G.R. No.

170585

October 6, 2008

DAVID C. LAO and JOSE C. LAO, petitioners, vs. DIONISIO C. LAO, respondents.
IS the mere inclusion as shareholder in the General Information Sheet of a corporation sufficient proof that one is a
shareholder in such corporation?
This is the main question for resolution in this petition for review on certiorari of the Amended Decision1 of the
Court of Appeals (CA) affirming the Decision2 of the Regional Trial Court (RTC), Branch 11, Cebu City in CEB-25916SRC.
The Facts
On October 15, 1998, petitioners David and Jose Lao filed a petition with the Securities and Exchange Commission
(SEC) against respondent Dionisio Lao, president of Pacific Foundry Shop Corporation (PFSC). Petitioners prayed for
a declaration as stockholders and directors of PFSC, issuance of certificates of shares in their name and to be
allowed to examine the corporate books of PFSC.3
Petitioners claimed that they are stockholders of PFSC based on the General Information Sheet filed with the SEC, in
which they are named as stockholders and directors of the corporation. Petitioner David Lao alleged that he
acquired 446 shares in PFSC from his father, Lao Pong Bao, which shares were previously purchased from a certain
Hipolito Lao. Petitioner Jose Lao, on the other hand, alleged that he acquired 333 shares from respondent Dionisio
Lao himself.4
Respondent denied petitioners' claim. He alleged that the inclusion of their names in the corporation's General
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.5
On June 19, 2000, Republic Act 8799, otherwise known as the Securities Regulation Code, was enacted, transferring
jurisdiction over all intra-corporate disputes from the SEC to the RTC. Pursuant to the law, the petition with the SEC
was transferred to the RTC in Cebu City and docketed as Civil Case No. CEB-25916-SRC. The case was consolidated
with another intra-corporate dispute, Civil Case No. CEB-25910-SRC, filed by the Heirs of Uy Lam Tiong against
respondent Dionisio Lao.6
During pre-trial, the parties agreed to submit the case for resolution based on the evidence on record.7
RTC Disposition
On December 19, 2001, the RTC rendered a Joint Decision8 with the following pertinent disposition, thus:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by the Court in these cases:
(a) Denying the petition of David C. Lao and Jose C. Lao to be recognized as stockholders and directors of Pacific
Foundry Shop Corporation, to be issued certificates of stock of said corporation and to be allowed to exercise rights
of stockholders of the same corporation.9
In denying the petition, the RTC ratiocinated:
x x x Thus, the petitioners David C. Lao and Jose C Lao do not appear to have become registered stockholders of
Pacific Foundry Shop corporation, as they do not appear to have acquired shares of stock of the corporation either
as subscribers or by purchase from a holder of outstanding shares or by purchase from the corporation of
additionally issued shares.
xxxx
Secondly, the claim or contention of the petitioners David C. Lao and Jose C. Lao is wanting in merit because they
have no stock certificates in their names. A stock certificate, as we very well know, is the evidence of ownership of
corporate stock. If ever the said petitioners acquired shares of stock of the corporation, there is a need for their
acquisition of said shares to be registered in the Stock and Transfer Book of the corporation. Registration is
necessary to entitle a person to exercise the rights of a stockholder and to hold office as director or other offices (12
Fletcher 343). That is why it is explicitly provided in Section 63 of the Corporation Code of the Philippines that no
transfer of shares of stock shall be valid until the transfer is recorded in the books of the corporation. An
unregistered transfer is not valid as against the corporation (Uson vs. Diosomito, 61 Phil. 535). A transfer must be
registered, or at least notice thereof given to the corporation for the purpose of registration, before the transferee
can acquire any right as against the corporation other than the right to have the transfer registered (12 Fletcher
339). An unrecorded transferee can not enjoy the status of a stockholder, he can not vote nor he voted for (Price &

Sulu Development Corp. vs. Martin, 58 Phil. 707). Until the transfer is registered, the transferee is not a stockholder
but an outsider (Rivera vs. Florendo, G.R. No. L-57586, October 8, 1986). So, a person who has acquired or
purchased shares of stock of a corporation, and who desires to be recognized as stockholder for the purpose of
voting and exercising other rights of a stockholder, must secure such a standing by having the acquisition or
transfer recorded in the corporate books (Price & Sulu development Corp. vs. Martin, supra). Unfortunately, in the
cases at bench, the petitioners David C. Lao and Jose C. Lao did not secure such a standing. Consequently, their
petition to be recognized as stockholders of Pacific Foundry Shop Corporation must fail.10
Petitioners appealed to the CA.
CA Disposition
On May 27, 2005, the CA rendered a Decision11 modifying that of the RTC, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered modifying the Joint Decision dated December 19,
2001 of the trial court in so far as it relates to Civil Case No. CEB-25916-SRC by:
(a) Declaring that petitioners have owned since 1987 shares of stock in Pacific Foundry Shop Corporation,
numbering 446 for petitioner-appellant David C. Lao and 333 for petitioner-appellant Jose C. Lao;
(b) Ordering respondent-appellee through the corporate secretary to issue to petitioners-appellants the certificates
of stock for the aforementioned number of shares;
(c) Ordering respondent-appellee, as President of Pacific Foundry Shop Corporation, to allow petitioners-appellants
to exercise their rights as stock holders;
(d) Ordering respondent-appellee to call a stockholders meeting every fourth Saturday of January in accordance
with the By-Laws of Pacific Foundry shop Corporation.12
The CA decision was penned by Justice Arsenio Magpale and concurred in by Justices Sesinando Villon and Enrico
Lanzanas.
In modifying the RTC decision, the appellate court gave credence to the General Information Sheet submitted by
petitioners that names them as stockholders of PFSC, thus:
The General Information Sheet of PFSC for the years 1987-1998 state that petitioners-appellants David C. Lao and
Jose C. Lao own 446 and 333 shares, respectively, in PFSC. It is also indicated therein that David C. Lao occupied
various key positions in PFSC from 1987-1998 and Jose C. Lao served as Director in PFSC from 1990-1998. The
Sworn Statements of Uy Lam Tiong, former corporate secretary of the PFSC, also state that petitioners-appellants
David C. Lao and Jose C. Lao, per corporate records of PFSC, own shares of stock numbering 446 and 333,
respectively. The minutes of the Annual Stockholders Meeting of PFSC on January 28, 1988 at 3:00 o'clock p.m.
shows that among those present were petitioners-appellants David C. Lao and Jose C. Lao. During the said meeting,
petitioner-appellant David C. Lao was nominated and elected Director of PFSC. Withal, the Minutes of the Meeting of
the Board of Directors of PFSC at its Office at Hipodromo, Cebu City, on January 28, 1988 at 4:00 p.m. disclose that
petitioner-appellant David C. Lao was elected vice-president of PFSC. Both minutes were signed by the officers of
PFSC including respondent-appellee.13
Respondent filed a motion for reconsideration14 of the CA decision.
On July 11, 2005, respondent moved to inhibit15 the ponente of the CA decision, Justice Magpale, from resolving his
pending motion for reconsideration.
On July 22, 2005, Justice Magpale issued a Resolution16 voluntarily inhibiting himself from further participating in
the resolution of the pending motion for reconsideration. Justice Magpale stated:
Although the undersigned ponente does not agree with the imputations of respondent-appellee and that the same
are not any of those grounds mentioned in Rule 137 of the Revised Rules of Court, nonetheless the ponente
voluntarily inhibits himself from further handling this case in order to free the entire court of the slightest suspicion
of bias and prejudice against the respondent-appellee.17
Amended Decision
On August 31, 2005, the CA rendered an Amended Decision18 affirming that of the RTC, with a fallo reading:
IN VIEW OF THE FOREGOING, the May 27, 2005 Decision of this Court is hereby SET ASIDE and the Decision of the
Regional Trial Court, Branch 11, Cebu City with respect to Civil Case No. 25916-SRC is hereby AFIRMED in toto.19

The Amended Decision was penned by Justice Enrico Lanzanas and concurred in by Justices Sesinando Villon and
Vicente Yap. The CA stated:
Petitioners-appellants maintain that they acquired their shares of stocks through transfer - the third mode
mentioned by the trial court. David C. Lao claims that he acquired his 446 shares through his father, Lao Pong Bao,
when the latter purchased said shares from Hipolito Lao. On the other hand, Jose C. Lao asserts that he acquired his
333 shares through Dionisio C. Lao himself from the original 1,333 shares of stocks of the latter.

Petitioner-appellants asseverations are unavailing. To substantiate their statements, they merely relied on the
General Information Sheets submitted to the Securities and Exchange Commission for the year 1987 to 1998, as
well as on the Minutes of the Stockholders Meeting and Board of Directors Meeting held on January 28, 1988. They
did not adduce evidence that would indubitably show that there was indeed a valid transfer of stocks, i.e.
endorsement and delivery, from the transferors, Hipolito Lao and Dionisio Lao, to them as transferees.
xxxx
To our mind, David C. Lao utterly failed to confute the argument posited by respondent-appellee or demonstrate
compliance with any of the statutory requirements as to warrant a favorable ruling on his part. No proof was ever
shown that there was endorsement and delivery to him of the stock certificates representing the 446 shares of
Hipolito Lao. Neither was the transfer registered in PFSC's Stock and Transfer Book. Conversely, Dionisio C. Lao was
able to show conformity with the aforementioned requirements. Accordingly, it is but logical to conclude that the
certificate of stock covering 446 shares of Hipolito Lao was in fact endorsed and delivered to Dionisio C. Lao and as
such is reflected in PFSC's Stock and Transfer Book x x x.
In fact, it is a rule that private transactions are presumed to have been faire and regular and that the regular course
of business is presumed to have been followed. Thus, the transfer made by Hipolito Lao of the 446 shares of stocks
to Dionisio C. Lao is deemed to have been valid and well-founded unless proven otherwise. David C. Lao's mere
allegation that Dionisio Lao illegally appropriated upon himself the 446 shares failed to hurdle such presumption. In
this jurisdiction, neither fraud nor evil is presumed and the record does not show either as to establish by clear and
sufficient evidence that may lead Us to believe such allegation. The party alleging the same has the burden of proof
to present evidence necessary to establish his claim, unfortunately however petitioners failed to do so. The General
Information Sheets and the Minutes of the Meetings adduced by petitioners-appellants do not prove such allegation
of fraud or deceit. In the absence thereof, the presumption remains that private transactions have been fair and
regular.
As for the alleged shares of Jose C. Lao, We find his position identically situated with David C. Lao. There is also no
evidence on record that would clearly establish how he acquired said shares of PFSC. Jose C. Lao failed to show that
there was endorsement and delivery to him of the stock certificates or any documents showing such transfer or
assignment. In fact, the 333 shares being claimed by him is still under the name of Dionisio C. Lao was reflected by
the Certificate of Stock as well as in PFSC's Stock and Transfer Book. Corollary, Jose C. Lao could not be considered a
stockholder of PFSC in the absence of support reflecting his right to the 333 shares other than the inclusion of his
name in the General Information Sheets from 1987 to 1998 and the Minutes of the Stockholder's Meeting and Board
of Director's Meeting.20
Petitioners moved for reconsideration but their motion was denied.21 Hence, the present petition for review on
certiorari under Rule 45 of the 1997 Rules of Civil Procedure.
Issues
Petitioners raise five (5) issues for Our consideration, thus:
1. Whether or not the inhibition of Justice Arsenio J. Magpale is proper when there is no "extrinsic evidence of bias,
bad faith, malice, or corrupt purpose" on the part of Justice Magpale, which is required by this Honorable Court in its
decision in Webb, et al. v. People of the Philippines, 276 SCRA 243 [1997], as basis for disqualification.
2. Whether or not the inhibition of Justice Magpale constitutes, in effect, forum shopping, which is proscribed under
Section 5, Rule 7 of the Rules of Court, as amended, and decisions of this Honorable Court.
3. Whether or not determination of ownership of shares of stock in a corporation shall be based on the Stock and
Transfer Book alone, or other evidence can be considered pursuant to the decision of this Honorable Court in Tan v.
Securities and Exchange Commission, 206 SCRA 740.
4. Whether or not the admissions and representations of respondent in the General Information Sheets submitted
by him to the Securities and Exchange Commission during the years 1987 to 1998 that (a) petitioners were
stockholders of Pacific Foundry Shop Corporation; that (b) petitioner David C. Lao and Jose C. Lao owned 446 and

333 shares in the corporation, respectively; and that (c) petitioners had been directors and officers of the
corporation, as well as the Sworn Statement of Uy Lam Tiong, former Corporate Secretary, the Minutes of the
Annual Stockholders Meeting of PFSC on January 28, 1988, and the Minutes of Meeting of the Board of Directors on
January 28, 1988, mentioned by Justice Magpale in his ponencia, are sufficient proof of petitioners ownership of
stocks in the corporation.
5. Whether or not respondent is stopped from questioning petitioners' ownership of stocks in the corporation in view
of his admissions and representations in the General Information Sheets he submitted to the Securities and
Exchange Commission from 1987 to 1998 that petitioners were stockholders and officers of the corporation.22
Essentially, only two (2) issues are raised in this petition. The first concerns the voluntary inhibition of Justice
Magpale, while the second involves the substantive issue of whether or not petitioners are indeed stockholders of
PFSC.
Our Ruling

We deny the petition.

Voluntary inhibition is within the sound discretion of a judge.
Petitioners claim that the motion to inhibit Justice Magpale from resolving the pending motion for reconsideration
was improper and unethical. They assert that the "bias and prejudice" grounds alleged by private respondent were
unsubstantiated and, worse, constituted proscribed forum shopping. They argue that Justice Magpale should have
resolved the pending motion, instead of voluntarily inhibiting himself from the case.
In cases of voluntary inhibition, the law leaves to the sound discretion of the judge the decision to decide for himself
the question of whether or not he will inhibit himself from the case. Section 1, Rule 137 of the Rules of Court
provides:
Section 1. Disqualification of judges. - No judge or judicial officer shall sit in any case in which he, or his wife or
child, is pecuniarily interested as heir, legatee, creditor, or otherwise, or in which he is related to either party within
the sixth degree of consanguinity or affinity, or to counsel within the fourth degree, computed according to the
rules of the civil law, or in which he has been executor, administrator, guardian, trustee, or counsel, or in which he
has presided in any inferior court when his ruling or decision is the subject of review, without the written consent of
all parties in interest, signed by them and entered upon the record.
A judge may, in the exercise of his sound discretion, disqualify himself from sitting in a case, for just or valid
reasons other than those mentioned above.
Here, Justice Magpale voluntarily inhibited himself "in order to free the entire court [CA] of the slightest suspicion of
bias and prejudice x x x."23 We certainly cannot nullify the decision of Justice Magpale recusing himself from the
case because that is a matter left entirely to his discretion. Nor can We fault him for doing so. No judge should
preside in a case in which he feels that he is not wholly free, disinterested, impartial, and independent.
We agree with petitioners that it may seem unpalatable and even revolting when a losing party seeks the
disqualification of a judge who had previously ruled against him in the hope that a new judge might be more
favorable to him. But We cannot take that basic proposition too far. That Justice Magpale opted to voluntarily recuse
himself from the appealed case is already fait accompli. It is, in popular idiom, water under the bridge.
Petitioners cannot bank on his voluntary inhibition to nullify the Amended Decision later issued by the appellate
court. It is highly specious to assume that Justice Magpale would have ruled in favor of petitioners on the pending
motion for reconsideration if he took a different course and opted to stay on with the case. It is also illogical to
presume that the Amended Decision would not have been issued with or without the participation of Justice
Magpale. The Amended Decision is too far removed from the issue of voluntary inhibition. It does not follow that
petitioners would be better off were it not for the voluntary inhibition.
Petitioners failed to prove that they are shareholders of PSFC.
Petitioners insist that they are shareholders of PFSC. They claim purchasing shares in PFSC. Petitioner David Lao
alleges that he acquired 446 shares in the corporation from his father, Lao Pong Bao, which shares were previously
purchased from a certain Hipolito Lao. Petitioner Jose Lao, on the other hand, alleges that he acquired 333 shares
from respondent Dionisio Lao.
Records, however, disclose that petitioners have no certificates of shares in their name. A certificate of stock is the
evidence of a holder's interest and status in a corporation. 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.24 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:
Sec. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or vice-president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of
stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed
by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation so as to
show the names of the parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.

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. As correctly ruled by the CA:
Au contraire, Dionisio C. Lao was able to show through competent evidence that he is undeniably the owner of the
disputed shares of stocks being claimed by David C. Lao. He was able to validate that he has the physical
possession of the certificates covering the shares of Hipolito Lao. Notably, it was Hipolito Lao who properly
endorsed said certificates to herein Dionisio Lao and that such transfer was registered in PFSC's Stock and Transfer
Book. These circumstances are more in accord with the valid transfer contemplated by Section 63 of the
Corporation Code.25
The mere inclusion as shareholder of petitioners in the General Information Sheet of PFSC is insufficient proof that
they are shareholders of the company.
Petitioners bank heavily on the General Information Sheet submitted by PFSC to the SEC in which they were named
as shareholders of PFSC. They claim that respondent is now estopped from contesting the General Information
Sheet.
While it may be true that petitioners were named as shareholders in the General Information Sheet submitted to the
SEC, that document alone does not conclusively prove that they are shareholders of PFSC. The information in the
document will still have to be correlated with the corporate books of PFSC. As between the General Information
Sheet and the corporate books, it is the latter that is controlling. As correctly ruled by the CA:
We agree with the trial court that mere inclusion in the General Information Sheets as stockholders and officers
does not make one a stockholder of a corporation, for this may have come to pass by mistake, expediency or
negligence. As professed by respondent-appellee, this was done merely to comply with the reportorial requirements
with the SEC. This maybe against the law but "practice, no matter how long continued, cannot give rise to any
vested right."
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. Petitioners-appellants never secured such a
standing as stockholders of PFSC and consequently, their petition should be denied.26
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.
As discussed, petitioners failed to hurdle their burden. There is no written document evidencing their claimed
purchase of shares. We note that petitioners agreed to submit their case for decision based merely on the
documents on record. Hence, no testimonial evidence was presented to prove the alleged purchase of shares.

Absent any documentary or testimonial evidence, the bare assertion of petitioners that they are shareholders
cannot prevail.
All told, We agree with the RTC and CA decision that petitioners are not shareholders of PFSC.
WHEREFORE, the petition is DENIED and the appealed Amended Decision AFFIRMED IN FULL.
SO ORDERED.

G.R. No. 96674 June 26, 1992

RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and FRANCISCO TRIAS,
petitioners,vs.n COURT OF APPEALS*, SECURITIES AND EXCHANGE COMMISSION, MELANIA A.
GUERRERO, LUZ ANDICO, WILHEMINA G. ROSALES, FRANCISCO M. GUERRERO, JR., and FRANCISCO
GUERRERO , SR., respondents.
The basic controversy in this case is whether or not the respondent court erred in sustaining the Securities and
Exchange Commission when it compelled by Mandamus the Rural Bank of Salinas to register in its stock and
transfer book the transfer of 473 shares of stock to private respondents. Petitioners maintain that the Petition for
Mandamus should have been denied upon the following grounds.
(1) Mandamus cannot be a remedy cognizable by the Securities and Exchange Commission when the purpose is to
register certificates of stock in the names of claimants who are not yet stockholders of a corporation:
(2) There exist valid reasons for refusing to register the transfer of the subject of stock, namely:
(a) a pending controversy over the ownership of the certificates of stock with the Regional Trial Court;
(b) claims that the Deeds of Assignment covering the subject certificates of stock were fictitious and antedated; and
(c) claims on a resultant possible deprivation of inheritance share in relation with a conflicting claim over the
subject certificates of stock.
The facts are not disputed.
On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power of
Attorney in favor of his wife, private respondent Melania Guerrero, giving and granting the latter full power and
authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the Bank registered in his name
(represented by the Bank's stock certificates nos. 26, 49 and 65), to execute the proper documents therefor, and to
receive and sign receipts for the dispositions.
On February 27, 1980, and pursuant to said Special Power of Attorney, private respondent Melania Guerrero, as
Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the 473 shares, in favor of private
respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco Guerrero, Jr. (5 shares).

Almost four months later, or two (2) days before the death of Clemente Guerrero on June 24, 1980, private
respondent Melania Guerrero, pursuant to the same Special Power of Attorney, executed a Deed of Assignment for
the remaining one (1) share of stock in favor of private respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero presented to petitioner Rural Bank of Salinas the two (2) Deeds
of Assignment for registration with a request for the transfer in the Bank's stock and transfer book of the 473 shares
of stock so assigned, the cancellation of stock certificates in the name of Clemente G. Guerrero, and the issuance of
new stock certificates covering the transferred shares of stocks in the name of the new owners thereof. However,
petitioner Bank denied the request of respondent Melania Guerrero.
On December 5, 1980, private respondent Melania Guerrero filed with the Securities and Exchange Commission"
(SEC) an action for mandamus against petitioners Rural Bank of Salinas, its President and Corporate Secretary. The
case was docketed as SEC Case No. 1979.
Petitioners filed their Answer with counterclaim on December 19, 1980 alleging the upon the death of Clemente G.
Guerrero, his 473 shares of stock became the property of his estate, and his property and that of his widow should
first be settled and liquidated in accordance with law before any distribution can be effected so that petitioners may
not be a party to any scheme to evade payment of estate or inheritance tax and in order to avoid liability to any
third persons or creditors of the late Clemente G. Guerrero.
On January 29, 1981, a motion for intervention was filed by Maripol Guerrero, a legally adopted daughter of the late
Clemente G. Guerrero and private respondent Melania Guerrero, who stated therein that on November 26, 1980
(almost two weeks before the filing of the petition for Mandamus) a Petition for the administration of the estate of
the late Clemente G. Guerrero had been filed with the Regional Trial Court, Pasig, Branch XI, docketed as Special
Proceedings No. 9400. Maripol Guerrero further claimed that the Deeds of Assignment for the subject shares of
stock are fictitious and antedated; that said conveyances are donations since the considerations therefor are below
the book value of the shares, the assignees/private respondents being close relatives of private respondent Melania
Guerrero; and that the transfer of the shares in question to assignees/private respondents, other than private
respondent Melania Guerrero, would deprive her (Maripol Guerrero) of her rightful share in the inheritance. The SEC
hearing officer denied the Motion for Intervention for lack of merit. On appeal, the SEC En Banc affirmed the
decision of the hearing officer.
Intervenor Guerrero filed a complaint before the then Court of First Instance of Rizal, Quezon City Branch, against
private respondents for the annulment of the Deeds of Assignment, docketed as Civil Case No. Q-32050. Petitioners,
on the other hand, filed a Motion to Dismiss and/or to Suspend Hearing of SEC Case No. 1979 until after the
question of whether the subject Deeds of Assignment are fictitious, void or simulated is resolved in Civil Case No. Q32050. The SEC Hearing Officer denied said motion.

On December 10, 1984, the SEC Hearing Officer rendered a Decision granting the writ of Mandamus prayed for by
the private respondents and directing petitioners to cancel stock certificates nos. 26, 49 and 65 of the Bank, all in
the name of Clemente G. Guerrero, and to issue new certificates in the names of private respondents, except
Melania Guerrero. The dispositive, portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the petitioners and against the respondents, directing the
latter, particularly the corporate secretary of respondent Rural Bank of Salinas, Inc., to register in the latter's Stock
and Transfer Book the transfer of 473 shares of stock of respondent Bank and to cancel Stock Certificates Nos. 26,
45 and 65 and issue new Stock Certificates covering the transferred shares in favor of petitioners, as follows:
1. Luz Andico 457 shares
2. Wilhelmina Rosales 10 shares
3. Francisco Guerrero, Jr. 5 shares
4. Francisco Guerrero, Sr. 1 share
and to pay to the above-named petitioners, the dividends for said shares corresponding to the years 1981, 1982,
1983 and 1984 without interest.
No pronouncement as to costs.
SO ORDERED. (p. 88, Rollo)
On appeal, the SEC En Banc affirmed the decision of the Hearing Officer. Petitioner filed a petition for review with
the Court of Appeals but said Court likewise affirmed the decision of the SEC.

We rule in favor of the respondents.

Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to hear and decide cases
involving intracorporate controversies. An intracorporate controversy has been defined as one which arises
between a stockholder and the corporation. There is no distinction, qualification, nor any exception whatsoever
(Rivera vs. Florendo, 144 SCRA 643 [1986]). The case at bar involves shares of stock, their registration, cancellation
and issuances thereof by petitioner Rural Bank of Salinas. It is therefore within the power of respondent SEC to
adjudicate.
Respondent SEC correctly ruled in favor of the registering of the shares of stock in question in private respondent's
names. Such ruling finds support under Section 63 of the Corporation Code, to wit:
Sec. 63. . . . 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 . . .
In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in his wise:
Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation Code]) contemplates no restriction as to whom
the stocks may be transferred. It does not suggest that any discrimination may be created by the corporation in
favor of, or against a certain purchaser. The owner of shares, as owner of personal property, is at liberty, under said
section to dispose them in favor of whomever he pleases, without limitation in this respect, than the general
provisions of law. . . .
The only limitation imposed by Section 63 of the Corporation Code is when the corporation holds any unpaid claim
against the shares intended to be transferred, which is absent here.
A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers,
because:
. . . Restrictions in the traffic of stock must have their source in legislative enactment, as the corporation itself
cannot create such impediment. By-laws are intended merely for the protection of the corporation, and prescribe
regulation, not restriction; they are always subject to the charter of the corporation. The corporation, in the absence
of such power, cannot ordinarily inquire into or pass upon the legality of the transactions by which its stock passes
from one person to another, nor can it question the consideration upon which a sale is based. . . . (Tomson on
Corporation Sec. 4137, cited in Fleisher vs. Nolasco, Supra).
The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his
ownership of the stocks. Thus:

Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will lie to compel
the officers of the corporation to transfer said stock in the books of the corporation" (26, Cyc. 347, Hyer vs. Bryan,
19 Phil. 138; Fleisher vs. Botica Nolasco, 47 Phil. 583, 594).
The corporation's obligation to register is ministerial.
In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to decide
the question of ownership. (Fletcher, Sec. 5528, page 434).
The duty of the corporation to transfer is a ministerial one and if it refuses to make such transaction without good
cause, it may be compelled to do so by mandamus. (See. 5518, 12 Fletcher 394)
For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in its stock and transfer book,
which duty is ministerial on its part, is to render nugatory and ineffectual the spirit and intent of Section 63 of the
Corporation Code. Thus, respondent Court of Appeals did not err in upholding the Decision of respondent SEC
affirming the Decision of its Hearing Officer directing the registration of the 473 shares in the stock and transfer
book in the names of private respondents. At all events, the registration is without prejudice to the proceedings in
court to determine the validity of the Deeds of Assignment of the shares of stock in question.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.

case Digest on USON V. DIOSOMITO

61 PHIL 535 (1935)

Facts: Uson filed a civil action for debt against Diosomito upon institution of which an attachment was duly issued
and levied upon the property of the latter on January 18, 1932, including seventy-five shares of the North Electric
Co. Inc. A judgment was rendered infavor of Uson on June 23, 1932. As a consequence of it , the sheriff sold the
said shares at a public auction on March 20, 1933 wherein the highest bidder was Uson.
In the present action, H.P.L. Jollye claims to be the owner of the said shares and it presents a certificate of stock
issued to him by the company on February 13, 1933 as evidence of his ownership.
Upon evaluation of the facts by the lower court, the following were established: (1) that Diosomito was the original
owner of the questioned shares; (2) that on February 3,1931, he sold the same shares to a certain Barcelon and
delivered to the latter the corresponding certificates; (3) that Barcelon presented these certificates to the company
for registration only on September 16, 1932; and (4), that Barcelon sold the same to H.P.L.Jollye to whom a new
certificate was issued on February 13, 1933.
In short, the transfer of the said shares from Diosomito to Barcelon was registered and noted on the books of the
corporation nine months after the attachment had been levied on the same shares. The lower court ruled for Uson.
Issue: Whether or not a bona fide transfer of the shares of a corporation, not registered or noted on 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.
Decision: The Supreme Court affirmed the lower court decision. It argued that the language of the legislature is
plain to the effect that the right of the owner of the shares of stock of a Philippine corporation to transfer the same
by delivery of the certificate, whether it be regarded as a statutory or common law right, is limited and restricted by
the express provision that no transfer, however, shall be valid except as between the parties, until the transfer is
entered and noted upon the books of the corporation. Therefore, the transfer from Diosomito to Barcelon was not
valid as to Uson since at the time it was attached, the shares still stood in the name of Diosomito on the books of
the corporation.

CHINA BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, and VALLEY GOLF and COUNTRY
CLUB, INC., respondents.

Through a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner China Banking
Corporation seeks the reversal of the decision of the Court of Appeals dated 15 August 1994 nullifying the
Securities and Exchange Commission's order and resolution dated 4 June 1993 and 7 December 1993, respectively,
for lack of jurisdiction. Similarly impugned is the Court of Appeals' resolution dated 4 September 1994 which denied
petitioner's motion for reconsideration.
The case unfolds thus:
On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of private respondent Valley Golf &
Country Club, Inc. (VGCCI, for brevity), pledged his Stock Certificate No. 1219 to petitioner China Banking
Corporation (CBC, for brevity).[1]
On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned pledge agreement be recorded
in its books.[2]
In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed by Calapatia in petitioner's
favor was duly noted in its corporate books.[3]

On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was secured by the
aforestated pledge agreement still existing between Calapatia and petitioner.[4]
Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985, filed a petition for extrajudicial
foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public auction sale
of the pledged stock.[5]
On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure proceedings and requested that
the pledged stock be transferred to its (petitioner's) name and the same be recorded in the corporate books.
However, on 15 July 1985, VGCCI wrote petitioner expressing its inability to accede to petitioner's request in view of
Calapatia's unsettled accounts with the club.[6]
Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and petitioner emerged
as the highest bidder at P20,000.00 for the pledged stock. Consequently, petitioner was issued the corresponding
certificate of sale.[7]
On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue account in the
amount of P18,783.24.[8] Said notice was followed by a demand letter dated 12 December 1985 for the same
amount[9] and another notice dated 22 November 1986 for P23,483.24.[10]
On 4 December 1986, VGCCI caused to be published in the newspaper Daily Express a notice of auction sale of a
number of its stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's
own share of stock (Stock Certificate No. 1219).
Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination of his membership due to
the sale of his share of stock in the 10 December 1986 auction.[11]
On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate No. 1219 by virtue
of being the highest bidder in the 17 September 1985 auction and requested that a new certificate of stock be
issued in its name.[12]
On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public auction
held on 10 December 1986 for P25,000.00.[13]
On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of stock and thereafter filed a case
with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and for the issuance of
a new stock certificate in its name.[14]
On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the subject
matter on the theory that it involves an intra-corporate dispute and on 27 August 1990 denied petitioner's motion
for reconsideration.
On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission (SEC) for the
nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued pursuant
thereto; for the issuance of a new certificate in petitioner's name; and for damages, attorney's fees and costs of
litigation.
On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in the main
that "(c)onsidering that the said share is delinquent, (VGCCI) had valid reason not to transfer the share in the name
of the petitioner in the books of (VGCCI) until liquidation of delinquency."[15] Consequently, the case was
dismissed.[16]
On 14 April 1992, Hearing Officer Perea denied petitioner's motion for reconsideration.[17]

Petitioner appealed to the SEC en banc and on 4 June 1993, the Commission issued an order reversing the decision
of its hearing officer. It declared thus:
The Commission en banc believes that appellant-petitioner has a prior right over the pledged share and because of
pledgor's failure to pay the principal debt upon maturity, appellant-petitioner can proceed with the foreclosure of
the pledged share.
WHEREFORE, premises considered, the Orders of January 3, 1992 and April 14, 1992 are hereby SET ASIDE. The
auction sale conducted by appellee-respondent Club on December 10, 1986 is declared NULL and VOID. Finally,
appellee-respondent Club is ordered to issue another membership certificate in the name of appellant-petitioner
bank.

SO ORDERED.[18]
VGCCI sought reconsideration of the abovecited order. However, the SEC denied the same in its resolution dated 7
December 1993.[19]
The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the Court of
Appeals rendered its decision nullifying and setting aside the orders of the SEC and its hearing officer on ground of
lack of jurisdiction over the subject matter and, consequently, dismissed petitioner's original complaint. The Court
of Appeals declared that the controversy between CBC and VGCCI is not intra-corporate. It ruled as follows:
In order that the respondent Commission can take cognizance of a case, the controversy must pertain to any of the
following relationships: (a) between the corporation, partnership or association and the public; (b) between the
corporation, partnership or association and its stockholders, partners, members, or officers; (c) between the
corporation, partnership or association and the state in so far as its franchise, permit or license to operate is
concerned, and (d) among the stockholders, partners or associates themselves (Union Glass and Container
Corporation vs. SEC, November 28, 1983, 126 SCRA 31). The establishment of any of the relationship mentioned
will not necessarily always confer jurisdiction over the dispute on the Securities and Exchange Commission to the
exclusion of the regular courts. The statement made in Philex Mining Corp. vs. Reyes, 118 SCRA 602, that the rule
admits of no exceptions or distinctions is not that absolute. The better policy in determining which body has
jurisdiction over a case would be to consider not only the status or relationship of the parties but also the nature of
the question that is the subject of their controversy (Viray vs. Court of Appeals, November 9, 1990, 191 SCRA 308,
322-323).
Indeed, the controversy between petitioner and respondent bank which involves ownership of the stock that used to
belong to Calapatia, Jr. is not within the competence of respondent Commission to decide. It is not any of those
mentioned in the aforecited case.
WHEREFORE, the decision dated June 4, 1993, and order dated December 7, 1993 of respondent Securities and
Exchange Commission (Annexes Y and BB, petition) and of its hearing officer dated January 3, 1992 and April 14,
1992 (Annexes S and W, petition) are all nullified and set aside for lack of jurisdiction over the subject matter of the
case. Accordingly, the complaint of respondent China Banking Corporation (Annex Q, petition) is DISMISSED. No
pronouncement as to costs in this instance.
SO ORDERED.[20]
Petitioner moved for reconsideration but the same was denied by the Court of Appeals in its resolution dated 5
October 1994.[21]
Hence, this petition wherein the following issues were raised:
II
ISSUES
WHETHER OR NOT RESPONDENT COURT OF APPEALS (Former Eighth Division) GRAVELY ERRED WHEN:
1. IT NULLIFIED AND SET ASIDE THE DECISION DATED JUNE 04, 1993 AND ORDER DATED DECEMBER 07, 1993 OF
THE SECURITIES AND EXCHANGE COMMISSION EN BANC, AND WHEN IT DISMISSED THE COMPLAINT OF PETITIONER
AGAINST RESPONDENT VALLEY GOLF ALL FOR LACK OF JURISDICTION OVER THE SUBJECT MATTER OF THE CASE;
2. IT FAILED TO AFFIRM THE DECISION OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC DATED JUNE 04,
1993 DESPITE PREPONDERANT EVIDENCE SHOWING THAT PETITIONER IS THE LAWFUL OWNER OF MEMBERSHIP
CERTIFICATE NO. 1219 FOR ONE SHARE OF RESPONDENT VALLEY GOLF.
The petition is granted.
The basic issue we must first hurdle is which body has jurisdiction over the controversy, the regular courts or the
SEC.
P.D. No. 902-A conferred upon the SEC the following pertinent powers:

SECTION 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations,
partnerships or associations, who are the grantees of primary franchises and/or a license or permit issued by the
government to operate in the Philippines, and in the exercise of its authority, it shall have the power to enlist the
aid and support of and to deputize any and all enforcement agencies of the government, civil or military as well as
any private institution, corporation, firm, association or person.

xxx
SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations registered with it as expressly granted under existing
laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:
a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or
partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of
the stockholders, partners, members of associations or organizations registered with the Commission.
b) Controversies arising out of intra-corporate 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; and between such corporation, partnership or association and
the State insofar as it concerns their individual franchise or right to exist as such entity;
c) Controversies in the election or appointment of directors, trustees, officers, or managers of such corporations,
partnerships or associations.
d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in
cases where the corporation, partnership or association possesses property to cover all of its debts but foresees the
impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities, but is under the Management Committee created
pursuant to this Decree.
The aforecited law was expounded upon in Viray v. CA[22] and in the recent cases of Mainland Construction Co., Inc.
v. Movilla[23] and Bernardo v. CA,[24] thus:
. . . The better policy in determining which body has jurisdiction over a case would be to consider not only the
status or relationship of the parties but also the nature of the question that is the subject of their controversy.
Applying the foregoing principles in the case at bar, to ascertain which tribunal has jurisdiction we have to
determine therefore whether or not petitioner is a stockholder of VGCCI and whether or not the nature of the
controversy between petitioner and private respondent corporation is intra-corporate.
As to the first query, there is no question that the purchase of the subject share or membership certificate at public
auction by petitioner (and the issuance to it of the corresponding Certificate of Sale) transferred ownership of the
same to the latter and thus entitled petitioner to have the said share registered in its name as a member of VGCCI.
It is readily observed that VGCCI did not assail the transfer directly and has in fact, in its letter of 27 September
1974, expressly recognized the pledge agreement executed by the original owner, Calapatia, in favor of petitioner
and has even noted said agreement in its corporate books.[25] In addition, Calapatia, the original owner of the
subject share, has not contested the said transfer.
By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and, therefore, the
conflict that arose between petitioner and VGCCI aptly exemplies an intra-corporate controversy between a
corporation and its stockholder under Sec. 5(b) of P.D. 902-A.
An important consideration, moreover, is the nature of the controversy between petitioner and private respondent
corporation. VGCCI claims a prior right over the subject share anchored mainly on Sec. 3, Art VIII of its by-laws
which provides that "after a member shall have been posted as delinquent, the Board may order his/her/its share
sold to satisfy the claims of the Club . . ."[26] It is pursuant to this provision that VGCCI also sold the subject share
at public auction, of which it was the highest bidder. VGCCI caps its argument by asserting that its corporate bylaws should prevail. The bone of contention, thus, is the proper interpretation and application of VGCCI's
aforequoted by-laws, a subject which irrefutably calls for the special competence of the SEC.
We reiterate herein the sound policy enunciated by the Court in Abejo v. De la Cruz:[27]
6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative commissions and
boards the power to resolve specialized disputes in the field of labor (as in corporations, public transportation and
public utilities) ruled that Congress in requiring the Industrial Court's intervention in the resolution of labormanagement controversies likely to cause strikes or lockouts meant such jurisdiction to be exclusive, although it did
not so expressly state in the law. The Court held that under the "sense-making and expeditious doctrine of primary
jurisdiction . . . the courts cannot or will not determine a controversy involving a question which is within the
jurisdiction of an administrative tribunal, where the question demands the exercise of sound administrative
discretion requiring the special knowledge, experience, and services of the administrative tribunal to determine
technical and intricate matters of fact, and a uniformity of ruling is essential to comply with the purposes of the
regulatory statute administered."

In this era of clogged court dockets, the need for specialized administrative boards or commissions with the special
knowledge, experience and capability to hear and determine promptly disputes on technical matters or essentially
factual matters, subject to judicial review in case of grave abuse of discretion, has become well nigh indispensable.
Thus, in 1984, the Court noted that "between the power lodged in an administrative body and a court, the
unmistakable trend has been to refer it to the former. 'Increasingly, this Court has been committed to the view that
unless the law speaks clearly and unequivocably, the choice should fall on [an administrative agency.]'" The Court
in the earlier case of Ebon v. De Guzman, noted that the lawmaking authority, in restoring to the labor arbiters and
the NLRC their jurisdiction to award all kinds of damages in labor cases, as against the previous P.D. amendment
splitting their jurisdiction with the regular courts, "evidently,. . . had second thoughts about depriving the Labor
Arbiters and the NLRC of the jurisdiction to award damages in labor cases because that setup would mean duplicity
of suits, splitting the cause of action and possible conflicting findings and conclusions by two tribunals on one and
the same claim."
In this case, the need for the SEC's technical expertise cannot be over-emphasized involving as it does the
meticulous analysis and correct interpretation of a corporation's by-laws as well as the applicable provisions of the
Corporation Code in order to determine the validity of VGCCI's claims. The SEC, therefore, took proper cognizance
of the instant case.
VGCCI further contends that petitioner is estopped from denying its earlier position, in the first complaint it filed
with the RTC of Makati (Civil Case No. 90-1112) that there is no intra-corporate relations between itself and VGCCI.
VGCCI's contention lacks merit.
In Zamora v. Court of Appeals,[28] this Court, through Mr. Justice Isagani A. Cruz, declared that:
It follows that as a rule the filing of a complaint with one court which has no jurisdiction over it does not prevent the
plaintiff from filing the same complaint later with the competent court. The plaintiff is not estopped from doing so
simply because it made a mistake before in the choice of the proper forum . . .
We remind VGCCI that in the same proceedings before the RTC of Makati, it categorically stated (in its motion to
dismiss) that the case between itself and petitioner is intra-corporate and insisted that it is the SEC and not the
regular courts which has jurisdiction. This is precisely the reason why the said court dismissed petitioner's
complaint and led to petitioner's recourse to the SEC.
Having resolved the issue on jurisdiction, instead of remanding the whole case to the Court of Appeals, this Court
likewise deems it procedurally sound to proceed and rule on its merits in the same proceedings.
It must be underscored that petitioner did not confine the instant petition for review on certiorari on the issue of
jurisdiction. In its assignment of errors, petitioner specifically raised questions on the merits of the case. In turn, in
its responsive pleadings, private respondent duly answered and countered all the issues raised by petitioner.
Applicable to this case is the principle succinctly enunciated in the case of Heirs of Crisanta Gabriel-Almoradie v.
Court of Appeals,[29] citing Escudero v. Dulay[30] and The Roman Catholic Archbishop of Manila v. Court of
Appeals:[31]
In the interest of the public and for the expeditious administration of justice the issue on infringement shall be
resolved by the court considering that this case has dragged on for years and has gone from one forum to another.
It is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a single proceeding
leaving no root or branch to bear the seeds of future litigation. No useful purpose will be served if a case or the
determination of an issue in a case is remanded to the trial court only to have its decision raised again to the Court
of Appeals and from there to the Supreme Court.
We have laid down the rule that the remand of the case or of an issue to the lower court for further reception of
evidence is not necessary where the Court is in position to resolve the dispute based on the records before it and
particularly where the ends of justice would not be subserved by the remand thereof. Moreover, the Supreme Court
is clothed with ample authority to review matters, even those not raised on appeal if it finds that their consideration
is necessary in arriving at a just disposition of the case.
In the recent case of China Banking Corp., et al. v. Court of Appeals, et al.,[32] this Court, through Mr. Justice
Ricardo J. Francisco, ruled in this wise:
At the outset, the Court's attention is drawn to the fact that that since the filing of this suit before the trial court,
none of the substantial issues have been resolved. To avoid and gloss over the issues raised by the parties, as what
the trial court and respondent Court of Appeals did, would unduly prolong this litigation involving a rather simple

case of foreclosure of mortgage. Undoubtedly, this will run counter to the avowed purpose of the rules, i.e., to assist
the parties in obtaining just, speedy and inexpensive determination of every action or proceeding. The Court,
therefore, feels that the central issues of the case, albeit unresolved by the courts below, should now be settled
specially as they involved pure questions of law. Furthermore, the pleadings of the respective parties on file have
amply ventilated their various positions and arguments on the matter necessitating prompt adjudication.

In the case at bar, since we already have the records of the case (from the proceedings before the SEC) sufficient to
enable us to render a sound judgment and since only questions of law were raised (the proper jurisdiction for
Supreme Court review), we can, therefore, unerringly take cognizance of and rule on the merits of the case.
The procedural niceties settled, we proceed to the merits.
VGCCI assails the validity of the pledge agreement executed by Calapatia in petitioner's favor. It contends that the
same was null and void for lack of consideration because the pledge agreement was entered into on 21 August
1974[33] but the loan or promissory note which it secured was obtained by Calapatia much later or only on 3
August 1983.[34]
VGCCI's contention is unmeritorious.
A careful perusal of the pledge agreement will readily reveal that the contracting parties explicitly stipulated therein
that the said pledge will also stand as security for any future advancements (or renewals thereof) that Calapatia
(the pledgor) may procure from petitioner:
xxx
This pledge is given as security for the prompt payment when due of all loans, overdrafts, promissory notes, drafts,
bills or exchange, discounts, and all other obligations of every kind which have heretofore been contracted, or
which may hereafter be contracted, by the PLEDGOR(S) and/or DEBTOR(S) or any one of them, in favor of the
PLEDGEE, including discounts of Chinese drafts, bills of exchange, promissory notes, etc., without any further
endorsement by the PLEDGOR(S) and/or Debtor(s) up to the sum of TWENTY THOUSAND (P20,000.00) PESOS,
together with the accrued interest thereon, as hereinafter provided, plus the costs, losses, damages and expenses
(including attorney's fees) which PLEDGEE may incur in connection with the collection thereof.[35] (Emphasis ours.)
The validity of the pledge agreement between petitioner and Calapatia cannot thus be held suspect by VGCCI. As
candidly explained by petitioner, the promissory note of 3 August 1983 in the amount of P20,000.00 was but a
renewal of the first promissory note covered by the same pledge agreement.
VGCCI likewise insists that due to Calapatia's failure to settle his delinquent accounts, it had the right to sell the
share in question in accordance with the express provision found in its by-laws.
Private respondent's insistence comes to naught. It is significant to note that VGCCI began sending notices of
delinquency to Calapatia after it was informed by petitioner (through its letter dated 14 May 1985) of the
foreclosure proceedings initiated against Calapatia's pledged share, although Calapatia has been delinquent in
paying his monthly dues to the club since 1975. Stranger still, petitioner, whom VGCCI had officially recognized as
the pledgee of Calapatia's share, was neither informed nor furnished copies of these letters of overdue accounts
until VGCCI itself sold the pledged share at another public auction. By doing so, VGCCI completely disregarded
petitioner's rights as pledgee. It even failed to give petitioner notice of said auction sale. Such actuations of VGCCI
thus belie its claim of good faith.
In defending its actions, VGCCI likewise maintains that petitioner is bound by its by-laws. It argues in this wise:
The general rule really is that third persons are not bound by the by-laws of a corporation since they are not privy
thereto (Fleischer v. Botica Nolasco, 47 Phil. 584). The exception to this is when third persons have actual or
constructive knowledge of the same. In the case at bar, petitioner had actual knowledge of the by-laws of private
respondent when petitioner foreclosed the pledge made by Calapatia and when petitioner purchased the share
foreclosed on September 17, 1985. This is proven by the fact that prior thereto, i.e., on May 14, 1985 petitioner
even quoted a portion of private respondent's by-laws which is material to the issue herein in a letter it wrote to
private respondent. Because of this actual knowledge of such by-laws then the same bound the petitioner as of the
time when petitioner purchased the share. Since the by-laws was already binding upon petitioner when the latter
purchased the share of Calapatia on September 17, 1985 then the petitioner purchased the said share subject to
the right of the private respondent to sell the said share for reasons of delinquency and the right of private
respondent to have a first lien on said shares as these rights are provided for in the by-laws very very clearly.[36]
VGCCI misunderstood the import of our ruling in Fleischer v. Botica Nolasco Co.:[37]

And moreover, the by-law now in question cannot have any effect on the appellee. He had no knowledge of such
by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He
was not a privy to the contract created by said by-law between the shareholder Manuel Gonzales and the Botica
Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser.
"An unauthorized by-law forbidding a shareholder to sell his shares without first offering them to the corporation for
a period of thirty days is not binding upon an assignee of the stock as a personal contract, although his assignor
knew of the by-law and took part in its adoption." (10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.)
"When no restriction is placed by public law on the transfer of corporate stock, a purchaser is not affected by any
contractual restriction of which he had no notice." (Brinkerhoff-Farris Trust & Savings Co. vs. Home Lumber Co., 118
Mo., 447.)

"The assignment of shares of stock in a corporation by one who has assented to an unauthorized by-law has only
the effect of a contract by, and enforceable against, the assignor; the assignee is not bound by such by-law by
virtue of the assignment alone." (Ireland vs. Globe Milling Co., 21 R.I., 9.)
"A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the board of
directors, while it may be enforced as a reasonable regulation for the protection of the corporation against
worthless stockholders, cannot be made available to defeat the rights of third persons." (Farmers' and Merchants'
Bank of Lineville vs. Wasson, 48 Iowa, 336.) (Underscoring ours.)
In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the
transaction or agreement between said third party and the shareholder was entered into, in this case, at the time
the pledge agreement was executed. VGCCI could have easily informed petitioner of its by-laws when it sent notice
formally recognizing petitioner as pledgee of one of its shares registered in Calapatia's name. Petitioner's belated
notice of said by-laws at the time of foreclosure will not suffice. The ruling of the SEC en banc is particularly
instructive:
By-laws signifies the rules and regulations or private laws enacted by the corporation to regulate, govern and
control its own actions, affairs and concerns and its stockholders or members and directors and officers with
relation thereto and among themselves in their relation to it. In other words, by-laws are the relatively permanent
and continuing rules of action adopted by the corporation for its own government and that of the individuals
composing it and having the direction, management and control of its affairs, in whole or in part, in the
management and control of its affairs and activities. (9 Fletcher 4166. 1982 Ed.)
The purpose of a by-law is to regulate the conduct and define the duties of the members towards the corporation
and among themselves. They are self-imposed and, although adopted pursuant to statutory authority, have no
status as public law. (Ibid.)
Therefore, it is the generally accepted rule that third persons are not bound by by-laws, except when they have
knowledge of the provisions either actually or constructively. In the case of Fleisher v. Botica Nolasco, 47 Phil. 584,
the Supreme Court held that the by-law restricting the transfer of shares cannot have any effect on the the
transferee of the shares in question as he "had no knowledge of such by-law when the shares were assigned to him.
He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by the
by-law between the shareholder x x x and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his right as
a purchaser." (Underscoring supplied.)
By analogy of the above-cited case, the Commission en banc is of the opinion that said case is applicable to the
present controversy. Appellant-petitioner bank as a third party can not be bound by appellee-respondent's by-laws.
It must be recalled that when appellee-respondent communicated to appellant-petitioner bank that the pledge
agreement was duly noted in the club's books there was no mention of the shareholder-pledgor's unpaid accounts.
The transcript of stenographic notes of the June 25, 1991 Hearing reveals that the pledgor became delinquent only
in 1975. Thus, appellant-petitioner was in good faith when the pledge agreement was contracted.
The Commission en banc also believes that for the exception to the general accepted rule that third persons are not
bound by by-laws to be applicable and binding upon the pledgee, knowledge of the provisions of the VGCCI By-laws
must be acquired at the time the pledge agreement was contracted. Knowledge of said provisions, either actual or
constructive, at the time of foreclosure will not affect pledgee's right over the pledged share. Art. 2087 of the Civil
Code provides that it is also of the essence of these contracts that when the principal obligation becomes due, the
things in which the pledge or mortgage consists maybe alienated for the payment to the creditor.
In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc., the Commission issued an opinion to the effect
that:

According to the weight of authority, the pledgee's right is entitled to full protection without surrender of the
certificate, their cancellation, and the issuance to him of new ones, and when done, the pledgee will be fully
protected against a subsequent purchaser who would be charged with constructive notice that the certificate is
covered by the pledge. (12-A Fletcher 502)
The pledgee is entitled to retain possession of the stock until the pledgor pays or tenders to him the amount due on
the debt secured. In other words, the pledgee has the right to resort to its collateral for the payment of the debts.
(Ibid, 502)
To cancel the pledged certificate outright and the issuance of new certificate to a third person who purchased the
same certificate covered by the pledge, will certainly defeat the right of the pledgee to resort to its collateral for the
payment of the debt. The pledgor or his representative or registered stockholders has no right to require a return of
the pledged stock until the debt for which it was given as security is paid and satisfied, regardless of the length of
time which have elapsed since debt was created. (12-A Fletcher 409)
A bona fide pledgee takes free from any latent or secret equities or liens in favor either of the corporation or of third
persons, if he has no notice thereof, but not otherwise. He also takes it free of liens or claims that may subsequently
arise in favor of the corporation if it has notice of the pledge, although no demand for a transfer of the stock to the
pledgee on the corporate books has been made. (12-A Fletcher 5634, 1982 ed., citing Snyder v. Eagle Fruit Co., 75
F2d739)[38]

Similarly, VGCCI's contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of the Civil
Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good father of a
family, fails to convince. The case of Cruz & Serrano v. Chua A. H . Lee,[39] is clearly not applicable:
In applying this provision to the situation before us it must be borne in mind that the ordinary pawn ticket is a
document by virtue of which the property in the thing pledged passes from hand to hand by mere delivery of the
ticket; and the contract of the pledge is, therefore, absolvable to bearer. It results that one who takes a pawn ticket
in pledge acquires domination over the pledge; and it is the holder who must renew the pledge, if it is to be kept
alive.
It is quite obvious from the aforequoted case that a membership share is quite different in character from a pawn
ticket and to reiterate, petitioner was never informed of Calapatia' s unpaid accounts and the restrictive provisions
in VGCCI's by-laws.
Finally, Sec. 63 of the Corporation Code which provides that "no shares of stock against which the corporation holds
any unpaid claim shall be transferable in the books of the corporation" cannot be utilized by VGCCI. The term
"unpaid claim" refers to "any unpaid claim arising from unpaid subscription, and not to any indebtedness which a
subscriber or stockholder may owe the corporation arising from any other transaction."[40] In the case at bar, the
subscription for the share in question has been fully paid as evidenced by the issuance of Membership Certificate
No. 1219.[41] What Calapatia owed the corporation were merely the monthly dues. Hence, the aforequoted
provision does not apply.
WHEREFORE, premises considered, the assailed decision of the Court of Appeals is REVERSED and the order of the
SEC en banc dated 4 June 1993 is hereby AFFIRMED.
SO ORDERED.

Corporate Law Case Digest: Makati Sports Club Inc v. Cecile Cheng (2010)
G.R. No. 178523

June 16, 2010

Lessons Applicable: Certificate of stock = merely tangible evidence of stock(Corporate Law)

FACTS:
October 20, 1994: Makati Sports Club Inc (MSCI) BOD adopted a resolution authorizing the sale of 19 unissued
shares at a floor price of P400,000 and P450,000 per share for Class A and B, respectively.
Cheng was a Treasurer and Director of Makati Sports Club in 1995
July 7, 1995: Hodreal expressed his interest to buy a share, for this purpose he sent the letter requesting to be
wait listed
November 1995: McFoods acquiried shares of Makati Sports Club at P1,800,000 through Urban Bank
December 15, 1995: Stock cert. was issued to McFoods
December 27, 1995: McFoods advised its offer to resell
November 24, 1995: Hodreal paid McFoods P1,400,000
December 27, 1995: Hodreal again paid P1,400,000
February 7, 1996: Cheng advised sale by McFoods to Hodreal of the share evidenced by a certificate
new certificate was issued
1997: investigation showed that Cheng profited from the transaction because of her knowledge
MSCI sought judgment that would order respondents to pay the sum of P1,000,000.00, representing the amount
allegedly defrauded, together with interest and damages
CA affirmed RTC: dismissed

ISSUE: W/N MSCI was defrauded by Cheng's collaboration with Mc Foods

HELD:

NO. petition is DENIED. no evidence on record that the Membership Committee acted on Hodreal's letter
SEC. 29. (a) The Membership Committee shall process applications for membership; ascertain that the
requirements for stock ownership, including citizenship, are complied with; submit to the Board its recommended
on applicants for inclusion in the Waiting List; take charge of auction sales of shares of stock; and exercise such
other powers and perform such other functions as may be authorized by the Board.
Membership Committee failed to question the alleged irregularities attending Mc Foods purchase
purchase price of P1,800,000.00 is P1,400,000.00 more than the floor price - NOT detrimental
Upon payment and the execution of the Deed of Absolute Sale, it had the right to demand the delivery of the stock
certificate in its name.
The right of a transferee to have stocks transferred to its name is an inherent right flowing from its ownership of
the stocks
certificate of stock
therein

paper representative or tangible evidence of the stock itself and of the various interests

not a stock in the corporation but is merely evidence of the holders interest and status in the corporation, his
ownership of the share represented thereby
MSCI failed to repurchase Mc Foods Class "A" share within the 30 day pre-emptive period
no proof that Cheng personally profited

[G.R. No. L-4818. February 28, 1955.]

APOLINARIO G. DE LOS SANTOS and ISABELO ASTRAQUILLO, Plaintiffs-Appellees, v. J. HOWARD

MCGRATH ATTORNEY GENERAL OF THE UNITED STATES, SUCCESSOR TO THE PHILIPPINE ALIEN
PROPERTY ADMINISTRATION OF THE UNITED STATES, defendant and appellant. REPUBLIC OF THE
PHILIPPINES, Intervenor-Appellant.

1. CORPORATION LAW; SHARES OF STOCK, NATURE AND TRANSFER OF; EFFECT OF UNREGISTERED TRANSFER.
Shares of stock are personal property and may be transferred by endorsement of the corresponding stock
certificate, coupled with its delivery. However, the transfer shall not be valid, except as between the parties, until it
is entered and noted upon the books of the corporation. (Section 35, Corporation Law).
2. ID.; ID.; QUASI-NEGOTIABILITY AND NON-NEGOTIABILITY OF SHARES OF STOCK. Although shares of stock are
sometimes regarded as quasi-negotiable, in the sense that they may be transferred endorsement, coupled with
delivery, they are non-negotiable, because the holder thereof takes them without prejudice to such rights or
defenses as the registered owner or creditor may have under the law, except insofar as such rights or defenses are
subject to the limitations imposed by the principles governing estoppel.
3. ID.; ID.; STOCKHOLDERS; RIGHTS OF REGISTERED STOCKHOLDERS SUPERIOR TO THAT OF PURCHASER ON
NOTICE OF FACTS INDICATING NEED OF INQUIRING INTO REGULARLY OF SALES. Where the plaintiffs were, at the
time of the alleged sales in their favor of the shares stock in question, aware of sufficient facts to put them on
notice of the need of inquiring into the regularity of the transactions and the title of the opposed vendors, they can
not validly claim, against the registered stockholder, the statue of purchasers in good faith.
4. ID.; ID.; ID.; PRINCIPAL OF REGISTERED OWNER ENJOYS SAME RIGHTS OF REGISTERED STOCKHOLDER. The
principal or beneficiary of the registered owner of shares of stock is entitled to invoke such rights as the registered
stockholders may have under the law.
This action involves the title to 1,600,000 shares of stock of the Lepanto Consolidated Mining Co., Inc., a corporation
duly organized and existing under the laws of the Philippines, hereinafter referred to, for the sake of brevity, as the
Lepanto. Originally, one-half of said shares of stock were claimed by plaintiff, Apolinario de los Santos, and the other
half, by his co-plaintiff Isabelo Astraquillo. During the pendency of this case, the latter has allegedly conveyed and
assigned his interest in and to said half claimed by him to the former. The shares of stock in question are covered
by several stock certificates issued in favor of Vicente Madrigal, who is registered in the books of the Lepanto as
owner of said stocks and whose indorsement in blank appears on the back of said certificates, all of which, except

certificates No. 2279 marked Exhibit 2 covering 55,000 shares, are in plaintiffs possession. So was said Exhibit
2, up to sometime in 1945 or 1946 when said possession was lost under the conditions set forth in subsequent
pages.
Briefly stated, plaintiffs contend that De los Santos bought 500,000 shares from Juan Campos, in Manila, early in
December 1942; that he bought 300,000 shares from Carl Hess, in the same city, several days later; and that,
before Christmas of 1942, be bought 800,000 shares from Carl Hess, this time for the account and benefit of
Astraquillo. By virtue of vesting order P-12, dated February 18, 1945, title to the 1,600,000 shares of stock in
dispute was, however, vested in the Alien Property Custodian of the U. S. (hereinafter referred to as the Property
Custodian) as Japanese property. Hence, plaintiffs filed their respective claims with the Property Custodian. In due
course, the Vested Property Claims Committee of the Philippine Alien Property Administration made a
"determination," dated March 9, 1948, allowing said claims, which were considered and heard jointly as Claim No.
535, but, upon personal review, the Philippine Alien Property Administrator (hereinafter referred to as
"Administrator"), in an opinion dated November 26, 1948, reversed the determination made by said Committee and
decreed that "title to the shares in question shall remain in the name of the Philippine Alien Property Administrator."
Consequently, plaintiffs instituted the present action to establish title to the aforementioned shares of stock. In their
complaint, they pray that judgment be rendered declaring them lawful owners of said shares of stock, with such
dividends, profits and rights as may have accrued thereto; requiring the defendant to render accounts and to
transfer said shares of stock to plaintiffs names; and sentencing the former to pay the costs.
The defendant herein is the Attorney General of the U. S., successor to the "Administrator." He contends,
substantially, that, prior to the outbreak of war in the Pacific, said shares of stock were bought by Vicente Madrigal,
in trust for, and for the benefit of, the Mitsui Bussan Kaisha (hereinafter referred to as the "Mitsuis"), a corporation
organized in accordance with the laws of Japan, the true owner thereof, with branch office in the Philippines; that on
or before March, 1942, Madrigal delivered the corresponding stock certificates, with his blank indorsement thereon,
to the Mitsuis, which kept said certificates, in the files of its office in Manila, until the liberation of the latter by the
American forces early in 1945; that the Mitsuis had never sold, or otherwise disposed of, said shares of stock; and
that the stock certificates aforementioned must have been stolen or looted, therefore, during the emergency
resulting from said liberation.
Inasmuch as, pursuant to the Philippine Property Act, all property vested in the United States, or any of its officials,
under the Trading with the Enemy Act, as amended, located in the Philippines at the time of such vesting, or the
proceeds thereof, shall be transferred to the Republic of the Philippines, the latter sought permission, and was
allowed, to intervene in this case and filed an answer adopting in substance the theory of the defendant.

After due hearing, the Court of First Instance of Manila, presided over by Honorable Higinio B. Macadaeg, Judge,
rendered a decision the dispositive part of which reads, as follows:jgc:chanrobles.com.ph
"In view of the foregoing consideration, judgment is hereby rendered in favor of the plaintiffs and against the
defendant, declaring the former the absolute owners of the shares of stock of the Lepanto Consolidated Mining
Company covered by the certificates of stock, respectively, in their (plaintiffs) possession. The transfer of said
shares of stock in favor of the Alien Property Custodian of the U. S. of America, now Philippine Alien Property
Administration, is hereby declared null and void and of no effect. Consequently, the Lepanto Consolidated Mining
Company is ordered to cancel the certificates of stock issued in the name of the Philippine Alien Property Custodian
or Philippine Alien Property Administrator, as the case may be. Defendant shall pay the costs of the proceeding." (p.
67, R.A.)
The defendant and the intervenor have appealed from this decision. The main question for determination in this
appeal is whether or not plaintiffs had purchased the shares of stock in question. In support of the negative answer,
appellants have introduced the testimony of Vicente Madrigal, Matsune Kitajima, Kingy Miwa, Miguel Simon, E. A.
Perkins and Victor E. Lednicky, as well as several pieces of documentary evidence.
Mr. Madrigal, whose testimony before the claims Committee of the Philippine Alien Property Administration was
admitted with plaintiffs consent, stated that he purchased the shares of stock in question, among others, for the
Mitsuis and at their request; that he paid with his own funds the corresponding price, which was later reimbursed to
him by the Mitsuis; that he held the corresponding stock certificates, which were issued in his name, with the
understanding that he would effect the necessary transfer, to the Mitsuis, upon demand; and that, shortly before
the outbreak of war, he delivered said stock certificates, with his blank endorsement thereon, to the Mitsuis, to
whom said stocks belonged.
Matsune Kitajima declared that in June 1941 he relieved one Kobayashi, as manager of the branch office of the
Mitsuis in Manila; that he then received from Kobayashi the stock certificates for about 1,900,000 shares of the
Lepanto, belonging to the Mitsuis, but issued in favor of Vicente Madrigal, except the certificates for 200,000
shares, which were in the name of the Mitsuis; that all these certificates were kept in a steel safe in said office of

the Mitsuis; that, in July 1941, he returned the stock certificates to Madrigal, with the request that he buy for the
Mitsuis, from time to time, some more shares of stock, in small lots; that Madrigal bought 200,000 additional shares
of the Lepanto for the Mitsuis; that, late in November or early in December, 1941, the stock certificates of the
aforementioned 2,100,000 shares were returned to the Mitsuis, which had decided to stop buying, in view of the
strained international situation then prevailing; that, as branch manager of the Mitsuis, he was the only official
authorized to dispose of the shares in question, none of which was alienated by him; and that he had the
aforementioned stock certificates in his possession continuously until early in April 1943, when he delivered the
same to his successor in office, Kingy Miwa.
Apart from corroborating Kitajimas testimony relative to said delivery of stock certificates in April 1943, Kingy Miwa
testified that he kept the latter in his possession, as branch manager of the Mitsuis; that said shares of stock were
never sold or otherwise disposed of by the Mitsuis; that, late in September 1944, he bade his assistant, one
Miyazima, to transfer all important documents to their residence and headquarters, at Taft Avenue, Manila, although
he did not know personally whether or not the transfer was actually carried out; and that in January 1945, when the
Japanese were about to evacuate Manila, he told his Assistant Manager, one Shinoda, to burn all important papers
before leaving the city.
Miguel Simon, brother of Carl Hess, from whom plaintiffs claim to have purchased 1,100,000 shares of stock,
affirmed that Hess lived in front of his (Simons) house; that they were close to each other and had long been
associated in business; that he was the office manager of "Hess and Zeitling" before the war; that Hess used to tell
him his daily transactions during the occupation; that at that time, Hess did not have in his possession any
certificate of stock of the Lepanto in the name of Vicente Madrigal; that neither did Hess, during that period,
operate as a broker, for, being American, he was under Japanese surveillance; and that Hess had made, during the
occupation, no transaction involving mining shares, except when he sold 12,000 shares of the Benguet
Consolidated, inherited from his mother, sometime in 1943.
E. A. Perkins, a member of the law firm DeWitt, Perkins & Ponce Enrile testified substantially as follows: On October
27, 1945, Leonardo Recio brought stock certificate No. 2279 (Exhibit 2) and offered the same for sale to Clyde
DeWitt, who, in turn, asked Perkins, whose room adjoined that of DeWitt, to join them. Recio showed Exhibit 2 to
DeWitt stating that he (Recio) wanted P0.13 per share. DeWitt handed Exhibit 2 over to Perkins, who, after
examining the instrument, returned it to DeWitt. The latter, thereafter, checked it with a communication of the
Property Custodian and then advised Recio that said Exhibit 2 was one of the stock certificates looted from the
Mitsuis and that he (DeWitt) would have to report the matter to said official. As DeWitt, thereupon, telephoned one
Mr. Erickson, of the Property Custodians office, Recio stepped out of the room without Exhibit 2, which neither he or
plaintiffs had ever tried to recover.
Victor E. Lednicky, one of the organizers and pre-war directors of the Lepanto, and present vice-president and
member of its board of director, asserted that, having learned from a soldier of the existence of mining papers and
securities of the Lepanto in the offices of the Mitsuis at the Ayala Building, formerly known as the National City Bank
Building, in Manila, he went thereto in February 1945 and saw many documents scattered on the desks and floor of
said premises. Among said papers, he noticed two stock certificates of the Lepanto, one, in the name of either a
Japanese or Chinese, and the other, in the name of Vicente Madrigal, indorsed in blank. Soon, however, he heard
voices coming from the stairs, whereupon he departed hurriedly, for fear of being mistaken for a looter.
After analyzing the foregoing evidence for the defense, the lower court found the same "inherently improbable" and
seemingly concluded that, as a consequence, it should accept plaintiffs version, for which reason judgment was
rendered as above stated. It is well settled, in this jurisdiction, that the findings of fact particularly those relating
to the credibility of the opposing witnesses made by the Judge a quo, should not be disturbed on appeal, in the
absence of strong and cogent reasons therefor. This policy is predicated upon the circumstance that the trial court
has had an opportunity, denied to the appellate court, to observe the behaviour of the witnesses during the
hearing, a potent factor in gauging their bias and veracity. In the case at bar, however, we notice that, rejecting the
theory of the defense, the court of origin was guided, not by the conduct of the witnesses in the course of their
testimony, but by what His Honor, the trial Judge, regarded as the inherent weakness thereof, in the evaluation of
which said court does not enjoy the advantage already adverted to.
Moreover, the decision appealed from appears to have assumed that plaintiffs pretense must necessarily be relied
upon, owing to the infirmities said to have been found in the theory of the defense. This view suffers from a fatal
defect. It overlooks the fact that the burden of proof is upon the plaintiffs, and that, accordingly, a decision in their
favor is not in order unless a preponderance of the evidence supports their claim. To put it differently, the alleged
improbabilities in the testimony of the witnesses for the defense will not justify a judgment against the latter, if the
evidence for the plaintiffs is more improbable than, or, at least, as improbable as, that of the defense. Such is the
situation obtaining in the case at bar. Indeed, upon careful examination of the record before us, we find it
impossible to share the conclusions, made in the decision appealed from, relative to the alleged flaws in the version
of the defense.

Let us, first, examine the evidence for the plaintiffs, consisting, mainly, of their own testimony and that of Primitivo
Javier and Leonardo Recio.
According to De los Santos, on or about December 8, 1942, he purchased from Juan Campos, in Manila, 500,000
shares of stock of the Lepanto, for the aggregate sum of P30,000.00, or at P0.06 each share, paid in cash, in
exchange for the corresponding stock certificates, which were delivered to him. Several days later, he bought from
Carl Hess, in Manila, 300,000 shares of the Lepanto, at the same rate. Soon after, he visited his daughter in Baguio,
where he, likewise, saw his co-plaintiff, and former secretary, Isabelo Astraquillo. Before leaving Astraquillos house,
De los Santos happened to mention his aforesaid purchases of Lepanto shares, at P0.06 each, whereupon,
Astraquillo expressed the wish to buy 800,000 shares at the same price, the amount of which he delivered to De los
Santos the next day. Upon his return to Manila, De los Santos purchased from Hess said 800,000 shares, the
certificates of which were turned over by the former to Astraquillo, in Baguio, at about Christmas time. Over 3 years
later, or in January 1946, De los Santos repaired to the offices of the Lepanto in Manila to ascertain whether it
accepted certificates of stock for registration. He then received a negative answer. Upon further inquiry, he learned,
in February 1946, that the shares in the name of Madrigal were blocked. So he engaged the services of Atty. A.
Scheerer, who secured an order of release from the Freezing Control Office of the United States Treasury
Department. As he brought a copy of this order to the offices of the Lepanto, on or about May 1, 1946, he was
advised that no transfer could be effected without the authority of Clyde DeWitt, the company president.
Thereupon, De los Santos caused to be filed, with the office of the Property Custodian, the corresponding claim for
the shares of stock in question, with the result already adverted to.
Astraquillo tried to corroborate the testimony of De los Santos, concerning the purchase of 800,000 shares of stock
on behalf of the former. Moreover, Astraquillo declared that, being in need of money, he came to Manila in
November or December 1945, and delivered to stock broker Leonardo Recio stock certificate No. 2279 (Exhibit 2)
for 55,000 shares, with a view to disposing of the same at a price ranging from P0.13 to P0.15 each. He advised
Recio that, in the absence of any buyer, he could see Mr. DeWitt, who, probably, would be interested in purchasing
the shares. Sometime later, Astraquillo learned that, according to Recio, upon seeing Exhibit 2, DeWitt retained it
upon the ground that the shares represented therein had been blocked by the United States and that he (Recio)
got therefor a receipt, which was subsequently lost in a fire that destroyed his (Recios) dwelling. As Astraquillo
hurried to Manila, he was told that representatives of the CIC would go to Baguio to investigate. So, he returned to
Baguio, but he did not wait for the investigation in that city. Late in February or early in March, 1946, he came back
to Manila and asked the assistance of De los Santos, whereupon both contacted Atty. Scheerer for the purpose
already stated.
Primitivo Javier narrated that, late in 1945, he received Exhibit 2 from his uncle, Astraquillo, who wanted to sell the
55,000 shares represented by said stock certificate (No. 2279) at a price ranging from P0.12 to P0.15 each share.
He, in turn, delivered the certificate to Recio, a licensed broker. Subsequently, Recio reported to him that he (Recio)
had brought Exhibit 2 to the office of Mr. DeWitt, whom he did not see on his first visit; that he then left Exhibit 2 in
the hands of a person who worked in said office, one Atty. Orlina, who issued a receipt therefor; that, when Recio
came back, later on, DeWitt told him that Exhibit 2 was defective; and that, accordingly, Exhibit 2 was left in the
possession of Mr. DeWitt. Javier relayed this information to Astraquillo, who, thereupon, came to Manila. Both went
to the temporary residence of Recio in Sampaloc, his house in San Juan del Monte, Rizal, having been destroyed by
fire late in December 1945. Recio then advised them that said receipt had been burned with his house.
Leonardo Recio said that sometime in 1945, Javier gave him Exhibit 2, stating that it belonged to his uncle, who
wanted to alienate the corresponding shares of stock at P0.15, more or less, each, and suggesting that he offer the
same to Mr. DeWitt: In the latters office, Atty. Orlina told Recio that DeWitt was busy and bade him (Recio) to return
later. Recio delivered Exhibit 2 to Orlina, who gave him a receipt, which, subsequently, he showed to Javier. When,
soon after, he went back to Orlina, the latter introduced him to Mr. DeWitt, who stated that the shares of stock
covered by Exhibit 2 were included in the list of questioned shares. DeWitt, also, asked him whether he would leave
the certificate, to which Recio replied affirmatively. While he was away, several months later, or shortly before
Christmas, his house at Blumentritt Street, San Juan del Monte, Rizal, and everything contained therein, including
the aforementioned receipt, which which was in his wallet, were destroyed by fire.
It thus appears that the only evidence on the alleged sale of the shares of stock in question to the plaintiffs the
main issue in the case at bar is the testimony of Apolinario de los Santos, who now claims to be the sole owner
thereof. Juan Campos and Carl Hess, the alleged vendors, could not take the witness stand, for Hess was executed
by the Japanese, and Campos died during the liberation of Manila. Thus, death has sealed the lips of the only
persons who could have positively corroborated or contradicted the aforementioned testimony of De los Santos.
Was this a mere accident of fate, as plaintiffs would have us believe? Or were Campos and Hess named by the
plaintiffs as their immediate predecessors in interest precisely because, as contended by appellants, said deceased
persons could no longer impeach said testimony?
For obvious reasons, the Court can not answer these questions with absolute certainty. It can only explore the
possibilities and probabilities of the case, in the light of human experience. And, viewed from this angle, it can not

be denied that the demise of Campos and Hess before the filing of plaintiffs claim seriously impairs the weight
thereof. That the Grim Reaper had chosen to strike at one of the alleged predecessors of the plaintiffs is a matter
that may be attributed to sheer fortuitiousness. When, as in the case at bar, not one, but both have thus been
eliminated, it is clear, however, that this circumstances is most unusual, and must place the Court on guard.
The need for caution becomes more imperative when we bear in mind that an important piece of documentary
evidence, which allegedly existed after liberation, and could have effectively corroborated one phase of the
plaintiffs contention, had, according to their evidence, disappeared through still another unfortunate turn of the
wheel of fate. It will be recalled that late in 1945, Leonardo Recio, allegedly acting on behalf of Astraquillo, offered
to sell to Atty. DeWitt the 55,000 shares represented by stock certificate No. 2279 (Exhibit 2). Recio testified that,
having been unable to see DeWitt, when he (Recio) went to the latters office, for the first time, said Exhibit 2 was
left by him (Recio) in the hands of Atty. Orlina, who worked therein and gave him a receipt therefor. This receipt, if
produced, would have surely afforded us tangible proof of the veracity of, at least this part of plaintiffs story. Yet,
we are now told that, one day in December, 1945, Recios house accidentally caught fire, and that the latter
consumed, also, said receipt, kept in a wallet, which, by accident, he had failed to bring with him. Arent there too
many accidents in plaintiffs version? At any rate, we have thus been deprived of all means to check with
reasonable certainty the truth of any of the controverted portions of their pretense. In other words, the same is
based, and must stand or fall, therefore, upon the uncorroborated testimony of plaintiff Apolinario de los Santos,
and the credence and weight that may be given thereto. Upon a review of the record, we find, however, that said
testimony is highly improbable and inherently weak, for, among other things:chanrob1es virtual 1aw library
(1) De los Santos declared that, in December, 1942, he purchased 300,000 shares from Juan Campos and 1,300,000
shares from Carl Hess, at P0.06 each share. As an enterprise controlled by Americans, the Lepanto had been seized
by the Japanese who, accordingly, were operating it. At that time, there were no clear, or, even, substantial,
indications that changes would take place, either in the local or in the international situation, in the near or
foreseeable future. In deed, the morale of the population in democratic countries, particularly in the Philippines, was
then at its lowest ebb. Both in Europe and in the Pacific, the Axis powers had reached in enemy territories the
highest degree of penetration attained during the last war. Before the world had recovered from the shock produced
by the German blitzkrieg operations in the low countries and in France, the Nazis were already knocking at the
gates of Stalingrad and the Caucasus, whereas the Japanese seemed firmly entrenched in New Guinea and the
Solomon Islands. The people had a hazy notion about the facts pertinent to the Battle of Midway (June 3-6, 1942)
and the implications thereof were by and large unknown. In other words, the conditions were such as to warrant the
general belief that the Lepanto would remain under the authority and management of the Japanese Imperial forces
for an indefinite period of time. As a consequence, the Lepanto stock had not merely a doubtful value, but - as
admitted by Santos even, no market value at all (p. 132, t. s. n.) . Indeed, the stockholders could neither collect
dividends nor exercise their voting power, or otherwise participate in the operation of the enterprise. Moreover,
there was a possibility of its assets being fully confiscated, for all practical purposes, should Japan emerge
victorious in the war in the Pacific, which it appeared to be winning easily up to that time (December, 1942).
(2) Inasmuch as citizens of the United States held a majority of the shares of stock of the Lepanto, the same had,
from the view point of the Japanese, an enemy character, and the purchase of said stocks was, therefore, a hostile
act. As a matter of fact, in the proceedings before the Vested Property Claims Committee, the parties - including
plaintiffs herein - had stipulated "that such transfers and dealings in said stock were prohibited by the Japanese
during the occupation and hence were dangerous." (Record on Appeal, p. 110). Said transactions could jeopardize
the life of the parties thereto and De los Santos was aware of the "highly dangerous" or "very risky" nature even of
the "mere possession" of the stock certificates in question. (pp. 141, 143, t. s. n.)
(3) Astraquillo is merely a former employee of De los Santos, who had, therefore, no reason to risk his neck, not
only by allegedly buying 800,000 shares of stock for Astraquillo, but, also, by avowedly bringing with him (De los
Santos) the corresponding stock certificates from Manila to Baguio, to make delivery thereof to Astraquillo, as the
defense would have us believe, notwithstanding the many Japanese check points in the 250 kilometers highway
connecting both cities and the absence of any monetary or other gain he could have derived from the acts he
professes to have performed.
(4) According to the Ballantyne schedule the accuracy of which has not been impugned by plaintiffs herein the
Japanese war notes in the Philippines had the same exchange of purchase value as the currency of our legitimate
government, in December, 1942 and this was conceded by De los Santos (p. 136, t. s. n.) when they claim to
have purchased the Lepanto stocks. The P48,000 supposedly paid by De los Santos, and the identical sum allegedly
disbursed by Astraquillo, for their respective stocks, represented, therefore, the same amount in legal tender of the
Commonwealth of the Philippines. In fact, according to the evidence for the plaintiffs, part of the price allegedly
paid by Astraquillo, or P6,000, were in genuine Philippine money, representing his savings for 25 years. Said sum of
P6,000 being insufficient to cover the cost of 800,000 shares of stock, Astraquillo, it is urged, alienated other
properties to raise the amount necessary therefor. It is very difficult to believe that the plaintiffs would have parted
with P48,000 each - precisely when, owing to the abnormal conditions brought about by the occupation, said funds

might be needed, at any time, to meet unforeseen emergencies of the gravest and most vital nature for shares of
stock of dubious value then and in the foreseeable future.

(5) We are not satisfied that either De los Santos or Astraquillo possessed enough resources to have P48,000, in
cash, each, in December 1942. Their evidence on this point is too general apart from being based exclusively
upon their respective oral testimonies, which are absolutely uncorroborated to support their contention. At any
rate, De los Santos admitted that he is "not yet" rich (p. 134, t. s. n.) , and his testimony suggests that he did not
even own the house in which he lived.
(6) Campos offered to sell his stocks, according to De los Santos, at P0.06 each (although its par value was P0.10),
stating that "he (Campos) needed money" (p. 43, t. s. n.) , and advised him that Hess was, also, willing to dispose of
his own stocks at the same price. Being, accordingly, aware that Campos and Hess were in need of money and
considering the risks attending the transaction, it is but logical to expect De los Santos, an experienced trader in
stocks, to bargain for a lower price. Yet, the evidence for the plaintiffs shows that neither he nor Astraquillo tried to
do so, contrary to the normal course of events.
(7) De los Santos could not have purchased 1,300,000 shares of stock, from Hess, and received from him the
corresponding stock certificates, indorsed in blank by Vicente Madrigal, for Hess had never had such stock
certificates in his possession during the occupation. There is no plausible reason to doubt the veracity of the
testimony of Miguel Simon to this effect, for the latter had no possible motive to commit perjury, and was in a
position to know what he was talking about. Apart from being a brother-in-law of Hess, Simon was manager of the
firm Hess & Zeitling, of which Hess was the senior partner, who used to inform him (Simon) of his (Hess) business
transactions.
(8) Campos and Hess could not have delivered the stock certificates for the 1,600,000 shares of stock in question,
and, consequently, said shares of stock could not have been sold by them, to De los Santos in December 1942,
inasmuch as from December 1941 to April 1943, said stock certificates were continuously in the custody of
Matsume Kitajima, manager of the Mitsuis in Manila, whose testimony was corroborated by his successor in office,
Kingy Miwa, to whom Kitajima turned over the stock certificates in April 1943. The sincerity of Matsume Kitajima
and Kingy Miwa can not be doubted, for neither appears to have any possible reason to trifle with the facts. Indeed,
their testimony, if accepted as true, would ultimately result in the confiscation, by the Republic of the Philippines, of
the shares of stock in question and, thus, place the same beyond the reach of the Mitsuis.
It has been intimated that Kitajima and Kingy may have testified as they did, either to protect themselves, because
they might have disposed of the shares of stock in question for their personal benefit, or because there had been
undue influence or pressure from the authorities presumably officers of the government of the United States. But
these are mere speculations, without sufficient actual basis. Besides, judicial notice may be taken of the
circumstance that, during the occupation, even minor Japanese officials could easily make money, in the
Philippines, if they wanted to, without misappropriating Japanese properties. Again, in December, 1942, the
Japanese in the Philippines appeared to have no doubts that, in effect, Japan had already won the war. In short,
Kitajima and Kingy must have thought that, sooner or later, Japan would own the Lepanto and that, therefore, they
would have to account for the shares of stock under consideration. Consequently, it is most unlikely that either
would have misappropriated said shares of stock as suggested by the plaintiffs.
The benefits which the Mitsuis and Japan may derive from a decision against the plaintiffs inasmuch as the value
of the shares of stock in question would then be credited in payment of the reparations which may be demanded by
the Philippines and/or the United States has been pointed out, in the dissenting opinion, as a possible motive for
the commission of perjury by Kitajima and Kingy. Besides being purely conjectural in nature, this line of thought
which not even the plaintiffs have taken would have no leg to stand on, unless we assume that the Mitsuis had sold
or otherwise disposed of said stocks during the year 1942, but before the alleged transactions between Campos
and Hess, on the one hand, and the plaintiffs on the other, in December of that year. It is inconceivable, however,
that the Mitsuis would part with the stocks in question, precisely when Japan was at the crest of its military and
political victories. Indeed, even if its officers had already foreseen, at that time, the eventual defeat of the axis
powers and everything then appeared to indicate the contrary the Mitsuis could not have disposed of said
stocks without thereby revealing their own lack of faith in the ability of Japan to achieve final victory. Thus, the
Mitsuis would have caused a grave injury upon the Japanese propaganda and thereby earned severe punishment
from the Imperial Government. Nothing, absolutely nothing, in the record, or in contemporary history, warrants the
belief that the Mitsuis, who were closely associated with the Japanese Government, could be guilty of such folly.
Let us now turn our attention to the evidence for the defense, beginning with the testimony of Victor E. Lednicky. It
will be recalled that this witness claimed to have gone to the premises of the Mitsuis, sometime in February 1945,
and to have seen many documents scattered about the place, including two (2) Lepanto certificates of stock, one of
which was in the name of Vicente Madrigal, whose blank indorsement appeared thereon. Thus, the defense sought
to prove that the certificates of the shares of stock involved in this case have probably been looted. The lower court

found Lednickys story inherently improbable and then concluded that the theory of the looting must, consequently,
be "ruled out." To our mind, however, the testimony of Lednicky is not inherently improbable. Besides, it is a matter
of common knowledge, of which judicial notice may be taken, that many offices and dwellings were looted during
the liberation of Manila. The possibility that possession of the stock certificates in question may have been secured
by looting should not be "ruled out," therefore, irrespective of the credence and weight given to the testimony of
Lednicky. Actually, said certificates are included in the list of stocks certificates of the Lepanto which, soon after
liberation, were reported and considered looted from the Mitsuis, and, accordingly, "blocked" or "frozen" by the
authorities. Irrespective of the foregoing, De los Santos could not have obtained those certificates from Campos and
Hess in December 1942, inasmuch as, from December 1941 to April 1943, Kitajima had been continuously in
possession of said documents, none of which had been held by Hess during the occupation.

The lower court considered against the defense the circumstance that Lednicky, Simon and Perkins had not testified
before the Vested Property Claims Committee. There is no evidence, however, that any of them knew of the
proceedings before said committee. Furthermore, none of them has any personal interest in the outcome of this
action. Consequently, they have no possible motive to distort the truth, unlike De los Santos, who, as the present
claimant of all the shares of stock in dispute, will be directly affected by the outcome of the case at bar. His
testimony, therefore, cannot be more weighty than that of the aforementioned witnesses for the defense.
The decision appealed from criticizes the testimony of Perkins upon the following grounds:chanrob1es virtual 1aw
library
(1) Having taken no part in the alleged looting of Exhibit 2, Recio had nothing to fear in connection therewith and,
so, he could not have left the office of Mr. DeWitt, while the latter was talking over the telephone with a
representative of the Alien Property Custodian;
(2) Inasmuch as DeWitt had stated that Exhibit 2 was included in the list of looted stock certificates, Perkins should
have known that, as holder of the certificate, Recio is presumed to be the one who stole the same. Why then
plaintiffs inquire did Perkins fail to prevent Recio from leaving said office?
As regards the first observation, suffice it to say that, as bearer of the Exhibit 2, Recio who, according to the
lower court, is an intelligent man must have realized the danger, probably unforeseen by him, of being
considered a privy to the looting of said stock certificate, of which he might have been unaware before the
conference with Mr. DeWitt. Hence, Recios fright and virtual flight. Verily, the testimony of Perkins on this point is
borne out by the undisputed fact that Exhibit 2 was left by Recio in the hands of DeWitt, and that neither
Astraquillo, nor his alleged successor in interest, De los Santos, has ever demanded from DeWitt the return of said
certificate, or even recriminated Recio for having voluntarily parted with its possession, as he would have us
believe, without authority therefor, as a broker or agent who was supposed merely to find a buyer.
As to the second observation, Perkins knew that Recio was acting solely as a broker or agent. As such, he was not
the real holder of Exhibit 2, and, consequently, the presumption adverted to did not apply to him. Even if it did,
however, what could Perkins have done? Use force or violence upon the person of Recio, or ask a policeman to
detain him? Neither step, however, could have been taken without some risks. To begin with, Perkins could not have
properly taken the law in his own hands. Had he done so, Recio could have legally used force against force.
Moreover, said presumption is rebuttable and would have easily been offset by the undeniable fact that Recio had
acted merely in a representative capacity. Again, why should Perkins take the initiative in the matter? Was it not
being handled by his associate in the law firm, Mr. DeWitt, one of the most able members of the Philippine Bar? It
may not be amiss to add that the record before us discloses absolutely nothing that may cast even a shadow of
doubt upon the honesty of Mr. Perkins.
The language of the lower court in commenting on the testimony of Miwa was:chanrob1es virtual 1aw library
. . . In general, the testimony of Miwa is unreliable. His behaviour in Court in denying first and then in accepting
later his own signature throws him to a position where the Court must look upon him with suspicion and distrust. His
prevarication before the Court as to the genuineness of his own signature was probably due to the conscience of a
man who came to Court with a mental reservation, but who may have been compelled under the circumstances to
play the role of a willing tool." (p. 54, R. A.)
The following portion of Miwas testimony illustrates the point referred to in the decision appealed
from:jgc:chanrobles.com.ph
"ATTY. QUIRINO:chanrob1es virtual 1aw library

Q. Will you please go over this paper which for purposes of identification we request that it be marked as Exhibit M
for the plaintiffs and which was marked as Exhibit 6-b before the Vested Property Claims Committee, and tell us if
you know that document? A. No. I do not remember this paper.
Q. Mr. Miwa, at the bottom of this certificate or Exhibit M, which was Exhibit 6-b in the Committee and submitted by
the Alien Property Administration, there is a typewritten name, Kingy Miwa, and above it is a signature. Will you
kindly tell the Court if that is your signature or not? Please look over it again. A. No. It is not mine.
Q. Please examine it carefully and tell the Court afterwards if you recognize that signature. Examine it carefully.
A. It looks very similar to my signature.
Q. But would you want or are you willing to go on record and say that it is not your signature? A. I can not say. I
dont exactly remember that I signed this, but it looks very similar to my signature.
Q. You will not testify under oath that this is your signature? A. Yes, sir.
Q. What do you mean to say by yes, sir? Do you swear that this is your signature or not your signature? A. I think
this is my signature.
Q. So you are willing to go on record now that that signature appearing in Exhibit M is your signature? A. Yes, I
think so." (pp. 125-126, t. s. n.)

We do not agree with its appraisal by the lower court. It is clear that, as he did not remember the execution of
Exhibit M several years before the hearing of this case, Miwa had doubts about the genuineness of the signature
thereon, but the appearance thereof, similar or identical to that of his own signature, prevented him from denying
its authenticity. This does not indicate lack of veracity on his part. At any rate, plaintiffs claim to have bought the
shares of stock in question in December, 1942, or during the management of Kitajima, who held the corresponding
stock certificates continuously from December, 1941, to April, 1943, when Miwa substituted him, so that neither
Campos nor Hess could have delivered those certificates to De los Santos in December 1942. Apart from this, if
there are flaws in the proof for the defense, those of the evidence for the plaintiffs are much bigger and more
substantial and vital. Consequently, we hold that plaintiffs have not established their pretense by a preponderance
of the evidence.
Even, however, if Juan Campos and Carl Hess had sold the shares of stock in question, as testified to by De los
Santos, the result, insofar as plaintiffs are concerned, would be the same. It is not disputed that said shares of stock
were registered, in the records of the Lepanto, in the name of Vicente Madrigal. Neither is it denied that the latter
was, as regards said shares of stock, a mere trustee for the benefit of the Mitsuis. The record shows - and there is
no evidence to the contrary that Madrigal had never disposed of said shares of stock in any manner whatsoever,
except by turning over the corresponding stock certificates, late in 1941, to the Mitsuis, the beneficial and true
owners thereof. It has, moreover, been established, by the uncontradicted testimony of Kitajima and Miwa, the
managers of the Mitsuis in the Philippines, from 1941 to 1945, that the Mitsuis had neither sold, conveyed, or
alienated said shares of stock, nor delivered the aforementioned stock certificates, to anybody during said period.
Section 35 of the Corporation Law reads:jgc:chanrobles.com.ph
"The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or
the vice- president, countersigned by the secretary or clerk and sealed with the seal of the corporation, shall be
issued in accordance with the by- laws. Shares of stock so issued are personal property and may be transferred by
delivery of the certificate 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 entered and
noted upon the books of the corporation so as to show the names of the parties to the transaction, the date of the
transfer, the number of the certificate, and the number of shares transferred.
"No shares of stock against which the corporation holds any unpaid claim shall be transferable on the books of the
corporation." (Italics supplied.)
Pursuant to this provision, a share of stock may be transferred by endorsement of the corresponding stock
certificate, coupled with its delivery. However, the transfer shall "not be valid, except as between the parties," until
it is "entered and noted upon the books of the corporation." No such entry in the name of the plaintiffs herein
having been made, it follows that the transfer allegedly effected by Juan Campos and Carl Hess in their favor is "not
valid, except as between" themselves. It does not bind either Madrigal or the Mitsuis, who are not parties to said
alleged transaction. What is more, the same is "not valid," or, in the words of the Supreme Court of Wisconsin (Re
Murphy, 51 Wisc. 519, 8 N. W. 419) which were quoted approval in Uson v. Diosomito (61 Phil., 535)
"absolutely void" and, hence, as good as non-existent, insofar as Madrigal and the Mitsuis are concerned. For this
reason, although a stock certificate is sometimes regarded as quasi-negotiable, in the sense that it may be

transferred by endorsement, coupled with delivery, it is well settled that the instrument is non-negotiable, because
the holder thereof takes it without prejudice to such rights or defenses as the registered owner or creditor may have
under the law, except insofar as such rights or defenses are subject to the limitations imposed by the principles
governing estoppel.
"Certificates of stock are not negotiable instruments (post, Par. 102), consequently, a transferee under a forged
assignment acquires no title which can be asserted against the true owner, unless his own negligence has been
such as to create an estoppel against him (Clarke on Corporations, Sec. Ed. p. 415). If the owner of the certificate
has endorsed it in blank, and it is stolen from him, no title is acquired by on innocent purchaser for value (East
Birmingham Land Co. v. Dennis, 85 Ala. 565, 2 L.R.A. 836; Sherwood v. Mining Co., 50 Calif. 412). As was said by the
Supreme Court of the United States in a leading case (Western Union Telegraph Co. v. Davenfort, 97 U. S. 369; 24 L.
Ed. 1047)
Neither the absence of blame on the part of the officers of the company in allowing an unauthorized transfer of
stock, nor the good faith of the purchaser of stolen property, will avail as an answer to the demand of the true
owner. The great principle that no one can be deprived of his property without his assent, except by processes of
the law, requires, in the case mentioned, that the property wrongfully transferred or stolen should be restored to its
rightful owner." (The Philippine Law of Stock Corporations by Fisher, p. 132.) (Italics ours.) .
In the language of Fletchers Cyclopedia Corporations (Vol. 12, pp. 521-534):jgc:chanrobles.com.ph
"The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer acquires no title as
against the true owner does not apply where the circumstances are such as to estop the latter from asserting his
title. . . .
x

"A reason often given for the rule is that it is a case for the application of the maxim that where one of two innocent
parties must suffer by reason of a wrongful or unauthorized act, the loss must fell on the one who first trusted the
wrongdoer and put in his hands the means of inflicting such loss. But negligence which will work an estoppel of this
kind must be a proximate cause of the purchase or advancement of money by the holder of the property, and must
enter into the transaction itself; the negligence must be in or immediately connected with the transfer itself.
Furthermore, to establish this estoppel it must appear that the true owner had conferred upon the person who has
diverted the security the indicia of ownership, or an apparent title or authority to transfer the title. So the owner is
not guilty of negligence in merely intrusting another with the possession of his certificate of stock, if he does not, by
assignment or otherwise, clothe him with the apparent title. Nor is he deprived of his title or his remedy against the
corporation because he intrusts a third person with the key of a box in which the certificate are kept, where the
latter takes them from the box and by forging the owners name to a power of attorney procures their transfer on
the corporate books. Nor is the mere indorsement of an assignment and power of attorney in blank on a certificate
of stock, which is afterwards lost or stolen, such negligence as will estop the owner from asserting his title as
against a bona fide purchaser from the finder or thief, or from holding the corporation liable for allowing a transfer
on its books, where the loss or theft of the certificate was not due to any negligence on the part of the owner,
although there is some dangerous and wholly unjustifiable dictum to the contrary. So it has been held that the fact
that stock pledged to a bank is indorsed in blank by the owner does not estop him from asserting title thereto as
against a bona fide purchaser for value who derives his title from one who stole the certificate from the pledges.
And this has also been held to be true though the thief was on officer of the pledges, since his act in wrongfully
appropriating the certificate cannot be regarded as a misappropriation by the bank to whose custody the certificate
was intrusted by the owner, even though the bank may be liable to the pledgor. . . . A person is not guilty of
negligence in leaving a certificate of stock indorsed in blank in a safe deposit box used by himself and another
jointly, so as to be estopped from asserting his title after the certificate has been stolen by the other, and sold or
pledged to a bona fide purchaser or pledgee. Nor is he negligent in putting a certificate so indorsed in a place to
which an employee had access, where he has no reason to doubt the latters honesty, . . ." (Italics ours.)
In the leading case of Knox v. Eden Muscee American Co. (42 N. E. 988, 992-993), the rule has been forcefully
stated as follows:jgc:chanrobles.com.ph
"The courts have been frequently importuned to extend the qualities of negotiability of stock certificates beyond
the limits mentioned, and clothe them with the same character of complete negotiability as attaches to commercial
paper, so as to make a transfer to a purchaser in good faith for value equivalent to actual title, although there was
no agency in the transferror, and the certificate had been lost without the fault of the true owner, or had been
obtained by theft or robbery. But the courts have refused to accede to this view, and we have found no case entitled
to be regarded as authority which denies to the owner of a stock certificate which has been lost without his
negligence, or stolen, the right to reclaim it from the hands of any person in whose possession it subsequently
comes, although the holder may have taken it in good faith and for value. The precise question has not often been
presented to the courts, for the reason, probably, that they have with greet uniformity held that stock certificates
were not negotiable instruments in the broad meaning of that phrase; but whenever the question has arisen it has

been held that the title of the the owner of a lost or stolen certificate may be asserted against any one
subsequently obtaining its possession although the holder may be a bona fide purchaser. Anderson v. Nicholas, 28
N. Y. 600; Power Co. v. Robinson, 52 Fed. 520; Biddle v. Bayard, 13 Pa. St. 150; Barstow v. Mining Co., 64 Cal. 388, 1
Pac. 349. See Shaw v. Railroad Co., 101 U. S. 557. . . It is plain, we think, that the argument in support of the
judgment in this case, based on the complete negotiability of stock certificates, is not supported by, but is contrary
to, the decisions. If public policy requires that a further advance should be made in more completely assimilating
them to commercial paper in the qualities of negotiability, the legislature, and not the courts, should so declare.
Under the law as it has hitherto prevailed there does not seem to have been any serious hindrance in dealing with
property of this character. It may, perhaps, be doubted, taking into consideration the interests of investors as well
as dealers, whether it would be wise to remove the protection which the true owner of a stock certificate now has
against accident, theft, or robbery. The system of registry of negotiable bonds, which prevails to a considerable
extent, authorized by statutes of some of the states and of the United States, seems to indicate a tendency to
restrict, rather than to extend, the range of negotiable instruments." (Italics ours.)
The status of quasi-negotiability generally accorded to, and at present enjoyed by, certificates of stock, under the
Philippine law, is in itself a recognition of the fact that the certificates are non-negotiable. Instead of sustaining
appellees claim, section 5 of the Uniform Stock Transfer Act, which "gives full negotiability to certificates of stock,"
refutes said claim and confirms the non-negotiable character of stock certificates in the absence of said Uniform
Act, for, obviously, the same could not have given, negotiability to an instrument already possessing this attribute
prior thereto. Again, apart from being distinct from the general Corporation Law, the aforementioned Uniform Act is
not in force in the Philippines. In this connection, it should be noted that this special piece of legislation was
adopted in some states of the union as early as the year 1910. The failure of the Philippine government to
incorporate its provisions in our statute books, for a period of almost 45 years, is, to our mind, clear proof of the
unwillingness of our legislative department to change the policy set forth in section 35 of Act No. 1459. Needless to
say, this fact negates our authority which is limited to the interpretation of the law, and its application, with all its
imperfections to abandon what the dissenting opinion characterizes as the "civil law standpoint," and substitute,
in lieu thereof, the commercial viewpoint, by applying said section 6 of the Uniform Stock Transfer Act, although not
a part of the law of the land. Indeed, even in matters generally considered as falling within "commercial territory",
the Roman Law concept has not given way in the Philippines to the Common Law approach, except when there is
explicit statutory provision to the contrary.
In the case at bar, neither Madrigal nor the Mitsuis had alienated the shares of stock in question. It is not even
claimed that either had, through negligence, given occasion for an improper or irregular disposition of the
corresponding stock certificates. Plaintiffs merely argue without any evidence whatsoever thereon that Kitajima
might have, or must have, assigned the certificates on or before December 1942, although, as above stated, this is,
not only, improbable, under the conditions, then obtaining, but, also, impossible, considering that, in April 1943,
Kitajima delivered the instruments to Miwa, who kept them in its possession until 1945. At any rate, such
assignment by Miwa granting for the sake of argument the accuracy of the surmise of plaintiffs herein was
unauthorized by the Mitsuis, who, in the light of the precedents cited above, are not chargeable with negligence. In
other words, assuming that Kitajima had been guilty of embezzlement, by negotiating the stock certificates in
question for his personal benefit, as claimed by the plaintiffs, the title of his assignees and successors in interest
would still be subject to the rights of the registered owner, namely, Madrigal, and, consequently, of the party for
whose benefit and account the latter held the corresponding shares of stock, that is to say, the Mitsuis.
At any rate, at the time of the alleged sales in their favor, plaintiffs were aware of sufficient facts to put them on
notice of the need of inquiring into the regularity of the transactions and the title of the supposed vendors. Indeed,
the certificates of stock in question were in the name of Madrigal. Obviously, therefore, the alleged sellers (Campos
and Hess) were not registered owners of the corresponding shares of stock. Being presumed to know the law
particularly the provisions of section 35 of Act No. 1459 and, also, as experienced traders in shares of stock,
plaintiffs must have, accordingly, been conscious of the consequent infirmities in the title of the supposed vendors,
or of the handicaps thereof. Moreover, the aforementioned sales were admittedly hostile to the Japanese, who had
prohibited it and plaintiffs had actual knowledge of these facts and of the risks attendant to the alleged transaction.
In other words, plaintiffs advisely assumed those risks and, hence, they can not validly claim, against the registered
stockholder, the status of purchasers in good faith.
The lower court held, and plaintiffs maintain that, not being the registered owners of the shares of stock in question,
the Mitsuis can not assert a better right than said plaintiffs. This pretense is untenable. Inasmuch as Madrigal, the
registered owner of said shares of stock, has always acknowledged that he held the same merely as an agent of, or
trustee for, the Mitsuis and this is not denied it follows that the latter are entitled to invoke such rights as
Madrigal had as registered stockholder. Upon the other hand, even the alleged sale by Juan Campos and Carl Hess
to plaintiffs herein is contested by the defense and, to our mind, has not been established by a preponderance of
the evidence. Hence, as the undisputed principal or beneficiary of the registered owner (Madrigal), the Mitsuis may
claim his rights, which cannot be exercised by the plaintiffs, not only because their alleged title is not derived either
from Madrigal or from the Mitsuis, but, also, because it is in derogation, of said rights. Madrigal and the Mitsuis are
not privies to the alleged sales by Campos and Hess to the plaintiffs, contrary to the latters pretense.

In conclusion, when the Property Custodian issued the Vesting Order complained of, the shares of stock in question
belonged to the Mitsuis, admittedly an enemy corporation, so that said Vesting Order is in conformity with law and
should be upheld. Wherefore, the decision appealed from is hereby reversed, and the complaint, accordingly,
dismissed, with costs against the plaintiffs-appellees. It is so ordered.
Paras, C.J., Pablo, Padilla, Montemayor, Reyes, A., Jugo and Labrador, JJ., concur.

G.R. No. 152578 November 23, 2005

REPUBLIC OF THE PHILIPPINES, Represented by the Presidential Commission on Good Government,
Petitioner vs. ESTATE OF HANS MENZI (Through its Executor, MANUEL G. MONTECILLO), EMILIO T. YAP,
EDUARDO M. COJUANGCO, JR., ESTATE OF FERDINAND MARCOS, SR., and IMELDA R. MARCOS,
Respondents.
In the hope-filled but problem-laden aftermath of the EDSA Revolution, 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, his immediate
family, relatives, subordinates and close associates. This was followed by EO Nos. 2 and 14, respectively freezing all
assets and properties in the Philippines in which the former President, his wife, their close relatives, subordinates,
business associates, dummies, agents or nominees have any interest or participation, and defining the jurisdiction
over cases involving the ill-gotten wealth. Pursuant to the executive orders, several writs of sequestration were
issued by the PCGG in pursuit of the reputedly vast Marcos fortune.
Following a lead that Marcos had substantial holdings in Bulletin Publishing Corporation (Bulletin), the PCGG issued
a Writ of Sequestration dated April 22, 1986, sequestering the shares of Marcos, Emilio T. Yap (Yap), Eduardo M.
Cojuangco, Jr. (Cojuangco), and their nominees and agents in Bulletin.
This was followed by another Writ of Sequestration issued on February 12, 1987, this time sequestering the shares
of stock, assets, properties, records and documents of Hans Menzi Holdings and Management, Inc. (HMHMI).

The Republic then instituted before the Sandiganbayan on July 29, 1987, a complaint for reconveyance, reversion,
accounting, restitution and damages entitled "Republic of the Philippines v. Emilio T. Yap, Manuel G. Montecillo,
Eduardo M. Cojuangco, Jr., Cesar C. Zalamea, Ferdinand E. Marcos and Imelda R. Marcos" and docketed as Civil Case
No. 0022. The complaint substantially averred that Yap knowingly and willingly acted as the dummy, nominee or
agent of the Marcos spouses in appropriating shares of stock in domestic corporations such as the Bulletin, and for
the purpose of preventing disclosure and recovery of illegally obtained assets. It also averred that Cesar Zalamea
(Zalamea) acted, together with Cojuangco, as dummies, nominees and/or agents of the Marcos spouses in acquiring
substantial shares in Bulletin in order to prevent disclosure and recovery of illegally obtained assets, and that
Zalamea established, together with third persons, HMHMI which acquired Bulletin.
On March 10, 1988, the complaint was amended joining Cojuangco as Zalameas co-actor instead of mere
collaborator. The complaint was amended for the second time on October 17, 1990. The amendment consisted of
dropping Zalamea as defendant in view of the Deed of Assignment dated October 15, 1987 which he executed,
assigning, transferring and ceding to the Government the 121,178 Bulletin shares registered in his name. These
shares, as will be explained forthwith, formed part of the 214,424.5 shares (214 block) which became the subject of
a case1 that reached this Court.
The Second Amended Complaint also included the Estate of Hans M. Menzi (Estate of Menzi), through its executor,
Atty. Manuel G. Montecillo (Atty. Montecillo), as one of the defendants.
The issues presented for resolution as stated in the Sandiganbayans Pre-Trial Order dated November 11, 1991
were:
1) Whether or not the sale of 154,470 shares of stock of Bulletin Publishing Co., Inc., subject of this case by the late
Hans M. Menzi to the U.S. Automotive Co. Inc. is valid and legal; and
2) Whether or not the shares of stock of Bulletin Publishing Co. Inc. registered and/or issued in the name of
defendants Emilio T. Yap, Eduardo Cojuangco, Jr., Cesar Zalamea and the late Hans M. Menzi (and/or his estate
and/or his holding company, HM Holding & Investment Corp.) are ill-gotten wealth of the defendants Marcos
spouses.
Make of record the oral manifestation of Atty. Estelito Mendoza, counsel for defendant Eduardo Cojuangco. That: (a)
whether or not the said 154,470 shares of stock of Bulletin Publishing Co. Inc. legally belonged to the late Hans
Menzi before he sold the same to U.S. Automotive Co. Inc. and (b) whether or not plaintiff Republic is entitled to the
same, should also be threshed out during the trial on the merits.2
After protracted proceedings which spawned a number of cases3 that went up to this Court, the Sandiganbayan
rendered a Decision4 dated March 14, 2002,5 the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered:
1. Declaring that the following Bulletin shares are the ill-gotten wealth of the defendant Marcos spouses:
A. The 46,626 Bulletin shares in the name of defendant Eduardo M. Cojuangco, Jr., subject of the Resolution of the
Supreme Court dated April 15, 1988 in G.R. No. 79126.

Pursuant to alternative "A" mentioned therein, plaintiff Republic of the Philippines through the PCGG is hereby
declared the legal owner of these shares, and is further directed to execute, in accordance with the Agreement
which is entered into with Bulletin Publishing Corporation on June 9, 1988, the necessary documents in order to
effect transfer of ownership over these shares to the Bulletin Publishing Corporation.
B. The 198,052.5 Bulletin shares in the names of:
which they transferred to HM Holdings and Management, Inc. on August 17, 1983, and which the latter sold to
Bulletin Publishing Corporation on February 21, 1986. The proceeds from this sale are frozen pursuant to PCGGs
Writ of Sequestration dated February 12, 1987, and this writ is the subject of the Decision of the Supreme Court
dated January 31, 2002 in G.R. No. 135789.
Accordingly, the proceeds from the sale of these 198,052.5 Bulletin shares, under Philtrust Bank Time Deposit
Certificate No. 136301 dated March 3, 1986 in the amount of P19,390,156.68 plus interest earned, in the amount of
P104,967,112.62 as of February 28, 2002, per Philtrust Banks Motion for Leave to Intervene and to consign the
Proceeds of Time Deposits of HMHMI, filed on February 28, 2002 with the Supreme Court in G.R. No. 135789, are
hereby declared forfeited in favor of the plaintiff Republic of the Philippines.

2. Ordering the defendant Estate of Hans M. Menzi through its Executor, Manuel G. Montecillo, to surrender for
cancellation the original eight Bulletin certificates of stock in its possession, which were presented in court as
Exhibits ., which are part of the 212,424.5 Bulletin shares subject of the Resolution of the Supreme Court dated
April 15, 1988 in G.R. No. 79126.
3. Declaring that the following Bulletin shares are not the ill-gotten wealth of the defendant Marcos spouses:
a. The 154,472 Bulletin shares sold by the late Hans M. Menzi to U.S. Automotive Co., Inc., the sale thereof being
valid and legal;
b. The 2,617 Bulletin shares in the name of defendant Emilio T. Yap which he owns in his own right; and
c. The 1 Bulletin share in the name of the Estate of Hans M. Menzi which it owns in its own right.
4. Dismissing, for lack of sufficient evidence, plaintiffs claim for damages, and defendants respective
counterclaims.
SO ORDERED.6
In the present consolidated petitions, the foregoing Sandiganbayan Decision is assailed on different grounds.
The Republic, in G.R. No. 152758, assails the afore-quoted Decision insofar as it declared as not ill-gotten wealth of
the Marcos spouses the 154,472 shares (154 block) sold by Menzi to U.S. Automotive Co., Inc. (US Automotive) and
dismissed the Republics claim for damages.
In G.R. No. 154487, Cojuangco questions paragraphs 1 and 2 of the Sandiganbayan Decision.
In G.R. No. 154518, on the other hand, the Estate of Menzi imputes grave error and misinterpretation of facts and
evidence against the Sandiganbayan in declaring that the 46,626 Bulletin shares in the name of Cojuangco, and the
198,052.5 shares (198 block) in the names of Jose Campos (Campos), Cojuangco and Zalamea are ill-gotten wealth
of the Marcoses.
The three blocks of Bulletin shares of stock subject of these consolidated petitions are:
1. 154,472 shares (154 block) sold by the late Menzi and/or Atty. Montecillo to US Automotive on May 15, 1985 for
P24,969,200.09;
2. 198,052.50 (198 block) issued and registered in the names of Campos, Cojuangco, and Zalamea which were
transferred to HMHMI and subsequently sold by HMHMI (through Atty. Montecillo) to Bulletin on February 21, 1986
for P23,675,195.85; and
3. 214,424.5 shares (214 block) issued and registered in the names of Campos, Cojuangco, and Zalamea which
were the subject of the unanimous Resolution of this Court, through Mr. Chief Justice Claudio Teehankee, in Bulletin
v. PCGG7 (Teehankee Resolution) dated April 15, 1988 and the Sandiganbayan Resolutions dated January 2, 1995
and April 25, 1996 in Civil Case No. 0022.
For clarity of presentation, the 154 block, which is the subject of the Republics petition in G.R. No. 152578, is
treated separately from the 198 and 214 blocks, which are the subjects of the petitions in G.R. No. 154487 and G.R.
No. 154518.
154 Block
In 1957, Menzi purchased the entire interest in Bulletin from its founder and owner, Mr. Carson Taylor. In 1961, Yap,
owner of US Automotive, purchased Bulletin shares from Menzi and became one of the corporations 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 the each other preferential right to buy the others
Bulletin shares.

On April 22, 1968, the stockholders of Bulletin approved certain amendments to Bulletins Articles of Incorporation,
consisting of some restrictions on the transfer of Bulletin shares to non-stockholders.8 The amendments were
approved by the Board of Directors of Bulletin and by the Securities and Exchange Commission (SEC).
Several years later, on June 5, 1984, Atty. Amorsolo V. Mendoza (Atty. Mendoza), Vice President of US Automotive,
executed a promissory note with his personal guarantee in favor of Menzi, promising to pay the latter the sum of

P21,304,921.16 with interest at 18% per annum as consideration for Menzis sale of his 154 block on or before
December 31, 1984.
One day after Menzis death on June 27, 1984, a petition for the probate of his last will and testament was filed in
the Regional Trial Court (RTC) of Manila, Branch 29, by the named executor, Atty. Montecillo, and docketed as
Special Proceeding No. 84-25244.
On January 10, 1985, Atty. Montecillo filed a motion praying for the confirmation of the sale to US Automotive of
Menzis 154 block. The probate court confirmed the sale in its Order dated February 1, 1985.
Accordingly, on May 15, 1985, Atty. Montecillo received from US Automotive two (2) checks in the amounts of
P21,304,778.24 and P3,664,421.85 in full payment of the agreed purchase price and interest for the sale of the 154
block. On the same day, Atty. Montecillo signed a company voucher acknowledging receipt of the payment for the
shares, indicating on the dorsal portion thereof the certificate numbers of the 12 stock certificates covering the 154
block, the number of shares covered by each certificate and the date of issuance thereof.
Atty. Montecillo also wrote on the lower portion of the promissory note executed by Atty. Mendoza the words "Paid
May 15, 1985 (signed) M.G. Montecillo, Executor of the Estate of Hans M. Menzi."
Upon these facts, the Sandiganbayan ruled that the sale of the 154 block to US Automotive is valid and legal.
According to the Sandiganbayan, the sale was made pursuant to the stock option executed in 1968 between the
parties to the sale. Negotiations took place and were concluded before Menzis death, and full payment was made
only after the probate court had judicially confirmed the sale.
The Sandiganbayan dismissed the Republics claim, based on the affidavit of Mariano B. Quimson, Jr. (Quimson)
dated October 9, 1986, that the sale should be nullified because US Automotive only acted as a dummy of Marcos
who was the real buyer of the shares. According to the court, the Republic failed to overcome its burden of proof
since Quimsons affidavit was not corroborated by other evidence and was, in fact, refuted by Atty. Montecillo.
In its Memorandum9 dated July 7, 2003 in G.R. No. 152578, the Republic argues that the Sandiganbayan failed to
take into account the fact that despite Menzis claim that he acquired Bulletin in 1957, he did not include any
Bulletin shares in his Last Will and Testament executed in 1977. Atty. Montecillo, the executor of Menzis estate,
likewise did not include any Bulletin share in the initial inventory of Menzis properties filed on May 15, 1985.
Neither were any Bulletin shares declared by Atty. Montecillo even after the probate court issued an Order dated
November 17, 1992 for the submission of an updated inventory of Menzis assets.
The Republic claims that despite these circumstances, coupled with Quimsons affidavit detailing how Marcos used
his dummies to conceal his control over Bulletin, as well as the letters and correspondence between Marcos and
Menzi indicating that Menzi consistently updated Marcos on the affairs of Bulletin, the Sandiganbayan ruled that the
154 block was not ill-gotten wealth of the Marcoses. The Sandiganbayans erroneous inference allegedly warrants a
review of its findings.
Moreover, the Republic disputes the Sandiganbayans ruling that it heavily leaned on the affidavit of Quimson
without presenting any other corroborating evidence.10 It argues that in the proceedings before the PCGG,
Quimson was subjected to cross-examination by the lawyers of Bulletin which is controlled by Yap. Further, the
evidence it presented before the PCGG purportedly showing that the transfer of Bulletin shares from Menzi to US
Automotive was undertaken due to pressure exerted by Marcos on Menzi should have been taken into account.
The Republic insists that the sale between Menzi and U.S. Automotive was a sham because the parties failed to
comply with the basic requirement of a deed of sale in the transfer of the subject shares. Further, a number of
questions were allegedly not resolved, such as: (a) Who was the seller of the subject sharesthe late Menzi as the
alleged owner or Atty. Montecillo as then special administrator and later executor of Menzis estate; (b) If Menzi sold
the shares, was there a need to confirm the sale? If Atty. Montecillo was the one who sold them, what was his
authority to sell the said shares?
The Republic also contends that Menzi and Yap were both dummies of the late President Marcos, used by the latter
in order to conceal his interest in Bulletin. Hence, the 154 block should also have been declared ill-gotten wealth
and forfeited in favor the Government.
The foregoing allegedly warrants the award of damages in favor of the Republic which the Sandiganbayan
erroneously failed to do.
The Republic, therefore, prays that the Sandiganbayan Decision, insofar as it declares the sale of the 154 block to
be valid and legal, be reconsidered and judgment accordingly rendered declaring the 154 block as ill-gotten wealth,
forfeiting the same or the proceeds thereof in favor of the Republic, and awarding actual, temperate and nominal
damages in the Courts discretion, moral damages in the amount of 50 Billion Pesos, exemplary damages of 1
Billion Pesos, attorneys fees, litigation expenses and treble judicial costs.

The Estate of Menzi and HMHMI filed a Memorandum11 dated March 10, 2005, averring that the Republic failed to
adduce evidence of any kind that the 154 block was ill-gotten wealth of the Marcoses. They claim that the
requirements for a valid transfer of stocks, namely: (1) there must be delivery of the stock certificate; (2) the
certificate must be indorsed by the owner or his attorney-in-fact or other persons legally authorized to make the
transfer; and (3) the transfer must be recorded in the books of the corporation in order to be valid against third
parties, have all been met.
The parties to the sale allegedly confirm the indorsement and delivery of the Bulletin shares of stock representing
the 154 block. The requirement that the transfer be recorded in the books of the corporation was also met because
US Automotive exercised its rights as shareholder.
It is also allegedly immaterial whether it was Menzi or Atty. Montecillo who indorsed the stock certificates. If it was
Menzi, then his indorsement was an act of ownership; if it was Montecillo, then the indorsement was pursuant to the
duly executed General Power of Attorney filed with the SEC and, subsequently, on the basis of his authority as
Special Administrator and Executor of Menzis estate.
In his Memorandum12 dated May 10, 2005, Yap also maintains that the sale of the 154 block was valid and legal.
The non-inclusion of the said block of shares in the inventory of Menzis estate was purportedly due to the fact that
the same had, by then, been sold to US Automotive. Yap also claims that Atty. Montecillo was duly authorized to
effect the sale by virtue of the General Power of Authority and the Last Will and Testament executed by Menzi.
The absence of a deed of sale evidencing the sale is allegedly not irregular because the law itself does not require
any deed for the validity of the transfer of shares of stock, it being sufficient that such transfer be effected by
delivery of the stock certificates duly indorsed. At any rate, a duly notarized Receipt covering the sale was
executed.13
Moreover, the BIR certified that the Estate of Menzi paid the final tax on capital gains derived from the sale of the
154 block and authorized the Corporate Secretary to register the transfer of the said shares in the name of US
Automotive. Further, a stock certificate covering the 154 block was issued to US Automotive by Quimson himself as
Corporate Secretary.
Sec. 63 of the Corporation Code provides the requisites for a valid transfer of shares:
Sec. 63. Certificate of stock and transfer of shares.The capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or vice-president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of
stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed
by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing
the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and
the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the
corporation. [Emphasis supplied]
The Corporation Code acknowledges that the delivery of a duly indorsed stock certificate is sufficient to transfer
ownership of shares of stock in stock corporations. Such mode of transfer is valid between the parties. In order to
bind third persons, however, the transfer must be recorded in the books of the corporation.
Clearly then, the absence of a deed of assignment is not a fatal flaw which renders the transfer invalid as the
Republic posits. In fact, as has been held in Rural Bank of Lipa City, Inc. v. Court of Appeals,14 the execution of a
deed of sale does not necessarily make the transfer effective.
In that case, petitioners argued that by virtue of the deed of assignment, private respondents had relinquished to
them all their rights as stockholders of the bank. This Court, however, ruled that the delivery of the stock certificate
duly indorsed by the owner is the operative act that transfers the shares. The absence of delivery is a fatal defect
which is not cured by mere execution of a deed of assignment. Consequently, petitioners, as mere assignees,
cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not be entitled to dividends, insofar
as the assigned shares are concerned.
There appears to be no dispute in this case that the stock certificates covering the 154 block were duly indorsed
and delivered to the buyer, US Automotive. The parties to the sale, in fact, do not question the validity and legality
of the transfer.

The objection raised by the Republic actually concerns the authority of Atty. Montecillo, the executor of Menzis
estate, to indorse the said certificates. However, Atty. Montecillos 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
on May 23, 1984, which specifically authorizes Atty. Montecillo "[T]o sell, assign, transfer, convey and set over upon
such consideration and under such terms and conditions as he may deem proper, any and all stocks or shares of
stock, now standing or which may thereafter stand in my name on the books of any and all company or corporation,
and for that purpose to make, sign and execute all necessary instruments, contracts, documents or acts of
assignment or transfer."15

Atty. Montecillos authority to accept payment of the purchase price for the 154 block sold to US Automotive after
Menzis death springs from the latters 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 Menzis death, Atty.
Montecillo was vested with ample authority to effect the sale of the 154 block to US Automotive.
That the 154 block was not included in the inventory is plausibly explained by the fact that at the time the
inventory of the assets of Menzis estate was taken, the sale of the 154 block had already been consummated.
Besides, the non-inclusion of the proceeds of the sale in the inventory does not affect the validity and legality of the
sale itself.
At any rate, the Sandiganbayans factual findings that the 154 block was sold to US Automotive while Menzi was
still alive, and that Atty. Montecillo merely accepted payment by virtue of the authority conferred upon him by
Menzi himself are conclusive upon this Court, supported, as they are, by the evidence on record.16 As held by the
Sandiganbayan:
The sale was made pursuant to the Stock Option executed in 1968 between the parties to the sale, considering
the restrictions contained in Bulletins Articles of Incorporation as amended in 1968 limiting the transferability of its
shares. Negotiations for the sale took place and were concluded before the death of Menzi. After his death, full
payment of the entire consideration of the sale, principal and interest, was made only after judicial confirmation
thereof in the Probate Case. The transaction was duly supported by the corresponding receipt, voucher, cancelled
checks, cancelled promissory note, and BIR certification of payment of the corresponding taxes due thereon.17
The Supreme Court is not a trier of facts. It is not our function to examine and weigh all over again the evidence
presented by the parties in the proceedings before the Sandiganbayan.18
It is also significant that even Quimsons affidavit does not state, in a categorical manner, that Yap was a Marcos
dummy used by the latter to conceal his Bulletin shareholdings. In contrast, Quimson unqualifiedly declared that
Campos, Cojuangco and Zalamea were the former dictators nominees to Bulletin.19
We, therefore, agree with the Sandiganbayan that the sale of the 154 block to US Automotive was valid and legal.
198 and 214 blocks
HMHMI was incorporated on May 20, 1982 by Menzi, Campos, Cojuangco, Rolando C. Gapud (Gapud) and Zalamea,
with an authorized capital stock of P1,000,000.00 divided into 100,000 shares with par value of P10.00 each.
A Deed of Transfer and Conveyance was executed by Menzi, Campos, Cojuangco and Zalamea on August 17, 1983,
transferring the shares of stock registered in their names in various corporations to HMHMI in exchange for
6,000,000 shares of the latters capital stock, subject to the approval by the SEC of HMHMIs Certificate of Increase
of Capital Stock. The shares of stock transferred included the 198 block of Bulletin shares, 90,866.5 of which were
registered in the name of Campos; 90,877 in the name of Cojuangco; and 16,309 in the name of Zalamea.
On February 14, 1984, HMHMI amended its Articles of Incorporation by increasing its authorized capital stock to
P100,000,000.00 divided into 10,000,000 shares with par value of P10.00 per share.
On January 15, 1986, the law firm of Siguion Reyna, Montecillo & Ongsiako wrote a letter to Bulletins corporate
secretary, Atty. Mendoza, requesting that three (3) certificates of stock representing 90,866.5, 90,877, and 16,309
Bulletin shares be issued in favor of HMHMI in exchange for 21 certificates of stock in HMHMI.
Atty. Mendoza acknowledged receipt of the 21 certificates of stock but replied that the transfer by Campos,
Cojuangco and Zalamea of their Bulletin shares to HMHMI cannot be recorded in the books of Bulletin because it
was made in violation of Bulletins Articles of Incorporation which provides restrictions and limitations on the
transferability of the shares of the company by its stockholders. Bulletin, however, offered to buy the shares at the
price fixed in the Articles of Incorporation. The offer appears to have been accepted by HMHMI through its
President, Atty. Montecillo.

Thus, on January 30, 1986, HMHMIs Board of Directors passed a resolution approving the sale to Bulletin of the 198
block and authorizing its President or Corporate Secretary to sign and execute the corresponding deed of sale.
Accordingly, a Deed of Sale was executed on February 21, 1986 by Atty. Montecillo whereby HMHMI sold the 198
block to Bulletin for the amount of P23,675,195.85.
On April 22, 1986, the shares of Marcos, Yap, Cojuangco and their nominees or agents in the Bulletin were
sequestered by virtue of a Sequestration Order issued by the PCGG.
The SEC issued a certification to the effect that as of February 21, 1986, the total subscribed shares of Bulletin was
756,861. Of these, 198,052.5 were treasury shares, leaving the total outstanding shares at 567,808.5. The
stockholders of Bulletin and the shares of stock held by each of them were listed as follows:
On February 12, 1987, another Writ of Sequestration was issued by the PCGG, sequestering all the shares of stock,
as well as the assets, properties, records and documents of HMHMI. Because of this Sequestration Order, the
proceeds from the sale of the 198 block which were deposited with Philtrust Bank were frozen.20

On March 16, 1987, the sequestration of the 2,617 Bulletin shares of Yap was lifted upon the latters motion.
On April 14, 1987, the PCGG wrote a letter/order to the Corporate Secretary of Bulletin, asking for the schedule of
the annual stockholders meeting of the corporation because the sequestered shares consisting of the 214 block will
be voted by the Commission. This letter became the subject of a petition21 filed by Bulletin with this Court
questioning the validity of the PCGGs letter/order and seeking to compel PCGG to accept Bulletins offer of a cash
deposit in the amount of P34,592,903.34 representing the value of the 214 block of sequestered Bulletin shares.
The Court issued a temporary restraining order.
On July 31, 1987, the PCGG received from Bulletin the amount of P8,173,506.06 as full payment of 46,620.5 Bulletin
shares registered in the name of Campos. The receipt stated that "Mr. Jose Y. Campos has waived the ownership of
said shares in favor of the Republic of the Philippines through the Presidential Commission on Good Government."
A Deed of Assignment was likewise executed by Zalamea on October 15, 1987, assigning and waiving in favor of
the Republic his rights to 121,178 Bulletin shares registered in his name. On the same day, Bulletin issued in favor
of PCGG a check in the amount of P21,244,926.96 as full payment of Zalameas shares.
This Court, on April 15, 1988, issued the Teehankee Resolution, the dispositive portion of which pertinently states:
2. Directing the Commission to accept the cash deposit of P8,174,470.32 offered by petitioner for the 46,626
sequestered shares in the name of Mr. Eduardo M. Cojuangco, Jr. expressly subject to the alternative conditions (A
and B) hereinabove set forth, and likewise directing the Commission to accept the cash deposit, if it has not actually
sold the Cesar C. Zalamea Bulletin shares to petitioner (supra, p. 13, par [2]) of P21,244,926.96 for the sequestered
shares of Bulletin in the name of Mr. Cesar Zalamea under the same alternatives already mentioned; and
3. Remanding the case regarding the issue of ownership of the said sequestered Bulletin shares for determination
and adjudication to the Sandiganbayan.22
An agreement was thereafter executed between PCGG and Bulletin on June 9, 1988 regarding the 46,626 Bulletin
shares of Cojuangco whereby PCGG accepted Bulletins deposit in the amount of P8,174,470.32, subject to the
alternatives set forth in the Teehankee Resolution, as follows:
Alternative "A"To standby as full payment plus whatever interest earnings thereon upon final judgment of the
Court declaring the Republic of the Philippines as owners of the 46,626 shares, accompanied by the corresponding
original stock certificates, issued in the name of the government, duly endorsed in favor of the Bulletin Publishing
Corporation, free from liens and encumbrances; or
Alternative "B"To immediately return to Bulletin Publishing Corporation the cash deposit in the amount of
P8,174,470.32 plus whatever interest earnings thereon upon final judgment by the Court declaring that Mr. Eduardo
Cojuangco, Jr. is the true owner of the 46,626 shares.23
With this factual backdrop, the Sandiganbayan ruled that Campos, Cojuangco and Zalamea were nominees and
dummies of Marcos. Hence, the 198 block which these nominees transferred to HMHMI and which, in turn, were sold
to Bulletin are ill-gotten wealth.
The Sandiganbayan anchored its finding on the Deposition of Campos taken on November 25, 1994 before the
Philippine Consulate General in Vancouver, British Columbia, Canada, that he held shares in Bulletin and HMHMI
"per instruction of President Marcos;" that the beneficial owner of these shares "must be President Marcos;" and
that he received three (3) dividend checks from Bulletin "for the benefit of President Marcos."

Based on the Deed of Assignment executed by Zalamea on October 15, 1987, wherein he manifested that he "does
not claim true and beneficial ownership" of the 121,178 Bulletin shares registered in his name and that he
voluntarily waived and assigned these shares in favor of PCGG, the Sandiganbayan concluded that Zalamea could
not have been a nominee of Menzi, as the latters estate claims, but of Marcos.
The Sandiganbayan likewise rejected Cojuangcos 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 Cojuangcos claim to his alleged
portion of the 214 block should be resolved in favor of the Republic because of Cojuangcos 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.

The Sandiganbayan further ruled that Yaps shares, which were acquired by him in 1961 before Marcos became
President, are not ill-gotten wealth of the Marcoses. Moreover, the one (1) Bulletin share for which dividend checks
were issued to and received by the Estate of Menzi was deemed to belong to the latter.
In G.R. No. 154487, petitioner Cojuangco assails paragraphs 1 and 2 of the Sandiganbayan Decision. Allegedly, the
Government does not claim that in acquiring the Bulletin shares registered in Cojuangcos name, the late President
Marcos used government funds or resources. Cojuangco raises several issues, namely: (a) Were the Bulletin shares,
at any time, of government ownership? (b) Were the Bulletin shares acquired by Marcos and, if so, did he use
government funds to acquire them? (c) Did petitioner Cojuangco act as the "dummy" or "nominee" of Marcos to
acquire, or to conceal the acquisition of the shares by the latter?
In the Memorandum for Eduardo M. Cojuangco, Jr.24 dated May 6, 2005, Cojuangco argues that the Republic neither
alleged nor presented evidence to prove that that the Bulletin shares registered in his name were owned by the
Republic but were taken by the Marcoses "by taking advantage of their public office and/or using their powers,
authority, influence, connections or relationship" or that they were acquired by the Marcoses from Menzi with the
use of government or public funds. Hence, the conclusion should be sustained that the shares were owned by Menzi
and never by the Republic, and no public funds were used in their acquisition.
Cojuangco attacks the Sandiganbayans reliance on Quimsons affidavit saying that it is hearsay because Quimson
was not presented in court to affirm the contents of his affidavit and was not subjected to cross-examination as he
had already passed away when Civil Case No. 0022 was tried. Quimsons affidavit is allegedly double hearsay
insofar as it alleges that Marcos owned the Bulletin shares and that Cojuangco was merely Marcos nominee
because Quimson had no contact with Marcos and his knowledge of the latters purported ownership of the Bulletin
shares was merely relayed to him by Menzi.
Even the supposed corroborating evidence, consisting of the affidavits of Pedro Teodoro, Evelyn S. Singson, Gapud,
and Angelita Reyes, have allegedly been declared as having no probative value inasmuch as the affiants did not
take the witness stand and could not be cross-examined.
The Republic likewise allegedly failed to prove its contention that Bulletin issued checks in favor of Campos,
Cojuangco and Zalamea which were deposited into numbered accounts in Security Bank & Trust Company owned by
the Marcoses. Moreover, the dividend checks supposedly indorsed by Cojuangco in blank do not conclusively
demonstrate that they were indorsed in favor of the Marcoses.
On the other hand, there is allegedly sufficient evidence on record to prove that Cojuangco was a nominee of Menzi.
These documents consist of the testimony of Atty. Montecillo to the effect that, as far as he knew, Cojuangco "really
acted as nominee for the General," and the originals of the stock certificates covering the Bulletin shares registered
in Cojuangcos name.
Cojuangco further avers that the allegation that the Bulletin shares were registered in his name upon the request,
and as nominee, of Menzi is a specific denial and not an affirmative defense as the Sandiganbayan declared. As a
specific denial, the allegation need not be proven unless the Republic presents adequate evidence proving the
allegations in its complaint which, Cojuangco insists, the Republic failed to do.

He likewise argues that the Republic is not entitled to damages of any kind because it failed to establish that it has
any proprietary interest in the Bulletin shares registered in his name; that the said shares are owned by the
Marcoses; and that it suffered any pecuniary loss by reason of such ownership.
Based on these allegations, Cojuangco prays that he be declared the owner of the 46,626 Bulletin shares registered
in his name, together with all cash and stock dividends which have accrued in favor of said shares from October 15,
1987, and ordering the PCGG to return the cash deposit of P8,174,470.32 plus interest to Bulletin.
In its Memorandum25 dated March 17, 2005, the Republic maintains that Cojuangco has consistently denied any
proprietary interest in the Bulletin shares. Hence, he cannot claim ownership of the Bulletin shares registered in his
name. His allegation that that he was a nominee of Menzi was pleaded by way of defense. Thus, he has the burden
of proving this material allegation, set up as new matter, that the shares were not his but Menzis.
Since the Bulletin shares were not included in the inventory of Menzis assets, it allegedly follows that Cojuangco
could not have been a nominee of Menzi who did not own the subject Bulletin shares.
As regards the contention that the Republic failed to show that the shares belong to the Government or were
acquired using public funds, the Republic maintains that Marcos acquired the Bulletin shares using his political
clout. His very act of participating in a business enterprise using nominees to conceal his ownership of Bulletin
shares is already a violation of the Constitution.
Furthermore, Campos and Zalamea, who, like Cojuangco, held shares in the 198 and 214 blocks, have already
surrendered and assigned their respective shares to the Government and acknowledged the right of the
Government over the Bulletin registered in their names. Such is allegedly a clear indication that they acted as
dummies of Marcos. The admission of Campos and Zalamea that their shares in the 214 block belonged to Marcos
may allegedly be used to prove that the 198 block was likewise held by them as dummies of the former dictator.

The Sandiganbayan also allegedly did not rely on the Teehankee Resolution to support its conclusion that the 198
and 214 blocks are ill-gotten wealth but made its own finding after a full-blown trial at which all the parties, except
Cojuangco, presented their respective evidence.
Moreover, the evidence presented by the Republic allegedly preponderates in favor of its theory that the Bulletin
shares in the names of Campos, Cojuangco and Zalamea were actually held in trust for the benefit of the Marcoses.
Notably, the PCGG Resolution dated May 22, 1987, presented by the Republic as its Exhibit "I" declares that
Quimson and Teodoro, close associates of Menzi, stated under oath that when Marcos allowed the Bulletin to reopen
during Martial Law, Menzi was allowed only 20% participation, and that Marcos put his shares in the names of
Campos, Cojuangco and Zalamea.
Besides, Menzi did not execute any deed of trust in his favor as trustor and Campos, Cojuangco and Zalamea as
trustees. Neither did the Estate of Menzi claim that Campos, Cojuangco and Zalamea were nominees of Menzi as no
cross-claim was filed by the Estate of Menzi even as it claimed ownership of the 198 and 214 blocks.
In their Memorandum26 dated March 10, 2005 in G.R. Nos. 154487 and 154518, the Estate of Menzi and HMHMI
argue that the Sandiganbayan erred in not resolving the issue of the ownership of the 198 and 214 blocks. The
Sandiganbayan instead allegedly relied on its misinterpretation of the Teehankee Resolution to the effect that there
is no longer any controversy as regards the ownership of the portion of the 214 block held by Zalamea. According to
said respondents, the Teehankee Resolution clearly directed the Sandiganbayan to resolve the issue of ownership of
both the Zalamea and Cojuangco portions of the 214 block.
Respondents Estate of Menzi and HMHMI also contend that the Quimson affidavit should have been treated as
having no probative value with respect to the 154 block and the 198 and 214 blocks alike. The affidavit was
allegedly not at all corroborated by the other documents presented by the Republic and cited in the assailed
Decision.
They insist that Campos, Cojuangco and Zalamea were nominees of Menzi, not dummies of Marcos, because, as
allegedly established during trial, the stock certificates covering the contested blocks of shares were indorsed in
blank and remained in Menzis possession. Even Campos allegedly testified that he was never in possession of the
stock certificates.
Assuming that Campos was indeed a Marcos dummy, his admission should apply solely to the Bulletin shares
registered in his name. Likewise, Zalamea allegedly never declared himself to be a Marcos nominee, only that he
does not claim true and beneficial ownership of the Bulletin shares recorded in his name. The dividend checks for
Zalameas shareholdings, in fact, allegedly indicate the Estate of Menzi as the payee, proving that Zalamea was
Menzis nominee.

Respondents Estate of Menzi and HMHMI further claim that the 198 and 214 blocks were not mentioned in Menzis
Last Will and Testament because Menzi knew of the impending promulgation of a decree which would limit to only
20% the ownership of media enterprises by one person or family. Allegedly, in order to get around this restriction,
Menzi devised the nominee structure whereby he used three (3) nominees to enable him to retain his 80% stake in
Bulletin. Besides, there was allegedly a legal question as to whether sequestered shares need to be declared for
estate tax purposes in the meantime that a case involving these shares was pending.
Said respondents finally posit that assuming that the 198 and 214 blocks are ill-gotten, the shares themselves, and
not merely the proceeds, should be forfeited in favor of the Government.
Yap, on the other hand, claims in his Memorandum27 dated May 10, 2005 filed in G.R. Nos. 154487 and 154518
that Cojuangco may not raise in his petition a new specific relief consisting of the prayer that he be declared the
owner of the 46,626 Bulletin shares registered in his name which Cojuangco never asked for during the proceedings
before the Sandiganbayan. Cojuangco is allegedly bound by his judicial admission that he has no proprietary
interest over the said Bulletin shares.
Purportedly, because of this judicial admission, Alternative B mentioned in the Teehankee Resolution was
eliminated. The only option which remained was, as held by the Sandiganbayan, to declare that the Government is
the legal owner of the shares and direct the PCGG to execute the necessary documents to effect the transfer
thereof in accordance with Alternative A.
As regards the prayer that the shares themselves be forfeited in favor of the Government, Yap contends that this
cannot be done because the Government is barred by the Constitution from acquiring ownership of private mass
media.
The Estate of Menzi and HMHMI should also not be allowed to claim the portion of the 214 block held by Campos
and Zalamea whose ownership has allegedly been settled by this Court in the Teehankee Resolution.
Yap also claims that the Estate of Menzi and HMHMI have unlawfully concealed the stock certificates representing a
portion of the shares held by Campos and Zalamea. Their lawyers, specifically Atty. Montecillo, have also allegedly
staked an unfounded claim on the Bulletin shares in violation of their duty, as lawyers of Bulletin for several years,
to protect the latters interests.
Cojuangco filed a Reply Memorandum28 dated October 17, 2005, substantially reiterating his argument that the
Sandiganbayan failed to make a finding that the Bulletin shares are ill-gotten as defined by the pertinent executive
orders and that they were owned by the Marcoses. Consequently, he insists that there is no basis for the
Sandiganbayans conclusion that the Republic is the legal owner of the said shares.

The Republic also filed a Memorandum29 dated March 17, 2005 in G.R. No. 154518, averring that the petition raises
factual issues not proper in a petition for review under Rule 45 of the Rules of Court.
The Republic insists that the Decision of the Sandiganbayan relative to the 198 and 214 blocks was not based on
Quimsons affidavit alone but on the totality of the evidence presented to support the complaint. Quimsons
affidavit was allegedly given prominence because it related in detail how Campos, Cojuangco and Zalamea came to
be nominees of Marcos. The allegations in Quimsons affidavit were allegedly confirmed by Menzis Last Will and
Testament, the initial inventory of his assets, the letters and correspondence between Marcos and Menzi, Campos
deposition, and the dividend checks issued to Campos, Cojuangco and Zalamea even after they have supposedly
transferred their Bulletin shares to HMHMI.
Moreover, Atty. Montecillo did not institute any action against Campos, Cojuangco and Zalamea to recover the
shares. This allegedly indicates that the shares were not owned by Menzi and that Campos, Cojuangco and Zalamea
did not act as Menzis nominees.
As regards the claim that Menzi owned the shares registered in the names of Campos, Cojuangco and Zalamea
because the stock certificates covering them were in Menzis possession, the Republic maintains that mere
possession of the stock certificates does not operate to vest ownership on Menzi considering that Campos already
declared that Marcos owned those shares and Zalamea surrendered his shares to the Government.
Furthermore, the Republic alleges that the Sandiganbayan had already ruled with finality that the Estate of Menzi
and HMHMI cannot recover the Campos and Zalamea portions of the 214 block. Specifically, in the Resolution dated
January 2, 1995, the Sandiganbayan declared that the Estate of Menzi cannot recover the Campos shares because
the latter, who was not a co-defendant in the case, had already voluntarily surrendered the same to the PCGG.
Zalameas shares could likewise not be recovered because he was also not a party, either as defendant, crossdefendant or third-party defendant. Moreover, in another Resolution dated July 10, 1993, the Sandiganbayan held
that the Estate of Menzi has not pleaded any claim of ownership over the Bulletin shares in the names of Campos,

Cojuangco and Zalamea, much less has it intervened to express any prejudice to it should any judgment be
rendered for or against Campos, Cojuangco and Zalamea.
We again affirm the ruling of the Sandiganbayan.
It should be noted at the outset that there is no more dispute as regards the Bulletin shares registered in the name
of Campos. In fact, Campos was not included as a defendant in Civil Case No. 0022. The Bulletin shares registered
in his name have been voluntarily surrendered to the PCGG and the proceeds thereof have accordingly been
forfeited in favor of the Government.
The Pre-Trial Order of the Sandiganbayan dated November 11, 1991 likewise does not mention as an issue the
ownership of the Campos-held Bulletin shares.
The same cannot be said, however, of the Bulletin shares registered in the name of Zalamea. Although he was
dropped as a party-defendant in the Second Amended Complaint dated October 17, 1990 purportedly by reason of
the Deed of Assignment he executed on October 15, 1987, the Zalamea-held shares are clearly still covered by the
Teehankee Resolution remanding the issue on the ownership of the sequestered Cojuangco and Zalamea shares for
determination and adjudication by the Sandiganbayan.
Having said that, we now proceed to determine whether the Sandiganbayan committed reversible error in rendering
the assailed Decision.
As with the 154 block, the issues raised by the petitioners assailing the Sandiganbayans disposition of the 198 and
214 blocks are largely factual and, therefore, generally beyond the scope of our review under Rule 45 of the Rules
of Court. Nonetheless, as will be shown in the following disquisition, there is no cause for this Court to reverse the
Sandiganbayan because the evidence on record amply supports its findings and conclusions.
The 46,626 shares registered in the name of Cojuangco which formed part of the 214 block were declared to be illgotten wealth based on the evidence presented by the Republic to show that Cojuangco acted as a nominee of
Marcos and on Cojuangcos unsubstantiated allegation that he acted as a nominee not of Marcos but of Menzi.
Cojuangco counters, however, that the allegation that he acted as Menzis nominee is a specific denial which he
does not have the burden of proving.
Notably, in the Answer of Defendant Eduardo M. Cojuangco, Jr. dated March 16, 1989, Cojuangco claimed as part of
his denial that "whatever shares of stock he may have in Bulletin Publishing Corporation and/or H.M. Holdings and
Management, Inc. 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."30
Likewise, in his Pre-Trial Brief dated January 15, 1992, Cojuangco stated that "[I]n regard shares of stock in the
name of defendant Cojuangco in Bulletin Publishing Corporation and/or HM Holdings & Management, Inc., he was
never, and is not, a nominee of any other person but the late Brig. Gen. Hans M. Menzi. Defendant Cojuangco
therefore reiterates that he has no proprietary interest in the shares which are the subject matter of the instant
case. They properly belong to the estate of the late Hans Menzi."31

It is procedurally required for each party in a case to prove his own affirmative allegations by the degree of
evidence required by law. In civil cases such as this one, the degree of evidence required of a party in order to
support his claim is preponderance of evidence, or that evidence adduced by one party which is more conclusive
and credible than that of the other party. It is therefore incumbent upon the plaintiff who is claiming a right to prove
his case. Corollarily, the defendant must likewise prove its own allegations to buttress its claim that it is not
liable.32
The party who alleges a fact has the burden of proving it. The burden of proof33 may be on the plaintiff or the
defendant. It is on the defendant if he alleges an affirmative defense which is not a denial of an essential ingredient
in the plaintiffs cause of action, but is one which, if established, will be a good defense i.e., an "avoidance" of the
claim.34
In the instant case, Cojuangcos allegations are in the nature of affirmative defenses which should be adequately
substantiated. He did not deny that Bulletin shares were registered in his name but alleged that he held these
shares not as nominee of Marcos, as the Republic claimed, but as nominee of Menzi. He did not, however, present
any evidence to support his claim and, in fact, filed a Manifestation dated July 20, 1999 stating that he "sees no
need to present any evidence in his behalf."35

In contrast to Cojuangcos consistent, albeit unsupported, disclaimer, the Sandiganbayan found the Republics
evidence to be preponderant. These pieces of evidence consist of: the affidavit of Quimson detailing how Campos,
Cojuangco and Zalamea became Marcos nominees in Bulletin; the affidavit Teodoro relative to the circumstances
surrounding the sale of Menzis substantial shares in Bulletin to Marcos nominees and Menzis retention of only
20% of the corporation; the sworn statement of Gapud describing the business interests and associates of Marcos
and stating that Bulletin checks were periodically issued to Campos, Cojuangco and Zalamea but were deposited
after indorsement to Security Bank numbered accounts owned by the Marcoses dividend checks issued to Campos,
Cojuangco and Zalamea even after their shares have been transferred to HMHMI; the Certificate of Incorporation,
Articles of Incorporation and Amended Articles of Incorporation of HMHMI showing that Bulletin shares held by
Campos, Cojuangco and Zalamea were used to set up HMHMI; Deed of Transfer and Conveyance showing that
Campos, Cojuangco, Zalamea and Menzi transferred several shares, including Bulletin shares, to HMHMI in
exchange for shares of stock in the latter which shares were not issued; the Inventory of Menzis assets as of May
15, 1985 which does not include Bulletin shares; notes written by Marcos regarding Menzis resignation as aide-decamp to devote his time to run Bulletins operations and the reduction of his shares in the corporation to 12%; and
letters and correspondence between Marcos and Menzi regarding the affairs of Bulletin.
These pieces of uncontradicted evidence suffice to establish that the 198 and 214 blocks are indeed ill-gotten
wealth as defined under the Rules and Regulations of the PCGG, viz:
Sec. 1. Definition.(A) "Ill-gotten wealth is hereby defined as any asset, property, business enterprise or material
possession of persons within the purview of Executive Orders Nos. 1 and 2, acquired by them directly, or indirectly
thru dummies, nominees, agents, subordinates and/or businness associates by any of the following means or
similar schemes:
(1) Through misappropriation, conversion, misuse or malversation of public funds or raids on the public treasury;
(2) Through the receipt, directly or indirectly, of any commission, gift, share, percentage, kickbacks or any other
form of pecuniary benefit from any person and/or entity in connection with any government contract or project or
by reason of the office or position of the official concerned;
(3) By the illegal or fraudulent conveyance or disposition of assets belonging to the government or any of its
subdivisions, agencies or instrumentalities or government-owned or controlled corporations;
(4) By obtaining, receiving or accepting directly or indirectly any shares of stock, equity or any other form of
interest or participation in any business enterprise or undertaking;
(5) Through the establishment of agricultural, industrial or commercial monopolies or other combination and/or by
the issuance, promulgation and/or implementation of decrees and orders intended to benefit particular persons or
special interests; and
(6) By taking undue advantage of official position, authority, relationship or influence for personal gain or benefit.
Cojuangcos disavowal of any proprietary interest in the Bulletin shares is conclusive upon him. His prayer that he
be declared the owner of the said shares, together with all the cash and stock dividends which have accrued
thereto since October 15, 1987, and that the PCGG be ordered to return the cash deposit of P8,174,470.32 to
Bulletin, therefore, has no legal basis and should perforce be denied.
In this connection, it should be said that Cojuangco apparently desisted from presenting evidence and chose
instead to stake his claim with the Estate of Menzi and HMHMI. As found by the Sandiganbayan, however, the Estate
of Menzi and HMHMI failed to prove their allegation that Campos, Cojuangco and Zalamea were Menzis nominees.
Neither did the Estate of Menzi and HMHMI institute an action to recover the shares from Menzis nominees.
Significantly, even as they claimed ownership of the Bulletin shares in their Answer to the Republics Second
Amended Complaint, the Estate of Menzi and HMHMI did not file any cross-claim against the purported Menzi
nominees.

Quite revealing, too, is the fact that Campos, in his Answers to Direct Interrogatories36 taken before the Consul
General at the Philippine Consulate General in Vancouver, British Columbia, Canada on November 25, 1994,
repeatedly declared that he owned a portion of the 198 block "per instruction of President Marcos"37 and that he
"became the shareholder, per instruction of President Marcos."38
Likewise, in his Deed of Assignment dated October 15, 1987, Zalamea manifested that he "does not claim true and
beneficial ownership" of the Bulletin shares registered in his name and that he voluntarily waived and assigned the
same in favor of the PCGG.

These declarations should have alerted the Estate of Menzi and HMHMI to file cross-claims against Campos and
Zalamea. The fact that they did not enfeebles their claim of ownership.
It is also important to note that the Estate of Menzi did not include the 198 and 214 blocks in the inventory of the
estates assets dated May 15, 1985. If, as it claims, the Bulletin shares of Campos, Cojuangco and Zalamea were
held by them as nominees of Menzi, then these shares should have been included in the inventory. The justification
advanced for the said non-inclusion, which is that the stock certificates covering them were not in the possession of
Atty. Montecillo, is nothing but a hollow pretext given the fact that even after the certificates came to Atty.
Montecillos possession in 1987, an updated inventory declaring the said shares as part of Menzis estate was not
filed pursuant to the Order of the probate court dated November 17, 1992.
Further, the claim that Menzi would need dummies because of the impending promulgation of a decree which would
limit to 20% the ownership of media enterprises by one person or family is incredulous since no such decree was
ever issued.
Parenthetically, the fact that the stock certificates covering the shares registered under the names of Campos,
Cojuangco and Zalamea were found in Menzis 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.39 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,40 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.
In light of the foregoing, we are not inclined to disturb the Sandiganbayans evaluation of the weight and sufficiency
of the evidence presented by the Republic and its finding that the evidence adduced by the Estate of Menzi and
HMHMI do not prove their allegation that Campos, Cojuangco and Zalamea are Menzis 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 Cojuangcos assertion that he is Menzis nominee.
With regard to the Republics prayer for damages, we find the same not supported by sufficient evidence.
An award of actual or compensatory damages requires proof of pecuniary loss. In this case, the Republic has not
proven with a reasonable degree of certainty, premised on competent proof and the best evidence obtainable, that
it has suffered any actual pecuniary loss by reason of the acts of the defendants. Hence, actual or compensatory
damages may not be awarded.41
On the other hand, while no proof of pecuniary loss is necessary in order that moral, temperate, nominal and
exemplary damages may be adjudicated, proof of damage or injury should nonetheless be adduced. As found by
the Sandiganbayan, however, the Republic failed to show the factual basis for the award of moral damages and its
causal connection to defendants acts. Thus, moral damages, which are designed to compensate the claimant for
actual injury suffered and not to impose a penalty on the wrongdoer,42 may not be awarded. Temperate, nominal,
and exemplary damages, attorneys fees, litigation expenses and judicial costs may likewise not be adjudicated for
failure to present sufficient evidence to establish entitlement to these awards.
WHEREFORE, the petitions in G.R. No. 152578, G.R. No. 154487 and G.R. No. 154518 are DENIED. The Decision of
the Sandiganbayan dated March 14, 2002 is AFFIRMED.
SO ORDERED.

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

Ownership of Corporate Shares/ Stock Certificates: Valid Issuance

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 stockholders
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.

Lim Tay vs. Court of Appeals293 SCRA 634, August 5, 1998Panganiban, J.:
Facts:
Sy Guiok and Sy Lim secured a loan from Lim Tay in the amount of P40,000.This was secured by a contract of
pledge whereby the former pledged their 300 shares of stock each in Go Fay & Company to the latter. However,
they failed to pay their respective loans. Hence, Lim Tay filed a petition for mandamus against Go Fay &Company
with the SEC praying that an order be issued directing the corporate secretary of the said corporation to register the
stock transfers and issue new certificates in favor of Lim Tay .Go Fay & Company filed its answer contending that
SEC had no jurisdiction to entertain the complaint on the ground that since Lim Tay was not a stockholder of the
company ,no intra corporate controversy took place; and furthermore, that the default of payment of Sy Guiok and
Sy Lim did not automatically vest in Lim Tay the ownership of the pledged shares. SEC dismissed the complaint. On
appeal to the CA, it affirmed SECs decision. Hence, this petition for certiorari with the SC.
Issue: Whether or not SEC had jurisdiction over the case.

Held:
No. The registration of shares in a stockholders name, the issuance of stock certificates, and the right to receive
dividends which pertain to the said shares are all rights that flow from ownership. The determination of whether or
not a shareholder is entitled to exercise the above mentioned rights falls within the jurisdiction of the SEC .However,
if ownership of the shares is not clearly established and is still unresolved at the time the action for mandamus is
filed, then jurisdiction lies with the regular courts. In the case at bar, reading into the contract of pledge, the
stipulation shows that Lim Tay was merely authorized to foreclose the pledge upon maturity of the loans, not to own
them. Such foreclosure was not automatic, for it must be done in a public or private sale. Nowhere was it mentioned
that he exercised his right of foreclosure. Hence, his status was still a mere pledgee, and under civil law, this does
not entitle him to ownership of the shares of stock in question.

Case Digest on FUA CUN V. SUMMERS

Equity in shares of stock may be assigned and the assignment is valid as between the parties and as to persons to
whom notice is brought home.
A subscriber does not become the owner of a particular number of shares corresponding to the amount he already
paid but merely holds a right of equity in the total number of shares subscribed. Complete ownership over the total
number of shares subscribed will only vest with the stockholder upon payment of the whole subscription price.

FUA CUN V. SUMMERS AND CHINA BANKING CORPORATION

44 PHIL 705

FACTS
Chua Soco subscribed for 500 shares of stock to China banking Corp. paying the sum of P25,000 which is the onehalf of the subscription price in cash for which a receipt was issued.
Chua Soco executed a promissory note in favour of Fua Cun for P25, 000 securing with a chattel mortagage on the
formers shares of stock in China Banking Corp. Chua Soco endorsed the aforementioned receipt to Fua Cun and
delivered it to the latter. Fua Cun took the receipt to the manager of China Banking Corp. and informed him of the
transaction with Chua Soco, but was told to await action upon the matter by the BOD.
In the meantime, Chua Soco appears to be indebted to China Banking Corp. for the non-payment of drafts accepted
by the former. Chua Socos interest in the 500 shares subscribed for was attached and the receipt seized by the
sheriff. The attachment was levied after China Banking Corp. learned that the receipt was endorsed to Fua Cun.
Trial court rendered judgment in favour of Fua Cun.

ISSUE: WON Fua Cuns lien is superior than China Banking Corp.
HELD:
YES. Equity in shares of stock may be assigned, the assignment becoming effective as between the parties and as
to third parties with notice. Equity in shares of stock may be a subject of a chattel mortgage but such will operate
as a conditional equitable assignment.
The claim of China Banking Corp. was for the non-payment of drafts accepted by Chua Soco and had no direct
connection with the shares of stock in question. A corporation has no lien upon the shares of stockholders for ay
indebtedness to the corporation.
If banking institutions 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.
Moreover, the attachment was levied after China Banking Corp. had received notice of the assignment of Chua
Socos interests to Fua Cun and was therefore subject to the rights of the latter.
Hence, as against these rights, China Banking Corp. holds no lien.

Case Digest on SANTAMARIA V. HONGKONG AND SHANGHAI BANKING CORP.

89 PHIL 780 (1951)

Facts: Around February 1937, Santamaria bought ten thousand shares for the sum of about P8,000.00 of the
Batangas Minerals, Inc. through the offices of Woo, Uy-Tioco and Naftaly, a stock brokerage firm.
The buyer
received the stock certificates in the name of Woo, Uy-Tioco and Naftaly and indorsed in blank by the firm.
Subsequently, Santamaria placed an order for ten thousand shares of the Crown Mines, Inc. This time through
another brokerage firm by the name of R.J. Campos and Company. To secure the transaction, she submitted the
stock certificate representing her prior purchase of Batangas Minerals, Inc. stocks which certificate was still in the
same condition as Santamaria received it.

Upon Santamarias return to R.J. Campos and Company for payment, she found out that the firm was desisted by
the SEC to continue transacting business. She also learned that the certificate that was forwarded as security was
in the possession of Hongkong and Shanghai Banking Corporation by virtue of a document of hypothecation
wherein all shares in the brokerage firms custody was pledged to the bank. In this aspect, HKSBC sent the
certificate to Batangas Minerals, Inc. for registration. Hence, this civil action.

Issue: Whether or not the contested certificate of stock should be returned to Santamaria.

Decision: The Supreme Court ruled that it should not be returned. Santamaria was negligent in the transaction and
is stopped from claiming further title against the bona fide transfer to HKSBC. The latter was justified in believing
that R.J. Campos and Company had title thereto considering it was indorsed in blank, and, therefore, deemed quasinegotiable. Thus, HKSBC cannot be blamed for believing that such belonged to the holder and transferor.
Furthermore, the bank was not obligated to look beyond the certificate to ascertain the ownership of the stock at
the time it received the same from R.J. Campos and Company, for it was given to the bank pursuant to their letter
of hypothecation.

Torres vs CA 278 SCRA 793 Business Organization Corporation Law Transfer of Shares of Stocks Corporate
Records

Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty & Development Corporation (TRDC).
TRDC is a small family owned corporation and other stockholders thereof include Judge Torres nieces and nephews.
However, even though Judge Torres owns the majority of TRDC and was also the president thereof, he is only
entitled to one vote among the 9-seat Board of Directors, hence, his vote can be easily overridden by minority
stockholders. So in 1987, before the regular election of TRDC officers, Judge Torres assigned one share (qualifying
share) each to 5 outsiders for the purpose of qualifying them to be elected as directors in the board and thereby
strengthen Judge Torres power over other family members.

However, the said assignment of shares were not recorded by the corporate secretary, Ma. Christina Carlos (niece)
in the stock and transfer book of TRDC. When the validity of said assignments were questioned, Judge Torres
ratiocinated that it is impractical for him to order Carlos to make the entries because Carlos is one of his opposition.
So what Judge Torres did was to make the entries himself because he was keeping the stock and transfer book. He
further ratiocinated that he can do what a mere secretary can do because in the first place, he is the president.

Since the other family members were against the inclusion of the five outsiders, they refused to take part in the
election. Judge Torres and his five assignees then decided to conduct the election among themselves considering
that the 6 of them constitute a quorum.

ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or not the subsequent election is valid.

HELD: No. The assignment of the shares of stocks did not comply with procedural requirements. It did not comply
with the by laws of TRDC nor did it comply with Section 74 of the Corporation Code. Section 74 provides that the
stock and transfer book should be kept at the principal office of the corporation. Here, it was Judge Torres who was
keeping it and was bringing it with him. Further, his excuse of not ordering the secretary to make the entries is
flimsy. The proper procedure is to order the secretary to make the entry of said assignment in the book, and if she
refuses, Judge Torres can come to court and compel her to make the entry. There are judicial remedies for this.
Needless to say, the subsequent election is invalid because the assignment of shares is invalid by reason of
procedural infirmity. The Supreme Court also emphasized: all corporations, big or small, must abide by the
provisions of the Corporation Code. Being a simple family corporation is not an exemption. Such corporations
cannot have rules and practices other than those established by law.

Corporate Law Case Digest: Ponce v. Alsons Cement Corp. (2002)

G.R. NO. 139802 December 10, 2002
Lessons Applicable:
Nature of Certificate of Stock (Corporate Law)
Remedy if Registration is Refused (Corporate Law)

FACTS:
February 8, 1968: Vicente C. Ponce and Fausto Gaid, incorporator of Victory Cement Corporation (VCC), executed
a Deed of Undertaking and Indorsement whereby Gaid acknowledges that Ponce is the owner of the shares and
he was therefore assigning/endorsing it to Ponce
VCC was renamed Floro Cement Corporation (FCC) and then to Alsons Cement Corporation (ACC)
Up to the present, no certificates of stock corresponding to the 239,500 subscribed and fully paid shares of Gaid
were issued in the name of Fausto G. Gaid and/or the plaintiff.
Despite repeated demands, the ACC refused to issue the certificates of stocks
SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to dismiss
Upon appeal, the Commission En Banc reversed the decision of the Hearing Officer
Ponce, filed a complaint with the SEC for mandamus
CA: mandamus should be dismissed for failure to state a cause of action in the absence of any allegation that the
transfer of the shares was registered in the stock and transfer book

ISSUE: W/N the cert. of stocks of Gaid can be transferred to Ponce

HELD: NO. petition Denied.

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

the stock and transfer book is the basis for ascertaining the persons entitled to the rights and subject to the
liabilities of a stockholder
Where a transferee is not yet recognized as a stockholder, the corporation is under no specific legal duty to issue
stock certificates in the transferees name.
in a case such as that at bar, a mandamus should not issue to compel the secretary of a corporation to make a
transfer of the stock on the books of the company
unless it affirmatively appears that he has failed or refused so to do, upon the demand either of the person in
whose name the stock is registered, or of some person holding a power of attorney for that purpose from the
registered owner of the stock.
mere indorsee of a stock certificate, claiming to be the owner, will not necessarily be recognized as such by
the corporation and its officers, in the absence of express instructions of the registered owner to make such transfer
to the indorsee, or a power of attorney authorizing such transfer
mandamus - proper remedy to make him the rightful owner and holder of a stock certificate to be issued in his
name

Case Digest on ESCANO V. FILIPINAS MINING CORP

74 PHIL 711 (1944)
Facts: A garnishment was served in favor of Escano over certain shares of Filipinas Mining Corporation named
under Salvosa but was held in escrow also by Filipinas Mining Corporation. Despite that, Salvosa managed to sell,
subsequently, the said shares to Bengzon who also later on sold the same to Standard Investment of the
Philippines. Filipinas Mining Corporation then issued the corresponding certificates over the said shares in favor of
Standard Investment of the Philippines. The trial court ruled for Escano.
Issue: Whether or not the issuance of the certificate of stock to Standard was valid against the attaching judgment
creditor of the original owner.
Decision: The Supreme Court affirmed the decision of the lower court. Section 35 of the Corporation Law, which
requires that registration of transfer of shares of stock upon the books of the corporation as a condition precedent
to their validity against the corporation and third parties, is also applicable to unissued shares held by the
corporation in escrow.
Additional Important Points from the Case of Escano:
Reasons of the Law Requiring Recording of Transfer in the Corporate Books:
(1) to enable the corporation to know at all times who its actual stockholders are, because mutual rights and
obligations exist between the corporation and its stockholders;
(2) to afford to the corporation an opportunity to object or refuse its consent to the transfer in case it has any claim
against the stock sought to be transferred, or for any other valid reason; and,
(3) to avoid fictitious or fraudulent transfers.
III. No Registration of Transfer of Unpaid Shares
If there is any unpaid balance on the stockholders subscription, there can be no stock certificate on which an
indorsement may be made. The shares are thus not transferable on the corporate books.
However, there is
nothing to prevent the stockholder from transferring his interest in the corporation by way of a deed of assignment.
The words unpaid claim in the second paragraph of section 63 quoted above does not necessarily mean that
there should have been a previous call by the board of directors. As long as any portion of the subscription price
remains unpaid, the corporation has a claim on the shares, payment for which it may demand either on the agreed
date of payment or, if there be no such agreed date, by making a call at any time in accordance with section 67 of
the Code. The corporation may however agree to record a transfer although there still remains an unpaid balance
on the subscription, provided the transferee assumes the obligation to pay the unpaid balance.
IV. Remedy if Registration Refused

The right to have the transfer registered exists from the time of the transfer and it is to the transferees benefit that
the right be exercised early. However, since the law does not prescribe any period within which the registration
should be effected, the action to enforce the right does not accrue until there has been a demand and a refusal to
record the transfer.
If the corporation should wrongfully refuse to record the transfer or issue a new certificate in favor of the transferee,
the latter may petition the court for a writ of mandamus to compel the corporation to do so and the writ will be
granted provided it is shown that the transferee has not other plain, speedy and adequate remedy and that there
are no unpaid claims against the stocks whose transfer is sought to be recorded. Unless the latter fact is alleged,
mandamus will be denied due to failure to state a cause of action.

ANTONIO PARDO v. THE HERCULES LUMBER and IGNACIO FERRER

1924 / Street / Rights and obligations of the partners among themselves > Books, information, accounts

Pardo is a stockholder of Hercules Lumber and Ferrer is the acting secretary of the said company. The
Company refused to permit the Pardo to inspect the records and business transactions of the company.

There was no question regarding the right to inspect as it is guaranteed in the Corp. Law.

The main consideration in this case has reference to the time, or times, within which the right of inspection
may be exercised.

The company, through various resolutions, had designated certain times to which the stockholders can
inspect the books. Allegedly, Pardo didnt get permission to inspect thus was denied such.

Hence this petition.

The main ground upon which the defense of the company appears to be rested has reference to the time,
or times, within which the right of inspection may be exercised.

Article 10 of the By-laws of the company

"Every shareholder may examine the books of the company and other documents pertaining to thesame
upon the days which the board of directors shall annually fix."

Board Resolution passed at the directors' meeting held on 16 February 1924

The board also resolved to call the usual general (meeting of shareholders) for March 30 of thepresent
year, with notice to the shareholders that the books of the company are at their dispositionfrom the 15th to 25th of
the same month for examination, in appropriate hours.

ISSUES:
1) WON the board resolution constitutes a lawful restriction on the right conferred by statute? NO

2) WON Pardo lost his right to inspection and examination for the year, since he has not availed himself of the
permission [to inspect the companys books and transactions within the 10 days defined in the board resolution?
NO
3) WON the shareholders motive in exercising this right is material? NO

Held:
The basis of right of inspection is Sec. 51 of Act No. 1459 [Corporation Law]. In Philpotts v.
PhilippineManufacturing Co., and Berry, it was held that the right of examination there conceded to the stockholder
may be exercised either by a stockholder in person or by any duly authorized agent or representative.

It may be admitted that the officials in charge of a corporation may deny inspection when sought at
unusual hours or under other improper conditions; but neither the executive officers nor the board of directors have
the power to deprive a stockholder of the right altogether.

A by-law unduly restricting the right of inspection is undoubtedly invalid. Under a statute similar to our own
it has been held that the statutory right of inspection is not affected by the adoption by the board of directors of a
resolution providing for the closing of transfer books thirty days before an election.

Our statute declares that the right of inspection can be exercised "at reasonable hours." This means at
reasonable hours on business days throughout the year, and not merely during some arbitrary period of a few days
chosen by the directors.

Additional issue: The motives that prompted Pardo to make inspection

It is alleged that the information which Pardo seeks is desired for ulterior purposes in connection with a
competitive firm with which Pardo is alleged to be connected. It is also insisted that one of Pardos purposes is to
obtain evidence preparatory to the institution of an action, which he means to bring against the company re: a
contract of employment which once existed between the corporation and himself. These suggestions are entirely
apart from the issue the motive of the shareholder exercising the right is immaterial.

Writ of mandamus will issue

Section 51. All business corporations shall keep and carefully preserve a record of all business
transactions, and a minute of all meetings of directors, members, or stockholders, in which shall be set forth in
detail the time and place of holding the meeting, how authorized, the notice given, whether the meeting was
regular or special, if special its object, those present and absent, and every act done or ordered done at the
meeting. On the demand of any director, member, or stockholder, the time when any director, member, or
stockholder entered or left the meeting must be noted on the minutes, and on a similar demand, the yeas and nays
must be taken on any motion or proposition and a record thereof carefully made. The protest of any director,
member, or stockholder on any action or proposed action must be recorded in full on his demand. The record of all
business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any
director, member, or stockholder of the corporation at reasonable hours.

No. Such restriction made by the company is invalid.

Inspection at unusual hours or under improper conditions may be denied, otherwise it cannot be denied.


Neither the executive officers nor board of directors have the power to deny a stockholder of the right all
together.

It will be noted that such right can be exercised at reasonable hours, meaning reasonable hours on
business days throughout the year; not merely during some arbitrary period chosen by the officers.

Also, generally speaking, the motive of the shareholder exercising the right is immaterial.

Therefore, Pardo is granted the relief to inspect.

Right to inspect- open to any director, trustee or stockholder or member of the corporation at reasonable
hours on business days. He may demand in writing a copy of excerpts at his expense.

case Digest on REPUBLIC BANK V. CUADERNO, ET AL

Facts: This is an appeal from a dismissal of the case against respondent Roman for alleged fraudulent grant of
loans to relatives (while he was chairman of the Board of Directors of Republic Bank and its Executive Loan
Committee) and for the selection of respondents Cuaderno and Dizon (as technical consultant and chairman of the
board respectively) in order to shield himself from the alleged wrongdoing and from any prosecution that may be
instituted against him.

The complaint also alleges that the present composition of the board of directors of the bank are constituted by
men chosen by respondent Roman so that it was futile to ask them, in the first place, to institute this action on
behalf of the bank.

Ruling:
In a derivative suit, the corporation is the real party in interest and the stockholder is merely a
nominal party. Normally, it is the corporation through its board of directors that should bring the suit. But where, as
in this case and it is alleged in the complaint, that the members of the board of directors of the bank were the
nominees and creatures of respondent Roman, thus, any demand for an intra-corporate remedy would be futile, the
stockholder is permitted to bring a derivative suit.

As to the question of should the corporation be made a party, the English practice is to make the corporation a
party plaintiff while in the US the practice is to make it a party defendant. However, in our jurisdiction what is
important is that the corporation should be made a party in order to make the courts judgment binding upon it, and
thus bar future litigation of the issues.

Misjoinder of parties (in a derivative suit) is not a ground to dismiss the action.

Case Digest on SAN MIGUEL V. KAHN

Facts: 14 corporations initially acquired shares of outstanding capital stock of San Miguel Corporation and
constituted a Voting Trust thereon in favor of Andres Soriano, Jr. When the latter died Eduardo Cojuanco was
elected as the substitute trustee. However, after the EDSA revolution, Cojuanco fled out of the country, and
subsequently an agreement was entered into between the 14 corporations and Andres Soriano III (as an agent of
several persons) for the purchase of the shares held by the former.
Actually the buyer of the shares was Neptunia Corporation, a foreign corporation and wholly-owned subsidiary of
another subsidiary wholly owned by San Miguel Corporation. Neptunia paid the downpayment from the proceeds of
certain loans. PCGG then sequestered the shares subject of the sale so San Miguel suspended all the other
installments of the price to the sellers. The 14 corporations then sued for recission and damages.
Meanwhile, PCGG directed San Miguel to issue qualifying shares to seven (7) individuals including Eduardo de los
Angeles from the sequestered shares for them to hold in trust.
Then, the San Miguel board of directors passed a resolution assuming the loans incurred by Neptunia for the
downpayment. De los Angeles assailed the resolution alleging that it was not passed by the board aside from its
delitorious effects on the corporations interest. When his efforts to obtain relief within the corporation proved futile,
he filed this action with the SEC.
Respondent directors alleged that de los Angeles has no legal standing having been merely imposed by the PCGG
and that the twenty (20) shares owned by him personally cannot fairly and adequately represent the interest of the
minority.
Ruling: The requisites of a derivative suit are:

1. the party bringing the suit should be a stockholder as of the time of the act or transactions complained of, the
number of shares not being material;
2. exhaustion of intra-corporate remedies (has made a demand on the board of directors for the appropriate relief
but the latter has failed or refused to heed his plea); and
3. the cause of action actually devolves on the corporation and not to the particular stockholder bringing the suit.
The bona fide ownership by a stockholder in his own right suffices to invest him with the standing to bring a
derivative suit for the benefit of the corporation. The number of his shares is immaterial since he is not suing in his
own behalf, or for the protection or vindication of his own particular right, or the redress of a wrong committed
against him individually but in behalf and for the benefit of the corporation. It is undisputed that apart from the
qualifying shares given to him by the PCGG, he owns 20 shares in his own right, as regards which he cannot from
any aspect be deemed to be beholden to the PCGG, his ownership of his shares being precisely what he invokes as
the source of his authority to bring the derivative suit. Furthermore, it was not necessary for de los Angeles to be a
director in order to bring a derivative suit.
De los Angeles complaint is confined to the issue of the validity of the assumption by the corporation of the
indebtedness of Neptunia, allegedly for the benefit of certain of its officers and stockholders and is distinct from the
ownership of the sequestered shares. The dispute concerns the acts of the board of directors claimed to amount to
fraud and misrepresentation which may be detrimental to the interest of the stockholders, or is one arising out of
intra-corporate relations between and among stockholders, or between any or all of them and the corporation of
which they are stockholders (meaning that the cause of action still belongs to the corporation).
Class notes: In effect the result of the acts of the directors of San Miguel is the use of corporate assets for the
benefit of certain directors/stockholders to the extent that the corporation will not be able to devote its assets in
acquiring its own shares. But even without the presence of a self-interested director, still the transaction would
result to a premature retirement of the shares (meaning a reduction of capital).
In a derivative suit, the number of shares of a suing stockholder is immaterial.
Even assuming that the suing stockholder had only qualifying shares, the law requires only one share without any
distinction or qualification. besides, it is precisely within the scope of PCGGs duty to preserve the assets of the
corporation.

Case Digest on SAN MIGUEL V. KAHN Facts: 14 corporations initially acquired shares of outstanding capital stock of
San Miguel Corporation and constituted a Voting Trust thereon in favor of Andres Soriano, Jr. When the latter died
Eduardo Cojuanco was elected as the substitute trustee. However, after the EDSA revolution, Cojuanco fled out of
the country, and subsequently an agreement was entered into between the 14 corporations and Andres Soriano III
(as an agent of several persons) for the purchase of the shares held by the former.
Actually the buyer of the shares was Neptunia Corporation, a foreign corporation and wholly-owned subsidiary of
another subsidiary wholly owned by San Miguel Corporation. Neptunia paid the downpayment from the proceeds of
certain loans. PCGG then sequestered the shares subject of the sale so San Miguel suspended all the other
installments of the price to the sellers. The 14 corporations then sued for recission and damages.
Meanwhile, PCGG directed San Miguel to issue qualifying shares to seven (7) individuals including Eduardo de los
Angeles from the sequestered shares for them to hold in trust.
Then, the San Miguel board of directors passed a resolution assuming the loans incurred by Neptunia for the
downpayment. De los Angeles assailed the resolution alleging that it was not passed by the board aside from its
delitorious effects on the corporations interest. When his efforts to obtain relief within the corporation proved futile,
he filed this action with the SEC.
Respondent directors alleged that de los Angeles has no legal standing having been merely imposed by the PCGG
and that the twenty (20) shares owned by him personally cannot fairly and adequately represent the interest of the
minority.
Ruling: The requisites of a derivative suit are:1. the party bringing the suit should be a stockholder as of the time of
the act or transactions complained of, the number of shares not being material;2. exhaustion of intra-corporate
remedies (has made a demand on the board of directors for the appropriate relief but the latter has failed or
refused to heed his plea); and3. the cause of action actually devolves on the corporation and not to the particular
stockholder bringing the suit.

The bona fide ownership by a stockholder in his own right suffices to invest him with the standing to bring a
derivative suit for the benefit of the corporation. The number of his shares is immaterial since he is not suing in his
own behalf, or for the protection or vindication of his own particular right, or the redress of a wrong committed
against him individually but in behalf and for the benefit of the corporation. It is undisputed that apart from the
qualifying shares given to him by the PCGG, he owns 20 shares in his own right, as regards which he cannot from
any aspect be deemed to be beholden to the PCGG, his ownership of his shares being precisely what he invokes as
the source of his authority to bring the derivative suit. Furthermore, it was not necessary for de los Angeles to be a
director in order to bring a derivative suit.
De los Angeles complaint is confined to the issue of the validity of the assumption by the corporation of the
indebtedness of Neptunia, allegedly for the benefit of certain of its officers and stockholders and is distinct from the
ownership of the sequestered shares. The dispute concerns the acts of the board of directors claimed to amount to
fraud and misrepresentation which may be detrimental to the interest of the stockholders, or is one arising out of
intra-corporate relations between and among stockholders, or between any or all of them and the corporation of
which they are stockholders (meaning that the cause of action still belongs to the corporation).
Class notes: In effect the result of the acts of the directors of San Miguel is the use of corporate assets for the
benefit of certain directors/stockholders to the extent that the corporation will not be able to devote its assets in
acquiring its own shares. But even without the presence of a self-interested director, still the transaction would
result to a premature retirement of the shares (meaning a reduction of capital).
In a derivative suit, the number of shares of a suing stockholder is immaterial.
Even assuming that the suing stockholder had only qualifying shares, the law requires only one share without any
distinction or qualification. besides, it is precisely within the scope of PCGGs duty to preserve the assets of the
corporation.

G.R. No. 150793

November 19, 2004

FRANCIS CHUA, petitioner, vs. HON. COURT OF APPEALS and LYDIA C. HAO, respondents.
Petitioner assails the Decision,1 dated June 14, 2001, of the Court of Appeals in CA-G.R. SP No. 57070, affirming the
Order, dated October 5, 1999, of the Regional Trial Court (RTC) of Manila, Branch 19. The RTC reversed the Order,
dated April 26, 1999, of the Metropolitan Trial Court (MeTC) of Manila, Branch 22. Also challenged by herein
petitioner is the CA Resolution,2 dated November 20, 2001, denying his Motion for Reconsideration.
The facts, as culled from the records, are as follows:

On February 28, 1996, private respondent Lydia Hao, treasurer of Siena Realty Corporation, filed a complaintaffidavit with the City Prosecutor of Manila charging Francis Chua and his wife, Elsa Chua, of four counts of
falsification of public documents pursuant to Article 1723 in relation to Article 1714 of the Revised Penal Code. The
charge reads:
That on or about May 13, 1994, in the City of Manila, Philippines, the said accused, being then a private individual,
did then and there willfully, unlawfully and feloniously commit acts of falsification upon a public document, to wit:
the said accused prepared, certified, and falsified the Minutes of the Annual Stockholders meeting of the Board of
Directors of the Siena Realty Corporation, duly notarized before a Notary Public, Atty. Juanito G. Garcia and entered
in his Notarial Registry as Doc No. 109, Page 22, Book No. IV and Series of 1994, and therefore, a public document,
by making or causing it to appear in said Minutes of the Annual Stockholders Meeting that one LYDIA HAO CHUA
was present and has participated in said proceedings, when in truth and in fact, as the said accused fully well knew
that said Lydia C. Hao was never present during the Annual Stockholders Meeting held on April 30, 1994 and neither
has participated in the proceedings thereof to the prejudice of public interest and in violation of public faith and
destruction of truth as therein proclaimed.
CONTRARY TO LAW.5
Thereafter, the City Prosecutor filed the Information docketed as Criminal Case No. 2857216 for falsification of
public document, before the Metropolitan Trial Court (MeTC) of Manila, Branch 22, against Francis Chua but
dismissed the accusation against Elsa Chua.
Herein petitioner, Francis Chua, was arraigned and trial ensued thereafter.
During the trial in the MeTC, private prosecutors Atty. Evelyn Sua-Kho and Atty. Ariel Bruno Rivera appeared as
private prosecutors and presented Hao as their first witness.
After Hao's testimony, Chua moved to exclude complainant's counsels as private prosecutors in the case on the
ground that Hao failed to allege and prove any civil liability in the case.
In an Order, dated April 26, 1999, the MeTC granted Chua's motion and ordered the complainant's counsels to be
excluded from actively prosecuting Criminal Case No. 285721. Hao moved for reconsideration but it was denied.
Hence, Hao filed a petition for certiorari docketed as SCA No. 99-94846,7 entitled Lydia C. Hao, in her own behalf
and for the benefit of Siena Realty Corporation v. Francis Chua, and the Honorable Hipolito dela Vega, Presiding
Judge, Branch 22, Metropolitan Trial Court of Manila, before the Regional Trial Court (RTC) of Manila, Branch 19.
The RTC gave due course to the petition and on October 5, 1999, the RTC in an order reversed the MeTC Order. The
dispositive portion reads:
WHEREFORE, the petition is GRANTED. The respondent Court is ordered to allow the intervention of the private
prosecutors in behalf of petitioner Lydia C. Hao in the prosecution of the civil aspect of Crim. Case No. 285721,
before Br. 22 [MeTC], Manila, allowing Attys. Evelyn Sua-Kho and Ariel Bruno Rivera to actively participate in the
proceedings.
SO ORDERED.8
Chua moved for reconsideration which was denied.
Dissatisfied, Chua filed before the Court of Appeals a petition for certiorari. The petition alleged that the lower court
acted with grave abuse of discretion in: (1) refusing to consider material facts; (2) allowing Siena Realty Corporation
to be impleaded as co-petitioner in SCA No. 99-94846 although it was not a party to the criminal complaint in
Criminal Case No. 285721; and (3) effectively amending the information against the accused in violation of his
constitutional rights.
On June 14, 2001, the appellate court promulgated its assailed Decision denying the petition, thus:
WHEREFORE, premises considered, the petition is hereby DENIED DUE COURSE and DISMISSED. The Order, dated
October 5, 1999 as well as the Order, dated December 3, 1999, are hereby AFFIRMED in toto.

SO ORDERED.9
Petitioner had argued before the Court of Appeals that respondent had no authority whatsoever to bring a suit in
behalf of the Corporation since there was no Board Resolution authorizing her to file the suit.

For her part, respondent Hao claimed that the suit was brought under the concept of a derivative suit. Respondent
maintained that when the directors or trustees refused to file a suit even when there was a demand from
stockholders, a derivative suit was allowed.
The Court of Appeals held that the action was indeed a derivative suit, for it alleged that petitioner falsified
documents pertaining to projects of the corporation and made it appear that the petitioner was a stockholder and a
director of the corporation. According to the appellate court, the corporation was a necessary party to the petition
filed with the RTC and even if private respondent filed the criminal case, her act should not divest the Corporation of
its right to be a party and present its own claim for damages.
Petitioner moved for reconsideration but it was denied in a Resolution dated November 20, 2001.
Hence, this petition alleging that the Court of Appeals committed reversible errors:
I. IN RULING THAT LYDIA HAO'S FILING OF CRIMINAL CASE NO. 285721 WAS IN THE NATURE OF A DERIVATIVE SUIT
II. IN UPHOLDING THE RULING OF JUDGE DAGUNA THAT SIENA REALTY WAS A PROPER PETITIONER IN SCA NO.
[99-94846]
III. IN UPHOLDING JUDGE DAGUNA'S DECISION ALLOWING LYDIA HAO'S COUNSEL TO CONTINUE AS PRIVATE
PROSECUTORS IN CRIMINAL CASE NO. 285721
IV. IN [OMITTING] TO CONSIDER AND RULE UPON THE ISSUE THAT JUDGE DAGUNA ACTED IN GRAVE ABUSE OF
DISCRETION IN NOT DISMISSING THE PETITION IN SCA NO. [99-94846] FOR BEING A SHAM PLEADING.10
The pertinent issues in this petition are the following: (1) Is the criminal complaint in the nature of a derivative suit?
(2) Is Siena Realty Corporation a proper petitioner in SCA No. 99-94846? and (3) Should private prosecutors be
allowed to actively participate in the trial of Criminal Case No. 285721.
On the first issue, petitioner claims that the Court of Appeals erred when (1) it sustained the lower court in giving
due course to respondent's petition in SCA No. 99-94846 despite the fact that the Corporation was not the private
complainant in Criminal Case No. 285721, and (2) when it ruled that Criminal Case No. 285721 was in the nature of
a derivative suit.
Petitioner avers that a derivative suit is by nature peculiar only to intra-corporate proceedings and cannot be made
part of a criminal action. He cites the case of Western Institute of Technology, Inc. v. Salas,11 where the court said
that an appeal on the civil aspect of a criminal case cannot be treated as a derivative suit. Petitioner asserts that in
this case, the civil aspect of a criminal case cannot be treated as a derivative suit, considering that Siena Realty
Corporation was not the private complainant.
Petitioner misapprehends our ruling in Western Institute. In that case, we said:
Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos.
37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public document. Among the basic
requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the
corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action on
behalf of the corporation and all other shareholders similarly situated who wish to join. . . .This was not complied
with by the petitioners either in their complaint before the court a quo nor in the instant petition which, in part,
merely states that "this is a petition for review on certiorari on pure questions of law to set aside a portion of the
RTC decision in Criminal Cases Nos. 37097 and 37098" since the trial court's judgment of acquittal failed to impose
civil liability against the private respondents. By no amount of equity considerations, if at all deserved, can a mere
appeal on the civil aspect of a criminal case be treated as a derivative suit.12
Moreover, in Western Institute, we said that a mere appeal in the civil aspect cannot be treated as a derivative suit
because the appeal lacked the basic requirement that it must be alleged in the complaint that the shareholder is
suing on a derivative cause of action for and in behalf of the corporation and other shareholders who wish to join.
Under Section 3613 of the Corporation Code, read in relation to Section 23,14 where a corporation is an injured
party, its power to sue is lodged with its board of directors or trustees.15 An individual stockholder is permitted to
institute a derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate
corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the
control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest.16

A derivative action is a suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary
party to the suit. And the relief which is granted is a judgment against a third person in favor of the corporation.
Similarly, if a corporation has a defense to an action against it and is not asserting it, a stockholder may intervene
and defend on behalf of the corporation.17
Under the Revised Penal Code, every person criminally liable for a felony is also civilly liable.18 When a criminal
action is instituted, the civil action for the recovery of civil liability arising from the offense charged shall be deemed
instituted with the criminal action, unless the offended party waives the civil action, reserves the right to institute it
separately or institutes the civil action prior to the criminal action.19
In Criminal Case No. 285721, the complaint was instituted by respondent against petitioner for falsifying corporate
documents whose subject concerns corporate projects of Siena Realty Corporation. Clearly, Siena Realty
Corporation is an offended party. Hence, Siena Realty Corporation has a cause of action. And the civil case for the
corporate cause of action is deemed instituted in the criminal action.
However, the board of directors of the corporation in this case did not institute the action against petitioner. Private
respondent was the one who instituted the action. Private respondent asserts that she filed a derivative suit in
behalf of the corporation. This assertion is inaccurate. Not every suit filed in behalf of the corporation is a derivative
suit. For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the
corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation
and all other stockholders similarly situated who may wish to join him in the suit.20 It is a condition sine qua non
that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is
also the present rule that it must be served with process. The judgment must be made binding upon the corporation
in order that the corporation may get the benefit of the suit and may not bring subsequent suit against the same
defendants for the same cause of action. In other words, the corporation must be joined as party because it is its
cause of action that is being litigated and because judgment must be a res adjudicata against it.21
In the criminal complaint filed by herein respondent, nowhere is it stated that she is filing the same in behalf and for
the benefit of the corporation. Thus, the criminal complaint including the civil aspect thereof could not be deemed
in the nature of a derivative suit.
We turn now to the second issue, is the corporation a proper party in the petition for certiorari under Rule 65 before
the RTC? Note that the case was titled "Lydia C. Hao, in her own behalf and for the benefit of Siena Realty
Corporation v. Francis Chua, and the Honorable Hipolito dela Vega, Presiding Judge, Branch 22, Metropolitan Trial
Court of Manila." Petitioner before us now claims that the corporation is not a private complainant in Criminal Case
No. 285721, and thus cannot be included as appellant in SCA No. 99-94846.
Petitioner invokes the case of Ciudad Real & Dev't. Corporation v. Court of Appeals.22 In Ciudad Real, it was ruled
that the Court of Appeals committed grave abuse of discretion when it upheld the standing of Magdiwang Realty
Corporation as a party to the petition for certiorari, even though it was not a party-in-interest in the civil case before
the lower court.
In the present case, respondent claims that the complaint was filed by her not only in her personal capacity, but
likewise for the benefit of the corporation. Additionally, she avers that she has exhausted all remedies available to
her before she instituted the case, not only to claim damages for herself but also to recover the damages caused to
the company.
Under Rule 65 of the Rules of Civil Procedure,23 when a trial court commits a grave abuse of discretion amounting
to lack or excess of jurisdiction, the person aggrieved can file a special civil action for certiorari. The aggrieved
parties in such a case are the State and the private offended party or complainant.24
In a string of cases, we consistently ruled that only a party-in-interest or those aggrieved may file certiorari cases. It
is settled that the offended parties in criminal cases have sufficient interest and personality as "person(s)
aggrieved" to file special civil action of prohibition and certiorari.25
In Ciudad Real, cited by petitioner, we held that the appellate court committed grave abuse of discretion when it
sanctioned the standing of a corporation to join said petition for certiorari, despite the finality of the trial court's
denial of its Motion for Intervention and the subsequent Motion to Substitute and/or Join as Party/Plaintiff.
Note, however, that in Pastor, Jr. v. Court of Appeals26 we held that if aggrieved, even a non-party may institute a
petition for certiorari. In that case, petitioner was the holder in her own right of three mining claims and could file a
petition for certiorari, the fastest and most feasible remedy since she could not intervene in the probate of her
father-in-law's estate.27
In the instant case, we find that the recourse of the complainant to the respondent Court of Appeals was proper.
The petition was brought in her own name and in behalf of the Corporation. Although, the corporation was not a

complainant in the criminal action, the subject of the falsification was the corporation's project and the falsified
documents were corporate documents. Therefore, the corporation is a proper party in the petition for certiorari
because the proceedings in the criminal case directly and adversely affected the corporation.
We turn now to the third issue. Did the Court of Appeals and the lower court err in allowing private prosecutors to
actively participate in the trial of Criminal Case No. 285721?
Petitioner cites the case of Tan, Jr. v. Gallardo,28 holding that where from the nature of the offense or where the law
defining and punishing the offense charged does not provide for an indemnity, the offended party may not
intervene in the prosecution of the offense.

Petitioner's contention lacks merit. Generally, the basis of civil liability arising from crime is the fundamental
postulate that every man criminally liable is also civilly liable. When a person commits a crime he offends two
entities namely (1) the society in which he lives in or the political entity called the State whose law he has violated;
and (2) the individual member of the society whose person, right, honor, chastity or property has been actually or
directly injured or damaged by the same punishable act or omission. An act or omission is felonious because it is
punishable by law, it gives rise to civil liability not so much because it is a crime but because it caused damage to
another. Additionally, what gives rise to the civil liability is really the obligation and the moral duty of everyone to
repair or make whole the damage caused to another by reason of his own act or omission, whether done
intentionally or negligently. The indemnity which a person is sentenced to pay forms an integral part of the penalty
imposed by law for the commission of the crime.29 The civil action involves the civil liability arising from the
offense charged which includes restitution, reparation of the damage caused, and indemnification for consequential
damages.30
Under the Rules, where the civil action for recovery of civil liability is instituted in the criminal action pursuant to
Rule 111, the offended party may intervene by counsel in the prosecution of the offense.31 Rule 111(a) of the Rules
of Criminal Procedure provides that, "[w]hen a criminal action is instituted, the civil action arising from the offense
charged shall be deemed instituted with the criminal action unless the offended party waives the civil action,
reserves the right to institute it separately, or institutes the civil action prior to the criminal action."
Private respondent did not waive the civil action, nor did she reserve the right to institute it separately, nor institute
the civil action for damages arising from the offense charged. Thus, we find that the private prosecutors can
intervene in the trial of the criminal action.
Petitioner avers, however, that respondent's testimony in the inferior court did not establish nor prove any damages
personally sustained by her as a result of petitioner's alleged acts of falsification. Petitioner adds that since no
personal damages were proven therein, then the participation of her counsel as private prosecutors, who were
supposed to pursue the civil aspect of a criminal case, is not necessary and is without basis.
When the civil action is instituted with the criminal action, evidence should be taken of the damages claimed and
the court should determine who are the persons entitled to such indemnity. The civil liability arising from the crime
may be determined in the criminal proceedings if the offended party does not waive to have it adjudged or does not
reserve the right to institute a separate civil action against the defendant. Accordingly, if there is no waiver or
reservation of civil liability, evidence should be allowed to establish the extent of injuries suffered.32
In the case before us, there was neither a waiver nor a reservation made; nor did the offended party institute a
separate civil action. It follows that evidence should be allowed in the criminal proceedings to establish the civil
liability arising from the offense committed, and the private offended party has the right to intervene through the
private prosecutors.
WHEREFORE, the instant petition is DENIED. The Decision, dated June 14, 2001, and the Resolution, dated
November 20, 2001, of the Court of Appeals in CA-G.R. SP No. 57070, affirming the Order, dated October 5, 1999, of
the Regional Trial Court (RTC) of Manila, Branch 19, are AFFIRMED. Accordingly, the private prosecutors are hereby
allowed to intervene in behalf of private respondent Lydia Hao in the prosecution of the civil aspect of Criminal Case
No. 285721 before Branch 22, of Metropolitan Trial Court (MeTC) of Manila. Costs against petitioner.
SO ORDERED.

Parties to Civil Actions

AngvsAng
G.R. No. 186993
August 22, 2012

Facts:
On September 2, 1992, spouses Alan and EmAng (respondents) obtained a loan in the amount of Three Hundred
Thousand U.S. Dollars (US$300,000.00) from Theodore and Nancy Ang (petitioners). On even date, the
respondents executed a promissory note in favor of the petitioners wherein they promised to pay the latter the said
amount, with interest at the rate of ten percent (10%) per annum, upon demand. However, despite repeated
demands, the respondents failed to pay the petitioners.
Thus, on August 28, 2006, the petitioners sent the respondents a demand letter asking them to pay their
outstanding debt which, at that time, already amounted to Seven Hundred Nineteen Thousand, Six Hundred
Seventy-One U.S. Dollars and Twenty-Three Cents (US$719,671.23), inclusive of the ten percent (10%) annual
interest that had accumulated over the years. Notwithstanding the receipt of the said demand letter, the
respondents still failed to settle their loan obligation. On August 6, 2006, the petitioners, who were then residing in
Los Angeles, California, United States of America (USA), executed their respective Special Powers of Attorney in
favor of Attorney Eldrige Marvin B. Aceron (Atty. Aceron) for the purpose of filing an action in court against the
respondents. On September 15, 2006, Atty. Aceron, in behalf of the petitioners, filed a Complaint for collection of
sum of money with the RTC of Quezon City against the respondents.

Issues:
WON Atty. Aceron, being merely a representative of the petitioners, is not the real party in interest in the case.

Held:
Atty. Aceron, despite being the attorney-in-fact of the petitioners, is not a real party in interest in the case below.
Section 2, Rule 3 of the Rules of Court reads:
Sec. 2.Parties in interest. A real party in interest is the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these
Rules, every action must be prosecuted or defended in the name of the real party in interest.
Interest within the meaning of the Rules of Court means material interest or an interest in issue to be affected by
the decree or judgment of the case, as distinguished from mere curiosity about the question involved. A real party
in interest is the party who, by the substantive law, has the right sought to be enforced. Applying the foregoing rule,
it is clear that Atty. Aceron is not a real party in interest in the case below as he does not stand to be benefited or

injured by any judgment therein. He was merely appointed by the petitioners as their attorney-in-fact for the limited
purpose of filing and prosecuting the complaint against the respondents. Such appointment, however, does not
mean that he is subrogated into the rights of petitioners and ought to be considered as a real party in interest.
Being merely a representative of the petitioners, Atty. Aceron in his personal capacity does not have the right to file
the complaint below against the respondents. He may only do so, as what he did, in behalf of the petitioners the
real parties in interest. To stress, the right sought to be enforced in the case below belongs to the petitioners and
not to Atty. Aceron. Clearly, an attorney-in-fact is not a real party in interest.