G.R. No. 183278 April 24, 2009

IMELDA O. COJUANGCO, PRIME HOLDINGS, INC., AND THE ESTATE OF RAMON U. COJUANGCO Petitioners,

vs.SANDIGANBAYAN, REPUBLIC OF THE PHILIPPINES, AND THE

SHERIFF OF SANDIGANBAYAN, Respondents.

CARPIO MORALES, J.:

FACTS OF THE CASE

Respondent Republic of the Philippines (Republic) filed before the Sandiganbayan a "Complaint for Reconveyance, Reversion, Accounting, Restitution and Damages,", praying for the recovery of alleged ill-gotten wealth from the late President Marcos and former First Lady Imelda Marcos and their cronies, including some 2.4 million shares of stock in the Philippine Long Distance Telephone Company (PLDT).

The complaint, which was later amended to implead herein petitioners Ramon and Imelda Cojuangco (the Cojuangcos), alleged that the Marcoses’ ill-gotten wealth included shares in the PLDT covered by shares of stock in the Philippine Telecommunications Investment Corporation (PTIC), registered in the name of Prime Holdings, Inc. (Prime Holdings).

The Sandiganbayan dismissed the complaint with respect to the recovery of the PLDT shares, hence, the Republic appealed to the Supreme Court.

The Supreme Court ruled in favor of the Republic, declaring it to be the owner of 111,415 PTIC shares registered in the name of Prime Holdings. Sandiganbayan granted the Motion for the Issuance of a Writ of Execution with respect to the reconveyance of the shares issued by PLDT infavort of PTIC, but denied the prayer for accounting of dividends.

ISSUE:

Whether the Republic, having transferred the shares to a third party, is entitled to the dividends, interests, and earnings. YES!

RULING

1. Disposition Portion. In G.R. No. 153459, although the inclusion of the dividends, interests, and earnings of the 111,415 PTIC shares as belonging to the Republic was not mentioned in the dispositive portion of the Court’s Decision, it is clear from its body that what was being adjudicated in favor of the Republic was the whole block of shares and the fruits thereof, said shares having been found to be part of the Marcoses’ ill-gotten wealth, and therefore, public money. It would be absurd to award the shares to the Republic as their owner and not include the dividends and interests accruing thereto. An owner who cannot exercise the “juses” or attributes of ownership — the right to possess, to use and enjoy, to abuse or consume, to accessories, to dispose or alienate, to recover or vindicate, and to the fruits – is a crippled owner.

The term "dividend" in its technical sense and ordinary acceptation is that part or portion of the profits of the enterprise which the corporation, by its governing agents, sets apart for ratable division among the holders of the capital stock. It is a payment to the stockholders of a

corporation as a return upon their investmentand the right thereto is an incident of ownership of stock.

It is thus clear that the Republic is entitled to the dividends accruing from the subject 111,415 shares since 1986 when they were sequestered up to the time they were transferred to Metro Pacific via the Sale and Purchase Agreement of February 28, 2007; and that the Republic has since the latter date been serving as trustee of those dividends for the Metro Pacific up to the present, subject to the terms and conditions of the said agreement they entered into.

G.R. No. L-17518 October 30, 1922

FREDERICK C. FISHER, plaintiff-appellant, vs.

WENCESLAO TRINIDAD, Collector of Internal Revenue, defendant-appellee.

JOHNSON, J.:

FACTS OF THE CASE

The Philippine American Drug Company was a corporation duly organized and existing under the laws of the Philippine Islands. Appellant Frederick Fisher was a stockholder in said corporation. The corporation declared a "stock dividend" which was issued to the appellant. The appellant, upon demand of the appellee, paid under protest, and voluntarily, the sum as income tax on said stock dividend. For the recovery of that sum, the present action was instituted. The defendant demurred to the petition upon the ground that it did not state facts sufficient to constitute cause of action. The demurrer was sustained and the plaintiff appealed.

To sustain his appeal the appellant cites and relies on the case of Eisner vs. Macomber which held that "stock dividends" were capital and not an "income" and therefore not subject to the "income tax" law.

The appellee admits the doctrine but argues that said Act No. 2833, in imposing the tax on the stock dividend, does not violate the provisions of the Jones Law. The appellee further argues that the statute of the United States providing for tax upon stock dividends is different from the statute of the Philippine Islands, and therefore the decision of the Supreme Court of the United States should not be followed in interpreting the statute in force here.

ISSUE

Are the "stock dividends" in the present case "income" and taxable as such under the provisions of section 25 of Act No. 2833?

DECISION

Stock dividends are not income. The same cannot be taxes under that provision of Act No. 2833 which provides for a tax upon income.

RULING

Generally speaking, stock dividends represent undistributed increase in the capital of corporations or firms, joint stock companies, etc., etc., for a particular period. They are used to show the increased interest or proportional shares in the capital of each stockholder. In other words, the inventory of the property of the corporation, etc., for particular period shows an increase in its capital, so that the stock theretofore issued does not show the real value of the stockholder's interest, and additional stock is issued showing the increase in the actual capital, or property, or assets of the corporation, etc.

For bookkeeping purposes, when stock dividends are declared, the corporation or company acknowledges a liability, in form, to the stockholders, equivalent to the aggregate par value of their stock, evidenced by a "capital

stock account." If profits have been made by the corporation during a particular period and not divided, they create additional bookkeeping liabilities under the head of "profit and loss," "undivided profits," "surplus account," etc., or the like. None of these, however, gives to the stockholders as a body, much less to any one of them, either a claim against the going concern or corporation, for any particular sum of money, or a right to any particular portion of the asset, or any shares sells or until the directors conclude that dividends shall be made a part of the company's assets segregated from the common fund for that purpose. The dividend normally is payable in money and when so paid, then only does the stockholder realize a profit or gain, which becomes his separate property, and thus derive an income from the capital that he has invested. Until that, is done the increased assets belong to the corporation and not to the individual stockholders.

The stockholder who receives a stock dividend has received nothing but a representation of his increased interest in the capital of the corporation. There has been no separation or segregation of his interest. All the property or capital of the corporation still belongs to the corporation. There has been no separation of the interest of the stockholder from the general capital of the corporation. The stockholder, by virtue of the stock dividend, has no separate or individual control over the interest represented thereby, further than he had before the stock dividend was issued. He cannot use it for the reason that it is still the property of the corporation and not the property of the individual holder of stock dividend. A certificate of stock represented by the stock dividend is simply a statement of his proportional interest or participation in the capital of the corporation. For bookkeeping purposes, a corporation, by issuing stock dividend, acknowledges a liability in form to the stockholders, evidenced by a capital stock account. The receipt of a stock dividend in no way increases the money received of a stockholder nor his cash account at the close of the year. It simply shows that there has been an increase in the amount of the capital of the corporation during the particular period, which may be due to an increased business or to a natural increase of the value of the capital due to business, economic, or other reasons. We believe that the Legislature, when it provided for an "income tax," intended to tax only the "income" of corporations, firms or individuals, as that term is generally used in its common acceptation; that is that the income means money received, coming to a person or corporation for services, interest, or profit from investments. We do not believe that the Legislature intended that a mere increase in the value of the capital or assets of a corporation, firm, or individual, should be taxed as "income." Such property can be reached under the ordinary from of taxation.

Distinction between Extraordinary Cash Dividends and Stock Dividends Declared

Extraordinary Cash Dividend Stock Dividends DeclaredDisbursement to the stockholder of accumulated earnings, and the corporation at once parts irrevocably with all interest thereon

No disbursement by the corporation. It parts with nothing to the stockholder. The latter receives, not an actual dividend, but certificate of stock which simply evidences his interest in the entire capital, including such as by investment of accumulated profits has been added to the original capital.

Citing case of DeKoven vs. Alsop

They are not income to him, but represent additions to the source of his income, namely, his invested capital. When a cash becomes the absolute property of the stockholders and cannot be reached by the creditors of the corporation in the absence of fraud.

A stock dividend however, still being the property of the corporation and not the stockholder, it may be reached by an execution against the corporation, and sold as a part of the property of the corporation. In such a case, if all the property of the corporation is sold, then the stockholder certainly could not be charged with having received an income by virtue of the issuance of the stock dividend. Until the dividend is declared and paid, the corporate profits still belong to the corporation, not to the stockholders, and are liable for corporate indebtedness. The rule is well established that cash dividend, whether large or small, are regarded as "income" and all stock dividends, as capital or assets.

The question whether stock dividends are income, or capital, or assets has frequently come before the courts in another form — in cases of inheritance. A is a stockholder in a large corporation. He dies leaving a will by the terms of which he give to B during his lifetime the "income" from said stock, with a further provision that C shall, at B's death, become the owner of his share in the corporation. During B's life the corporation issues a stock dividend. Does the stock dividend belong to B as an income, or does it finally belong to C as a part of his share in the capital or assets of the corporation, which had been left to him as a remainder by A? While there has been some difference of opinion on that question, we believe that a great weight of authorities hold that the stock dividend is capital or assets belonging to C and not an income belonging to B.

Distinction between the title of a corporation, and the interest of its members or stockholders in the property of

the corporation

The ownership of that property is in the corporation, and not in the holders of shares of its stock. The interest of each stockholder consists in the right to a proportionate part of the profits whenever dividends are declared by the corporation, during its existence, under its charter, and to a like proportion of the property remaining, upon the termination or dissolution of the corporation, after payment of its debts."

In the case of Dekoven vs. Alsop (205 Ill ,309, 63 L. R. A. 587) Mr. Justice Wilkin said: "A dividend is defined as a corporate profit set aside, declared, and ordered by the directors to be paid to the stockholders on demand or at a fixed time. Until the dividend is declared, these corporate profits belong to the corporation, not to the stockholders, and are liable for corporate indebtedness.

G.R. No. 152578 November 23, 2005

REPUBLIC OF THE PHILIPPINES vs ESTATE OF HANS M. MENZI

TINGA, J.:

FACTS OF THE CASE

Manila Bulletin started as a shipping journal by its American owner, publisher and editor Carson Taylor. The Swiss-Filipino industrialist Hans Menzi purchased the Bulletin from Taylor. Emilio Yap, owner of US Automotive, purchased Bulletin shares from Menzi and became one of the major stockholders. On April 2, 1968, a stock option was executed by and between Menzi and Menzi and Co. on the one hand, and Yap and US Automotive on the other, whereby the parties gave each other preferential right to buy the other’s Bulletin shares.

President Corazon C. Aquino issued Executive Order (EO) No. 1, creating the Presidential Commission on Good Government (PCGG) tasked with, among others, the recovery of all ill-gotten wealth accumulated by former President Ferdinand Marcos. Following a lead that Marcos had substantial holdings in Bulletin Publishing Corporation (Bulletin), the PCGG issued a Writ of Sequestration against all shares of stocks, assets, properties, records and documents of HMHMI.

Sandiganbayan ruled that the Bulletin shares sold by the late Hans M. Menzi to U.S. Automotive Co., Inc., the sale thereof being valid and legal.

The Sandiganbayan likewise rejected Cojuangco's contention that the Bulletin and HMHMI shares registered in his name 'were not acquired and held by him as dummy, nominee and/or agent of defendants Ferdinand E. Marcos and Imelda Romualdez Marcos, but upon the request, and as nominee, of the late Hans Menzi who owned and delivered to him said shares. According to the Sandiganbayan, Cojuangco failed to present evidence necessary to establish his affirmative defense.

As regards the 214 block, the Sandiganbayan ruled that there is no longer any dispute concerning the ownership of the 46,620.5 shares held by Campos and the 121,178 shares held by Zalamea in view of the Teehankee Resolution and the fact that these shares have been waived and assigned to PCGG.

The Sandiganbayan went on to declare that the only remaining issue pertaining to Cojuangco's claim to his alleged portion of the 214 block should be resolved in favor of the Republic because of Cojuangco's consistent disavowal of any proprietary interest in the shares which are the subject matter of the instant case and his claim that he held the shares as nominee of Menzi.

Atty. Amorsolo V. Mendoza, vice president of US Automotive, executed a promissory note with his personal guarantee in favor of Menzi, promising to pay the latter the balance as consideration for Menzi’s sale of 154,472 Bulletin shares. Three weeks later, Menzi died. The court appointed Manuel G. Montecillo as the executor of the Estate of Hans M. Menzi and, later, as president of HMHMI. Atty. Montecillo received from US Automotive two (2) checks in full payment of the agreed purchase price and interest for the sale.

The objection raised by the Republic actually concerns the authority of Atty. Montecillo, the executor of Menzi's estate, to indorse the said certificates.

ISSUE

Whether or not the share of Cojuanco was held as a nominee of Menzi. NO!

RULING

Campos and Zalamea validly ceded their shares in favor of the Government

Sandiganbayan's evaluation was correct that the Estate of Menzi and HMHMI do not prove their allegation that Campos, Cojuangco and Zalamea are Menzi's nominees, taking into account the express admission of Campos that he owned the shares upon Marcos' instruction, the declaration of Zalamea that he does not claim true and beneficial ownership of the shares, and the absolute dearth of evidence regarding Cojuangco's assertion that he is Menzi's nominee.

Parenthetically, the fact that the stock certificates covering the shares registered under the names of Campos, Cojuangco and Zalamea were found in Menzi's possession does not necessarily prove that the latter owned the shares. A stock certificate is merely a tangible evidence of ownership of shares of stock. Its presence or absence does not affect the right of the registered owner to dispose of the shares covered by the stock certificate. Hence, as registered owners, Campos and Zalamea validly ceded their shares in favor of the Government. This assignment is now a fait accompli for the benefit of the entire nation.

The contention that the sale of the 214 block to the Bulletin was null and void as the PCGG failed to obtain approval from the Sandiganbayan is likewise unmeritorious. While it is true that the PCGG is not empowered to sell sequestered assets without prior Sandiganbayan approval, this case presents a clear exception because this Court itself, in the Teehankee Resolution, directed the PCGG to accept the cash deposit offered by Bulletin in payment for the Cojuangco and Zalamea sequestered shares subject to the alternatives mentioned therein and the outcome of the remand to the Sandiganbayan on the question of ownership of these sequestered shares.

Valid Sale

Atty. Montecillo's authority to negotiate the transfer and execute the necessary documents for the sale of the 154 block is found in the General Power of Attorney executed by Menzi. Atty. Montecillo's authority to accept payment of the purchase price for the 154 block sold to US Automotive after Menzi's death springs from the latter's Last Will and Testament and the Order of the probate court confirming the sale and authorizing Atty. Montecillo to accept payment therefor. Hence, before and after Menzi's death, Atty. Montecillo was vested with ample authority to effect the sale of the 154 block to US Automotive.

GR 124535, 28 September 2001

Rural Bank of Lipa City Inc., etc. vs. Court of Appeals

FACTS OF THE CASE

Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed a Deed of Assignment, wherein he assigned his shares, as well as those of 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. Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina, executed an Agreement wherein they acknowledged their indebtedness to the Bank 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 the Villanueva spouses assured the Board that their debt would be paid on or before December 31 of that same year; otherwise, the Bank would be entitled to liquidate their shareholdings, including those under their control. In such an event, should the proceeds of the sale of said shares fail to satisfy in full the obligation, the unpaid balance shall be secured by other collateral sufficient therefor. When the Villanueva spouses failed to settle their obligation to the Bank on the due date, the Board sent them a letter 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.

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. 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. Atty. Amado Ignacio, counsel for the Villanueva spouses, questioned the legality of the said stockholders' meeting and the validity of all the proceedings therein. In reply, the new set of officers of the Bank informed Atty. Ignacio that the Villanuevas were no longer entitled to notice of the said meeting since they had relinquished their rights as stockholders in favor of the Bank.

Consequently, the Villanueva spouses filed with the Securities and Exchange Commission (SEC), a petition for annulment of the stockholders' meeting and election of directors and officers. Accordingly, a writ of preliminary injunction was issued enjoining Bautista, et. al. from acting as directors and officers of the bank. Thereafter, Bautista, et al. filed an urgent motion to quash the writ of preliminary injunction, 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 9 days away, the Villanuevas filed an Omnibus Motion praying that the said meeting and election of officers be suspended or held in abeyance, and that the 1993 Board of Directors be allowed, in the meantime, to act as such. 1 day before the scheduled stockholders meeting, the SEC Hearing Officer granted the Omnibus Motion by issuing a temporary restraining order preventing Bautista, et al. from holding the stockholders meeting and electing the board of directors and officers of the Bank. A petition for Certiorari and Annulment with Damages was filed by the Rural Bank, its directors and officers before the SEC en banc. SEC en banc denied the petition for certiorari. A subsequent motion for

reconsideration was likewise denied by the SEC en banc in a Resolution dated 29 September 1995. A petition for review was filed before the Court of Appeals (CA-GR SP 38861), assailing the Order of the SEC en banc. The appellate court upheld the ruling of the SEC. Bautista, et al.'s motion for reconsideration was likewise denied by the Court of Appeals. The bank, Bautista, et al. filed the instant petition for review.

Issue: Whether there was valid transfer of the shares to the Bank.

Held: For a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed by law. 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. Still, while the assignment may be valid and binding on the bank, et al. and the Villanuevas, it does not necessarily make the transfer effective. Consequently, the bank et al., 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 Villanuevas 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.

G.R. No. 116631 October 28, 1998

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

QUISUMBING, J.:

FACTS OF THE CASE

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

While petitioner was still working with private respondent, his superior, A. Lewis Burridge, retired as AmCham's President. Before Burridge decided to return to his home country, he wanted to transfer his proprietary share in the Manila Polo Club (MPC) to petitioner. However, through the intercession of Burridge, private respondent paid for the share but had it listed in petitioner's name.

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

11.) Retention of the Polo Club share, subject to my reimbursing the purchase price to the Chamber, or one hundred ten thousand pesos (P110,000.00). 8

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

Private respondent, through counsel sent a letter to the petitioner demanding the return and delivery of the MPC share which "it (AmCham) owns and placed in your (Thomson's) name." Failing to get a favorable response, private respondent filed, a complaint against petitioner praying, inter alia, that the Makati Regional Trial Court render judgment ordering Thomson "to return the Manila Polo Club share to the plaintiff and transfer said share to the nominee of plaintiff.

In said decision, the trial court awarded the MPC share to defendant (petitioner now) on the ground that the Articles of Incorporation and By-laws of Manila Polo Club prohibit artificial persons, such as corporations, to be club members. CA set aside the ruling of the trial court.

ISSUE

(1) Did respondent court err in holding that private respondent is the beneficial owner of the disputed share? (2) Did the respondent court err in ordering petitioner to transfer said share to private respondent's nominees?

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

DECISION

Petitioner has the obligation to transfer now said share to the nominee of private respondent.

RULING

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

In the present case, as the Executive Vice-President of AmCham, petitioner occupied a fiduciary position in the business of AmCham. AmCham released the funds to acquire a share in the Club for the use of petitioner but obliged him to "execute such document as necessary to acknowledge beneficial ownership thereof by the Chamber". A trust relationship is, therefore, manifestly indicated. Moreover, petitioner failed to present evidence to support his allegation of being merely a debtor when the private respondent paid the purchase price of the MPC share. Applicable here is the rule that a trust arises in favor of one who pays the purchase money of property in the name of another, because of the presumption that he who pays for a thing intends a beneficial interest therein for himself. Although petitioner initiated the acquisition of the share, evidence on record shows that private respondent acquired said share with its funds. Petitioner did not pay for said share, although he later wanted to, but according to his own terms, particularly the price thereof. Petitioner voluntarily affixed his signature recognizing his employer as the beneficial owner of the MPC share. N

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

In this case, the petitioner was the nominee of the private respondent to hold the share and enjoy the privileges of the club.

G.R. No. L-45048 January 7, 1987

BATONG BUHAY GOLD MINES, INC., vs. COURT OF APPEALS and INC. MINING CORPORATION,

PARAS, J.:

FACTS OF THE CASE

The defendant Batong Buhay Gold Mines, Inc. issued Stock Certificate shares with a par value of P0.01 per share to Francisco Aguac who was then legally married to Paula G. Aguac, but the said spouses had lived separately for more than fourteen (14) years prior to the said date. Francisco Aguac sold his shares in favor of the plaintiff Batong Buhay Gold Mines, Inc.,, the said transaction being evidenced by a deed of sale. The said sale was made by Francisco Aguac without the knowledge or consent of his wife Paula G. Aguac.

Paula G. Aguac wrote a letter to the president of defendant Batong Buhay Gold Mines, Inc. asking that the transfer of the shares sold by her husband be withheld, inasmuch as the same constituted conjugal property and her share of proceeds of the sale was not given to her.

Francisco Aguac was charged in a criminal complaint.

The defendants justify their refusal to transfer the shares of stock of Francisco Aguac in the name of the plaintiff in view of their apprehension that they might he held liable for damages under Article 173 of the Civil Code and the ruling of the Supreme Court in Bucoy vs. Paulino, 23 SCRA 248.

The trial court handed down its judgment ordering the herein petitioner to effect the transfer of the shares in the name of herein respondent Incoporated Mining Corporation and declaring permanent the writ of preliminary mandatory

ISSUE

1. May the Court of Appeals award damages by way of unrealized profits despite the absence of supporting evidence, or merely on the basis of pure assumption, speculation or conjecture; or can the respondent recover damages by way of unrealized profits when it has not shown that it was damaged in any manner by the act of petitioner? NO!

DECISION

Ruling of CA is set aside.

RULING

The stipulation of facts of the parties does not at all show that private respondent intended to sell, or would sell or would have sold the stocks in question on specified dates. While it is true that shares of stock may go up or down in value (as in fact the concerned shares here really rose from fifteen (15) centavos to twenty three or twenty four (23/24) centavos per share and then fell to about two (2) centavos per share, still whatever profits could have been made are purely SPECULATIVE, for it was difficult to predict with any decree of certainty the rise and fall in the value of the shares. Thus this Court has ruled that speculative damages cannot be recovered.

It is easy to say now that had private respondent gained legal title to the shares, it could have sold the same and reaped a profit of P5,624.95 but it could not do so because of petitioner's refusal to transfer the stocks in the former's name at the time demand was made, but then it is also true that human nature, being what it is, private respondent's officials could also have refused to sell and instead wait for expected further increases in value.

G.R. No. L-38684 December 21, 1933

CYRUS PADGETT, vs. BABCOCK & TEMPLETON, INC., and W. R. BABCOCK,

IMPERIAL, J.:

FACTS OF THE CASE

The appellee Cyrus Padgett was an employee of the appellant corporation. During that period he bought 35 shares thereof at P100 a share at the suggestion of the president of said corporation. He was also the recipient of 9 shares by way of bonus during Christmas seasons. Appellee became the owner of 44 shares for which the 12 certificates, The word "nontransferable" appears on each and every one of these certificates The appellee proposed to the president that the said corporation buy his 44 shares at par value plus the interest thereon, or that he be authorized to sell them to other persons. The corporation bought similar shares belonging to other employees, at par value. Sometime later, the said president offered to buy the appellee's shares first at P85 each and then at P80. The appellee did not agree thereto.

The defendants admit that the 44 shares in question have become the property of the plaintiff. They vigorously contend that there is no existing law nor authority in support of the proposition that they are bound to redeem or buy said shares at par value. Their admission is only limited to the proposition that after the restriction appearing thereon is eliminated, the plaintiff may sell the said shares to anybody, at their market value or at any price he sees fit.

ISSUE Whether or not the defendants may be compelled to buy the shares in question at par value.

DECISION

A restriction imposed upon a certificate of sharesis null and void on the ground that it constitutes and unreasonable limitation of the right of ownership and is in restraint of trade.

RULING

Shares of corporate stock being regarded as property, the owner of such shares may, as a general rule, dispose of them as he sees fit, unless the corporation has been dissolved, or unless the right to do so is properly restricted, or the owner's privilege of disposing of his shares has been hampered by his own action.

Any restriction on a stockholder's right to dispose of his shares must be construed strictly; and any attempt to restrain a transfer of shares is regarded as being in restraint of trade, in the absence of a valid lien upon its shares, and except to the extent that valid restrictive regulations and agreements exist and are applicable. Subject only to such restrictions, a stockholder cannot be controlled in or restrained from exercising his right to transfer by the corporation or its officers or by o.ther stockholders, even though the sale is to a competitor of the company, or to an insolvent person, or even though a controlling interest is sold to one purchaser.

It is obvious, therefore, that the restriction consisting in the word "nontransferable", appearing on the 12 certificates, Exhibits F to F-11, is illegal and should be eliminated.

As we have hereinbefore stated, there is no existing law nor authority in support of the plaintiff's claim to the effect that the defendants are obliged to buy his shares of stock value at par value, plus the interest demanded thereon. In this respect, we hold that there has been no such contract, either express or implied, between the plaintiff and the defendants. In the absence of a similar contractual obligation and of a legal provision applicable thereto, it is logical to conclude that it would be unjust and unreasonable to compel the said defendants to comply with a non-existent or imaginary obligation. Whereupon, we are likewise compelled to conclude that the judgment originally rendered to that effect is untenable and should be set aside.

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

AQUILINO RIVERA, ISAMU AKASAKO and FUJIYAMA HOTEL & RESTAURANT, INC., vs.THE HON. ALFREDO C. FLORENDO,

as CFI

FACTS OF THE CASE

Petitioner corporation Fujiyama Hotel & Restaurant, Inc was organized and register under Philippine laws with a capital stock of divided into shares of P100.00 par value each by the herein petitioner Rivera and four (4) other incorporators. Sometime thereafter petitioner Rivera increased his subscription.

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

It also appears that the other incorporators sold their shares to both respondent Jureidini and Tsuchiya such that both respondents became the owners of the majority out outstanding subscribed shares of the corporation, and that there was no dispute as to the legality of the transfer of the stock certificate. Aquilino Rivera admitted the genuineness of an the signatures of the officers of the corporation and of an the indorsee therein. Private respondents attempted several times to register their stock certificates with the corporation but the latter refused to register the same. Thus, private respondents filed a special civil action for mandamus and damages with preliminary mandatory injunction and/or receivership

Private respondent Lourdes Jureidini and her counsel failed to appear. Accordingly the Court Resolved: (a) to IMPOSE on said counsel Atty. Canlas a fine of P200.00 or to suffer imprisonment if said fine is not paid; (b) to RESET the hearing on the contempt incidents on March 3, 1982 and (c) to REQUIRE the presence of Atty. Canlas and respondent Lourdes Jureidini and of complainants Attys. Bibiano P. Lasaca, Rodolfo A. Espiritu and Renato T. Paqui.

ISSUE:

Whether or not the CFI has jurisdiction over the petition for mandamus and receivership "as well as in placing the corporate assets under provisional receivership in the guise of a writ of preliminary mandatory injunction, considering private respondents are not yet stockholders.

Petitioner contends that the SEC has jurisdiction and not the regular court.

RULING

I. Lower Court has no jurisdiction because the private respondents are not yet stockholders

It has already been settled by Presidential Decree No. 902-A that an intracorporate controversy would call for the jurisdiction of the Securities and Exchange Commission. On the other hand, an intra-corporate controversy has been defined as "one which arises between a stockholder and the corporate. There is no distinction, qualification, nor any exemption whatsoever.". This Court has also ruled that cases of private respondents who are not shareholders of the corporation, cannot be a "controversy arising out of intracorporate or partnership relations between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association, of which they are stockholders, members or associates, respectively." (Sunset View Condominium Corporation v. Campos, Jr., 104 SCRA 303, April 27, 1981).

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

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

xxx xxx xxx

As confirmed by this Court, "shares of stock may be transferred by delivery to the transferee of the certificate properly indorsed. 'Title may be vested in the transferee by delivery of the certificate with a written assignment or indorsement thereof '

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

II Mandatory Injunction must Fail

A mandatory injunction is granted only on a showing (a) that the invasion of the right is material and substantial; (b) the right of complainant is clear and unmistakable; and (c) there is an urgent and permanent necessity for the writ to prevent

serious damage. (Pelejo v. Court of Appeals, 117 SCRA 668, Oct. 18, 1982).

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

Respondent court in the instant case violated the fundamental rule of injunctions that a mandatory injunction will not issue in favor of a party whose rights are not clear and free of doubt or as yet undetermined. It will be recalled that the disputed shares of stock were purchased not from the registered owner but from a Japanese national who allegedly was the real owner thereof. It was also alleged that the registered owner was only a dummy of Akasako. The Order of the trial court is in effect a judgment on the merits, declaring expressly or impliedly that petitioners are stockholders of the Corporation at the hearing of only the incident for the issuance of a Writ of Preliminary Injunction. On the other hand if the Order amounts to a judgment on the merits, the lower court should first rule on what private respondents seek, the registration of their shareholdings in the books of the corporation and the issuance of new stock certificates. It is only thereafter that the subsequent act of management may be ordered and the period of finality of such a judgment should be in accordance with the Rules of Court, giving the respondents the right to an appeal or review and not be immediately executory as the Writ of Preliminary Mandatory Injunction would infer.

In the case of Fleischer vs. Botica Nolasco Co. (47 Phil., 583), we have discussed the validity of a clause in the by-laws of the defendant corporation, which provided that, under the same conditions, the owner of a share of stock could not sell it to another person except to the defendant corporation. In deciding the legality and validity of said restriction, we held:

The only restraint imposed by the Corporation Law upon transfer of shares is found in section 35 of Act No. 1459, quoted above, as follows: "No transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate, and the number of shares transferred." This restriction is necessary in order that the officers of the corporation may know who are the stockholders, which is essential in conducting elections of officers, in calling meetings of stockholders, and for other purposes. But any restriction of the nature of that imposed in the by-law now in question, is ultra vires, violative of the property rights of shareholders, and in restraint of trade. (Id., p. 592.)

89 Phil 780 (1955)

JOSEFA SANTAMARIA, assisted by her husband, FRANCISCO SANTAMARIA, Jr., vs. THE HONGKONG AND SHANGHAI BANKING CORPORATION and R. W. TAPLIN

BAUTISTA ANGELO, J.:

FACTS OF THE CASE

Petitioner Mrs. Josefa T. Santamaria bought 10,000 shares of the Batangas Minerals, Inc., through the offices of Woo, Uy-Tioco & Naftaly, a stock brokerage firm and pay the sum. The buyer received Stock Certificate issued in the name of Woo, Uy-Tioco & Naftaly and indorsed in bank by this firm.

Santamaria placed an order for the purchase of 10,000 shares of the Crown Mines, Inc. with R.J. Campos & Co., a brokerage firm, and delivered Certificate to the latter as security with the understanding that said certificate would be returned to her upon payment of the 10,000 Crown Mines, Inc. shares. The receipt of the certificate in question signed by one Mr. Cosculluela, Manager of the R.J. Campos & Co., Inc. According to certificate, R. J. Campos & Co., Inc. bought for Mrs. Josefa Santamaria 10,000 shares of the Crown Mines, Inc.

At the time of the delivery of a stock Certificate to R.J. Campos & Co., Inc. this certificate was in the same condition as that when Mrs. Santamaria received from Woo, Uy-Tioco & Naftaly, with the sole difference that her name was later written in lead pencil on the upper right hand corner thereof.

Two days later, on March 11, Mrs. Santamaria went to R.J. Campos & Co., Inc. to pay for her order of 10,000 Crown Mines shares and to get back Certificate. Cosculluela then informed her that R.J. Campos & Co., Inc. was no longer allowed to transact business due to a prohibition order from Securities and Exchange Commission. She was also inform that her Stock certificate was in the possession of the Hongkong and Shanghai Banking Corporation.

Certificate came into possession of the Hongkong and Shanghai Banking Corporation because R.J. Campos & Co., Inc. had opened an overdraft account with this bank and pledged to the said bank "all stocks, shares and securities which I/we may hereafter come into their possession of my/our account and whether originally deposited for safe custody only or for any other securities now deposited or for any other purposes whatsoever."

The Certificate indorsed by R.J. Campos Co. Inc. to the Hongkong & Shanghai Banking Corporation, was sent by the latter to the office of the Batangas Minerals, Inc. with the request that the same be cancelled and a new certificate be issued. As per this request the Batangas Minerals, Inc. issued Certificate in the name of Robert W. Taplin as trustee and nominee of the Hongkong & Shanghai Banking Corporation. In Civil Case, R.J. Campos & Co., Inc. was declared insolvent, the court granted the motion of the Hongkong & Shanghai Banking Corporation to sell the R.J. Campos & Co., Inc., securities listed in its motion. The shares were sold to the same bank by the Sheriff for P300 at the foreclosure sale authorized by said order.

R.J. Campos, the president of R.J. Campos & Co., Inc., was found guilty for the crime of estafa y the CFI and CA. When Mrs. Santamaria failed in her efforts to force the civil judgment rendered in her favor in the criminal case because the accused became insolvent, she filed her complaint in this

case. At the trial both parties agreed that the 10,000 Batangas Minerals shares, have no actual market value.

ISSUE

Whether or not the trial court erred in finding that the plaintiff-appellee was not chargeable with negligence in the transaction which gave rise to this case.

DECISION

The plaintiff, in failing to take the necessary precautions upon delivering the certificate of stock to her broker, was chargeable with negligence in the transaction which resulted to her own prejudice, and as such, she is estopped from asserting title to it as against the defendant Bank.

RULING

In making said deposit, plaintiff did not take any precaution to protect herself against the possible misuse of the shares represented by the certificate of stock. Plaintiff could have asked the corporation that had issued said certificate to cancel it and issue another in lieu thereof in her name to apprise the holder that she was the owner of said certificate. This she failed to do, and instead she delivered said certificate, as it was, to R.J. Campos & Co., Inc., thereby clothing the latter with apparent title to the shares represented by said certificate including apparent authority to negotiate it by delivering it to said company while it was indorsed in blank by the person or firm appearing on its face as the owner thereof. The defendant Bank had no knowledge of the circumstances under which the certificate of stock was delivered to R.J. Campos & Co., Inc., and had a perfect right to assume that R.J. Campos & Co., Inc. was lawfully in possession of the certificate in view of the fact that it was a street certificate, and was in such form as would entitle any possessor thereof to a transfer of the stock on the books of the corporation concerned.

She is, therefore, estopped from claiming further title to or interest therein as against abona fide pledge or transferee thereof, for it is a well-known rule that a bona fide pledgee or transferee of a stock from the apparent owner is not chargeable with knowledge of the limitations placed on it by the real owner, or of any secret agreement relating to the use which might be made of the stock by the holder.

The rule is "where one of two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss must fall on the one who first trusted the wrong doer and put in his hands the means of inflicting such loss" (Fletcher Cyclopedia of Corporations, supra).

2. Was the defendants Bank obligated to inquire who was the real owner of the shares represented by the certificate of stock, and could it be charged with negligence for having failed to do so? NO.

It should be noted that the certificate of stock in question was issued in the name of the brokerage firm-Woo, Uy-Tioco & Naftaly and that it was duly indorsed in blank by said firm, and that said indorsement was guaranteed by R.J. Campos & Co., Inc., which in turn indorsed it in blank. This certificate is what it is known as street certificate. Upon its face, the holder was entitled to demand its transfer into his name from the issuing corporation. The Bank was not obligated to

look beyond the certificate to ascertain the ownership of the stock at the time it received the same from R.J. Campos & Co., Inc., for it was given to the Bank pursuant to their letter of hypothecation.

A mere claim and of ownership does not establish the fact of ownership. The right of the plaintiff in such a case would be against the transferor. In fact, this is the attitude plaintiff has adopted when she filed a charge for estafa against Rafael J. Campos, which culminated in his prosecution and conviction, and it is only when she found him to be insolvent that she decided to go against the Bank. The fact that on the right margin of the said certificate the name of the plaintiff appeared written, granting it to be true, cannot be considered sufficient reason to indicate that its owner was the plaintiff considering that said certificate was indorsed in blank by her brokers Woo, Uy-Tioco & Naftaly, was guaranteed by indorsement in blank by R.J. Campos & Co., Inc.,

G.R. No. 112941 February 18, 1999

NEUGENE MARKETING INC., ET. AL. vs. COURT OF APPEALS

PURISIMA, J.:

FACTS OF THE CASE

NEUGENE was duly registered with this Commission to engage in trading business for a term of fifty (50) years. Private respondents, Charles O. Sy, Arsenio Yang, Jr. and Lok Chun Suen, who are holders of at least two-thirds (2/3) of the outstanding capital stock sent notice to the directors of NEUGENE for a board meeting and a notice for a special stockholders' meeting on to consider the dissolution of NEUGENE. The directors and stockholders then present, voted for and approved a resolution dissolving NEUGENE. Acting upon private respondents's Petition for Dissolution, SEC issued a Certificate of Dissolution of NEUGENE.

Herein petitioners brought an action to annul or set aside the said SEC Certification on the Dissolution of Neugene. Petitioners stated, that they are the majority stockholders of NEUGENE, owning eighty percent (80%) of its outstanding capital stock, at the time of the adoption and approval of the Resolution for the Dissolution of NEUGENE, and that the private respondents had divested themselves of their stockholdings when they endorsed their stock certificates in blank and delivered the same to the Uy Family, the beneficial owners of NEUGENE. The Uy family agreed to award NEUGENE's stock certificates to Johnny K. H. Uy, who, in turn, authorized Johnson Lee to dispose of the same; and that Johnson Lee sold the said shares of stock to the petitioners, Leoncio Tan and Nicanor Martin. Petitioner alleged that the proceedings of the meetings were improperly called and held without a quorum.

Private respondents, theorized that the alleged assignments of shares of stock in favor of petitioners were simulated and fraudulently effected, as there never was any agreement because subject stock certificates of the private respondents covering their shares of stock were endorsed in blank by them and delivered to the Uy family, who were the beneficial owners of NEUGENE, for safe keeping, but the same were stolen by the spouses, Johnny K. H. Uy and Magdalena Go-Uy, without the knowledge and authority of the Uy family. The private respondents never sold their shares of stock in NEUGENE to any of the petitioners or other stockholders of record, prior to the dissolution of the corporation.

SEC Panel of Hearing Officers nullified the Certification on the Dissolution of NEUGENE issued by SEC, holding that the private respondents were no longer holders of at least two-thirds (2/3) of the outstanding capital stock of . The udgment of SEC was reversed by the Court of Appeals. Upholding the validity of NEUGENE's dissolution.

ISSUE

Whether or not the respondents where holders of the majority shares of stocks at the time of dissolution of NEUGENE.

DECISION

Resolution of CA is affirmed. The Certificate of Stocks of the private respondents were stolen and were not validly transferred.

RULING

The certificates of stock of the private respondents were stolen and therefore not validly transferred, and the transfers of stock relied upon by petitioners were fraudulently recorded in the Stock and Transfer Book of NEUGENE under the column "Certificates Cancelled".

The transfers of stock in question lack the requisite approval, the private respondents categorically declared under oath that subject certificates of stock of theirs were stolen from the confidential vault of the Uy family and illegally transferred to the names of petitioners in the Stock and Transfer Book of NEUGENE. The complete absence of a cause or consideration renders the contract absolutely void and inexistent.

SEC En Banc and its Panel Of Hearing Officers misappreciated the true nature of the relationship between the stockholders of NEUGENE and the Uy family, who had the understanding that the beneficial ownership of NEUGENE would remain with the Uy family, such that subject shares of stock were, immediately upon issuance, endorsed in blank by the shareholders and entrusted to the Uy family, through Ban Ha Chua, for safekeeping. Such beneficial ownership of the Uy family is admitted not only in the testimonies of private respondents but also of the petitioners. Both the petitioners Johnson Lee (a member of the Uy family himself), and Sony Moreno, the corporate secretary, were aware of the real import or significance of the indorsements in blank on the stock certificates of the private respondent. They acted in bad faith in assigning subject certificates of stock to the petitioners, Nicanor Martin and Leoncio Tan, and in recording the said transfers in dispute in the Stock and Transfer book of NEUGENE.

G.R. No. L-19441 March 27, 1923

FUA CUN (alias Tua Cun), vs. RICARDO SUMMERS, in his capacity as Sheriff ex-oficio of the City of Manila, and the

CHINA BANKING CORPORATION

OSTRAND, J.:

FACTS OF THE CASE

Chua Soco subscribed for 500 of stock of the defendant Banking Corporation, one-half of the subscription price, in cash, for which a receipt was issued in the following terms:

Upon receipt of the balance of said subscription in accordance with the terms of the calls of the Board of Directors, and surrender of this certificate, duly executed certificates for said five hundred shares of stock will be issued to the order of the subscriber.

Chua Soco executed a promissory note in favor of the plaintiff Fua Cun for the sum of P25,000 payable in ninety days and drawing interest at the rate of 1 per cent per month, securing the note with a chattel mortgage on the shares of stock subscribed for by Chua Soco, who also endorsed the receipt above mentioned and delivered it to the mortgagee. The plaintiff thereupon took the receipt to the manager of the defendant Bank and informed him of the transaction with Chua Soco, but was told to await action upon the matter by the Board of Directors.

Chua Soco appears to have become indebted to the China Banking Corporation for dishonored acceptances of commercial paper and in an action brought against him to recover this amount, Chua Soco's interest in the 500 shares subscribed for was attached and the receipt seized by the sheriff. The attachment was levied after the defendant bank had received notice of the facts that the receipt had been endorsed over to the plaintiff.

Fua Cun thereupon brought the present action maintaining that by virtue of the payment of the one-half of the subscription price of five hundred shares Chua Soco in effect became the owner of 250 shares and that the defendants be ordered to deliver the receipt in question to him; and that he be awarded the sum of P5,000 in damages for wrongful attachment.

The trial court rendered judgment in favor of the plaintiff declaring that Chua Soco, through acquired the right to 250 shares fully paid up. Judgment the defendants appeal.

DECISION

Plaintiff is not the owner of the 250 shares of stock.

RULING

A corporation has no lien upon the shares of stockholders for any indebtedness to the corporation. On the contrary, section 120 of the Corporation Act provides that "no bank organized under this Act shall make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase shall be necessary to prevent loss upon a debt previously contracted in good faith, and stock so purchased or acquired shall, within six months from the time of its purchase, be sold or disposed of at public or private sale, or,

in default thereof, a receiver may be appointed to close up the business of the bank in accordance with law."

A bank organized under that Act can have no lien on its own stock for the indebtedness of the stockholders even when the by-laws provide that the shares shall be transferable only on the books of the corporation and that no such transfer shall be made if the holder of the shares is indebted to the corporation. The reasons for this doctrine are obvious; if banking corporations were given a lien on their own stock for the indebtedness of the stockholders, the prohibition against granting loans or discounts upon the security of the stock would become largely ineffective.

Turning now to the rights of the plaintiff in the stock in question, it is argued that the interest held by Chua Soco was merely an equity which could not be made the subject of a chattel mortgage. Though the courts have uniformly held that chattel mortgages on shares of stock and other choses in action are valid as between the parties; an equity in shares of stock is of such an intangible character that it is somewhat difficult to see how it can be treated as a chattel and mortgaged in such a manner that the recording of the mortgage will furnish constructive notice to third parties.

There can be no doubt that an equity in shares of stock may be assigned and that the assignment is valid as between the parties and as to persons to whom notice is brought home. Such an assignment exists here, though it was made for the purpose of securing a debt. The endorsement was accompanied by the delivery of the receipt to the plaintiff and further strengthened by the execution of the chattel mortgage, which mortgage, at least, operated as a conditional equitable assignment.

As against the rights of the plaintiff the defendant bank had, no lien unless by virtue of the attachment. But the attachment was levied after the bank had received notice of the assignment of Chua Soco's interests to the plaintiff and was therefore subject to the rights of the latter. It follows that as against these rights the defendant bank holds no lien whatever.

The court erred in holding the plaintiff as the owner of 250 shares of stock; "the plaintiff's rights consist in an equity in five hundred shares and upon payment of the unpaid portion of the subscription price he becomes entitled to the issuance of certificate for said five hundred shares in his favor."

G.R. No. 133969 January 26, 2000

NEMESIO GARCIA, vs. NICOLAS JOMOUAD, Ex-officio Provincial Sheriff of Cebu

KAPUNAN, J.:

FACTS OF THE CASE

Action for collection of sum of money filed by the spouses Atinon against Jaime Dico. RTC rendered judgment ordering Dico to pay the spouses Atinon the sum of P900,000.00 plus interests. After said judgment became final and executory, respondent sheriff proceeded with its execution. In the course thereof, the Proprietary Ownership Certificate (POC) in the Cebu Country Club, which was in the name of Dico, was levied on and scheduled for public auction. Claiming ownership over the subject certificate. Petitioner Garcia filed with the RTC an action for injunction with prayer for preliminary injunction against respondents spouses Jose and Sally Atinon and Nicolas Jomouad, ex-officio sheriff to enjoin respondents from proceeding with the auction. After trial, the lower court dismiss the petition. CA affirmed.

Petitioner avers that Dico, the judgment debtor of the spouses Atinon, was employed as manager of his (petitioner's) Young Auto Supply. In order to assist him in entertaining clients, petitioner "lent" his POC to Dico so the latter could enjoy the "signing" privileges of its members. Thereafter, Dico resigned as manager of petitioner's business. Upon demand of petitioner, Dico returned POC to him. Dico then executed a Deed of Transfer, covering the subject certificate in favor of petitioner. The Club was furnished with a copy of said deed but the transfer was not recorded in the books of the Club because petitioner failed to present proof of payment of the requisite capital gains tax.

ISSUE

WON CA erroneously relied on Section 63 of the Corporation Code in upholding the levy on the subject certificate to satisfy the judgment debt of Dico.

DECISION

CA decision is affirmed.

RULING

The petition is without merit.

Sec. 63 of the Corporation Code reads:

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

the number of the certificate or certificates and the number of shares transferred.

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

Whether a bona fide transfer of the shares of a corporation, not registered or noted in the books of the corporation, is valid as against a subsequent lawful attachment of said shares, regardless of whether the attaching creditor had actual notice of said transfer or not."The attachment prevails over the unrecorded transfer stating thus —

All transfers of shares should be entered, as here required, on the books of the corporation. And it is equally clear to us that all transfers of shares not so entered are invalid as to attaching or execution creditors of the assignors, as well as to the corporation and to subsequent purchasers in good faith, and, indeed, as to all persons interested, except the parties to such transfers. All transfers not so entered on the books of the corporation are absolutely void; not because they are without notice or fraudulent in law or fact, but because they are made so void by statute.3

The transfer of the subject certificate made by Dico to petitioner was not valid as to the spouses Atinon, the judgment creditors, as the same still stood in the name of Dico, the judgment debtor, at the time of the levy on execution. In addition, as correctly ruled by the CA, the entry in the minutes of the meeting of the Club's board of directors noting the resignation of Dico as proprietary member thereof does not constitute compliance with Section 63 of the Corporation Code.

[G.R. No. 120138. September 5, 1997]

MANUEL A. TORRES, JR., (Deceased), vs. CA

FACTS OF THE CASE

The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority stockholder of Tormil Realty & Development Corporation while private respondents who are the children of Judge Torres deceased brother Antonio A. Torres, constituted the minority stockholders. lesvirtuallawlibrary

In 1984, Judge Torres, in order to make substantial savings in taxes, adopted an estate planning scheme under which he assigned to Tormil Realty & Development Corporation (Tormil for brevity) various real properties he owned and his shares of stock in other corporations in exchange for 225,972 Tormil Realty shares. On various, ten (10) deeds of assignment were executed by the late Judge Torres.Consequently, the aforelisted properties were duly recorded in the inventory of assets of Tormil Realty and the revenues generated by the said properties were correspondingly entered in the corporations books of account and financial records. Likewise, all the assigned parcels of land were duly registered with the respective Register of Deeds in the name of Tormil Realty, except for the ones located in Makati and Pasay City.

At the time of the assignments and exchange, however, only 225,000 Tormil Realty shares remained unsubscribed, all of which were duly issued to and received by Judge Torres .

Due to the insufficient number of shares of stock issued to Judge Torres and the alleged refusal of private respondents to approve the needed increase in the corporations authorized capital stock , Judge Torres revoked the two (2) deeds of assignment covering the properties in Makati and Pasay City.

Noting the disappearance of the Makati and Pasay City properties from the corporations inventory of assets and financial records private respondents, filed a complaint with the Securities and Exchange Commission to compel Judge Torres to deliver to Tormil Corporation the two (2) deeds of assignment. Private respondents found that Judge Torres, formed and organized a corporation named Torres-Pabalan Realty and Development Corporation and that as part of Judge Torres contribution to the new corporation, he executed in its favor a Deed of Assignment conveying the same Makati and Pasay City properties he had earlier transferred to Tormil.

Pursuant thereto, Judge Torres assigned from his own shares, one (1) share each to petitioners Tobias, Jocson, Jurisprudencia, Azura and Pabalan. These assigned shares were in the nature of qualifying shares, for the sole purpose of meeting the legal requirement to be able to elect them (Tobias and company) to the Board of Directors as Torres nominees. Private respondents alleged that the petitioners-nominees were not legitimate stockholders of Tormil because the assignment of shares to them violated the minority stockholders right of pre-emption as provided in the corporations articles and by-laws.

SEC rendered a decision in favor of private respondents. CA affirmed the order of SEC.

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

Petitioners further argue that:

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

RULING

Petitioners contentions lack merit. Transfers of Judge Torres is void.

Petitioners cannot use the flimsy excuse that it would have been a vain attempt to force the incumbent corporate secretary to register the aforestated assignments in the stock and transfer book because the latter belonged to the opposite faction. It is the corporate secretarys duty and obligation to register valid transfers of stocks and if said corporate officer refuses to comply, the transferor-stockholder may rightfully bring suit to compel performance.25 In other words, there are remedies within the law that petitioners could have availed of, instead of taking the law in their own hands, as the cliche goes.

Section 74 of the Corporation Code, as follows (Rollo, p. 45):

In the absence of (any) provision to the contrary, the corporate secretary is the custodian of corporate records. Corollarily, he keeps the stock and transfer book and makes proper and necessary entries therein.

In contravention to the above cited provision, the stock and transfer book was not kept at the principal office of the corporation either but at the place of respondent Torres.

Any entries made in the stock and transfer by respondent Torres of an alleged transfer of nominal shares to Pabalan and Co. cannot therefore be given any valid effect.

[GR 58168, 19 December 1989]Magsaysay-Labrador, et. al. vs. Court of Appeals

Facts: Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro Magsaysay, brought before CFI an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for the annulment of the Deed of Assignment executed by the late Senator in favor of SUBIC (as a result of which TCT 3258 was cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of the Deed of Mortgage executed by SUBIC in favor of FILMANBANK , and cancellation of TCT, and for the latter to issue a new title in her favor.

Concepcion Magsaysay-Labrador, Soledad Magsaysay-Cabrera, Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-Diaz, sisters of the late senator, filed a motion for intervention on the ground that their brother conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in the subject matter of litigation and that they have a legal interest in the success of the suit with respect to SUBIC. The trial court denied the motion for intervention, and ruled that petitioners have no legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct from its stockholders.

On appeal, the Court of Appeals found no factual or legal justification to disturb the findings of the lower court. The appellate court further stated that whatever claims the Magsaysay sisters have against the late Senator or against SUBIC for that matter can be ventilated in a separate proceeding. The motion for reconsideration of the Magsaysay sisters was denied. Hence, the petition for review on certiorari.

Issue: Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested parties in a case where corporate properties are in dispute.

Held: Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the Magsaysay sisters have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings. To be permitted to intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of either

of the parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other disposition of the property in the custody of the court or an officer thereof . Here, the interest, if it exists at all, of the Magsaysay sisters is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations. While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person.

Ownership of Corporate Shares/ Stock Certificates:  Valid Issuance

Bitong vs. CA [292 SCRA 503 (July 13 1998)]

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.

Issue:  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.

TAYAG VS BENGUET CONSOLIDATED INC.

FACTS

Idonah Slade Perkins is an owner of two stock certificates covering 3,302 shares of Benguet consolidated Inc. When shedied in New York City on March 27, 1960, the certificates were transferred in the possession of County Trust Company of New York, the domiciliary administrator of the estate of Perkins.Meanwhile, in the Philippines, Renato Tayag substituted Lazaro Marquez as ancillary administrator for Perkinscertificates. Because of the dispute as to which of the two administrators is entitled to the certificates of Perkins, anaction was brought to court. CFI of Manila held that domiciliary administrator (County Trust) should deliver thecertificates to the anciliary administrator (Tayag). When domiciliary administrator did not comply, court ordered that thestocks be considered lost and new ones should be issed under the name of Perkins and to be delivered to the anciliaryadministrator. Benguet Consolidated, Inc., the corporation appealed to the decision on the ground of the stocks being inexistence and that it would be a violation of the requirements of the corporations by-laws.

Issue: WON the contention of Benguet Consolidated, Inc. warrant a reversal of the decision of the court because it violates the corporation by-laws?

Held: No, Court held that appeal is not proper because a corporation is in existence only as the law allows it. It cannot choose which court order to follow and which to disregard. SC said that Phil. courts have jurisdiction over shares of stocks located in the Phils.

Ratio: Court clarifies that when a person owns several properties within and outside her domicile (like Perkins), there must bea domicile administrator to take care of the estate where she lives and another anciliary administrator (like Tayag in thePhilippines) to take care of the estate left in the country where the property is situated. The domicile administrator has no authority in the foreign country where the property is. As for the main point, the Court emphasizes the basic postulates of corporate theory. A corporation is an artificial being created by operation of law. Court states that it owes its life to the state and its birth is purely dependent on the state swill. It is logically inconceivable that it will have rights and privileges of a higher priority than that of its creator as was suggested by Benguet’s contention that the by-laws should not be violated by the court order. The corporation cannotrefuse to yield obedience to acts of its state organs, certainly not excluding the judiciary. To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which may be conceded but license which cannot be tolerated.

Art. 16. Real property as well as personal property is subject to the law of the country where it is situated.However, intestate and testamentary successions, both with respect to the order of succession and to the amount of successional rights and to the intrinsic validity of testamentary provisions, shall be regulated by the national law of the person whose succession is under consideration, whatever may be the nature of the property and regardless of the country wherein said property may be found.Balane: In Art. 16 par. 1 provides that the lex situs or lex rei sitae governs real or personal prop. This rule applies even to incorporeal property. In Tayag v. Benguet Consolidated, 26 S, the SC said that Phil. courts have jurisdiction over shares of stocks located in the Phils.

Tolentino: The rule of mobilia sequuntur personam in personal property has yielded to the to the lex situs bec. of the great increase in modern times of the amount and variety of prop. not immediately connected w/ the person of the owner.

Law on Succession.-- The law governing succession may be considered from the point of view of (a) the execution of wills, and (b) the distribution of property. The formalities of execution of will are generally governed by the law of the place of execution (Art. 17, par. 1.) But the distribution of the estate is governed by the law of the nation of the deceased.

Applicability of Foreign Law.-- The second par. of this article can be invoked only when the deceased was vested w/ a descendible interest in prop. w/in the jurisdiction of the Phils.The intrinsic validity of the provisions of the will of a foreigner who dies in the Phils. is to be determined by the laws of his own state or country, and not by those of the Phils. Thus, a condition in a will of a foreigner that his legatee respect his order that his prop. be distributed according to the laws of the Phils. instead of the laws of his own country, was held illegal and considered as not written.

Art. 17. The forms and solemnities of contracts, wills, and other public instruments shall be governed by the laws of the country in which they are executed.When the acts referred to are executed before the diplomatic or consular officials of the Republic of the Philippines in a foreign country, the solemnities established by Philippine laws shall be observed in their execution.Prohibitive laws concerning persons, their acts or property, and those which have for their object public order, public policy and good customs shall not be rendered ineffective by laws or judgments promulgated, or by determinations or conventions agreed upon in a foreign country.

Balane: The rule in par. 1 is known as the lex loci celebrationis.

Tolentino: Validity and Effects of Obligations.-- The code fails to mention the law w/c shall govern the validity and effects of obligations. (1) First, the law designated by the parties shall be applied; (2) if there is no stipulation on the matter, and the parties are of the same nationality, their national law shall be applied; (3) if this is not the case, the law of the place of perfection of the obligation shall govern its essence and nature, and the law of the place of the performance shall govern its fulfillment; (4) but if these places are not specified and they cannot be deduced from the nature and circumstances of the obligation, then the law of the domicile of the passive subject shall apply. (Manresa and Valverde.)

G.R. No. 170585 October 6, 2008

DAVID C. LAO and JOSE C. LAO, vs DIONISIO C. LAO,

FACTS OF THE CASE

Petitioners David and Jose Lao filed a petition with the 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.

Petitioners claimed that they are stockholders of PFSC based on the General Information Sheet filed with the SEC, in which they are named as stockholders and directors of the corporation.

Respondent denied petitioners claim. He alleged that the inclusion of their names in the corporations General Information 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.

Case was transferred from SEC to RTC. RTC denied the petition. CA affirmed the decision of RTC.

ISSUE

WON the mere inclusion as shareholder in the General Information Sheet of a corporation sufficient proof that one is a shareholder in such corporation?

DECISION

SC denies the petition.

RULING

Petitioners failed to prove that they are shareholders of PSFC.

Records, however, disclose that petitioners have no certificates of shares in their name. A certificate of stock is the evidence of a holders interest and status in a corporation. It is a written instrument signed by the proper officer of a corporation stating or acknowledging that the person named in the document is the owner of a designated number of shares of its stock. It is prima facie evidence that the holder is a shareholder of a corporation.

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:

cralawSec. 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.

In 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.

The mere inclusion as shareholder of petitioners in the General Information Sheet of PFSC is insufficient proof that they are shareholders of the company.

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 Information Sheet and the corporate books, it is the latter that is controlling.

If 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.

It 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. If they had certificates of shares, the burden would have been with PFSC to prove that they are not shareholders of the corporation.