Corporate Law Case Digest: San Juan Structural V.
CA (1998)
G.R. No. 129459 September 29, 1998
Lessons Applicable: Definition of a Close Corporation (Corporate Law)
FACTS:
February 14 1989: San Juan Structural and Steel Fabricators, Inc.'s (San
Juan) entered into an agreement with Motorich Sales Corporation (Motorich)
for the transfer to it of a parcel of land containing an area of 414 square
meters
San Juan paid the down payment of P100,000, the balance to be paid on or
before March 2, 1989
March 1, 1989: Mr. Andres T. Co, president of San Juan, wrote a letter
course through Motorich's broker requesting for a computation of the
balance to be paid
Linda Aduca, who wrote the computation of the balance
March 2, 1989: San Juan was ready with the amount corresponding to the
balance, covered by Metrobank Cashier's Check, payable to Motorich
they were supposed to meet in the office of San Juan but Motorich's
treasurer, Nenita Lee Gruenberg, did not appear
Motorich refused to execute the Transfer of Rights/Deed of Assignment
which is necessary to transfer the certificate of title
ACL Development Corp. (ACL) is impleaded as a necessary party since
Transfer Certificate of Title No. (362909) 2876 is still in its name
JNM Realty & Development Corp. (JNM) is impleaded as a necessary party in
view of the fact that it is the transferor of right in favor of Motorich
April 6, 1989: ACL and Motorich entered into a Deed of Absolute Sale
the Registry of Deeds of Quezon City issued a new title in the name of
Motorich Sales Corporation, represented by Nenita Lee Gruenberg and
Reynaldo L. Gruenberg, under Transfer Certificate of Title No. 3571
as a result of Nenita Lee Gruenberg and Motorich's bad faith in refusing to
execute a formal Transfer of Rights/Deed of Assignment, San Juan suffered
moral and nominal damages of P500,000 and exemplary damages of
P100,000.00 and P100,000 attorneys fees
San Juan lost the opportunity to construct a residential building in the sum of
P100,000.00 Pesos
CA affirmed RTC for dismissing
San Juan argues that the veil of corporate fiction of Motorich should be
pierced because it is a close corporation.
Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or
almost all or 99.866% to be accurate, of the subscribed capital stock" of
Motorich, San Juan argues that Gruenberg needed no authorization from the
board to enter into the subject contract.
being solely owned by the Spouses Gruenberg, the company can treated as
a close corporation which can be bound by the acts of its principal
stockholder who needs no specific authority
ISSUE: W/N Motorich is a close corp. which does not need to be bound by its
principal SH
HELD: NO. petition is hereby DENIED
Gruenberg, treasurer of Motorich, and Andres Co signed the contract but
that cannot bind Motorich, because it never authorized or ratified such sale
or even the receipt of the earnest money
A corporation is a juridical person separate and distinct from its stockholders
or members
San Juan failed to prove otherwise
The document is a hand-written one, not a corporate receipt, and it bears
only Nenita Gruenberg's signature
GR: acts of corporate officers within the scope of their authority are binding
on the corporation. But when these officers exceed their authority, their
actions "cannot bind the corporation, unless it has ratified such acts or is
estopped from disclaiming them.
statutorily granted privilege of a corporate veil may be used only for
legitimate purposes
utilized as a shield to commit fraud, illegality or inequity; defeat public
convenience; confuse legitimate issues; or serve as a mere alter ego or
business conduit of a person or an instrumentality, agency or adjunct of
another corporation - none here
Sec. 96. Definition and Applicability of Title. — A close corporation, within
the meaning of this Code, is one whose articles of incorporation provide that:
(1) All of the corporation's issued stock of all classes, exclusive of treasury
shares, shall be held of record by not more than a specified number of
persons, not exceeding twenty (20); (2) All of the issued stock of all classes
shall be subject to one or more specified restrictions on transfer permitted by
this Title; and (3) The corporation shall not list in any stock exchange or
make any public offering of any of its stock of any class. Notwithstanding the
foregoing, a corporation shall be deemed not a close corporation when at
least two-thirds (2/3) of its voting stock or voting rights is owned or
controlled by another corporation which is not a close corporation within the
meaning of this Code. . . . .
The articles of incorporation of Motorich Sales Corporation does not contain
any provision stated in Sec. 96
mere ownership by a single stockholder or by another corporation of all or
capital stock of a corporation is not of itself sufficient ground for disregarding
the separate corporate personalities
A narrow distribution of ownership does not, by itself, make a close
corporation
Even if veil is peice it will then be a sale of conjugal property which Nenita
alone could not have effected
Gruenberg did not represent herself as authorized by Respondent Motorich
despite the receipt issued by the former specifically indicating that she was
signing on behalf of Motorich
The amount paid as "earnest money" was not proven to have redounded to
the benefit of Motorich
it was deposited with the account of Aren Commercial c/o Motorich
Andres Co being a President of San Juan for more than 10 years cannot
feign ignorance of the scope of the authority of a corporate treasurer
However, Nenita Gruenberg should be ordered to return to petitioner the
amount she received as earnest money, as "no one shall enrich himself at
the expense of another.
Montelibano vs Bacolod-Murcia Milling (1962)
Facts: Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and
the Limited co-partnership Gonzaga and Company, had been and are sugar
planters adhered to the defendant-appellee’s sugar central mill under
identical milling contracts. Originally executed in 1919, said contracts were
stipulated to be in force for 30 years starting with the 1920-21 crop, and
provided that the resulting product should be divided in the ratio of 45% for
the mill and 55% for the planters. Sometime in 1936, it was proposed to
execute amended milling contracts, increasing the planters’ share to 60% of
the manufactured sugar and resulting molasses, besides other concessions,
but extending the operation of the milling contract from the original 30 years
to 45 years. The Board of Directors of the appellee Bacolod-Murcia Milling
Co., Inc., adopted a resolution granting further concessions to the planters
over and above those contained in the printed Amended Milling Contract.
The appellants initiated the present action, contending that three Negros
sugar centrals with a total annual production exceeding one-third of the
production of all the sugar central mills in the province, had already granted
increased participation (of 62.5%) to their planters, and that under the
resolution the appellee had become obligated to grant similar concessions to
the plaintiffs. The appellee Bacolod-Murcia Milling Co., inc., resisted the
claim, and defended by urging that the stipulations contained in the
resolution were made without consideration; that the resolution in question
was, therefore, null and void ab initio, being in effect a donation that was
ultra vires and beyond the powers of the corporate directors to adopt.
Issue: WON the board resolution is an ultra vires act and in effect a donation
from the board of directors?
Held: No. There can be no doubt that the directors of the appellee company
had authority to modify the proposed terms of the Amended Milling Contract
for the purpose of making its terms more acceptable to the other contracting
parties. As the resolution in question was passed in good faith by the board
of directors, it is valid and binding, and whether or not it will cause losses or
decrease the profits of the central, the court has no authority to review
them. Whether the business of a corporation should be operated at a loss
during depression, or close down at a smaller loss, is a purely business and
economic problem to be determined by the directors of the corporation and
not by the court. The appellee Bacolod-Murcia Milling Company is, under the
terms of its Resolution of August 20, 1936, duty bound to grant similar
increases to plaintiffs-appellants herein.
BOARD OF LIQUIDATORS V KALAW G.R. No. L-18805 August 14, 1967 THE
BOARD OF LIQUIDATORS representing THE GOVERNMENT OF THE
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. HEIRS OF MAXIMO
M. KALAW, JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA,
and LEONOR MOLL, defendants-appellees.
FACTS:
The National Coconut Corporation (NACOCO, for short) was chartered as a
non-profit governmental organization on avowedly for the protection,
preservation and development of the coconut industry in the Philippines. On
August 1, 1946, NACOCO's charter was amended [Republic Act 5] to grant
that corporation the express power to buy and sell copra. The charter
amendment was enacted to stabilize copra prices, to serve coconut
producers by securing advantageous prices for them, to cut down to a
minimum, if not altogether eliminate, the margin of middlemen, mostly
aliens. General manager and board chairman was Maximo M. Kalaw;
defendants Juan Bocar and Casimiro Garcia were members of the Board;
defendant Leonor Moll became director only on December 22, 1947.
NACOCO, after the passage of Republic Act 5, embarked on copra trading
activities.
An unhappy chain of events conspired to deter NACOCO from fulfilling the
contracts it entered into. Nature supervened. Four devastating typhoons
visited the Philippines in 1947. When it became clear that the contracts
would be unprofitable, Kalaw submitted them to the board for approval. It
was not until December 22, 1947 when the membership was completed.
Defendant Moll took her oath on that date. A meeting was then held. Kalaw
made a full disclosure of the situation, apprised the board of the impending
heavy losses. No action was first taken on the contracts but not long
thereafter, that is, on January 30, 1948, the board met again with Kalaw,
Bocar, Garcia and Moll in attendance. They unanimously approved the
contracts hereinbefore enumerated.
As was to be expected, NACOCO but partially performed the contracts. The
buyers threatened damage suits, some of which were settled. But one buyer,
Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First
Instance of Manila. The cases culminated in an out-of- court amicable
settlement when the Kalaw management was already out.
With particular reference to the Dreyfus claims, NACOCO put up the
defenses that:
(1) the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did
not have license to do business here; and
(2) failure to deliver was due to force majeure, the typhoons. All the
settlements sum up to P1,343,274.52.
In this suit started in February, 1949, NACOCO seeks to recover the above
sum of P1,343,274.52 from general manager and board chairman Maximo M.
Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges
Kalaw with negligence under Article 1902 of the old Civil Code (now Article
2176, new Civil Code); and defendant board members, including Kalaw, with
bad faith and/or breach of trust for having approved the contracts. By
Executive Order 372, dated November 24, 1950, NACOCO, together with
other government-owned corporations, was abolished, and the Board of
Liquidators was entrusted with the function of settling and closing its affairs.
DECISION OF LOWER COURTS:
1. CFI-Manila: dismissed the complaint. Plaintiff was ordered to pay the heirs
of Maximo Kalaw the sum of P2,601.94 for unpaid salaries and cash deposit
due the deceased Kalaw from NACOCO.
ISSUE:
1. Whether plaintiff Board of Liquidators has lost its legal personality to
continue with this suit since the three year period has elapsed, the Board of
Liquidators may not now continue with, and prosecute, the present case to
its conclusion
2. Whether the action is unenforceable against Kalaw
3. whether the case at bar is to be taken out of the general concept of the
powers of a general manager, given the cited provision of the NACOCO by-
laws requiring prior directorate approval of NACOCO contracts.
4. Whether damages should be awarded
RULING:
1. No, the provision should be read not as an isolated provision but in
conjunction with the whole. So reading, it will be readily observed that no
time limit has been tacked to the existence of the Board of Liquidators and
its function of closing the affairs of the various government owned
corporations, including NACOCO.
The President thought it best to do away with the boards of directors of the
defunct corporations; at the same time, however, the President had chosen
to see to it that the Board of Liquidators step into the vacuum. And nowhere
in the executive order was there any mention of the lifespan of the Board of
Liquidators.
3 methods by which corporation may wind up it its affairs:
1. Voluntary dissolution, "such disposition of its assets as justice requires,
and may appoint a receiver to collect such assets and pay the debts of the
corporation;
2. Corporate existence is terminated - "shall nevertheless be continued as a
body corporate for three years after the time when it would have been so
dissolved, for the purpose of prosecuting and defending suits by or against it
and of enabling it gradually to settle and close its affairs, to dispose of and
convey its property and to divide its capital stock, but not for the purpose of
continuing the business for which it was established;"
3. corporation, within the three year period just mentioned, "is authorized
and empowered to convey all of its property to trustees for the benefit of
members, stockholders, creditors, and others interested
Corpus Juris Secundum likewise is authority for the statement that "[t]he
dissolution of a corporation ends its existence so that there must be
statutory authority for prolongation of its life even for purposes of pending
litigation
Board of Liquidators escapes from the operation thereof for the reason that
"[o]bviously, the complete loss of plaintiff's corporate existence after the
expiration of the period of three (3) years for the settlement of its affairs is
what impelled the President to create a Board of Liquidators, to continue the
management of such matters as may then be pending."
The Board of Liquidators thus became the trustee on behalf of the
government. It was an express trust. The legal interest became vested in the
trustee — the Board of Liquidators. The beneficial interest remained with the
sole stockholder — the government. At no time had the government
withdrawn the property, or the authority to continue the present suit, from
the Board of Liquidators. If for this reason alone, we cannot stay the hand of
the Board of Liquidators from prosecuting this case to its final conclusion.
The provisions of Section 78 of the Corporation Law — the third method of
winding up corporate affairs — find application.
2. Action against the Kalaw heirs and, for the matter, against the Estate of
Casimiro Garcia survives.
claims that are barred if not filed in the estate settlement proceedings(Rule
87, sec. 5)
> actions that are abated by death are:
(1) claims for funeral expenses and those for the last sickness of the
decedent;
(2) judgments for money; and
(3) "all claims for money against the decedent, arising from contract express
or implied."
it is not enough that the claim against the deceased party be for money, but
it must arise from "contract express or implied"
actions that survive and may be prosecuted against the executor or
administrator (Rule 88, sec. 1)
> 1. actions for damages caused by tortious conduct of a defendant (as in
the case at bar) survive the death of the latter.
actions that survive against a decedent's executors or administrators, and
they are:
(1) actions to recover real and personal property from the estate; (2) actions
to enforce a lien thereon; and
(3) actions to recover damages for an injury to person or property.
3. The movement of the market requires that sales agreements be entered
into, even though the goods are not yet in the hands of the seller. Known in
business parlance as forward sales, it is concededly the practice of the trade.
Above all, NACOCO's limited funds necessitated a quick turnover. Copra
contracts then had to be executed on short notice — at times within twenty-
four hours. To be appreciated then is the difficulty of calling a formal
meeting of the board
So pleased was NACOCO's board of directors that, on December 5, 1946, in
Kalaw's absence, it voted to grant him a special bonus "in recognition of the
signal achievement rendered by him in putting the Corporation's business on
a self-sufficient basis within a few months after assuming office, despite
numerous handicaps and difficulties."
These previous contract it should be stressed, were signed by Kalaw without
prior authority from the board. Existence of such authority is established, by
proof of the course of business, the usage and practices of the company and
by the knowledge which the board of directors has, or must be presumed to
have, of acts and doings of its subordinates in and about the affairs of the
corporation.
If the by-laws were to be literally followed, the board should give its stamp
of prior approval on all corporate contracts. But that board itself, by its acts
and through acquiescence, practically laid aside the by-law requirement of
prior approval.
Under the given circumstances, the Kalaw contracts are valid corporate acts.
Bad faith does not simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of wrong; it
means breach of a known duty thru some motive or interest or ill will; it
partakes of the nature of fraud. Applying this precept to the given facts
herein, we find that there was no "dishonest purpose," or "some moral
obliquity," or "conscious doing of wrong," or "breach of a known duty," or
"Some motive or interest or ill will" that "partakes of the nature of fraud."
4. No. This is a case of damnum absque injuria. Conjunction of damage and
wrong is here absent. There cannot be an actionable wrong if either one or
the other is wanting. Of course, Kalaw could not have been an insurer of
profits. He could not be expected to predict the coming of unpredictable
typhoons. And even as typhoons supervened Kalaw was not remissed in his
duty. He exerted efforts to stave off losses. That Kalaw cannot be tagged
with crassa negligentia or as much as simple negligence, would seem to be
supported by the fact that even as the contracts were being questioned in
Congress and in the NACOCO board itself, President Roxas defended the
actuations of Kalaw.
It is a well known rule of law that questions of policy of management are left
solely to the honest decision of officers and directors of a corporation, and
the court is without authority to substitute its judgment for the judgment of
the board of directors; the board is the business manager of the corporation,
and so long as it acts in good faith its orders are not reviewable by the
courts."
EASYCALL COMMUNICATIONS PHILS. INC. vs KING Case Digest
[G.R. No. 145901 December 15, 2005]
EASYCALL COMMUNICATIONS PHILS., INC., Petitioner, vs.
EDWARD KING, Respondent.
FACTS
Petitioner Easycall Communications Phils., Inc. was a domestic corporation
primarily engaged in the business of message handling. Petitioner, through
its general manager, Malonzo, hired the services of respondent as assistant
to the general manager. He was given the responsibility of ensuring that the
expansion plans outside Metro Manila and Metro Cebu were achieved at the
soonest possible time. He was promoted to assistant vice president for
nationwide expansion and later appointed to the even higher position of vice
president for nationwide expansion. Respondent’s promotion was based on
his performance during the six months preceding his appointment. As vice
president for nationwide expansion, he became responsible for the sales and
rentals of pager units in petitioner’s expansion areas. He was also in charge
of coordinating with the dealers in these areas.
Thereafter, Malonzo reviewed the sales performance of respondent and
scrutinized the status of petitioner’s Nationwide Expansion Program (NEP)
which was under respondent’s responsibility. He found that respondent’s
actual sales for the period October 1992–March 1993 was 78% of his sales
commitment and 70% of his sales target. Malonzo also checked the
frequency and duration of the provincial sales development visits made by
respondent for the same period to expansion areas under his jurisdiction. He
discovered that the latter spent around 40% of the total number of working
days for that period in the field.
The management then confronted respondent regarding his sales
performance and provincial sales development visits. A series of dialogues
between petitioner’s management and respondent ensued. He was then
informed that the general manager wanted his resignation. Respondent,
however, declared that he had no intention of resigning from his position.
Consequently, respondent received a notice of termination signed by
Malonzo. Aggrieved, the respondent filed a complaint for illegal dismissal
with the NLRC.
Petitioner argues that since respondent was a “corporate officer,” the NLRC
had no jurisdiction over the subject matter under PD 902-A.
ISSUE
Whether or not the NLRC has jurisdiction over the subject matter.
HELD
The SC held that under Section 5 of PD 902-A, the law applicable at the time
this controversy arose, the SEC, not the NLRC, had original and exclusive
jurisdiction over cases involving the removal of corporate officers. Section
5(c) of PD 902-A applied to a corporate officer’s dismissal for his dismissal
was a corporate act and/or an intra-corporate controversy.
However, it had to be first established that the person removed or dismissed
was a corporate officer before the removal or dismissal could properly fall
within the jurisdiction of the SEC and not the NLRC. Here, aside from its bare
allegation, petitioner failed to show that respondent was in fact a corporate
officer.
“Corporate officers” in the context of PD 902-A are those officers of a
corporation who are given that character either by the Corporation Code or
by the corporation’s by-laws. Under Section 25 of the Corporation Code, the
“corporate officers” are the president, secretary, treasurer and such other
officers as may be provided for in the by-laws.
The burden of proof is on the party who makes the allegation. Here,
petitioner merely alleged that respondent was a corporate officer. However,
it failed to prove that its by-laws provided for the office of “vice president for
nationwide expansion.” Since petitioner failed to satisfy the burden of proof
that was required of it, we cannot sanction its claim that respondent was a
“corporate officer” whose removal was cognizable by the SEC under PD 902-
A and not by the NLRC under the Labor Code.
An “office” is created by the charter of the corporation and the officer is
elected by the directors or stockholders. On the other hand, an employee
occupies no office and generally is employed not by the action of the
directors or stockholders but by the managing officer of the corporation who
also determines the compensation to be paid to such employee.
In this case, respondent was appointed vice president for nationwide
expansion by Malonzo, petitioner’s general manager, not by the board of
directors of petitioner. It was also Malonzo who determined the
compensation package of respondent. Thus, respondent was an employee,
not a “corporate officer.” It is therefore correct that jurisdiction over the
case was properly with the NLRC, not the SEC.
Petition is denied.
BITONG vs. CA
G.R. No. 123553 July 13, 1998
FACTS: Alleging before the SEC that she had been the Treasurer and a
Member of the Board of Directors of Mr. & Ms. from the time it was
incorporated on 29 October 1976 to 11 April 1989, and was the registered
owner of 1,000 shares of stock out of the 4,088 total outstanding shares,
petitioner Nora Bitong complained of irregularities committed from 1983 to
1987 by Eugenia Apostol, President and Chairperson of the Board of
Directors. Petitioner claimed that except for the sale of the name Philippine
Inquirer to Philippine Daily Inquirer all other transactions and agreements
entered into by Mr. & Ms. with PDI were not supported by any bond and/or
stockholders' resolution. And, upon instructions of Eugenia Apostol, Mr. &
Ms. made several cash advances to PDI on various occasions amounting to
P3.276 million. On some of these borrowings PDI paid no interest
whatsoever. Despite the fact that the advances made by Mr. & Ms. to PDI
were booked as advances to an affiliate, there existed no board or
stockholders' resolution, contract nor any other document which could legally
authorize the creation of and support to an affiliate. She further alleged that
on 2 May 1986 respondents Eugenia Apostol, Leticia Magsanoc and
Adoracion Nuyda subscribed to PDI shares of stock at P50,000.00 each or a
total of P150,000.00. The stock subscriptions were paid for by Mr. & Ms. and
initially treated, as receivables from officers and employees. But, no
payments were ever received from respondents, Magsanoc and Nuyda.
Petitioner then filed a derivative suit before the SEC allegedly for the benefit
of private respondent Mr. & Ms. Publishing Co., Inc., against respondent
spouses Eugenia Apostol and Jose Apostol. However, private respondents
contended that petitioner, being merely a holder-in-trust of JAKA shares,
only represented and continued to represent JAKA in the board. Private
respondents argued that petitioner was not the true party to this case, the
real party being JAKA which continued to be the true stockholder of Mr. &
Ms. Hence, petitioner did not have the personality to initiate and prosecute
the derivative suit which, consequently, must be dismissed. At the trial,
petitioner contends that she became the registered and beneficial owner of
997 shares of stock of Mr. & Ms. out of the 4,088 total outstanding shares
after she acquired them from JAKA through a deed of sale executed on 25
July 1983 and recorded in the Stock and Transfer Book of Mr. & Ms. under
Certificate of Shares of Stock No. 008. She pointed out that Senator Enrile
decided that JAKA should completely divest itself of its holdings in Mr. & Ms.
and this resulted in the sale to her of JAKA's interest and holdings in that
publishing firm. Private respondents refuted the statement of petitioner that
she was a stockholder of Mr. & Ms. since 25 July 1983 as respondent
Eugenia D. Apostol signed Certificate of Stock No. 008 only on 17 March
1989, and not on 25 July 1983. And, since the Stock and Transfer Book
which petitioner presented in evidence was not registered with the SEC, the
entries therein including Certificate of Stock No. 008 were fraudulent. On 3
August 1993, after trial on the merits, the SEC Hearing Panel dismissed the
derivative suit filed by petitioner. On 25 August 1993 petitioner Bitong
appealed to the SEC En Banc. The SEC En Banc reversed the decision of the
Hearing Panel. Consequently, respondent Apostol spouses, Magsanoc,
Nuyda, and Mr. & Ms. filed a petition for review before respondent CA, while
respondent Edgardo Espiritu filed a petition for certiorari and prohibition also
before respondent Court of Appeals. Said two petitions were consolidated.
On 31 August 1995 CA rendered a decision reversing the SEC En Banc and
held that petitioner was not the owner of any share of stock in Mr. & Ms. and
therefore not the real party-in-interest to prosecute the complaint she had
instituted against private respondents. For not being the real party-in-
interest, petitioner's complaint did not state a cause of action, a defense
which was never waived. Motion for reconsideration was likewise denied.
Hence, this petition.
ISSUE: Whether or not petitioner is a bona fide stockholder of Mr. & Ms. at
the time of the transaction complained of which invests him with standing to
institute a derivative action for the benefit of the corporation.
RULING: Sec. 63 of the Corporation Code envisions a formal certificate of
stock which can be issued only upon compliance with certain requisites. First,
the 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. A mere typewritten statement advising a stockholder
of the extent of his ownership in a corporation without qualification and/or
authentication cannot be considered as a formal certificate of stock. Second,
delivery of the certificate is an essential element of its issuance. Hence, there
is no issuance of a stock certificate where it is never detached from the stock
books although blanks therein are properly filled up if the person whose
name is inserted therein has no control over the books of the
company. Third, the par value, as to par value shares, or the full
subscription as to no par value shares, must first be fully paid. Fourth, the
original certificate must be surrendered where the person requesting the
issuance of a certificate is a transferee from a stockholder.
The certificate of stock itself once issued is a continuing affirmation or
representation that the stock described therein is valid and genuine and is at
least prima facie evidence that it was legally issued in the absence of
evidence to the contrary. However, this presumption may be
rebutted. Similarly, books and records of a corporation which include even
the stock and transfer book are generally admissible in evidence in favor of
or against the corporation and its members to prove the corporate acts, its
financial status and other matters including one's status as a stockholder.
They are ordinarily the best evidence of corporate acts and proceedings.
However, the books and records of a corporation are not conclusive even
against the corporation but are prima facie evidence only. Parol evidence
may be admitted to supply omissions in the records, explain ambiguities, or
show what transpired where no records were kept, or in some cases where
such records were contradicted. The effect of entries in the books of the
corporation which purport to be regular records of the proceedings of its
board of directors or stockholders can be destroyed by testimony of a more
conclusive character than mere suspicion that there was an irregularity in the
manner in which the books were kept. These considerations are founded on
the basic principle that stock issued without authority and in violation of 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
estopped cannot operate to create stock which under the law cannot have
existence.
Petitioner in her reply admitted that while respondent Eugenia D. Apostol
signed the Certificate of Stock No. 008 in petitioner's name only in 1989, it
was issued by the corporate secretary in 1983 and that the other certificates
covering shares in Mr. & Ms. had not yet been signed by respondent Eugenia
D. Apostol at the time of the filing of the complaint with the SEC although
they were issued years before. Based on this admission of petitioner, there is
no truth to the statement written in Certificate of Stock No. 008 that the
same was issued and signed on 25 July 1983 by its duly authorized officers
specifically the President and Corporate Secretary because the actual date of
signing thereof was 17 March 1989. Verily, a formal certificate of stock could
not be considered issued in contemplation of law unless signed by the
president or vice-president and countersigned by the secretary or assistant
secretary. In this case, contrary to petitioner's submission, the Certificate of
Stock No. 008 was only legally issued on 17 March 1989 when it was actually
signed by the President of the corporation, and not before that date. While a
certificate of stock is not necessary to make one a stockholder, e.g., where
he is an incorporator and listed as stockholder in the articles of incorporation
although no certificate of stock has yet been issued, it is supposed to serve
as paper representative of the stock itself and of the owner's interest therein.
Hence, when Certificate of Stock No. 008 was admittedly signed and issued
only on 17 March 1989 and not on 25 July 1983, even as it indicates that
petitioner owns 997 shares of stock of Mr. & Ms., the certificate has no
evidentiary value for the purpose of proving that petitioner was a stockholder
since 1983 up to 1989.
The basis of a stockholder's suit is always one in equity. However, it cannot
prosper without first complying with the legal requisites for its institution.
The most important of these is the bona fide ownership by a stockholder of a
stock in his own right at the time of the transaction complained of which
invests him with standing to institute a derivative action for the benefit of the
corporation. WHEREFORE, the petition is DENIED.