[G.R. No. 43413. August 31, 1937.

]
HIGINIO ANGELES, JOSE DE LARA and
AGUEDO BERNABE, as stockholders for and in
behalf and for the benefit of the corporation,
Paraaque Rice Mill, Inc., and the other
stockholders who may desire to join, plaintiffsappellees, vs. TEODORICO B. SANTOS,
ESTANISLAO MAYUGA, APOLONIO PASCUAL,
and BASILISA RODRIGUEZ, defendantsappellants.
P. Magsalin and A. Sta. Maria for appellants.
Eulogio P. Revilla and Barrera & Reyes for appellees.
SYLLABUS
1. CORPORATIONS; BOARD OF DIRECTORS;
TRUSTEESHIP. There is ample evidence in the present case to
show that the defendants have been guilty of breach of trust as
directors of the corporation and the lower court so found. The
board of directors of a corporation is a creation of the stockholders
and controls and directs the affairs of the corporation by delegation
of the stockholders. But the board of directors, or the majority
thereof, in drawing to themselves the powers of the corporation,
occupies a position of trusteeship in relation to the minority of the
stock in the sense that the board should exercise good faith, care
and diligence in the administration of the affairs of the corporation
and should protect not only the interests of the majority but also
those of the minority of the stock.
2. ID.; ID.; ACTION FOR THE PROTECTION OF THE
RIGHTS OF THE MINORITY STOCKHOLDERS. Where a
majority of the board of directors wastes or dissipates the funds of
the corporation or fraudulently disposes of its properties, or
performs ultra vires acts, the court, in the exercise of its equity
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jurisdiction, and upon showing that intracorporate remedy is

unavailing, will entertain a suit filed by the minority members of
the board of directors, for and in behalf of the corporation, to
prevent waste and dissipation and the commission of illegal acts
and otherwise redress the injuries of the minority stockholders
against the wrongdoing of the majority. The action in such a case is
said to be brought derivatively in behalf of the corporation to
protect the rights of the minority stockholders thereof (7 R. C. L.,
pars. 293 and 294, and authorities therein cited; 13 Fletcher, Cyc.
of Corp., pars. 593, et seq., and authorities therein cited).
3. ID.; ID.; ID. It is well settled in this jurisdiction that
where corporate directors are guilty of a breach of trust - not of
mere error of judgment or abuse of discretion - and intracorporate
remedy is futile or useless, a stockholder may institute a suit in
behalf of himself and other stockholders and for the benefit of the
corporation, to bring about a redress of the wrong inflicted directly
upon the corporation and indirectly upon the stockholders. An
illustration of a suit of this kind is found in the case of Pascual vs.
Del Saz Orozco (19 Phil., 82), decided by this court as early as
1911. In that case, the Banco Espaol-Filipino suffered heavy
losses due to fraudulent connivance between a depositor and an
employee of the bank, which losses, it was contended, could have
been avoided if the president and directors had been more vigilant
in the administration of the affairs of the bank. The stockholders
constituting the minority brought a suit in behalf of the bank
against the directors to recover damages, and this over the
objection of the minority of the stockholders and the directors.
This court held that the suit could properly be maintained.
4. ID.; ID.; ID.; RECEIVERSHIP. The action having
been properly brought and by the lower court entertained it was
within its power, upon proper showing, to appoint a receiver of the
corporation pendente lite (secs. 173, 174, et seq. Code of Civil
Procedure). The appointment of a receiver upon application of the
minority stockholders is a power to be exercised with great
caution. But this does not mean that the rights of the minority

stockholders may be entirely disregarded, and where the necessity

has arisen, the appointment of a receiver for a corporation is a
matter resting largely in the sound discretion of the trial court.
Counsel for appellants argue that the appointment of a receiver
pendente lite in the present case has deprived the corporation,
Paraaque Rice Mill, Inc., of its property without due process of
law. But it is too plain to require argument that the receiver was
precisely appointed to preserve the properties of the corporation.
The receivership in this case shall continue until a new board of
directors shall have been elected and constituted in accordance
with law and the by-laws of the corporation.

other states of the American Union. There are abundant authorities,

however, which hold that if the court has acquired jurisdiction to
appoint a receiver because of the mismanagement of directors
these may thereafter be removed and others appointed in their
place by the court in the exercise of its equity jurisdiction (2
Fletcher, Cyc. of Corp., ftn. sec. 358, pp. 118 and 119). In the
present case, however, the properties and assets of the corporation
being amply protected by the appointment of a receiver and in
view of the statutory provisions above referred to, we are of the
opinion that the removal of the directors is, under the
circumstances, unnecessary and unwarranted.

5. ID.; ID.; ACCOUNTING. The lower court in its

decision not only orders the defendant S to account for the
properties and funds of the corporation, but it also and at the same
time adjudges him to pay an undetermined amount which is made
to depend upon the result of such accounting. The accounting order
was probably intended by the lower court to be filed with it in this
proceeding. This requirement will delay the final disposition of the
case and we are of the opinion that this accounting should better be
filed with the new board of directors whose election has been
ordered by the lower court. The decision of the lower court in this
respect is therefore modified so that the defendant S shall render a
complete accounting of all the corporate properties and funds that
may have come to his possession during the period mentioned in
the judgment of the lower court to the new board of directors to be
elected by the stockholders.

DECISION

6. ID.; ID.; ELECTION AND REMOVAL OF THE

DIRECTORS OF A CORPORATION. The Corporation Law, as
amended, in section 29 to 34, provide for the election and removal
of the directors of a corporation. Our Corporation Law (Act No.
1459, as amended), does not confer expressly upon the courts the
power to remove a director of a corporation. In some jurisdictions,
statutes expressly provide a more or less summary method for the
confirmation of the election and for the motion of the directors of a
corporation. This is true in New York, New Jersey, Virginia and
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LAUREL, J p:
The plaintiffs and the defendants are all stockholders and
members of the board of directors of the "Paraaque Rice Mill,
Inc.," a corporation organized for the purpose of operating a rice
mill in the municipality of Paraaque, Province of Rizal. On
September 6, 1932, a complaint entitled "Higinio Angeles, Jose de
Lara, Aguedo Bernabe, as stockholders, for and in behalf of the
corporation, Paraaque Rice Mill, Inc., and other stockholders of
said corporation who may desire to join, plaintiffs, vs. Teodorico
B. Santos, Estanislao Mayuga, Apolonio Pascual, and Basilisa
Rodriguez, defendants" was filed with the Court of First Instance
of Rizal. After formal allegations relative to age and residence of
the parties and the due incorporation of the Paraaque Rice Mill,
Inc., the complaint avers substantially the following: (a) That the
plaintiffs are stockholders and constitute the minority and the
defendants are also stockholders and constitute the majority of the
board of directors of the Paraaque Rice Mill, Inc.; (b) that at an
extraordinary meeting held on February 21, 1932, the stockholders
appointed an investigation committee of which the plaintiff Jose de
Lara was chairman and the stockholders Dionisio Tomas and
Aguedo Bernabe were members, to investigate and determine the
properties, operations, and losses of the corporation as shown in

the auditor's report corresponding to the year 1931, but the

defendants, particularly Teodorico B. Santos, who was the
president of the corporation, denied access to the properties, books
and records of the corporation which were in their possession; (c)
that the defendant Teodorico B. Santos, in violation of the by- laws
of the corporation, had taken possession of the books, vouchers,
and corporate records as well as of the funds and income of the
Paraaque Rice Mill, Inc., all of which, according to the by-laws,
should be under the exclusive control and possession of the
secretary- treasurer, the plaintiff Aguedo Bernabe; (d) that the said
Teodorico B. Santos, had appropriated to his own benefit
properties, funds, and income of the corporation in the sum of
P10,000; (e) that Teodorico B. Santos, for the purpose of illegally
controlling the affairs of the corporation, refused to sign and issue
the corresponding certificate of stock for the 600 fully paid-up
shares of the plaintiff, Higinio Angeles, of the total value of
P15,000; (f) that notwithstanding written requests made in
conformity with the by-laws of the corporation of three members
of the board of directors who are holders of more than one-third of
the subscribed capital stock of the corporation, the defendant
Teodorico B. Santos as president of the corporation refused to call
a meeting of the board of directors and of the stockholders; (g) that
in violation of the by-laws of the corporation, the defendants who
constitute the majority of the board of directors refused to hold
ordinary monthly meetings of the board since March, 1932; (h)
that Teodorico B. Santos as president of the corporation, in
connivance with his co-defendants, was disposing of the properties
and records of the corporation without authority from the board of
directors or the stockholders of the corporation and without
making any report of his acts to the said board of directors or to
any other officer of the corporation, and that, to prevent any
interference with or examination of his arbitrary acts, he arbitrarily
suspended plaintiff Jose de Lara from the office of general
manager to which office the latter had been lawfully elected by the
stockholders; and (i) that the corporation had gained about P4,000
during the first half to the year 1932, but that because of the illegal
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and arbitrary acts of the defendants not only the funds but also the
books and records of the corporation are in danger of disappearing.

The complaint prays: (a) That after the filing of the bond
in an amount to be fixed by the court, Melchor de Lara of
Paraaque, Rizal, be appointed receiver of the properties, funds,
and business of the Paraaque Rice Mill, Inc., as well as the books
and records thereof, with authority to continue the business of the
corporation; (b) that the defendant Teodorico B. Santos be ordered
to render a detailed accounting of the properties, funds and income
of the corporation from the year 1927 to date; (c) that the said
defendant be required to pay to the corporation the amount of
P10,000 and other amounts which may be found due to the said
corporation as damages or for any other cause; (d) that said
defendant be ordered to sign the certificate of stock subscribed to
and paid by the plaintiff Higinio Angeles; and (e) that the members
of the board of directors of the Paraaque Rice Mill, Inc., be
removed and an extraordinary meeting of the stockholders called
for the purpose of electing a new board of directors.
On the date of the filing of the complaint, September 6,
1932, the court issued an ex parte order of receivership appointing
Melchor de Lara as receiver of the corporation upon the filing of a
bond of P1,000 by the plaintiffs-appellees. The bond of the
receiver was fixed at P4,000.
Upon an urgent motion of the defendants-appellants
setting forth the reasons why Melchor de Lara should not have
been appointed receiver, and upon agreement of the parties, the
trial court, by order of September 13, 1932, appointed Benigno
Agco, as receiver, in lieu of Melchor de Lara. About a month later,
or on October 14, 1932, the court, after considering the
memoranda filed by both parties, revoked its order appointing
Agco as receiver.

On July 12, 1933, the defendants-appellants presented

their amended answer to the complaint, containing a general and
specific denial, and alleging as special defense that the defendant
Teodorico B. Santos refused to sign the certificate of stock in favor
of the plaintiff Higinio Angeles for 600 shares valued at P15,000,
because the boar of directors decided to give Higinio Angeles only
320 shares of stock worth P8,000. The answer contains a
counterclaim for P5,000 alleged to have been suffered by the
corporation due to the alleged illegal and malicious procurement
by the plaintiffs of an ex parte order of receivership. Damages in
the amount of P2,000 are also alleged to have been suffered by the
defendants by reason of the failure of the plaintiffs to present their
grievances to the board of directors before going to court. The
amended answer sets forth, furthermore, a cross-complaint against
the plaintiffs, and in behalf of the Paraaque Rice Mill, Inc., based
on the alleged failure of the plaintiff Higinio Angeles to render a
report of his administration of the corporation from February 14 to
June 30, 1928, during which time the corporation is alleged to have
had accrued earnings of approximately P3,000. In both the
counterclaim and cross-complaint Paraaque Rice Mill, Inc. is
joined as party defendant.

"tiqui-tiqui", the income of which was never turned over or

reported to the treasurer of the corporation.
The defendants-appellants objected to the petition for the
appointment of a receiver on the ground, among others, that the
court had no jurisdiction over the Paraaque Rice Mill, Inc.,
because it had not been included as party defendant in this case and
that, therefore, the court could not properly appoint a receiver of
the corporation pendente lite.
After hearing both parties, the trial court, by order of the
corporation, after giving a bond in the amount of P2,000. An
urgent motion for the reconsideration of this order, filed by counsel
for the defendants-appellants on November 3, 1934, was denied by
the court on November 7, 1934.
On November 8, 1934, the trial court, having heard the
case on its merits, rendered a decision, the dispositive part of
which is as follows:
"Por todo lo expuesto, el Juzgado falla este
asunto:

On July 24, 1934, the plaintiffs-appellees renewed their

petition for the appointment of a receiver pendente lite alleging,
among other things, that defendant Teodorico B. Santos was using
the funds of the corporation for purely personal ends; that said
Teodorico B. Santos was managing the funds of the corporation in
a manner highly prejudicial to the interests of the corporation and
its stockholders; that said defendant did not render any account of
his management or of the condition of the business of the
corporation; that since 1932 said defendant called no meeting of
the board of directors or of the stockholders thus enabling him to
continue holding, without any election, the position of president
and, finally, that of manager; and that, without the knowledge and
consent of the stockholders and of the board of directors, the said
defendant installed a small rice mill for converting risk husk into
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"1. Ordenando al demandado Teodorico B.

Santos a rendir cuenta detallada de las propiedades,
fondos e ingresos de la corporacion Paraaque Rice
Mill, Inc., desde el ano 1931 hasta la fecha;
"2. Condenando a dicho demandado a pagar
a la corporacion Paraaque Rice Mill, Inc.,
cualesquiera cantidad o cantidades que resultare en
deber a dicha corporacion; de acuerdo con dicha
rendicion de cuentas;
"3. Declarando al demandante Higinio
Angeles con derecho a tener expedido a su nombre
600 acciones por valor par de P15,000.

"4. Destituyendo a los demandados de su

cargo como directores de la corporacion hasta la
nueva eleccion por los accionistas que se convocara
una vez firme esta sentencia; y
"5. Condenando a los demandados a pagar
las costas."
On November 21, 1934, the defendants-appellants, moved
for reconsideration of the decision and at the same time prayed for
the dismissal of the case, because of defect of parties defendant.
On December 6, 1934, the Paraaque Rice Mill, Inc., thru
counsel for the defendants, entered a special appearance for the
sole purpose of objecting to the order of the court of October 31,
1934, appointing a receiver, on the ground that the Paraaque Rice
Mill, Inc., was not a party to the proceedings. And on December 8,
1934, the defendants excepted to the decision of the trial court and
moved for a new trial on the ground that the evidence presented
was insufficient to justify the decision and that said decision was
contrary to law. The motions for reconsideration and new trial and
the special appearance were, by separate orders bearing date of
December 19, 1934, denied by the trial court. The case was finally
elevated to this court by bill of exceptions.
The defendants-appellants submit the following
assignment of errors:
"1. The lower court erred in holding that it
has jurisdiction to appoint a receiver of the
corporation, 'Paraaque Rice Mill, Inc.,' on October
31, 1934.
"2. The lower court erred in overruling the
motion of the defendants to include the defendant
corporation as party defendant and in holding that it
is not a necessary party.
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"3. The lower court erred in not granting a

motion for a new trial because there is a defect of
party defendant.
"4. The lower court erred in not dismissing
the case because a necessary defendant was not
made a party in the case.
"5. The lower court erred in ordering the
defendant Teodorico B. Santos to render a detailed
accounting of the properties, funds and income of
the corporation 'Paraaque Rice Mill, Inc.,' from the
year 1931 to this date.
"6. The lower court erred in condemning the
defendant Teodorico B. Santos to pay the
corporation whatever sum or sums which may be
found owing to said corporation, in accordance with
the said accounting to be done by him.
"7. The lower court erred in ordering the
destitution of the defendants from their office as
members of the board of directors of the corporation,
until the new election of the stockholders which
shall be held once the decision had become final.
"8. The lower court erred in declaring that
Higinio Angeles is entitled to have in his name 600
shares of stock of the par value of P15,000.
"9. The lower court erred in overruling and
denying appellants' motion for the reconsideration
and the dismissal of the case dated November 21,
1934.
"10. The lower court erred in denying the
motion of these appellants for new trial."

In their discussion of the first, second, third, and fourth

assignments of error, the defendants-appellants vigorously assert
that the Paraaque Rice Mill, Inc., is a necessary party in this case,
and that not having been made a party, the trial court was without
jurisdiction to appoint a receiver and should have dismissed the
case.
There is ample evidence in the present case to show that
the defendants have been guilty of breach of trust as directors of
the corporation and the lower court so found. The board of
directors of a corporation is a creation of the stockholders and
controls and directs the affairs of the corporation by delegation of
the stockholders. But the board of directors, or the majority
thereof, in drawing to themselves the powers of the corporation,
occupies a position of trusteeship in relation to the minority of the
stock in the sense that the board should exercise good faith, care
and diligence in the administration of the affairs of the corporation
and should protect not only the interests of the majority but also
those of the minority of the stock. Where a majority of the board of
directors wastes or dissipates the funds of the corporation or
fraudulently disposes of its properties, or performs ultra vires acts,
the court, in the exercise of its equity jurisdiction, and upon
showing that intracorporate remedy is unavailing, will entertain a
suit filed by the minority members of the board of directors, for
and in behalf of the corporation, to prevent waste and dissipation
and the commission of illegal acts and otherwise redress the
injuries of the minority stockholders against the wrongdoing of the
majority. The action in such a case is said to be brought
derivatively in behalf of the corporation to protect the rights of the
minority stockholders thereof (7 R. C. L., pars. 293 and 294, and
authorities therein cited; 13 Fletcher, Cyc. of Corp., pars. 593, et
seq., and authorities therein cited).

It is well settled in this jurisdiction that were corporate

directors are guilty of a breach of trust not of mere error of
6|

judgment or abuse of discretion and intracorporate remedy is

futile or useless, a stockholder may institute a suit in behalf of
himself and other stockholders and for the benefit of the
corporation, to bring about a redress of the wrong inflicted directly
upon the corporation and indirectly upon the stockholders. An
illustration of a suit of this kind is found in the case of Pascual vs.
Del Saz Orozco (19 Phil., 82), decided by this court as early as
1911. In that case, the Banco Espaol-Filipino suffered heavy
losses due to fraudulent connivance between a depositor and an
employee of the bank, which losses, it was contented, could have
been avoided if the president and directors had been more vigilant
in the administration of the affairs of the bank. The stockholders
constituting the minority brought a suit in behalf of the bank
against the directors to recover damages, and this over the
objection of the majority of the stockholders and the directors. This
court held that the suit could properly be maintained.
The contention of the defendants in the case at bar that the
Paraaque Rice Mill, Inc., should have been brought in as a
necessary party and the action maintained in its name and in its
behalf directly states the general rule, but not the exception
recognized by this court in the case of Everett vs. Asia Banking
Corporation (49 Phil., 512, 527). In that case, upon invocation of
the general rule by the appellees there, this court said:
"Invoking the well-known rule that
shareholders cannot ordinarily sue in equity to
redress wrongs done to the corporation, but that the
action must be brought by the board of directors, the
appellees argue and the court below held that
the corporation Teal & Company is a necessary party
plaintiff and that the plaintiff stockholders, not
having made any demand on the board to bring the
action, are not the proper parties plaintiff. But, like
most rules, the rule in question has its exceptions. It
is alleged in the complaint and, consequently,
admitted through the demurrer that the corporation

Teal & Company is under the complete control of

the principal defendants in the case, and, in these
circumstances it is obvious that a demand upon the
board of directors to institute action and prosecute
the same effectively would have been useless, and
the law does not require litigants to perform useless
acts. (Exchange Bank of Wewoka vs. Bailey, 29
Okla., 246; Fleming and Hewins vs. Black Warrior
Copper Co., 15 Ariz., 1; Wickersham vs. Crittenden,
106 Cal., 329; Glenn vs. Kittanning Brewing Co.,
259 Pa., 510; Hawes vs. Contra Costa Water
Company, 104 U. S., 450.)"
The action having been properly brought and by the lower
court entertained it was within its power, upon proper showing, to
appoint a receiver of the corporation pendente lite (secs. 173, 174,
et seq. Code of Civil Procedure). The appointment of a receiver
upon application of the minority stockholders is a power to be
exercised with great caution. But this does not mean that the rights
of the minority stockholders may be entirely disregarded, and
where the necessity has arisen, the appointment of a receiver for a
corporation is a matter resting largely in the sound discretion of the
trial court. Counsel for appellants argue that the appointment of a
receiver pendente lite in the present case has deprived the
corporation, Paraaque Rice Mill, Inc., of its property without due
process law. But it is too plain to require argument that the receiver
was precisely appointed to preserve the properties of the
corporation. The receivership in this case shall continue until a
new board of directors shall have been elected and constituted in
accordance with law and the by-laws of the corporation.
The first, second, third, and forth assignments of error are,
therefore, overruled.
The appellants contend in their fifth and sixth assignments
of error that the lower court erred in ordering the defendant,
Teodorico B. Santos, to render a detailed accounting of the
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properties, funds and income of the corporation, Paraaque Rice

Mill, Inc., from the year 1931 and in condemning him to pay "the
corporation whatever sum or sums which may be found owing to
said corporation, in accordance with the said accounting to be done
by him." We note that the lower court in its decision not only
orders the defendant Santos to account for the properties and funds
of the corporation, but it also and at the same time adjudges him to
pay an undetermined amount which is made to depend upon the
result of such accounting. The accounting order was probably
intended by the lower court to be filed with it in this proceeding.
This requirement will delay the final disposition of the case and we
are of the opinion that this accounting should better be filed with
the new board of directors whose election has been ordered by the
lower court. The decision of the lower court in this respect is
therefore modified so that the defendant Santos shall render a
complete accounting of all the corporate properties and funds that
may have come to his possession during the period mentioned in
the judgment of the lower court to the new board of directors to be
elected by the stockholders.
In the seventh assignment of error, the appellants contend
that the lower court erred in ordering the removal of the defendants
from their offices as members of the board of directors of the
corporation. The Corporation Law, as amended, in sections 29 to
34, provide for the election and removal of the directors of a
corporation. Our Corporation Law (Act No. 1459, as amended),
does not confer expressly upon the courts the power to remove a
director of a corporation. In some jurisdictions, statutes expressly
provide a more or less summary method for the confirmation of the
election and for the motion of the directors of a corporation. This is
true in New York, New Jersey, Virginia and other states of the
American Union. There are abundant authorities, however, which
hold that if the court has acquired jurisdiction to appoint a receiver
because of the mismanagement of directors these may thereafter be
removed and others appointed in their place by the court in the
exercise of its equity jurisdiction (2 Fletcher, Cyc. of Corp., ftn.
sec. 358, pp. 118 and 119). In the present case, however, the

properties and assets of the corporation being amply protected by

the appointment of a receiver and in view of the statutory
provisions above referred to, we are of the opinion that the removal
of the directors is, under the circumstances, unnecessary and
unwarranted. The seventh assignment of error is, therefore,
sustained.
Under the eighth assignment of error, the appellants argue
that the lower court erred in deciding that the plaintiff Higinio
Angeles is entitled to the issuance in his name of a certificate
covering 600 shares of stock of the total par value of P15,000. A
review of the evidence, oral and documentary, relative to the
number of shares of stock to which Higinio Angeles is entitled,
shows that Higinio Angeles brought in P15,000 partly in money
and partly in property, for 600 shares of stock. The very articles of
incorporation signed by all the incorporations, among whom are
the defendants, show that Higinio Angeles paid P5,600 on account
of his subscription amounting to P10,000. The amount of P5,600 is
the value of Angeles' cinematograph building in Bacoor, Cavite,
which he transferred to the municipality of Paraaque where the
same was reconstructed for the use of the corporation. The receipts
signed by the Philippine Engineering Company and the testimony
of Higinio Angeles and Aguedo Bernabe (secretary- treasurer of
the corporation) show that Higinio Angeles paid with his own
funds the sum of P2,750 to the Philippine Engineering Co. as part
of the purchase price of the rice mill brought for the corporation.
Angeles paid a further sum of P2,397.99 to the Philippine
Engineering Company. It also appears that for the installation of
the rice mill, the construction of a camarin, and the cement paving
(cementacion) of the whole area of two camarines, and for the
excavation of a well for the use of the rice mill, the plaintiff
Higinio Angeles paid with his own funds the amount of P7,431.47.
Adding all these sums together we have a total of P18,179.46. At a
meeting of the board of directors on December 27, 1931, which
meeting was convoked by Angeles, it seemed to have been agreed
that Angeles was to be given shares of stock of the total par value
of P15,000. Angeles wanted to have P16,000 worth of stock to his
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credit for having made the disbursements mentioned above, but he

finally agreed to accept 600 shares worth only P15,000. The
certificate of stock, however, was not issued as disagreement arose
between him and the defendant Santos. We, therefore, find no error
in the decision of the lower court ordering the issuance of a
certificate for 600 shares of stock of the total par value of P15,000
to Higinio Angeles.
It is unnecessary to consider the ninth and tenth
assignments of error.
In view of the foregoing, we hold:
(1) That the action in the present case was properly
instituted by the plaintiffs as stockholders for and in behalf of the
corporation Paraaque Rice Mill, Inc., and other stockholders of
the said corporation;
(2) That the lower court committed no reviewable error in
appointing a receiver of the corporation pendente lite;
(3) That the lower court committed no error in ordering an
election of the new board of directors, which election shall be held
within thirty days from the date this decision becomes final;
(4) That Teodorico B. Santos shall render an accounting of
all the properties, funds and income of the corporation which may
have come into his possession to the new board of directors;
(5) That the receiver, Emilio Figueroa, shall continue in
office until the election and qualification of the members of the
new board of directors;

(6) That upon the constitution of the new board of

directors, the said receiver shall turn over all the properties of the

corporation in his possession to the corporation, or such person or

persons as may be duly authorized by it; and
(7) That Higinio Angeles, or his successor in interest, is
entitled to 600 shares of stock at the par value of P15,000 and the
lower court committed no error in ordering the issuance of the
corresponding certificate of stock.
On June 10, 1937, counsel for the plaintiffs-appellees filed
a motion making it appear of record that Higinio Angeles, one of
the plaintiffs and appellees, died on May 4, 1937 and that one of
his daughters, Maura Angeles y Reyes, had been granted letters of
administration as evidenced by the document attached to the
motion as Exhibit A, and praying that said Maura Angeles y Reyes
be substituted as one of the plaintiffs and appellees in lieu of
Higinio Angeles, deceased. This motion is hereby granted.
Defendants-appellants shall pay the costs in both instances.
So ordered.
Avancea, C. J., Villa-Real, Abad Santos, Imperial, Diaz
and Concepcion, JJ., concur.
NORA A. BITONG, petitioner, vs. COURT OF
APPEALS (FIFTH DIVISION) EUGENIA D.
APOSTOL, JOSE A. APOSTOL, MR. & MS.
PUBLISHING CO., LETTY J. MAGSANOC, AND
ADORACION G. NUYDA, respondents.
[CA-G.R. No. 33873. July 13, 1998.]
NORA A. BITONG, petitioner, vs. COURT OF
APPEALS (FIFTH DIVISION) and EDGARDO
B. ESPIRITU, respondents.
Castillo Zamora & Poblador for petitioner.
9|

DECISION

BELLOSILLO, J p:
These twin cases originated from a derivative suit 1 filed by petitioner
Nora A. Bitong before the Securities and Exchange Commission (SEC
hereafter) allegedly for the benefit of private respondent Mr. & Ms.
Publishing Co., Inc. (Mr. & Ms. hereafter), among others, to hold
respondent spouses Eugenia D. Apostol and Jose A. Apostol 2 liable
for fraud, misrepresentation, disloyalty, evident bad faith, conflict of
interest and mismanagement in directing the affairs of Mr. & Ms. to the
damage and prejudice of Mr. & Ms. and its stockholders, including
petitioner. LexLib
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 complained of irregularities committed
from 1983 to 1987 by Eugenia D. 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 (PDI
hereafter) 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 D. Apostol, Mr. & Ms.
made several cash advances to PDI on various occasions amounting to
P3.276 million. On some of these borrowings PDIpaid 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.
Petitioner further alleged that respondents Eugenia and Jose Apostol
were stockholders, directors and officers in both Mr. & Ms. and PDI.
In fact on 2 May 1986 respondents Eugenia D. Apostol, Leticia J.
Magsanoc and Adoracion G. 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.

The petition principally sought to (a) enjoin respondents Eugenia D.

Apostol and Jose A. Apostol from further acting as president-director
and director, respectively, of Mr. & Ms. and disbursing any money or
funds except for the payment of salaries and similar expenses in the
ordinary course of business, and from disposing of their Mr. & Ms.
shares; (b) enjoin respondents Apostol spouses, Magsanoc and Nuyda
from disposing of the PDI shares of stock registered in their names; (c)
compel respondents Eugenia and Jose Apostol to account for and
reconvey all profits and benefits accruing to them as a result of their
improper and fraudulent acts; (d) compel respondents Magsanoc and
Nuyda to account for and reconvey to Mr. & Ms. all shares of stock
paid from cash advances from it and all accessions or fruits thereof; (e)
hold respondents Eugenia and Jose Apostol liable for damages suffered
by Mr. & Ms. and the other stockholders, including petitioner, by
reason of their improper and fraudulent acts; (f) appoint a management
committee for Mr. & Ms. during the pendency of the suit to prevent
further dissipation and loss of its assets and funds as well as
paralyzation of business operations; and, (g) direct the management
committee for Mr. & Ms. to file the necessary action to enforce its
rights against PDI and other third parties.
Private respondents Apostol spouses, Magsanoc, Nuyda, and Mr. &
Ms., on the other hand, refuted the allegations of petitioner by starting
with a narration of the beginnings of Mr. & Ms. They recounted that on
9 March 1976 Ex Libris Publishing Co., Inc. (Ex Libris hereafter) was
incorporated for the purpose of publishing a weekly magazine. Its
original principal stockholders were spouses Senator Juan Ponce Enrile
(then Minister of National Defense) and Cristina Ponce Enrile through
Jaka Investments Corporation (JAKA hereafter), and respondents
Eugenia and Jose Apostol. When Ex Libris suffered financial
difficulties, JAKA and the Apostols, together with new investors Luis
Villafuerte and Ramon Siy, restructured Ex Libris by organizing a new
corporation known as Mr. & Ms.
The original stockholders of Mr. & Ms., i.e., JAKA, Luis Villafuerte,
Ramon Siy, the Apostols and Ex Libris continued to be virtually the
same up to 1989. Thereafter it was agreed among them that, they being
close friends, Mr. & Ms. would be operated as a partnership or a close
corporation; respondent Eugenia D. Apostol would manage the affairs
of Mr. & Ms.; and, no shares of stock would be sold to third parties
without first offering the shares to the other stockholders so that
transfers would be limited to and only among the original stockholders.
10 |

Private respondents also asserted that respondent Eugenia D. Apostol

had been informing her business partners of her actions as manager,
and obtaining their advice and consent. Consequently the other
stockholders consented, either expressly or impliedly, to her
management. They offered no objections. As a result, the business
prospered. Thus, as shown in a statement prepared by the accounting
firm Punongbayan and Araullo, there were increases from 1976 to
1988 in the total assets of Mr. & Ms. from P457,569.00 to
P10,143,046.00; in the total stockholders' equity from P203,378.00 to
P2,324,954.00; and, in the net sales, from P301,489.00 to
P16,325,610.00. Likewise, cash dividends were distributed and
received by the stockholders.
Private respondents further contended that petitioner, being merely a
holder-in-trust of JAKA shares, only represented and continued to
represent JAKA in the board. In the beginning, petitioner cooperated
with and assisted the management until mid-1986 when relations
between her and her principals on one hand, and respondent Eugenia
D. Apostol on the other, became strained due to political differences.
Hence from mid-1986 to mid-1988 petitioner refused to speak with
respondent Eugenia D. Apostol, and in 1988 the former became openly
critical of the management of the latter. Nevertheless, respondent
Eugenia D. Apostol always made available to petitioner and her
representatives all the books of the corporation.
Private respondents averred that all the PDI shares owned by
respondents Eugenia and Jose Apostol were acquired through their own
private funds and that the loan of P750,000.00 by PDI from Mr. & Ms.
had been fully paid with 20% interest per annum. And, it was PDI, not
Mr. & Ms., which loaned off P250,000.00 each to respondents
Magsanoc and Nuyda. Private respondents further 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.

On 6 December 1990, the SEC Hearing Panel 3 issued a writ of

preliminary injunction enjoining private respondents from disbursing
any money except for the payment of salaries and other similar
expenses in the regular course of business. The Hearing Panel also

enjoined respondent Apostol spouses, Nuyda and Magsanoc from

disposing of their PDI shares, and further ruled
. . . respondents' contention that petitioner is not
entitled to the provisional reliefs prayed for because
she is not the real party in interest . . . is bereft of
any merit. No less than respondents' Amended
Answer, specifically paragraph V, No. 8 on
Affirmative Allegations/Defenses states that 'The
petitioner being herself a minor stockholder and
holder-in-trust of JAKA shares represented and
continues to represent JAKA in the Board.' This
statement refers to petitioner sitting in the board of
directors of Mr. & Ms. in two capacities, one as a
minor stockholder and the other as the holder in trust
of the shares of JAKA in Mr. & Ms. Such reference
alluded to by the respondents indicates an admission
on respondents' part of the petitioner's legal
personality to file a derivative suit for the benefit of
the respondent Mr. & Ms. Publishing Co., Inc.
The Hearing Panel however denied petitioner's prayer for the
constitution of a management committee.
On 25 March 1991 private respondents filed a Motion to Amend
Pleadings to Conform to Evidence alleging that the issue of whether
petitioner is the real party-in-interest had been tried by express or
implied consent of the parties through the admission of documentary
exhibits presented by private respondents proving that the real partyin-interest was JAKA, not petitioner Bitong. As such, No. 8, par. V
(Affirmative Allegations/Defenses), Answer to the Amended Petition,
was stipulated due to inadvertence and excusable mistake and should
be amended. On 10 October 1991 the Hearing Panel denied the motion
for amendment.
Petitioner testified at the trial 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
11 |

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. Respondent Eugenia D. Apostol explained
that she stopped using her long signature (Eugenia D. Apostol) in 1987
and changed it to E.D. Apostol, the signature which appeared on the
face of Certificate of Stock No. 008 bearing the date 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. Respondent Eugenia D.
Apostol claimed that she had not seen the Stock and Transfer Book at
any time until 21 March 1989 when it was delivered by petitioner
herself to the office of Mr. & Ms., and that petitioner repeatedly
referred to Senator Enrile as "my principal" during the Mr. & Ms.
board meeting of 22 September 1988, seven (7) times no less.
On 3 August 1993, after trial on the merits, the SEC Hearing Panel
dismissed the derivative suit filed by petitioner and dissolved the writ
of preliminary injunction barring private respondents from disposing of
their PDI shares and any of Mr. & Ms. assets. The Hearing Panel ruled
that there was no serious mismanagement of Mr. & Ms. which would
warrant drastic corrective measures. It gave credence to the assertion of
respondent Eugenia D. Apostol that Mr. & Ms., was operated like a
close corporation where important matters were discussed and
approved through informal consultations at breakfast conferences. The
Hearing Panel also concluded that while the evidence presented tended
to show that the real party-in-interest indeed was JAKA and/or Senator
Enrile, it viewed the real issue to be the alleged mismanagement, fraud
and conflict of interest on the part of respondent Eugenia D. Apostol,
and allowed petitioner to prosecute the derivative suit if only to resolve
the real issues. Hence, for this purpose, the Hearing Panel considered
petitioner to be the real party-in-interest.
On 19 August 1993 respondent Apostol spouses sold the PDI shares
registered in the name of their holding company, JAED Management
Corporation, to Edgardo B. Espiritu. On 25 August 1993 petitioner
Bitong appealed to the SEC En Banc.

On 24 January 1994 the SEC En Banc 4 reversed the decision of the

Hearing Panel and, among others, ordered private respondents to
account for, return and deliver to Mr. & Ms. any and all funds and
assets that they disbursed from the coffers of the corporation including
shares of stock, profits, dividends and/or fruits that they might have
received as a result of their investment in PDI, including those arising
from the P150,000.00 advanced to respondents Eugenia D. Apostol,
Leticia J. Magsanoc and Adoracion G. Nuyda; account for and return
any profits and fruits of all amounts irregularly or unlawfully advanced
to PDI and other third persons; and, cease and desist from managing
the affairs of Mr. & Ms. for reasons of fraud, mismanagement,
disloyalty and conflict of interest.
The SEC En Banc also declared the 19 August 1993 sale of the PDI
shares of JAED Management Corporation to Edgardo B. Espiritu to be
tainted with fraud, hence, null and void, and considered Mr. & Ms. as
the true and lawful owner of all the PDI shares acquired by
respondents Eugenia D. Apostol, Magsanoc and Nuyda. It also
declared all subsequent transferees of such shares as trustees for the
benefit of Mr. & Ms. and ordered them to forthwith deliver said shares
to Mr. & Ms.
Consequently, respondent Apostol spouses, Magsanoc, Nuyda, and Mr.
& Ms. filed a petition for review before respondent Court of Appeals,
docketed as CA-GR No. SP 33291, while respondent Edgardo B.
Espiritu filed a petition for certiorari and prohibition also before
respondent Court of Appeals, docketed as CA-GR No. SP 33873. On 8
December 1994 the two (2) petitions were consolidated.
On 31 August 1995 respondent appellate court rendered a decision
reversing the SEC En Banc and held that from the evidence on record
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. Accordingly, petitioner
alone and by herself as an agent could not file a derivative suit in
behalf of her principal. For not being the real party-in-interest,
petitioner's complaint did not state a cause of action, a defense which
was never waived; hence, her petition should have been dismissed.
Respondent appellate court ruled that the assailed orders of the SEC
were issued in excess of jurisdiction, or want of it, and thus were null
and void. 5 On 18 January 1996, petitioner's motion for reconsideration
was denied for lack of merit.
12 |

Before this Court, petitioner submits that in paragraph 1 under the

caption "I. The Parties" of her Amended Petition before the SEC, she
stated that she was a stockholder and director of Mr. & Ms. In par. 1
under the caption "II. The Facts" she declared that she "is the
registered owner of 1,000 shares of stock of Mr. & Ms. out of the
latter's 4,088 total outstanding shares" and that she was a member of
the Board of Directors of Mr. & Ms. and treasurer from its inception
until 11 April 1989. Petitioner contends that private respondents did
not deny the above allegations in their answer and therefore they are
conclusively bound by this judicial admission. Consequently, private
respondents' admission that petitioner has 1,000 shares of stock
registered in her name in the books of Mr. & Ms. forecloses any
question on her status and right to bring a derivative suit on behalf of
Mr. & Ms.
Not necessarily. A party whose pleading is admitted as an admission
against interest is entitled to overcome by evidence the apparent
inconsistency, and it is competent for the party against whom the
pleading is offered to show that the statements were inadvertently
made or were made under a mistake of fact. In addition, a party against
whom a single clause or paragraph of a pleading is offered may have
the right to introduce other paragraphs which tend to destroy the
admission in the paragraph offered by the adversary. 6
The Amended Petitionbefore the SEC alleges
I. THE PARTIES
1. Petitioner is a stockholder and director of Mr. &
Ms. . . .
II. THE FACTS
1. Petitioner is the registered owner of 1,000 shares
of stock of Mr. & Ms. out of the latter's 4,088 total
outstanding shares. Petitioner, at all times material to
this petition, is a member of the Board of Directors
of Mr. & Ms. and from the inception of Mr. & Ms.
until 11 April 1989 was its treasurer . . .
On the other hand, the Amended Answer to the Amended Petition states

I. PARTIES

001-9-15-76 JAKA Investments Corp. 1,000 21%

1. Respondents admit the allegations contained in

Caption I, pars. 1 to 4 of the Petition referring to the
personality, addresses and capacity of the parties to
the petition except . . . but qualify said admission
insofar as they are limited, qualified and/or
expanded by allegations in the Affirmative
Allegations/Defenses . . .

003-9-15-76 Ramon L. Siy 1,000 21%

004-9-15-76 Jose Z. Apostol 1,000 21%
005-9-15-76 Ex Libris Publishing Co. 800 16%

II. THE FACTS

1. Respondents admit paragraph 1 of the Petition,

but qualify said admission as to the beneficial
ownership of the shares of stock registered in the
name of the petitioner, the truth being as stated in the
Affirmative Allegations/Defenses of this Answer . . .

4,800 96%

V. AFFIRMATIVE ALLEGATIONS/DEFENSES
Respondents respectfully allege by way
Affirmative Allegations/Defenses, that . . .

of

3. Fortunately, respondent Apostol was able to

convince Mr. Luis Villafuerte to take interest in the
business and he, together with the original investors,
restructured the Ex Libris Publishing Company by
organizing a new corporation known as Mr. & Ms.
Publishing Co., Inc. . . . Mr. Luis Villafuerte
contributed his own P100,000.00. JAKA and
respondent Jose Z. Apostol, original investors of Ex
Libris contributed P100,000.00 each; Ex Libris
Publishing Company was paid 800 shares for the
name of Mr. & Ms. magazine and goodwill. Thus,
the original stockholders of respondent Mr. & Ms.
were:
Cert./No./Date Name
Shares %
13 |

002-9-15-76 Luis Villafuerte 1,000 21%

of

Stockholder No.

of

4. The above-named original stockholders of

respondent Mr. & Ms. continue to be virtually the
same stockholders up to this date . . .
8. The petitioner being herself a minor stockholder
and holder-in-trust of JAKA shares, represented and
continues to represent JAKA in the Board . . .
21. Petitioner Nora A. Bitong is not the true party to
this case, the true party being JAKA Investments
Corporation which continues to be the true
stockholder of respondent Mr. & Ms. Publishing
Co., Inc., consequently, she does not have the
personality to initiate and prosecute this derivative
suit, and should therefore be dismissed . . .
The answer of private respondents shows that there was no judicial
admission that petitioner was a stockholder of Mr. & Ms. to entitle her
to file a derivative suit on behalf of the corporation. Where the
statements of the private respondents were qualified with phrases such
as, "insofar as they are limited, qualified and/or expanded by," "the
truth being as stated in the Affirmative Allegations/Defenses of this
Answer" they cannot be considered definite and certain enough, cannot
be construed as judicial admissions. 7
More so, the affirmative defenses of private respondents directly refute
the representation of petitioner that she is a true and genuine

stockholder, of Mr. & Ms. by stating unequivocally that petitioner is

not the true party to the case but JAKA which continues to be the true
stockholder of Mr. & Ms. In fact, one of the reliefs which private
respondents prayed for was the dismissal of the petition on the ground
that petitioner did not have the legal interest to initiate and prosecute
the same.
When taken in its totality, the Amended Answer to the Amended
Petition or even the Answer to the Amended Petition alone, clearly
raises an issue as to the legal personality of petitioner to file the
complaint. Every alleged admission is taken as an entirety of the fact
which makes for the one side with the qualifications which limit,
modify or destroy its effect on the other side. The reason for this is,
where part of a statement of a party is used against him as an
admission, the court should weigh any other portion connected with
the statement, which tends to neutralize or explain the portion which is
against interest. prcd
In other words, while the admission is admissible in evidence, its
probative value is to be determined from the whole statement and
others intimately related or connected therewith as an integrated unit.
Although acts or facts admitted do not require proof and cannot be
contradicted, however, evidence aliunde can be presented to show that
the admission was made through palpable mistake. 8 The rule is
always in favor of liberality in construction of pleadings so that the real
matter in dispute may be submitted to the judgment of the court. 9
Petitioner also argues that since private respondents failed to appeal the
6 December 1990 Order and the 3 August 1993 Decision of the SEC
Hearing Panel declaring that she was the real party-in-interest and had
legal personality to sue, they are now estopped from questioning her
personality.
Not quite. The 6 December 1990 Order is clearly an interlocutory order
which cannot be considered as having finally resolved on the merits
the issue of legal capacity of petitioner. The SEC Hearing Panel
discussed the issue of legal capacity solely for the purpose of ruling on
the application for writ of preliminary injunction as an incident to the
main issues raised in the complaint. Being a mere interlocutory order,
it is not appealable.

14 |

For, an interlocutory order refers to something between the

commencement and end of the suit which decides some point or matter
but it is not the final decision of the whole controversy. 10 Thus, even
though the 6 December 1990 Order was adverse to private respondents,
they had the legal right and option not to elevate the same to the SEC
En Banc but rather to await the decision which resolves all the issues
raised by the parties and to appeal therefrom by assigning all errors
that might have been committed by the Hearing Panel.
On the other hand, the 3 August 1993 Decision of the Hearing Panel
dismissing the derivative suit for failure to prove the charges of
mismanagement, fraud, disloyalty and conflict of interest and
dissolving the writ of preliminary injunction, was favorable to private
respondents. Hence, they were not expected to appeal therefrom.
In fact, in the 3 August 1993 Decision, the Hearing Panel categorically
stated that the evidence presented showed that the real party-in-interest
was not petitioner Bitong but JAKA and/or Senator Enrile. Petitioner
was merely allowed to prosecute her complaint so as not to sidetrack
"the real issue to be resolved (which) was the allegation of
mismanagement, fraud and conflict of interest allegedly committed by
respondent Eugenia D. Apostol." It was only for this reason that
petitioner was considered to be capacitated and competent to file the
petition.
Accordingly, with the dismissal of the complaint of petitioner against
private respondents, there was no compelling reason for, the latter to
appeal to the SEC En Banc. It was in fact petitioner's turn as the
aggrieved party to exercise her right to appeal from the decision. It is
worthy to note that even during the appeal of petitioner before the SEC
En Banc private respondents maintained their vigorous objection to the
appeal and reiterated petitioner's lack of legal capacity to sue before
the SEC.
Petitioner then contends that she was a holder of the proper certificates
of shares of stock and that the transfer was recorded in the Stock and
Transfer Book of Mr. & Ms. She invokes Sec. 63 of The Corporation
Code which provides 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. Petitioner alleges that even in
the absence of a stock certificate, a stockholder solely on the strength

of the recording in the stock and transfer book can exercise all the
rights as stockholder, including the right to file a derivative suit in the
name of the corporation. And, she need not present a separate deed of
sale or transfer in her favor to prove ownership of stock.
Section 63 of The Corporation Code expressly 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
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 . . .
This provision above quoted 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. 11 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. 12
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.
15 |

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. 13 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. 14 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. 15

The foregoing 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. 16 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. 17
As found by the Hearing Panel and affirmed by respondent Court of
Appeals, there is overwhelming evidence that despite what appears on
the certificate of stock and stock and transfer book, petitioner was not a
bona fide stockholder of Mr. & Ms. before March 1989 or at the time
the complained acts were committed to qualify her to institute a
stockholder's derivative suit against private respondents. Aside from
petitioner's own admissions, several corporate documents disclose that
the true party-in-interest is not petitioner but JAKA.

Thus, while petitioner asserts in her petition that Certificate of Stock

No. 008 dated 25 July 1983 was issued in her name, private
respondents argue that this certificate was signed by respondent
Eugenia D. Apostol as President only in 1989 and was fraudulently
antedated by petitioner who had possession of the Certificate Book and
the Stock and Transfer Book. Private respondents stress that
petitioner's counsel entered into a stipulation on record before the
Hearing Panel that the certificate was indeed signed by respondent
Apostol only in 1989 and not in 1983.
In her reply, petitioner admits 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 the foregoing 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.
And even the factual antecedents of the alleged ownership by
petitioner in 1983 of shares of stock of Mr. & Ms. are indistinctive if
16 |

not enshrouded in inconsistencies. In her testimony before the Hearing

Panel, petitioner said that early in 1983, to relieve Mr. & Ms. from
political pressure, Senator Enrile decided to divest the family holdings
in Mr. & Ms. as he was then part of the government and Mr. & Ms.
was evolving to be an opposition newspaper. The JAKA shares
numbering 1,000 covered by Certificate of Stock No. 001 were thus
transferred to respondent Eugenia D. Apostol in trust or in blank. 18
Petitioner now claims that a few days after JAKA's shares were
transferred to respondent Eugenia D. Apostol, Senator Enrile sold to
petitioner 997 shares of JAKA. For this purpose, a deed of sale was
executed and antedated to 10 May 1983. 19 This submission of
petitioner is however contradicted by the records which show that a
deed of sale was executed by JAKA transferring 1,000 shares of Mr. &
Ms. to respondent Apostol on 10 May 1983 and not to petitioner. 20
Then Senator Enrile testified that in May or June 1983 he was asked at
a media interview if his family owned shares of stock in Mr. & Ms.
Although he and his family were stockholders at that time he denied it
so as not to embarrass the magazine. He called up petitioner and
instructed her to work out the documentation of the transfer of shares
from JAKA to respondent Apostol to be covered by a declaration of
trust. His instruction was to transfer the shares of JAKA in Mr. & Ms.
and Ex Libris to respondent Apostol as a nominal holder. He then
finally decided to transfer the shareholdings to petitioner. 21
When asked if there was any document or any written evidence of that
divestment in favor of petitioner, Senator Enrile answered that there
was an endorsement of the shares of stock. He said that there was no
other document evidencing the assignment to petitioner because the
stocks were personal property that could be transferred even orally. 22
Contrary to Senator Enrile's testimony, however, petitioner maintains
that Senator Enrile executed a deed of sale in her favor. LLphil
A careful perusal of the records shows that neither the alleged
endorsement of Certificate of Stock No. 001 in the name of JAKA nor
the alleged deed of sale executed by Senator Enrile directly in favor of
petitioner could have legally transferred or assigned on 25 July 1983
the shares of stock in favor of petitioner because as of 10 May 1983
Certificate of Stock No. 001 in the name of JAKA was already
cancelled and a new one, Certificate of Stock No. 007, issued in favor

of respondent Apostol by virtue of a Declaration of Trust and Deed of

Sale. 23
It should be emphasized that on 10 May 1983 JAKA executed a deed of
sale over 1,000 Mr. & Ms. shares in favor of respondent Eugenio D.
Apostol. On the same day, respondent Apostol signed a declaration of
trust stating that she was the registered owner of 1,000 Mr. & Ms.
shares covered by Certificate of Stock No. 007.
The declaration of trust further showed that although respondent
Apostol was the registered owner, she held the shares of stock and
dividends which might be paid in connection therewith solely in trust
for the benefit of JAKA, her principal. It was also stated therein that
being a trustee, respondent Apostol agreed, on written request of the
principal, to assign and transfer the shares of stock and any and all
such distributions or dividends unto the principal or such other person
as the principal would nominate or appoint.
Petitioner was well aware of this trust, being the person in charge of
this documentation and being one of the witnesses to the execution of
this document. 24 Hence, the mere alleged endorsement of Certificate
of Stock No. 001 by Senator Enrile or by a duly authorized officer of
JAKA to effect the transfer of shares of JAKA to petitioner could not
have been legally feasible because Certificate of Stock No. 001 was
already canceled by virtue of the deed of sale to respondent Apostol.
And, there is nothing in the records which shows that JAKA had
revoked the trust it reposed on respondent Eugenia D. Apostol. Neither
was there any evidence that the principal had requested her to assign
and transfer the shares of stock to petitioner. If it was true that the
shares of stock covered by Certificate of Stock No. 007 had been
transferred to petitioner, the person who could legally endorse the
certificate was private respondent Eugenia D. Apostol, she being the
registered owner and trustee of the shares of stock covered by
Certificate of Stock No. 007. It is a settled rule that the trustee should
endorse the stock certificate to validate the cancellation of her share
and to have the transfer recorded in the books of the corporation. 25
In fine, the records are unclear on how petitioner allegedly acquired the
shares of stock of JAKA. Petitioner being the chief executive officer of
JAKA and the sole person in charge of all business and financial
transactions and affairs of JAKA 26 was supposed to be in the best
17 |

position to show convincing evidence on the alleged transfer of shares

to her, if indeed there was a transfer. Considering that petitioner's status
is being questioned and several factual circumstances have been
presented by private respondents disproving petitioner's claim, it was
incumbent upon her to submit rebuttal evidence on the manner by
which she allegedly became a stockholder. Her failure to do so taken in
the light of several substantial inconsistencies in her evidence is fatal
to her case.
The rule is that the endorsement of the certificate of stock by the owner
or his attorney-in-fact or any other person legally authorized to make
the transfer shall be sufficient to effect the transfer of shares only if the
same is coupled with delivery. The delivery of the stock certificate
duly endorsed by the owner is the operative act of transfer of shares
from the lawful owner to the new transferee.
Thus, for a valid transfer of stocks, the requirements are as follows: (a)
There must be delivery of the stock certificate; (b) The certificate must
be endorsed by the owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and, (c) to be valid against
third parties, the transfer must be recorded in the books of the
corporation. 27 At most, in the instant case, petitioner has satisfied
only the third requirement. Compliance with the first two requisites has
not been clearly and sufficiently shown.

Considering that the requirements provided under Sec. 63 of The

Corporation Code should be mandatorily complied with, the rule on
presumption of regularity cannot apply. The regularity and validity of
the transfer must be proved. As it is, even the credibility of the stock
and transfer book and the entries thereon relied upon by petitioner to
show compliance with the third requisite to prove that she was a
stockholder since 1983 is highly doubtful.
The records show that the original stock and transfer book and the
stock certificate book of Mr. & Ms. were in the possession of petitioner
before their custody was transferred to the Corporate Secretary, Atty.
Augusto San Pedro. 28 On 25 May 1988, Assistant Corporate
Secretary Renato Jose Unson wrote Mr. & Ms. about the lost stock and
transfer book which was also noted by the corporation's external
auditors, Punongbayan and Araullo, in their audit. Atty. Unson even

informed respondent Eugenia D. Apostol as President of Mr. & Ms.

that steps would be undertaken to prepare and register a new Stock and
Transfer Book with the SEC. Incidentally, perhaps strangely, upon
verification with the SEC, it was discovered that the general file of the
corporation with the SEC was missing. Hence, it was even possible that
the original Stock and Transfer Book might not have been registered at
all.
On 20 October 1988 respondent Eugenia D. Apostol wrote Atty.
Augusto San Pedro noting the changes he had made in the Stock and
Transfer Book without prior notice to the corporate officers. 29 In the
27 October 1988 directors' meeting, respondent Eugenia D. Apostol
asked about the documentation to support the changes in the Stock and
Transfer Book with regard to the JAKA shares. Petitioner answered that
Atty. San Pedro made the changes upon her instructions conformably
with established practice. 30
This simply shows that as of 1988 there still existed certain issues
affecting the ownership of the JAKA shares, thus raising doubts
whether the alleged transactions recorded in the Stock and Transfer
Book were proper, regular and authorized. Then, as if to magnify and
compound the uncertainties in the ownership of the shares of stock in
question, when the corporate secretary resigned, the Stock and Transfer
Book was delivered not to the corporate office where the book should
be kept but to petitioner. 31
That JAKA retained its ownership of its Mr. & Ms. shares was clearly
shown by its receipt of the dividends issued in December 1986. 32
This only means, very obviously, that Mr. & Ms. shares in question
still belonged to JAKA and not to petitioner. For, dividends are
distributed to stockholders pursuant to their right to share in corporate
profits. When a dividend is declared, it belongs to the person who is
the substantial and beneficial owner of the stock at the time regardless
of when the distribution profit was earned. 33
Finally, this Court takes notice of the glaring and open admissions of
petitioner made, not just seven (7) but nine (9) times, during the 22
September 1988 meeting of the board of directors that the Enriles were
her principals or shareholders, as shown by the minutes thereof which
she duly signed 34

18 |

5. Mrs. E. Apostol explained to the Directors that

through her efforts, the asset base of the Company
has improved and profits were realized. It is for this
reason that the Company has declared a 100% cash
dividend in 1986. She said that it is up for the Board
to decide based on this performance whether she
should continue to act as Board Chairman or not. In
this regard, Ms. N.A. Bitong expressed her
recollection of how Ex-Libris/Mr. & Ms. were
organized and her participation for and on behalf of
her principals, as follows: She recalled that her
principals were invited by Mrs. E. Apostol to invest
in Ex-Libris and eventually Mr. & Ms. The
relationship between her principals and Mrs. E.
Apostol made it possible for the latter to have access
to several information concerning certain political
events and issues. In many instances, her principals
supplied first hand and newsworthy information that
made Mr. & Ms. a popular paper . . .
6. According to Ms. Bitong, her principals were
instrumental in helping Mr. & Ms. survive during
those years that it was cash strapped . . . Ms. N.A.
Bitong pointed out that the practice of using the
former Minister's influence and stature in the
government is one thing which her principals
themselves are strongly against . . .
7. . . . At this point, Ms. N. Bitong again expressed
her recollection of the subject matter as follows: (a)
Mrs. E. Apostol, she remembers, brought up the
concept of a cooperative-ran newspaper company in
one of her breakfast session with her principals
sometime during the end of 1985. Her principals
when asked for an opinion, said that they recognized
the concept as something very noble and visible . . .
Then Ms. Bitong asked a very specific question
"When you conceptualized Ex-Libris and Mr. &
Ms., did you not think of my shareholders the Ponce
Enrile as liabilities? How come you associated
yourself with them then and not now? What is the

difference?" Mrs. Apostol did not answer the

question.
The admissions of a party against his interest inscribed upon the record
books of a corporation are competent and persuasive evidence against
him. 35 These admissions render nugatory any argument that petitioner
is a bona fide stockholder of Mr. & Ms. at any time before 1988 or at
the time the acts complained of were committed. There is no doubt that
petitioner was an employee of JAKA as its managing officer, as
testified to by Senator Enrile himself. 36 However, in the absence of a
special authority from the board of directors of JAKA to institute a
derivative suit for and in its behalf, petitioner is disqualified by law to
sue in her own name. The power to sue and be sued in any court by a
corporation even as a stockholder is lodged in the board of directors
that exercises its corporate powers and not in the president or officer
thereof. 37
It is well settled in this jurisdiction that where corporate directors are
guilty of a breach of trust, not of mere error of judgment or abuse of
discretion, and intra-corporate remedy is futile or useless, a
stockholder may institute a suit in behalf of himself and other
stockholders and for the benefit of the corporation, to bring about a
redress of the wrong inflicted directly upon the corporation and
indirectly upon the stockholders. 38 The stockholder's right to institute
a derivative suit is not based on any express provision of The
Corporation Code but is impliedly recognized when the law makes
corporate directors or officers liable for damages suffered by the
corporation and its stockholders for violation of their fiduciary duties.
Hence, a stockholder may sue for mismanagement, waste or dissipation
of corporate assets because of a special injury to him for which he is
otherwise without redress. 39 In effect, the suit is an action for specific
performance of an obligation owed by the corporation to the
stockholders to assist its rights of action when the corporation has been
put in default by the wrongful refusal of the directors or management
to make suitable measures for its protection. 40
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
19 |

complained of which invests him with standing to institute a derivative

action for the benefit of the corporation. 41
WHEREFORE, the petition is DENIED. The 31 August 1995 Decision
of the Court of Appeals dismissing the complaint of petitioner Nora A.
Bitong in CA-G.R. No. SP 33291, and granting the petition for
certiorari and prohibition filed by respondent Edgardo B. Espiritu as
well as annulling the 5 November 1993, 24 January 1994 and 18
February 1994 Orders of the SEC En Banc in CA-G.R. No. SP 33873,
is AFFIRMED. Costs against petitioner.
SO ORDERED. LLphil
Davide, Jr., Vitug and Quisumbing, JJ ., concur.
Panganiban, J ., took no part; participated, as a former practising
lawyer, in negotiations to buy subject shares.
FRANCIS CHUA, petitioner, vs. HON. COURT
OF APPEALS and LYDIA C. HAO, respondents.
DECISION
QUISUMBING, J p:
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 complaint-affidavit 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

172 3 in relation to Article 171 4 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. 285721 6 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 SuaKho 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. 9994846, 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. TcDaSI
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.

20 |

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.
21 |

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. [9994846]
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 intracorporate 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,
22 |

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. CDESIA
Under Section 36 13 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.
23 |

Petitioner invokes the case of Ciudad Real & Devt. 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 Appeals 26 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-laws 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
24 |

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. IHcTDA
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.

dated 18 July 2006 2 and 19 April 2007 3 of the Court of Appeals in

CA-G.R. SP No. 00185. Upon herein respondents' motion, the Court of
Appeals rendered the assailed Resolution dated 18 July 2006,
reconsidering its Decision 4 dated 15 February 2006; and remanding
the case to the Regional Trial Court (RTC) of Cebu City, Branch 11,
for necessary proceedings, in effect, reversing the Decision 5 dated 10
November 2004 of the RTC which dismissed respondents' Complaint
in SRC Case No. 022-CEB. Herein petitioners' Motion for
Reconsideration of the Resolution dated 18 July 2006 was denied by
the appellate court in the other assailed Resolution dated 19 April
2007.
Herein petitioners are members of the Yu Family, particularly, the
father, Anthony S. Yu (Anthony); the wife, Rosita G. Yu (Rosita); and
their son, Jason G. Yu (Jason).

SO ORDERED.

Herein respondents composed the Yukayguan Family, namely, the

father, Joseph S. Yukayguan (Joseph); the wife, Nancy L. Yukayguan
(Nancy); and their children Jerald Nerwin L. Yukayguan (Jerald) and
Jill Neslie Yukayguan (Jill).

Davide, Jr., C .J ., Ynares-Santiago, Carpio and Azcuna, JJ ., concur.

Petitioner Anthony is the older half-brother of respondent Joseph.

ANTHONY S. YU, ROSITA G. YU and JASON

G. YU, petitioners, vs. JOSEPH S. YUKAYGUAN,
NANCY L. YUKAYGUAN, JERALD NERWIN L.
YUKAYGUAN, and JILL NESLIE L.
YUKAYGUAN, [on their own behalf and on behalf
of] WINCHESTER INDUSTRIAL SUPPLY, INC.,
respondents.
DECISION
CHICO-NAZARIO, J p:
Before Us is a Petition for Review on Certiorari 1 under Rule 45 of the
Rules of Court, which seeks to reverse and set aside the Resolutions
25 |

Petitioners and the respondents were all stockholders of Winchester

Industrial Supply, Inc. (Winchester, Inc.), a domestic corporation
engaged in the operation of a general hardware and industrial supply
and equipment business.
On 15 October 2002, respondents filed against petitioners a verified
Complaint for Accounting, Inspection of Corporate Books and
Damages through Embezzlement and Falsification of Corporate
Records and Accounts 6 before the RTC of Cebu. The said Complaint
was filed by respondents, in their own behalf and as a derivative suit
on behalf of Winchester, Inc., and was docketed as SRC Case No. 022CEB. The factual background of the Complaint was stated in the
attached Affidavit executed by respondent Joseph.

According to respondents, 7 Winchester, Inc. was established and

incorporated on 12 September 1977, with petitioner Anthony as one of
the incorporators, holding 1,000 shares of stock worth P100,000.00. 8
Petitioner Anthony paid for the said shares of stock with respondent
Joseph's money, thus, making the former a mere trustee of the shares
for the latter. On 14 November 1984, petitioner Anthony ceded 800 of
his 1,000 shares of stock in Winchester, Inc. to respondent Joseph, as
well as Yu Kay Guan, 9 Siao So Lan, and John S. Yu. 10 Petitioner
Anthony remained as trustee for respondent Joseph of the 200 shares
of stock in Winchester, Inc., still in petitioner Anthony's name. CaAIES
Respondents then alleged that on 30 June 1985, Winchester, Inc.
bought from its incorporators, excluding petitioner Anthony, their
accumulated 8,500 shares in the corporation. 11 Subsequently, on 7
November 1995, Winchester, Inc. sold the same 8,500 shares to other
persons, who included respondents Nancy, Jerald, and Jill; and
petitioners Rosita and Jason. 12
Respondents further averred that although respondent Joseph appeared
as the Secretary and Treasurer in the corporate records of Winchester,
Inc., petitioners actually controlled and ran the said corporation as if it
were their own family business. Petitioner Rosita handled the money
market placements of the corporation to the exclusion of respondent
Joseph, the designated Treasurer of Winchester, Inc. Petitioners were
also misappropriating the funds and properties of Winchester, Inc. by
understating the sales, charging their personal and family expenses to
the said corporation, and withdrawing stocks for their personal use
without paying for the same. Respondents attached to the Complaint
various receipts 13 to prove the personal and family expenses charged
by petitioners to Winchester, Inc.
Respondents, therefore, prayed that respondent Joseph be declared the
owner of the 200 shares of stock in petitioner Anthony's name.
Respondents also prayed that petitioners be ordered to: (1) deposit the
corporate books and records of Winchester, Inc. with the Branch Clerk
of Court of the RTC for respondents' inspection; (2) render an
accounting of all the funds of Winchester, Inc. which petitioners
26 |

misappropriated; (3) reimburse the personal and family expenses

which petitioners charged to Winchester, Inc., as well as the properties
of the corporation which petitioners withheld without payment; and (4)
pay respondents' attorney's fees and litigation expenses. In the
meantime, respondents sought the appointment of a Management
Committee and the freezing of all corporate funds by the trial court.
On 13 November 2002, petitioners filed an Answer with Compulsory
Counterclaim, 14 attached to which was petitioner Anthony's Affidavit.
15 Petitioners vehemently denied the allegation that petitioner Anthony
was a mere trustee for respondent Joseph of the 1,000 shares of stock
in Winchester, Inc. in petitioner Anthony's name. For the incorporation
of Winchester, Inc., petitioner Anthony contributed P25,000.00 paid-up
capital, representing 25% of the total par value of the 1,000 shares he
subscribed to, the said amount being paid out of petitioner Anthony's
personal savings and petitioners Anthony and Rosita's conjugal funds.
Winchester, Inc. was being co-managed by petitioners and respondents,
and the attached receipts, allegedly evidencing petitioners' use of
corporate funds for personal and family expenses, were in fact signed
and approved by respondent Joseph.
By way of special and affirmative defenses, petitioners contended in
their Answer with Compulsory Counterclaim that respondents had no
cause of action against them. Respondents' Complaint was purely
intended for harassment. It should be dismissed under Section 1 (j),
Rule 16 16 of the Rules of Court for failure to comply with conditions
precedent before its filing. First, there was no allegation in
respondents' Complaint that earnest efforts were exerted to settle the
dispute between the parties. Second, since respondents' Complaint
purportedly constituted a derivative suit, it noticeably failed to allege
that respondents exerted effort to exhaust all available remedies in the
Articles of Incorporation and By-Laws of Winchester, Inc., as well as
in the Corporation Code. And third, given that respondents' Complaint
was also for inspection of corporate books, it lacked the allegation that
respondents made a previous demand upon petitioners to inspect the
corporate books but petitioners refused. Prayed for by petitioners, in
addition to the dismissal of respondents' Complaint, was payment of

moral and exemplary damages, attorney's fees, litigation expenses, and

cost of suit.
On 30 October 2002, the hearing on the application for the
appointment of a Management Committee was commenced.
Respondent Joseph submitted therein, as his direct testimony, the same
Affidavit that he executed, which was attached to the respondents'
Complaint. On 4 November 2002, respondent Joseph was crossexamined by the counsel for petitioners. Thereafter, the continuation of
the hearing was set for 29 November 2002, in order for petitioners to
adduce evidence in support of their opposition to the application for
the appointment of a Management Committee. 17
During the hearing on 29 November 2002, the parties manifested
before the RTC that there was an ongoing mediation between them,
and so the hearing on the appointment of a Management Committee
was reset to another date.
In amicable settlement of their dispute, the petitioners and respondents
agreed to a division of the stocks in trade, 18 the real properties, and
the other assets of Winchester, Inc. In partial implementation of the
afore-mentioned amicable settlement, the stocks in trade and real
properties in the name of Winchester, Inc. were equally distributed
among petitioners and respondents. As a result, the stockholders and
members of the Board of Directors of Winchester, Inc. passed, on 4
January 2003, a unanimous Resolution 19 dissolving the corporation as
of said date.
On 22 February 2004, respondents filed their pre-trial brief. 20
On 25 June 2004, petitioners filed a Manifestation 21 informing the
RTC of the existence of their amicable settlement with respondents.
Respondents, however, made their own manifestation before the RTC
that they were repudiating said settlement, in view of the failure of the
parties thereto to divide the remaining assets of Winchester, Inc.
Consequently, respondents moved to have SRC Case No. 022-CEB set
for pre-trial.
27 |

On 23 August 2004, petitioners filed their pre-trial brief. 22

On 26 August 2004, instead of holding a formal pre-trial conference
and resuming the hearing on the application for the appointment of a
Management Committee, petitioners and respondents agreed that the
RTC may already render a judgment based on the pleadings. In
accordance with the agreement of the parties, the RTC issued, on even
date, an Order 23 which stated: EScIAa
ORDER
During the pre-trial conference held on August 26,
2004, counsels of the parties manifested, agreed and
suggested that a judgment may be rendered by the
Court in this case based on the pleadings, affidavits,
and other evidences on record, or to be submitted by
them, pursuant to the provision of Rule 4, Section 4
of the Rule on Intra-Corporate Controversies. The
suggestion of counsels was approved by the Court.
Accordingly, the Court hereby orders the counsels of
the parties to file simultaneously their respective
memoranda within a non-extendible period of
twenty (20) days from notice hereof. Thereafter, the
instant case will be deemed submitted for resolution.

xxx xxx xxx

Cebu City, August 26, 2004.
(signed)
SILVESTRE
A. MAAMO,
JR.

Acting
Presiding
Judge
Petitioners and respondents duly filed their respective Memoranda, 24
discussing the arguments already set forth in the pleadings they had
previously submitted to the RTC. Respondents, though, attached to
their Memorandum a Supplemental Affidavit 25 of respondent Joseph,
containing assertions that refuted the allegations in petitioner
Anthony's Affidavit, which was earlier submitted with petitioners'
Answer with Compulsory Counterclaim. Respondents also appended to
their Memorandum additional documentary evidence, 26 consisting of
original and duplicate cash invoices and cash disbursement receipts
issued by Winchester, Inc., to further substantiate their claim that
petitioners were understating sales and charging their personal
expenses to the corporate funds.
The RTC subsequently promulgated its Decision on 10 November
2004 dismissing SRC Case No. 022-CEB. The dispositive portion of
said Decision reads:
WHEREFORE, in view of the foregoing premises
and for lack of merit, this Court hereby renders
judgment in this case DISMISSING the complaint
filed by the [herein respondents].
The Court also hereby dismisses the [herein
petitioners'] counterclaim because it has not been
indubitably shown that the filing by the
[respondents] of the latter's complaint was done in
bad faith and with malice. 27
The RTC declared that respondents failed to show that they had
complied with the essential requisites for filing a derivative suit as set
forth in Rule 8 of the Interim Rules of Procedure Governing IntraCorporate Controversies:
28 |

(1)He was a stockholder or member at the time the

acts or transactions subject of the action
occurred and at the time the action was filed;
(2)He exerted all reasonable efforts, and alleges the
same with particularity in the complaint, to
exhaust all remedies available under the
articles of incorporation, by-laws, laws or
rules governing the corporation or
partnership to obtain the relief he desires;
(3)No appraisal rights are available for the act or
acts complained of; and
(4)The suit is not a nuisance or harassment suit.
As to respondents' prayer for the inspection of corporate books and
records, the RTC adjudged that they had likewise failed to comply with
the requisites entitling them to the same. Section 2, Rule 7 of the
Interim Rules of Procedure Governing Intra-Corporate Controversies
requires that the complaint for inspection of corporate books or records
must state that:
(1)The case is for the enforcement of plaintiff's right
of inspection of corporate orders or records
and/or to be furnished with financial
statements under Sections 74 and 75 of the
Corporation Code of the Philippines;
cITCAa
(2)A demand for inspection and copying of books
and records and/or to be furnished with
financial statements made by the plaintiff
upon defendant;

(3)The refusal of defendant to grant the demands of

the plaintiff and the reasons given for such
refusals, if any; and
(4)The reasons why the refusal of defendant to grant
the demands of the plaintiff is unjustified
and illegal, stating the law and jurisprudence
in support thereof.
The RTC further noted that respondent Joseph was the corporate
secretary of Winchester, Inc. and, as such, he was supposed to be the
custodian of the corporate books and records; therefore, a court order
for respondents' inspection of the same was no longer necessary. The
RTC similarly denied respondents' demand for accounting as it was
clear that Winchester, Inc. had been engaging the services of an audit
firm. Respondent Joseph himself described the audit firm as competent
and independent, and believed that the audited financial statements the
said audit firm prepared were true, faithful, and correct.
Finding the claims of the parties for damages against each other to be
unsubstantiated, the RTC thereby dismissed the same.
Respondents challenged the foregoing RTC Decision before the Court
of Appeals via a Petition for Review under Rule 43 of the Rules of
Court, docketed as CA-G.R. SP No. 00185.

. . . [T]his Court sees that the instant petition would

still fail taking into consideration all the pleadings
and evidence of the parties except the supplemental
affidavit of [herein respondent] Joseph and its
corresponding annexes appended in [respondents']
memorandum before the Court a quo. The Court a
quo have (sic) outrightly dismissed the complaint for
its failure to comply with the mandatory provisions
of the Interim Rules of Procedure for IntraCorporate Controversies particularly Rule 2, Section
4(3), Rule 8, Section [1(2)] and Rule 7, Section 2
thereof, which reads as follows:
RULE 2
Commencement of Action and Pleadings
Sec. 4.Complaint. The complaint shall
state or contain:
xxx xxx xxx
(3)the law, rule, or regulation relied upon,
violated, or sought to be enforced; SCaITA
xxx xxx xxx

On 15 February 2006, the Court of Appeals rendered its Decision,

affirming the 10 December 2004 Decision of the RTC. Said the
appellate court:

RULE 8
Derivative Suits

After a careful and judicious scrutiny of the extant

records of the case, together with the applicable laws
and jurisprudence, WE see no reason or justification
for granting the present appeal.
xxx xxx xxx
29 |

Sec. 1.Derivative action. . . .

xxx xxx xxx
(2)He exerted all reasonable efforts, and
alleges the same with particularity in the

complaint, to exhaust all remedies available

under the articles of incorporation, by-laws,
laws or rules governing the corporation or
partnership to obtain the relief he desires.

the plaintiff is unjustified and

illegal, stating the law and
jurisprudence in support thereof.
xxx xxx xxx

xxx xxx xxx

RULE 7
Inspection of Corporate Books and Records
Sec. 2.Complaint. In addition to the
requirements in section 4, Rule 2 of these
Rules, the complaint must state the
following:
(1)The case is set (sic) for the
enforcement of plaintiff's right of
inspection of corporate orders or
records and/or to be furnished with
financial statements under Section
74 and 75 of the Corporation Code
of the Philippines;
(2)A demand for inspection and
copying of books [and/or] to be
furnished with financial statements
made by the plaintiffs upon
defendant;
(3)The refusal of the defendant to
grant the demands of the plaintiff
and the reasons given for such
refusal, if any; and
(4)The reasons why the refusal of
defendant to grant the demands of
30 |

A perusal of the extant record shows that [herein

respondents] have not complied with the above
quoted provisions. [Respondents] should be mindful
that in filing their complaint which, as admitted by
there, is a derivative suit, should have first exhausted
all available remedies under its (sic) Articles of
Incorporation, or its by-laws, or any laws or rules
governing the corporation. The contention of
[respondent Joseph] that he had indeed made
several talks to (sic) his brother [herein petitioner
Anthony] to settle their differences is not
tantamount to exhaustion of remedies. What the
law requires is to bring the grievance to the
Board of Directors or Stockholders for the latter
to take the opportunity to settle whatever
problem in its regular meeting or special meeting
called for that purpose which [respondents] failed
to do. . . . The requirements laid down by the
Interim Rules of Procedure for Intra-Corporate
Controversies are mandatory which cannot be
dispensed with by any stockholder of a corporation
before filing a derivative suit. 28 (Emphasis ours.)
HCITDc
The Court of Appeals likewise sustained the refusal by the RTC to
consider respondent Joseph's Supplemental Affidavit and other
additional evidence, which respondents belatedly submitted with their
Memorandum to the said trial court. The appellate court ratiocinated
that:

With regard to the claim of [herein respondents] that

the supplemental affidavit of [respondent] Joseph
and its annexes appended to their memorandum
should have been taken into consideration by the
Court a quo to support the reliefs prayed [for] in
their complaint. (sic) This Court rules that said
supplemental affidavit and its annexes is (sic)
inadmissible.
A second hard look of (sic) the extant records show
that during the pre-trial conference conducted on
August 26, 2004, the parties through their respective
counsels had come up with an agreement that the
lower court would render judgment based on the
pleadings and evidence submitted. This agreement is
in accordance with Rule 4, Sec. 4 of the Interim
Rules of Procedure for Intra-Corporate
Controversies which explicitly states:
SEC. 4.Judgment before pre-trial. If,
after submission of the pre-trial briefs, the
court determines that, upon consideration
of the pleadings, the affidavits and other
evidence submitted by the parties, a
judgment may be rendered, the court may
order the parties to file simultaneously their
respective memoranda within a nonextendible period of twenty (20) days from
receipt of the order. Thereafter, the court
shall render judgment, either full or
otherwise, not later than ninety (90) days
from the expiration of the period to file the
memoranda.
xxx xxx xxx

31 |

Clearly, the supplemental affidavit and its appended

documents which were submitted only upon the
filing of the memorandum for the [respondents]
were not submitted in the pre-trial briefs for the
stipulation of the parties during the pre-trial, hence,
it cannot be accepted pursuant to Rule 2, Sec. 8 of
the same rules which reads as follows:
SEC. 8.Affidavits, documentary and other
evidence. Affidavits shall be based on
personal knowledge, shall set forth such
facts as would be admissible in evidence,
and shall show affirmatively that the affiant
is competent to testify on the matters stated
therein. The affidavits shall be in question
and answer form, and shall comply with the
rules on admissibility of evidence.

Affidavits of witnesses as well as

documentary and other evidence shall be
attached to the appropriate pleading;
Provided, however, that affidavits,
documentary and other evidence not so
submitted may be attached to the pre-trial
brief required under these Rules. Affidavits
and other evidence not so submitted shall
not be admitted in evidence, except in the
following cases:
(1)Testimony of unwilling, hostile, or
adverse party witnesses. A witness is
presumed prima facie hostile if he fails or
refuses to execute an affidavit after a written
request therefor;

(2)If the failure to submit the evidence is for

meritorious and compelling reasons; and
(3)Newly discovered evidence.
In case of (2) and (3) above, the affidavit
and evidence must be submitted not later
than five (5) days prior to its introduction in
evidence. DcITaC
There is no showing in the case at bench that the
supplemental affidavit and its annexes falls (sic)
within one of the exceptions of the above quoted
proviso, hence, inadmissible.
It must be noted that in the case at bench, like any
other civil cases, "the party making an allegation in a
civil case has the burden of proving it by
preponderance of evidence". Differently stated, upon
the plaintiff in [a] civil case, the burden of proof
never parts. That is, appellants must adduce
evidence that has greater weight or is more
convincing that (sic) which is offered to oppose it. In
the case at bar, no one should be blamed for the
dismissal of the complaint but the [respondents]
themselves for their lackadaisical attitude in setting
forth and appending their defences belatedly. To
admit them would be a denial of due process for the
opposite party which this Court cannot allow. 29
Ultimately, the Court of Appeals decreed:
WHEREFORE, judgment is hereby rendered
DISMISSING the instant petition and the assailed
Decision of the Regional Trial Court (RTC), 7th
Judicial Region, Branch II, Cebu City, dated
November 10, 2004, in SRC Case No. 022-CEB is
32 |

AFFIRMED in toto. Cost against the [herein

respondents]. 30
Unperturbed, respondents filed before the Court of Appeals, on 23
February 2006, a Motion for Reconsideration and Motion to Set for
Oral Arguments the Motion for Reconsideration, 31 invoking the
following grounds:
(1)The [herein respondents] have sufficiently
exhausted all remedies before filing the
present action; and
(2)[The] Honorable Court erred in holding that the
supplemental affidavit and its annexes is
(sic) inadmissible because the rules and the
lower court expressly allowed the
submission of the same in its order dated
August 26, 2004 . . . . 32
In a Resolution 33 dated 8 March 2006, the Court of Appeals granted
respondents' Motion to Set for Oral Arguments the Motion for
Reconsideration.
On 4 April 2006, the Court of Appeals issued a Resolution 34 setting
forth the events that transpired during the oral arguments, which took
place on 30 March 2006. Counsels for the parties manifested before the
appellate court that they were submitting respondents' Motion for
Reconsideration for resolution. Justice Magpale, however, still called
on the parties to talk about the possible settlement of the case
considering their familial relationship. Independent of the resolution of
respondents' Motion for Reconsideration, the parties were agreeable to
pursue a settlement for the dissolution of the corporation, which they
had actually already started.
In a Resolution 35 dated 11 April 2006, the Court of Appeals ordered
the parties to submit, within 10 days from notice, their intended
amicable settlement, since the same would undeniably affect the

resolution of respondents' pending Motion for Reconsideration. If the

said period should lapse without the parties submitting an amicable
settlement, then they were directed by the appellate court to file within
10 days thereafter their position papers instead. DCTHaS
On 5 May 2006, respondents submitted to the Court of Appeals their
Position Paper, 36 stating that the parties did not reach an amicable
settlement. Respondents informed the appellate court that prior to the
filing with the Securities and Exchange Commission (SEC) of a
petition for dissolution of Winchester, Inc., the parties already divided
the stocks in trade and the real assets of the corporation among
themselves. Respondents posited, though, that the afore-mentioned
distribution of the assets of Winchester, Inc. among the parties was null
and void, as it violated the last paragraph of Section 122 of the
Corporation Code, which provides that, "[e]xcept by a decrease of
capital stock and as otherwise allowed by the Corporation Code, no
corporation shall distribute any of its assets or property except upon
lawful dissolution and after payment of all its debts and liabilities". At
the same time, however, respondents brought to the attention of the
Court of Appeals that the parties did eventually file with the SEC a
petition for dissolution of Winchester, Inc., which the SEC approved.
37
Respondents no longer discussed in their Position Paper the grounds
they previously invoked in their Motion for Reconsideration of the
Court of Appeals Decision dated 15 February 2006, affirming in toto
the RTC Decision dated 10 November 2004. They instead argued that
the RTC Decision in question was null and void as it did not clearly
state the facts and the law on which it was based. Respondents sought
the remand of the case to the RTC for further proceedings on their
derivative suit and completion of the dissolution of Winchester, Inc.,
including the legalization of the prior partial distribution among the
parties of the assets of said corporation.
Petitioners filed their Position Paper 38 on 23 May 2006, wherein they
accused respondents of attempting to incorporate extraneous matters
into the latter's Motion for Reconsideration. Petitioners pointed out that
33 |

the issue before the Court of Appeals was not the dissolution and
division of assets of Winchester, Inc., thus, a remand of the case to the
RTC was not necessary.
On 18 July 2006, the Court of Appeals rendered the assailed
Resolution, granting respondents' Motion for Reconsideration. The
Court of Appeals reasoned in this wise:
After a second look and appreciation of the facts of
the case, vis- -vis the issues raised by the [herein
respondents'] motion for reconsideration and in view
of the formal dissolution of the corporation which
leaves unresolved up to the present the settlement of
the properties and assets which are now in danger of
dissipation due to the unending litigation, this Court
finds the need to remand the instant case to the
lower court (commercial court) as the proper forum
for the adjudication, disposition, conveyance and
distribution of said properties and assets between
and amongst its stockholders as final settlement
pursuant to Sec. 122 of the Corporation Code after
payment of all its debts and liabilities as provided
for under the same proviso. This is in accord with
the pronouncement of the Supreme Court in the case
of Clemente, et al. vs. Court of Appeals, et al.
where the high court ruled and which WE quote,
viz.:
"the corporation continues to be a body
corporate for three (3) years after its
dissolution for purposes of prosecuting and
defending suits by and against it and for
enabling it to settle and close its affairs,
culminating in the disposition and
distribution of its remaining assets. It may,
during the three-year term, appoint a trustee
or a receiver who may act beyond that

period. The termination of the life of a

juridical entity does not by itself cause the
extinction or diminution of the rights and
liabilities of such entity . . . nor those of its
owners and creditors. If the three-year
extended life has expired without a trustee
or receiver having been expressly designated
by the corporation within that period, the
board of directors (or trustees) . . . may be
permitted to so continue as "trustees" by
legal implication to complete the corporate
liquidation. Still in the absence of a board of
directors or trustees, those having any
pecuniary interest in the assets, including
not only the shareholders but likewise the
creditors of the corporation, acting for and in
its behalf, might make proper
representation with the Securities and
Exchange Commission, which has
primary and sufficiently broad
jurisdiction in matters of this nature, for
working out a final settlement of the
corporate concerns."
In the absence of a trustee or board of director in the
case at bar for purposes above mentioned, the lower
court under Republic Act No. [8799] (otherwise
known as the Securities and Exchange Commission)
as implemented by A.M. No. 00-8-10-SC (Transfer
of Cases from the Securities and Exchange
Commission to the Regional Trial Courts) which
took effect on October 1, 2001, is the proper forum
for working out the final settlement of the corporate
concern. 39
Hence, the Court of Appeals ruled:
34 |

WHEREFORE, premises considered, the motion

for reconsideration is GRANTED. The order dated
February 15, 2006 is hereby SET ASIDE and the
instant case is REMANDED to the lower court to
take the necessary proceedings in resolving with
deliberate dispatch any and all corporate concerns
towards final settlement. 40
Petitioners filed a Motion for Reconsideration 41 of the foregoing
Resolution, but it was denied by the Court of Appeals in its other
assailed Resolution dated 19 April 2007.
In the Petition at bar, petitioners raise the following issues:
I.
WHETHER OR NOT THE ASSAILED
RESOLUTIONS[,] WHICH VIOLATED THE
CONSTITUTION OF THE PHILIPPINES,
JURISPRUDENCE AND THE LAW[,] ARE NULL
AND VOID[.] ADaSET
II.
WHETHER OR NOT THE ASSAILED
RESOLUTIONS WAS (sic) ISSUED WITHOUT
JURISDICTION[.]
III.
WHETHER OR NOT THE HONORABLE COURT
OF APPEALS SERIOUSLY ERRED IN
REMANDING THIS CASE TO THE LOWER
COURT FOR THE REASON CITED IN THE
ASSAILED RESOLUTIONS, AND WITHOUT
RESOLVING THE GROUNDS FOR THE
[RESPONDENTS'] MOTION FOR

RECONSIDERATION. (sic) INASMUCH AS

[THE] REASON CITED WAS A NON-ISSUE IN
THE CASE.

IV.
WHETHER OR NOT REMANDING THIS CASE
TO THE REGIONAL TRIAL COURT VIOLATES
THE SUMMARY PROCEDURE FOR INTRACORPORATE CASES. 42
The crux of petitioners' contention is that the Court of Appeals
committed grievous error in reconsidering its Decision dated 15
February 2006 on the basis of extraneous matters, which had not been
previously raised in respondents' Complaint before the RTC, or in their
Petition for Review and Motion for Reconsideration before the
appellate court; i.e., the adjudication, disposition, conveyance, and
distribution of the properties and assets of Winchester, Inc. among its
stockholders, allegedly pursuant to the amicable settlement of the
parties. The fact that the parties were able to agree before the Court of
Appeals to submit for resolution respondents' Motion for
Reconsideration of the 15 February 2006 Decision of the same court,
independently of any intended settlement between the parties as
regards the dissolution of the corporation and distribution of its assets,
only proves the distinction and independence of these matters from one
another. Petitioners also contend that the assailed Resolution dated 18
July 2006 of the Court of Appeals, granting respondents' Motion for
Reconsideration, failed to clearly and distinctly state the facts and the
law on which it was based. Remanding the case to the RTC, petitioners
maintain, will violate the very essence of the summary nature of the
Interim Rules of Procedure Governing Intra-Corporate Controversies,
as this will just entail delay, protract litigation, and revert the case to
square one.

To recapitulate, the case at bar was initiated before the RTC by

respondents as a derivative suit, on their own behalf and on behalf of
Winchester, Inc., primarily in order to compel petitioners to account
for and reimburse to the said corporation the corporate assets and
funds which the latter allegedly misappropriated for their personal
benefit. During the pendency of the proceedings before the court a
quo, the parties were able to reach an amicable settlement wherein
they agreed to divide the assets of Winchester, Inc. among themselves.
This amicable settlement was already partially implemented by the
parties, when respondents repudiated the same, for which reason the
RTC proceeded with the case on its merits. On 10 November 2004, the
RTC promulgated its Decision dismissing respondents' Complaint for
failure to comply with essential pre-requisites before they could avail
themselves of the remedies under the Interim Rules of Procedure
Governing Intra-Corporate Controversies; and for inadequate
substantiation of respondents' allegations in said Complaint after
consideration of the pleadings and evidence on record.
In its Decision dated 15 February 2006, the Court of Appeals
affirmed, on appeal, the findings of the RTC that respondents did not
abide by the requirements for a derivative suit, nor were they able to
prove their case by a preponderance of evidence. Respondents filed a
Motion for Reconsideration of said judgment of the appellate court,
insisting that they were able to meet all the conditions for filing a
derivative suit. Pending resolution of respondents' Motion for
Reconsideration, the Court of Appeals urged the parties to again strive
to reach an amicable settlement of their dispute, but the parties were
unable to do so. The parties were not able to submit to the appellate
court, within the given period, any amicable settlement; and filed,
instead, their Position Papers. This effectively meant that the parties
opted to submit respondents' Motion for Reconsideration of the 15
February 2006 Decision of the Court of Appeals, and petitioners'
opposition to the same, for resolution by the appellate court on the
merits. aESTAI
It was at this point that the case took an unexpected turn.

The Court finds the instant Petition meritorious.

35 |

In accordance with respondents' allegation in their Position Paper that

the parties subsequently filed with the SEC, and the SEC already
approved, a petition for dissolution of Winchester, Inc., the Court of
Appeals remanded the case to the RTC so that all the corporate
concerns between the parties regarding Winchester, Inc. could be
resolved towards final settlement.
In one stroke, with the use of sweeping language, which utterly lacked
support, the Court of Appeals converted the derivative suit between the
parties into liquidation proceedings.
The general rule is that where a corporation is an injured party, its
power to sue is lodged with its board of directors or trustees.
Nonetheless, 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. 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. 43 By virtue of
Republic Act No. 8799, otherwise known as the Securities Regulation
Code, jurisdiction over intra-corporate disputes, including derivative
suits, is now vested in the Regional Trial Courts designated by this
Court pursuant to A.M. No. 00-11-03-SC promulgated on 21
November 2000.
In contrast, liquidation is a necessary consequence of the dissolution
of a corporation. It is specifically governed by Section 122 of the
Corporation Code, which reads:
SEC. 122.Corporate liquidation. Every
corporation whose charter expires by its own
36 |

limitation or is annulled by forfeiture or otherwise,

or whose corporate existence for other purposes is
terminated in any other manner, shall nevertheless
be continued as a body corporate for three (3) years
after the time when it would have been so dissolved,
for the purpose of prosecuting and defending suits
by or against it and enabling it to settle and close its
affairs, to dispose of and convey its property and to
distribute its assets, but not for the purpose of
continuing the business for which it was established.
At any time during said three (3) years, said
corporation is authorized and empowered to convey
all of its property to trustees for the benefit of
stockholders, members, creditors, and other persons
in interest. From and after any such conveyance by
the corporation of its property in trust for the benefit
of its stockholders, members, creditors and others in
interest, all interest which the corporation had in the
property terminates, the legal interest vests in the
trustees, and the beneficial interest in the
stockholders, members, creditors or other persons in
interest.
Upon winding up of the corporate affairs, any asset
distributable to any creditor or stockholder or
member who is unknown or cannot be found shall be
escheated to the city or municipality where such
assets are located.
Except by decrease of capital stock and as otherwise
allowed by this Code, no corporation shall distribute
any of its assets or property except upon law
dissolution and after payment of all its debts and
liabilities.

Following the voluntary or involuntary dissolution of a corporation,

liquidation is the process of settling the affairs of said corporation,
which consists of adjusting the debts and claims, that is, of collecting
all that is due the corporation, the settlement and adjustment of claims
against it and the payment of its just debts. 44 More particularly, it
entails the following:
Winding up the affairs of the corporation means the
collection of all assets, the payment of all its
creditors, and the distribution of the remaining
assets, if any among the stockholders thereof in
accordance with their contracts, or if there be no
special contract, on the basis of their respective
interests. The manner of liquidation or winding up
may be provided for in the corporate by-laws and
this would prevail unless it is inconsistent with law.
45
It may be undertaken by the corporation itself, through its Board of
Directors; or by trustees to whom all corporate assets are conveyed for
liquidation; or by a receiver appointed by the SEC upon its decree
dissolving the corporation. 46
Glaringly, a derivative suit is fundamentally distinct and independent
from liquidation proceedings. They are neither part of each other nor
the necessary consequence of the other. There is totally no justification
for the Court of Appeals to convert what was supposedly a derivative
suit instituted by respondents, on their own behalf and on behalf of
Winchester, Inc. against petitioners, to a proceeding for the liquidation
of Winchester, Inc.
While it may be true that the parties earlier reached an amicable
settlement, in which they agreed to already distribute the assets of
Winchester, Inc., and in effect liquidate said corporation, it must be
pointed out that respondents themselves repudiated said amicable
settlement before the RTC, even after the same had been partially
implemented; and moved that their case be set for pre-trial. Attempts to
37 |

again amicably settle the dispute between the parties before the Court
of Appeals were unsuccessful.
Moreover, the decree of the Court of Appeals to remand the case to the
RTC for the "final settlement of corporate concerns" was solely
grounded on respondents' allegation in its Position Paper that the
parties had already filed before the SEC, and the SEC approved, the
petition to dissolve Winchester, Inc. The Court notes, however, that
there is absolute lack of evidence on record to prove said allegation.
Respondents failed to submit copies of such petition for dissolution of
Winchester, Inc. and the SEC Certification approving the same. It is a
basic rule in evidence that each party must prove his affirmative
allegation. Since it was respondents who alleged the voluntary
dissolution of Winchester, Inc., respondents must, therefore, prove it.
47 This respondents failed to do.

Even assuming arguendo that the parties did submit a petition for the
dissolution of Winchester, Inc. and the same was approved by the SEC,
the Court of Appeals was still without jurisdiction to order the final
settlement by the RTC of the remaining corporate concerns. It must be
remembered that the Complaint filed by respondents before the RTC
essentially prayed for the accounting and reimbursement by petitioners
of the corporate funds and assets which they purportedly
misappropriated for their personal use; surrender by the petitioners of
the corporate books for the inspection of respondents; and payment by
petitioners to respondents of damages. There was nothing in
respondents' Complaint which sought the dissolution and liquidation of
Winchester, Inc. Hence, the supposed dissolution of Winchester, Inc.
could not have resulted in the conversion of respondents' derivative
suit to a proceeding for the liquidation of said corporation, but only in
the dismissal of the derivative suit based on either compromise
agreement or mootness of the issues.
Clearly, in issuing its assailed Resolutions dated 18 July 2006 and 19
April 2007, the Court of Appeals already went beyond the issues raised

in respondents' Motion for Reconsideration. Instead of focusing on

whether it erred in affirming, in its 15 February 2006 Decision, the
dismissal by the RTC of respondents' Complaint due to respondents'
failure to comply with the requirements for a derivative suit and submit
evidence to support their allegations, the Court of Appeals unduly
concentrated on respondents' unsubstantiated allegation that
Winchester, Inc. was already dissolved and speciously ordered the
remand of the case to the RTC for proceedings so vitally different from
that originally instituted by respondents.
Despite the foregoing, the Court still deems it appropriate to already
look into the merits of respondents' Motion for Reconsideration of the
15 February 2006 Decision of the Court of Appeals, for the sake of
finally putting an end to the case at bar.
In their said Motion for Reconsideration, respondents argued that: (1)
they had sufficiently exhausted all remedies before filing the derivative
suit; and (2) respondent Joseph's Supplemental Affidavit and its
annexes should have been taken into consideration, since the
submission thereof was allowed by the rules of procedure, as well as
by the RTC in its Order dated 26 August 2004. HCaDIS
As regards the first ground of sufficient exhaustion by respondents of
all remedies before filing a derivative suit, the Court subscribes to the
ruling to the contrary of the Court of Appeals in its Decision dated 16
February 2006.
The Court has recognized that a stockholder's right to institute a
derivative suit is not based on any express provision of the Corporation
Code, or even the Securities Regulation Code, but is impliedly
recognized when the said laws make corporate directors or officers
liable for damages suffered by the corporation and its stockholders for
violation of their fiduciary duties. Hence, a stockholder may sue for
mismanagement, waste or dissipation of corporate assets because of a
special injury to him for which he is otherwise without redress. In
effect, the suit is an action for specific performance of an obligation
owed by the corporation to the stockholders to assist its rights of action
38 |

when the corporation has been put in default by the wrongful refusal of
the directors or management to make suitable measures for its
protection. 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. 48
Section 1, Rule 8 of the Interim Rules of Procedure Governing IntraCorporate Controversies lays down the following requirements which a
stockholder must comply with in filing a derivative suit:
Sec. 1.Derivative action. A stockholder or
member may bring an action in the name of a
corporation or association, as the case may be,
provided, that:
(1)He was a stockholder or member at the
time the acts or transactions subject
of the action occurred and at the
time the action was filed;
(2)He exerted all reasonable efforts, and
alleges the same with particularity
in the complaint, to exhaust all
remedies available under the articles
of incorporation, by-laws, laws or
rules governing the corporation or
partnership to obtain the relief he
desires;
(3)No appraisal rights are available for the
act or acts complained of; and
(4)The suit is not a nuisance or harassment
suit.
A perusal of respondents' Complaint before the RTC would reveal that
the same did not allege with particularity that respondents exerted all

reasonable efforts to exhaust all remedies available under the articles

of incorporation, by-laws, laws or rules governing Winchester, Inc. to
obtain the relief they desire.
Respondents assert that their compliance with said requirement was
contained in respondent Joseph's Affidavit, which was attached to
respondents' Complaint. Respondent Joseph averred in his Affidavit
that he tried for a number of times to talk to petitioner Anthony to
settle their differences, but the latter would not listen. Respondents
additionally claimed that taking further remedies within the
corporation would have been idle ceremony, considering that
Winchester, Inc. was a family corporation and it was impossible to
expect petitioners to take action against themselves who were the ones
accused of wrongdoing.
The Court is not persuaded.
The wordings of Section 1, Rule 8 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies are simple and do not leave
room for statutory construction. The second paragraph thereof requires
that the stockholder filing a derivative suit should have exerted all
reasonable efforts to exhaust all remedies available under the
articles of incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he desires; and to allege
such fact with particularity in the complaint. The obvious intent
behind the rule is to make the derivative suit the final recourse of the
stockholder, after all other remedies to obtain the relief sought had
failed. SECHIA
The allegation of respondent Joseph in his Affidavit of his repeated
attempts to talk to petitioner Anthony regarding their dispute hardly
constitutes "all reasonable efforts to exhaust all remedies available".
Respondents did not refer to or mention at all any other remedy under
the articles of incorporation or by-laws of Winchester, Inc., available
for dispute resolution among stockholders, which respondents
unsuccessfully availed themselves of. And the Court is not prepared to
39 |

conclude that the articles of incorporation and by-laws of Winchester,

Inc. absolutely failed to provide for such remedies.
Neither can this Court accept the reasons proffered by respondents to
excuse themselves from complying with the second requirement under
Section 1, Rule 8 of the Interim Rules of Procedure Governing IntraCorporate Controversies. They are flimsy and insufficient, compared to
the seriousness of respondents' accusations of fraud, misappropriation,
and falsification of corporate records against the petitioners. The fact
that Winchester, Inc. is a family corporation should not in any way
exempt respondents from complying with the clear requirements and
formalities of the rules for filing a derivative suit. There is nothing in
the pertinent laws or rules supporting the distinction between, and the
difference in the requirements for, family corporations vis- -vis other
types of corporations, in the institution by a stockholder of a derivative
suit.
The Court further notes that, with respect to the third and fourth
requirements of Section 1, Rule 8 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies, the respondents' Complaint
failed to allege, explicitly or otherwise, the fact that there were no
appraisal rights available for the acts of petitioners complained of, as
well as a categorical statement that the suit was not a nuisance or a
harassment suit.
As to respondents' second ground in their Motion for Reconsideration,
the Court agrees with the ruling of the Court of Appeals, in its 15
February 2006 Decision, that respondent Joseph's Supplemental
Affidavit and additional evidence were inadmissible since they were
only appended by respondents to their Memorandum before the RTC.
Section 8, Rule 2 of the Interim Rules of Procedure Governing IntraCorporate Controversies is crystal clear that:
Sec. 8.Affidavits, documentary and other evidence.
Affidavits shall be based on personal knowledge,
shall set forth such facts as would be admissible in
evidence, and shall show affirmatively that the

affiant is competent to testify on the matters stated

therein. The affidavits shall be in question and
answer form, and shall comply with the rules on
admissibility of evidence.
Affidavits of witnesses as well as documentary
and other evidence shall be attached to the
appropriate pleading, Provided, however, that
affidavits, documentary and other evidence not so
submitted may be attached to the pre-trial brief
required under these Rules. Affidavits and other
evidence not so submitted shall not be admitted
in evidence, except in the following cases:
(1)Testimony of unwilling, hostile, or
adverse party witnesses. A witness is
presumed prima facie hostile if he
fails or refuses to execute an
affidavit after a written request
therefor;
(2)If the failure to submit the evidence is for
meritorious and compelling reasons;
and

respective pre-trial briefs of the parties. That the parties should have
already identified and submitted to the trial court the affidavits of their
witnesses and documentary evidence by the time of pre-trial is
strengthened by the fact that Section 1, Rule 4 of the Interim Rules of
Procedure Governing Intra-Corporate Controversies require that the
following matters should already be set forth in the parties' pre-trial
briefs:

Section 1.Pre-trial conference, mandatory nature.

Within five (5) days after the period for availment
of, and compliance with, the modes of discovery
prescribed in Rule 3 hereof, whichever comes later,
the court shall issue and serve an order immediately
setting the case for pre-trial conference, and
directing the parties to submit their respective pretrial briefs. The parties shall file with the court and
furnish each other copies of their respective pre-trial
brief in such manner as to ensure its receipt by the
court and the other party at least five (5) days before
the date set for the pre-trial.
The parties shall set forth in their pre-trial briefs,
among other matters, the following:

(3)Newly discovered evidence. HEcaIC

xxx xxx xxx
In case of (2) and (3) above, the affidavit and
evidence must be submitted not later than five (5)
days prior to its introduction in evidence. (Emphasis
ours)

(4)Documents not specifically denied under

oath by either or both parties;
xxx xxx xxx

According to the afore-quoted provision, the parties should attach the

affidavits of witnesses and other documentary evidence to the
appropriate pleading, which generally should mean the complaint for
the plaintiff and the answer for the respondent. Affidavits and
documentary evidence not so submitted must already be attached to the
40 |

(7)Names of witnesses to be presented and

the summary of their testimony as contained
in their affidavits supporting their positions
on each of the issues;

(8)All other pieces of evidence, whether

documentary or otherwise and their
respective purposes.
Also, according to Section 2, Rule 4 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies, 49 it is the duty of the court
to ensure during the pre-trial conference that the parties consider in
detail, among other things, objections to the admissibility of
testimonial, documentary, and other evidence, as well as objections to
the form or substance of any affidavit, or part thereof.
Obviously, affidavits of witnesses and other documentary evidence are
required to be attached to a party's pre-trial brief, at the very last
instance, so that the opposite party is given the opportunity to object to
the form and substance, or the admissibility thereof. This is, of course,
to prevent unfair surprises and/or to avoid the granting of any undue
advantage to the other party to the case.
True, the parties in the present case agreed to submit the case for
judgment by the RTC, even before pre-trial, in accordance with Section
4, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies:
Sec. 4.Judgment before pre-trial. If after
submission of the pre-trial briefs, the court
determines that, upon consideration of the
pleadings, the affidavits and other evidence
submitted by the parties, a judgment may be
rendered, the court may order the parties to file
simultaneously their respective memoranda
within a non-extendible period of twenty (20) days
from receipt of the order. Thereafter, the court shall
render judgment, either full or otherwise, not later
than ninety (90) days from the expiration of the
period to file the memoranda.

Even then, the afore-quoted provision still requires, before the court
makes a determination that it can render judgment before pre-trial, that
the parties had submitted their pre-trial briefs and the court took into
consideration the pleadings, affidavits and other evidence submitted by
the parties. Hence, cases wherein the court can render judgment prior
to pre-trial, do not depart from or constitute an exception to the
requisite that affidavits of witnesses and documentary evidence should
be submitted, at the latest, with the parties' pre-trial briefs. Taking
further into account that under Section 4, Rule 4 of the Interim Rules
of Procedure Governing Intra-Corporate Controversies parties are
required to file their memoranda simultaneously, the same would mean
that a party would no longer have any opportunity to dispute or rebut
any new affidavit or evidence attached by the other party to its
memorandum. To violate the above-quoted provision would, thus,
irrefragably run afoul the former party's constitutional right to due
process.
In the instant case, therefore, respondent Joseph's Supplemental
Affidavit and the additional documentary evidence, appended by
respondents only to their Memorandum submitted to the RTC, were
correctly adjudged as inadmissible by the Court of Appeals in its 15
February 2006 Decision for having been belatedly submitted.
Respondents neither alleged nor proved that the documents in question
fall under any of the three exceptions to the requirement that affidavits
and documentary evidence should be attached to the appropriate
pleading or pre-trial brief of the party, which is particularly recognized
under Section 8, Rule 2 of the Interim Rules of Procedure Governing
Intra-Corporate Controversies.
WHEREFORE, premises considered, the Petition for Review under
Rule 45 of the Rules of Court is hereby GRANTED. The assailed
Resolutions dated 18 July 2006 and 19 April 2007 of the Court of
Appeals in CA-G.R. SP No. 00185 are hereby REVERSED AND SET
ASIDE. The Decision dated 15 February 2006 of the Court of Appeals
is hereby AFFIRMED. No costs. aTcESI
SO ORDERED.

41 |

Ynares-Santiago, Velasco, Jr., Nachura and Peralta, JJ., concur.

[G.R. No. 122452. January 29, 2001.]
TAM WING TAK, petitioner, vs. HON. RAMON
P. MAKASIAR (in his Capacity as Presiding Judge
of the Regional Trial Court of Manila, Branch 35)
and ZENON DE GUIA (in his capacity as Chief
State Prosecutor), respondents.
Sycip, Salazar, Hernandez & Gatmaitan Law Office for petitioner.
The Solicitor General for respondents.
SYNOPSIS
Petitioner Tam Wing Tak, in his capacity as director of Concord-World
Properties, Inc., (Concord for brevity), a domestic corporation, filed an
affidavit-complaint with the Quezon City Prosecutor's Office, charging
Vic Ang Siong with violation of B.P. Blg. 22. The City Prosecutor
issued a resolution dismissing the complaint. A copy of the City
Prosecutor's resolution was sent by registered mail to petitioner in the
address he indicated in his complaint-affidavit. Notwithstanding that
petitioner was represented by counsel, the latter was not furnished a
copy of the resolution. Petitioner appealed the dismissal of his
complaint by the City Prosecutor to the Chief State Prosecutor. The
Chief State Prosecutor dismissed the appeal for having been filed out
of time. Petitioner's lawyer received a copy of the letter-resolution
dismissing the appeal on January 20, 1995. Respondent Chief State
Prosecutor denied the motion for reconsideration. Petitioner then filed
Civil Case No. 95-74394 for mandamus with the Regional Trial Court
of Quezon City to compel the Chief State Prosecutor to file or cause
the filing of an information charging Vic Ang Siong with violation of
B.P. Blg. 22. The trial court dismissed the petition. Petitioner moved
for reconsideration, but was denied. Hence, the present petition.
Petitioner alleged that there is no such "generally accepted practice"
which gives a tribunal the option of serving pleadings, orders,
42 |

resolutions, and other papers to either the opposing party himself or his
counsel. Petitioner insisted that the fundamental rule in this jurisdiction
is that if a party appears by counsel, then service can only be validly
made upon counsel, and service upon the party himself becomes
invalid and without effect. Petitioner relied upon Rule 13, Section 2 of
the Rules of Court and the Supreme Court's ruling in J.M. Javier
Logging Corp. v. Mardo, 24 SCRA 776 (1968) to support his stand.
The Supreme Court dismissed the petition. The Court ruled that there
was valid service upon petitioner pursuant to Section 2 of Department
of Justice Order No. 223. The holding of a preliminary investigation is
a function of the Executive Department and not of the Judiciary. Thus,
the rule on service provided for in the Rules of Court cannot be made
to apply to the service of resolutions by public prosecutors, especially
as the agency concerned, in this case, the Department of Justice, has its
own procedural rules governing said service. A plain reading of Section
2 of DOJ Order No. 223 clearly showed that in a preliminary
investigation, service can be made upon the party himself or through
his counsel. It must be assumed that when the Justice Department
crafted the said section, it was done with knowledge of the pertinent
rule in the Rules of Court and of jurisprudence interpreting it. The DOJ
could have just adopted the rule on service provided for in the Rules of
Court, but did not. Instead, it opted to word Section 2 of DOJ Order
No. 223 in such a way as to leave no doubt that in preliminary
investigations, service of resolutions of public prosecutors could be
made upon either the party or his counsel.
SYLLABUS
1. REMEDIAL LAW; CRIMINAL PROCEDURE; PRELIMINARY
INVESTIGATION; HOLDING OF PRELIMINARY
INVESTIGATION IS A FUNCTION OF THE EXECUTIVE AND
NOT OF THE JUDICIARY; RULE ON SERVICE PROVIDED FOR
IN THE RULES OF COURT CANNOT BE MADE TO APPLY TO
THE SERVICE OF RESOLUTIONS BY PUBLIC PROSECUTORS,
ESPECIALLY AS THE AGENCY CONCERNED, IN THE PRESENT
CASE, THE DEPARTMENT OF JUSTICE, HAS ITS OWN

PROCEDURAL RULES GOVERNING SERVICE. The Rules of

Court were promulgated by this Court pursuant to Section 13, Article
VII of the 1935 Constitution (now Section 5 [5], Article VIII of the
Constitution) to govern "pleadings, practice and procedure in all courts
of the Philippines." The purpose of the Rules is clear and does not need
any interpretation. The Rules were meant to govern court (stress
supplied) procedures and pleadings. As correctly pointed out by the
Solicitor General, a preliminary investigation, notwithstanding its
judicial nature, is not a court proceeding. The holding of a preliminary
investigation is a function of the Executive Department and not of the
Judiciary. Thus, the rule on service provided for in the Rules of Court
cannot be made to apply to the service of resolutions by public
prosecutors, especially as the agency concerned, in this case, the
Department of Justice, has its own procedural rules governing said
service.
2. ID.; ID.; ID.; ID.; SERVICE OF RESOLUTIONS UNDER
SECTION 2 OF DEPARTMENT OF JUSTICE ORDER NO. 223
COULD BE MADE UPON EITHER THE PARTY OR HIS
COUNSEL. A plain reading of Section 2 of DOJ Order No. 223
clearly shows that in preliminary investigation, service can be made
upon the party himself or through his counsel. It must be assumed that
when the Justice Department crafted the said section, it was done with
knowledge of the pertinent rule in the Rules of Court and of
jurisprudence interpreting it. The DOJ could have just adopted the rule
on service provided for in the Rules of Court, but did not. Instead, it
opted to word Section 2 of DOJ Order No. 223 in such a way as to
leave no doubt that in preliminary investigations, service of resolutions
of public prosecutors could be made upon either the party or his
counsel. Moreover, the Constitution provides that "Rules of procedure
of special courts and quasi judicial bodies shall remain effective unless
disapproved by the Supreme Court." There is naught in the records to
show that we have disapproved and nullified Section 2 of DOJ Order
No. 223 and since its validity is not an issue in the instant case, we
shall refrain from ruling upon its validity. We hold that there was valid
service upon petitioner pursuant to Section 2 of DOJ Order No. 223.
43 |

3. ID.; SPECIAL CIVIL ACTIONS; MANDAMUS; NO REVERSIBLE

ERROR MAY BE ATTRIBUTED TO THE COURT A QUO WHEN
IT DISMISSED PETITIONER'S SPECIAL CIVIL ACTION FOR
MANDAMUS; REASON. Respondent Chief State Prosecutor in
refusing to order the filing of an information for violation of B.P. Blg.
22 against Vic Ang Siong did not act without or in excess of
jurisdiction or with grave abuse of discretion. First, with respect to the
agreement between Concord and Victor Ang Siong to amicably settle
their difference, we find this resort to an alternative dispute settlement
mechanism as not contrary to law, public policy, or public order.
Efforts of parties to solve their disputes outside of the courts are looked
on with favor, in view of the clogged dockets of the judiciary. Second,
it is not disputed in the instant case that Concord, a domestic
corporation, was the payee of the bum check, not petitioner. Therefore,
it is Concord, as payee of the bounced check, which is the injured
party. Since petitioner was neither a payee nor a holder of the bad
check, he had neither the personality to sue nor a cause of action
against Vic Ang Siong. Under Section 36 of the Corporation Code,
read in relation to Section 23, it is clear that where a corporation is an
injured party, its power to sue is lodged with its board of directors or
trustees. Note that petitioner failed to show any proof that he was
authorized or deputized or granted specific powers by Concord's board
of directors to sue Victor Ang Siong for and on behalf of the firm.
Clearly, petitioner as a minority stockholder and member of the board
of directors had no such power or authority to sue on Concord's behalf.
Nor can we uphold his act as 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. There is no showing that petitioner has complied with the
foregoing requisites. It is obvious that petitioner has not shown any
clear legal right which would warrant the overturning of the decision
of public respondents to dismiss the complaint against Vic Ang Siong.
A public prosecutor, by the nature of his office, is under no compulsion
to file a criminal information where no clear legal justification has
been shown, and no sufficient evidence of guilt nor prima facie case

has been presented by the petitioner. No reversible error may be

attributed to the court a quo when it dismissed petitioner's special civil
action for mandamus.
DECISION
QUISUMBING, J p:
This is a petition for review on certiorari of the decision of the
Regional Trial Court of Manila, Branch 35, dated September 14, 1995,
which dismissed herein petitioner's special civil action for mandamus
and sustained the Letter-Order of respondent Chief State Prosecutor.
The latter dismissed petitioner's appeal from the resolution of the City
Prosecutor of Quezon City, which, in turn, dismissed petitioner's
complaint against Vic Ang Siong for violation of the Bouncing Checks
Law or B.P. Blg. 22.
The factual background of this case is as follows:
On November 11, 1992, petitioner, in his capacity as director of
Concord-World Properties, Inc., (Concord for brevity), a domestic
corporation, filed an affidavit-complaint with the Quezon City
Prosecutor's Office, charging Vic Ang Siong with violation of B.P. Blg.
22. Docketed by the prosecutor as I.S. No. 93-15886, the complaint
alleged that a check for the amount of P83,550,000.00, issued by Vic
Ang Siong in favor of Concord, was dishonored when presented for
encashment.
Vic Ang Siong sought the dismissal of the case on two grounds: First,
that petitioner had no authority to file the case on behalf of Concord,
the payee of the dishonored check, since the firm's board of directors
had not empowered him to act on its behalf. Second, he and Concord
had already agreed to amicably settle the issue after he made a partial
payment of P19,000,000.00 on the dishonored check.

On March 23, 1994, the City Prosecutor dismissed I.S. No. 93-15886
on the following grounds: (1) that petitioner lacked the requisite
authority to initiate the criminal complaint for and on Concord's behalf;
and (2) that Concord and Vic Ang Siong had already agreed upon the
payment of the latter's balance on the dishonored check.
A copy of the City Prosecutor's resolution was sent by registered mail
to petitioner in the address he indicated in his complaint-affidavit.
Notwithstanding that petitioner was represented by counsel, the latter
was not furnished a copy of the resolution.
On June 27, 1994, petitioner's counsel was able to secure a copy of the
resolution dismissing I.S. No. 93-15886. Counting his 15-day appeal
period from said date, petitioner moved for reconsideration on July 7,
1994.
On October 21, 1994, the City Prosecutor denied petitioner's motion
for reconsideration. Petitioner's counsel received a copy of the denial
order on November 3, 1994.
On November 7, 1994, petitioner's lawyer filed a motion to extend the
period to appeal by an additional 15 days counted from November 3,
1994 with the Chief State Prosecutor. He manifested that it would take
time to communicate with petitioner who is a Hong Kong resident and
enable the latter to verify the appeal as procedurally required.
On November 8, 1994, petitioner appealed the dismissal of his
complaint by the City Prosecutor to the Chief State Prosecutor. The
appeal was signed by petitioner's attorney only and was not verified by
petitioner until November 23, 1994.
On December 8, 1994, the Chief State Prosecutor dismissed the appeal
for having been filed out of time. Petitioner's lawyer received a copy of
the letter-resolution dismissing the appeal on January 20, 1995.
On January 30, 1995, petitioner moved for reconsideration.

44 |

On March 9, 1995, respondent Chief State Prosecutor denied the

motion for reconsideration.
Petitioner then filed Civil Case No. 95-74394 for mandamus with the
Regional Trial Court of Quezon City to compel the Chief State
Prosecutor to file or cause the filing of an information charging Vic
Ang Siong with violation of B.P. Blg. 22.
On September 14, 1995, the trial court disposed of the action as
follows:
WHEREFORE, for utter lack of merit, the petition
for mandamus of petitioner is DENIED and
DISMISSED.
SO ORDERED. 1
Petitioner moved for reconsideration, but the trial court denied this
motion in its order dated October 24, 1995.
Hence, the instant petition.
Before this Court, petitioner claims respondent judge committed grave
errors of law in sustaining respondent Chief State Prosecutor whose
action flagrantly contravenes: (1) the established rule on service of
pleadings and orders upon parties represented by counsel; (b) the basic
principle that except in private crimes, any competent person may
initiate a criminal case; and (3) the B.P. Blg. 22 requirement that
arrangement for full payment of a bounced check must be made by the
drawer with the drawee within five (5) banking days from notification
of the check's dishonor. 2
We find pertinent for our resolution the following issues: EHTADa
(1) Was there valid service of the City Prosecutor's
resolution upon petitioner?

45 |

(2) Will mandamus lie to compel the City Prosecutor

to file the necessary information in court?
In upholding respondent Chief State Prosecutor, the court a quo held:
It is a generally accepted principle in the service of
orders, resolutions, processes and other papers to
serve them on the party or his counsel, either in his
office, if known, or else in the residence, also if
known. As the party or his counsel is not expected to
be present at all times in his office or residence,
service is allowed to be made with a person in
charge of the office, or with a person of sufficient
discretion to receive the same in the residence.
In the case under consideration, it is not disputed
that the controverted Resolution dismissing the
complaint of the petitioner against Vic Ang Siong
was served on the former by registered mail and was
actually delivered by the postmaster on April 9, 1994
at said petitioner's given address in the record at No.
5 Kayumanggi Street, West Triangle, Quezon City.
The registered mail was in fact received by S.
Ferraro. The service then was complete and the
period for filing a motion for reconsideration or
appeal began to toll from that date. It expired on
April 24, 1994. Considering that his motion for
reconsideration was filed only on July 7, 1994, the
same was filed beyond the prescribed period,
thereby precluding further appeal to the Office of the
respondent. 3
Petitioner, before us, submits that there is no such "generally accepted
practice" which gives a tribunal the option of serving pleadings, orders,
resolutions, and other papers to either the opposing party himself or his
counsel. Petitioner insists that the fundamental rule in this jurisdiction
is that it a party appears by counsel, then service can only be validly

made upon counsel and service upon the party himself becomes invalid
and without effect. Petitioner relies upon Rule 13, Section 2 of the
Rules of Court 4 and our ruling in J.M. Javier Logging Corp. v. Mardo,
24 SCRA 776 (1968) to support his stand. In the J.M. Javier case, we
held:
[W]here a party appears by attorney, notice to the
former is not a notice in law, unless service upon the
party himself is ordered by the court. . . . 5
The Solicitor General, for respondents, contends that the applicable
rule on service in the present case is Section 2 of the Department of
Justice (DOJ) Order No. 223, 6 which allows service to be made upon
either party or his counsel. Respondents argue that while a preliminary
investigation has been considered as partaking of the nature of a
judicial proceeding, 7 nonetheless, it is not a court proceeding and
hence, falls outside of the ambit of the Rules of Court.
We agree with petitioner that there is no "generally accepted practice"
in the service of orders, resolutions, and processes, which allows
service upon either the litigant or his lawyer. As a rule, notice or
service made upon a party who is represented by counsel is a nullity. 8
However, said rule admits of exceptions, as when the court or tribunal
orders service upon the party 9 or when the technical defect is waived.
10
To resolve the issue on validity of service, we must make a
determination as to which is the applicable rule the rule on service
in the Rules of Court, as petitioner insists or the rule on service in DOJ
Order No. 223?
The Rules of Court were promulgated by this Court pursuant to
Section 13, Article VII of the 1935 Constitution 11 (now Section 5 [5],
Article VIII of the Constitution) 12 to govern "pleadings, practice and
procedure in all courts of the Philippines." The purpose of the Rules is
clear and does not need any interpretation. The Rules were meant to
govern court (stress supplied) procedures and pleadings. As correctly
46 |

pointed out by the Solicitor General, a preliminary investigation,

notwithstanding its judicial nature, is not a court proceeding. The
holding of a preliminary investigation is a function of the Executive
Department and not of the Judiciary. 13 Thus, the rule on service
provided for in the Rules of Court cannot be made to apply to the
service of resolutions by public prosecutors, especially as the agency
concerned, in this case, the Department of Justice, has its own
procedural rules governing said service.
A plain reading of Section 2 of DOJ Order No. 223 clearly shows that
in preliminary investigation, service can be made upon the party
himself or through his counsel. It must be assumed that when the
Justice Department crafted the said section, it was done with
knowledge of the pertinent rule in the Rules of Court and of
jurisprudence interpreting it. The DOJ could have just adopted the rule
on service provided for in the Rules of Court, but did not. Instead, it
opted to word Section 2 of DOJ Order No. 223 in such a way as to
leave no doubt that in preliminary investigations, service of resolutions
of public prosecutors could be made upon either the party or his
counsel.
Moreover, the Constitution provides that "Rules of procedure of
special courts and quasi-judicial bodies shall remain effective unless
disapproved by the Supreme Court." 14 There is naught in the records
to show that we have disapproved and nullified Section 2 of DOJ
Order No. 223 and since its validity is not an issue in the instant case,
we shall refrain from ruling upon its validity.
We hold that there was valid service upon petitioner pursuant to
Section 2 of DOJ Order No. 223.
On the issue of whether mandamus will lie. In general, mandamus may
be resorted to only where one's right is founded clearly in law and not
when it is doubtful. 15 The exception is to be found in criminal cases
where mandamus is available to compel the performance by the public
prosecutor of an ostensibly discretionary function, where by reason of
grave abuse of discretion on his part, he willfully refuses to perform a

duty mandated by law. 16 Thus, mandamus may issue to compel a

prosecutor to file an information when he refused to do so in spite of
the prima facie evidence of guilt. 17
Petitioner takes the stance that it was grave abuse for discretion on the
part of respondent Chief State Prosecutor to sustain the dismissal of
I.S. No. 93-15886 on the grounds that: (1) Vic Ang Siong's obligation
which gave rise to the bounced check had already been extinguished by
partial payment and agreement to amicably settle balance, and (2)
petitioner had no standing to file the criminal complaint since he was
neither the payee nor holder of the bad check. Petitioner opines that
neither ground justifies dismissal of his complaint.
Petitioner's stand is unavailing. Respondent Chief State Prosecutor in
refusing to order the filing of an information for violation of B.P. Blg.
22 against Vic Ang Siong did not act without or in excess of
jurisdiction or with grave abuse of discretion.

First, with respect to the agreement between Concord and Victor Ang
Siong to amicably settle their difference, we find this resort to an
alternative dispute settlement mechanism as not contrary to law, public
policy, or public order. Efforts of parties to solve their disputes outside
of the courts are looked on with favor, in view of the clogged dockets
of the judiciary.

of director to sue Victor Ang Siong for and on behalf of the firm.
Clearly, petitioner as a minority stockholder and member of the board
of directors had no such power or authority to sue on Concord's behalf.
Nor can we uphold his act as 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. 21 There is no showing that petitioner has complied with the
foregoing requisites. It is obvious that petitioner has not shown any
clear legal right which would warrant the overturning of the decision
of public respondents to dismiss the complaint against Vic Ang Siong.
A public prosecutor, by the nature of his office, is under no compulsion
to file a criminal information where no clear legal justification has
been shown, and no sufficient evidence of guilt nor prima facie case
has been presented by the petitioner. 22 No reversible error may be
attributed to the court a quo when it dismissed petitioner's special civil
action for mandamus.
WHEREFORE, the instant petition is DISMISSED for lack of merit.
Costs against petitioner.
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.
[G.R. No. 85339. August 11, 1989.]

Second, it is not disputed in the instant case that Concord, a domestic

corporation, was the payee of the bum check, not petitioner. Therefore,
it is Concord, as payee of the bounced check, which is the injured
party. Since petitioner was neither a payee nor a holder of the bad
check, he had neither the personality to sue nor a cause of action
against Vic Ang Siong. Under Section 36 of the Corporation Code 18 ,
read in relation to Section 23, 19 it is clear that where a corporation is
an injured party, its power to sue is lodged with its board of directors or
trustees. 20 Note that petitioner failed to show any proof that he was
authorized or deputized or granted specific powers by Concord's board
47 |

SAN MIGUEL CORPORATION, represented by

EDUARDO DE LOS ANGELES, petitioners, vs.
ERNEST KHAN, ANDRES SORIANO III, BENIGNO
TODA, JR. ANTONIO ROXAS, ANTONIO PRIETO,
FRANCISCO
EIZMENDI,
JR.,
EDUARDO
SORIANO, RALPH KARR And RAMON DEL
ROSARIO, JR., respondents.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles

for petitioner.
Roco & Bunag Law Offices for respondent Ernest Kahn.
Siguion Reyna, Montecillo and Ongsiako for other
respondents.
DECISION
NARVASA, J p:
On December 15, 1983, 33,133,266 shares of the
outstanding capital stock of the San Miguel Corporation were
acquired 1 by fourteen (14) other corporations, 2 and were placed
under a Voting Trust Agreement in favor of the late Andres
Soriano, Jr. When the latter died, Eduardo M. Cojuangco, Jr. was
elected Substitute Trustee on April 9, 1984 with power to delegate
the trusteeship in writing to Andres Soriano III. 3 Shortly after the
Revolution of February, 1986, Cojuangro left the country amid
"persistent reports" that "huge and unusual cash disbursements
from the funds of SMC" had been irregularly made, and the
resources of the firm extensively used in support of the candidacy
of Ferdinand Marcos during the snap elections in February, 1986. 4
On March 26, 1986, an "Agreement" was executed
between Andres Soriano III, as "Buyer," and the 14 corporations,
as "Sellers," for the purchase by Soriano, "for himself and as agent
of several persons," of the 33,133,266 shares of stock at the price
of P100.00 per share, or "an aggregate sum of Three Billion Three
Hundred Thirteen Million Three Hundred Twenty Six Thousand
Six Hundred (P3,313,326,600.00) Pesos payable in specified
installments 5 The Agreement revoked the voting trust above
mentioned, and expressed the desire of the 14 corporations to sell
the shares of stock "to pay certain outstanding and unpaid debts,"
and Soriano's own wish to purchase the same "in order to
institutionalize and stabilize the management of the COMPANY in
48 |

. . . (himself) and the professional officer corps mandated by the

COMPANY's By-laws, and to direct the COMPANY towards
giving the highest priority to its principal products and extensive
support to agriculture program of the Government . . . 7 and it was
Neptunia which on or about April 1, 1986 had made the down
payment of P500,000,000.00, "from the proceeds of certain loans."
8
At this point the 33,133,266 SMC shares were sequestered
by the Presidential Commission on Good Government (PCGG), on
the ground that the stock belonged to Eduardo Cojuangco, Jr.,
allegedly a close associate and dummy of former President
Marcos, and the sale thereof was "in direct contravention of . . .
Executive Orders Numbered 1 and 2 (. . . dated February 28, 1986
and March 12, 1986, respectively) which prohibit . . . the transfer,
conveyance, encumbrance, concealment or liquidation of assets
and properties acquired by former President Ferdinand Marcos
and/or his wife, Mrs. Imelda Romualdez Marcos, their close
relatives, subordinates, business associates." 9 "The sequestration
was subsequently lifted, and the sale allowed to proceed, on
representations by San Miguel Corporation . . . that the shares were
'owned by 1.3 million coconut farmers;' the seller corporations
were 'fully owned' by said farmers and Cojuangco owned only 2
shares in one of the companies, etc. However, the sequestration
was soon re-imposed by Order of the PCGG dated May 19,
1986 . . . The same order forbade the SMC corporate Secretary to
register any transfer or encumbrance of any of the stock without
the PCGG's prior written authority." 10
San Miguel promptly suspended payment of the other
installments of the price to the fourteen (14) seller corporations.
The latter as promptly sued for rescission and damages. 11
On June 4, 1986, the PCGG directed San Miguel
Corporation "to issue qualifying shares" in the corporation to seven
(7) individuals, including Eduardo de los Angeles, "from the
sequestered shares registered as street certificates under the control

of Anscor-Hagedorn Securities, Inc.," to "be held in trust by . . .

(said seven [7] persons) for the benefit of Anscor-Hagedorn
Securities, Inc. and/or whoever shall finally be determined to be
the owner/owners of said shares." 12

the Hongkong & Shanghai Banking Corporation, Hongkong "to

enable the Soriano family to initiate steps and sign an agreement
for the purchase of some 33,133,266 shares of San Miguel
Corporation." 16

In December, 1986, the SMC Board, by Resolution No.

86-12-2, "decided to assume the loans incurred by Neptunia for the
down payment (P500M) on the 33,133,266 shares." The Board
opined that there was "nothing illegal in this assumption (of
liability for the loans)," since Neptunia was "an indirectly wholly
owned subsidiary of SMC," there "was no additional expense or
exposure for the SMC Group, and there were tax and other benefits
which would redound to the SMC group of companies." 13

b) The loan of $26,500,000.00 was obtained on the same

day, the corresponding loan agreement having been signed for
Neptunia by Ralph Karr and Carl Ottiger. At the latter's request, the
proceeds of the loan were deposited in different banks 17 "for the
account of "Eduardo J. Soriano."

However, at the meeting of the SMC Board on January 30,

1987, Eduardo de los Angeles, one of the PCCG representatives in
the SMC board, impugned said Resolution No. 86-12-2, denying
that it was ever adopted, and stating that what in truth was agreed
upon at the meeting of December 4, 1986 was merely a "further
study" by Director Ramon del Rosario of a plan presented by him
for the assumption of the loan. De los Angeles also pointed out
certain "deleterious effects" thereof. He was however overruled by
private respondents. 14 When his efforts to obtain relief within the
corporation and later the PCGG proved futile, he repaired to the
Securities and Exchange Commission (SEC).
He filed with the SEC in April, 1987, what he describes as
a derivative suit in behalf of San Miguel Corporation, against ten
(10) of the fifteen-member Board of Directors who had "either
voted to approve and/or refused to reconsider and revoke Board
Resolution No. 86-12-2." 15 His Amended Petition in the SEC
recited substantially the foregoing antecedents and the following
additional facts, to wit:
a) On April, 1 1986 Soriano, Kahn and Roxas, as directors
of Neptunia Corporation, Ltd., had met and passed a resolution
authorizing the company to borrow up to US $26,500,000.00 from
49 |

c) Three (3) days later, on April 4, 1986, Soriano III sent

identical letters to the stockholders of San Miguel Corporation, 18
inter alia soliciting their proxies and announcing that "the Soriano
family, friends and affiliates acquired a considerable block of San
Miguel Corporation shares only a few days ago . . ., the transaction
. . . (having been) made through the facilities of the Manila Stock
Exchange, and 33,133,266 shares . . . (having thereby been)
purchased for the aggregate price of P3,313,326,600.00." The
letters also stated that the purchase was "an exercise of the
Sorianos' right to buy back the same number of shares purchased in
1983 by the . . . (14 seller corporations)."

d) In implementing the assumption of the Neptunia loan

and the purchase agreement for which said loan was obtained,
which assumption constituted an improper use of corporate funds
to pay personal obligations of Andrea Soriano III, enabling him; to
purchase stock of the corporation using funds of the corporation
itself, the respondents, through various subsequent machinations
and manipulations, for ulterior motives and in breach of fiduciary
duty, compound the damages caused San Miguel Corporation by,
among other things: (1) agreeing to pay a higher price for the
shares than was originally covenanted in order to prevent a
rescission of the purchase agreement by the sellers; (2) urging
UCPB to accept San Miguel Corporation and Neptunia as buyers

of the shares, thereby committing the former to the purchase of its

own shares for at least 25% higher than the price at which they
were fairly traded in the stock exchanges, and shifting to said
corporations the personal obligations of Soriano III under the
purchase agreement; and (3) causing to be applied to the part
payment of P1,800,000.00 on said purchase, various assets and
receivable of San Miguel Corporation.
The complaint closed with a prayer for injunctions against
the execution or consummation of any agreement causing San
Miguel Corporation to purchase the shares in question or entailing
the use of its corporate funds or assets for said purchase, and
against Andrea Soriano III from further using or disposing of the
funds or assets of the corporation for his obligations; for the
nullification of the SMC Board's resolution of April 2, 1987
making San Miguel Corporation a party to the purchase agreement;
and for damages.
Ernest Kahn moved to dismiss de los Angeles' derivative
suit on two grounds, to wit:
1. De los Angeles has no legal capacity to sue
because
a) having been merely "imposed" by
the PCCG as a director on San Miguel, he
has no standing to bring a minority
derivative suit;
b) he personally holds only 20
shares and hence cannot fairly and
adequately
represent
the
minority
stockholders of the corporation;
c) he has not come to court with
clean hands; and
50 |

2. The Securities & Exchange Commission has no

jurisdiction over the controversy because the matters
involved are exclusively within the business
judgment of the Board of Directors. 19
Kahn's motion to dismiss was subsequently adopted by his
correspondents. 20
The motion to dismiss was denied by SEC Hearing Officer
Josefina L. Pasay Paz, by order dated September 4, 1987. 21 In her
view
1) the fact that de los Angeles was a PCGG nominee was
irrelevant because in law, ownership of even one share only,
sufficed to qualify a person to bring a derivative suit;
2) it is indisputable that the action had been brought by de
los Angeles for the benefit of the corporation and all the other
stockholders;
3) he was a stockholder at the time of the commission of
the acts complained of, the number of shares owned by him being
to repeat, immaterial;
4) there is no merit in the assertion that he had come to
Court with unclean hands, it not having been shown that he
participated in the act complained of or ratified the same; and
5) where business judgment transgresses the law, the
Securities and Exchange Commission always has competence to
inquire there into.
Kahn filed a petition for certiorari and prohibition with the
Court of Appeals, seeking the annulment of this adverse resolution
of the SEC Hearing Officer and her perpetual inhibition from
proceeding with SEC Case No. 3152.

A Special Division of that Court sustained him, upon a

vote of three-to-two. The majority 22 ruled that de los Angeles had
no legal capacity to institute the derivative suit, a conclusion
founded on the following propositions:
1) a party "who files a derivative suit should adequately
represent the interests of the minority stockholders;" since "De los
Angeles holds 20 shares of stock out of 121,645,860 or
0.00001644% (appearing to be undisputed), (he) cannot even be
remotely said to adequately represent the interests of the minority
stockholders, (e)specially so when . . . de los Angeles was put by
the PCGG to vote the majority stock," a situation generating "a
genuine conflict of interest;"
2) de los Angeles has not met this conflict-of-interest
argument, i.e., that his position as PCGG-nominated director is
inconsistent with his assumed role of representative of minority
stockholders; not having been elected by the minority, his voting
would expectedly consider the interest of the entity which placed
him in the board of directors;
3) Baseco v. PCGG, May 27, 1987, 23 has laid down the
principle that the (a) PCGG cannot exercise acts of dominion over
sequestered property, (b) it has only powers of administration, and
(c) its voting of sequestered stock must be done only pursuant to
its power of administration; and

2) he had not voted in favor of the resolution authorizing

the purchase of the shares; and
3) even if PCGG was not the owner of the sequestered
shares, it had the right to seek the protection of the interest of the
corporation, it having been held that even an unregistered
shareholder or an equitable owner of shares and pledges of shares
may be deemed a shareholder for purposes of instituting a
derivative suit.
De los Angeles has appealed to this Court. He prays for
reversal of the judgment of the Court of Appeals, imputing to the
latter the following errors:
1) having granted the writ of certiorari despite the fact that
Kahn had not first resorted to the plain remedy available to him,
i.e., appeal to the SEC en banc and despite the fact that no question
of jurisdiction was involved;
2) having ruled on Kahn's petition on the basis merely of
his factual allegations, although he (de los Angeles) had disputed
them and there had been no trial in the SEC; and
3) having held that he (de los Angeles) could not file
derivative suit as stockholder and/or director of the San Miguel
Corporation.

4) de los Angeles' suit is not a derivative suit, a derivative

suit being one brought for the benefit of the corporation.

For their part, and in this Court, the respondents make the
following assertions:

The dissenting Justices, 24 on the other hand, were of the

opinion that the suit had been properly brought by de los Angeles
because

1) SEC has no jurisdiction over the dispute at bar which

involves the ownership of the 33,133,266 shares of SMC stock, in
light of this Court's Resolution in G.R. Nos. 74910, 75075, 75094,
76397, 79459 and 79520, promulgated on August 10, 1988. 25

1) the number of shares owned by him was immaterial, he

being a stockholder in his own right;
51 |

2) de los Angeles was beholden to the controlling

stockholder in the corporation (PCGG), which had "imposed" him

on the corporation; since the PCGG had a clear conflict of interest

with the minority, de los Angeles, as director of the former, had no
legal capacity to sue on behalf of the latter;
3) even assuming absence of conflict of interest, de los
Angeles does not fairly and adequately represent the interest of the
minority stockholders;
4) the respondents had properly applied for certiorari with
the Court of Appeals because
a) that Court had, by law, exclusive appellate
jurisdiction over officers and agencies exercising
quasi-judicial functions, and hence had competence
to issue the writ of certiorari;
b) the principle of exhaustion of administrative
remedies does not apply since the issue involved is
one of law;
c) said respondents had no plain, speedy and
adequate remedy within the SEC;
d) the Order of the SEC Investigating Officer
denying the motion to dismiss was issued without
or in excess of jurisdiction, hence was correctly
nullified by the Court of Appeals; and
e) de los Angeles had not raised the issue of absence
of a motion for reconsideration by respondents in the
SEC case; in any event, such a motion was
unnecessary in the premises.
De los Angeles' Reply seeks to make the following points:
1) since the law lays down three (3) requisites for a
derivative suit, viz:
52 |

a) the party bringing suit should be a shareholder as

of the time of the act or transaction complained of;
b) he has exhausted intra-corporate remedies, i.e.,
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
c) the cause of action actually devolves on the
corporation, the wrongdoing or harm having been
caused to the corporation and not to the particular
stockholder bringing the suit;
and since (1) he is admittedly the owner of 20 shares of SMC stock
in his own right, having acquired those shares as early as 1977, (2)
he had sought without success to have the board of directors
remedy the wrong, and (3) that wrong was in truth a wrong against
the stockholders of the corporation, generally, and not against him
individually and it was the corporation, and not he, particularly,
that would be entitled to the appropriate relief the propriety of
his suit cannot be gainsaid;
2) Kahn had not limited himself to questions of law in the
proceedings in the Court of Appeals and hence could not claim
exclusion from the scope of the doctrine of exhaustion of remedies;
moreover, Rule 65, invoked by him, bars a resort to certiorari
where a plain, speedy and adequate remedy was available to him,
as it had been available to him in this case, to wit: a motion for
reconsideration before the SEC en banc and, contrary to
respondents' claim, de los Angeles had in fact asserted these
propositions before the Appellate Tribunal; and
3) the respondents had not raised the issue of jurisdiction
before the Court of Appeals; indeed, they admit in their Comment
that

"issue has not yet been resolved by the SEC," be this

as it may, the derivative suit does not fall within the
BASECO doctrine since it does not involve any
question of ownership of the 33,133,266 sequestered
SMC shares but rather, the validity of the resolution
of the board of directors for the assumption by the
corporation, for the benefits of certain of its officers
and stockholders, of liability for loans contracted by
another corporation, which is an intra-corporate
dispute within the exclusive jurisdiction of the SEC.

1. De los Angeles is not opposed to the asserted position of

the PCGG that the sequestered SMC shares of stock belong to
Ferdinand Marcos and/or his dummies and/or cronies. His consent
to sit in the board as nominee of PCGG unquestionably indicates
his advocacy of the PCGG position. He does not here seek, and his
complaint in the SEC does not pray for, the annulment of the
purchase by SMC of the stock in question, or even the subsequent
purchase of the same stock by others 26 which proposition was
challenged by (1) one Evio, in SEC Case No. 3000; (2) by the 14
corporations which sold the stock to SMC, in Civil Case No.
13865 of the Manila RTC, said cases having later become subject
of G.R. No. 74910 of this Court; (3) by Neptunia, SMC, and
others, in G.R. No. 79520 of this Court; and (4) by Eduardo
Cojuangco and others in Civil Case No. 16371 of the RTC, Makati,
[on the theory that the sequestered stock in fact belonged to
coconut planters and oil millers], said case later having become
subject of G.R. No. 79459 of this Court. 27 Neither does de los
Angeles impugn, obviously, the right of the PCGG to vote the
sequestered stock thru its nominee directors as was done by
United Coconut Planters Bank and the 14 seller corporations (in
SEC Case No. 3005, later consolidated with SEC Case No. 3000
above mentioned, these two (2) cases later having become subject
of G.R. No. 76397) as well as by one Clifton Ganay, a UCPB
stockholder (in G.R. No. 75094 of this Court). 28
53 |

The subject matter of his complaint in the SEC does not

therefore fall within the ambit of this Court's Resolution of August
10, 1988 on the cases just mentioned, to the effect that, citing
PCGG v. Pea, et al, 29 "all cases of the Commission regarding
'the funds, moneys, assets, and properties illegally acquired or
misappropriated by former President Ferdinand Marcos, Mrs.
Imelda Romualdez Marcos, their close relatives, Subordinates,
Business Associates, Dummies, Agents, or Nominees, whether
civil or criminal, are lodged within the exclusive and original
jurisdiction of, the Sandiganbayan,' and all incidents arising from,
incidental to, or related to, such cases necessarily fall likewise
under the Sandiganbayan's exclusive and original jurisdiction,
subject to review on certiorari exclusively by the Supreme Court."
His complaint does not involve any property illegally acquired or
misappropriated by Marcos, et al., or "any incidents arising from,
incidental to, or related to" any case involving such property, but
assets indisputably belonging to San Miguel Corporation which
were, in his (de los Angeles') view, being illicitly committed by a
majority of its board of directors to answer for loans assumed by a
sister corporation, Neptunia Co., Ltd.
De los Angeles' complaint, in fine, is confined to the issue
of the validity of the assumption by the corporation of the
indebtedness of Neptunia Co., Ltd., allegedly for the benefit of
certain of its officers and stockholders, an issue evidently distinct
from, and not even remotely requiring inquiry into the matter of
whether or not the 33,133,266 SMC shares sequestered by the
PCGG belong to Marcos and his cronies or dummies (on which
issue, as already pointed out, de los Angeles, in common with the
PCGG, had in fact espoused the affirmative). De los Angeles'
dispute, as stockholder and director of SMC, with other SMC
directors, an intra-corporate one, to be sure, is of no concern to the
Sandiganbayan, having no relevance whatever to the ownership of
the sequestered stock. The contention, therefore, that in view of
this Court's ruling as regards the sequestered SMC stock above
adverted to, the SEC has no jurisdiction over the de los Angeles
complaint, cannot be sustained and must be rejected. The dispute

concerns 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. 30
2. The theory that de los Angeles has no personality to
bring suit in behalf of the corporation because his stockholding
is minuscule, and there is a "conflict of interest" between him and
the PCGG cannot be sustained, either.
It is claimed that since de los Angeles' 20 shares (owned
by him since 1977) represent only .00001644% of the total number
of outstanding shares (121,645,860), he cannot be deemed to fairly
and adequately represent the interests of the minority stockholders.
The implicit argument that stockholder, to be considered as
qualified to bring a derivative suit, must hold a substantial or
significant block of stock finds no support whatever in the law.
The requisites for a derivative suit 31 are as follows:
a) the party bringing suit should be a shareholder as
of the time of the act or transaction complained of,
the number of his shares not being material; 32
b) he has tried to exhaust intra-corporate remedies,
i.e., has made a demand on the board of directors for
the appropriate relief but the latter has failed or
refused to heed his plea; 33 and
c) the cause of action actually devolves on the
corporation, the wrongdoing or harm having been, or
being caused to the corporation and not to the
particular stockholder bringing the suit. 34
The bona fide ownership by a stockholder of stock in his own right
suffices to invest him with standing to bring a derivative action for
the benefit of the corporation. The number of his shares is
54 |

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.
3. Neither can the "conflict-of-interest" theory be upheld.
From the conceded premise that de los Angeles now sits in the
SMC Board of Directors by the grace of the PCGG, it does not
follow that he is legally obliged to vote as the PCGG would have
him do, that he cannot legitimately take a position inconsistent
with that of the PCGG, or that, not having been elected by the
minority stockholders, his vote would necessarily never consider
the latter's interests. The proposition is not only logically
indefensible, non sequitur, but also constitutes an erroneous
conception of a director's role and function, it being plainly a
director's duty to vote according to his own independent judgment
and his own conscience as to what is in the best interests of the
company. Moreover, 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 these shares being
precisely what he invokes as the source of his authority to bring
the derivative suit.
4. It is also theorized, on the authority of the BASECO
decision, that the PCGG has no power to vote sequestered shares
of stock as an act of dominion but only in pursuance to its power
of administration. The inference is that the PCGG's act of voting
the stock to elect de los Angeles to the SMC Board of Directors
was unauthorized and void; hence, the latter could not bring suit in
the corporation's behalf. The argument is strained and obviously of
no merit. As already more than plainly indicated, it was not
necessary for de los Angeles to be a director in order to bring a
derivative action; all he had to be was a stockholder, and that he
was owning in his own right 20 shares of stock, a fact not
disputed by the respondents.

Nor is there anything in the Baseco decision which can be

interpreted as ruling that sequestered stock may not under any
circumstances be voted by the PCGG to elect a director in the
company in which such stock is held. On the contrary, that it held
such act permissible is evident from the context of its reference to
the Presidential Memorandum of June 26, 1986 authorizing the
PCGG, "pending the outcome of proceedings to determine the
ownership of . . . sequestered shares of stock," "to vote such shares
. . . at all stockholders' meetings called for the election of
directors . . . ," the only caveat being that the stock is not to be
voted simply because the power to do so exists, whether it be to
oust and replace directors or to effect substantial changes in
corporate policy, programs or practice, but only "for demonstrably
weighty and defensible grounds" or "when essential to prevent
disappearance or wastage of corporate property."
The issues raised here do not peremptorily call for a
determination of whether or not in voting petitioner de los Angeles
to the San Miguel Board, the PCGG kept within the parameters
announced in Baseco; and absent any showing to the contrary,
consistently with the presumption that official duty is regularly
performed, it must be assumed to have done so.
WHEREFORE, the petition is GRANTED. The appealed
decision of the Court of Appeals in CA-G.R. SP No. 12857
setting aside the order of September 4, 1987 issued in SEC Case
No. 3153 and dismissing said case is REVERSED AND SET
ASIDE. The further disposition in the appealed decision for the
issuance of a writ of preliminary injunction upon the filing and
approval of a bond of P500,000.00 by respondent Ernest Kahn
(petitioner in the Appellate Court) is also SET ASIDE, and any
writ of injunction issued pursuant thereto is lifted. Costs against
private respondents.
SO ORDERED.
Gancayco, Grio-Aquino and Medialdea, JJ., concur
55 |

Cruz J., no part. Related to one of the counsel.

[G.R. Nos. 48195 & 48196. May 1, 1942.]
SOFRONIO T. BAYLA, ET AL., petitioners, vs.
SILANG TRAFFIC CO., INC., respondent.
SILANG TRAFFIC CO., INC. petitioner, vs.
SOFRONIO BAYLA, ET AL., respondents.
E. A. Beltran, for petitioners.
Conrado V. Sanchez, Melchor C. Benitez, and Enrique M.
Fernando, for respondent.
DECISION
OZAETA, J p:
Petitioners in G. R. No. 48195 instituted this action in the
Court of First Instance of Cavite against the respondent Silang
Traffic Co., Inc. (cross-petitioner in G. R. No. 48196), to recover
certain sums of money which they had paid severally to the
corporation on account of shares of stock they individually agreed
to take and pay for under certain specified terms and conditions, of
which the following, referring to the petitioner Josefa Naval, is
typical:

"AGREEMENT FOR INSTALLMENT SALE OF

SHARES IN THE SILANG TRAFFIC
COMPANY, INC.,'

"Silang,
Cavite, P. I.
"THIS AGREEMENT, made and entered
into between Mrs. Josefa Naval, of legal age,
married, and resident of the Municipality of Silang,
Province of Cavite, Philippine Islands, party of the
First Part, hereinafter called the subscriber, and the
'Silang Traffic Company, Inc.,' a corporation duly
organized and existing by virtue of and under the
laws of the Philippine Islands, with its principal
office in the Municipality of Silang, Province of
Cavite, Philippine Islands, party of the Second Part,
hereinafter called the seller,
"WITNESSETH:
"That the subscriber promises to pay
personally or by his duly authorized agent to the
seller at the Municipality of Silang, Province of
Cavite, Philippine Islands, the sum of one thousand
five hundred pesos (P1,500), Philippine currency, as
purchase price of FIFTEEN (15) shares of capital
stock, said purchase price to be paid as follows, to
wit: five (5%) per cent upon the execution of the
contract, the receipt whereof is hereby
acknowledged and confessed, and the remainder in
installments of five per cent, payable within the first
month of each and every quarter thereafter,
commencing on the 1st day of July, 1935, with
interest on deferred payments at the rate of SIX (6%)
per cent per annum until paid.
"That the said subscriber further agrees that
if he fails to pay any of said installment when due,
or to perform any of the aforesaid conditions, or if
said shares shall be attached or levied upon by
56 |

creditors of the said subscriber, then the said shares

are to revert to the seller and the payments already
made are to be forfeited in favor of said seller, and
the latter may then take possession, without
resorting to court proceedings.
"The said seller upon receiving full
payment, at the time and manner hereinbefore
specified, agrees to execute and deliver to said
subscriber, or to his heirs and assigns, the certificate
of title of said shares, free and clear of all
encumbrances.
"In testimony whereof, the parties have
hereunto set their hands in the Municipality of
Silang, Province of Cavite, Philippine Islands, this
30th day of March, 1935.

"(Sgd.) JOSEFA
NAVAL
"SILANG
TRAFFIC
COMPANY, INC.
Subscriber
"By (Sgd.) LINO
GOMEZ
President."

(Exhibit
omitted.)

1.

Notarial

acknowledgment

resolvio y se aprobo por la Junta Directiva los

siguientes:

The agreements signed by the other

petitioners were of the same date (March 30, 1935)
and in identical terms as the foregoing except as to
the number of shares and the corresponding
purchase price. The petitioners agreed to purchase
the following number of shares and, up to April 30,
1937, had paid the following sums on account
thereof:.

"(a) Que se dejara sin efecto lo aprobado por

la Junta Directiva el 3 de marzo, 1935, art. 11, sec.
162, sobre las cobranzas que se haran por el
Secretario Tesorero de la Corporacion a los
accionistas que habian tomado o suscrito nuevas
acciones y que se permitia a estos pagar 20% del
valor de las acciones suscritas en un ao, con interes
de 6% y el pago o jornal que se hara por trimestre.

Sofronio T. Bayla 8 sharesP360

Venancio Toledo 8 shares 375

"(b) Se dejara sin efecto, en vista de que aun

no esta pagado todo el valor de las 123 acciones,
tomadas de las acciones no expedidas (unissued
stock) de la Corporacion y que fueron suscritas por
los siguientes:

Josefa Naval 15 shares675

Paz Toledo 15 shares675

Lino Gomez 10 Acciones

Venancio Toledo 8 Acciones

57 |

Petitioners' action for the recovery of the

sums above mentioned is based on a resolution
approved by the board of directors of the respondent
corporation on August 1, 1937, of the following
tenor:

Melchor P. Benitez 17 Acciones

"A mocion del Sr. Marcos Caparas y

secundado por el Sr. Alejandro Bayla, que para el
bien de la corporacion y la pronta terminacion del
asunto civil No. 3125 titulado 'Vicente F. Villanueva
et al. vs. Lino Gomez et al.', en el Juzgado de
Primera Instancia de Cavite, donde se gasto y se
gastara no poca cantidad de la Corporacion, se

Numeriano S. Aldaba 15 Acciones

Isaias Videa 14 Acciones

Esteban Velasco 10 Acciones

Inocencio Cruz 8 Acciones

Paz Toledo 15 Acciones
Josefa Naval 15 Acciones

Sofronio Bayla 8 Acciones

Dionisio Dungca 3 Acciones

y devolver a las personas arriba descritas toda la

cantidad que estas habian pagado por las 123
acciones.
"(c) Que se dejara sin efecto lo aprobado por
la Junta Directiva el 3 de marzo, 1935, art. V. sec.
165, sobre el cambio o trueque de las 31 acciones
del Treasury Stock, contra las 32 acciones del Sr.
Numeriano Aldaba, en la corporacion Northern
Luzon Transportation Co. y que se devuelva al Sr.
Numeriano Aldaba las 32 acciones mencionadas
despues que el haya devuelto el certificado de las 31
acciones de la Silang Traffic Co., Inc.
"(d) Permitir al Tesorero de la Corporacion
para que devuelva a las personas arriba indicadas,
las cantidades pagadas por las 123 acciones."
(Exhibit A-1.)
The respondent corporation set up the following defenses:
(1) That the above-quoted resolution is not applicable to the
petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo
because on the date thereof "their subscribed shares of stock had
already automatically reverted to the defendant, and the
installments paid by them had already been forfeited"; and (2) that
said resolution of August 1, 1937, was revoked and canceled by a
subsequent resolution of the board of directors of the defendant
corporation dated August 22, 1937.
The trial court absolved the defendant from the complaint
and declared canceled (forfeited) in favor of the defendant the
58 |

shares of stock in question. It held that the resolution of August 1,

1937, was null and void, citing Velasco vs. Poizat (37 Phil. 802),
wherein this Court held that "a corporation has no legal capacity to
release an original subscriber to its capital stock from the
obligation to pay for his shares; and any agreement to this effect is
invalid." Plaintiffs below appealed to the Court of Appeals, which
modified the judgment of the trial court as follows:

"That part of the judgment dismissing

plaintiffs' complaint is affirmed, but that part thereof
declaring their subscription canceled is reversed.
Defendant is directed to grant plaintiffs 30 days after
final judgment within which to pay the arrears on
their subscription. Without pronouncement as to
costs."
Both parties appealed to this Court by petition and crosspetition for certiorari. Petitioners insist that they have the right to
recover the amounts involved under the resolution of August 1,
1937, while the respondent and cross-petitioner on its part
contends that said amounts have been automatically forfeited and
the shares of stock have reverted to the corporation under the
agreement hereinabove quoted.
The parties litigant, the trial court, and the Court of
Appeals have interpreted or considered the said agreement as a
contract of subscription to the capital stock of the respondent
corporation. It should be noted, however, that said agreement is
entitled "Agreement for Installment Sale of Shares in the Silang
Traffic Company, Inc."; that while the purchaser is designated as
"subscriber," the corporation is described as "seller"; that the
agreement was entered into on March 30, 1935, long after the
incorporation and organization of the corporation, which took
place in 1927; and that the price of the stock was payable in
quarterly installments spread over a period of five years. It also

appears that in civil case No. 3125 of the Court of First Instance of
Cavite mentioned in the resolution of August 1, 1937, the right of
the corporation to sell the shares of stock to the persons named in
said resolution (including the herein petitioners) was impugned by
the plaintiffs in said case, who claimed a preferred right to buy said
shares.
Whether a particular contract is a subscription or a sale of
stock is a matter of construction and depends upon its terms and
the intention of the parties (4 Fletcher, Cyclopedia of Corporations
[permanent edition], 29, cited in Salmon, Dexter & Co. vs. Unson
(47 Phil. 649, 652). In the Unson case just cited, this Court held
that a subscription to stock in an existing corporation is, as
between the subscriber and the corporation, simply a contract of
purchase and sale.
It seems clear from the terms of the contracts in question
that they are contracts of sale and not of subscription. The lower
courts erred in overlooking the distinction between subscription
and purchase. "A subscription, properly speaking, is the mutual
agreement of the subscribers to take and pay for the stock of a
corporation, while a purchase is an independent agreement
between the individual and the corporation to buy shares of stock
from it at a stipulated price." (18 C. J. S., 760.) In some particulars
the rules governing subscriptions and sales of shares are different.
For instance, the provisions of our Corporation Law regarding calls
for unpaid subscriptions and assessment of stock (sections 37-50)
do not apply to a purchase of stock. Likewise the rule that the
corporation has no legal capacity to release an original subscriber
to its capital stock from the obligation to pay for his shares, is
inapplicable to a contract of purchase of shares.
The next question to determine is whether under the
contract between the parties the failure of the purchaser to pay any
of the quarterly installments on the purchase price automatically
gave rise to the forfeiture of the amounts already paid and the
reversion of the shares to the corporation. The contract provides
59 |

for interest at the rate of six per centum per annum on deferred
payments. It also provides that if the purchaser fails to pay any of
said installments when due, the said shares are to revert to the
seller and the payments already made are to be forfeited in favor of
said seller. The respondent corporation contends that when the
petitioners failed to pay the installment which fell due on or before
July 31, 1937, forfeiture automatically took place, that is to say,
without the necessity of any demand from the corporation, and that
therefore the resolution of August 1, 1937, authorizing the refund
of the installments already paid was inapplicable to the petitioners,
who had already lost any and all rights under said contract. That
contention is, we think, untenable. The provision regarding interest
on deferred payments would not have been inserted if it had been
the intention of the parties to provide for automatic forfeiture and
cancelation of the contract. Moreover, the contract did not
expressly provide that the failure of the purchaser to pay any
installment would give rise to forfeiture and cancelation without
the necessity of any demand from the seller; and under article 1100
of the Civil Code persons obliged to deliver or do something are
not in default until the moment the creditor demands of them,
judicially or extrajudicially the fulfilment of their obligation,
unless (1) the obligation or the law expressly provides that demand
shall not be necessary in order that default may arise, or (2) by
reason of the nature and circumstances of the obligation it shall
appear that the designation of the time at which the thing was to be
delivered or the service rendered was the principal inducement to
the creation of the obligation.
Is the resolution of August 1, 1937, valid? The contract in
question being one of purchase and not subscription as we have
heretofore pointed out, we see no legal impediment to its rescission
by agreement of the parties. According to the resolution of August
1, 1937, the rescission was made for the good of the corporation
and in order to terminate the then pending civil case involving the
validity of the sale of the shares in question among others. To that
rescission the herein petitioners apparently agreed, as shown by
their demand for the refund of the amounts they had paid as

provided in said resolution. It appears from the record that said

civil case was subsequently dismissed, and that the purchasers of
shares of stock, other than the herein petitioners, who were
mentioned in said resolution were able to benefit by said
resolution. It would be an unjust discrimination to deny the same
benefit to the herein petitioners.
We may add that there is no intimation in this case that the
corporation was insolvent, or that the right of any creditor of the
same was in any way prejudiced by the rescission.
The attempted revocation of said rescission by the
resolution of August 22, 1937, was invalid, it not having been
agreed to by the petitioners.
Wherefore, the judgment of the Court of Appeals is hereby
reversed and another judgment will be entered against the
defendant Silang Traffic Co., Inc., ordering it to pay to the
plaintiffs Sofronio T. Bayla, Venancio Toledo, Josefa Naval, and
Paz Toledo, the sums of P360, P375, P675, and P675, respectively,
with legal interest on each of said sums from May 28, 1938, the
date of the filing of the complaint, until the date of payment, and
with costs in the three instances. So ordered.
Yulo, C.J., Moran, Paras and Bocobo, JJ., concur.

[G.R. No. L-4824. June 30, 1953.]

LINGAYEN GULF ELECTRIC POWER
COMPANY, INC., plaintiff-appellant, vs. IRINEO
BALTAZAR, defendant-appellee.
[G.R. No. L-6344. June 30, 1953.]

60 |

LINGAYEN GULF ELECTRIC POWER

COMPANY, INC., plaintiff and appellee, vs.
IRINEO BALTAZAR, defendant-appellant.
Manuel L. Fernandez for appellant.
Sofronio C. Quimson and Daniel C. Macaraeg for
appellee.
DECISION
MONTEMAYOR, J p:
These two cases here on appeal stem from the same case,
that of civil case No. 10944 of the Court of First Instance of
Pangasinan. From the trial court's decision, plaintiff Lingayen Gulf
Electric Power Company, Inc. appealed directly to this court under
G. R. No. L-4824. Defendant Ireneo Baltazar appealed to the Court
of Appeals. By a resolution of that appellate tribunal, the appeal
was certified to this court pursuant to section 17, (5) and (6) of the
Judiciary Act of 1948, and is now listed here under G. R. No. L6344.
The main facts of the case are not disputed, and we are
reproducing and making our own the relation of facts contained in
the decision appealed from.
"The plaintiff, Lingayen Gulf Electric Power
Company is a domestic corporation with an
authorized capital stock of P300,000 divided into
3,000 shares with a par value of P100 per share. The
defendant, Irineo Baltazar appears to have
subscribed for 600 shares on account of which he
had paid upon the organization of the corporation the
sum of P15,000. (See Exhibit A, page 2). After
incorporation, the defendant made further payments
on account of his subscription, leaving a balance of

P18,500 unpaid for, which amount, the plaintiff now

claims in this action.
"On July 23, 1946, a majority of the
stockholders of the corporation, among them the
herein defendant, held a meeting and adopted
stockholders' resolution No. 17. By said resolution,
it was agreed upon by the stockholders present to
call the balance of all unpaid subscribed capital
stock as of July 23, 1946, the first 50 per cent
payable within 60 days beginning August 1, 1946,
and the remaining 50 per cent payable within 60
days beginning October 1, 1946. The resolution also
provided, that all unpaid subscription after the due
dates of both calls would be subject to 12 per cent
interest per annum. Lastly, the resolution provided,
that after the expiration of 60 days' grace which
would be on December 1, 1946, for the first call, and
on February 1, 1947, for the second call, all
subscribed stocks remaining unpaid would revert to
the corporation. (See Exhibit F and Exhibit I).
"On September 22, 1946, the plaintiff
corporation wrote a letter to the defendant reminding
him that the first 50 per cent of his unpaid
subscription would be due on October 1, 1946. The
plaintiff requested the defendant to 'kindly advise the
company thru the undersigned your decision
regarding this matter.' (See Exhibit 4). The defendant
answered on September 25, 1946, asking the
corporation that he be allowed to pay his unpaid
subscription by February 1, 1947. In his answer, the
defendant also agreed that if he could not pay the
balance of his subscription by February 1, 1947, his
unpaid subscription would be reverted to the
corporation. (See Exhibit 5).
61 |

"On December 19, 1947, the defendant

wrote another letter to the members of the Board of
Directors of the plaintiff corporation, offering to
withdraw completely from the corporation by selling
out to the corporation all his shares of stock in the
total amount of P23,000. (See Exhibit 8). Apparently
this offer of the defendant was left unacted upon by
the plaintiff.
"On April 17, 1948, the Board of Directors
of the plaintiff corporation held a meeting, and in the
course of the said meeting they adopted Resolution
No. 17. This resolution in effect set aside the
stockholders resolution approved on June 23, 1946
(Exhibit D), on the ground that said stockholders'
resolution was null and void, and because the
plaintiff corporation was not in a financial position
to absorb the unpaid balance of the subscribed
capital stock. At the said meeting the directors also
decided to call 50 per cent of the unpaid subscription
within 30 days from April 17, 1943, the call payable
within 60 days from receipt of notice from the
Secretary-Treasurer. This resolution also authorized
legal counsel of the company to take all the
necessary legal steps for the collection of the
payment of the call. (See Exhibit E-2).
"On June 10, 1949, the stockholders of the
corporation held another meeting in which the
stockholders were all present, either in person or by
proxy. At such meeting, the stockholders adopted
resolution No. 4, whereby it was agreed to revalue
the stocks and assets of the company so as to attract
outside investors to put in money for the
rebabilitation of the company. The president was
authorized to make all arrangement for such

appraisal and the Secretary to call a meeting upon

completion of the reassessment. (See Exhibit 2).
"It was admitted by the defendant that he
received notice from the Secretary-Treasurer of the
company, demanding payment of the unpaid balance
of his subscription. It was agreed by the parties that
the call of the Board of Directors was not published
in a newspaper of general circulation as required by
section 40 of the Corporation Law.
"On September 28, 1949, the legal counsel
of the plaintiff corporation wrote a letter to the
defendant, demanding the payment of the unpaid
balance of his subscription amounting to P18,500.
Copy of this letter was sent by registered mail to the
defendant on September 29, 1949. (See Exhibit G).
The defendant ignored the said demand. Hence this
action.
"The defendant, in his answer, disclaims
liability to the plaintiff corporation on the following
grounds:
'1. That the plaintiffs' action is premature
because there was no valid call; and
'2. That granting that there was a valid call,
he was released from the obligation of the balance of
his subscription by stockholders' resolution No. 17
and No. 4.'
"By way of counterclaim, the defendant also
claims from the plaintiff a reasonable compensation
at the rate of P700 per month as president of the
company, for the period from March 1, 1946 to
December 31, 1948.
62 |

"In the light of the foregoing undisputed

facts, the only questions are as follows:
'1. Was the call Exhibit E-2 valid?
'2. Was the defendant released from the
obligation of the unpaid balance of his subscription
by virtue of stockholders' resolution Nos. 17 and 4?
'3. Is the defendant entitled to compensation
as president of the plaintiff corporation?'"
In an exhaustive and well prepared decision, Judge M.
Mejia of the lower court found that the call for payment embodied
in resolution No. 17 of July 23, 1946 was null and void for lack of
publication; consequently, he dismissed the complaint as
premature. He further held said resolution null and void in so far as
it tried to relieve the defendant from liability on his unpaid
subscription, on the ground that the resolution was not approved by
all the stockholders of the corporation. He also dismissed the
defendant's counterclaim for compensation as president of the
corporation.
Inasmuch as in the two appeals, the assignment of errors
are related to each other, and because they refer to the same case,
we propose to determine both appeals in one single decision.
We agree with the lower court that the law requires that
notice of any call for the payment of unpaid subscription should be
made not only personally but also by publication. This is clear
from the provisions of section 40 of the Corporation Law, Act No.
1459, as amended, which reads as follows:.
"SEC. 40. Notice of call for unpaid
subscriptions must be either personally served upon
each stockholder or deposited in the post- office,
postage prepaid, addressed to him at his place of

residence, if known, and if not known, addressed to

the place where the principal office of the
corporation is situated. The notice must also be
published once a week for four successive weeks in
some newspaper of general circulation devoted to
the publication of general news published at the
place where the principal office of the corporation is
established or located, and posted in some prominent
place at the works of the corporation if any such
there be. If there be no newspaper published at the
place where the principal office of the corporation is
established or located, then such notice may be
published in any newspaper of general news in the
Philippines."

It will be noted that section 40 is mandatory as regards

publication, using the word "must". As correctly stated by the trial
court, the reason for the mandatory provision is not only to assure
notice to all subscribers, but also to assure equality and uniformity
in the assessment on stockholders. (14 C. J. 639).
This rule finds support in authorities on corporation law,
such as, Thompson on Corporations, Vol. 5, 3rd edition, pages 588590, from which we make the following quotation:
"SEC. 3744. Provisions requiring notice of
calls. The governing statute, charter or by-laws
usually require that notice of calls be given the
subscriber or stockholder. If any particular notice or
demand is required by either of these, or by the
contract of subscription, then such notice or demand
must be given, and must be alleged and proved in
order to maintain an action for the call.
xxx xxx xxx
63 |

"SEC. 3745. Notice. Compliance with

requirements From what has preceded it is clear
that where any particular form or kind of notice is
required, each form or kind must be given - the
requirement must be complied with. Thus, where the
charter expressly required notice to be given in
certain newspapers for a certain number of days, the
corporation must show compliance with the
conditions before recovery on the call. An action is
ordinarily made effective by notice thereof to the
subscribers, in accordance with the by-laws or
general regulations of the corporation in that regard.
So, where there are statutory or other regulations as
to the form and sufficiency of the notice, these must
be followed. Thus, where such a notice was required
to be signed by the directors, a notice with the names
of the directors signed by a clerk, was held
insufficient. These cases and others proceed on the
theory that where the manner of giving notice is
prescribed by law every condition precedent must be
strictly and literally complied with." (Thompson on
Corporations, Vol. 5, 3rd ed.)
This view is shared by Justice Fisher. In his book "The
Philippine Law on Stock Corporations" he says: "Not only must
personal notice be given in one of these manners, but the notice
must also be published once a week, for four consecutive weeks, in
some newspaper." (p. 110.)
We find the citation of authorities made by plaintiff and
appellant inapplicable. In the case of Velasco vs. Poizat (37 Phil.
805), the corporation involved was insolvent, in which case all
unpaid stock subscriptions become payable on demand and are
immediately recoverable in an action instituted by the assignee.
Said the court in that case:

". . . it is now quite well settled that when

the corporation becomes insolvent, with proceedings
instituted by creditors to wind up and distribute its
assists, no call or assessment is necessary before the
institution of suits to collect unpaid balance on
subscription."
But when the corporation is a solvent concern, the rule is:
"It is again insisted that plaintiffs cannot
recover because the suit was not preceded by a call
or assessment against the defendant as a subscriber,
and that until this is done no right of action accrues.
In a suit by a solvent going corporation to collect a
subscription, and in certain suits provided by statute
this would be true; . . . " (Id.)
Going to the claim of defendant and appellant that
Resolution No. 17 of 1946 released him from the obligation to pay
for his unpaid subscription, the authorities are generally agreed
that in order to effect the release, there must be unanimous consent
of the stockholders of the corporation. We quote some authorities:
"Subject to certain exceptions, considered in
subdivision (3) of this section, the general rule is
that a valid and binding subscription for stock of a
corporation cannot be cancelled so as to release the
subscriber from liability thereon without the consent
of all the stockholders or subscribers. Furthermore, a
subscription cannot be cancelled by the company,
even under a secret or collateral agreement for
cancellation made with the subscriber at the time of
the subscription, as against persons who
subsequently subscribed or purchased without notice
of such agreement." (18 C.J.S. 874).
"(3) Exceptions.
64 |

"In particular circumstances, as where it is

given pursuant to a bona fide compromise, or to set
off a debt due from the corporation, a release,
supported by consideration, will be effectual as
against dissenting stockholders and subsequent and
existing creditors. A release which might originally
have been held invalid may be sustained after a
considerable lapse of time." (18 C.J.S. 874).
In the present case, the release claimed by defendant and
appellant does not fall under the exception above referred to,
because it was not given pursuant to a bona fide compromise, or to
set off a debt due from the corporation, and there was no
consideration for it.
Another authority:
"SEC. 850. Unanimous consent of
stockholders necessary to release subscriber. . . .
It may be asserted as the first rule under this
proposition that, after a valid subscription to the
capital stock of a corporation has been made and
accepted, there can be no cancellation or release
from the obligation without the consent of the
corporation and all the stockholders; . . . " (2
Thompson on Corporations, p. 186).
He states the reason for the rule as follows:
"SEC. 855. Right to withdraw as against
subscribers. A contract of subscription is, at least
in the sense which creates an estoppel, a contract
among the several subscribers. For this reason no
one of the subscribers can withdraw from the
contract without the consent of all the others, and
thereby diminish, without the universal consent, the

common fund in which all have acquired an

interest . . . (2 Thompson on Corporations, p. 194).
As already found by the trial court, the release attempted
in Resolution No. 17 of 1946 was not valid for lack of a
unanimous vote. It found that at least seven stockholders were
absent from the meeting when said resolution was approved.
Defendant and appellant, however, contends that after
dismissing the complaint for being premature, there was no
necessity or reason for the trial court to go further and say that
defendant was not validly released from the payment for his
unpaid subscription. It must be borne in mind, however, that this
was one of the principal issues involved in the case and the trial
court was called upon to pass upon it, because unless so passed
upon and determined, it might decisively affect the case on appeal.
Supposing that on appeal the appellate court decides that the call
was valid, then it would be important to know whether or not in
spite of the validity of the call, defendant was nevertheless not
liable because he had been validly released by a resolution of the
corporation. If that question was not decided by the trial court, and
naturally was not touched upon in the appeal, then the appellate
court would have no occasion to pass upon it, and it might be
necessary to bring another action to determine the point, which
means multiplicity of suits. Moreover, the authority given to the
courts to render judgments for declaratory relief in order to
determine the rights or duties of parties over a certain transaction
or under a certain written instrument, or to remove the uncertainty
or controversy over the same (Rule 66 of the Rules of Court),
justified the trial court in passing upon this question of release.
As regards the compensation of President claimed by
defendant and appellant, it is clear that he is not entitled to the
same. The by- laws of the company are silent as to the salary of the
President. And, while resolutions of the incorporators and
stockholders (Exhibits G-1 and I-1) provide salaries for the general
manager, secretary-treasurer and other employees, there was no
65 |

provision for the salary of the President. On the other hand, other
resolutions (Exhibits H-1 and J-3) provide for per diems to be paid
to the President and the directors of each meeting attended, P10 for
the President and P8 for each director, which were later increased
to P25 and P15, respectively. This leads to the conclusion that the
President and the board of directors were expected to serve without
salary, and that the per diems paid to them were sufficient
compensation for their services. Furthermore, for defendant's
several years of service as President and up to the filing of the
action against him, he never filed a claim for salary. He thought of
claiming it only when this suit was brought against him.
In conclusion we hold that under the Corporation Law,
notice of call for payment for unpaid subscribed stock must be
published, except when the corporation is insolvent, in which case,
payment is immediately demandable. We also rule that release
from such payment must be made by all the stockholders.
In view of the foregoing and finding no reversible error in
the decision appealed, the same is hereby affirmed.
No pronouncement as to costs.
Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Reyes,
Jugo, Bautista Angelo and Labrador, JJ., concur.

[G.R. No. 143972. August 31, 2007.]

PACIFIC BASIN SECURITIES CO., INC.,
petitioner, vs. ORIENTAL PETROLEUM and
MINERALS CORP. and EQUITABLE BANKING
CORP., respondents.
[G.R. No. 144056. August 31, 2007.]

ORIENTAL PETROLEUM and MINERALS

CORP., EQUITABLE BANKING CORP. and
ROBERT COYIUTO, JR., petitioners, vs.
PACIFIC BASIN SECURITIES CO., INC.,
respondent.

Equitable Banking Corporation (EBC), OPMC's stock and transfer

agent, confirming Piedras Petroleum's sale of the OPMC shares in
favor of Pacific Basin through FRMSC. In the same letter, PCGG
requested EBC to record the acquisition of said shares and to issue the
corresponding certificates of stock in favor of Pacific Basin. 6
HAECID

[G.R. No. 144631. August 31, 2007.]

PACIFIC BASIN SECURITIES CO., INC.,
petitioner, vs. ORIENTAL PETROLEUM and
MINERALS CORP., EQUITABLE BANKING
CORP.,
ROBERTO
COYIUTO
and
ETHELWOLDO FERNANDEZ, respondents.

The requests were left unheeded. EBC informed FRMSC that it cannot
effect the transfer of the OPMC shares to Pacific Basin on the
following grounds: first, that the endorser of the stock certificate, a
certain Mr. Clemente Madarang, was not among the authorized
signatories of Piedras Petroleum; and second, there was no board
resolution from Piedras Petroleum which authorized the sale of the
OPMC shares. 7

DECISION
AUSTRIA-MARTINEZ, J p:
By Resolution dated February 21, 2001, 1 the Court ordered the
consolidation of the Petitions for Review on Certiorari under Rule 45
of the Rules of Court docketed as G.R. No. 143972, 2 G.R. No. 144056
3 and G.R. No. 144631. 4
The facts of the case are undisputed:
On May 31, 1991, Pacific Basin Securities, Inc. (Pacific Basin),
through the stock brokerage firm First Resources Management and
Securities Corporation (FRMSC), purchased 308,300,000 Class "A"
shares of Oriental Petroleum and Minerals Corporation (OPMC).
Pacific Basin fully paid for the OPMC shares in the total amount of
P17,727,000.00 or P.05750 per share. 5 The shares were listed and
traded in the Makati Stock Exchange.
The OPMC shares turned out to be owned by Piedras Petroleum
Mining Corporation (Piedras Petroleum), a sequestered company
controlled by the nominees of the Presidential Commission on Good
Government (PCGG). PCGG sent a letter dated June 10, 1991 to
66 |

FRMSC complied with the requirements imposed by EBC and

consequently renewed its demand for the transfer of the OPMC shares
to Pacific Basin and the issuance of new certificates of stock. 8 Again,
these requests proved futile.
Hence, on April 23, 1992, Pacific Basin filed a Petition for Mandamus
with Prayer for a Writ of Preliminary Mandatory Injunction and/or
Restraining Order and Writ of Preliminary Prohibitory Injunction
docketed as SEC Case No. 04225. 9 Pacific Basin alleged that: it had
purchased 308,300,000 Class "A" shares of stock of OPMC; EBC
refused to record its acquisition of the shares and to issue the
corresponding certificates of stock, which is in grave neglect of the
performance of the ministerial duty specifically enjoined by Section 63
of the Corporation Code; and there was a violation of Section 1, Article
1 of the Amended By-laws of OPMC which mandates the issuance of
certificate of stock to each holder of fully paid stock. 10
In their Answer, 11 OPMC and EBC claimed that the government's
title over the subject OPMC shares was based on the cession made by
Mr. Roberto S. Benedicto, an associate of former President Ferdinand
Marcos, in exchange for immunity from prosecution and suit by the
government for allegedly amassing ill-gotten wealth. According to

OPMC and EBC, item no. 6 of the annex to the Compromise

Agreement executed between the government (through PCGG) and Mr.
Benedicto shows that part of the assets to be turned over by Mr.
Benedicto to the government were all of the OPMC shares owned by
Piedras Petroleum. The Court, however, in G.R. Nos. 108368, 10854849, and 108550 issued a Temporary Restraining Order enjoining the
enforcement of the Compromise Agreement. Thus, OPMC and EBC
maintained that the basis for PCGG's claim of title over the OPMC
shares disappeared as the effectivity of the supposed cession made by
Mr. Benedicto is suspended.

representing actual damages; P300,000.00 representing exemplary

damages; P300,000.00 representing attorney's fees; and P50,000.00 for
the cost and expenses of the suit.

OPMC and EBC also argued that even on the assumption that the
government has a valid and effective title over the subject OPMC
shares, the sale by Piedras Petroleum to Pacific Basin was void as there
was no showing that Piedras Petroleum complied with the legal
requirements for the disposition of government owned assets as
embodied in Proclamation No. 50, as amended, and related rules and
regulations on the matter. The non-holding of a public bidding for the
sale of the shares was allegedly a blatant violation of the said law.
CAaSHI

Petitioner Pacific Basin and respondents OPMC and EBC separately

went to the Court of Appeals (CA) on appeal, docketed as CA-G.R. SP
No. 54456 and CA-G.R. SP No. 54442, respectively.

The Securities and Exchange Commission Hearing Officer 12 ruled in

favor of Pacific Basin. In the Decision 13 dated December 28, 1995,
the Hearing Officer took judicial notice of the Court's January 10, 1993
and January 18, 1994 En Banc Resolutions which dismissed the
petition and denied the Motion for Reconsideration filed by PCGG in
G.R. No. 108368. Thus, the issue of the Temporary Restraining Order
on the Compromise Agreement executed between PCGG and Mr.
Benedicto was rendered moot. The Decision further held that since the
subject shares have been fully paid by Pacific Basin, it is the obligation
and a ministerial duty of OPMC and EBC to transfer the shares in the
corporate books and issue certificates of stock in favor of Pacific Basin
under Section 63 of the Corporation Code and Section I of Article I of
the amended by-laws of OPMC. The corporate officers of OPMC were
also found to have acted in bad faith when they refused to transfer the
shares to Pacific Basin. Hence, they were ordered to jointly and
severally pay Pacific Basin the following amounts: P20,000,000.00

On January 26, 2000, the CA rendered a Decision 16 which affirmed in

toto the July 13, 1999 Decision of the SEC en banc. 17 The CA held
that: public bidding signifies a letting of a contract that is open to all
notorious, a letting that furnishes fair and reasonable public notice and
secures to the public equal competition in bidding and becoming
contractors; the sale of shares through public stock exchange offers
transparent and fair competition; and the pricing of shares of stock is a
highly specialized field that is better left to the experts. The dispositive
portion of the Decision states:

67 |

On December 28, 1995, OPMC and EBC filed their Motion for
Reconsideration which was denied by the Hearing Officer. Later,
OPMC and EBC filed their appeal before the SEC en banc. On July 13,
1999, the SEC en banc rendered its Decision 14 which modified the
December 28, 1995 Decision of the Hearing Officer by deleting the
awards of actual and exemplary damages in favor of Pacific Basin.

In CA-G.R. SP No. 54442, OPMC and EBC contend that the SEC
erred in holding that the sale of publicly listed shares of stock through
the stock market is tantamount to a public bidding and that they are
ministerially bound to record said shares in their stock and transfer
book. 15

WHEREFORE, the instant petition is hereby

DENIED. Accordingly, the Decision dated 13 July
1999 of the Securities and Exchange Commission is
AFFIRMED in toto.
SO ORDERED. 18

Upon learning the January 26, 2000 Decision of the CA in CA-G.R. SP

No. 54442, Pacific Basin filed with the Court a petition, docketed as
G.R. No. 143972, assailing said CA Decision claiming that: cACEHI

OPMC and EBC are also before the Court in a petition, docketed
as G.R. No. 144056, questioning the CA Decision, thus:
I.

I.
THE COURT OF APPEALS COMMITTED
GRAVE ERROR WHEN IT SUSTAINED THE
SEC'S EN BANC DECISION WHICH DELETED
THE
AWARD
OF
ACTUAL
AND
COMPENSATORY DAMAGES IN FAVOR OF
THE PETITIONER. THERE IS CLEAR AND
CONVINCING
EVIDENCE
ESTABLISHED
THROUGH THE UNREBUTTED TESTIMONY
OF PETITIONER'S EXPERT WITNESS THAT
PETITIONER WAS DEPRIVED OF ACTUAL
PROFITS IN THE AMOUNT OF AROUND
TWENTY MILLION PESOS (P20,000,000.00) . . .

[G]OVERNMENT-OWNED PROPERTY, EVEN

OF [SIC] SHARES OF STOCK WHICH ARE
PUBLICLY LISTED IN A STOCK EXCHANGE,
MAY BE DISPOSED OF ONLY THROUGH A
PUBLIC BIDDING, THAT THE SALE OF SUCH
SHARES IF MADE IN VIOLATION OF THE
PUBLIC BIDDING REQUIREMENT IS NOT
VALID AND THAT THE DISPOSITION OF SUCH
SHARES
THROUGH
THE
NORMAL
OPERATION OF THE STOCK EXCHANGE
DOES NOT SATISFY THE REQUIREMENT OF
PUBLIC BIDDING. . . .
II.

II.
THE COURT OF APPEALS COMMITTED
GRAVE ERROR WHEN IT FAILED TO AWARD
THE PETITIONER EXEMPLARY DAMAGES, AS
FOUND BY THE SEC HEARING OFFICER WHO
CONDUCTED ADVERSARIAL PROCEEDINGS
BELOW AND HAD OPPORTUNITY TO
EXAMINE THE PARTIES' EVIDENCE AND
THEIR
WITNESSES.
RESPONDENTS'
MANIFEST BAD FAITH AND MALICIOUS
REFUSAL TO REGISTER THE PURCHASE OF
THE
SHARES
DESPITE
LACK
OF
REASONABLE OR JUSTIFIABLE GROUND
ENTITLE THE PETITIONER TO EXEMPLARY
DAMAGES. . . . ICcaST

68 |

. . . THE GOOD FAITH OF THE PETITIONERS

HAVING BEEN ESTABLISHED AS A MATTER
OF FACT THERE IS NO LEGAL BASIS TO
ASSESS ATTORNEY'S FEES IN FAVOR OF THE
RESPONDENT.
On the other hand, in CA-G.R. SP. No. 54456, Pacific Basin
questioned SEC en banc's deletion of the actual and exemplary
damages awarded to it by the SEC Hearing Officer. 19
On August 18, 2000, the CA rendered its Decision 20 which held that:
the testimony given by Ms. Vicky Chan, the Vice-President of Pacific
Basin, is not sufficient to prove actual damages; no exemplary
damages should be awarded since the responsible officers of OPMC
did not act in bad faith nor in a wanton, fraudulent, reckless,
oppressive or malevolent manner when they refused to transfer the
subject shares to Pacific Basin's name; and the responsible officers of

OPMC were only taking extra precautions in verifying the validity of

the transfer since it involved a substantial number of shares aside from
the highly controversial matters underlying the transfer which created
doubt in their minds. The dispositive portion of the Decision states:

WHEREFORE, foregoing premises considered, the

appealed Decision dated July 13, 1999 of the
Securities and Exchange Commission (SEC) En
Banc is hereby AFFIRMED in toto. Costs against
the petitioner.

II.
THE COURT OF APPEALS COMMITTED
GRAVE ERROR WHEN IT RULED THAT THE
TESTIMONY
OF
MS.
VICKY
CHAN,
PETITIONER'S VICE-PRESIDENT, IS NOT
SUFFICIENT TO PROVE ACTUAL DAMAGES
SUSTAINED
BY
PETITIONER.
THE
TESTIMONY
OF
MS.
CHAN
WAS
UNREBUTTED EVEN IN THE PROCEEDINGS
BEFORE THE SEC. HER EXPERTISE IN STOCK
BROKERAGE WAS ADMITTED AND NEVER
QUESTIONED BY THE RESPONDENTS. . . .

SO ORDERED. 21
III.
Pacific Basin is once again before the Court in a petition, docketed as
G.R. No. 144631, assailing the CA Decision claiming that:
I.
IT WAS GRAVE ERROR FOR THE COURT OF
APPEALS TO RULE THAT PETITIONER HAS
FAILED TO PROVE ITS CLAIM FOR DAMAGES
WITH
A REASONABLE
DEGREE
OF
CERTAINTY DESPITE THE EVIDENCE ON
RECORD. EFFECTIVELY, THE COURT OF
APPEALS
IS
REQUIRING
ABSOLUTE
CERTAINTY, WHICH IS EVEN BEYOND PROOF
BEYOND REASONABLE DOUBT IN CRIMINAL
PROCEEDINGS OR PREPONDERANCE OF
EVIDENCE IN CIVIL PROCEEDINGS. SINCE
THIS
CASE
WAS
ORIGINALLY
ADMINISTRATIVE IN NATURE, THE PROOF
REQUIRED
IS
MERELY SUBSTANTIAL
EVIDENCE WHICH PETITIONER HAS MORE
THAN SUFFICIENTLY ESTABLISHED.
69 |

THE COURT OF APPEALS COMMITTED

GRAVE ERROR WHEN IT RULED THAT
RESPONDENTS DID NOT ACT IN BAD FAITH,
NOR IN WANTON, FRAUDULENT, RECKLESS
OR OPPRESSIVE MANNER. . . . MOREOVER,
THIS CASE AFFECTS THE EXPECTATION OF
THE
INVESTING
PUBLIC
ON
THE
MARKETABILITY OF THE SHARES LISTED
AND TRADED IN THE STOCK EXCHANGE. AS
AN EXAMPLE TO THE PUBLIC GOOD,
RESPONDENTS SHOULD BE ORDERED TO
PAY EXEMPLARY DAMAGES.
The petitions are without merit.
In G.R. No. 144056, OPMC and EBC argue that the OPMC shares are
government-owned and, as government property, these can be disposed
of only through public bidding. Hence, the sale by Piedras Petroleum
of the OPMC shares to Pacific Basin through the stock market is not
valid, since it does not comply with the public bidding requirement.

The argument is baseless. DHSCTI

Prior to the 31 May 1991 sale to Pacific Basin, Piedras Petroleum was
the owner of the subject OPMC shares. Piedras Petroleum is a
sequestered company controlled by the nominees of the PCGG. The
fact that Piedras Petroleum was placed under sequestration by the
PCGG does not ipso facto make it a government-owned corporation.
The Court elucidated on the power of the PCGG to issue sequestration
orders in Bataan Shipyard & Engineering Company, Inc. v.
Presidential Commission on Good Government. 22 The Court held:
CHTcSE
By the clear terms of the law, the power of the
PCGG to sequester property claimed to be "illgotten" means to place or cause to be placed under
its possession or control said property, or any
building or office wherein any such property and
records pertaining thereto may be found, including
"business enterprises and entities," for the
purpose
of
preventing the
destruction,
concealment or dissipation of, and otherwise
conserving and preserving, the same- until it can
be determined, through appropriate judicial
proceedings, whether the property was in truth
"ill- gotten," i.e., acquired through or as a result of
improper or illegal use of or the conversion of funds
belonging to the Government or any of its branches,
instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of official
position, authority, relationship, connection or
influence, resulting in unjust enrichment of the
ostensible owner and grave damage and prejudice to
the State. And this, too, is the sense in which the
term is commonly understood in other jurisdictions.
(Emphasis supplied) 23
70 |

The Court further held:

As thus described, sequestration, freezing and
provisional takeover are akin to the provisional
remedy of preliminary attachment, or receivership.
By attachment, a sheriff seizes property of a
defendant in a civil suit so that it may stand as
security for the satisfaction of any judgment that
may be obtained, and not disposed of, or dissipated,
or lost intentionally or otherwise, pending the action.
By receivership, property, real or personal, which is
subject of litigation, is placed in the possession and
control of a receiver appointed by the Court, who
shall conserve it pending final determination of
the title or right of possession over it. . . .
(Emphasis supplied) 24
A sequestration order is similar to the provisional remedy of
Receivership under Rule 59 of the Rules of Court. The PCGG may
thus exercise only powers of administration over the property or
business sequestered or provisionally taken over so as to bring and
defend actions in its own name; receive rents; collect debts due; pay
outstanding debts; and generally do such other acts and things as may
be necessary to fulfill its mission as conservator and administrator. 25
The PCGG, as a mere conservator, does not automatically become the
owner of a sequestered property in behalf of the government. There
must be a final determination by the courts if the property is in fact "illgotten" and was acquired by using government funds. Thus, OPMC
cannot conclusively claim that the subject shares are government
property by virtue of a sequestration order on Piedras Petroleum. Such
conclusion is non sequitur.
OPMC and EBC insist that Proclamation No. 50 26 is the law which
should govern the sale of the OPMC shares to Pacific Basin. Under
said law, the OPMC shares should be disposed of through public
bidding. We find such argument untenable. IaHCAD

Proclamation No. 50 seeks to "[p]romote privatization through an

orderly, coordinated and efficient programs for the prompt disposition
of the large number of non-performing assets of the government
financial institutions, and certain government-owned or controlled
corporations which have been found unnecessary or inappropriate for
the government sector to maintain."
The term "assets" is defined under Article I, Sec. 2, Par. 1, of
Proclamation No. 50, as:
(i)receivables and other obligations due to
government institutions under credit, lease,
indemnity and other agreements together
with all collateral security and other rights
(including but not limited to rights in
relation to shares of stock in corporations
such as voting rights as well as rights to
appoint directors of corporations or
otherwise engage in the management
thereof) granted to such institutions by
contract or operation of law to secure or
enforce the right of payment of such
obligations;

71 |

(iv)the government institutions themselves, whether

as parent or subsidiary corporations.
HaSEcA
The subject OPMC shares do not fall within the ambit of "assets," as
the term contemplates properties which are government-owned. To
repeat, the OPMC shares originally owned by Piedras Petroleum, a
sequestered corporation controlled by the nominees of PCGG, remain
to be privately owned until such time when the court declares that the
subject shares were acquired through government funds.
Even on the assumption that the OPMC shares are government assets,
the Court finds that the sale of the subject shares through the stock
exchange is valid and binding, as there is no law which mandates that
listed shares which are owned by the government be sold only through
public bidding. STADIH
As conceded by both Pacific Basin and OPMC, the subject OPMC
shares are listed and traded in the stock exchange. OPMC is a listed
corporation in the Philippine Stock Exchange (PSE). 27 As a listed
corporation, it shall be bound by the provisions of the Revised Listing
Rules of the PSE 28 the objective of which is "to provide a fair,
orderly, efficient, and transparent market for the trading of securities . .
. ."

(ii)real and personal property of any kind owned or

held by government institutions, including
shares of stock in corporations, obtained by
such government institutions, whether
directly or indirectly, through foreclosure or
other means, in settlement of such
obligations;

This Court held in Nicolas v. Court of Appeals 29 that stock market

trading is a technical and highly specialized institution in the
Philippines. Trading of listed shares should therefore be left to the
stock market where knowledge and expertise on securities mechanism
can be expected.

(iii)shares of stock and other investments held by

government institutions; and

Moreover, even if the law indeed requires that the sale of the subject
shares undergo public bidding, the Court finds that sale through the
stock exchange is already a substantial compliance with the public
bidding requirement. As correctly held by the CA:

[T]o the mind of the Court, the sale of the sale of

shares through public stock exchange offers
transparent and fair competition. Parenthetically, the
pricing of shares of stock is a highly specialized
field that is better left to the experts. It involves an
inquiry into the earning potential, dividend history,
business risks, capital structure, management, asset
values of the company, prevailing business climate,
political and economic conditions, and myriad other
factors that bear on the valuation of shares.
xxx xxx xxx
The Commission on Audit does not require public
bidding of publicly listed shares of stock as the stock
market determines the price of the share, hence, by
analogy, the stock market itself can be considered as
public bidding. . . . 30
It is beyond dispute that OPMC holds no unpaid claim against Pacific
Basin for the value of the shares acquired by the latter. The Court sees
no reason why OPMC and EBC consistently and continuously refused
to record the transfer in the stock and transfer books of OPMC and
issue new certificates in favor of Pacific Basin. ASTDCH
Section 63 of the Corporation Code provides:
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 . . . .

72 |

Clearly, the right of a transferee/assignee to have stocks transferred to

his name is an inherent right flowing from his ownership of the stocks.
31 The Court had ruled in Rural Bank of Salinas, Inc. v. Court of
Appeals 32 that the corporation's obligation to register is ministerial,
citing Fletcher, to wit:
In transferring stock, the secretary of a corporation
acts in purely ministerial capacity, and does not try
to decide the question of ownership. 33
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. 34
The Court further held in Rural Bank of Salinas that 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. 35
Pacific Basin satisfied the condition of full payment of the OPMC
shares as evidenced by the FRMC Buy Invoice No. 14200 dated May
31, 1991. 36 This fact was never denied by both OPMC and EBC.
Therefore, upon Pacific Basin's full payment of the OPMC shares, it
became a ministerial duty on the part of OPMC to record the transfer
in the stock and transfer book of OPMC and issue new stock
certificates in favor of Pacific Basin. Thus, OPMC's and EBC's refusal
to record the transfer is violative of Section 63 of the Corporation Code
and OPMC's own amended by-laws which states: DacTEH
Certificate of stock shall be issued to each holder
of fully paid stock in numerical order from the
stock certificate book, and shall be signed by the
President and countersigned by the Secretary and
sealed with the corporate seal. A record of each
certificate issued shall be kept on the stub thereof

and upon the stock register of the company.

(Emphasis supplied)
The Court agrees with and adopts the findings of the SEC Hearing
Officer in his Decision: 37
[t]he rights of an innocent purchaser of shares of
stock cannot be prejudiced and has to be protected
especially when the purchase of the shares are
coursed through the Stock Market (in this case the
Makati Stock Exchange). An investor when
purchasing publicly listed shares of stock in the
Stock Market has every right to presume that the
shares of a publicly listed corporation being traded
in the Stock Market are free from any defect, and
that upon purchased [sic] of the said shares, it will
be registered in his name in the corporate books.
To rule otherwise would be froth with dangerous
consequences. The investing public's confidence in
purchasing and investing in shares of stocks thru the
Stock Market will erode and become a tedious and
burdensome transaction for the buying or selling of
shares of stock of publicly listed corporation. An
investor who invests good money in shares in the
stock market necessarily expects that the said shares
will be registered in his name upon payment of the
full value thereof. SECHIA
Instead of building investor's confidence and
encourage investment in publicly listed shares in the
Stock Market, every investor will have second
thoughts in investing as they will be purchasing
shares in the stock market subject to a caveat that
there is no guaranty the shares they buy are good or
transferable to his name. Thus, every potential
investor, prior to his purchase of shares of stock in
73 |

the Stock Market will have to investigate each and

every share he intends to purchase to make sure that
it is free from any defect and that the said shares
may be registered in his name after he purchases the
same.
In G.R. No. 143972 and G.R. No. 144631, Pacific Basin alleges that
the CA erred when it upheld the Decision of the SEC En Banc which
directed the deletion of the actual and exemplary damages awarded by
the SEC Hearing Officer. SaHTCE
As to the issue on actual damages, Pacific Basin contends that the CA
erred in ruling that there was failure to prove its claim for actual
damages. Pacific Basin maintains that the testimony of its VicePresident, Ms. Vicky Chan, is sufficient to establish the loss incurred as
a result of OPMC's refusal to transfer the shares in their name.
In order that damages may be recovered, the best evidence obtainable
by the injured party must be presented. Actual or compensatory
damages cannot be presumed, but must be duly proved, and so proved
with reasonable degree of certainty. A court cannot rely on speculation,
conjecture or guesswork as to the fact and amount of damages, but
must depend upon competent proof that they have been suffered and on
evidence of the actual amount thereof. If the proof is flimsy and
unsubstantial, no damages will be awarded. 38
The court cannot rely on uncorroborated testimony whose truth is
suspect, but must depend upon competent proof that actual damages
have been actually suffered. 39 The testimonies should be viewed in
light of claimant's self-interest and, hence, should not be taken as
gospel truth. 40
Based on the records, the claim of Pacific Basin for actual damages, in
the amount of P20,000,000.00 is not supported by any documentary
evidence. We find that the bare testimonial assertions of Ms. Vicky
Chan are not adequate and competent proof of the actual pecuniary loss
allegedly suffered by Pacific Basin.

OPMC and EBC, however, cannot escape liability. The Court awards
Pacific Basin temperate damages. 41
Temperate damages are included within the context of compensatory
damages. In arriving at a reasonable level of temperate damages to be
awarded, courts are guided by the ruling that there are cases where
from the nature of the case, definite proof of pecuniary loss cannot be
offered, although the court is convinced that there has been such loss.
42
The nature of stock market trading is speculative where the value of a
specific share may vary from time to time, depending on several
factors which may affect the market. Pacific Basin is in the business
which involves marketing of securities; it would buy shares and re-sell
them when their value appreciates to gain profit from the transaction.
DaTICc
OPMC's and EBC's refusal to record the transfer in the stock and
transfer book and issuance of new certificates of stock in the name of
Pacific Basin prevented Pacific from re-selling the subject shares in the
market. By this non-performance of a ministerial function, the Court is
convinced that Pacific Basin suffered pecuniary loss, the amount of
which cannot be proved with certainty.

The Court found earlier that Pacific Basin is not entitled to actual
damages. Exemplary damages, as an accessory to actual damages,
cannot also be awarded. DIETcH
Moreover, the Court agrees with the findings of both the SEC en banc
45 and the CA 46 when it held that OPMC and EBC did not act in bad
faith nor in a wanton, fraudulent reckless, oppressive or malevolent
manner when they refused to transfer the subject shares under Pacific
Basin's name.
It is true that both OPMC and EBC refused to transfer the subject
OPMC shares in the name of Pacific Basin despite the fact that such
transfer is ministerial in nature. However, the Court did not find any
proof that such refusal was tainted by bad faith. Pacific Basin alleges
that the bad faith of both OPMC and EBC is manifested by the
propensity for shifting their defenses and the deliberate deprivation of
the rights so that OPMC can gain substantial shareholdings in the
company and affect the balance of power. 47 All these are mere
allegations.

In lieu of actual damages, the Court finds OPMC and EBC, Mr.
Roberto Coyiuto and Ethelwoldo Fernandez (as president and
corporate secretary of OPMC respectively) liable for temperate
damages, jointly and severally 43 in the amount of P1,000,000.00.

It is axiomatic that good faith is always presumed unless convincing

evidence to the contrary is adduced. It is incumbent upon the party
alleging bad faith to sufficiently prove such allegation. Absent enough
proof thereof, the presumption of good faith prevails. 48 In the case at
bar, the burden of proving alleged bad faith therefore was on Pacific
Basin, which failed to discharge its onus probandi. Without a clear and
persuasive evidence of bad faith, the presumption of good faith in
favor of OPMC and EBC stands.

The issue on exemplary damages deserves scant consideration. Well

settled is the rule that although exemplary damages are not recoverable
as a matter of right, and although such damages may not be proved, it
must first be shown that the claimant is entitled to moral, temperate or
compensatory damages before a court can favorably consider an award
of exemplary damages. 44

On the issue regarding the award of attorney's fees, the Court finds that
it is justified. Attorney's fees may be awarded inter alia when the
defendant's act or omission has compelled the plaintiff to incur
expenses to protect his interests or in any other case where the court
deems it just and equitable that the attorney's fees and expenses of
litigation be recovered. 49

74 |

Here, Pacific Basin was forced to file a case for Mandamus when the
OPMC officers refused to do the ministerial act of recording the
purchase of shares in the stock and transfer book and to issue new
certificates of stock for fully paid shares.
WHEREFORE, the petition in G.R. No. 144056 is DENIED. The
petitions in G.R. Nos. 143972 and 144631 are PARTLY GRANTED.
The assailed Decisions of the Court of Appeals dated January 26, 2000
and August 18, 2000 are AFFIRMED with MODIFICATION to the
effect that Oriental Petroleum and Minerals Corporation and Equitable
Banking Corporation, Mr. Roberto Coyiuto and Ethelwoldo Fernandez
(as president and corporate secretary of OPMC respectively) are
ORDERED to pay Pacific Basin Securities Co., Inc., jointly and
severally, temperate damages in the amount of P1,000,000.00. TIDaCE

TINGA, J p:
Presented in the case at bar is the apparently straight-forward but
complicated question: What should be the basis of quorum for a
stockholders' meeting the outstanding capital stock as indicated in
the articles of incorporation or that contained in the company's stock
and transfer book?
Petitioners seek to nullify the Court of Appeals' Decision in CA-G.R.
SP No. 41473 1 promulgated on 18 August 1997, affirming the SEC
Order dated 20 June 1996, and the Resolution 2 of the Court of
Appeals dated 31 October 1997 which denied petitioners' motion for
reconsideration.
The antecedents are not disputed.

Costs against Oriental Petroleum and Minerals Corporation and

Equitable Banking Corporation.

SO ORDERED.
Ynares-Santiago, Chico-Nazario, Nachura and Reyes, JJ., concur.

JESUS V. LANUZA, MAGADYA REYES,

BAYANI REYES and ARIEL REYES, petitioners,
vs. COURT OF APPEALS, SECURITIES AND
EXCHANGE
COMMISSION,
DOLORES
ONRUBIA, ELENITA NOLASCO, JUAN O.
NOLASCO III, ESTATE OF FAUSTINA M.
ONRUBIA, PHILIPPINE MERCHANT MARINE
SCHOOL, INC., respondents.
DECISION
75 |

In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was

incorporated, with seven hundred (700) founders' shares and seventysix (76) common shares as its initial capital stock subscription reflected
in the articles of incorporation. However, private respondents and their
predecessors who were in control of PMMSI registered the company's
stock and transfer book for the first time in 1978, recording thirty-three
(33) common shares as the only issued and outstanding shares of
PMMSI. Sometime in 1979, a special stockholders' meeting was called
and held on the basis of what was considered as a quorum of twentyseven (27) common shares, representing more than two-thirds (2/3) of
the common shares issued and outstanding.
In 1982, the heirs of one of the original incorporators, Juan Acayan,
filed a petition with the Securities and Exchange Commission (SEC)
for the registration of their property rights over one hundred (120)
founders' shares and twelve (12) common shares owned by their father.
The SEC hearing officer held that the heirs of Acayan were entitled to
the claimed shares and called for a special stockholders' meeting to
elect a new set of officers. 3 The SEC En Banc affirmed the decision.
As a result, the shares of Acayan were recorded in the stock and
transfer book. acHITE

On 06 May 1992, a special stockholders' meeting was held to elect a

new set of directors. Private respondents thereafter filed a petition with
the SEC questioning the validity of the 06 May 1992 stockholders'
meeting, alleging that the quorum for the said meeting should not be
based on the 165 issued and outstanding shares as per the stock and
transfer book, but on the initial subscribed capital stock of seven
hundred seventy-six (776) shares, as reflected in the 1952 Articles of
Incorporation. The petition was dismissed. 4 Appeal was made to the
SEC En Banc, which granted said appeal, holding that the shares of the
deceased incorporators should be duly represented by their respective
administrators or heirs concerned. The SEC directed the parties to call
for a stockholders meeting on the basis of the stockholdings reflected
in the articles of incorporation for the purpose of electing a new set of
officers for the corporation. 5
Petitioners, who are PMMSI stockholders, filed a petition for review
with the Court of Appeals. 6 Rebecca Acayan, Jayne O. Abuid, Willie
O. Abuid and Renato Cervantes, stockholders and directors of PMMSI,
earlier filed another petition for review of the same SEC En Banc's
orders. The petitions were thereafter consolidated. 7 The consolidated
petitions essentially raised the following issues, viz: (a) whether the
basis for the outstanding capital stock and accordingly also for
determining the quorum at stockholders' meetings it should be the 1978
stock and transfer book or if it should be the 1952 articles of
incorporation; and (b) whether the Court of Appeals "gravely erred in
applying the Espejo Decision to the benefit of respondents." 8 The
"Espejo Decision" is the decision of the SEC en banc in SEC Case No.
2289 which ordered the recording of the shares of Jose Acayan in the
stock and transfer book.
The Court of Appeals held that for purposes of transacting business,
the quorum should be based on the outstanding capital stock as found
in the articles of incorporation. 9 As to the second issue, the Court of
Appeals held that the ruling in the Acayan case would ipso facto
benefit the private respondents, since to require a separate judicial
declaration to recognize the shares of the original incorporators would
entail unnecessary delay and expense. Besides, the Court of Appeals
76 |

added, the incorporators have already proved their stockholdings

through the provisions of the articles of incorporation. 10
In the instant petition, petitioners claim that the 1992 stockholders'
meeting was valid and legal. They submit that reliance on the 1952
articles of incorporation for determining the quorum negates the
existence and validity of the stock and transfer book which private
respondents themselves prepared. In addition, they posit that private
respondents cannot avail of the benefits secured by the heirs of
Acayan, as private respondents must show and prove entitlement to the
founders and common shares in a separate and independent
action/proceeding.
In private respondents' Memorandum 11 dated 08 March 2000, they
point out that the instant petition raises the same facts and issues as
those raised in G.R. No. 131315 12 , which was denied by the First
Division of this Court on 18 January 1999 for failure to show that the
Court of Appeals committed any reversible error. They add that as a
logical consequence, the instant petition should be dismissed on the
ground of res judicata. Furthermore, private respondents claim that in
view of the applicability of the rule on res judicata, petitioners' counsel
should be cited for contempt for violating the rule against forumshopping. 13
For their part, petitioners claim that the principle of res judicata does
not apply to the instant case. They argue that the instant petition is
separate and distinct from G.R. No. 131315, there being no identity of
parties, and more importantly, the parties in the two petitions have their
own distinct rights and interests in relation to the subject matter in
litigation. For the same reasons, they claim that counsel for petitioners
cannot be found guilty of forum-shopping. 14
In their Manifestation and Motion 15 dated 22 September 2004, private
respondents moved for the dismissal of the instant petition in view of
the dismissal of G.R. No. 131315. Attached to the said manifestation is
a copy of the Entry of Judgment 16 issued by the First Division dated
01 December 1999. acADIT

The petition must be denied, not on res judicata, but on the ground that
like the petition in G.R. No. 131315 it fails to impute reversible error
to the challenged Court of Appeals' Decision.
Res
judicata
the case at bar.

does

not

apply

in

Res judicata means a matter adjudged, a thing judicially acted upon or

decided; a thing or matter settled by judgment. 17 The doctrine of res
judicata provides that a final judgment, on the merits rendered by a
court of competent jurisdiction is conclusive as to the rights of the
parties and their privies and constitutes an absolute bar to subsequent
actions involving the same claim, demand, or cause of action. 18 The
elements of res judicata are (a) identity of parties or at least such as
representing the same interest in both actions; (b) identity of rights
asserted and relief prayed for, the relief being founded on the same
facts; and (c) the identity in the two (2) particulars is such that any
judgment which may be rendered in the other action will, regardless of
which party is successful, amount to res judicata in the action under
consideration. 19
There is no dispute as to the identity of subject matter since the crucial
point in both cases is the propriety of including the still unproven
shares of respondents for purposes of determining the quorum.
Petitioners, however, deny that there is identity of parties and causes of
actions between the two petitions.
The test often used in determining whether causes of action are
identical is to ascertain whether the same facts or evidence would
support and establish the former and present causes of action. 20 More
significantly, there is identity of causes of action when the judgment
sought will be inconsistent with the prior judgment. 21 In both
petitions, petitioners assert that the Court of Appeals' Decision
effectively negates the existence and validity of the stock and transfer
book, as well as automatically grants private respondents' shares of
stocks which they do not own, or the ownership of which remains to be
unproved. Petitioners in the two petitions rely on the entries in the
77 |

stock and transfer book as the proper basis for computing the quorum,
and consequently determine the degree of control one has over the
company. Essentially, the affirmance of the SEC Order had the effect
of diminishing their control and interests in the company, as it allowed
the participation of the individual private respondents in the election of
officers of the corporation.
Absolute identity of parties is not a condition sine qua non for res
judicata to apply a shared identity of interest is sufficient to invoke
the coverage of the principle. 22 However, there is no identity of
parties between the two cases. The parties in the two petitions have
their own rights and interests in relation to the subject matter in
litigation. As stated by petitioners in their Reply to Respondents'
Memorandum, 23 there are no two separate actions filed, but rather,
two separate petitions for review on certiorari filed by two distinct
parties with the Court and represented by their own counsels, arising
from an adverse consolidated decision promulgated by the Court of
Appeals in one action or proceeding. 24 As such, res judicata is not
present in the instant case.

Likewise, there is no basis for declaring petitioners or their counsel

guilty of violating the rules against forum-shopping. In the
Verification/Certification 25 portion of the petition, petitioners clearly
stated that there was then a pending motion for reconsideration of the
18 August 1997 Decision of the Court of Appeals in the consolidated
cases (CA-G.R. SP No. 41473 and CA-G.R. SP No. 41403) filed by the
Abuids, as well as a motion for clarification. Moreover, the records
indicate that petitioners filed their Manifestation 26 dated 20 January
1998, informing the Court of their receipt of the petition in G.R. No.
131315 in compliance with their duty to inform the Court of the
pendency of another similar petition. The Court finds that petitioners
substantially complied with the rules against forum-shopping.
The
Decision
Appeals must be upheld.

of

the

Court

of

The petition in this case involves the same facts and substantially the
same issues and arguments as those in G.R. No. 131315 which the First
Division has long denied with finality. The First Division found the
petition before it inadequate in failing to raise any reversible error on
the part of the Court of Appeals. We reach a similar conclusion as
regards the present petition. SDAcaT
The crucial issue in this case is whether it is the company's stock and
transfer book, or its 1952 Articles of Incorporation, which determines
stockholders' shareholdings, and provides the basis for computing the
quorum.

articles of incorporation need only state the number

of shares into which said capital stock is divided.
(8) If it be a stock corporation, the amount of capital
stock or number of shares of no-par stock actually
subscribed, the amount or number of shares of nopar stock subscribed by each and the sum paid by
each on his subscription. . . . 28
A review of PMMSI's articles of incorporation 29 shows that the
corporation complied with the requirements laid down by Act No.
1459. It provides in part:

We agree with the Court of Appeals.

The articles of incorporation has been described as one that defines the
charter of the corporation and the contractual relationships between the
State and the corporation, the stockholders and the State, and between
the corporation and its stockholders. 27 When PMMSI was
incorporated, the prevailing law was Act No. 1459, otherwise known
as "The Corporation Law." Section 6 thereof states:
Sec. 6. Five or more persons, not exceeding fifteen,
a majority of whom are residents of the Philippines,
may form a private corporation for any lawful
purpose or purposes by filing with the Securities and
Exchange Commission articles of incorporation duly
executed and acknowledged before a notary public,
setting forth:
xxx xxx xxx
(7) If it be a stock corporation, the amount of its
capital stock, in lawful money of the Philippines,
and the number of shares into which it is divided,
and if such stock be in whole or in part without par
value then such fact shall be stated; Provided,
however, That as to stock without par value the
78 |

7. That the capital stock of the said corporation is

NINETY THOUSAND PESOS (P90,000.00)
divided into two classes, namely:
FOUNDERS' STOCK 1,000 shares at P20 par
value P20,000.00
COMMON STOCK 700
value P70,000.00

shares

at

P100

par

TOTAL 1,700 shares P90,000.00

xxx xxx xxx
8. That the amount of the entire capital stock which
has been actually subscribed is TWENTY ONE
THOUSAND SIX HUNDRED PESOS (P21,600.00)
and the following persons have subscribed for the
number of shares and amount of capital stock set out
after their respective names:
SUBSCRIBER SUBSCRIBED AMOUNT
SUBSCRIBED

No. of Shares Par Value

Crispulo J. Onrubia 120 Founders P2,400.00

Faustina M. de Onrubia 12 " 1,200.00

Juan H. Acayan 120 " 2,400.00

Mrs. Ramon Araneta 8 " 800.00

Martin P. Sagarbarria 100 " 2,000.00

Carlos M. Onrubia 8 " 800.00

Mauricio G. Gallaga 50 " 1,000.00

Luis Renteria 50 " 1,000.00

76 P7,600.00 30

Faustina M. de Onrubia 140 " 2,800.00

Mrs. Ramon Araneta 40 " 800.00

Carlos M. Onrubia 80 " 1,600.00

700 P14,000.00

SUBSCRIBER SUBSCRIBED AMOUNT
No. of Shares SUBSCRIBED
Par Value
Crispulo J. Onrubia 12 Common P1,200.00
Juan H. Acayan 12 " 1,200.00
Martin P. Sagarbarria 8 " 800.00
Mauricio G. Gallaga 8 " 800.00
79 |

Luis Renteria 8 " 800.00

There is no gainsaying that the contents of the articles of incorporation

are binding, not only on the corporation, but also on its shareholders.
In the instant case, the articles of incorporation indicate that at the time
of incorporation, the incorporators were bona fide stockholders of
seven hundred (700) founders' shares and seventy-six (76) common
shares. Hence, at that time, the corporation had 776 issued and
outstanding shares. TAIEcS
On the other hand, a stock and transfer book is the book which records
the names and addresses of all stockholders arranged alphabetically,
the installments paid and unpaid on all stock for which subscription
has been made, and the date of payment thereof; a statement of every
alienation, sale or transfer of stock made, the date thereof and by and
to whom made; and such other entries as may be prescribed by law. 31
A stock and transfer book is necessary as a measure of precaution,
expediency and convenience since it provides the only certain and
accurate method of establishing the various corporate acts and
transactions and of showing the ownership of stock and like matters.
32 However, a stock and transfer book, like other corporate books and
records, is not in any sense a public record, and thus is not exclusive
evidence of the matters and things which ordinarily are or should be
written therein. 33 In fact, it is generally held that the records and
minutes of a corporation are not conclusive even against the

corporation but are prima facie evidence only, 34 and may be

impeached or even contradicted by other competent evidence. 35 Thus,
parol evidence may be admitted to supply omissions in the records or
explain ambiguities, or to contradict such records. 36
In 1980, Batas Pambansa Blg. 68, otherwise known as "The
Corporation Code of the Philippines" supplanted Act No. 1459. BP
Blg. 68 provides:
Sec. 24. Election of directors or trustees. At all
elections of directors or trustees, there must be
present, either in person or by representative
authorized to act by written proxy, the owners of a
majority of the outstanding capital stock, or if there
be no capital stock, a majority of the members
entitled to vote. . . .
Sec. 52. Quorum in meetings. Unless otherwise
provided for in this Code or in the by-laws, a
quorum shall consist of the stockholders
representing a majority of the outstanding capital
stock or majority of the members in the case of nonstock corporation.
Outstanding capital stock, on the other hand, is defined by the Code as:
Sec. 137. Outstanding capital stock defined. The
term "outstanding capital stock" as used in this code,
means the total shares of stock issued to subscribers
or stockholders whether or not fully or partially paid
(as long as there is binding subscription agreement)
except treasury shares.

80 |

Thus, quorum is based on the totality of the shares which have been
subscribed and issued, whether it be founders' shares or common
shares. 37 In the instant case, two figures are being pitted against each
other those contained in the articles of incorporation, and those
listed in the stock and transfer book.
To base the computation of quorum solely on the obviously deficient,
if not inaccurate stock and transfer book, and completely disregarding
the issued and outstanding shares as indicated in the articles of
incorporation would work injustice to the owners and/or successors in
interest of the said shares. This case is one instance where resort to
documents other than the stock and transfer books is necessary. The
stock and transfer book of PMMSI cannot be used as the sole basis for
determining the quorum as it does not reflect the totality of shares
which have been subscribed, more so when the articles of
incorporation show a significantly larger amount of shares issued and
outstanding as compared to that listed in the stock and transfer book.
As aptly stated by the SEC in its Order dated 15 July 1996: 38
It is to be explained, that if at the onset of
incorporation a corporation has 771 shares
subscribed, the Stock and Transfer Book should
likewise reflect 771 shares. Any sale, disposition or
even reacquisition of the company of its own shares,
in which it becomes treasury shares, would not
affect the total number of shares in the Stock and
Transfer Book. All that will change are the entries as
to the owners of the shares but not as to the amount
of shares already subscribed. aTcSID
This is precisely the reason why the Stock and
Transfer Book was not given probative value. Did
the shares, which were not recorded in the Stock and
Transfer Book, but were recorded in the Articles of
Incorporation just vanish into thin air? . . . . 39

As shown above, at the time the corporation was set-up, there were
already seven hundred seventy-six (776) issued and outstanding shares
as reflected in the articles of incorporation. No proof was adduced as to
any transaction effected on these shares from the time PMMSI was
incorporated up to the time the instant petition was filed, except for the
thirty-three (33) shares which were recorded in the stock and transfer
book in 1978, and the additional one hundred thirty-two (132) in 1982.
But obviously, the shares so ordered recorded in the stock and transfer
book are among the shares reflected in the articles of incorporation as
the shares subscribed to by the incorporators named therein.
One who is actually a stockholder cannot be denied his right to vote by
the corporation merely because the corporate officers failed to keep its
records accurately. 40 A corporation's records are not the only evidence
of the ownership of stock in a corporation. 41 In an American case, 42
persons claiming shareholders status in a professional corporation were
listed as stockholders in the amendment to the articles of incorporation.
On that basis, they were in all respects treated as shareholders. In fact,
the acts and conduct of the parties may even constitute sufficient
evidence of one's status as a shareholder or member. 43 In the instant
case, no less than the articles of incorporation declare the incorporators
to have in their name the founders and several common shares. Thus,
to disregard the contents of the articles of incorporation would be to
pretend that the basic document which legally triggered the creation of
the corporation does not exist and accordingly to allow great injustice
to be caused to the incorporators and their heirs.

Petitioners argue that the Court of Appeals "gravely erred in applying

the Espejo decision to the benefit of respondents." The Court believes
that the more precise statement of the issue is whether in its assailed
Decision, the Court of Appeals can declare private respondents as the
heirs of the incorporators, and consequently register the founders
shares in their name. However, this issue as recast is not actually
determinative of the present controversy as explained below.
81 |

Petitioners claim that the Decision of the Court of Appeals unilaterally

divested them of their shares in PMMSI as recorded in the stock and
transfer book and instantly created inexistent shares in favor of private
respondents. We do not agree.
The assailed Decision merely declared that a separate judicial
declaration to recognize the shares of the original incorporators would
entail unnecessary delay and expense on the part of the litigants,
considering that the incorporators had already proved ownership of
such shares as shown in the articles of incorporation. 44 There was no
declaration of who the individual owners of these shares were on the
date of the promulgation of the Decision. As properly stated by the
SEC in its Order dated 20 June 1996, to which the appellate court's
Decision should be related, "if at all, the ownership of these shares
should only be subjected to the proper judicial (probate) or
extrajudicial proceedings in order to determine the respective shares of
the legal heirs of the deceased incorporators." 45
WHEREFORE, the petition is DENIED and the assailed Decision is
AFFIRMED. Costs against petitioners. EScIAa
SO ORDERED.
[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.
[G.R. No. 154487. November 23, 2005.]

EDUARDO M. COJUANGCO, JR., petitioner, vs.

REPUBLIC OF THE PHILIPPINES, respondent.
[G.R. No. 154518. November 23, 2005.]
ESTATE OF HANS M. MENZI (Through its
Executor, Manuel G. Montecillo), and HANS M.
MENZI HOLDINGS AND MANAGEMENT,
INC. (HMHMI), petitioners, vs. REPUBLIC OF
THE PHILIPPINES, (represented by the
PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT), respondents.
The Solicitor General for the Republic of the Philippines.

1.COMMERCIAL LAW; CORPORATION LAW; CORPORATION

CODE;STOCK
CORPORATIONS;
STOCKS
AND
STOCKHOLDERS; CERTIFICATE OF STOCK AND TRANSFER
OF SHARES; THE DELIVERY OF A DULY INDORSED STOCK
CERTIFICATE IS SUFFICIENT TO TRANSFER OWNERSHIP OF
SHARES OF STOCK. 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. . . . The absence of delivery is a fatal defect which is not
cured by mere execution of a deed of assignment.
2.REMEDIAL LAW; COURTS; SUPREME COURT; NOT A TRIER
OF FACTS. 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.

Francis Gaw for Emilio T. Yap.

Siguion Reyna Montecillo & Ongsiako for Estate of Hans
Menzi.
Estelito P. Mendoza for E.M. Cojuangco.
Roberto A.C. Sison for Imelda R. Marcos.
SYLLABUS

3.ID.; EVIDENCE; QUANTUM OF PROOF; PREPONDERANCE

OF EVIDENCE; THE DEGREE OF EVIDENCE REQUIRED OF A
PARTY IN ORDER TO SUPPORT HIS CLAIM IN CIVIL CASES.
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.
4.ID.; ID.; BURDEN OF PROOF; RESTS ON THE PARTY WHO
ALLEGES A FACT. The party who alleges a fact has the burden of
proving it. The burden of proof 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 plaintiff's cause of
action, but is one which, if established, will be a good defense i.e.,
an "avoidance" of the claim. In the instant case, Cojuangco's
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.

82 |

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."
5.COMMERCIAL LAW; CORPORATION LAW; CORPORATION
CODE;STOCK
CORPORATIONS;
STOCKS
AND
STOCKHOLDERS; STOCK CERTIFICATE; THE PRESENCE OR
ABSENCE THEREOF DOES NOT AFFECT THE RIGHT OF THE
REGISTERED OWNER TO DISPOSE OF THE SHARES COVERED
BY THE STOCK CERTIFICATE. A stock certificate is merely a
tangible evidence of ownership of shares of stock. Its presence or
absence does not affect the right of the registered owner to dispose of
the shares covered by the stock certificate. Hence, as registered
owners, Campos and Zalamea validly ceded their shares in favor of the
Government. This assignment is now a fait accompli for the benefit of
the entire nation.
6.POLITICAL LAW; CONSTITUTIONAL LAW; EXECUTIVE
DEPARTMENT; EXECUTIVE ORDER NO. 1; PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT; NOT EMPOWERED
TO SELL SEQUESTERED ASSETS WITHOUT PRIOR
SANDIGANBAYAN APPROVAL; EXCEPTION; PRESENT IN
CASE AT BAR. While it is true that the PCGG is not empowered to
sell sequestered assets without prior Sandiganbayan approval, this case
presents a clear exception because this Court itself, in the Teehankee
Resolution, directed the PCGG to accept the cash deposit offered by
Bulletin in payment for the Cojuangco and Zalamea sequestered shares
subject to the alternatives mentioned therein and the outcome of the
remand to the Sandiganbayan on the question of ownership of these
sequestered shares.
7.CIVIL LAW; DAMAGES; ACTUAL OR COMPENSATORY
DAMAGES; CANNOT BE AWARDED WITHOUT PROOF OF
PECUNIARY LOSS. 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.
8.ID.; ID.; MORAL, TEMPERATE, NOMINAL AND EXEMPLARY
DAMAGES; WHEN AWARDED. [W]hile no proof of pecuniary
83 |

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,
may not be awarded. Temperate, nominal, and exemplary damages,
attorney's fees, litigation expenses and judicial costs may likewise not
be adjudicated for failure to present sufficient evidence to establish
entitlement to these awards.

DECISION

TINGA, J p:
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
Zalamea's 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 case 1 that reached this Court.

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 AHCcET
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 cases 3 that
went up to this Court, the Sandiganbayan rendered a Decision 4 dated
March 14, 2002, 5 the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered:

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.

1.Declaring that the following Bulletin shares are the

ill-gotten wealth of the defendant Marcos spouses:

The issues presented for resolution as stated in the Sandiganbayan's

Pre-Trial Order dated November 11, 1991 were:

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

84 |

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:
No. of Shares
Jose Y. Campos90,866.5
Eduardo M. Cojuangco, Jr.90,877
Cesar C. Zalamea16,309

Total198,052.5
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 PCGG's 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 Bank's 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.
85 |

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,
plaintiff's 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 Republic's 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. AcSIDE
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. PCGG 7 (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
Republic's 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 corporation's major stockholders.
86 |

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 other's Bulletin shares.
On April 22, 1968, the stockholders of Bulletin approved certain
amendments to Bulletin's 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 Menzi's sale of his 154 block on or before December
31, 1984.
One day after Menzi's 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 Menzi's 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 Menzi's death, and full payment was
made only after the probate court had judicially confirmed the sale.
The Sandiganbayan dismissed the Republic's 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
Quimson's affidavit was not corroborated by other evidence and was,
in fact, refuted by Atty. Montecillo.
In its Memorandum 9 dated July 7, 2003 in G.R. No. 152578, the
Republic argues that the Sandiganbayan failed to take into account the
fact that despite Menzi's 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 Menzi's estate, likewise did
not include any Bulletin share in the initial inventory of Menzi's
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 Menzi's assets. cEISAD
The Republic claims that despite these circumstances, coupled with
Quimson's 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 Sandiganbayan's
erroneous inference allegedly warrants a review of its findings.

Moreover, the Republic disputes the Sandiganbayan's 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 shares the late Menzi as the
alleged owner or Atty. Montecillo as then special administrator and
later executor of Menzi's 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 Court's discretion, moral damages in the amount of 50
Billion Pesos, exemplary damages of 1 Billion Pesos, attorney's fees,
litigation expenses and treble judicial costs.
The Estate of Menzi and HMHMI filed a Memorandum 11 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

87 |

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 Menzi's estate.
In his Memorandum 12 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 Menzi's 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:
88 |

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

89 |

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 latter's capital stock, subject to
the approval by the SEC of HMHMI's 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.

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:
NameNo. of Shares
Emilio T. Yap2,617

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. DHAcET

Menzi Trust Fund28,977

On January 15, 1986, the law firm of Siguion Reyna, Montecillo &
Ongsiako wrote a letter to Bulletin's 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.

U.S. Automotive Co. Inc.318,084

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 Bulletin's 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, HMHMI's 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.

90 |

Estate of Hans M. Menzi1

xxxxxx
Cesar Zalamea121,178
Jose Campos46,620.5
Eduardo Cojuangco46,626
Xxxxxx
Total567,808.5
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 latter's 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 petition 21 filed by Bulletin with

this Court questioning the validity of the PCGG's letter/order and
seeking to compel PCGG to accept Bulletin's 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 Zalamea's shares.
This Court, on April 15, 1988, issued the Teehankee Resolution, the
dispositive portion of which pertinently states:

91 |

An agreement was thereafter executed between PCGG and Bulletin on

June 9, 1988 regarding the 46,626 Bulletin shares of Cojuangco
whereby PCGG accepted Bulletin's 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
ECcDAH
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

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

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.

3.Remanding the case regarding the issue of

ownership of the said sequestered Bulletin shares for
determination
and
adjudication
to
the
Sandiganbayan. 22

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 latter's estate claims, but of Marcos.

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."

The Sandiganbayan likewise rejected Cojuangco's contention that the

Bulletin and HMHMI shares registered in his name "were not acquired
and held by him as dummy, nominee and/or agent of defendants
Ferdinand E. Marcos and Imelda Romualdez Marcos, but upon the
request, and as nominee, of the late Hans Menzi who owned and
delivered to him said shares." According to the Sandiganbayan,
Cojuangco failed to present evidence necessary to establish his
affirmative defense.
As regards the 214 block, the Sandiganbayan ruled that there is no
longer any dispute concerning the ownership of the 46,620.5 shares
held by Campos and the 121,178 shares held by Zalamea in view of the
Teehankee Resolution and the fact that these shares have been waived
and assigned to PCGG.
The Sandiganbayan went on to declare that the only remaining issue
pertaining to Cojuangco's claim to his alleged portion of the 214 block
should be resolved in favor of the Republic because of Cojuangco's
consistent disavowal of any "proprietary interest in the shares which
are the subject matter of the instant case" and his claim that he held the
shares as nominee of Menzi.
The Sandiganbayan further ruled that Yap's shares, which were
acquired by him in 1961 before Marcos became President, are not illgotten 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 Cojuangco's
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
92 |

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 Sandiganbayan's reliance on Quimson's 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 crossexamination as he had already passed away when Civil Case No. 0022
was tried. Quimson's 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 latter's 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 crossexamined.
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 Cojuangco's name. ADcHES
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 Memorandum 25 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 Menzi's.
Since the Bulletin shares were not included in the inventory of Menzi's
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
93 |

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 illgotten 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 Memorandum 26 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 Menzi's 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
Zalamea's shareholdings, in fact, allegedly indicate the Estate of Menzi
as the payee, proving that Zalamea was Menzi's nominee.
Respondents Estate of Menzi and HMHMI further claim that the 198
and 214 blocks were not mentioned in Menzi's 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. TEDAHI
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 Memorandum 27 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.
94 |

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 latter's interests.
Cojuangco filed a Reply Memorandum 28 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 Sandiganbayan's
conclusion that the Republic is the legal owner of the said shares.
The Republic also filed a Memorandum 29 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 Quimson's affidavit alone but
on the totality of the evidence presented to support the complaint.
Quimson's affidavit was allegedly given prominence because it related
in detail how Campos, Cojuangco and Zalamea came to be nominees
of Marcos. The allegations in Quimson's affidavit were allegedly
confirmed by Menzi's 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 Menzi's 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 Menzi's 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.
Zalamea's shares could likewise not be recovered because he was also
not a party, either as defendant, cross-defendant 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.
95 |

The Pre-Trial Order of the Sandiganbayan dated November 11, 1991

likewise does not mention as an issue the ownership of the Camposheld Bulletin shares. cHCaIE
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
Sandiganbayan's 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 ill-gotten wealth based on the
evidence presented by the Republic to show that Cojuangco acted as a
nominee of Marcos and on Cojuangco's unsubstantiated allegation that
he acted as a nominee not of Marcos but of Menzi.
Cojuangco counters, however, that the allegation that he acted as
Menzi's 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 proof 33 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 plaintiff's 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, Cojuangco's 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
96 |

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 Cojuangco's consistent, albeit unsupported, disclaimer,
the Sandiganbayan found the Republic's 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 Menzi's substantial shares in Bulletin to
Marcos' nominees and Menzi's 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 Menzi's assets as of May 15,
1985 which does not include Bulletin shares; notes written by Marcos
regarding Menzi's resignation as aide-de-camp to devote his time to
run Bulletin's 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 through dummies, nominees,
agents, subordinates and/or business 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 governmentowned 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.
Cojuangco's 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.

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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 Menzi's
nominees. Neither did the Estate of Menzi and HMHMI institute an
action to recover the shares from Menzi's nominees. AHCETa
Significantly, even as they claimed ownership of the Bulletin shares in
their Answer to the Republic's 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
Interrogatories 36 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 estate's 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. Montecillo's possession in 1987, an updated inventory declaring
the said shares as part of Menzi's 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.

absolute dearth of evidence regarding Cojuangco's assertion that he is

Menzi's nominee.
With regard to the Republic's prayer for damages, we find the same not
supported by sufficient evidence.

Parenthetically, the fact that the stock certificates covering the shares
registered under the names of Campos, Cojuangco and Zalamea were
found in Menzi's possession does not necessarily prove that the latter
owned the shares. A stock certificate is merely a tangible evidence of
ownership of shares of stock. 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.

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

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.

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, attorney's fees, litigation
expenses and judicial costs may likewise not be adjudicated for failure
to present sufficient evidence to establish entitlement to these awards.

In light of the foregoing, we are not inclined to disturb the

Sandiganbayan's 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 Menzi's nominees,
taking into account the express admission of Campos that he owned
the shares upon Marcos' instruction, the declaration of Zalamea that he
does not claim true and beneficial ownership of the shares, and the

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. ECTIHa

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SO ORDERED.