mere
claim and oI ownership does not establish the Iact oI ownership. The right oI the
plaintiII in such a case would be against the transIeror. In Iact, this is the attitude
plaintiII has adopted when she Iiled a charge Ior estaIa against RaIael J. Campos,
which culminated in his prosecution and conviction, and it is only when she Iound
him to be insolvent that she decided to go against the Bank. The Iact that on the right
margin oI the said certiIicate the name oI the plaintiII appeared written, granting it to
be true, can not be considered suIIicient reason to indicate that its owner was the
plaintiII considering that said certiIicate was indorsed in blank by her brokers Woo,
Uy-Tioco & NaItaly, was guaranteed by indorsement in blank by R.J. Campos & Co.,
Inc., and was transIerred in due course by the latter to the Bank under their letter oI
hypothecation. Said indicium could at best give the impression that the plaintiII was
the original holder oI the certiIicate.
The Court has noticed that the deIendant Bank was willing Irom the very beginning to
compromise this case by delivering to the plaintiII certiIicate oI stock No. 715 that
was issued to said Bank by the issuer corporation in lieu oI the original as alleged and
prayed Ior in its amended answer to the complaint dated April 2, 1941. Considering
that in the light oI the law and precedents applicable in this case, the most that
plaintiII could claim is the return to her oI the said certiIicate oI stock (Howson vs.
Mechanics Sav. Bank, 183 Atl., p. 697), the Court, regardless oI the conclusions
arrived at as above stated, is inclined to grant the Iormal tender made by the deIendant
to the plaintiII oI said certiIicate.
WhereIore, the decision oI the lower court is hereby modiIied in the sense oI ordering
the deIendant to deliver to the plaintiII certiIicate oI stock No. 715, without
pronouncement as to costs.
Paras, C.J., Feria, Beng:on and Jugo, JJ., concur.
Padilla, J., concurs in the result.












FRST DVSON

G.R. No. 120138 September 5, 1997
MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L. JOCSON, JR., MELVIN S. JURISPRUDENCIA, AUGUSTUS CESAR AZURA
and EDGARDO D. PABALAN, petitioners,
vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, TORMIL REALTY & DEVELOPMENT CORPORATION, ANTONIO P. TORRES, JR.,
MA. CRISTINA T. CARLOS, MA. LUISA T. MORALES and DANTE D. MORALES, respondents.

KAPUNAN, J.:
In this petition for review on certiorari under RuIe 45 of the Revised RuIes of Court, petitioners seek to annuI the decision of the Court of AppeaIs in
CA-G.R. SP. No. 31748 dated 23 May 1994 and its subsequent resoIution dated 10 May 1995 denying petitioners' motion for reconsideration.
The present case invoIves two separate but interreIated confIicts. The facts Ieading to the first controversy are as foIIows:
The Iate ManueI A. Torres, Jr. (Judge Torres for brevity) was the majority stockhoIder of TormiI ReaIty & DeveIopment Corporation whiIe private
respondents who are the chiIdren of Judge Torres' deceased brother Antonio A. Torres, constituted the minority stockhoIders. In particuIar, their
respective sharehoIdings and positions in the corporation were as foIIows:
Name of Stockholder Number of Percentage Position(s)
Shares
ManueI A. Torres, Jr. 100,120 57.21 Dir./Pres./Chair
MiIagros P. Torres 33,430 19.10 Dir./Treasurer
Josefina P. Torres 8,290 4.73 Dir./Ass. Cor-Sec.
Ma. Cristina T. CarIos 8,290 4.73 Dir./Cor-Sec.
Antonio P. Torres, Jr. 8,290 4.73 Director
Ma. Jacinta P. Torres 8,290 4.73 Director
Ma. Luisa T. MoraIes 7,790 4.45 Director
Dante D. MoraIes 500 .28 Director
1

In 1984, Judge Torres, in order to make substantiaI savings in taxes, adopted an "estate pIanning" scheme under which he assigned to TormiI ReaIty &
DeveIopment Corporation (TormiI for brevity) various reaI properties he owned and his shares of stock in other corporations in exchange for 225,972
TormiI ReaIty shares. Hence, on various dates in JuIy and August of 1984, ten (10) deeds of assignment were executed by the Iate Judge Torres:
ASSIGNMENT DATE PROPERTY ASSIGNED LOCATION SHARES TO BE
ISSUED
1. JuIy 13, 1984 TCT 81834 Quezon City 13,252
TCT 144240 Quezon City
2. JuIy 13, 1984 TCT 77008 ManiIa
TCT 65689 ManiIa 78,493
TCT 109200 ManiIa
3. JuIy 13, 1984 TCT 374079 Makati 8,307
4. JuIy 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay 9,855
TCT 41529 Pasay
5. Aug. 06, 1984 EI Hogar FiIipino Stocks 2,000
6. Aug. 06, 1984 ManiIa Jockey CIub Stocks 48,737
7. Aug. 07, 1984 San MigueI Corp. Stocks 50,283
8. Aug. 07, 1984 China banking Corp. Stocks 6,300
9. Aug. 20, 1984 AyaIa Corp. Stocks 7,468
10. Aug. 29, 1984 AyaIa Fund Stocks 1,322
---
225,972
2

ConsequentIy, the aforeIisted properties were duIy recorded in the inventory of assets of TormiI ReaIty and the revenues generated by the said
properties were correspondingIy entered in the corporation's books of account and financiaI records.
Likewise, aII the assigned parceIs of Iand were duIy registered with the respective Register of Deeds in the name of TormiI ReaIty, except for the ones
Iocated in Makati and Pasay City.
At the time of the assignments and exchange, however, onIy 225,000 TormiI ReaIty shares remained unsubscribed, aII of which were duIy issued to and
received by Judge Torres (as evidenced by stock certificates Nos. 17, 18, 19, 20, 21, 22, 23, 24 & 25).
3

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

Noting the disappearance of the Makati and Pasay City properties from the corporation's inventory of assets and financiaI records private respondents,
on 31 March 1987, were constrained to fiIe a compIaint with the Securities and Exchange Commission (SEC) docketed as SEC Case No. 3153 to compeI
Judge Torres to deIiver to TormiI corporation the two (2) deeds of assignment covering the aforementioned Makati and Pasay City properties which he
had uniIateraIIy revoked and to cause the registration of the corresponding titIes in the name of TormiI. Private respondents aIIeged that foIIowing the
disappearance of the properties from the corporation's inventory of assets, they found that on October 24, 1986, Judge Torres, together with Edgardo
PabaIan and Graciano Tobias, then GeneraI Manager and IegaI counseI, respectiveIy, of TormiI, formed and organized a corporation named "Torres-
PabaIan ReaIty and DeveIopment Corporation" and that as part of Judge Torres' contribution to the new corporation, he executed in its favor a Deed of
Assignment conveying the same Makati and Pasay City properties he had earIier transferred to TormiI.
The second controversy - invoIving the same parties - concerned the eIection of the 1987 corporate board of directors.
The 1987 annuaI stockhoIders meeting and eIection of directors of TormiI corporation was scheduIed on 25 March 1987 in compIiance with the
provisions of its by-Iaws.
Pursuant thereto, Judge Torres assigned from his own shares, one (I) share each to petitioners Tobias, Jocson, Jurisprudencia, Azura and PabaIan.
These assigned shares were in the nature of "quaIifying shares," for the soIe purpose of meeting the IegaI requirement to be abIe to eIect them (Tobias
and company) to the Board of Directors as Torres' nominees.
The assigned shares were covered by corresponding TormiI Stock Certificates Nos. 030, 029, 028, 027, 026 and at the back of each certificate the
foIIowing inscription is found:
The present certificate and/or the one share it represents, conformabIy to the purpose and intention of the Deed of Assignment
dated March 6, 1987, is not heId by me under any cIaim of ownership and I acknowIedge that I hoId the same mereIy as trustee
of Judge ManueI A. Torres, Jr. and for the soIe purpose of quaIifying me as Director;
(Signature of Assignee)
5

The reason behind the aforestated action was to remedy the "inequitabIe Iopsided set-up obtaining in the corporation, where, notwithstanding his
controIIing interest in the corporation, the Iate Judge heId onIy a singIe seat in the nine-member Board of Directors and was, therefore, at the mercy of
the minority, a combination of any two (2) of whom wouId suffice to overruIe the majority stockhoIder in the Board's decision making functions."
6

On 25 March 1987, the annuaI stockhoIders meeting was heId as scheduIed. What transpired therein was abIy narrated by Attys. Benito Cataran and
Bayani De Ios Reyes, the officiaI representatives dispatched by the SEC to observe the proceedings (upon request of the Iate Judge Torres) in their
report dated 27 March 1987:
xxx xxx xxx
The undersigned arrived at 1:55 p.m. in the pIace of the meeting, a residentiaI bungaIow in Urdaneta ViIIage, Makati, Metro
ManiIa. Upon arrivaI, Josefina Torres introduced us to the stockhoIders nameIy: MiIagros Torres, Antonio Torres, Jr., Ma. Luisa
MoraIes, Ma. Cristina CarIos and Ma. Jacinta Torres. Antonio Torres, Jr. questioned our authority and personaIity to appear in
the meeting cIaiming subject corporation is a famiIy and private firm. We expIained that our appearance there was mereIy in
response to the request of ManueI Torres, Jr. and that SEC has jurisdiction over aII registered corporations. ManueI Torres, Jr.,
a septuagenarian, argued that as hoIder of the major and controIIing shares, he approved of our attendance in the meeting.
At about : p.m., a group composed of Edgardo PabaIan, Atty. Graciano Tobias, Atty. RodoIfo Jocson, Jr., Atty. MeIvin
Jurisprudencia, and Atty. Augustus Cesar Azura arrived. Atty. Azura told the body that they came as counsels of Manuel Torres,
Jr. and as stockholders having assigned qualifying shares by Manuel Torres, Jr.
The stockhoIders' meeting started at : p.m. with Mr. PabaIan presiding after verbaIIy authorized by ManueI Torres, Jr., the
President and Chairman of the Board. The secretary when asked about the quorum, said that there was more than a quorum.
Mr. PabaIan distributed copies of the president's report and the financiaI statements. Antonio Torres, Jr. requested time to
study the said reports and brought out the question of auditing the finances of the corporation which he claimed was approved
previously by the board. Heated arguments ensued which aIso touched on famiIy matters. Antonio Torres, Jr. moved for the
suspension of the meeting but Manuel Torres, Jr. voted for the continuation of the proceedings.
Mr. PabaIan suggested that the opinion of the SEC representatives be asked on the propriety of suspending the meeting but
Antonio Torres, Jr. objected reasoning out that we were just observers.
When the Chairman caIIed for the eIection of directors, the Secretary refused to write down the names of nominees prompting
Atty. Azura to initiate the appointment of Atty. Jocson, Jr. as Acting Secretary.
Antonio Torres, Jr. nominated the present members of the Board. At this juncture, MiIagros Torres cried out and toId the group
of ManueI Torres, Jr. to Ieave the house.
ManueI Torres, Jr., together with his Iawyers-stockhoIders went to the residence of Ma. Jacinta Torres in San MigueI ViIIage,
Makati, Metro ManiIa. The undersigned joined them since the group with ManueI Torres, Jr. the one who requested for S.E.C.
observers, represented the majority of the outstanding capitaI stock and stiII constituted a quorum.
At the resumption of the meeting, the foIIowing were nominated and eIected as directors for the year 1987-1988:
1. ManueI Torres, Jr.
2. Ma. Jacinta Torres
3. Edgardo PabaIan
4. Graciano Tobias
5. RodoIfo Jocson, Jr.
6. MeIvin Jurisprudencia
7. Augustus Cesar Azura
8. Josefina Torres
9. Dante MoraIes
After the eIection, it was resoIved that after the meeting, the new board of directors shaII convene for the eIection of officers.
xxx xxx xxx
7

ConsequentIy, on 10 ApriI 1987, private respondents instituted a compIaint with the SEC (SEC Case No. 3161) praying in the main, that the eIection of
petitioners to the Board of Directors be annuIIed.
Private respondents aIIeged that the petitioners-nominees were not Iegitimate stockhoIders of TormiI because the assignment of shares to them
vioIated the minority stockhoIders' right of pre-emption as provided in the corporation's articIes and by-Iaws.
Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 were consoIidated for joint hearing and adjudication.
On 6 March 1991, the PaneI of Hearing Officers of the SEC rendered a decision in favor of private respondents. The dispositive portion thereof states,
thus:
WHEREFORE, premises considered, judgment is hereby rendered as foIIows:
1. Ordering and directing the respondents, particuIarIy respondent ManueI A. Torres, Jr., to turn over and deIiver to TORMIL
through its Corporate Secretary, Ma. Cristina T. CarIos: (a) the originaIs of the Deeds of Assignment dated JuIy 13 and 24, 1984
together with the owner's dupIicates of Transfer Certificates of TitIe Nos. 374079 of the Registry of Deeds for Makati, and 41527,
41528 and 41529 of the Registry of Deeds for Pasay City and/or to cause the formaI registration and transfer of titIe in and over
such reaI properties in favor of TORMIL with the proper government agency; (b) aII corporate books of account, records and
papers as may be necessary for the conduct of a comprehensive audit examination, and to aIIow the examination and
inspection of such accounting books, papers and records by any or aII of the corporate directors, officers and stockhoIders
and/or their duIy authorized representatives or auditors;
2. DecIaring as permanent and finaI the writ of preIiminary injunction issued by the Hearing PaneI on February 13, 1989;
3. DecIaring as nuII and void the eIection and appointment of respondents to the Board of Directors and executive positions of
TORMIL heId on March 25, 1987, and aII their acts and resoIutions made for and in behaIf of TORMIL by authority of and
pursuant to such invaIid appointment & eIection heId on March 25, 1987;
4. Ordering the respondents jointIy and severaIIy, to pay the compIainants the sum of ONE HUNDRED THOUSAND PESOS
(P100,000.00) as and by way of attorney's fees.
8

Petitioners promptIy appeaIed to the SEC en banc (docketed as SEC-AC No. 339). Thereafter, on 3 ApriI 1991, during the pendency of said appeaI,
petitioner ManueI A. Torres, Jr. died. However, notice thereof was brought to the attention of the SEC not by petitioners' counseI but by private
respondents in a Manifestation dated 24 ApriI 1991.
9

On 8 June 1993, petitioners fiIed a Motion to Suspend Proceedings on grounds that no administrator or IegaI representative of the Iate Judge Torres'
estate has yet been appointed by the RegionaI TriaI Court of Makati where Sp. Proc. No. M-1768 ("In Matter of the Issuance of the Last WiII and
Testament of ManueI A Torres, Jr.") was pending. Two simiIar motions for suspension were fiIed by petitioners on 28 June 1993 and 9 JuIy 1993.
On 19 JuIy 1993, the SEC en banc issued an Order denying petitioners' aforecited motions on the foIIowing ground:
Before the fiIing of these motions, the Commission en banc had aIready compIeted aII proceedings and had Iikewise ruIed on
the merits of the appeaIed cases. Viewed in this Iight, we thus feeI that there is nothing Ieft to be done except to deny these
motions to suspend proceedings.
10

On the same date, the SEC en banc rendered a decision, the dispositive portion of which reads, thus:
WHEREFORE, premises considered, the appeaIed decision of the hearing paneI is hereby affirmed and aII motions pending
before us incident to this appeaIed case are necessariIy DISMISSED.
SO ORDERED.
11

Undaunted, on 10 August 1993, petitioners proceeded to pIead its cause to the Court of AppeaIs by way of a petition for review (docketed as CA-G.R.
SP No. 31748).
On 23 May 1994, the Court of AppeaIs rendered a decision, the dispositive portion of which states:
WHEREFORE, the petition for review is DISMISSED and the appeaIed decision is accordingIy affirmed.
SO ORDERED.
12

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

Insisting on their cause, petitioners fiIed the present petition for review aIIeging that the Court of AppeaIs committed the foIIowing errors in its
decision:
(1)
WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A FULL LENGTH DECISION, WITHOUT THE EVIDENCE AND THE
ORIGINAL RECORD OF S.E.C. - AC NO. 339 BEING PROPERLY BROUGHT BEFORE IT FOR REVIEW AND RE-EXAMINATION,
AN OMISSION RESULTING IN A CLEAR TRANSGRESSION OR CURTAILMENT OF THE RIGHTS OF THE HEREIN PETITIONERS
TO PROCEDURAL DUE PROCESS;
(2)
WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE RESPONDENT S.E.C., WHICH IS VOID FOR HAVING BEEN
RENDERED WITHOUT THE PROPER SUBSTITUTION OF THE DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.-AC NO.
339 AND CONSEQUENTLY, FOR WANT OF JURISDICTION OVER THE SAID DECEASED'S TESTATE ESTATE, AND MOREOVER,
WHEN IT SOUGHT TO JUSTIFY THE NON-SUBSTITUTION BY ITS APPLICATION OF THE CIVIL LAW CONCEPT OF
NEGOTIORUM GESTIO;
(3)
WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C. - AC NO. 339
NOT HAVING ACTUALLY BEEN RE-EXAMINED, THAT S.E.C. CASE NO. 3153 INVOLVED A SITUATION WHERE PERFORMANCE
WAS IMPOSSIBLE (AS CONTEMPLATED UNDER ARTICLE 1191 OF THE CIVIL CODE) AND WAS NOT A MERE CASE OF
LESION OR INADEQUACY OF CAUSE (UNDER ARTICLE 1355 OF THE CIVIL CODE) AS SO ERRONEOUSLY CHARACTERIZED
BY THE RESPONDENT S.E.C.; and,
(4)
WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C. - AC NO. 339
NOT HAVING ACTUALLY BEEN EXAMINED, THAT THE RECORDING BY THE LATE JUDGE MANUEL A. TORRES, JR. OF THE
QUESTIONED ASSIGNMENT OF QUALIFYING SHARES TO HIS NOMINEES, WAS AFFIRMED IN THE STOCK AND TRANSFER
BOOK BY AN ACTING CORPORATE SECRETARY AND MOREOVER, THAT ACTUAL NOTICE OF SAID ASSIGNMENT WAS
TIMELY MADE TO THE OTHER STOCKHOLDERS.
14

We shaII resoIve the issues in seriatim.
I
Petitioners insist that the faiIure to transmit the originaI records to the Court of AppeaIs deprived them of proceduraI due process. Without the
evidence and the originaI records of the proceedings before the SEC, the Court of AppeaIs, petitioners adamantIy state, couId not have possibIy made
a proper appreciation and correct determination of the issues, particuIarIy the factuaI issues, they had raised on appeaI. Petitioners aIso assert that
since the Court of AppeaIs aIIegedIy gave due course to their petition, the originaI records shouId have been forwarded to said court.
Petitioners anchor their argument on Secs. 8 and 11 of SC CircuIar 1-91 (dated 27 February 1991) which provides that:
8. WHEN PETITION GIVEN DUE COURSE. - The Court of AppeaIs shaII give due course to the petition onIy when it shows
prima facie that the court, commission, board, office or agency concerned has committed errors of fact or Iaw that wouId
warrant reversaI or modification of the order, ruIing or decision sought to be reviewed. The findings of fact of the court
commission, board, office or agency concerned when supported by substantiaI evidence shaII be finaI.
xxx xxx xxx
11. TRANSMITTAL OF RECORD. - Within fifteen (15) days from notice that the petition has been given due course, the court,
commission, board, office or agency concerned shaII transmit to the Court of AppeaIs the originaI or a certified copy of the
entire record of the proceeding under review. The record to be transmitted may be abridged by agreement of aII parties to the
proceeding. The Court of AppeaIs may require or permit subsequent correction or addition to the record.
Petitioners contend that the Court of AppeaIs had given due course to their petition as aIIegedIy indicated by the foIIowing acts:
a) it granted the restraining order appIied for by the herein petitioners, and after hearing, aIso the writ of
preIiminary injunction sought by them; under the originaI SC CircuIar No. 1-91, a petition for review may
be given due course at the onset (paragraph 8) upon a mere prima facie finding of errors of fact or Iaw
having been committed, and such prima facie finding is but consistent with the grant of the extra-
ordinary writ of preIiminary injunction;
b) it required the parties to submit "simuItaneous memoranda" in its resoIution dated October 15, 1993
(this is in addition to the comment required to be fiIed by the respondents) and furthermore decIared in
the same resoIution that the petition wiII be decided "on the merits," instead of outrightIy dismissing the
same;
c) it rendered a fuII Iength decision, wherein: (aa) it expressIy decIared the respondent S.E.C. as having
erred in denying the pertinent motions to suspend proceedings; (bb) it decIared the supposed error as
having become a non-issue when the respondent C.A. "proceeded to hear (the) appeal"; (cc) it
formuIated and appIied its own theory of negotiorum gestio in justifying the non-substitution of the
deceased principaI party in S.E.C. - AC No. 339 and moreover, its theory of di minimis non curat Iex
(this, without first determining the true extent of and the correct IegaI characterization of the so-caIIed
"shortage" of TormiI shares;
and, (dd) it expressIy affirmed the assaiIed decision of respondent S.E.C.
15

Petitioners' contention is unmeritorious.
There is nothing on record to show that the Court of AppeaIs gave due course to the petition. The fact aIone that the Court of AppeaIs issued a
restraining order and a writ of preIiminary injunction and required the parties to submit their respective memoranda does not indicate that the petition
was given due course. The office of an injunction is mereIy to preserve the status quo pending the disposition of the case. The court can require the
submission of memoranda in support of the respective cIaims and positions of the parties without necessariIy giving due course to the petition. The
matter of whether or not to give due course to a petition Iies in the discretion of the court.
It is worthy to mention that SC CircuIar No. 1-91 has been repIaced by Revised Administrative CircuIar No. 1-95 (which took effect on 1 June 1995)
wherein the procedure for appeaIs from quasi-judiciaI agencies to the Court of AppeaIs was cIarified thus:
10. Due course. - If upon the fiIing of the comment or such other pIeadings or documents as may be required or aIIowed by the
Court of AppeaIs or upon the expiration of the period for the fiIing thereof, and on the bases of the petition or the record the
Court of AppeaIs finds prima facie that the court or agency concerned has committed errors of fact or Iaw that wouId warrant
reversaI or modification of the award, judgment, finaI order or resoIution sought to be reviewed, it may give due course to the
petition; otherwise, it shaII dismiss the same. The findings of fact of the court or agency concerned, when supported by
substantiaI evidence, shaII be binding on the Court of AppeaIs.
11. Transmittal of record. - Within fifteen (1) days from notice that the petition has been given due course, the Court of
Appeals may require the court or agency concerned to transmit the original or a legible certified true copy of the entire record
of the proceeding under review. The record to be transmitted may be abridged by agreement of aII parties to the proceeding.
The Court of AppeaIs may require or permit subsequent correction of or addition to the record. (Emphasis ours.)
The aforecited circuIar now formaIizes the correct practice and cIearIy states that in resoIving appeaIs from quasi judiciaI agencies, it is within the
discretion of the Court of AppeaIs to have the originaI records of the proceedings under review be transmitted to it. In this connection petitioners'
cIaim that the Court of AppeaIs couId not have decided the case on the merits without the records being brought before it is patentIy Iame. IndubitabIy,
the Court of AppeaIs decided the case on the basis of the uncontroverted facts and admissions contained in the pIeadings, that is, the petition,
comment, repIy, rejoinder, memoranda, etc. fiIed by the parties.
II
Petitioners contend that the decisions of the SEC and the Court of AppeaIs are nuII and void for being rendered without the necessary substitution of
parties (for the deceased petitioner ManueI A. Torres, Jr.) as mandated by Sec. 17, RuIe 3 of the Revised RuIes of Court, which provides as foIIows:
Sec. 17. Death of party. - After a party dies and the cIaim is not thereby extinguished, the court shaII order, upon proper notice,
the IegaI representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30) days, or
within such time as may be granted. If the IegaI representative faiIs to appear within said time, the court may order the opposing
party to procure the appointment of a IegaI representative of the deceased within a time to be specified by the court, and the
representative shaII immediateIy appear for and on behaIf of the interest of the deceased. The court charges invoIved in
procuring such appointment, if defrayed by the opposing party, may be recovered as costs. The heirs of the deceased may be
aIIowed to be substituted for the deceased, without requiring the appointment of an executor or administrator and the court
may appoint guardian ad litem for the minor heirs.
Petitioners insist that the SEC en banc shouId have granted the motions to suspend they fiIed based as they were on the ground that the RegionaI TriaI
Court of Makati, where the probate of the Iate Judge Torres' wiII was pending, had yet to appoint an administrator or IegaI representative of his estate.
We are not unaware of the principIe underIying the aforequoted provision:
It has been heId that when a party dies in an action that survives, and no order is issued by the Court for the appearance of the
IegaI representative or of the heirs of the deceased to be substituted for the deceased, and as a matter of fact no such
substitution has ever been effected, the triaI heId by the court without such IegaI representative or heirs, and the judgment
rendered after such triaI, are nuII and void because the court acquired no jurisdiction over the persons of the IegaI
representative or of the heirs upon whom the triaI and the judgment are not binding.
16

As earIy as 8 ApriI 1988, Judge Torres instituted SpeciaI Proceedings No. M-1768 before the RegionaI TriaI Court of Makati for the ante-mortem probate
of his hoIographic wiII which he had executed on 31 October 1986. Testifying in the said proceedings, Judge Torres confirmed his appointment of
petitioner Edgardo D. PabaIan as the soIe executor of his wiII and administrator of his estate. The proceedings, however, were opposed by the same
parties, herein private respondents Antonio P. Torres, Jr., Ma. Luisa T. MoraIes and Ma. Cristina T. CarIos,
17
who are nephew and nieces of Judge
Torres, being the chiIdren of his Iate brother Antonio A. Torres.
It can readiIy be observed therefore that the parties invoIved in the present controversy are virtuaIIy the same parties fighting over the representation
of the Iate Judge Torres' estate. It shouId be recaIIed that the purpose behind the ruIe on substitution of parties is the protection of the right of every
party to due process. It is to ensure that the deceased party wouId continue to be properIy represented in the suit through the duIy appointed IegaI
representative of his estate. In the present case, this purpose has been substantiaIIy fuIfiIIed (despite the Iack of formaI substitution) in view of the
pecuIiar fact that both proceedings invoIve practicaIIy the same parties. Both parties have been fierceIy fighting in the probate proceedings of Judge
Torres' hoIographic wiII for appointment as IegaI representative of his estate. Since both parties cIaim interests over the estate, the rights of the estate
were expected to be fuIIy protected in the proceedings before the SEC en banc and the Court of AppeaIs. In either case, whoever shaII be appointed
IegaI representative of Judge Torres' estate (petitioner PabaIan or private respondents) wouId no Ionger be a stranger to the present case, the said
parties having voIuntariIy submitted to the jurisdiction of the SEC and the Court of AppeaIs and having thoroughIy participated in the proceedings.
The foregoing rationate finds support in the recent case of Vda. de Salazar v. CA,
18
wherein the Court expounded thus:
The need for substitution of heirs is based on the right to due process accruing to every party in any proceeding. The rationaIe
underIying this requirement in case a party dies during the pendency of proceedings of a nature not extinguished by such
death, is that . . . the exercise of judiciaI power to hear and determine a cause impIicitIy presupposes in the triaI court, amongst
other essentiaIs, jurisdiction over the persons of the parties. That jurisdiction was inevitabIy impaired upon the death of the
protestee pending the proceedings beIow such that unIess and untiI a IegaI representative is for him duIy named and within the
jurisdiction of the triaI court, no adjudication in the cause couId have been accorded any vaIidity or binding effect upon any
party, in representation of the deceased, without trenching upon the fundamentaI right to a day in court which is the very
essence of the constitutionaIIy enshrined guarantee of due process.
We are not unaware of severaI cases where we have ruIed that a party having died in an action that survives, the triaI heId by
the court without appearance of the deceased's IegaI representative or substitution of heirs and the judgment rendered after
such triaI, are nuII and void because the court acquired no jurisdiction over the persons of the IegaI representatives or of the
heirs upon whom the triaI and the judgment wouId be binding. This generaI ruIe notwithstanding, in denying petitioner's motion
for reconsideration, the Court of AppeaIs correctIy ruIed that formaI substitution of heirs is not necessary when the heirs
themseIves voIuntariIy appeared, participated in the case and presented evidence in defense of deceased defendant. Attending
the case at bench, after aII, are these particuIar circumstances which negate petitioner's beIated and seemingIy ostensibIe cIaim
of vioIation of her rights to due process. We shouId not Iose sight of the principIe underIying the generaI ruIe that formaI
substitution of heirs must be effectuated for them to be bound by a subsequent judgment. Such had been the generaI ruIe
estabIished not because the ruIe on substitution of heirs and that on appointment of a IegaI representative are jurisdictionaI
requirements per se but because non-compIiance therewith resuIts in the undeniabIe vioIation of the right to due process of
those who, though not duIy notified of the proceedings, are substantiaIIy affected by the decision rendered therein . . . .
It is appropriate to mention here that when Judge Torres died on ApriI 3, 1991, the SEC en banc had aIready fuIIy heard the parties and what remained
was the evaIuation of the evidence and rendition of the judgment.
Further, petitioners fiIed their motions to suspend proceedings onIy after more than two (2) years from the death of Judge Torres. Petitioners' counseI
was even remiss in his duty under Sec. 16, RuIe 3 of the Revised RuIes of Court.
19
Instead, it was private respondents who informed the SEC of Judge
Torres' death through a manifestation dated 24 ApriI 1991.
For the SEC en banc to have suspended the proceedings to await the appointment of the IegaI representative by the estate was impracticaI and wouId
have caused undue deIay in the proceedings and a deniaI of justice. There is no teIIing when the probate court wiII decide the issue, which may stiII be
appeaIed to the higher courts.
In any case, there has been no finaI disposition of the properties of the Iate Judge Torres before the SEC. On the contrary, the decision of the SEC en
banc as affirmed by the Court of AppeaIs served to protect and preserve his estate. ConsequentIy, the ruIe that when a party dies, he shouId be
substituted by his IegaI representative to protect the interests of his estate in observance of due process was not vioIated in this case in view of its
pecuIiar situation where the estate was fuIIy protected by the presence of the parties who cIaim interests therein either as directors, stockhoIders or
heirs.
FinaIIy, we agree with petitioners' contention that the principIe of negotiorum gestio
20
does not appIy in the present case. Said principIe expIicitIy
covers abandoned or negIected property or business.
III
Petitioners find IegaI basis for Judge Torres' act of revoking the assignment of his properties in Makati and Pasay City to TormiI corporation by reIying
on Art. 1191 of the CiviI Code which provides that:
Art. 1191. The power to rescind obIigations is impIied in reciprocaI ones, in case one of the obIigors shouId not compIy with
what is incumbent upon him.
The injured party may choose between the fuIfiIIment and the rescission of the obIigation, with the payment of damages in
either case. He may aIso seek rescission, even after he has chosen fuIfiIIment, if the Iatter shouId become impossibIe.
The court shaII decree the rescission cIaimed, unIess there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with
articIes 1385 and 1388 and the Mortgage Law.
Petitioners' contentions cannot be sustained. We see no justifiabIe reason to disturb the findings of SEC, as affirmed by the Court of AppeaIs:
We sustain the ruIing of respondent SEC in the decision appeaIed from (Rollo, pp. 45-46) that -
. . . the shortage of 972 shares wouId not be vaIid ground for respondent Torres to uniIateraIIy revoke the
deeds of assignment he had executed on JuIy 13, 1984 and JuIy 24, 1984 wherein he voIuntariIy
assigned to TORMIL reaI properties covered by TCT No. 374079 (Makati) and TCT No. 41527, 41528 and
41529 (Pasay) respectiveIy.
A comparison of the number of shares that respondent Torres received from TORMIL by virtue of the
"deeds of assignment" and the stock certificates issued by the Iatter to the former readiIy shows that
TORMIL had substantiaIIy performed what was expected of it. In fact, the first two issuances were in
satisfaction to the properties being revoked by respondent Torres. Hence, the shortage of 972 shares
wouId never be a vaIid ground for the revocation of the deeds covering Pasay and Quezon City
properties.
In Universal Food Corp. vs. CA, the Supreme Court heId:
The generaI ruIe is that rescission of a contract wiII not be permitted for a sIight
or carnaI breach, but onIy for such substantiaI and fundamentaI breach as wouId
defeat the very object of the parties in making the agreement.
The shortage of 972 shares definiteIy is not substantiaI and fundamentaI breach as wouId defeat the very
object of the parties in entering into contract. Art. 1355 of the CiviI Code aIso provides: "Except in cases
specified by Iaw, Iesion or inadequacy of cause shaII not invaIidate a contract, unIess there has been
fraud, mistake or undue infIuences." There being no fraud, mistake or undue infIuence exerted on
respondent Torres by TORMIL and the Iatter having aIready issued to the former of its 225,000 unissued
shares, the most IogicaI course of action is to decIare as nuII and void the deed of revocation executed
by respondent Torres. (Rollo, pp. 45-46.)
21

The aforequoted CiviI Code provision does not appIy in this particuIar situation for the obvious reason that a specific number of shares of stock (as
evidenced by stock certificates) had aIready been issued to the Iate Judge Torres in exchange for his Makati and Pasay City properties. The records
thus discIose:
DATE OF PROPERTY LOCATION NO. OF SHARES ORDER OF
ASSIGNMENT ASSIGNED TO BE ISSUED COMPLIANCE*
1. JuIy 13, 1984 TCT 81834 Quezon City) 13,252 3rd
TCT 144240 Quezon City)
2. JuIy 13, 1984 TCT 77008 ManiIa)
TCT 65689 ManiIa) 78,493 2nd
TCT 102200 ManiIa)
3. JuIy 13, 1984 TCT 374079 Makati 8,307 1st
4. JuIy 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay) 9,855 4th
TCT 41529 Pasay)
5. August 6, 1984 EI Hogar FiIipino Stocks 2,000 7th
6. August 6, 1984 ManiIa Jockey CIub Stocks 48,737 5th
7. August 7, 1984 San MigueI Corp. Stocks 50,238 8th
8. August 7, 1984 China Banking Corp. Stocks 6,300 6th
9. August 20, 1984 AyaIa Corp. Stocks 7,468.2) 9th
10. August 29, 1984 AyaIa Fund Stocks 1,322.1)
-----
TOTAL 225,972.3
*Order of stock certificate issuances by TORMIL to respondent Torres reIative to the Deeds of Assignment he executed
sometime in JuIy and August, 1984.
22
(Emphasis ours.)
Moreover, we agree with the contention of the SoIicitor GeneraI that the shortage of shares shouId not have affected the assignment of the Makati and
Pasay City properties which were executed in 13 and 24 JuIy 1984 and the consideration for which have been duIy paid or fuIfiIIed but shouId have
been appIied IogicaIIy to the Iast assignment of property - Judge Torres' AyaIa Fund shares - which was executed on 29 August 1984.
23

IV
Petitioners insist that the assignment of "quaIifying shares" to the nominees of the Iate Judge Torres (herein petitioners) does not partake of the reaI
nature of a transfer or conveyance of shares of stock as wouId caII for the "imposition of stringent requirements (with respect to the) recording of the
transfer of said shares." Anyway, petitioners add, there was substantiaI compIiance with the above-stated requirement since said assignments were
entered by the Iate Judge Torres himseIf in the corporation's stock and transfer book on 6 March 1987, prior to the 25 March 1987 annuaI stockhoIders
meeting and which entries were confirmed on 8 March 1987 by petitioner Azura who was appointed Assistant Corporate Secretary by Judge Torres.
Petitioners further argue that:
10.10. CertainIy, there is no IegaI or just basis for the respondent S.E.C. to penaIize the Iate Judge Torres by invaIidating the
questioned entries in the stock and transfer book, simpIy because he initiaIIy made those entries (they were Iater affirmed by an
acting corporate secretary) and because the stock and transfer book was in his possession instead of the eIected corporate
secretary, if the background facts herein-before narrated and the serious animosities that then reigned between the deceased
Judge and his reIatives are to be taken into account;
xxx xxx xxx
10.12. Indeed it was a practice in the corporate respondent, a famiIy corporation with onIy a measIy number of stockhoIders, for
the Iate judge to have personaI custody of corporate records; as president, chairman and majority stockhoIder, he had the
prerogative of designating an acting corporate secretary or to himseIf make the needed entries, in instances where the reguIar
secretary, who is a mere subordinate, is unavaiIabIe or intentionaIIy defauIts, which was the situation that obtained immediateIy
prior to the 1987 annuaI stockhoIders meeting of TormiI, as the Iate Judge Torres had so indicated in the stock and transfer
book in the form of the entries now in question;
10.13. SureIy, it wouId have been futiIe nay fooIish for him to have insisted under those circumstances, for the reguIar
secretary, who was then part of a group ranged against him, to make the entries of the assignments in favor of his nominees;
24

Petitioners' contentions Iack merit.
It is preciseIy the brewing famiIy discord between Judge Torres and private respondents - his nephew and nieces that shouId have pIaced Judge
Torres on his guard. He shouId have been more carefuI in ensuring that his actions (particuIarIy the assignment of quaIifying shares to his nominees)
compIy with the requirements of the Iaw. Petitioners cannot use the fIimsy excuse that it wouId have been a vain attempt to force the incumbent
corporate secretary to register the aforestated assignments in the stock and transfer book because the Iatter beIonged to the opposite faction. It is the
corporate secretary's duty and obIigation to register vaIid transfers of stocks and if said corporate officer refuses to compIy, the transferor-stockhoIder
may rightfuIIy bring suit to compeI performance.
25
In other words, there are remedies within the Iaw that petitioners couId have avaiIed of, instead of
taking the Iaw in their own hands, as the cIiche goes.
Thus, we agree with the ruIing of the SEC en banc as affirmed by the Court of AppeaIs:
We Iikewise sustain respondent SEC when it ruIed, interpreting Section 74 of the Corporation Code, as foIIows (Rollo, p. 45):
In the absence of (any) provision to the contrary, the corporate secretary is the custodian of corporate
records. CoroIIariIy, he keeps the stock and transfer book and makes proper and necessary entries
therein.
Contrary to the generaIIy accepted corporate practice, the stock and transfer book of TORMIL was not
kept by Ms. Maria Cristina T. CarIos, the corporate secretary but by respondent Torres, the President
and Chairman of the Board of Directors of TORMIL. In contravention to the above cited provision, the
stock and transfer book was not kept at the principaI office of the corporation either but at the pIace of
respondent Torres.
These being the obtaining circumstances, any entries made in the stock and transfer book on March 8,
1987 by respondent Torres of an aIIeged transfer of nominaI shares to PabaIan and Co. cannot therefore
be given any vaIid effect. Where the entries made are not vaIid, PabaIan and Co. cannot therefore be
considered stockhoIders of record of TORMIL. Because they are not stockhoIders, they cannot therefore
be eIected as directors of TORMIL. To ruIe otherwise wouId not onIy encourage vioIation of cIear
mandate of Sec. 74 of the Corporation Code that stock and transfer book shaII be kept in the principaI
office of the corporation but wouId Iikewise open the fIood gates of confusion in the corporation as to
who has the proper custody of the stock and transfer book and who are the reaI stockhoIders of records
of a certain corporation as any hoIder of the stock and transfer book, though not the corporate
secretary, at pIeasure wouId make entries therein.
The fact that respondent Torres hoIds 81.28% of the outstanding capitaI stock of TORMIL is of no
moment and is not a Iicense for him to arrogate unto himseIf a duty Iodged to (sic) the corporate
secretary.
26

AII corporations, big or smaII, must abide by the provisions of the Corporation Code. Being a simpIe famiIy corporation is not an exemption. Such
corporations cannot have ruIes and practices other than those estabIished by Iaw.
WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED.
SO ORDERED.
Bellosillo, Vitug and Hermosisima, Jr., JJ., concur.









Bitong vs. CA [292 SCRA 503 (July 13 1998)]
Ownership of Corporate Shares/ Stock Certificates: Valid ssuance
Facts: Bitong was the treasurer and member of the BoD of Mr. & Mrs. Corporation. She filed a complaint with the SEC to hold respondent spouses Apostol liable for fraud, misrepresentation,
disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs of the corporation to the prejudice of the stockholders. She alleges that certain transactions entered
into by the corporation were not supported by any stockholder's resolution.
The complaint sought to enjoin Apostol from further acting as president-director of the corporation and from disbursing any money or funds. Apostol contends that Bitong was merely a holder-
in-trust of the JAKA shares of the corporation, hence, not entitled to the relief she prays for. SEC Hearing Panel issued a writ enjoining Apostol.
After hearing the evidence, SEC Hearing Panel dissolved the writ and dismissed the complaint filed by Bitong. Bitong appealed to the SEC en banc. The latter reversed SEC Hearing Panel
decision. Apostol filed petition for review with the CA. CA reversed SEC en banc ruling holding that Bitong was not the owner of any share of stock in the corporation and therefore, not a real
party in interest to prosecute the complaint. Hence, this petition with the SC.
ssue: Whether or not Bitong was the real party in interest.
Held: Based on the evidence presented, it could be gleaned that Bitong was not a bona fide stockholder of the corporation. Several corporate documents disclose that the true party in interest
was JAKA.
Although her buying of the shares were recorded in the Stock and Transfer Book of the corporation, and as provided by Sec. 63 of the Corp Code 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,
this provision is not conclusive even against the corporation but are prima facie evidence only. Parol evidence may be admitted to supply the omissions in the records, explain ambiguities, or
show what transpired where no records were kept, or in some cases where such records were contradicted. Besides, the provision envisions a formal certificate of stock which can be issued
only upon compliance with certain requisites: (1) 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, (2) delivery of the certificate; (3) the par value, as to par value shares, or the full subscription as to no par value shares, must be first fully paid; (4) the original certificate
must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder.
These considerations are founded on the basic principle that stock issued without authority and in violation of the law is void and confers no rights on the person to whom it is issued and
subjects him to no liabilities. 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 estoppel cannot operate to create stock which under the law cannot have existence.



ll8S1 ulvlSlCn



C8 no 123333 !uly 13 1998

(CAC8 no 33291) !uly 13 1998

nC8A A 8l1CnC peLlLloner

vs

CCu81 Cl ALALS (lll1P ulvlSlCn) LuCLnlA u ACS1CL !CSL A ACS1CL M8 MS u8LlSPlnC
CC LL11? ! MACSAnCC Anu AuC8AClCn C nu?uA respondenLs

(CAC8 no 33873) !uly 13 1998

nC8A A 8l1CnC peLlLloner

vs

CCu81 Cl ALALS (lll1P ulvlSlCn) and LuCA8uC 8 LSl8l1u respondenLs



8LLLCSlLLC !

1hese Lwln cases orlglnaLed from a derlvaLlve sulL 1 flled by peLlLloner nora A 8lLong before Lhe
SecurlLles and Lxchange Commlsslon (SLC hereafLer) allegedly for Lhe beneflL of prlvaLe respondenL Mr
Ms ubllshlng Co lnc (Mr Ms hereafLer) among oLhers Lo hold respondenL spouses Lugenla u
AposLol and !ose A AposLol 2 llable for fraud mlsrepresenLaLlon dlsloyalLy evldenL bad falLh confllcL of
lnLeresL and mlsmanagemenL ln dlrecLlng Lhe affalrs of Mr Ms Lo Lhe damage and pre[udlce of Mr
Ms and lLs sLockholders lncludlng peLlLloner

Alleglng before Lhe SLC LhaL she had been Lhe 1reasurer and a Member of Lhe 8oard of ulrecLors of Mr
Ms from Lhe Llme lL was lncorporaLed on 29 CcLober 1976 Lo 11 Aprll 1989 and was Lhe reglsLered
owner of 1000 shares of sLock ouL of Lhe 4088 LoLal ouLsLandlng shares peLlLloner complalned of
lrregularlLles commlLLed from 1983 Lo 1987 by Lugenla u AposLol resldenL and Chalrperson of Lhe
8oard of ulrecLors eLlLloner clalmed LhaL excepL for Lhe sale of Lhe name hlllpplne lnqulrer Lo
hlllpplne ually lnqulrer (ul hereafLer) all oLher LransacLlons and agreemenLs enLered lnLo by Mr Ms
wlLh ul were noL supporLed by any bond and/or sLockholders resoluLlon And upon lnsLrucLlons of
Lugenla u AposLol Mr Ms made several cash advances Lo ul on varlous occaslons amounLlng Lo
3276 mllllon Cn some of Lhese borrowlngs ul pald no lnLeresL whaLsoever uesplLe Lhe facL LhaL Lhe
advances made by Mr Ms Lo ul were booked as advances Lo an afflllaLe Lhere exlsLed no board or
sLockholders resoluLlon conLracL nor any oLher documenL whlch could legally auLhorlze Lhe creaLlon of
and supporL Lo an afflllaLe

eLlLloner furLher alleged LhaL respondenLs Lugenla and !ose AposLol were sLockholders dlrecLors and
offlcers ln boLh Mr Ms and ul ln facL on 2 May 1986 respondenLs Lugenla u AposLol LeLlcla !
Magsanoc and Adoraclon C nuyda subscrlbed Lo ul shares of sLock aL 3000000 each or a LoLal of
13000000 1he sLock subscrlpLlons were pald for by Mr Ms and lnlLlally LreaLed as recelvables
from offlcers and employees 8uL no paymenLs were ever recelved from respondenLs Magsanoc and
nuyda

1he peLlLlon prlnclpally soughL Lo (a) en[oln respondenLs Lugenla u AposLol and !ose A AposLol from
furLher acLlng as presldenLdlrecLor and dlrecLor respecLlvely of Mr Ms and dlsburslng any money or
funds excepL for Lhe paymenL of salarles and slmllar expenses ln Lhe ordlnary course of buslness and
from dlsposlng of Lhelr Mr Ms shares (b) en[oln respondenLs AposLol spouses Magsanoc and nuyda
from dlsposlng of Lhe ul shares of sLock reglsLered ln Lhelr names (c) compel respondenLs Lugenla and
!ose AposLol Lo accounL for and reconvey all proflLs and beneflLs accrulng Lo Lhem as a resulL of Lhelr
lmproper and fraudulenL acLs (d) compel respondenLs Magsanoc and nuyda Lo accounL for and
reconvey Lo Mr Ms all shares of sLock pald from cash advances from lL and all accesslons or frulLs
Lhereof (e) hold respondenLs Lugenla and !ose AposLol llable for damages suffered by Mr Ms and
Lhe oLher sLockholders lncludlng peLlLloner by reason of Lhelr lmproper and fraudulenL acLs (f) appolnL
a managemenL commlLLee for Mr Ms durlng Lhe pendency of Lhe sulL Lo prevenL furLher dlsslpaLlon
and loss of lLs asseLs and funds as well as paralyzaLlon of buslness operaLlons and (g) dlrecL Lhe
managemenL commlLLee for Mr Ms Lo flle Lhe necessary acLlon Lo enforce lLs rlghLs agalnsL ul and
oLher Lhlrd parLles

rlvaLe respondenLs AposLol spouses Magsanoc nuyda and Mr Ms on Lhe oLher hand refuLed Lhe
allegaLlons of peLlLloner by sLarLlng wlLh a narraLlon of Lhe beglnnlngs of Mr Ms 1hey recounLed LhaL
on 9 March 1976 Lx Llbrls ubllshlng Co lnc (Lx Llbrls hereafLer) was lncorporaLed for Lhe purpose of
publlshlng a weekly magazlne lLs orlglnal prlnclpal sLockholders were spouses SenaLor !uan once Lnrlle
(Lhen MlnlsLer of naLlonal uefense) and CrlsLlna once Lnrlle Lhrough !aka lnvesLmenLs CorporaLlon
(!AkA hereafLer) and respondenLs Lugenla and !ose AposLol When Lx Llbrls suffered flnanclal
dlfflculLles !AkA and Lhe AposLols LogeLher wlLh new lnvesLors Luls vlllafuerLe and 8amon Sly
resLrucLured Lx Llbrls by organlzlng a new corporaLlon known as Mr Ms

1he orlglnal sLockholders of Mr Ms le !AkA Luls vlllafuerLe 8amon Sly Lhe AposLols and Lx Llbrls
conLlnued Lo be vlrLually Lhe same up Lo 1989 1hereafLer lL was agreed among Lhem LhaL Lhey belng
close frlends Mr Ms would be operaLed as a parLnershlp or a close corporaLlon respondenL Lugenla
u AposLol would manage Lhe affalrs of Mr Ms and no shares of sLock would be sold Lo Lhlrd parLles
wlLhouL flrsL offerlng Lhe shares Lo Lhe oLher sLockholders so LhaL Lransfers would be llmlLed Lo and only
among Lhe orlglnal sLockholders

rlvaLe respondenLs also asserLed LhaL respondenL Lugenla u AposLol had been lnformlng her buslness
parLners of her acLlons as manager and obLalnlng Lhelr advlce and consenL ConsequenLly Lhe oLher
sLockholders consenLed elLher expressly or lmplledly Lo her managemenL 1hey offered no ob[ecLlons
As a resulL Lhe buslness prospered 1hus as shown ln a sLaLemenL prepared by Lhe accounLlng flrm
unongbayan and Araullo Lhere were lncreases from 1976 Lo 1988 ln Lhe LoLal asseLs of Mr Ms from
43736900 Lo 1014304600 ln Lhe LoLal sLockholders equlLy from 20337800 Lo 232493400
and ln Lhe neL sales from 30148900 Lo 1632361000 Llkewlse cash dlvldends were dlsLrlbuLed
and recelved by Lhe sLockholders

rlvaLe respondenLs furLher conLended LhaL peLlLloner belng merely a holderlnLrusL of !AkA shares
only represenLed and conLlnued Lo represenL !AkA ln Lhe board ln Lhe beglnnlng peLlLloner cooperaLed
wlLh and asslsLed Lhe managemenL unLll mld1986 when relaLlons beLween her and her prlnclpals on
one hand and respondenL Lugenla u AposLol on Lhe oLher became sLralned due Lo pollLlcal dlfferences
Pence from mld1986 Lo mld1988 peLlLloner refused Lo speak wlLh respondenL Lugenla u AposLol and
ln 1988 Lhe former became openly crlLlcal of Lhe managemenL of Lhe laLLer neverLheless respondenL
Lugenla u AposLol always made avallable Lo peLlLloner and her represenLaLlves all Lhe books of Lhe
corporaLlon

rlvaLe respondenLs averred LhaL all Lhe ul shares owned by respondenLs Lugenla and !ose AposLol
were acqulred Lhrough Lhelr own prlvaLe funds and LhaL Lhe loan of 73000000 by ul from Mr Ms
had been fully pald wlLh 20 lnLeresL per annum And lL was ul noL Mr Ms whlch loaned off
23000000 each Lo respondenLs Magsanoc and nuyda rlvaLe respondenLs furLher argued LhaL
peLlLloner was noL Lhe Lrue parLy Lo Lhls case Lhe real parLy belng !AkA whlch conLlnued Lo be Lhe Lrue
sLockholder of Mr Ms hence peLlLloner dld noL have Lhe personallLy Lo lnlLlaLe and prosecuLe Lhe
derlvaLlve sulL whlch consequenLly musL be dlsmlssed

Cn 6 uecember 1990 Lhe SLC Pearlng anel 3 lssued a wrlL of prellmlnary ln[uncLlon en[olnlng prlvaLe
respondenLs from dlsburslng any money excepL for Lhe paymenL of salarles and oLher slmllar expenses
ln Lhe regular course of buslness 1he Pearlng anel also en[olned respondenL AposLol spouses nuyda
and Magsanoc from dlsposlng of Lhelr ul shares and furLher ruled

respondenLs conLenLlon LhaL peLlLloner ls noL enLlLled Lo Lhe provlslonal rellefs prayed for because
she ls noL Lhe real parLy ln lnLeresL ls berefL of any merlL no less Lhan respondenLs Amended
Answer speclflcally paragraph v no 8 on AfflrmaLlve AllegaLlons/uefenses sLaLes LhaL 1he peLlLloner
belng herself a mlnor sLockholder and holderlnLrusL of !AkA shares represenLed and conLlnues Lo
represenL !AkA ln Lhe 8oard 1hls sLaLemenL refers Lo peLlLloner slLLlng ln Lhe board of dlrecLors of Mr
Ms ln Lwo capaclLles one as a mlnor sLockholder and Lhe oLher as Lhe holder ln LrusL of Lhe shares of
!AkA ln Mr Ms Such reference alluded Lo by Lhe respondenLs lndlcaLes an admlsslon on respondenLs
parL of Lhe peLlLloners legal personallLy Lo flle a derlvaLlve sulL for Lhe beneflL of Lhe respondenL Mr
Ms ubllshlng Co lnc

1he Pearlng anel however denled peLlLloners prayer for Lhe consLlLuLlon of a managemenL commlLLee

Cn 23 March 1991 prlvaLe respondenLs flled a MoLlon Lo Amend leadlngs Lo Conform Lo Lvldence
alleglng LhaL Lhe lssue of wheLher peLlLloner ls Lhe real parLylnlnLeresL had been Lrled by express or
lmplled consenL of Lhe parLles Lhrough Lhe admlsslon of documenLary exhlblLs presenLed by prlvaLe
respondenLs provlng LhaL Lhe real parLylnlnLeresL was !AkA noL peLlLloner 8lLong As such no 8 par
v (AfflrmaLlve AllegaLlons/uefenses) Answer Lo Lhe Amended eLlLlon was sLlpulaLed due Lo
lnadverLence and excusable mlsLake and should be amended Cn 10 CcLober 1991 Lhe Pearlng anel
denled Lhe moLlon for amendmenL

eLlLloner LesLlfled aL Lhe Lrlal LhaL she became Lhe reglsLered and beneflclal owner of 997 shares of
sLock of Mr Ms ouL of Lhe 4088 LoLal ouLsLandlng shares afLer she acqulred Lhem from !AkA Lhrough
a deed of sale execuLed on 23 !uly 1983 and recorded ln Lhe SLock and 1ransfer 8ook of Mr Ms under
CerLlflcaLe of Shares of SLock no 008 She polnLed ouL LhaL SenaLor Lnrlle declded LhaL !AkA should
compleLely dlvesL lLself of lLs holdlngs ln Mr Ms and Lhls resulLed ln Lhe sale Lo her of !AkAs lnLeresL
and holdlngs ln LhaL publlshlng flrm

rlvaLe respondenLs refuLed Lhe sLaLemenL of peLlLloner LhaL she was a sLockholder of Mr Ms slnce
23 !uly 1983 as respondenL Lugenla u AposLol slgned CerLlflcaLe of SLock no 008 only on 17 March
1989 and noL on 23 !uly 1983 8espondenL Lugenla u AposLol explalned LhaL she sLopped uslng her
long slgnaLure (Lugenla u AposLol) ln 1987 and changed lL Lo Lu AposLol Lhe slgnaLure whlch
appeared on Lhe face of CerLlflcaLe of SLock no 008 bearlng Lhe daLe 23 !uly 1983 And slnce Lhe SLock
and 1ransfer 8ook whlch peLlLloner presenLed ln evldence was noL reglsLered wlLh Lhe SLC Lhe enLrles
Lhereln lncludlng CerLlflcaLe of SLock no 008 were fraudulenL 8espondenL Lugenla u AposLol clalmed
LhaL she had noL seen Lhe SLock and 1ransfer 8ook aL anyLlme unLll 21 March 1989 when lL was
dellvered by peLlLloner herself Lo Lhe offlce of Mr Ms and LhaL peLlLloner repeaLedly referred Lo
SenaLor Lnrlle as my prlnclpal durlng Lhe Mr Ms board meeLlng of 22 SepLember 1988 seven (7)
Llmes no less

Cn 3 AugusL 1993 afLer Lrlal on Lhe merlLs Lhe SLC Pearlng anel dlsmlssed Lhe derlvaLlve sulL flled by
peLlLloner and dlssolved Lhe wrlL of prellmlnary ln[uncLlon barrlng prlvaLe respondenLs from dlsposlng of
Lhelr ul shares and any of Mr Ms asseLs 1he Pearlng anel ruled LhaL Lhere was no serlous
mlsmanagemenL of Mr Ms whlch would warranL drasLlc correcLlve measures lL gave credence Lo Lhe
asserLlon of respondenL Lugenla u AposLol LhaL Mr Ms was operaLed llke a close corporaLlon where
lmporLanL maLLers were dlscussed and approved Lhrough lnformal consulLaLlons aL breakfasL
conferences 1he Pearlng anel also concluded LhaL whlle Lhe evldence presenLed Lended Lo show LhaL
Lhe real parLylnlnLeresL lndeed was !AkA and/or SenaLor Lnrlle lL vlewed Lhe real lssue Lo be Lhe
alleged mlsmanagemenL fraud and confllcL of lnLeresL on Lhe parL of respondenL Lugenla u AposLol
and allowed peLlLloner Lo prosecuLe Lhe derlvaLlve sulL lf only Lo resolve Lhe real lssues Pence for Lhls
purpose Lhe Pearlng anel consldered peLlLloner Lo be Lhe real parLylnlnLeresL

Cn 19 AugusL 1993 respondenL AposLol spouses sold Lhe ul shares reglsLered ln Lhe name of Lhelr
holdlng company !ALu ManagemenL CorporaLlon Lo Ldgardo 8 LsplrlLu Cn 23 AugusL 1993 peLlLloner
8lLong appealed Lo Lhe SLC Ln 8anc

Cn 24 !anuary 1994 Lhe SLC Ln 8anc 4 reversed Lhe declslon of Lhe Pearlng anel and among oLhers
ordered prlvaLe respondenLs Lo accounL for reLurn and dellver Lo Mr Ms any and all funds and asseLs
LhaL Lhey dlsbursed from Lhe coffers of Lhe corporaLlon lncludlng shares of sLock proflLs dlvldends
and/or frulLs LhaL Lhey mlghL have recelved as a resulL of Lhelr lnvesLmenL ln ul lncludlng Lhose arlslng
from Lhe 13000000 advanced Lo respondenLs Lugenla u AposLol LeLlcla ! Magsanoc and Adoraclon
C nuyda accounL for and reLurn any proflLs and frulLs of all amounLs lrregularly or unlawfully advanced
Lo ul and oLher Lhlrd persons and cease and deslsL from managlng Lhe affalrs of Mr Ms for reasons
of fraud mlsmanagemenL dlsloyalLy and confllcL of lnLeresL

1he SLC Ln 8anc also declared Lhe 19 AugusL 1993 sale of Lhe ul shares of !ALu ManagemenL
CorporaLlon Lo Ldgardo 8 LsplrlLu Lo be LalnLed wlLh fraud hence null and vold and consldered Mr
Ms as Lhe Lrue and lawful owner of all Lhe ul shares acqulred by respondenLs Lugenla u AposLol
Magsanoc and nuyda lL also declared all subsequenL Lransferees of such shares as LrusLees for Lhe
beneflL of Mr Ms and ordered Lhem Lo forLhwlLh dellver sald shares Lo Mr Ms

ConsequenLly respondenL AposLol spouses Magsanoc nuyda and Mr Ms flled a peLlLlon for revlew
before respondenL CourL of Appeals dockeLed as CAC8 no S 33291 whlle respondenL Ldgardo 8
LsplrlLu flled a peLlLlon for cerLlorarl and prohlblLlon also before respondenL CourL of Appeals dockeLed
as CAC8 no S 33873 Cn 8 uecember 1994 Lhe Lwo (2) peLlLlons were consolldaLed

Cn 31 AugusL 1993 respondenL appellaLe courL rendered a declslon reverslng Lhe SLC Ln 8anc and held
LhaL from Lhe evldence on record peLlLloner was noL Lhe owner of any share of sLock ln Mr Ms and
Lherefore noL Lhe real parLylnlnLeresL Lo prosecuLe Lhe complalnL she had lnsLlLuLed agalnsL prlvaLe
respondenLs Accordlngly peLlLloner alone and by herself as an agenL could noL flle a derlvaLlve sulL ln
behalf of her prlnclpal lor noL belng Lhe real parLylnlnLeresL peLlLloners complalnL dld noL sLaLe a
cause of acLlon a defense whlch was never walved hence her peLlLlon should have been dlsmlssed
8espondenL appellaLe courL ruled LhaL Lhe assalled orders of Lhe SLC were lssued ln excess of
[urlsdlcLlon or wanL of lL and Lhus were null and vold 3 Cn 18 !anuary 1996 peLlLloners moLlon for
reconslderaLlon was denled for lack of merlL

8efore Lhls CourL peLlLloner submlLs LhaL ln paragraph 1 under Lhe capLlon l 1he arLles of her
Amended eLlLlon before Lhe SLC she sLaLed LhaL she was a sLockholder and dlrecLor of Mr Ms ln
par 1 under Lhe capLlon ll 1he lacLs she declared LhaL she ls Lhe reglsLered owner of 1000 shares of
sLock of Mr Ms ouL of Lhe laLLers 4088 LoLal ouLsLandlng shares and LhaL she was a member of Lhe
8oard of ulrecLors of Mr Ms and Lreasurer from lLs lncepLlon unLll 11 Aprll 1989 eLlLloner conLends
LhaL prlvaLe respondenLs dld noL deny Lhe above allegaLlons ln Lhelr answer and Lherefore Lhey are
concluslvely bound by Lhls [udlclal admlsslon ConsequenLly prlvaLe respondenLs admlsslon LhaL
peLlLloner has 1000 shares of sLock reglsLered ln her name ln Lhe books of Mr Ms forecloses any
quesLlon on her sLaLus and rlghL Lo brlng a derlvaLlve sulL on behalf of Mr Ms

noL necessarlly A parLy whose pleadlng ls admlLLed as an admlsslon agalnsL lnLeresL ls enLlLled Lo
overcome by evldence Lhe apparenL lnconslsLency and lL ls compeLenL for Lhe parLy agalnsL whom Lhe
pleadlng ls offered Lo show LhaL Lhe sLaLemenLs were lnadverLenLly made or were made under a mlsLake
of facL ln addlLlon a parLy agalnsL whom a slngle clause or paragraph of a pleadlng ls offered may have
Lhe rlghL Lo lnLroduce oLher paragraphs whlch Lend Lo desLroy Lhe admlsslon ln Lhe paragraph offered by
Lhe adversary 6

1he Amended eLlLlon before Lhe SLC alleges

l 1PL A81lLS

1 eLlLloner ls a sLockholder and dlrecLor of Mr Ms

ll 1PL lAC1S

1 eLlLloner ls Lhe reglsLered owner of 1000 shares of sLock of Mr Ms ouL of Lhe laLLers 4088 LoLal
ouLsLandlng shares eLlLloner aL all Llmes maLerlal Lo Lhls peLlLlon ls a member of Lhe 8oard of
ulrecLors of Mr Ms and from Lhe lncepLlon of Mr Ms unLll 11 Aprll 1989 was lLs Lreasurer

Cn Lhe oLher hand Lhe Amended Answer Lo Lhe Amended eLlLlon sLaLes

l A81lLS

1 8espondenLs admlL Lhe allegaLlons conLalned ln CapLlon l pars 1 Lo 4 of Lhe eLlLlon referrlng Lo Lhe
personallLy addresses and capaclLy of Lhe parLles Lo Lhe peLlLlon excepL buL quallfy sald admlsslon
lnsofar as Lhey are llmlLed quallfled and/or expanded by allegaLlons ln Lhe AfflrmaLlve
AllegaLlons/uefenses

ll 1PL lAC1S

1 8espondenLs admlL paragraph 1 of Lhe eLlLlon buL quallfy sald admlsslon as Lo Lhe beneflclal
ownershlp of Lhe shares of sLock reglsLered ln Lhe name of Lhe peLlLloner Lhe LruLh belng as sLaLed ln
Lhe AfflrmaLlve AllegaLlons/uefenses of Lhls Answer

v Alll8MA1lvL ALLLCA1lCnS/uLlLnSLS

8espondenLs respecLfully allege by way of AfflrmaLlve AllegaLlons/uefenses LhaL

3 lorLunaLely respondenL AposLol was able Lo convlnce Mr Luls vlllafuerLe Lo Lake lnLeresL ln Lhe
buslness and he LogeLher wlLh Lhe orlglnal lnvesLors resLrucLured Lhe Lx Llbrls ubllshlng Company by
organlzlng a new corporaLlon known as Mr Ms ubllshlng Co lnc Mr Luls vlllafuerLe conLrlbuLed
hls own 10000000 !AkA and respondenL !ose Z AposLol orlglnal lnvesLors of Lx Llbrls conLrlbuLed
10000000 each Lx Llbrls ubllshlng Company was pald 800 shares for Lhe name of Mr Ms
magazlne and goodwlll 1hus Lhe orlglnal sLockholders of respondenL Mr Ms were

CerL/no/uaLe name of SLockholder no of Shares

00191376 !AkA lnvesLmenLs Corp 1000 21

00291376 Luls vlllafuerLe 1000 21

00391376 8amon L Sly 1000 21

00491376 !ose Z AposLol 1000 21

00391376 Lx Llbrls ubllshlng Co 800 16



4800 96

4 1he abovenamed orlglnal sLockholders of respondenL Mr Ms conLlnue Lo be vlrLually Lhe same
sLockholders up Lo Lhls daLe

8 1he peLlLloner belng herself a mlnor sLockholder and holderlnLrusL of !AkA shares represenLed and
conLlnues Lo represenL !AkA ln Lhe 8oard

21 eLlLloner nora A 8lLong ls noL Lhe Lrue parLy Lo Lhls case Lhe Lrue parLy belng !AkA lnvesLmenLs
CorporaLlon whlch conLlnues Lo be Lhe Lrue sLockholder of respondenL Mr Ms ubllshlng Co lnc
consequenLly she does noL have Lhe personallLy Lo lnlLlaLe and prosecuLe Lhls derlvaLlve sulL and should
Lherefore be dlsmlssed

1he answer of prlvaLe respondenLs shows LhaL Lhere was no [udlclal admlsslon LhaL peLlLloner was a
sLockholder of Mr Ms Lo enLlLle her Lo flle a derlvaLlve sulL on behalf of Lhe corporaLlon Where Lhe
sLaLemenLs of Lhe prlvaLe respondenLs were quallfled wlLh phrases such as lnsofar as Lhey are llmlLed
quallfled and/or expanded by Lhe LruLh belng as sLaLed ln Lhe AfflrmaLlve AllegaLlons/uefenses of Lhls
Answer Lhey cannoL be consldered deflnlLe and cerLaln enough cannoL be consLrued as [udlclal
admlsslons 7

More so Lhe afflrmaLlve defenses of prlvaLe respondenLs dlrecLly refuLe Lhe represenLaLlon of peLlLloner
LhaL she ls a Lrue and genulne sLockholder of Mr Ms by sLaLlng unequlvocally LhaL peLlLloner ls noL
Lhe Lrue parLy Lo Lhe case buL !AkA whlch conLlnues Lo be Lhe Lrue sLockholder of Mr Ms ln facL one
of Lhe rellefs whlch prlvaLe respondenLs prayed for was Lhe dlsmlssal of Lhe peLlLlon on Lhe ground LhaL
peLlLloner dld noL have Lhe legal lnLeresL Lo lnlLlaLe and prosecuLe Lhe same

When Laken ln lLs LoLallLy Lhe Amended Answer Lo Lhe Amended eLlLlon or even Lhe Answer Lo Lhe
Amended eLlLlon alone clearly ralses an lssue as Lo Lhe legal personallLy of peLlLloner Lo flle Lhe
complalnL Lvery alleged admlsslon ls Laken as an enLlreLy of Lhe facL whlch makes for Lhe one slde wlLh
Lhe quallflcaLlons whlch llmlL modlfy or desLroy lLs effecL on Lhe oLher slde 1he reason for Lhls ls where
parL of a sLaLemenL of a parLy ls used agalnsL hlm as an admlsslon Lhe courL should welgh any oLher
porLlon connecLed wlLh Lhe sLaLemenL whlch Lends Lo neuLrallze or explaln Lhe porLlon whlch ls agalnsL
lnLeresL

ln oLher words whlle Lhe admlsslon ls admlsslble ln evldence lLs probaLlve value ls Lo be deLermlned
from Lhe whole sLaLemenL and oLhers lnLlmaLely relaLed or connecLed LherewlLh as an lnLegraLed unlL
AlLhough acLs or facLs admlLLed do noL requlre proof and cannoL be conLradlcLed however evldence
allunde can be presenLed Lo show LhaL Lhe admlsslon was made Lhrough palpable mlsLake 8 1he rule ls
always ln favor of llberallLy ln consLrucLlon of pleadlngs so LhaL Lhe real maLLer ln dlspuLe may be
submlLLed Lo Lhe [udgmenL of Lhe courL 9

eLlLloner also argues LhaL slnce prlvaLe respondenLs falled Lo appeal Lhe 6 uecember 1990 Crder and
Lhe 3 AugusL 1993 ueclslon of Lhe SLC Pearlng anel declarlng LhaL she was Lhe real parLylnlnLeresL
and had legal personallLy Lo sue Lhey are now esLopped from quesLlonlng her personallLy

noL qulLe 1he 6 uecember 1990 Crder ls clearly an lnLerlocuLory order whlch cannoL be consldered as
havlng flnally resolved on Lhe merlLs Lhe lssue of legal capaclLy of peLlLloner 1he SLC Pearlng anel
dlscussed Lhe lssue of legal capaclLy solely for Lhe purpose of rullng on Lhe appllcaLlon for wrlL of
prellmlnary ln[uncLlon as an lncldenL Lo Lhe maln lssues ralsed ln Lhe complalnL 8elng a mere
lnLerlocuLory order lL ls noL appealable

lor an lnLerlocuLory order refers Lo someLhlng beLween Lhe commencemenL and end of Lhe sulL whlch
decldes some polnL or maLLer buL lL ls noL Lhe flnal declslon of Lhe whole conLroversy 10 1hus even
Lhough Lhe 6 uecember 1990 Crder was adverse Lo prlvaLe respondenLs Lhey had Lhe legal rlghL and
opLlon noL Lo elevaLe Lhe same Lo Lhe SLC Ln 8anc buL raLher Lo awalL Lhe declslon whlch resolves all Lhe
lssues ralsed by Lhe parLles and Lo appeal Lherefrom by asslgnlng all errors LhaL mlghL have been
commlLLed by Lhe Pearlng anel

Cn Lhe oLher hand Lhe 3 AugusL 1993 ueclslon of Lhe Pearlng anel dlsmlsslng Lhe derlvaLlve sulL for
fallure Lo prove Lhe charges of mlsmanagemenL fraud dlsloyalLy and confllcL of lnLeresL and dlssolvlng
Lhe wrlL of prellmlnary ln[uncLlon was favorable Lo prlvaLe respondenLs Pence Lhey were noL expecLed
Lo appeal Lherefrom

ln facL ln Lhe 3 AugusL 1993 ueclslon Lhe Pearlng anel caLegorlcally sLaLed LhaL Lhe evldence
presenLed showed LhaL Lhe real parLylnlnLeresL was noL peLlLloner 8lLong buL !AkA and/or SenaLor
Lnrlle eLlLloner was merely allowed Lo prosecuLe her complalnL so as noL Lo sldeLrack Lhe real lssue Lo
be resolved (whlch) was Lhe allegaLlon of mlsmanagemenL fraud and confllcL of lnLeresL allegedly
commlLLed by respondenL Lugenla u AposLol lL was only for Lhls reason LhaL peLlLloner was consldered
Lo be capaclLaLed and compeLenL Lo flle Lhe peLlLlon

Accordlngly wlLh Lhe dlsmlssal of Lhe complalnL of peLlLloner agalnsL prlvaLe respondenLs Lhere was no
compelllng reason for Lhe laLLer Lo appeal Lo Lhe SLC Ln 8anc lL was ln facL peLlLloners Lurn as Lhe
aggrleved parLy Lo exerclse her rlghL Lo appeal from Lhe declslon lL ls worLhy Lo noLe LhaL even durlng
Lhe appeal of peLlLloner before Lhe SLC Ln 8anc prlvaLe respondenLs malnLalned Lhelr vlgorous ob[ecLlon
Lo Lhe appeal and relLeraLed peLlLloners lack of legal capaclLy Lo sue before Lhe SLC

eLlLloner Lhen conLends LhaL she was a holder of Lhe proper cerLlflcaLes of shares of sLock and LhaL Lhe
Lransfer was recorded ln Lhe SLock and 1ransfer 8ook of Mr Ms She lnvokes Sec 63 of 1he
CorporaLlon Code whlch provldes LhaL no Lransfer shall be valld excepL as beLween Lhe parLles unLll Lhe
Lransfer ls recorded ln Lhe books of Lhe corporaLlon and upon lLs recordlng Lhe corporaLlon ls bound by
lL and ls esLopped Lo deny Lhe facL of Lransfer of sald shares eLlLloner alleges LhaL even ln Lhe absence
of a sLock cerLlflcaLe a sLockholder solely on Lhe sLrengLh of Lhe recordlng ln Lhe sLock and Lransfer book
can exerclse all Lhe rlghLs as sLockholder lncludlng Lhe rlghL Lo flle a derlvaLlve sulL ln Lhe name of Lhe
corporaLlon And she need noL presenL a separaLe deed of sale or Lransfer ln her favor Lo prove
ownershlp of sLock

Sec 63 of 1he CorporaLlon Code expressly provldes

Sec 63 CerLlflcaLe of sLock and Lransfer of shares 1he caplLal sLock of sLock corporaLlons shall be
dlvlded lnLo shares for whlch cerLlflcaLes slgned by Lhe presldenL or vlce presldenL counLerslgned by Lhe
secreLary or asslsLanL secreLary and sealed wlLh Lhe seal of Lhe corporaLlon shall be lssued ln
accordance wlLh Lhe bylaws Shares of sLock so lssued are personal properLy and may be Lransferred by
dellvery of Lhe cerLlflcaLe or cerLlflcaLes lndorsed by Lhe owner or hls aLLorneylnfacL or oLher person
legally auLhorlzed Lo make Lhe Lransfer no Lransfer however shall be valld excepL as beLween Lhe
parLles unLll Lhe Lransfer ls recorded ln Lhe books of Lhe corporaLlon showlng Lhe names of Lhe parLles Lo
Lhe LransacLlon Lhe daLe of Lhe Lransfer Lhe number of Lhe cerLlflcaLe or cerLlflcaLes and Lhe number of
shares Lransferred

1hls provlslon above quoLed envlslons a formal cerLlflcaLe of sLock whlch can be lssued only upon
compllance wlLh cerLaln requlslLes llrsL Lhe cerLlflcaLes musL be slgned by Lhe presldenL or vlce
presldenL counLerslgned by Lhe secreLary or asslsLanL secreLary and sealed wlLh Lhe seal of Lhe
corporaLlon A mere LypewrlLLen sLaLemenL advlslng a sLockholder of Lhe exLenL of hls ownershlp ln a
corporaLlon wlLhouL quallflcaLlon and/or auLhenLlcaLlon cannoL be consldered as a formal cerLlflcaLe of
sLock 11 Second dellvery of Lhe cerLlflcaLe ls an essenLlal elemenL of lLs lssuance Pence Lhere ls no
lssuance of a sLock cerLlflcaLe where lL ls never deLached from Lhe sLock books alLhough blanks Lhereln
are properly fllled up lf Lhe person whose name ls lnserLed Lhereln has no conLrol over Lhe books of Lhe
company 12 1hlrd Lhe par value as Lo par value shares or Lhe full subscrlpLlon as Lo no par value
shares musL flrsL be fully pald lourLh Lhe orlglnal cerLlflcaLe musL be surrendered where Lhe person
requesLlng Lhe lssuance of a cerLlflcaLe ls a Lransferee from a sLockholder

1he cerLlflcaLe of sLock lLself once lssued ls a conLlnulng afflrmaLlon or represenLaLlon LhaL Lhe sLock
descrlbed Lhereln ls valld and genulne and ls aL leasL prlma facle evldence LhaL lL was legally lssued ln Lhe
absence of evldence Lo Lhe conLrary Powever Lhls presumpLlon may be rebuLLed 13 Slmllarly books
and records of a corporaLlon whlch lnclude even Lhe sLock and Lransfer book are generally admlsslble ln
evldence ln favor of or agalnsL Lhe corporaLlon and lLs members Lo prove Lhe corporaLe acLs lLs flnanclal
sLaLus and oLher maLLers lncludlng ones sLaLus as a sLockholder 1hey are ordlnarlly Lhe besL evldence of
corporaLe acLs and proceedlngs

Powever Lhe books and records of a corporaLlon are noL concluslve even agalnsL Lhe corporaLlon buL
are prlma facle evldence only arol evldence may be admlLLed Lo supply omlsslons ln Lhe records
explaln amblgulLles or show whaL Lransplred where no records were kepL or ln some cases where such
records were conLradlcLed 14 1he effecL of enLrles ln Lhe books of Lhe corporaLlon whlch purporL Lo be
regular records of Lhe proceedlngs of lLs board of dlrecLors or sLockholders can be desLroyed by
LesLlmony of a more concluslve characLer Lhan mere susplclon LhaL Lhere was an lrregularlLy ln Lhe
manner ln whlch Lhe books were kepL 13

1he foregolng conslderaLlons are founded on Lhe baslc prlnclple LhaL sLock lssued wlLhouL auLhorlLy and
ln vlolaLlon of law ls vold and confers no rlghLs on Lhe person Lo whom lL ls lssued and sub[ecLs hlm Lo no
llablllLles 16 Where Lhere ls an lnherenL lack of power ln Lhe corporaLlon Lo lssue Lhe sLock nelLher Lhe
corporaLlon nor Lhe person Lo whom Lhe sLock ls lssued ls esLopped Lo quesLlon lLs valldlLy slnce an
esLopped cannoL operaLe Lo creaLe sLock whlch under Lhe law cannoL have exlsLence 17

As found by Lhe Pearlng anel and afflrmed by respondenL CourL of Appeals Lhere ls overwhelmlng
evldence LhaL desplLe whaL appears on Lhe cerLlflcaLe of sLock and sLock and Lransfer book peLlLloner
was noL a bona flde sLockholder of Mr Ms before March 1989 or aL Lhe Llme Lhe complalned acLs
were commlLLed Lo quallfy her Lo lnsLlLuLe a sLockholders derlvaLlve sulL agalnsL prlvaLe respondenLs
Aslde from peLlLloners own admlsslons several corporaLe documenLs dlsclose LhaL Lhe Lrue parLyln
lnLeresL ls noL peLlLloner buL !AkA

1hus whlle peLlLloner asserLs ln her peLlLlon LhaL CerLlflcaLe of SLock no 008 daLed 23 !uly 1983 was
lssued ln her name prlvaLe respondenLs argue LhaL Lhls cerLlflcaLe was slgned by respondenL Lugenla u
AposLol as resldenL only ln 1989 and was fraudulenLly anLedaLed by peLlLloner who had possesslon of
Lhe CerLlflcaLe 8ook and Lhe SLock and 1ransfer 8ook rlvaLe respondenLs sLress LhaL peLlLloners
counsel enLered lnLo a sLlpulaLlon on record before Lhe Pearlng anel LhaL Lhe cerLlflcaLe was lndeed
slgned by respondenL AposLol only ln 1989 and noL ln 1983

ln her reply peLlLloner admlLs LhaL whlle respondenL Lugenla u AposLol slgned Lhe CerLlflcaLe of SLock
no 008 ln peLlLloners name only ln 1989 lL was lssued by Lhe corporaLe secreLary ln 1983 and LhaL Lhe
oLher cerLlflcaLes coverlng shares ln Mr Ms had noL yeL been slgned by respondenL Lugenla u
AposLol aL Lhe Llme of Lhe flllng of Lhe complalnL wlLh Lhe SLC alLhough Lhey were lssued years before

8ased on Lhe foregolng admlsslon of peLlLloner Lhere ls no LruLh Lo Lhe sLaLemenL wrlLLen ln CerLlflcaLe
of SLock no 008 LhaL Lhe same was lssued and slgned on 23 !uly 1983 by lLs duly auLhorlzed offlcers
speclflcally Lhe resldenL and CorporaLe SecreLary because Lhe acLual daLe of slgnlng Lhereof was 17
March 1989 verlly a formal cerLlflcaLe of sLock could noL be consldered lssued ln conLemplaLlon of law
unless slgned by Lhe presldenL or vlcepresldenL and counLerslgned by Lhe secreLary or asslsLanL
secreLary

ln Lhls case conLrary Lo peLlLloners submlsslon Lhe CerLlflcaLe of SLock no 008 was only legally lssued
on 17 March 1989 when lL was acLually slgned by Lhe resldenL of Lhe corporaLlon and noL before LhaL
daLe Whlle a cerLlflcaLe of sLock ls noL necessary Lo make one a sLockholder eg where he ls an
lncorporaLor and llsLed as sLockholder ln Lhe arLlcles of lncorporaLlon alLhough no cerLlflcaLe of sLock has
yeL been lssued lL ls supposed Lo serve as paper represenLaLlve of Lhe sLock lLself and of Lhe owners
lnLeresL Lhereln Pence when CerLlflcaLe of SLock no 008 was admlLLedly slgned and lssued only on 17
March 1989 and noL on 23 !uly 1983 even as lL lndlcaLes LhaL peLlLloner owns 997 shares of sLock of Mr
Ms Lhe cerLlflcaLe has no evldenLlary value for Lhe purpose of provlng LhaL peLlLloner was a
sLockholder slnce 1983 up Lo 1989

And even Lhe facLual anLecedenLs of Lhe alleged ownershlp by peLlLloner ln 1983 of shares of sLock of
Mr Ms are lndlsLlncLlve lf noL enshrouded ln lnconslsLencles ln her LesLlmony before Lhe Pearlng
anel peLlLloner sald LhaL early ln 1983 Lo relleve Mr Ms from pollLlcal pressure SenaLor Lnrlle
declded Lo dlvesL Lhe famlly holdlngs ln Mr Ms as he was Lhen parL of Lhe governmenL and Mr Ms
was evolvlng Lo be an opposlLlon newspaper 1he !AkA shares numberlng 1000 covered by CerLlflcaLe of
SLock no 001 were Lhus Lransferred Lo respondenL Lugenla u AposLol ln LrusL or ln blank 18

eLlLloner now clalms LhaL a few days afLer !AkAs shares were Lransferred Lo respondenL Lugenla u
AposLol SenaLor Lnrlle sold Lo peLlLloner 997 shares of !AkA lor Lhls purpose a deed of sale was
execuLed and anLedaLed Lo 10 May 1983 19 1hls submlsslon of peLlLloner ls however conLradlcLed by
Lhe records whlch show LhaL a deed of sale was execuLed by !AkA Lransferrlng 1000 shares of Mr Ms
Lo respondenL AposLol on 10 May 1983 and noL Lo peLlLloner 20

1hen SenaLor Lnrlle LesLlfled LhaL ln May or !une 1983 he was asked aL a medla lnLervlew lf hls famlly
owned shares of sLock ln Mr Ms AlLhough he and hls famlly were sLockholders aL LhaL Llme he denled
lL so as noL Lo embarrass Lhe magazlne Pe called up peLlLloner and lnsLrucLed her Lo work ouL Lhe
documenLaLlon of Lhe Lransfer of shares from !AkA Lo respondenL AposLol Lo be covered by a
declaraLlon of LrusL Pls lnsLrucLlon was Lo Lransfer Lhe shares of !AkA ln Mr Ms and Lx Llbrls Lo
respondenL AposLol as a nomlnal holder Pe Lhen flnally declded Lo Lransfer Lhe shareholdlngs Lo
peLlLloner 21

When asked lf Lhere was any documenL or any wrlLLen evldence of LhaL dlvesLmenL ln favor of
peLlLloner SenaLor Lnrlle answered LhaL Lhere was an endorsemenL of Lhe shares of sLock Pe sald LhaL
Lhere was no oLher documenL evldenclng Lhe asslgnmenL Lo peLlLloner because Lhe sLocks were personal
properLy LhaL could be Lransferred even orally 22 ConLrary Lo SenaLor Lnrlles LesLlmony however
peLlLloner malnLalns LhaL SenaLor Lnrlle execuLed a deed of sale ln her favor

A careful perusal of Lhe records shows LhaL nelLher Lhe alleged endorsemenL of CerLlflcaLe of SLock no
001 ln Lhe name of !AkA nor Lhe alleged deed of sale execuLed by SenaLor Lnrlle dlrecLly ln favor of
peLlLloner could have legally Lransferred or asslgned on 23 !uly 1983 Lhe shares of sLock ln favor of
peLlLloner because as of 10 May 1983 CerLlflcaLe of SLock no 001 ln Lhe name of !AkA was already
cancelled and a new one CerLlflcaLe of SLock no 007 lssued ln favor of respondenL AposLol by vlrLue of
a ueclaraLlon of 1rusL and ueed of Sale 23

lL should be emphaslzed LhaL on 10 May 1983 !AkA execuLed a deed of sale over 1000 Mr Ms
shares ln favor of respondenL Lugenlo u AposLol Cn Lhe same day respondenL AposLol slgned a
declaraLlon of LrusL sLaLlng LhaL she was Lhe reglsLered owner of 1000 Mr Ms shares covered by
CerLlflcaLe of SLock no 007

1he declaraLlon of LrusL furLher showed LhaL alLhough respondenL AposLol was Lhe reglsLered owner
she held Lhe shares of sLock and dlvldends whlch mlghL be pald ln connecLlon LherewlLh solely ln LrusL
for Lhe beneflL of !AkA her prlnclpal lL was also sLaLed Lhereln LhaL belng a LrusLee respondenL AposLol
agreed on wrlLLen requesL of Lhe prlnclpal Lo asslgn and Lransfer Lhe shares of sLock and any and all
such dlsLrlbuLlons or dlvldends unLo Lhe prlnclpal or such oLher person as Lhe prlnclpal would nomlnaLe
or appolnL

eLlLloner was well aware of Lhls LrusL belng Lhe person ln charge of Lhls documenLaLlon and belng one
of Lhe wlLnesses Lo Lhe execuLlon of Lhls
documenL 24 Pence Lhe mere alleged endorsemenL of CerLlflcaLe of SLock no 001 by SenaLor Lnrlle or
by a duly auLhorlzed offlcer of !AkA Lo effecL Lhe Lransfer of shares of !AkA Lo peLlLloner could noL have
been legally feaslble because CerLlflcaLe of SLock no 001 was already canceled by vlrLue of Lhe deed of
sale Lo respondenL AposLol

And Lhere ls noLhlng ln Lhe records whlch shows LhaL !AkA had revoked Lhe LrusL lL reposed on
respondenL Lugenla u AposLol nelLher was Lhere any evldence LhaL Lhe prlnclpal had requesLed her Lo
asslgn and Lransfer Lhe shares of sLock Lo peLlLloner lf lL was Lrue LhaL Lhe shares of sLock covered by
CerLlflcaLe of SLock no 007 had been Lransferred Lo peLlLloner Lhe person who could legally endorse
Lhe cerLlflcaLe was prlvaLe respondenL Lugenla u AposLol she belng Lhe reglsLered owner and LrusLee of
Lhe shares of sLock covered by CerLlflcaLe of SLock no 007 lL ls a seLLled rule LhaL Lhe LrusLee should
endorse Lhe sLock cerLlflcaLe Lo valldaLe Lhe cancellaLlon of her share and Lo have Lhe Lransfer recorded
ln Lhe books of Lhe corporaLlon 23

ln flne Lhe records are unclear on how peLlLloner allegedly acqulred Lhe shares of sLock of !AkA
eLlLloner belng Lhe chlef execuLlve offlcer of !AkA and Lhe sole person ln charge of all buslness and
flnanclal LransacLlons and affalrs of !AkA 26 was supposed Lo be ln Lhe besL poslLlon Lo show convlnclng
evldence on Lhe alleged Lransfer of shares Lo her lf lndeed Lhere was a Lransfer Conslderlng LhaL
peLlLloners sLaLus ls belng quesLloned and several facLual clrcumsLances have been presenLed by prlvaLe
respondenLs dlsprovlng peLlLloners clalm lL was lncumbenL upon her Lo submlL rebuLLal evldence on
Lhe manner by whlch she allegedly became a sLockholder Per fallure Lo do so Laken ln Lhe llghL of
several subsLanLlal lnconslsLencles ln her evldence ls faLal Lo her case

1he rule ls LhaL Lhe endorsemenL of Lhe cerLlflcaLe of sLock by Lhe owner or hls aLLorneylnfacL or any
oLher person legally auLhorlzed Lo make Lhe Lransfer shall be sufflclenL Lo effecL Lhe Lransfer of shares
only lf Lhe same ls coupled wlLh dellvery 1he dellvery of Lhe sLock cerLlflcaLe duly endorsed by Lhe
owner ls Lhe operaLlve acL of Lransfer of shares from Lhe lawful owner Lo Lhe new Lransferee

1hus for a valld Lransfer of sLocks Lhe requlremenLs are as follows (a) 1here musL be dellvery of Lhe
sLock cerLlflcaLe (b) 1he cerLlflcaLe musL be endorsed by Lhe owner or hls aLLorneylnfacL or oLher
persons legally auLhorlzed Lo make Lhe Lransfer and (c) Lo be valld agalnsL Lhlrd parLles Lhe Lransfer
musL be recorded ln Lhe books of Lhe corporaLlon 27 AL mosL ln Lhe lnsLanL case peLlLloner has
saLlsfled only Lhe Lhlrd requlremenL Compllance wlLh Lhe flrsL Lwo requlslLes has noL been clearly and
sufflclenLly shown

Conslderlng LhaL Lhe requlremenLs provlded under Sec 63 of 1he CorporaLlon Code should be
mandaLorlly complled wlLh Lhe rule on presumpLlon of regularlLy cannoL apply 1he regularlLy and
valldlLy of Lhe Lransfer musL be proved As lL ls even Lhe credlblllLy of Lhe sLock and Lransfer book and
Lhe enLrles Lhereon relled upon by peLlLloner Lo show compllance wlLh Lhe Lhlrd requlslLe Lo prove LhaL
she was a sLockholder slnce 1983 ls hlghly doubLful

1he records show LhaL Lhe orlglnal sLock and Lransfer book and Lhe sLock cerLlflcaLe book of Mr Ms
were ln Lhe possesslon of peLlLloner before Lhelr cusLody was Lransferred Lo Lhe CorporaLe SecreLary
ALLy AugusLo San edro 28 Cn 23 May 1988 AsslsLanL CorporaLe SecreLary 8enaLo !ose unson wroLe
Mr Ms abouL Lhe losL sLock and Lransfer book whlch was also noLed by Lhe corporaLlons exLernal
audlLors unongbayan and Araullo ln Lhelr audlL ALLy unson even lnformed respondenL Lugenla u
AposLol as resldenL of Mr Ms LhaL sLeps would be underLaken Lo prepare and reglsLer a new SLock
and 1ransfer 8ook wlLh Lhe SLC lncldenLally perhaps sLrangely upon verlflcaLlon wlLh Lhe SLC lL was
dlscovered LhaL Lhe general flle of Lhe corporaLlon wlLh Lhe SLC was mlsslng Pence lL was even posslble
LhaL Lhe orlglnal SLock and 1ransfer 8ook mlghL noL have been reglsLered aL all

Cn 20 CcLober 1988 respondenL Lugenla u AposLol wroLe ALLy AugusLo San edro noLlng Lhe changes
he had made ln Lhe SLock and 1ransfer 8ook wlLhouL prlor noLlce Lo Lhe corporaLe offlcers 29 ln Lhe 27
CcLober 1988 dlrecLors meeLlng respondenL Lugenla u AposLol asked abouL Lhe documenLaLlon Lo
supporL Lhe changes ln Lhe SLock and 1ransfer 8ook wlLh regard Lo Lhe !AkA shares eLlLloner answered
LhaL ALLy San edro made Lhe changes upon her lnsLrucLlons conformably wlLh esLabllshed pracLlce 30

1hls slmply shows LhaL as of 1988 Lhere sLlll exlsLed cerLaln lssues affecLlng Lhe ownershlp of Lhe !AkA
shares Lhus ralslng doubLs wheLher Lhe alleged LransacLlons recorded ln Lhe SLock and 1ransfer 8ook
were proper regular and auLhorlzed 1hen as lf Lo magnlfy and compound Lhe uncerLalnLles ln Lhe
ownershlp of Lhe shares of sLock ln quesLlon when Lhe corporaLe secreLary reslgned Lhe SLock and
1ransfer 8ook was dellvered noL Lo Lhe corporaLe offlce where Lhe book should be kepL buL Lo
peLlLloner 31

1haL !AkA reLalned lLs ownershlp of lLs Mr Ms shares was clearly shown by lLs recelpL of Lhe
dlvldends lssued ln uecember 1986 32 1hls only means very obvlously LhaL Mr Ms shares ln
quesLlon sLlll belonged Lo !AkA and noL Lo peLlLloner lor dlvldends are dlsLrlbuLed Lo sLockholders
pursuanL Lo Lhelr rlghL Lo share ln corporaLe proflLs When a dlvldend ls declared lL belongs Lo Lhe
person who ls Lhe subsLanLlal and beneflclal owner of Lhe sLock aL Lhe Llme regardless of when Lhe
dlsLrlbuLlon proflL was earned 33

llnally Lhls CourL Lakes noLlce of Lhe glarlng and open admlsslons of peLlLloner made noL [usL seven (7)
buL nlne (9) Llmes durlng Lhe 22 SepLember 1988 meeLlng of Lhe board of dlrecLors LhaL Lhe Lnrlles
were her prlnclpals or shareholders as shown by Lhe mlnuLes Lhereof whlch she duly slgned 34

3 Mrs L AposLol explalned Lo Lhe ulrecLors LhaL Lhrough her efforLs Lhe asseL base of Lhe Company has
lmproved and proflLs were reallzed lL ls for Lhls reason LhaL Lhe Company has declared a 100 cash
dlvldend ln 1986 She sald LhaL lL ls up for Lhe 8oard Lo declde based on Lhls performance wheLher she
should conLlnue Lo acL as 8oard Chalrman or noL ln Lhls regard Ms nA 8lLong expressed her
recollecLlon of how LxLlbrls/Mr Ms were organlzed and her parLlclpaLlon for and on behalf of her
prlnclpals as follows She recalled LhaL her prlnclpals were lnvlLed by Mrs L AposLol Lo lnvesL ln Lx
Llbrls and evenLually Mr Ms 1he relaLlonshlp beLween her prlnclpals and Mrs L AposLol made lL
posslble for Lhe laLLer Lo have access Lo several lnformaLlon concernlng cerLaln pollLlcal evenLs and
lssues ln many lnsLances her prlnclpals supplled flrsL hand and newsworLhy lnformaLlon LhaL made Mr
Ms a popular
paper

6 Accordlng Lo Ms 8lLong her prlnclpals were lnsLrumenLal ln helplng Mr Ms survlve durlng Lhose
years LhaL lL was cash sLrapped Ms nA 8lLong polnLed ouL LhaL Lhe pracLlce of uslng Lhe former
MlnlsLers lnfluence and sLaLure ln Lhe governmenL ls one Lhlng whlch her prlnclpals Lhemselves are
sLrongly agalnsL

7 AL Lhls polnL Ms n 8lLong agaln expressed her recollecLlon of Lhe sub[ecL maLLer as follows (a)
Mrs L AposLol she remembers broughL up Lhe concepL of a cooperaLlveran newspaper company ln
one of her breakfasL sesslon wlLh her prlnclpals someLlme durlng Lhe end of 1983 Per prlnclpals when
asked for an oplnlon sald LhaL Lhey recognlzed Lhe concepL as someLhlng very noble and vlslble
1hen Ms 8lLong asked a very speclflc quesLlon When you concepLuallzed LxLlbrls and Mr Ms
dld you noL Lhlnk of my shareholders Lhe once Lnrlles as llablllLles? Pow come you assoclaLed yourself
wlLh Lhem Lhen and noL now? WhaL ls Lhe dlfference? Mrs AposLol dld noL answer Lhe quesLlon

1he admlsslons of a parLy agalnsL hls lnLeresL lnscrlbed upon Lhe record books of a corporaLlon are
compeLenL and persuaslve evldence agalnsL hlm 33 1hese admlsslons render nugaLory any argumenL
LhaL peLlLloner ls a bona flde sLockholder of Mr Ms aL any Llme before 1988 or aL Lhe Llme Lhe acLs
complalned of were commlLLed 1here ls no doubL LhaL peLlLloner was an employee of !AkA as lLs
managlng offlcer as LesLlfled Lo by SenaLor Lnrlle hlmself 36 Powever ln Lhe absence of a speclal
auLhorlLy from Lhe board of dlrecLors of !AkA Lo lnsLlLuLe a derlvaLlve sulL for and ln lLs behalf peLlLloner
ls dlsquallfled by law Lo sue ln her own name 1he power Lo sue and be sued ln any courL by a
corporaLlon even as a sLockholder ls lodged ln Lhe board of dlrecLors LhaL exerclses lLs corporaLe powers
and noL ln Lhe presldenL or offlcer Lhereof 37

lL ls well seLLled ln Lhls [urlsdlcLlon LhaL where corporaLe dlrecLors are gullLy of a breach of LrusL noL of
mere error of [udgmenL or abuse of dlscreLlon and lnLracorporaLe remedy ls fuLlle or useless a
sLockholder may lnsLlLuLe a sulL ln behalf of hlmself and oLher sLockholders and for Lhe beneflL of Lhe
corporaLlon Lo brlng abouL a redress of Lhe wrong lnfllcLed dlrecLly upon Lhe corporaLlon and lndlrecLly
upon Lhe sLockholders 38 1he sLockholders rlghL Lo lnsLlLuLe a derlvaLlve sulL ls noL based on any
express provlslon of 1he CorporaLlon Code buL ls lmplledly recognlzed when Lhe law makes corporaLe
dlrecLors or offlcers llable for damages suffered by Lhe corporaLlon and lLs sLockholders for vlolaLlon of
Lhelr flduclary duLles

Pence a sLockholder may sue for mlsmanagemenL wasLe or dlsslpaLlon of corporaLe asseLs because of a
speclal ln[ury Lo hlm for whlch he ls oLherwlse wlLhouL redress 39 ln effecL Lhe sulL ls an acLlon for
speclflc performance of an obllgaLlon owed by Lhe corporaLlon Lo Lhe sLockholders Lo asslsL lLs rlghLs of
acLlon when Lhe corporaLlon has been puL ln defaulL by Lhe wrongful refusal of Lhe dlrecLors or
managemenL Lo make sulLable measures for lLs proLecLlon 40

1he basls of a sLockholders sulL ls always one ln equlLy Powever lL cannoL prosper wlLhouL flrsL
complylng wlLh Lhe legal requlslLes for lLs lnsLlLuLlon 1he mosL lmporLanL of Lhese ls Lhe bona flde
ownershlp by a sLockholder of a sLock ln hls own rlghL aL Lhe Llme of Lhe LransacLlon complalned of
whlch lnvesLs hlm wlLh sLandlng Lo lnsLlLuLe a derlvaLlve acLlon for Lhe beneflL of Lhe corporaLlon 41

WPL8LlC8L Lhe peLlLlon ls uLnlLu 1he 31 AugusL 1993 ueclslon of Lhe CourL of Appeals dlsmlsslng Lhe
complalnL of peLlLloner nora A 8lLong ln CAC8 no S 33291 and granLlng Lhe peLlLlon for cerLlorarl
and prohlblLlon flled by respondenL Ldgardo u LsplrlLu as well as annulllng Lhe 3 november 1993 24
!anuary 1993 and 18 lebruary 1994 Crders of Lhe SLC Ln 8anc ln CAC8 no S 33873 ls Alll8MLu
CosLs agalnsL peLlLloner








EN BANC
G.R. No. L-23145 November 29, 1968
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D.
TAYAG, ancillary administrator-appellee,
-versus-
BENGUET CONSOLIDATED, INC., oppositor-appellant.
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.
FERNANDO,
ConIronted by an obstinate and adamant reIusal oI the domiciliary administrator, the
County Trust Company oI New York, United States oI America, oI the estate oI the
deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to
surrender to the ancillary administrator in the Philippines the stock certiIicates owned
by her in a Philippine corporation, Benguet Consolidated, Inc., to satisIy the
legitimate claims oI local creditors, the lower court, then presided by the Honorable
Arsenio Santos, now retired, issued on May 18, 1964, an order oI this tenor: "AIter
considering the motion oI the ancillary administrator, dated February 11, 1964, as
well as the opposition Iiled by the Benguet Consolidated, Inc., the Court hereby (1)
considers as lost Ior all purposes in connection with the administration and liquidation
oI the Philippine estate oI Idonah Slade Perkins the stock certiIicates covering the
33,002 shares oI stock standing in her name in the books oI the Benguet Consolidated,
Inc., (2) orders said certiIicates cancelled, and (3) directs said corporation to issue new
certiIicates in lieu thereoI, the same to be delivered by said corporation to either the
incumbent ancillary administrator or to the Probate Division oI this Court."
1

From such an order, an appeal was taken to this Court not by the domiciliary
administrator, the County Trust Company oI New York, but by the Philippine
corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The
challenged order represents a response and expresses a policy, to paraphrase
FrankIurter, arising out oI a speciIic problem, addressed to the attainment oI speciIic
ends by the use oI speciIic remedies, with Iull and ample support Irom legal doctrines
oI weight and signiIicance.
The Iacts will explain why. As set Iorth in the brieI oI appellant Benguet
Consolidated, Inc., Idonah Slade Perkins, who died on March 27, 1960 in New York
City, leIt among others, two stock certiIicates covering 33,002 shares oI appellant, the
certiIicates being in the possession oI the County Trust Company oI New York, which
as noted, is the domiciliary administrator oI the estate oI the deceased.
2
Then came
this portion oI the appellant's brieI: "On August 12, 1960, Prospero Sanidad instituted
ancillary administration proceedings in the Court oI First Instance oI Manila; Lazaro
A. Marquez was appointed ancillary administrator, and on January 22, 1963, he was
substituted by the appellee Renato D. Tayag. A dispute arose between the domiciary
administrator in New York and the ancillary administrator in the Philippines as to
which oI them was entitled to the possession oI the stock certiIicates in question. On
January 27, 1964, the Court oI First Instance oI Manila ordered the domiciliary
administrator, County Trust Company, to "produce and deposit" them with the
ancillary administrator or with the Clerk oI Court. The domiciliary administrator did
not comply with the order, and on February 11, 1964, the ancillary administrator
petitioned the court to "issue an order declaring the certiIicate or certiIicates oI stocks
covering the 33,002 shares issued in the name oI Idonah Slade Perkins by Benguet
Consolidated, Inc., be declared |or| considered as lost."
3

It is to be noted Iurther that appellant Benguet Consolidated, Inc. admits that "it is
immaterial" as Iar as it is concerned as to "who is entitled to the possession oI the
stock certiIicates in question; appellant opposed the petition oI the ancillary
administrator because the said stock certiIicates are in existence, they are today in the
possession oI the domiciliary administrator, the County Trust Company, in New York,
U.S.A...."
4

It is its view, thereIore, that under the circumstances, the stock certiIicates cannot be
declared or considered as lost. Moreover, it would allege that there was a Iailure to
observe certain requirements oI its by-laws beIore new stock certiIicates could be
issued. Hence, its appeal.
As was made clear at the outset oI this opinion, the appeal lacks merit. The challenged
order constitutes an emphatic aIIirmation oI judicial authority sought to be
emasculated by the wilIul conduct oI the domiciliary administrator in reIusing to
accord obedience to a court decree. How, then, can this order be stigmatized as
illegal?
As is true oI many problems conIronting the judiciary, such a response was called Ior
by the realities oI the situation. What cannot be ignored is that conduct bordering on
wilIul deIiance, iI it had not actually reached it, cannot without undue loss oI judicial
prestige, be condoned or tolerated. For the law is not so lacking in Ilexibility and
resourceIulness as to preclude such a solution, the more so as deeper reIlection would
make clear its being buttressed by indisputable principles and supported by the
strongest policy considerations.
It can truly be said then that the result arrived at upheld and vindicated the honor oI
the judiciary no less than that oI the country. Through this challenged order, there is
thus dispelled the atmosphere oI contingent Irustration brought about by the
persistence oI the domiciliary administrator to hold on to the stock certiIicates aIter it
had, as admitted, voluntarily submitted itselI to the jurisdiction oI the lower court by
entering its appearance through counsel on June 27, 1963, and Iiling a petition Ior
relieI Irom a previous order oI March 15, 1963.
Thus did the lower court, in the order now on appeal, impart vitality and eIIectiveness
to what was decreed. For without it, what it had been decided would be set at naught
and nulliIied. Unless such a blatant disregard by the domiciliary administrator, with
residence abroad, oI what was previously ordained by a court order could be thus
remedied, it would have entailed, insoIar as this matter was concerned, not a partial
but a well-nigh complete paralysis oI judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power oI the appellee
ancillary administrator to gain control and possession oI all assets oI the decedent
within the jurisdiction oI the Philippines. Nor could it. Such a power is inherent in his
duty to settle her estate and satisIy the claims oI local creditors.
5
As Justice Tuason
speaking Ior this Court made clear, it is a "general rule universally recognized" that
administration, whether principal or ancillary, certainly "extends to the assets oI a
decedent Iound within the state or country where it was granted," the corollary being
"that an administrator appointed in one state or country has no power over property in
another state or country."
6

It is to be noted that the scope oI the power oI the ancillary administrator was, in an
earlier case, set Iorth by Justice Malcolm. Thus: "It is oIten necessary to have more
than one administration oI an estate. When a person dies intestate owning property in
the country oI his domicile as well as in a Ioreign country, administration is had in
both countries. That which is granted in the jurisdiction oI decedent's last domicile is
termed the principal administration, while any other administration is termed the
ancillary administration. The reason Ior the latter is because a grant oI administration
does not ex proprio vigore have any eIIect beyond the limits oI the country in which it
is granted. Hence, an administrator appointed in a Ioreign state has no authority in the
|Philippines|. The ancillary administration is proper, whenever a person dies, leaving
in a country other than that oI his last domicile, property to be administered in the
nature oI assets oI the deceased liable Ior his individual debts or to be distributed
among his heirs."
7

It would Iollow then that the authority oI the probate court to require that ancillary
administrator's right to "the stock certiIicates covering the 33,002 shares ... standing in
her name in the books oI |appellant| Benguet Consolidated, Inc...." be respected is
equally beyond question. For appellant is a Philippine corporation owing Iull
allegiance and subject to the unrestricted jurisdiction oI local courts. Its shares oI
stock cannot thereIore be considered in any wise as immune Irom lawIul court orders.
Our holding in Wells Fargo Bank and Union v. Collector oI Internal Revenue
8
Iinds
application. "In the instant case, the actual situs oI the shares oI stock is in the
Philippines, the corporation being domiciled |here|." To the Iorce oI the above
undeniable proposition, not even appellant is insensible. It does not dispute it. Nor
could it successIully do so even iI it were so minded.
2. In the Iace oI such incontrovertible doctrines that argue in a rather conclusive
Iashion Ior the legality oI the challenged order, how does appellant, Benguet
Consolidated, Inc. propose to carry the extremely heavy burden oI persuasion oI
precisely demonstrating the contrary? It would assign as the basic error allegedly
committed by the lower court its "considering as lost the stock certiIicates covering
33,002 shares oI Benguet belonging to the deceased Idonah Slade Perkins, ..."
9
More
speciIically, appellant would stress that the "lower court could not "consider as lost"
the stock certiIicates in question when, as a matter oI Iact, his Honor the trial Judge
knew, and does know, and it is admitted by the appellee, that the said stock
certiIicates are in existence and are today in the possession oI the domiciliary
administrator in New York."
10

There may be an element oI Iiction in the above view oI the lower court. That
certainly does not suIIice to call Ior the reversal oI the appealed order. Since there is a
reIusal, persistently adhered to by the domiciliary administrator in New York, to
deliver the shares oI stocks oI appellant corporation owned by the decedent to the
ancillary administrator in the Philippines, there was nothing unreasonable or arbitrary
in considering them as lost and requiring the appellant to issue new certiIicates in lieu
thereoI. Thereby, the task incumbent under the law on the ancillary administrator
could be discharged and his responsibility IulIilled.
Any other view would result in the compliance to a valid judicial order being made to
depend on the uncontrolled discretion oI the party or entity, in this case domiciled
abroad, which thus Iar has shown the utmost persistence in reIusing to yield
obedience. Certainly, appellant would not be heard to contend in all seriousness that a
judicial decree could be treated as a mere scrap oI paper, the court issuing it being
powerless to remedy its Ilagrant disregard.
It may be admitted oI course that such alleged loss as Iound by the lower court did not
correspond exactly with the Iacts. To be more blunt, the quality oI truth may be
lacking in such a conclusion arrived at. It is to be remembered however, again to
borrow Irom FrankIurter, "that Iictions which the law may rely upon in the pursuit oI
legitimate ends have played an important part in its development."
11

Speaking oI the common law in its earlier period, Cardozo could state Iictions "were
devices to advance the ends oI justice, |even iI| clumsy and at times oIIensive."
12

Some oI them have persisted even to the present, that eminent jurist, noting "the quasi
contract, the adopted child, the constructive trust, all oI Ilourishing vitality, to attest
the empire oI "as iI" today."
13
He likewise noted "a class oI Iictions oI another order,
the Iiction which is a working tool oI thought, but which at times hides itselI Irom
view till reIlection and analysis have brought it to the light."
14

What cannot be disputed, thereIore, is the at times indispensable role that Iictions as
such played in the law. There should be then on the part oI the appellant a Iurther
reIinement in the catholicity oI its condemnation oI such judicial technique. II ever an
occasion did call Ior the employment oI a legal Iiction to put an end to the anomalous
situation oI a valid judicial order being disregarded with apparent impunity, this is it.
What is thus most obvious is that this particular alleged error does not carry
persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention
by its invoking one oI the provisions oI its by-laws which would set Iorth the
procedure to be Iollowed in case oI a lost, stolen or destroyed stock certiIicate; it
would stress that in the event oI a contest or the pendency oI an action regarding
ownership oI such certiIicate or certiIicates oI stock allegedly lost, stolen or
destroyed, the issuance oI a new certiIicate or certiIicates would await the "Iinal
decision by |a| court regarding the ownership |thereoI|."
15

Such reliance is misplaced. In the Iirst place, there is no such occasion to apply such
by-law. It is admitted that the Ioreign domiciliary administrator did not appeal Irom
the order now in question. Moreover, there is likewise the express admission oI
appellant that as Iar as it is concerned, "it is immaterial ... who is entitled to the
possession oI the stock certiIicates ..." Even iI such were not the case, it would be a
legal absurdity to impart to such a provision conclusiveness and Iinality. Assuming
that a contrariety exists between the above by-law and the command oI a court decree,
the latter is to be Iollowed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a statute,
to which, however, the judiciary must yield deIerence, when appropriately invoked
and deemed applicable. It would be most highly unorthodox, however, iI a corporate
by-law would be accorded such a high estate in the jural order that a court must not
only take note oI it but yield to its alleged controlling Iorce.
The Iear oI appellant oI a contingent liability with which it could be saddled unless
the appealed order be set aside Ior its inconsistency with one oI its by-laws does not
impress us. Its obedience to a lawIul court order certainly constitutes a valid deIense,
assuming that such apprehension oI a possible court action against it could possibly
materialize. Thus Iar, nothing in the circumstances as they have developed gives
substance to such a Iear. Gossamer possibilities oI a Iuture prejudice to appellant do
not suIIice to nulliIy the lawIul exercise oI judicial authority.
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is Iraught
with implications at war with the basic postulates oI corporate theory.
We start with the undeniable premise that, "a corporation is an artiIicial being created
by operation oI law...."
16
It owes its liIe to the state, its birth being purely dependent
on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an
artiIicial person, owing its existence through creation by a sovereign power."
17
As a
matter oI Iact, the statutory language employed owes much to ChieI Justice Marshall,
who in the Dartmouth College decision deIined a corporation precisely as "an
artiIicial being, invisible, intangible, and existing only in contemplation oI law."
18

The well-known authority Fletcher could summarize the matter thus: "A corporation
is not in Iact and in reality a person, but the law treats it as though it were a person by
process oI Iiction, or by regarding it as an artiIicial person distinct and separate Irom
its individual stockholders.... It owes its existence to law. It is an artiIicial person
created by law Ior certain speciIic purposes, the extent oI whose existence, powers
and liberties is Iixed by its charter."
19
Dean Pound's terse summary, a juristic person,
resulting Irom an association oI human beings granted legal personality by the state,
puts the matter neatly.
20

There is thus a rejection oI Gierke's genossenchaft theory, the basic theme oI which to
quote Irom Friedmann, "is the reality oI the group as a social and legal entity,
independent oI state recognition and concession."
21
A corporation as known to
Jurisprudence Online is a creature without any existence until it has received the
imprimatur oI the state according to law. It is logically inconceivable thereIore that it
will have rights and privileges oI a higher priority than that oI its creator. More than
that, it cannot legitimately reIuse to yield obedience to acts oI its state organs,
certainly not excluding the judiciary, whenever called upon to do so.
As a matter oI Iact, a corporation once it comes into being, Iollowing American law
still oI persuasive authority in our jurisdiction, comes more oIten within the ken oI the
judiciary than the other two coordinate branches. It institutes the appropriate court
action to enIorce its right. Correlatively, it is not immune Irom judicial control in
those instances, where a duty under the law as ascertained in an appropriate legal
proceeding is cast upon it.
To assert that it can choose which court order to Iollow and which to disregard is to
conIer upon it not autonomy which may be conceded but license which cannot be
tolerated. It is to argue that it may, when so minded, overrule the state, the source oI
its very existence; it is to contend that what any oI its governmental organs may
lawIully require could be ignored at will. So extravagant a claim cannot possibly merit
approval.
5. One last point. In Viloria v. Administrator oI Veterans AIIairs,
22
it was shown that
in a guardianship proceedings then pending in a lower court, the United States
Veterans Administration Iiled a motion Ior the reIund oI a certain sum oI money paid
to the minor under guardianship, alleging that the lower court had previously granted
its petition to consider the deceased Iather as not entitled to guerilla beneIits according
to a determination arrived at by its main oIIice in the United States. The motion was
denied. In seeking a reconsideration oI such order, the Administrator relied on an
American Iederal statute making his decisions "Iinal and conclusive on all questions
oI law or Iact" precluding any other American oIIicial to examine the matter anew,
"except a judge or judges oI the United States court."
23
Reconsideration was denied,
and the Administrator appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are oI
the opinion that the appeal should be rejected. The provisions oI the U.S. Code,
invoked by the appellant, make the decisions oI the U.S. Veterans' Administrator Iinal
and conclusive when made on claims property submitted to him Ior resolution; but
they are not applicable to the present case, where the Administrator is not acting as a
judge but as a litigant. There is a great diIIerence between actions against the
Administrator (which must be Iiled strictly in accordance with the conditions that are
imposed by the Veterans' Act, including the exclusive review by United States
courts), and those actions where the Veterans' Administrator seeks a remedy Irom our
courts and submits to their jurisdiction by Iiling actions therein. Our attention has not
been called to any law or treaty that would make the Iindings oI the Veterans'
Administrator, in actions where he is a party, conclusive on our courts. That, in eIIect,
would deprive our tribunals oI judicial discretion and render them mere subordinate
instrumentalities oI the Veterans' Administrator."
It is bad enough as the Viloria decision made patent Ior our judiciary to accept as Iinal
and conclusive, determinations made by Ioreign governmental agencies. It is inIinitely
worse iI through the absence oI any coercive power by our courts over juridical
persons within our jurisdiction, the Iorce and eIIectivity oI their orders could be made
to depend on the whim or caprice oI alien entities. It is diIIicult to imagine oI a
situation more oIIensive to the dignity oI the bench or the honor oI the country.
Yet that would be the eIIect, even iI unintended, oI the proposition to which appellant
Benguet Consolidated seems to be Iirmly committed as shown by its Iailure to accept
the validity oI the order complained oI; it seeks its reversal. Certainly we must at all
pains see to it that it does not succeed. The deplorable consequences attendant on
appellant prevailing attest to the necessity oI negative response Irom us. That is what
appellant will get.
That is all then that this case presents. It is obvious why the appeal cannot succeed. It
is always easy to conjure extreme and even oppressive possibilities. That is not
decisive. It does not settle the issue. What carries weight and conviction is the result
arrived at, the just solution obtained, grounded in the soundest oI legal doctrines and
distinguished by its correspondence with what a sense oI realism requires. For through
the appealed order, the imperative requirement oI justice according to law is satisIied
and national dignity and honor maintained.
WHEREFORE, the appealed order oI the Honorable Arsenio Santos, the Judge oI the
Court oI First Instance, dated May 18, 1964, is aIIirmed. With costs against oppositor-
appelant Benguet Consolidated, Inc.












Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 170585 October 6, 2008
DAVID C. LAO and JOSE C. LAO, petitioners,
vs.
DIONISIO C. LAO, respondents.
D E C I S I O N
REYES, R.T., J.:
S the mere inclusion as shareholder in the General nformation Sheet of a corporation sufficient proof that one is a shareholder in such corporation?
This is the main question for resolution in this petition for review on certiorari of the Amended Decision
1
of the Court of Appeals (CA) affirming the Decision
2
of the
Regional Trial Court (RTC), Branch 11, Cebu City in CEB-25916-SRC.
The Facts
On October 15, 1998, petitioners David and Jose Lao filed a petition with the Securities and Exchange Commission (SEC) against respondent Dionisio Lao,
president of Pacific Foundry Shop Corporation (PFSC). Petitioners prayed for a declaration as stockholders and directors of PFSC, issuance of certificates of
shares in their name and to be allowed to examine the corporate books of PFSC.
3

Petitioners claimed that they are stockholders of PFSC based on the General nformation Sheet filed with the SEC, in which they are named as stockholders and
directors of the corporation. Petitioner David Lao alleged that he acquired 446 shares in PFSC from his father, Lao Pong Bao, which shares were previously
purchased from a certain Hipolito Lao. Petitioner Jose Lao, on the other hand, alleged that he acquired 333 shares from respondent Dionisio Lao himself.
4

Respondent denied petitioners' claim. He alleged that the inclusion of their names in the corporation's General nformation Sheet was inadvertently made. He also
claimed that petitioners did not acquire any shares in PFSC by any of the modes recognized by law, namely subscription, purchase, or transfer. Since they were
neither stockholders nor directors of PFSC, petitioners had no right to be issued certificates or stocks or to inspect its corporate books.
5

On June 19, 2000, Republic Act 8799, otherwise known as the Securities Regulation Code, was enacted, transferring jurisdiction over all intra-corporate disputes
from the SEC to the RTC. Pursuant to the law, the petition with the SEC was transferred to the RTC in Cebu City and docketed as Civil Case No. CEB-25916-
SRC. The case was consolidated with another intra-corporate dispute, Civil Case No. CEB-25910-SRC, filed by the Heirs of Uy Lam Tiong against respondent
Dionisio Lao.
6

During pre-trial, the parties agreed to submit the case for resolution based on the evidence on record.
7

RTC Disposition
On December 19, 2001, the RTC rendered a Joint Decision
8
with the following pertinent disposition, thus:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by the Court in these cases:
(a) Denying the petition of David C. Lao and Jose C. Lao to be recognized as stockholders and directors of Pacific Foundry Shop
Corporation, to be issued certificates of stock of said corporation and to be allowed to exercise rights of stockholders of the same
corporation.
9

n denying the petition, the RTC ratiocinated:
x x x Thus, the petitioners David C. Lao and Jose C Lao do not appear to have become registered stockholders of Pacific Foundry Shop
corporation, as they do not appear to have acquired shares of stock of the corporation either as subscribers or by purchase from a holder
of outstanding shares or by purchase from the corporation of additionally issued shares.
x x x x
Secondly, the claim or contention of the petitioners David C. Lao and Jose C. Lao is wanting in merit because they have no stock
certificates in their names. A stock certificate, as we very well know, is the evidence of ownership of corporate stock. f ever the said
petitioners acquired shares of stock of the corporation, there is a need for their acquisition of said shares to be registered in the Stock and
Transfer Book of the corporation. Registration is necessary to entitle a person to exercise the rights of a stockholder and to hold office as
director or other offices (12 Fletcher 343). That is why it is explicitly provided in Section 63 of the Corporation Code of the Philippines that
no transfer of shares of stock shall be valid until the transfer is recorded in the books of the corporation. An unregistered transfer is not
valid as against the corporation (&son vs. Diosomito, 61 Phil. 535). A transfer must be registered, or at least notice thereof given to the
corporation for the purpose of registration, before the transferee can acquire any right as against the corporation other than the right to
have the transfer registered (12 Fletcher 339). An unrecorded transferee can not enjoy the status of a stockholder, he can not vote nor he
voted for (Price & Sulu Development Corp. vs. Martin, 58 Phil. 707). Until the transfer is registered, the transferee is not a stockholder but
an outsider (Rivera vs. Florendo, G.R. No. L-57586, October 8, 1986). So, a person who has acquired or purchased shares of stock of a
corporation, and who desires to be recognized as stockholder for the purpose of voting and exercising other rights of a stockholder, must
secure such a standing by having the acquisition or transfer recorded in the corporate books (Price & Sulu development Corp. vs. Martin,
supra). Unfortunately, in the cases at bench, the petitioners David C. Lao and Jose C. Lao did not secure such a standing. Consequently,
their petition to be recognized as stockholders of Pacific Foundry Shop Corporation must fail.
10

Petitioners appealed to the CA.
CA Disposition
On May 27, 2005, the CA rendered a Decision
11
modifying that of the RTC, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered modifying the Joint Decision dated December 19, 2001 of the trial
court in so far as it relates to Civil Case No. CEB-25916-SRC by:
(a) Declaring that petitioners have owned since 1987 shares of stock in Pacific Foundry Shop Corporation, numbering 446 for petitioner-
appellant David C. Lao and 333 for petitioner-appellant Jose C. Lao;
(b) Ordering respondent-appellee through the corporate secretary to issue to petitioners-appellants the certificates of stock for the
aforementioned number of shares;
(c) Ordering respondent-appellee, as President of Pacific Foundry Shop Corporation, to allow petitioners-appellants to exercise their
rights as stock holders;
(d) Ordering respondent-appellee to call a stockholders meeting every fourth Saturday of January in accordance with the By-Laws of
Pacific Foundry shop Corporation.
12

The CA decision was penned by Justice Arsenio Magpale and concurred in by Justices Sesinando Villon and Enrico Lanzanas.
n modifying the RTC decision, the appellate court gave credence to the General nformation Sheet submitted by petitioners that names them as stockholders of
PFSC, thus:
The General nformation Sheet of PFSC for the years 1987-1998 state that petitioners-appellants David C. Lao and Jose C. Lao own 446
and 333 shares, respectively, in PFSC. t is also indicated therein that David C. Lao occupied various key positions in PFSC from 1987-
1998 and Jose C. Lao served as Director in PFSC from 1990-1998. The Sworn Statements of Uy Lam Tiong, former corporate secretary
of the PFSC, also state that petitioners-appellants David C. Lao and Jose C. Lao, per corporate records of PFSC, own shares of stock
numbering 446 and 333, respectively. The minutes of the Annual Stockholders Meeting of PFSC on January 28, 1988 at 3:00 o'clock p.m.
shows that among those present were petitioners-appellants David C. Lao and Jose C. Lao. During the said meeting, petitioner-appellant
David C. Lao was nominated and elected Director of PFSC. Withal, the Minutes of the Meeting of the Board of Directors of PFSC at its
Office at Hipodromo, Cebu City, on January 28, 1988 at 4:00 p.m. disclose that petitioner-appellant David C. Lao was elected vice-
president of PFSC. Both minutes were signed by the officers of PFSC including respondent-appellee.
13

Respondent filed a motion for reconsideration
14
of the CA decision.
On July 11, 2005, respondent moved to inhibit
15
the ponente of the CA decision, Justice Magpale, from resolving his pending motion for reconsideration.
On July 22, 2005, Justice Magpale issued a Resolution
16
voluntarily inhibiting himself from further participating in the resolution of the pending motion for
reconsideration. Justice Magpale stated:
Although the undersigned ponente does not agree with the imputations of respondent-appellee and that the same are not any of those
grounds mentioned in Rule 137 of the Revised Rules of Court, nonetheless the ponente voluntarily inhibits himself from further handling
this case in order to free the entire court of the slightest suspicion of bias and prejudice against the respondent-appellee.
17

Amended Decision
On August 31, 2005, the CA rendered an Amended Decision
18
affirming that of the RTC, with a fallo reading:
N VEW OF THE FOREGONG, the May 27, 2005 Decision of this Court is hereby SET ASDE and the Decision of the Regional Trial
Court, Branch 11, Cebu City with respect to Civil Case No. 25916-SRC is hereby AFRMED in toto.
19

The Amended Decision was penned by Justice Enrico Lanzanas and concurred in by Justices Sesinando Villon and Vicente Yap. The CA stated:
Petitioners-appellants maintain that they acquired their shares of stocks through transfer - the third mode mentioned by the trial court.
David C. Lao claims that he acquired his 446 shares through his father, Lao Pong Bao, when the latter purchased said shares from
Hipolito Lao. On the other hand, Jose C. Lao asserts that he acquired his 333 shares through Dionisio C. Lao himself from the original
1,333 shares of stocks of the latter.
Petitioner-appellants asseverations are unavailing. To substantiate their statements, they merely relied on the General nformation Sheets
submitted to the Securities and Exchange Commission for the year 1987 to 1998, as well as on the Minutes of the Stockholders Meeting
and Board of Directors Meeting held on January 28, 1988. They did not adduce evidence that would indubitably show that there was
indeed a valid transfer of stocks, i.e. endorsement and delivery, from the transferors, Hipolito Lao and Dionisio Lao, to them as
transferees.
x x x x
To our mind, David C. Lao utterly failed to confute the argument posited by respondent-appellee or demonstrate compliance with any of
the statutory requirements as to warrant a favorable ruling on his part. No proof was ever shown that there was endorsement and delivery
to him of the stock certificates representing the 446 shares of Hipolito Lao. Neither was the transfer registered in PFSC's Stock and
Transfer Book. Conversely, Dionisio C. Lao was able to show conformity with the aforementioned requirements. Accordingly, it is but
logical to conclude that the certificate of stock covering 446 shares of Hipolito Lao was in fact endorsed and delivered to Dionisio C. Lao
and as such is reflected in PFSC's Stock and Transfer Book x x x.
n fact, it is a rule that private transactions are presumed to have been faire and regular and that the regular course of business is
presumed to have been followed. Thus, the transfer made by Hipolito Lao of the 446 shares of stocks to Dionisio C. Lao is deemed to
have been valid and well-founded unless proven otherwise. David C. Lao's mere allegation that Dionisio Lao illegally appropriated upon
himself the 446 shares failed to hurdle such presumption. n this jurisdiction, neither fraud nor evil is presumed and the record does not
show either as to establish by clear and sufficient evidence that may lead Us to believe such allegation. The party alleging the same has
the burden of proof to present evidence necessary to establish his claim, unfortunately however petitioners failed to do so. The General
nformation Sheets and the Minutes of the Meetings adduced by petitioners-appellants do not prove such allegation of fraud or deceit. n
the absence thereof, the presumption remains that private transactions have been fair and regular.
As for the alleged shares of Jose C. Lao, We find his position identically situated with David C. Lao. There is also no evidence on record
that would clearly establish how he acquired said shares of PFSC. Jose C. Lao failed to show that there was endorsement and delivery to
him of the stock certificates or any documents showing such transfer or assignment. n fact, the 333 shares being claimed by him is still
under the name of Dionisio C. Lao was reflected by the Certificate of Stock as well as in PFSC's Stock and Transfer Book. Corollary, Jose
C. Lao could not be considered a stockholder of PFSC in the absence of support reflecting his right to the 333 shares other than the
inclusion of his name in the General nformation Sheets from 1987 to 1998 and the Minutes of the Stockholder's Meeting and Board of
Director's Meeting.
20

Petitioners moved for reconsideration but their motion was denied.
21
Hence, the present petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure.
Issues
Petitioners raise five (5) issues for Our consideration, thus:
1. Whether or not the inhibition of Justice Arsenio J. Magpale is proper when there is no "extrinsic evidence of bias, bad faith, malice, or
corrupt purpose" on the part of Justice Magpale, which is required by this Honorable Court in its decision in ebb, et al. v. People of the
Philippines, 276 SCRA 243 [1997], as basis for disqualification.
2. Whether or not the inhibition of Justice Magpale constitutes, in effect, forum shopping, which is proscribed under Section 5, Rule 7 of
the Rules of Court, as amended, and decisions of this Honorable Court.
3. Whether or not determination of ownership of shares of stock in a corporation shall be based on the Stock and Transfer Book alone, or
other evidence can be considered pursuant to the decision of this Honorable Court in Tan v. Securities and Exchange Commission, 206
SCRA 740.
4. Whether or not the admissions and representations of respondent in the General nformation Sheets submitted by him to the Securities
and Exchange Commission during the years 1987 to 1998 that (a) petitioners were stockholders of Pacific Foundry Shop Corporation;
that (b) petitioner David C. Lao and Jose C. Lao owned 446 and 333 shares in the corporation, respectively; and that (c) petitioners had
been directors and officers of the corporation, as well as the Sworn Statement of Uy Lam Tiong, former Corporate Secretary, the Minutes
of the Annual Stockholders Meeting of PFSC on January 28, 1988, and the Minutes of Meeting of the Board of Directors on January 28,
1988, mentioned by Justice Magpale in his ponencia, are sufficient proof of petitioners ownership of stocks in the corporation.
5. Whether or not respondent is stopped from questioning petitioners' ownership of stocks in the corporation in view of his admissions and
representations in the General nformation Sheets he submitted to the Securities and Exchange Commission from 1987 to 1998 that
petitioners were stockholders and officers of the corporation.
22

Essentially, only two (2) issues are raised in this petition. The first concerns the voluntary inhibition of Justice Magpale, while the second involves the substantive
issue of whether or not petitioners are indeed stockholders of PFSC.
Our RuIing
We deny the petition.
VoIuntary inhibition is within the sound discretion of a judge.
Petitioners claim that the motion to inhibit Justice Magpale from resolving the pending motion for reconsideration was improper and unethical. They assert that the
"bias and prejudice" grounds alleged by private respondent were unsubstantiated and, worse, constituted proscribed forum shopping. They argue that Justice
Magpale should have resolved the pending motion, instead of voluntarily inhibiting himself from the case.
n cases of voluntary inhibition, the law leaves to the sound discretion of the judge the decision to decide for himself the question of whether or not he will inhibit
himself from the case. Section 1, Rule 137 of the Rules of Court provides:
Section 1. Disqualification of judges. - No judge or judicial officer shall sit in any case in which he, or his wife or child, is pecuniarily
interested as heir, legatee, creditor, or otherwise, or in which he is related to either party within the sixth degree of consanguinity or
affinity, or to counsel within the fourth degree, computed according to the rules of the civil law, or in which he has been executor,
administrator, guardian, trustee, or counsel, or in which he has presided in any inferior court when his ruling or decision is the subject of
review, without the written consent of all parties in interest, signed by them and entered upon the record.
A judge may, in the exercise of his sound discretion, disqualify himself from sitting in a case, for just or valid reasons other than those
mentioned above.
Here, Justice Magpale voluntarily inhibited himself "in order to free the entire court [CA] of the slightest suspicion of bias and prejudice x x x."
23
We certainly cannot
nullify the decision of Justice Magpale recusing himself from the case because that is a matter left entirely to his discretion. Nor can We fault him for doing so. No
judge should preside in a case in which he feels that he is not wholly free, disinterested, impartial, and independent.
We agree with petitioners that it may seem unpalatable and even revolting when a losing party seeks the disqualification of a judge who had previously ruled
against him in the hope that a new judge might be more favorable to him. But We cannot take that basic proposition too far. That Justice Magpale opted to
voluntarily recuse himself from the appealed case is already fait accompli. t is, in popular idiom, water under the bridge.
Petitioners cannot bank on his voluntary inhibition to nullify the Amended Decision later issued by the appellate court. t is highly specious to assume that Justice
Magpale would have ruled in favor of petitioners on the pending motion for reconsideration if he took a different course and opted to stay on with the case. t is also
illogical to presume that the Amended Decision would not have been issued with or without the participation of Justice Magpale. The Amended Decision is too far
removed from the issue of voluntary inhibition. t does not follow that petitioners would be better off were it not for the voluntary inhibition.
Petitioners faiIed to prove that they are sharehoIders of PSFC.
Petitioners insist that they are shareholders of PFSC. They claim purchasing shares in PFSC. Petitioner David Lao alleges that he acquired 446 shares in the
corporation from his father, Lao Pong Bao, which shares were previously purchased from a certain Hipolito Lao. Petitioner Jose Lao, on the other hand, alleges
that he acquired 333 shares from respondent Dionisio Lao.
Records, however, disclose that petitioners have no certificates of shares in their name. A certificate of stock is the evidence of a holder's interest and status in a
corporation. t is a written instrument signed by the proper officer of a corporation stating or acknowledging that the person named in the document is the owner of
a designated number of shares of its stock.
24
t is prima facie evidence that the holder is a shareholder of a corporation.
Nor is there any written document that there was a sale of shares, as claimed by petitioners. Petitioners did not present any deed of assignment, or any similar
instrument, between Lao Pong Bao and Hipolito Lao; or between Lao Pong Bao and petitioner David Lao. There is likewise no deed of assignment between
petitioner Jose Lao and private respondent Dionisio Lao.
Absent a written document, petitioners must prove, at the very least, possession of the certificates of shares in the name of the alleged seller. Again, they failed to
prove possession. They failed to prove the due delivery of the certificates of shares of the sellers to them. Section 63 of the Corporation Code provides:
Sec. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shall be divided into shares for which
certificates signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of
the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred
by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the
transfer. 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.
n contrast, respondent was able to prove that he is the owner of the disputed shares. He had in his possession the certificates of stocks of Hipolito Lao. The
certificates of stocks were also properly endorsed to him. More importantly, the transfer was duly registered in the stock and transfer book of the corporation. Thus,
as between the parties, respondent has proven his right over the disputed shares. As correctly ruled by the CA:
Au contraire, Dionisio C. Lao was able to show through competent evidence that he is undeniably the owner of the disputed shares of
stocks being claimed by David C. Lao. He was able to validate that he has the physical possession of the certificates covering the shares
of Hipolito Lao. Notably, it was Hipolito Lao who properly endorsed said certificates to herein Dionisio Lao and that such transfer was
registered in PFSC's Stock and Transfer Book. These circumstances are more in accord with the valid transfer contemplated by Section
63 of the Corporation Code.
25

The mere incIusion as sharehoIder of petitioners in the GeneraI Information Sheet of PFSC is insufficient proof that they are sharehoIders of the
company.
Petitioners bank heavily on the General nformation Sheet submitted by PFSC to the SEC in which they were named as shareholders of PFSC. They claim that
respondent is now estopped from contesting the General nformation Sheet.
While it may be true that petitioners were named as shareholders in the General nformation Sheet submitted to the SEC, that document alone does not
conclusively prove that they are shareholders of PFSC. The information in the document will still have to be correlated with the corporate books of PFSC. As
between the General nformation Sheet and the corporate books, it is the latter that is controlling. As correctly ruled by the CA:
We agree with the trial court that mere inclusion in the General nformation Sheets as stockholders and officers does not make one a
stockholder of a corporation, for this may have come to pass by mistake, expediency or negligence. As professed by respondent-
appellee, this was done merely to comply with the reportorial requirements with the SEC. This maybe against the law but "practice, no
matter how long continued, cannot give rise to any vested right."
f a transferee of shares of stock who failed to register such transfer in the Stock and Transfer Book of the Corporation could not exercise
the rights granted unto him by law as stockholder, with more reason that such rights be denied to a person who is not a stockholder of a
corporation. Petitioners-appellants never secured such a standing as stockholders of PFSC and consequently, their petition should be
denied.
26

t should be stressed that the burden of proof is on petitioners to show that they are shareholders of PFSC. This is so because they do not have any certificates of
shares in their name. Moreover, they do not appear in the corporate books as registered shareholders. f they had certificates of shares, the burden would have
been with PFSC to prove that they are not shareholders of the corporation.
As discussed, petitioners failed to hurdle their burden. There is no written document evidencing their claimed purchase of shares. We note that petitioners agreed
to submit their case for decision based merely on the documents on record. Hence, no testimonial evidence was presented to prove the alleged purchase of
shares. Absent any documentary or testimonial evidence, the bare assertion of petitioners that they are shareholders cannot prevail.
All told, We agree with the RTC and CA decision that petitioners are not shareholders of PFSC.
WHEREFORE, the petition is DENIED and the appealed Amended Decision AFFIRMED IN FULL.
SO ORDERED.















G.R. No. 95696 March 3, 1992
ALFONSO S. TAN, Petitioner,
-versus-
SECURITIES AND EXCHANGE COMMISSION, VISAYAN EDUCATIONAL
SUPPLY CORP., TAN SU CHING, ALFREDO B. UY, ANGEL S. TAN and
PATRICIA AGUILAR, Respondents.

PARAS,
Petitioner Iiled a petition Ior certiorari against the public respondent Securities and
Exchange Commission and its co-respondents, aIter the Iormer in an en -anc Order,
overturned with modiIication, the decision oI its Cebu SEC Extension hearing oIIicer,
Felix Chan, in SEC Case No. C-0096, dated May 23, 1989, on October 10, 1990,
under SEC-AC No. 263. (Rollo, pp. 3 and 4)
Sought to be reversed by petitioner, is the ruling oI the Commission, speciIically
declaring that:
1. ConIirming the validity oI the resolution oI the board oI directors oI
the Visayan Educational Supply Corporation so Iar as it cancelled Stock
CertiIicate No. 2 and split the same into Stock CertiIicates No. 6 (Ior
Angel S. Tan) and No. 8 (Ior AlIonso S. Tan);
2. Invalidating the sale oI shares represented under Stock CertiIicate No.
8 between AlIonso S. Tan and the respondent corporation which
converted the said stocks into treasury shares, as well as those
transactions involved in the withdrawal oI the stockholders Irom the
respondent corporation Ior being contrary to law, but ordering the
neither party may recover pursuant to Article 1412 (1) Civil Code oI the
Philippines; and
3. Revoking the Order oI Hearing OIIicer Felix Chan to reinstate
complainant's original 400 shares oI stock in the books oI the
corporation in view oI the validity oI the sale oI 50 shares represented
under stock certiIicate No. 6; and the nullity oI the sale 350 shares
represented under stock certiIicate No. 8, pursuant to the "in pari delicto"
doctrine aIorecited. (Rollo, p. 4)
The antecedent Iacts oI the case are as Iollows:
Respondent corporation was registered on October 1, 1979. As incorporator,
petitioner had Iour hundred (400) shares oI the capital stock standing in his name at
the par value oI P100.00 per share, evidenced by CertiIicate oI Stock No. 2. He was
elected as President and subsequently reelected, holding the position as such until
1982 but remained in the Board oI Directors until April 19, 1983 as director. (Rollo, p.
5)
On January 31, 1981, while petitioner was still the president oI the respondent
corporation, two other incorporators, namely, Antonia Y. Young and Teresita Y. Ong,
assigned to the corporation their shares, represented by certiIicate oI stock No. 4 and 5
aIter which, they were paid the corresponding 40 corporate stock-in-trade. (Rollo, p.
43)
Petitioner's certiIicate oI stock No. 2 was cancelled by the corporate secretary and
respondent Patricia Aguilar by virtue oI Resolution No. 1981 (b), which was passed
and approved while petitioner was still a member oI the Board oI Directors oI the
respondent corporation. (Rollo, p. 6)
Due to the withdrawal oI the aIoresaid incorporators and in order to complete the
membership oI the Iive (5) directors oI the board, petitioner sold IiIty (50) shares out
oI his 400 shares oI capital stock to his brother Angel S. Tan. Another incorporator,
AlIredo B. Uy, also sold IiIty (50) oI his 400 shares oI capital stock to Teodora S. Tan
and both new stockholders attended the special meeting, Angel Tan was elected
director and on March 27, 1981, the minutes oI said meeting was Iiled with the SEC.
These Iacts stand unchallenged. (Rollo, p. 43)
Accordingly, as a result oI the sale by petitioner oI his IiIty (50) shares oI stock to
Angel S. Tan on April 16, 1981, CertiIicate oI Stock No. 2 was cancelled and the
corresponding CertiIicates Nos. 6 and 8 were issued, signed by the newly elected IiIth
member oI the Board, Angel S. Tan as Vice-president, upon instruction oI AlIonso S.
Tan who was then the president oI the Corporation.(Memorandum oI the Private
Respondent, p. 15)
With the cancellation oI CertiIicate oI stock No. 2 and the subsequent issuance oI
Stock CertiIicate No. 6 in the name oI Angel S. Tan and Ior the remaining 350 shares,
Stock CertiIicate No. 8 was issued in the name oI petitioner AlIonso S. Tan, Mr.
Buzon, submitted an AIIidavit (Exh. 29), alleging that:
9. That in view oI his having taken 33 1/3 interest, I was personally
requested by Mr. Tan Su Ching to request Mr. AlIonso Tan to make
proper endorsement in the cancelled CertiIicate oI Stock No. 2 and
CertiIicate No. 8, but he did not endorse, instead he kept the cancelled
(1981) CertiIicate oI Stock No. 2 and returned only to me CertiIicate oI
Stock No. 8, which I delivered to Tan Su Ching.
10. That the cancellation oI his stock (Stock No. 2) was known by him in
1981; that it was Stock No. 8, that was delivered in March 1983 Ior his
endorsement and cancellation. (-id, p. 18)
From the same AIIidavit, it was alleged that Atty. Ramirez prepared a Memorandum
oI Agreement with respect to the transaction oI the IiIty (50) shares oI stock part oI
the Stock CertiIicate No. 2 oI petitioner, which was submitted to its Iormer owner,
AlIonso Tan, but which the purposely did not return. (-id., p. 18)
On January 29, 1983, during the annual meeting oI the corporation, respondent Tan
Su Ching was elected as President while petitioner was elected as Vice-president. He,
however, did not sign the minutes oI said meeting which was submitted to the SEC on
March 30, 1983. (Rollo, p. 43)
When petitioner was dislodged Irom his position as president, he withdrew Irom the
corporation on February 27, 1983, on condition that he be paid with stocks-in-trade
equivalent to 33.3 in lieu oI the stock value oI his shares in the amount oI
P35,000.00. AIter the withdrawal oI the stocks, the board oI the respondent
corporation held a meeting on April 19, 1983, eIIecting the cancellation oI Stock
CertiIicate Nos. 2 and 8 (Exh. 278-C) in the corporate stock and transIer book 1 (Exh.
1-1-A) and submitted the minutes thereoI to the SEC on May 18, 1983. (Rollo, p. 44)
Five (5) years and nine (9) months aIter the transIer oI 50 shares to Angel S. Tan,
brother oI petitioner AlIonso S. Tan, and three (3) years and seven (7) months aIter
eIIecting the transIer oI Stock CertiIicate Nos. 2 and 8 Irom the original owner
(AlIonso S. Tan) in the stock and transIer book oI the corporation, the latter Iiled the
case beIore the Cebu SEC Extension OIIice under SEC Case No. C-0096, more
speciIically on December 3, 1983, questioning Ior the Iirst time, the cancellation oI
his aIoresaid Stock CertiIicates Nos. 2 and 8. (Rollo, p. 44)
The bone oI centention raised by the petitioner is that the deprivation oI his shares
despite the non-endorsement or surrender oI his Stock CertiIicate Nos. 2 and 8, was
without the process contrary to the provision oI Section 63 oI the Corporation Code
(Batas Pambansa Blg. 68), which requires that:
. . . No transIer, however, shall be valid, except as between the parties,
until the transIer is recorded to the books oI the corporation so as to
show the names oI the parties to the transaction, the date oI the transIer,
the number oI the certiIicate or certiIicates and the number oI shares
transIerred.
AIter hearing, the Cebu SEC Extension OIIice Hearing OIIicer, Felix Chan ruled,
that:
a) The cancellation oI the complainant's shares oI stock with the Visayan
Educational Supply Corporation is null and void;
b) The earlier cancellation oI stock certiIicate No. 2 and the subsequent
issuance oI stock certiIicate No. 8 is also hereby declared null and void;
c) The Secretary oI the Corporation is hereby ordered to make the
necessary corrections in the books oI the corporation reinstating thereto
complainant's original 400 shares oI stock. (Rollo, pp. 39-40)
Private respondent in the original complaint went to the Securities and Exchange and
Commission on appeal, and on October 10, 1990, the commission en -anc
unanimously overturned the Decision oI the Hearing OIIicer under SEC-AC No. 263.
(Order, Rollo, pp. 42-49)
The petition Ior certiorari centered on three major issues, with other issues considered
as subordinate to them, to wit:
1. The meaning oI shares oI stock are personal property and may be transIerred by
delivery oI the certiIicate or certiIicates indorsed by the owner or his attorney-in-Iact
or other person legally authorized to make the transIer. (Rollo, p. 10)
The case oI Nava vs. peers Marketing corporation (74 SCRA 65) was cited by
petitioner making the reIerence to commentaries taken Irom 18 C.J.S. 928-930, that
the transIer by delivery to the transIeree oI the certiIicate should be properly indorsed,
and that "There should be compliance with the mode oI transIer prescribed by law."
Using Section 35, now Section 63 oI the Corporation Code, the provision oI the law,
reads:
SEC. 63. Certificate of stock and transfer of shares. The capital stock
and stock and corporations shall be divided into shares Ior which
certiIicates signed by the president and vice president, countersigned by
the secretary or assistant secretary, and sealed with the seal oI the
corporation shall be issued in accordance with the by-laws. Shares oI
stocks so issued are personal property and may be transIerred by
delivery oI the certiIicate or certiIicates indorsed by the owner or his
attorney-in-Iact or other person legally authorized to make the transIer.
No transIer, however, shall be valid, except as between the parties, until
the transIer is recorded in the books oI the corporation so as to show the
names oI the parties to the transaction, the date oI the transIer, the
number oI the certiIicate or certiIicates and the number oI shares
transIerred.
No shares oI stocks against which the corporation holds any unpaid
claim shall be transIerable in the books oI the corporations.
There is no doubt that there was delivery oI Stock CertiIicate No. 2 made by the
petitioner to the Corporation beIore its replacement with the Stock CertiIicate No. 6
Ior IiIty (50) shares to Angel S. Tan and Stock CertiIicate No. 8 Ior 350 shares to the
petitioner, on March 16, 1981. The problem arose when petitioner was given back
Stock CertiIicate No. 2 Ior him to endorse and he deliberately witheld it Ior reasons oI
his own. That the Stock CertiIicate in question was returned to him Ior his purpose
was attested to by Mr. Buzon in his AIIidavit, the pertinent portion oI which has been
earlier quoted.
The prooI that Stock CertiIicate No. 2 was split into two (2) consisting oI Stock
CertiIicate No. 6 Ior IiIty (50) shares and Stock CertiIicate No. 8 Ior 350 shares, is the
Iact that petitioner surrendered the latter stock (No. 8) in lieu oI P2 million pesos
1

worth oI stocks, which the board passed in a resolution in its meeting on April 19,
1983. Thus, on February 27, 1983, petitioner indicated he was withdrawing Irom the
corporation on condition that he be paid with stock-in-trade corresponding to 33.3
(Exh. 294), which had only a par value oI P35,000.00. In this same meeting, the
transIer oI Stock CertiIicate Nos. 2 and 8 Irom the original owner, AlIonso S. Tan was
ordered to be recorded in the corporate stock and transIer book (Exh. "I-1-A")
thereaIter submitting the minutes oI said meeting to the SEC on May 18, 1983 (Exhs.
12 and I). (Order, Rollo, p. 44)
It is also doubtless that Stock CertiIicate No. 8 was exchanged by petitioner Ior
stocks-in-trade since he was operating his own enterprise engaged in the same
business, otherwise, why would a businessman be interested in acquiring
P2,000,000.00 worth oI goods which could possibly at that time, Iill up warehouse? In
Iact, he even padlocked the warehouse oI the respondent corporation, aIter
withdrawing the thirty-three and one-third (33 1/3) percent stocks. Accordingly, the
Memorandum oI Agreement prepared by the respondents' counsel, Atty. Ramirez
evidencing the transaction, was also presented to petitioner Ior his signature, however,
this document was never returned by him to the corporate oIIicer Ior the signature oI
the other oIIicers concerned. (Rollo, p. 28)
At the time the warehouse was padlocked by the petitioner, the remaining stock
inventory was valued at P7,454,189.05 oI which 66 2/3 percent thereoI belonged to
the private respondents. (-id., p. 28)
It was very obvious that petitioner devised the scheme oI not returning the cancelled
Stock CertiIicate No. 2 which was returned to him Ior his endorsement, to skim oII
the largesse oI the corporation as shown by the trading oI his Stock CertiIicate No. 8
Ior goods oI the corporation valued at P2 million when the par value oI the same was
only worth P35,000.00. (-id., p. 470) He also used this scheme to renege on his
indebtedness to respondent Tan Su Ching in the amount oI P1 million. (Decision, p. 6)
It is not remote that iI petitioner could have cashed in on Stock CertiIicate No. 2 with
the remainder oI the goods that he padlocked, he would have done so, until the
respondent corporation was bled entirely.
Along this line, petitioner put up the argument that he was responsible Ior the growth
oI the corporation by the alleging that during his incumbency, the corporation grew,
prospered and Ilourished in the court oI business as evidenced by its audited Iinancial
statements, and grossed the Iollowing incomes Irom: 1980 P8,658,414.10, 1981
P8,039,816.67, 1982 P7,306,168.67, 1983 P5,874,453.55, 1984
P3,911,667.76. (-id., Rollo, p. 24)
Moreover, petitioner asserted that he was ousted Irom the corporation by reason oI his
eIIorts to establish Iiscal controls and to demand an accounting oI corporate Iunds
which were accordingly being transIerred and diverted to certain oI private
respondents' personal accounts which were allegedly misapplied, misappropriated and
converted to their own personal use and beneIit. (-id., p. 125)
2. Petitioner Iurther claims that "(T)he cancellation and transIer oI petitioner's shares
and CertiIicate oI Stock No. 2 (Exh. A) as well as the issuance and cancellation oI
CertiIicate oI Stock No. 8 (Exh. M) was patently and palpably unlawIul, null and
void, invalid and Iraudulent." (Rollo, p. 9) And, that Section 63 oI the Corporation
Code oI the Philippines is "mandatory in nature", meaning that without the actual
delivery and endorsement oI the certiIicate in question, there can be no transIer, or
that such transIer is null and void. (Rollo, p. 10)
These arguments are all motivated by selI-interest, using Ioreign authorities that are
slanted in his Iavor and even misquoting local authorities to prop up his erroneous
posture and all these attempts are intended to stiIle justice, truth and equity.
Contrary to the understanding oI the petitioner with respect to the use oI the word
"may", in the case oI Shauf v. Court of Appeals, (191 SCRA 713, 27 November 1990),
this Court held, that "Remedial law statues are to be construed liberally." The term
'may' as used in adjective rules, is only permissive and not mandatory. In several
earlier cases, the usage oI the word "may" was described as Iollows:
The word "may"is an auxilliary ver- showing among others, opportunity
or possi-ility. Under ordinary circumstances, the phrase "may -e"
implies the possi-le existence of something. In this case, the "something"
is a law governing sectoral representation. The phrase in question
should, thereIore, be understood to mean as prescribed by such law that
governs the matter at the time . . . The phrase does not and cannot, -y its
very wording, restrict itself to the uncertainly of future legislation.
(Legaspi v. Estrella, 189 SCRA 58, 24 Aug. 1990, En Banc)
Years beIore the above rulings concerning the interpretation oI the word "may", this
Court held in Chua v. Samahang Magsasaka, that "the word "may" indicates that the
transIer may be eIIected in a manner diIIerent Irom that provided Ior in the law." (62
Phil. 472)
Moreover, it is saIe to inIer Irom the Iacts deduced in the instant case that, there was
already delivery oI the unendorsed Stock CertiIicate No. 2, which is essential to the
issuance oI Stock CertiIicate Nos. 6 and 8 to angel S. Tan and petitioner AlIonso S.
Tan, respectively. What led to the problem was the return oI the cancelled certiIicate
(No. 2) to AlIonso S. Tan Ior his endorsement and his deliberate non-endorsement.
For all intents and purposes, however, since this was already cancelled which
cancellation was also reported to the respondent Commission, there was no necessity
Ior the same certiIicate to be endorsed by the petitioner. All the acts required Ior the
transIeree to exercise its rights over the acquired stocks were attendant and even the
corporation was protected Irom other parties, considering that said transIer was earlier
recorded or registered in the corporate stock and transIer book.
Following the doctrine enunciated in the case oI Tua:on v. La Provisora Filipina,
where this Court held, that:
But delivery is not essential where it appears that the persons sought to
be held as stockholders are oIIicers oI the corporation, and have the
custody oI the stock book . . . (67 Phi. 36).
Furthermore, there is a necessity to delineate the Iunction oI the stock itselI Irom the
actual delivery or endorsement oI the certiIicate oI stock itselI as is the question in the
instant case. A certiIicate oI stock is not necessary to render one a stockholder in
corporation.
Nevertheless, a certiIicate oI stock is the paper representative or tangible evidence oI
the stock itselI and oI the various interests therein. The certiIicate is not stock in the
corporation but is merely evidence oI the holder's interest and status in the
corporation, his ownership oI the share represented thereby, but is not in law the
equivalent oI such ownership. It expresses the contract between the corporation and
the stockholder, but is not essential to the existence oI a share in stock or the nation oI
the relation oI shareholder to the corporation. (13 Am. Jur. 2d, 769)
Under the instant case, the Iact oI the matter is, the new holder, Angel S. Tan has
already exercised his rights and prerogatives as stockholder and was even elected as
member oI the board oI directors in the respondent corporation with the Iull
knowledge and acquiescence oI petitioner. Due to the transIer oI IiIty (50) shares,
Angel S. Tan was clothed with rights and responsibilities in the board oI the
respondent corporation when he was elected as oIIicer thereoI.
Besides, in Philippine jurisprudence, a certiIicate oI stock is not a negotiable
instrument. "Although it is sometime regarded as quasi-negotiable, in the sense that it
may be transIerred by endorsement, coupled with delivery, it is well-settled that it is
non-negotiable, because the holder thereoI takes it without prejudice to such rights or
deIenses as the registered owner/s or transIerror's creditor may have under the law,
except insoIar as such rights or deIenses are subject to the limitations imposed by the
principles governing estoppel." (De los Santos vs. McGrath, 96 Phil. 577)
To Iollow the argument put up by petitioner which was upheld by the Cebu SEC
Extension OIIice Hearing OIIicer, Felix Chan, that the cancellation oI Stock
CertiIicate Nos. 2 and 8 was null and void Ior lack oI delivery oI the cancelled
"mother" CertiIicate No. 2 whose endorsement was deliberately withheld by
petitioner, is to prescribe certain restrictions on the transIer oI stock in violation oI the
corporation law itselI as the only law governing transIer oI stocks. While Section
47(s) grants a stock corporations the authority to determine in the by-laws "the
manner oI issuing certiIicates" oI shares oI stock, however, the power to regulate is
not the power to prohi-it, or to impose unreasona-le restrictions of the right of
stockholders to transfer their shares. (Emphasis supplied)
In Fleisher v. Botica Nolasco Co., nc., it was held that a by-law which prohibits a
transIer oI stock without the consent or approval oI all the stockholders or oI the
president or board oI directors is illegal as constituting undue limitation on the right oI
ownership and in restraint oI trade. (47 Phil. 583)
3. Attempt to mislead Petitioner should be held guilty oI manipulating the
provision oI Section 63 oI the Corporation Law Ior contumaciously withholding the
endorsement oI Stock CertiIicate No. 2 which was returned to him Ior the purpose,
wasting time and resources oI the Court, even aIter he had received the stocks-in-trade
equivalent to P2,000,000.00 in lieu oI his 350 shares oI stock with a par value oI
P35,000.00 only, and thereaIter withdrawing Irom the respondent corporation.
Not content with the Iantastic return oI his investment in the corporation and bent on
sucking out the corporate resources by Iiling the instant case Ior damages and seeking
the nullity oI the cancellation oI his CertiIicate oI Stock Nos. 2 and 8, petitioner even
attempted to mislead the Court by erroneously quoting the ruling oI the Court in C. N.
Hodges v. Le:ama, which has some parallelism with the instant case was the parties
involved therein were also close relatives as in this case.
The quoted portion appearing on p. 11 oI the petition, was cut short in such a way that
relevant portions thereoI were purposely leIt out in order to impress upon the Court
that the unendorsed and uncancelled stock certiIicate No. 17, was unconditionally
declared null and void, Ilagrantly omitting the justiIying circumstances regarding its
acquisition and the reason given by the Court why it was declared so. The history oI
certiIicate No. 17 is quoted below, showing the reason why the certiIicate in question
was considered null and void, as Iollows:
(P)etitioner Hodges did not cause to be entered in the books oI the
corporation as he had his stock certiIicate No. 17 which, thereIore had
not been endorsed by him to anybody or cancelled and which he
considered still subsisting. On Septem-er 18, 1958, petitioner Hodges
again sold his aforesaid 2,230 shares of stock covered -y his stock
certificate No. 17 on installment -asis to his co-petitioner Ricardo
Gurrea, -ut continued keeping the stock certificate in his possession
without endorsing it to Gurrea or causing the sale to -e entered in the
-ooks of the corporation, -elieving that said shares of stock were his
until fully paid for. Up to the present, petitioner Hodges has in his
possession and under his control his aforesaid stock certificate No. 17,
unendorsed and uncancelled (Exhs. A & A-1), a fact known to the
respondents. (14 SCRA p. 1032)
The pertinent misquoted portion Iollows:
BeIore the stockholders' meeting oI the La Paz ice Plant & Cold Storage
Co., Inc., hereinaIter reIerred to as the Corporation - which was
scheduled to be held on August 6, 1959, petitioners C.N. Hodges and
Ricardo Gurrea Iiled with the CFI oI Iloilo, a petition docketed as
Civil Case No. 5261 oI said court Ior a writ oI prohibition with
preliminary injunction, to restrain respondents Jose Manuel Lezama, as
president and secretary, respectively, oI said Corporation Irom allowing
their brother-in-law and brother, respectively, respondent Benjamin L.
Borja, to vote in said meeting on the aIorementioned 2,230 shares oI
stock. Upon the Iiling oI said petition and oI a bond in the sum oI
P1,000, the writ oI preliminary injunction prayed Ior was issued. AIter
due trial, or on March 28, 1960, (start oI petitioner's quotation) "The
court oI origin rendered a decision holding that, in view oI the provision
in stock certiIicate no. 17, in the name oI Hodges, to the eIIect that he
. . . is the owner oI Two Thousand Two Hundred Thirty
shares oI the capital stock oI La Paz Ice Plant & Cold
Storage Co., Inc., transIerrable only on the books oI the
corporation by the holder hereoI in person or by attorney
upon surrender oI this certiIicate properly endorsed.
stock certiIicate no. 18, issued in Iavor oI Borja and the entry thereoI at
his instance in the books oI the corporation without stock certiIicate no.
17 being Iirst properly endorsed, surrendered and cancelled, is null and
void. . . . " (end oI quotation by petitioner, but the ruling, continues
without the period aIter the word void.) "and that it would be
unconscionable and Ior Borja to vote on said shares oI stock, knowing
that he had ceased to have actual interest therein since September 17,
1958, when Hodges bought such interest at the public auction held in the
proceedings Ior the Ioreclosure oI his chattel was rendered making said
preliminary injunction permanent and declaring Hodges as the one
entitled to vote on the shares oI stock in question.
Petitioner ought to have even included the Iollowing which was the reason Ior
declaring the Iollowing which was the reason Ior declaring the unedorsed,
unsurrendered and uncancelled stock certiIicate, null and void:
. . . It is, moreover, obvious that Hodges retained it (stock certiIicate no.
17) with Borja's consent. It was evidently part oI their agreement, or
implied therein, that Hodges would keep the stock certiIicate and thus
remain in the records oI the Corporation as owner oI the shares, despite
the aIorementioned sale thereoI and the chattel mortgage thereon. n
other words, the parties thereto intended Hodges to continue, for all
intents and purposes, as owner of said share, until Borfa shall have fully
paid its stipulated price. (-id, pp. 1033-1034)
Other issues raised by the petitioner, subordinate to the principal issues above, (except
the ruling by the respondent Commission with respect to the "pari delicto" doctrine
which is not acceptable to this Court) are oI no moment.
Considering the circumstances oI the case, it appearing that petitioner is guilty oI
manipulation, and high-handedness, circumventing the clear provisions oI law in
shielding himselI Irom his wrongdoing contrary to the protective mantle that the law
intended Ior innocent parties, the Court Iinds the excuses oI the petitioner as unworthy
oI belieI.
WHEREFORE, in view oI the Ioregoing, the Order oI the Commission under SEC-
AC No. 263 dated October 10, 1990 is hereby AFFIRMED but modiIied with respect
to the "nullity oI the sale oI 350 shares represented under stock certiIication No. 8,
pursuant to the "in pari delicto" doctrine. The court holds that the conversion oI the
350 shares with a par value oI only P35,000.00 at P100.00 per share into treasury
stocks aIter petitioner exchanged them with P2,000,000.00 worth oI stocks-in-trade oI
the corporation, is valid and lawIul. With regard to the damages being claimed by the
petitioner, the respondent Commission is not empowered to award such, other than the
imposition oI Iine and imprisonment under Section 56 oI the Corporation Code oI the
Philippines, as amended.
SO ORDERED.