Razon vs.

IAC and Chuidian

FACTS:
Vicente Chuidian (administrator of the estate of his deceased father) filed a complaint for the
delivery of the certificates of stocks representing the 1,500 share holdings of his deceased
father, Juan Chuidian, in the E. Razon, Inc. (organized for the purpose of bidding for the arrastre
services in South Harbor, Manila). In the answer, Razon alleged that he owned the shares and
the same remained in his possession. It was alleged that the late Juan Chuidan did not pay any
amount whatsoever for the 1,500 shares in question.
CHUIDIANs EVIDENCE: On April 23, 1966, stock certificate No. 003 for 1,5000 shares of stock
of defendant corporation was issued in the name of Juan Chuidian (Juan). Razon had not
questioned (not until the demand was made) Juans ownership of the shares and had not
brought any action to have the certificate of stock over the said shares cancelled.
RAZONs EVIDENCE (In the answer and in his oral Testimony): After organizing E. Razon, Inc.,
Razondistributed shares, previously placed in the names of the withdrawing nominal
incorporators, to some friends including Juan. The shares of stock were registered in the name
of Juan only as nominal stockholder and with the agreement that the said shares were owned
and held by the Razon (as he was the one who paid for all the subscription). Juan was given the
option to buy the same but did not do so.
CFI (RTC) declared that Enrique Razon is the owner of the said shares. IAC (CA) reversed and
ruled that Juan Chuidian is the owner. IAC excluded the testimony of Razon under the dead
mans statute rule (DMS) under Section 20 (a) Rule 130 of the Rules of Court, although such
testimony was not objected to during trial.
ISSUE: WON Razons testimony is within the prohibition under DMS Rule.
HELD: No. The case was not filed against the administrator of the estate, nor was it filed upon
claims against the estate.
The purpose of DMS Rule is that if persons having a claim against the estate of the deceased
or his properties were allowed to testify as to the supposed statements made by him (deceased
person), many would be tempted to falsely impute statements to deceased persons as the latter
can no longer deny or refute them, thus unjustly subjecting their properties or rights to false or
unscrupulous claims or demands. The purpose of the law is to 'guard against the temptation to
give false testimony in regard to the transaction in question on the part of the surviving party.
However, the rule is only applicable to a case against the administrator or its representative
of an estate upon a claim against the estate of the deceased person.

In this stance, the case was filed by the administrator of the estate of the late Juan
Chuidian to recover shares Juan allegedly owned (IOW, it is the estate which instituted the
action or initiated the attack). Hence, the testimony of the petitioner is not within the prohibition
of the rule.
Records also show that Razons testimony was not objected to. It was subjected to crossexamination. Granting that it is within the prohibition under DMS, Chuidian is deemed to have
waived the rule. The court cannot disregard evidence which would ordinarily be incompetent
under the rules but has been rendered admissible by the failure of a party to object thereto.

SCs DECISION: Juan was the owner of the shares. Razons testimony, though admitted, is not
sufficient to prove his ownership. Records show that during his lifetime Juan was elected
member of the Board of Directors which clearly shows that he was a stockholder of the
corporation. From the point of view of the corporation, Juan was the owner. For Razon to claim
ownership, he must show that the shares were transferred to him.
Corporation Code provides that in order for a transfer of stock certificate to be effective, the
certificate must be properly indorsed and that title to such certificate of stock is vested in the
transferee by the delivery of the duly indorsed certificate of stock. However, since the certificate
of stock covering the questioned 1,5000 shares of stock registered in the name of the late Juan
Chuidian was never indorsed to the Razon, the inevitable conclusion is that the questioned
shares of stock belong to Juan. Indorsement of the certificate of stock is a mandatory
requirement of law for an effective transfer of a certificate of stock and Razons asseveration that
he did not require an indorsement in view of his intimate friendship with the late Juan Chuidian
cannot overcome the failure to follow the procedure required by law or the proper conduct of
business even among friends.
There is also preponderance of evidence that would show that the shares were given to Juan for
value. Juan was the legal counsel who handled the legal affairs of the corporation and the
shares were payment for his legal services to the corporation.