Republic of the Philippines are named as stockholders and directors of the corporation.

SUPREME COURT Petitioner David Lao alleged that he acquired 446 shares in
Manila PFSC from his father, Lao Pong Bao, which shares were
previously purchased from a certain Hipolito Lao. Petitioner Jose
THIRD DIVISION Lao, on the other hand, alleged that he acquired 333 shares from
respondent Dionisio Lao himself.4
G.R. No. 170585             October 6, 2008
Respondent denied petitioners' claim. He alleged that the
DAVID C. LAO and JOSE C. LAO, petitioners, inclusion of their names in the corporation's General Information
vs. Sheet was inadvertently made. He also claimed that petitioners
DIONISIO C. LAO, respondents. did not acquire any shares in PFSC by any of the modes
recognized by law, namely subscription, purchase, or transfer.
Since they were neither stockholders nor directors of PFSC,
DECISION
petitioners had no right to be issued certificates or stocks or to
inspect its corporate books.5
REYES, R.T., J.:
On June 19, 2000, Republic Act 8799, otherwise known as the
IS the mere inclusion as shareholder in the General Information Securities Regulation Code, was enacted, transferring jurisdiction
Sheet of a corporation sufficient proof that one is a shareholder in over all intra-corporate disputes from the SEC to the RTC.
such corporation? Pursuant to the law, the petition with the SEC was transferred to
the RTC in Cebu City and docketed as Civil Case No. CEB-
This is the main question for resolution in this petition for review 25916-SRC. The case was consolidated with another intra-
on certiorari of the Amended Decision1 of the Court of Appeals corporate dispute, Civil Case No. CEB-25910-SRC, filed by the
(CA) affirming the Decision2 of the Regional Trial Court (RTC), Heirs of Uy Lam Tiong against respondent Dionisio Lao. 6
Branch 11, Cebu City in CEB-25916-SRC.
During pre-trial, the parties agreed to submit the case for
The Facts resolution based on the evidence on record.7

On October 15, 1998, petitioners David and Jose Lao filed a RTC Disposition
petition with the Securities and Exchange Commission (SEC)
against respondent Dionisio Lao, president of Pacific Foundry On December 19, 2001, the RTC rendered a Joint Decision 8 with
Shop Corporation (PFSC). Petitioners prayed for a declaration as the following pertinent disposition, thus:
stockholders and directors of PFSC, issuance of certificates of
shares in their name and to be allowed to examine the corporate
WHEREFORE, in view of the foregoing premises,
books of PFSC.3
judgment is hereby rendered by the Court in these
cases4:
Petitioners claimed that they are stockholders of PFSC based on
the General Information Sheet filed with the SEC, in which they
 (a) Denying the petition of David C. Lao and Jose C. Lao
to be recognized as stockholders and directors of Pacific
Foundry Shop Corporation, to be issued certificates of
stock of said corporation and to be allowed to exercise
rights of stockholders of the same corporation.9
In denying the petition, the RTC ratiocinated:
x x x Thus, the petitioners David C. Lao and Jose C Lao
do not appear to have become registered stockholders of
Pacific Foundry Shop corporation, as they do not appear
to have acquired shares of stock of the corporation either
as subscribers or by purchase from a holder of
outstanding shares or by purchase from the corporation of
additionally issued shares.
xxxx
Secondly, the claim or contention of the petitioners David
C. Lao and Jose C. Lao is wanting in merit because they
have no stock certificates in their names. A stock
certificate, as we very well know, is the evidence of
ownership of corporate stock. If ever the said petitioners
acquired shares of stock of the corporation, there is a
need for their acquisition of said shares to be registered in
the Stock and Transfer Book of the corporation.
Registration is necessary to entitle a person to exercise
the rights of a stockholder and to hold office as director or
other offices (12 Fletcher 343). That is why it is explicitly
provided in Section 63 of the Corporation Code of the
Philippines that no transfer of shares of stock shall be
valid until the transfer is recorded in the books of the
corporation. An unregistered transfer is not valid as
against the corporation (Uson vs. Diosomito, 61 Phil.
535). A transfer must be registered, or at least notice
thereof given to the corporation for the purpose of
registration, before the transferee can acquire any right as
against the corporation other than the right to have the
transfer registered (12 Fletcher 339). An unrecorded
transferee can not enjoy the status of a stockholder, he
can not vote nor he voted for (Price & Sulu Development
Corp. vs. Martin, 58 Phil. 707). Until the transfer is
registered, the transferee is not a stockholder but an
outsider (Rivera vs. Florendo, G.R. No. L-57586, October
8, 1986). So, a person who has acquired or purchased
shares of stock of a corporation, and who desires to be
recognized as stockholder for the purpose of voting and
exercising other rights of a stockholder, must secure such
a standing by having the acquisition or transfer recorded
in the corporate books (Price & Sulu development Corp.
vs. Martin, supra). Unfortunately, in the cases at bench,
the petitioners David C. Lao and Jose C. Lao did not
secure such a standing. Consequently, their petition to be
recognized as stockholders of Pacific Foundry Shop
Corporation must fail.10
Petitioners appealed to the CA.
CA Disposition
On May 27, 2005, the CA rendered a Decision11 modifying that of
the RTC, disposing as follows:
WHEREFORE, premises considered, judgment is hereby
rendered modifying the Joint Decision dated December
19, 2001 of the trial court in so far as it relates to Civil
Case No. CEB-25916-SRC by:
(a) Declaring that petitioners have owned since 1987
shares of stock in Pacific Foundry Shop Corporation,
numbering 446 for petitioner-appellant David C. Lao and
333 for petitioner-appellant Jose C. Lao;
 (b) Ordering respondent-appellee through the corporate
secretary to issue to petitioners-appellants the certificates
of stock for the aforementioned number of shares;
(c) Ordering respondent-appellee, as President of Pacific
Foundry Shop Corporation, to allow petitioners-appellants
to exercise their rights as stock holders;
(d) Ordering respondent-appellee to call a stockholders
meeting every fourth Saturday of January in accordance
with the By-Laws of Pacific Foundry shop Corporation. 12
The CA decision was penned by Justice Arsenio Magpale and
concurred in by Justices Sesinando Villon and Enrico Lanzanas.
In modifying the RTC decision, the appellate court gave credence
to the General Information Sheet submitted by petitioners that
names them as stockholders of PFSC, thus:
The General Information Sheet of PFSC for the years
1987-1998 state that petitioners-appellants David C. Lao
and Jose C. Lao own 446 and 333 shares, respectively, in
PFSC. It is also indicated therein that David C. Lao
occupied various key positions in PFSC from 1987-1998
and Jose C. Lao served as Director in PFSC from 1990-
1998. The Sworn Statements of Uy Lam Tiong, former
corporate secretary of the PFSC, also state that
petitioners-appellants David C. Lao and Jose C. Lao, per
corporate records of PFSC, own shares of stock
numbering 446 and 333, respectively. The minutes of the
Annual Stockholders Meeting of PFSC on January 28,
1988 at 3:00 o'clock p.m. shows that among those
present were petitioners-appellants David C. Lao and
Jose C. Lao. During the said meeting, petitioner-appellant
David C. Lao was nominated and elected Director of
PFSC. Withal, the Minutes of the Meeting of the Board of
Directors of PFSC at its Office at Hipodromo, Cebu City,
on January 28, 1988 at 4:00 p.m. disclose that petitioner-
appellant David C. Lao was elected vice-president of
PFSC. Both minutes were signed by the officers of PFSC
including respondent-appellee. 13
Respondent filed a motion for reconsideration 14 of the CA
decision.
On July 11, 2005, respondent moved to inhibit 15 the ponente of
the CA decision, Justice Magpale, from resolving his pending
motion for reconsideration.
On July 22, 2005, Justice Magpale issued a
Resolution16 voluntarily inhibiting himself from further participating
in the resolution of the pending motion for reconsideration.
Justice Magpale stated:
Although the undersigned ponente does not agree with
the imputations of respondent-appellee and that the same
are not any of those grounds mentioned in Rule 137 of
the Revised Rules of Court, nonetheless the ponente
voluntarily inhibits himself from further handling this case
in order to free the entire court of the slightest suspicion of
bias and prejudice against the respondent-appellee. 17
Amended Decision
On August 31, 2005, the CA rendered an Amended
Decision18 affirming that of the RTC, with a fallo reading:
IN VIEW OF THE FOREGOING, the May 27, 2005
Decision of this Court is hereby SET ASIDE and the
Decision of the Regional Trial Court, Branch 11, Cebu
City with respect to Civil Case No. 25916-SRC is hereby
AFIRMED in toto.19
The Amended Decision was penned by Justice Enrico Lanzanas
and concurred in by Justices Sesinando Villon and Vicente Yap.
The CA stated:
Petitioners-appellants maintain that they acquired their
shares of stocks through transfer - the third mode
mentioned by the trial court. David C. Lao claims that he
acquired his 446 shares through his father, Lao Pong
Bao, when the latter purchased said shares from Hipolito
Lao. On the other hand, Jose C. Lao asserts that he
acquired his 333 shares through Dionisio C. Lao himself
from the original 1,333 shares of stocks of the latter.
Petitioner-appellants asseverations are unavailing. To
substantiate their statements, they merely relied on the
General Information Sheets submitted to the Securities
and Exchange Commission for the year 1987 to 1998, as
well as on the Minutes of the Stockholders Meeting and
Board of Directors Meeting held on January 28, 1988.
They did not adduce evidence that would indubitably
show that there was indeed a valid transfer of stocks, i.e.
endorsement and delivery, from the transferors, Hipolito
Lao and Dionisio Lao, to them as transferees.
xxxx
To our mind, David C. Lao utterly failed to confute the
argument posited by respondent-appellee or demonstrate
compliance with any of the statutory requirements as to
warrant a favorable ruling on his part. No proof was ever
shown that there was endorsement and delivery to him of
the stock certificates representing the 446 shares of
Hipolito Lao. Neither was the transfer registered in
PFSC's Stock and Transfer Book. Conversely, Dionisio C.
Lao was able to show conformity with the aforementioned
requirements. Accordingly, it is but logical to conclude that
the certificate of stock covering 446 shares of Hipolito Lao
was in fact endorsed and delivered to Dionisio C. Lao and
as such is reflected in PFSC's Stock and Transfer Book x
x x.
In fact, it is a rule that private transactions are presumed
to have been faire and regular and that the regular course
of business is presumed to have been followed. Thus, the
transfer made by Hipolito Lao of the 446 shares of stocks
to Dionisio C. Lao is deemed to have been valid and well-
founded unless proven otherwise. David C. Lao's mere
allegation that Dionisio Lao illegally appropriated upon
himself the 446 shares failed to hurdle such presumption.
In this jurisdiction, neither fraud nor evil is presumed and
the record does not show either as to establish by clear
and sufficient evidence that may lead Us to believe such
allegation. The party alleging the same has the burden of
proof to present evidence necessary to establish his
claim, unfortunately however petitioners failed to do so.
The General Information Sheets and the Minutes of the
Meetings adduced by petitioners-appellants do not prove
such allegation of fraud or deceit. In the absence thereof,
the presumption remains that private transactions have
been fair and regular.
As for the alleged shares of Jose C. Lao, We find his
position identically situated with David C. Lao. There is
also no evidence on record that would clearly establish
how he acquired said shares of PFSC. Jose C. Lao failed
to show that there was endorsement and delivery to him
of the stock certificates or any documents showing such
transfer or assignment. In fact, the 333 shares being
claimed by him is still under the name of Dionisio C. Lao
was reflected by the Certificate of Stock as well as in
PFSC's Stock and Transfer Book. Corollary, Jose C. Lao
could not be considered a stockholder of PFSC in the
absence of support reflecting his right to the 333 shares
other than the inclusion of his name in the General
Information Sheets from 1987 to 1998 and the Minutes of
 the Stockholder's Meeting and Board of Director's
Meeting.20
Petitioners moved for reconsideration but their motion was
denied.21 Hence, the present petition for review on certiorari under
Rule 45 of the 1997 Rules of Civil Procedure.
Issues
Petitioners raise five (5) issues for Our consideration, thus:
1. Whether or not the inhibition of Justice Arsenio J.
Magpale is proper when there is no "extrinsic evidence of
bias, bad faith, malice, or corrupt purpose" on the part of
Justice Magpale, which is required by this Honorable
Court in its decision in Webb, et al. v. People of the
Philippines, 276 SCRA 243 [1997], as basis for
disqualification.
2. Whether or not the inhibition of Justice Magpale
constitutes, in effect, forum shopping, which is proscribed
under Section 5, Rule 7 of the Rules of Court, as
amended, and decisions of this Honorable Court.
3. Whether or not determination of ownership of shares of
stock in a corporation shall be based on the Stock and
Transfer Book alone, or other evidence can be
considered pursuant to the decision of this Honorable
Court in Tan v. Securities and Exchange Commission,
206 SCRA 740.
4. Whether or not the admissions and representations of
respondent in the General Information Sheets submitted
by him to the Securities and Exchange Commission
during the years 1987 to 1998 that (a) petitioners were
stockholders of Pacific Foundry Shop Corporation; that (b)
petitioner David C. Lao and Jose C. Lao owned 446 and
333 shares in the corporation, respectively; and that (c)
petitioners had been directors and officers of the
corporation, as well as the Sworn Statement of Uy Lam
Tiong, former Corporate Secretary, the Minutes of the
Annual Stockholders Meeting of PFSC on January 28,
1988, and the Minutes of Meeting of the Board of
Directors on January 28, 1988, mentioned by Justice
Magpale in his ponencia, are sufficient proof of petitioners
ownership of stocks in the corporation.
5. Whether or not respondent is stopped from questioning
petitioners' ownership of stocks in the corporation in view
of his admissions and representations in the General
Information Sheets he submitted to the Securities and
Exchange Commission from 1987 to 1998 that petitioners
were stockholders and officers of the corporation. 22
Essentially, only two (2) issues are raised in this petition. The first
concerns the voluntary inhibition of Justice Magpale, while the
second involves the substantive issue of whether or not
petitioners are indeed stockholders of PFSC.
Our Ruling
We deny the petition.
Voluntary inhibition is within the sound discretion of a judge.
Petitioners claim that the motion to inhibit Justice Magpale from
resolving the pending motion for reconsideration was improper
and unethical. They assert that the "bias and prejudice" grounds
alleged by private respondent were unsubstantiated and, worse,
constituted proscribed forum shopping. They argue that Justice
Magpale should have resolved the pending motion, instead of
voluntarily inhibiting himself from the case.
In cases of voluntary inhibition, the law leaves to the sound
discretion of the judge the decision to decide for himself the
question of whether or not he will inhibit himself from the case.
Section 1, Rule 137 of the Rules of Court provides:
Section 1. Disqualification of judges. - No judge or judicial
officer shall sit in any case in which he, or his wife or
child, is pecuniarily interested as heir, legatee, creditor, or
otherwise, or in which he is related to either party within
the sixth degree of consanguinity or affinity, or to counsel
within the fourth degree, computed according to the rules
of the civil law, or in which he has been executor,
administrator, guardian, trustee, or counsel, or in which he
has presided in any inferior court when his ruling or
decision is the subject of review, without the written
consent of all parties in interest, signed by them and
entered upon the record.
A judge may, in the exercise of his sound discretion,
disqualify himself from sitting in a case, for just or valid
reasons other than those mentioned above.
Here, Justice Magpale voluntarily inhibited himself "in order to
free the entire court [CA] of the slightest suspicion of bias and
prejudice x x x."23 We certainly cannot nullify the decision of
Justice Magpale recusing himself from the case because that is a
matter left entirely to his discretion. Nor can We fault him for
doing so. No judge should preside in a case in which he feels that
he is not wholly free, disinterested, impartial, and independent.
We agree with petitioners that it may seem unpalatable and even
revolting when a losing party seeks the disqualification of a judge
who had previously ruled against him in the hope that a new
judge might be more favorable to him. But We cannot take that
basic proposition too far. That Justice Magpale opted to
voluntarily recuse himself from the appealed case is already fait
accompli. It is, in popular idiom, water under the bridge.
Petitioners cannot bank on his voluntary inhibition to nullify the
Amended Decision later issued by the appellate court. It is highly
specious to assume that Justice Magpale would have ruled in
favor of petitioners on the pending motion for reconsideration if he
took a different course and opted to stay on with the case. It is
also illogical to presume that the Amended Decision would not
have been issued with or without the participation of Justice
Magpale. The Amended Decision is too far removed from the
issue of voluntary inhibition. It does not follow that petitioners
would be better off were it not for the voluntary inhibition.
Petitioners failed to prove that they are shareholders of
PSFC.
Petitioners insist that they are shareholders of PFSC. They claim
purchasing shares in PFSC. Petitioner David Lao alleges that he
acquired 446 shares in the corporation from his father, Lao Pong
Bao, which shares were previously purchased from a certain
Hipolito Lao. Petitioner Jose Lao, on the other hand, alleges that
he acquired 333 shares from respondent Dionisio Lao.
Records, however, disclose that petitioners have no certificates of
shares in their name. A certificate of stock is the evidence of a
holder's interest and status in a corporation. It is a written
instrument signed by the proper officer of a corporation stating or
acknowledging that the person named in the document is the
owner of a designated number of shares of its stock. 24 It is prima
facie evidence that the holder is a shareholder of a corporation.
Nor is there any written document that there was a sale of shares,
as claimed by petitioners. Petitioners did not present any deed of
assignment, or any similar instrument, between Lao Pong Bao
and Hipolito Lao; or between Lao Pong Bao and petitioner David
Lao. There is likewise no deed of assignment between petitioner
Jose Lao and private respondent Dionisio Lao.
Absent a written document, petitioners must prove, at the very
least, possession of the certificates of shares in the name of the
alleged seller. Again, they failed to prove possession. They failed
to prove the due delivery of the certificates of shares of the sellers
to them. Section 63 of the Corporation Code provides:
Sec. 63. Certificate of stock and transfer of shares. - The
capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or
vice-president, countersigned by the secretary or
assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the by-
laws. Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or
other person legally authorized to make the transfer. No
transfer, however, shall be valid, except as between the
parties, until the transfer is recorded in the books of the
corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares
transferred.
In contrast, respondent was able to prove that he is the owner of
the disputed shares. He had in his possession the certificates of
stocks of Hipolito Lao. The certificates of stocks were also
properly endorsed to him. More importantly, the transfer was duly
registered in the stock and transfer book of the corporation. Thus,
as between the parties, respondent has proven his right over the
disputed shares. As correctly ruled by the CA:
Au contraire, Dionisio C. Lao was able to show through
competent evidence that he is undeniably the owner of
the disputed shares of stocks being claimed by David C.
Lao. He was able to validate that he has the physical
possession of the certificates covering the shares of
Hipolito Lao. Notably, it was Hipolito Lao who properly
endorsed said certificates to herein Dionisio Lao and that
such transfer was registered in PFSC's Stock and
Transfer Book. These circumstances are more in accord
with the valid transfer contemplated by Section 63 of the
Corporation Code.25
The mere inclusion as shareholder of petitioners in the
General Information Sheet of PFSC is insufficient proof that
they are shareholders of the company.
Petitioners bank heavily on the General Information Sheet
submitted by PFSC to the SEC in which they were named as
shareholders of PFSC. They claim that respondent is now
estopped from contesting the General Information Sheet.
While it may be true that petitioners were named as shareholders
in the General Information Sheet submitted to the SEC, that
document alone does not conclusively prove that they are
shareholders of PFSC. The information in the document will still
have to be correlated with the corporate books of PFSC. As
between the General Information Sheet and the corporate books,
it is the latter that is controlling. As correctly ruled by the CA:
We agree with the trial court that mere inclusion in the
General Information Sheets as stockholders and officers
does not make one a stockholder of a corporation, for this
may have come to pass by mistake, expediency or
negligence. As professed by respondent-appellee, this
was done merely to comply with the reportorial
requirements with the SEC. This maybe against the law
but "practice, no matter how long continued, cannot give
rise to any vested right."
If a transferee of shares of stock who failed to register
such transfer in the Stock and Transfer Book of the
Corporation could not exercise the rights granted unto
him by law as stockholder, with more reason that such
rights be denied to a person who is not a stockholder of a
 corporation. Petitioners-appellants never secured such a CONSUELO YNARES-SANTIAGO
standing as stockholders of PFSC and consequently, their Associate Justice
petition should be denied.26 Chairperson

It should be stressed that the burden of proof is on petitioners to MA. ALICIA AUSTRIA- MINITA V. CHICO-NAZARIO
show that they are shareholders of PFSC. This is so because MARTINEZ Associate Justice
they do not have any certificates of shares in their name. Associate Justice
Moreover, they do not appear in the corporate books as
registered shareholders. If they had certificates of shares, the ANTONIO EDUARDO B. NACHURA
burden would have been with PFSC to prove that they are not Associate Justice
shareholders of the corporation.

As discussed, petitioners failed to hurdle their burden. There is no

written document evidencing their claimed purchase of shares. ATTESTATION
We note that petitioners agreed to submit their case for decision
based merely on the documents on record. Hence, no testimonial I attest that the conclusions in the above Decision had been
evidence was presented to prove the alleged purchase of shares. reached in consultation before the case was assigned to the
Absent any documentary or testimonial evidence, the bare writer of the opinion of the Court's Division.
assertion of petitioners that they are shareholders cannot prevail.
CONSUELO YNARES-SANTIAGO
All told, We agree with the RTC and CA decision that petitioners Associate Justice
are not shareholders of PFSC. Chairperson

WHEREFORE, the petition is DENIED and the appealed

Amended Decision AFFIRMED IN FULL.

SO ORDERED. CERTIFICATION

RUBEN T. REYES Pursuant to Section 13, Article VIII of the Constitution and the
Associate Justice Division Chairperson's Attestation, I certify that the conclusions in
the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court's
Division.

WE CONCUR: REYNATO S. PUNO

Chief Justice

FIRST DIVISION
G.R. No. 150976             October 18, 2004
CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S.
FLORES, XERXES NAVARRO, MARIA ANTONIA TEMPLO and
MEDICAL CENTER PARAÑAQUE, INC., petitioners,
vs.
ANGELES BALINGHASAY, RENATO BERNABE, ALODIA DEL
ROSARIO, ROMEO FUNTILA, TERESITA GAYANILO,
RUSTICO JIMENEZ, ARACELI** JO, ESMERALDA MEDINA,
CECILIA MONTALBAN, VIRGILIO OBLEPIAS, CARMENCITA
PARRENO, CESAR REYES, REYNALDO SAVET, SERAPIO
TACCAD, VICENTE VALDEZ, SALVACION VILLAMORA, and
HUMBERTO VILLAREAL, respondents.
DECISION
QUISUMBING, J.:
For review on certiorari is the Partial Judgment1 dated
November 26, 2001 in Civil Case No. 01-0140, of the Regional
Trial Court (RTC) of Parañaque City, Branch 258. The trial court
declared the February 9, 2001, election of the board of directors
of the Medical Center Parañaque, Inc. (MCPI) valid. The Partial
Judgment dismissed petitioners’ first cause of action, specifically,
to annul said election for depriving petitioners their voting rights
and to be voted on as members of the board.
The facts, as culled from records, are as follows:
Petitioners and the respondents are stockholders of
MCPI, with the former holding Class "B" shares and the
latter owning Class "A" shares.
MCPI is a domestic corporation with offices at Dr. A. Santos
Avenue, Sucat, Parañaque City. It was organized sometime in
September 1977. At the time of its incorporation, Act No. 1459,
the old Corporation Law was still in force and effect. Article VII of
MCPI’s original Articles of Incorporation, as approved by the
Securities and Exchange Commission (SEC) on October 26,
1977, reads as follows:
SEVENTH. That the authorized capital stock of the
corporation is TWO MILLION (₱2,000,000.00) PESOS,
Philippine Currency, divided into TWO THOUSAND
(2,000) SHARES at a par value of ₱100 each share,
whereby the ONE THOUSAND SHARES issued to, and
subscribed by, the incorporating stockholders shall be
classified as Class A shares while the other ONE
THOUSAND unissued shares shall be considered as
Class B shares. Only holders of Class A shares can have
the right to vote and the right to be elected as directors or
as corporate officers.2 (Stress supplied)
On July 31, 1981, Article VII of the Articles of Incorporation of
MCPI was amended, to read thus:
SEVENTH. That the authorized capital stock of the
corporation is FIVE MILLION (₱5,000,000.00) PESOS,
divided as follows:
CLAS NO. OF
PAR VALUE
S SHARES
"A" 1,000 ₱1,000.00
"B" 4,000 ₱1,000.00
 Only holders of Class A shares have the right to vote and
the right to be elected as directors or as corporate
officers.3 (Emphasis supplied)
The foregoing amendment was approved by the SEC on June 7,
1983. While the amendment granted the right to vote and to be
elected as directors or corporate officers only to holders of Class
"A" shares, holders of Class "B" stocks were granted the same
rights and privileges as holders of Class "A" stocks with respect to
the payment of dividends.
On September 9, 1992, Article VII was again amended to provide
as follows:
SEVENTH: That the authorized capital stock of the
corporation is THIRTY TWO MILLION PESOS
(P32,000,000.00) divided as follows:
CLAS NO. OF
PAR VALUE
S SHARES
"A" 1,000 ₱1,000.00
"B" 31,000 1,000.00
Except when otherwise provided by law, only holders of
Class "A" shares have the right to vote and the right to be
elected as directors or as corporate officers4 (Stress and
underscoring supplied).
The SEC approved the foregoing amendment on September 22,
1993.
On February 9, 2001, the shareholders of MCPI held their annual
stockholders’ meeting and election for directors. During the
course of the proceedings, respondent Rustico Jimenez, citing
Article VII, as amended, and notwithstanding MCPI’s history,
declared over the objections of herein petitioners, that no Class
"B" shareholder was qualified to run or be voted upon as a
director. In the past, MCPI had seen holders of Class "B" shares
voted for and serve as members of the corporate board and some
Class "B" share owners were in fact nominated for election as
board members. Nonetheless, Jimenez went on to announce that
the candidates holding Class "A" shares were the winners of all
seats in the corporate board. The petitioners protested, claiming
that Article VII was null and void for depriving them, as Class "B"
shareholders, of their right to vote and to be voted upon, in
violation of the Corporation Code (Batas Pambansa Blg. 68), as
amended.
On March 22, 2001, after their protest was given short shrift,
herein petitioners filed a Complaint for Injunction, Accounting and
Damages, docketed as Civil Case No. CV-01-0140 before the
RTC of Parañaque City, Branch 258. Said complaint was founded
on two (2) principal causes of action, namely:
a. Annulment of the declaration of directors of the MCPI
made during the February 9, 2001 Annual Stockholders’
Meeting, and for the conduct of an election whereat all
stockholders, irrespective of the classification of the
shares they hold, should be afforded their right to vote
and be voted for; and
b. Stockholders’ derivative suit challenging the validity of
a contract entered into by the Board of Directors of MCPI
for the operation of the ultrasound unit.5
Subsequently, the complaint was amended to implead MCPI as
party-plaintiff for purposes only of the second cause of action.
Before the trial court, the herein petitioners alleged that they were
deprived of their right to vote and to be voted on as directors at
the annual stockholders’ meeting held on February 9, 2001,
because respondents had erroneously relied on Article VII of the
Articles of Incorporation of MCPI, despite Article VII being
contrary to the Corporation Code, thus null and void. Additionally,
respondents were in estoppel, because in the past, petitioners
were allowed to vote and to be elected as members of the board.
They further claimed that the privilege granted to the Class "A"
shareholders was more in the nature of a right granted to
founder’s shares.
In their Answer, the respondents averred that the provisions of
Article VII clearly and categorically state that only holders of
Class "A" shares have the exclusive right to vote and be elected
as directors and officers of the corporation. They denied that the
exclusivity was intended only as a privilege granted to founder’s
shares, as no such proviso is found in the Articles of
Incorporation. The respondents further claimed that the
exclusivity of the right granted to Class "A" holders cannot be
defeated or impaired by any subsequent legislative
enactment, e.g. the New Corporation Code, as the Articles of
Incorporation is an intra-corporate contract between the
corporation and its members; between the corporation and its
stockholders; and among the stockholders. They submit that to
allow Class "B" shareholders to vote and be elected as directors
would constitute a violation of MCPI’s franchise or charter as
granted by the State.
At the pre-trial, the trial court ruled that a partial judgment could
be rendered on the first cause of action and required the parties
to submit their respective position papers or memoranda.
On November 26, 2001, the RTC rendered the Partial Judgment,
the dispositive portion of which reads:
WHEREFORE, viewed in the light of the foregoing, the
election held on February 9, 2001 is VALID as the holders
of CLASS "B" shares are not entitled to vote and be voted
for and this case based on the First Cause of Action is
DISMISSED.
SO ORDERED.6
In finding for the respondents, the trial court ruled that
corporations had the power to classify their shares of stocks,
such as "voting and non-voting" shares, conformably with Section
67 of the Corporation Code of the Philippines. It pointed out that
Article VII of both the original and amended Articles of
Incorporation clearly provided that only Class "A" shareholders
could vote and be voted for to the exclusion of Class "B"
shareholders, the exception being in instances provided by law,
such as those enumerated in Section 6, paragraph 6 of the
Corporation Code. The RTC found merit in the respondents’
theory that the Articles of Incorporation, which defines the rights
and limitations of all its shareholders, is a contract between MCPI
and its shareholders. It is thus the law between the parties and
should be strictly enforced as to them. It brushed aside the
petitioners’ claim that the Class "A" shareholders were in
estoppel, as the election of Class "B" shareholders to the
corporate board may be deemed as a mere act of benevolence
on the part of the officers. Finally, the court brushed aside the
"founder’s shares" theory of the petitioners for lack of factual
basis.
Hence, this petition submitting the sole legal issue of whether or
not the Court a quo, in rendering the Partial Judgment dated
November 26, 2001, has decided a question of substance in a
way not in accord with law and jurisprudence considering that:
1. Under the Corporation Code, the exclusive voting right
and right to be voted granted by the Articles of
Incorporation of the MCPI to Class A shareholders is null
and void, or already extinguished;
2. Hence, the declaration of directors made during the
February 9, 2001 Annual Stockholders’ Meeting on the
basis of the purported exclusive voting rights is null and
void for having been done without the benefit of an
election and in violation of the rights of plaintiffs and Class
B shareholders; and
 3. Perforce, another election should be conducted to elect
the directors of the MCPI, this time affording the holders
of Class B shares full voting right and the right to be
voted.8
The issue for our resolution is whether or not holders of Class "B"
shares of the MCPI may be deprived of the right to vote and be
voted for as directors in MCPI.
Before us, petitioners assert that Article VII of the Articles of
Incorporation of MCPI, which denied them voting rights, is null
and void for being contrary to Section 6 of the Corporation Code.
They point out that Section 6 prohibits the deprivation of voting
rights except as to preferred and redeemable shares only. Hence,
under the present law on corporations, all shareholders,
regardless of classification, other than holders of preferred or
redeemable shares, are entitled to vote and to be elected as
corporate directors or officers. Since the Class "B" shareholders
are not classified as holders of either preferred or redeemable
shares, then it necessarily follows that they are entitled to vote
and to be voted for as directors or officers.
The respondents, in turn, maintain that the grant of exclusive
voting rights to Class "A" shares is clearly provided in the Articles
of Incorporation and is in accord with Section 59 of the
Corporation Law (Act No. 1459), which was the prevailing law
when MCPI was incorporated in 1977. They likewise submit that
as the Articles of Incorporation of MCPI is in the nature of a
contract between the corporation and its shareholders and
Section 6 of the Corporation Code could not retroactively apply to
it without violating the non-impairment clause10 of the Constitution.
We find merit in the petition.
When Article VII of the Articles of Incorporation of MCPI was
amended in 1992, the phrase "except when otherwise provided
by law" was inserted in the provision governing the grant of voting
powers to Class "A" shareholders. This particular amendment is
relevant for it speaks of a law providing for exceptions to the
exclusive grant of voting rights to Class "A" stockholders. Which
law was the amendment referring to? The determination of which
law to apply is necessary. There are two laws being cited and
relied upon by the parties in this case. In this instance, the law in
force at the time of the 1992 amendment was the Corporation
Code (B.P. Blg. 68), not the Corporation Law (Act No. 1459),
which had been repealed by then.
We find and so hold that the law referred to in the amendment to
Article VII refers to the Corporation Code and no other law. At the
time of the incorporation of MCPI in 1977, the right of a
corporation to classify its shares of stock was sanctioned by
Section 5 of Act No. 1459. The law repealing Act No. 1459, B.P.
Blg. 68, retained the same grant of right of classification of stock
shares to corporations, but with a significant change. Under
Section 6 of B.P. Blg. 68, the requirements and restrictions on
voting rights were explicitly provided for, such that "no share may
be deprived of voting rights except those classified and issued as
"preferred" or "redeemable" shares, unless otherwise provided in
this Code" and that "there shall always be a class or series of
shares which have complete voting rights." Section 6 of the
Corporation Code being deemed written into Article VII of the
Articles of Incorporation of MCPI, it necessarily follows that
unless Class "B" shares of MCPI stocks are clearly categorized to
be "preferred" or "redeemable" shares, the holders of said Class
"B" shares may not be deprived of their voting rights. Note that
there is nothing in the Articles of Incorporation nor an iota of
evidence on record to show that Class "B" shares were
categorized as either "preferred" or "redeemable" shares. The
only possible conclusion is that Class "B" shares fall under
neither category and thus, under the law, are allowed to exercise
voting rights.
One of the rights of a stockholder is the right to participate in the
control and management of the corporation that is exercised
through his vote. The right to vote is a right inherent in and
incidental to the ownership of corporate stock, and as such is a been regularly performed15 on the part of the SEC, applies in this
property right. The stockholder cannot be deprived of the right to case.
vote his stock nor may the right be essentially impaired, either by
the legislature or by the corporation, without his consent, through WHEREFORE, the petition is GRANTED. The Partial Judgment
amending the charter, or the by-laws.11 dated November 26, 2001 of the Regional Trial Court of
Parañaque City, Branch 258, in Civil Case No. 01-0140
Neither do we find merit in respondents’ position that Section 6 of is REVERSED AND SET ASIDE. No pronouncement as to costs.
the Corporation Code cannot apply to MCPI without running afoul
of the non-impairment clause of the Bill of Rights. Section 148 12 of SO ORDERED.
the Corporation Code expressly provides that it shall apply to
corporations in existence at the time of the effectivity of the Code. LEONARDO A. QUISUMBING
Hence, the non-impairment clause is inapplicable in this instance.
When Article VII of the Articles of Incorporation of MCPI were
Davide, Jr., Ynares-Santiago, Carpio, and Azcuna*, JJ., concur.
amended in 1992, the board of directors and stockholders must
have been aware of Section 6 of the Corporation Code and
intended that Article VII be construed in harmony with the Code,
which was then already in force and effect. Since Section 6 of the
Corporation Code expressly prohibits the deprivation of voting
rights, except as to "preferred" and "redeemable" shares, then
Article VII of the Articles of Incorporation cannot be construed as
granting exclusive voting rights to Class "A" shareholders, to the
prejudice of Class "B" shareholders, without running afoul of the
letter and spirit of the Corporation Code.

The respondents then take the tack that the phrase "except when
otherwise provided by law" found in the amended Articles is only
a handwritten insertion and could have been inserted by anybody
and that no board resolution was ever passed authorizing or
approving said amendment.

Said contention is not for this Court to pass upon, involving as it

does a factual question, which is not proper in this petition. In an
appeal via certiorari, only questions of law may be
reviewed.13 Besides, respondents did not adduce persuasive
evidence, but only bare allegations, to support their suspicion.
The presumption that in the amendment process, the ordinary
course of business has been followed 14 and that official duty has
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. 172045-46               June 16, 2009
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
FIRST EXPRESS PAWNSHOP COMPANY, INC., Respondent.
DECISION
CARPIO, J.:
The Case
The Commissioner of Internal Revenue (petitioner) filed this
Petition for Review1 to reverse the Court of Tax Appeals’
Decision2 dated 24 March 2006 in the consolidated cases of
C.T.A. EB Nos. 60 and 62. In the assailed decision, the Court of
Tax Appeals (CTA) En Banc partially reconsidered the CTA First
Division’s Decision3 dated 24 September 2004.
The Facts
On 28 December 2001, petitioner, through Acting Regional
Director Ruperto P. Somera of Revenue Region 6 Manila, issued
the following assessment notices against First Express
Pawnshop Company, Inc. (respondent):
a. Assessment No. 31-1-984 for deficiency income tax of
₱20,712.58 with compromise penalty of ₱3,000;
b. Assessment No. 31-14-000053-985 for deficiency
value-added tax (VAT) of ₱601,220.18 with compromise
penalty of ₱16,000;
c. Assessment No. 31-14-000053-986 for deficiency
documentary stamp tax (DST) of ₱12,328.45 on deposit
on subscription with compromise penalty of ₱2,000; and
d. Assessment No. 31-1-000053-987 for deficiency DST of
₱62,128.87 on pawn tickets with compromise penalty of
₱8,500.
Respondent received the assessment notices on 3 January 2002.
On 1 February 2002, respondent filed its written protest on the
above assessments. Since petitioner did not act on the protest
during the 180-day period,8 respondent filed a petition before the
CTA on 28 August 2002.9
Respondent contended that petitioner did not consider the
supporting documents on the interest expenses and donations
which resulted in the deficiency income tax.10 Respondent
maintained that pawnshops are not lending investors whose
services are subject to VAT, hence it was not liable for deficiency
VAT.11 Respondent also alleged that no deficiency DST was due
because Section 18012 of the National Internal Revenue Code
(Tax Code) does not cover any document or transaction which
relates to respondent. Respondent also argued that the issuance
of a pawn ticket did not constitute a pledge under Section 195 13 of
the Tax Code.14
In its Answer filed before the CTA, petitioner alleged that the
assessment was valid and correct and the taxpayer had the
burden of proof to impugn its validity or correctness. Petitioner
maintained that respondent is subject to 10% VAT based on its
gross receipts pursuant to Republic Act No. 7716, or the
Expanded Value-Added Tax Law (EVAT). Petitioner also cited
BIR Ruling No. 221-91 which provides that pawnshop tickets are
subject to DST. 15
On 1 July 2003, respondent paid ₱27,744.88 as deficiency
income tax inclusive of interest. 16
After trial on the merits, the CTA First Division ruled, thus:
IN VIEW OF ALL THE FOREGOING, the instant petition is
hereby PARTIALLY GRANTED. Assessment No. 31-1-000053-
98 for deficiency documentary stamp tax in the amount of Sixty-
Two Thousand One Hundred Twenty-Eight Pesos and 87/100
(₱62,128.87) and Assessment No. 31-14-000053-98 for
deficiency documentary stamp tax on deposits on subscription in
the amount of Twelve Thousand Three Hundred Twenty-Eight
Pesos and 45/100 (₱12,328.45) are CANCELLED and SET
ASIDE. However, Assessment No. 31-14-000053-98 is
hereby AFFIRMED except the imposition of compromise penalty
in the absence of showing that petitioner consented thereto (UST
vs. Collector, 104 SCRA 1062; Exquisite Pawnshop Jewelry, Inc.
vs. Jaime B. Santiago, et al., supra).
Accordingly petitioner is ORDERED to PAY the deficiency value
added tax in the amount of Six Hundred One Thousand Two
Hundred Twenty Pesos and 18/100 (₱601,220.18) inclusive of
deficiency interest for the year 1998. In addition, petitioner
is ORDERED to PAY 25% surcharge and 20% delinquency
interest per annum from February 12, 2002 until fully paid
pursuant to Sections 248 and 249 of the 1997 Tax Code.
SO ORDERED.17 (Boldfacing in the original)
Both parties filed their Motions for Reconsideration which were
denied by the CTA First Division for lack of merit. Thereafter, both
parties filed their respective Petitions for Review under Section 11
of Republic Act No. 9282 (RA 9282) with the CTA En Banc.18
On 24 March 2006, the CTA En Banc promulgated a Decision
affirming respondent’s liability to pay the VAT and ordering it to
pay DST on its pawnshop tickets. However, the CTA En Banc
found that respondent’s deposit on subscription was not subject
to DST.19
Aggrieved by the CTA En Banc’s Decision which ruled that
respondent’s deposit on subscription was not subject to DST,
petitioner elevated the case before this Court.
The Ruling of the Court of Tax Appeals
On the taxability of deposit on subscription, the CTA, citing First
Southern Philippines Enterprises, Inc. v. Commissioner of
Internal Revenue,20 pointed out that deposit on subscription is not
subject to DST in the absence of proof that an equivalent amount
of shares was subscribed or issued in consideration for the
deposit. Expressed otherwise, deposit on stock subscription is not
subject to DST if: (1) there is no agreement to subscribe; (2) there
are no shares issued or any additional subscription in the
restructuring plan; and (3) there is no proof that the issued shares
can be considered as issued certificates of stock.21
The CTA ruled that Section 17522 of the Tax Code contemplates a
subscription agreement. The CTA explained that there can be
subscription only with reference to shares of stock which have
been unissued, in the following cases: (a) the original issuance
from authorized capital stock at the time of incorporation; (b) the
opening, during the life of the corporation, of the portion of the
original authorized capital stock previously unissued; or (c) the
increase of authorized capital stock achieved through a formal
amendment of the articles of incorporation and registration of the
articles of incorporation with the Securities and Exchange
Commission.23
The CTA held that in this case, there was no subscription or any
contract for the acquisition of unissued stock for ₱800,000 in the
taxable year assessed. The General Information Sheet (GIS) of
respondent showed only a capital structure of ₱500,000 as
Subscribed Capital Stock and ₱250,000 as Paid-up Capital Stock
and did not include the assessed amount. Mere reliance on the
presumption that the assessment was correct and done in good
faith was unavailing vis-à-vis the evidence presented by
respondent. Thus, the CTA ruled that the assessment for
deficiency DST on deposit on subscription has not become final. 24
The Issue
Petitioner submits this sole issue for our consideration: whether
the CTA erred on a question of law in disregarding the rule on
finality of assessments prescribed under Section 228 of the Tax
Code. Corollarily, petitioner raises the issue on whether
respondent is liable to pay ₱12,328.45 as DST on deposit on
subscription of capital stock.
The Ruling of the Court
Petitioner contends that the CTA erred in disregarding the rule on
the finality of assessments prescribed under Section 228 of the
Tax Code.25 Petitioner asserts that even if respondent filed a
protest, it did not offer evidence to prove its claim that the deposit
on subscription was an "advance" made by respondent’s
stockholders.26 Petitioner alleges that respondent’s failure to
submit supporting documents within 60 days from the filing of its
protest as required under Section 228 of the Tax Code caused
the assessment of ₱12,328.45 for deposit on subscription to
become final and unassailable.27
Petitioner alleges that revenue officers are afforded the
presumption of regularity in the performance of their official
functions, since they have the distinct opportunity, aside from
competence, to peruse records of the assessments. Petitioner
invokes the principle that by reason of the expertise of
administrative agencies over matters falling under their
jurisdiction, they are in a better position to pass judgment
thereon; thus, their findings of fact are generally accorded great
respect, if not finality, by the courts. Hence, without the
supporting documents to establish the non-inclusion from DST of
the deposit on subscription, petitioner’s assessment pursuant to
Section 228 of the Tax Code had become final and
unassailable.28
Respondent, citing Standard Chartered Bank-Philippine
Branches v. Commissioner of Internal Revenue,29 asserts that the
submission of all the relevant supporting documents within the
60-day period from filing of the protest is directory.
Respondent claims that petitioner requested for additional
documents in petitioner’s letter dated 12 March 2002, to wit: (1)
loan agreement from lender banks; (2) official receipts of interest
payments issued to respondent; (3) documentary evidence to
substantiate donations claimed; and (4) proof of payment of DST
on subscription.30 It must be noted that the only document
requested in connection with respondent’s DST assessment on
deposit on subscription is proof of DST payment. However,
respondent could not produce any proof of DST payment
because it was not required to pay the same under the law
considering that the deposit on subscription was an advance
made by its stockholders for future subscription, and no stock
certificates were issued.31 Respondent insists that petitioner could
have issued a subpoena requiring respondent to submit other
documents to determine if the latter is liable for DST on deposit
on subscription pursuant to Section 5(c) of the Tax Code. 32
Respondent argues that deposit on future subscription is not
subject to DST under Section 175 of the Tax Code. Respondent
explains:
It must be noted that deposits on subscription represent
advances made by the stockholders and are in the nature of
liabilities for which stocks may be issued in the future. Absent any
express agreement between the stockholders and petitioner to
convert said advances/deposits to capital stock, either through a
subscription agreement or any other document, these deposits
remain as liabilities owed by respondent to its stockholders. For
these deposits to be subject to DST, it is necessary that a
conversion/subscription agreement be made by First Express and
its stockholders. Absent such conversion, no DST can be
imposed on said deposits under Section 175 of the Tax
Code.33 (Underscoring in the original)
Respondent contends that by presenting its GIS and financial
statements, it had already sufficiently proved that the amount
sought to be taxed is deposit on future subscription, which is not
subject to DST.34 Respondent claims that it cannot be required to
submit proof of DST payment on subscription because such
payment is non-existent. Thus, the burden of proving that there
was an agreement to subscribe and that certificates of stock were
issued for the deposit on subscription rests on petitioner and his
examiners. Respondent states that absent any proof, the
deficiency assessment has no basis and should be cancelled. 35
On the Taxability of Deposit on Stock Subscription
DST is a tax on documents, instruments, loan agreements, and
papers evidencing the acceptance, assignment, sale or transfer
of an obligation, right or property incident thereto. DST is actually
an excise tax because it is imposed on the transaction rather than
on the document.36 DST is also levied on the exercise by persons
of certain privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the execution of
specific instruments.37 The Tax Code provisions on DST relating
to shares or certificates of stock state:
Section 175. Stamp Tax on Original Issue of Shares of Stock. -
On every original issue, whether on organization, reorganization
or for any lawful purpose, of shares of stock by any association,
company or corporation, there shall be collected a documentary
stamp tax of Two pesos (₱2.00) on each Two hundred pesos
(₱200), or fractional part thereof, of the par value, of such shares
of stock: Provided, That in the case of the original issue of shares
of stock without par value the amount of the documentary stamp
tax herein prescribed shall be based upon the actual
consideration for the issuance of such shares of stock: Provided,
further, That in the case of stock dividends, on the actual value
represented by each share.38
Section 176. Stamp Tax on Sales, Agreements to Sell,
Memoranda of Sales, Deliveries or Transfer of Due-bills,
Certificates of Obligation, or Shares or Certificates of Stock. - On
all sales, or agreements to sell, or memoranda of sales, or
deliveries, or transfer of due-bills, certificates of obligation, or
shares or certificates of stock in any association, company or
corporation, or transfer of such securities by assignment in blank,
or by delivery, or by any paper or agreement, or memorandum or
other evidences of transfer or sale whether entitling the holder in
any manner to the benefit of such due-bills, certificates of
obligation or stock, or to secure the future payment of money, or
for the future transfer of any due-bill, certificate of obligation or
stock, there shall be collected a documentary stamp tax of One
peso and fifty centavos (₱1.50) on each Two hundred pesos
(₱200), or fractional part thereof, of the par value of such due-bill,
certificate of obligation or stock: Provided, That only one tax shall
be collected on each sale or transfer of stock or securities from
one person to another, regardless of whether or not a certificate
of stock or obligation is issued, indorsed, or delivered in
pursuance of such sale or transfer: And provided, further, That in
the case of stock without par value the amount of the
documentary stamp tax herein prescribed shall be equivalent to
twenty-five percent (25%) of the documentary stamp tax paid
upon the original issue of said stock.39
In Section 175 of the Tax Code, DST is imposed on the original
issue of shares of stock. The DST, as an excise tax, is levied
upon the privilege, the opportunity and the facility of issuing
shares of stock. In Commissioner of Internal Revenue v.
Construction Resources of Asia, Inc.,40 this Court explained that
the DST attaches upon acceptance of the stockholder’s
subscription in the corporation’s capital stock regardless of actual
or constructive delivery of the certificates of stock.
Citing Philippine Consolidated Coconut Ind., Inc. v. Collector of
Internal Revenue,41 the Court held:
The documentary stamp tax under this provision of the law may
be levied only once, that is upon the original issue of the
certificate. The crucial point therefore, in the case before Us is the
proper interpretation of the word ‘issue.’ In other words, when is
the certificate of stock deemed ‘issued’ for the purpose of
imposing the documentary stamp tax? Is it at the time the
certificates of stock are printed, at the time they are filled up (in
whose name the stocks represented in the certificate appear as
certified by the proper officials of the corporation), at the time they
are released by the corporation, or at the time they are in the
possession (actual or constructive) of the stockholders owning
them?
xxx
Ordinarily, when a corporation issues a certificate of stock
(representing the ownership of stocks in the corporation to fully
paid subscription) the certificate of stock can be utilized for the
exercise of the attributes of ownership over the stocks mentioned
on its face. The stocks can be alienated; the dividends or fruits
derived therefrom can be enjoyed, and they can be conveyed,
pledged or encumbered. The certificate as issued by the
corporation, irrespective of whether or not it is in the actual or
constructive possession of the stockholder, is considered issued
because it is with value and hence the documentary stamp tax
must be paid as imposed by Section 212 of the National Internal
Revenue Code, as amended.
In Section 176 of the Tax Code, DST is imposed on the sales,
agreements to sell, memoranda of sales, deliveries or transfer of
shares or certificates of stock in any association, company, or
corporation, or transfer of such securities by assignment in blank,
or by delivery, or by any paper or agreement, or memorandum or
other evidences of transfer or sale whether entitling the holder in
any manner to the benefit of such certificates of stock, or to
secure the future payment of money, or for the future transfer of
certificates of stock. In Compagnie Financiere Sucres et Denrees
v. Commissioner of Internal Revenue, this Court held that under
Section 176 of the Tax Code, sales to secure the future transfer
of due-bills, certificates of obligation or certificates of stock are
subject to documentary stamp tax.42
Revenue Memorandum Order No. 08-98 (RMO 08-98) provides
the guidelines on the corporate stock documentary stamp tax
program. RMO 08-98 states that:
1. All existing corporations shall file the Corporation Stock
DST Declaration, and the DST Return, if applicable when
DST is still due on the subscribed share issued by the
corporation, on or before the tenth day of the month
following publication of this Order.
xxx
3. All existing corporations with authorization for
increased capital stock shall file their Corporate Stock
DST Declaration, together with the DST Return, if
applicable when DST is due on subscriptions made
after the authorization, on or before the tenth day of the
month following the date of authorization. (Boldfacing
supplied)
RMO 08-98, reiterating Revenue Memorandum Circular No. 47-
97 (RMC 47-97), also states that what is being taxed is the
privilege of issuing shares of stock, and, therefore, the taxes
accrue at the time the shares are issued. RMC 47-97 also defines
issuance as the point in which the stockholder acquires and may
exercise attributes of ownership over the stocks.
As pointed out by the CTA, Sections 175 and 176 of the Tax PAID-UP - 250,000.00
Code contemplate a subscription agreement in order for a
taxpayer to be liable to pay the DST. A subscription contract is
defined as any contract for the acquisition of unissued stocks in These entries were explained by Miguel Rosario, Jr. (Rosario),
an existing corporation or a corporation still to be formed. 43 A respondent’s external auditor, during the hearing before the CTA
stock subscription is a contract by which the subscriber agrees to on 11 June 2003. Rosario testified in this wise:
take a certain number of shares of the capital stock of a
corporation, paying for the same or expressly or impliedly Atty. Napiza
promising to pay for the same.44
Q. Mr. Rosario, I refer you to the balance sheet of First
In this case, respondent’s Stockholders’ Equity section of its Express for the year 1998 particularly the entry of deposit
Balance Sheet as of 31 December 1998 45 shows: on subscription in the amount of ₱800 thousand, will you
please tell us what is (sic) this entry represents?
Stockholders’ Equity 1998 1997
Mr. Rosario Jr.
Authorized Capital ₱ 2,000,000.0 ₱ 2,000,000.00
Stock 0 A. This amount of ₱800 thousand represents the case
Paid-up Capital Stock 250,000.00 250,000.00 given by the stockholders to the company but does
not necessarily made (sic) payment to subscribed
Deposit on 800,000.00 portion.
Subscription
Retained Earnings 62,820.34 209,607.20 Atty. Napiza
Net Income (858,498.38) (146,786.86)
Q. What is (sic) that payment stands for?
Total ₱ 254,321.96 ₱ 312,820.34
Mr. Rosario Jr.
The GIS submitted to the Securities and Exchange Commission
on 31 March 1999 shows the following Capital Structure: 46 A. This payment stands as (sic) for the deposit for
future subscription.
B. Financial Profile
Atty. Napiza
1. Capital Structure :
Q. Would you know if First Express issued corresponding
shares pertinent to the amount being deposited?
AUTHORIZED - ₱2,000,000.00
SUBSCRIBED - 500,000.00 Mr. Rosario Jr.
A. No. A. The Paid Up Capital appeared here but the Subscribed
Portion was not stated. (Boldfacing supplied)
Atty. Napiza
Based on Rosario’s testimony and respondent’s financial
Q. What do you mean by no? Did they or they did not? statements as of 1998, there was no agreement to subscribe to
the unissued shares. Here, the deposit on stock subscription
Mr. Rosario Jr. refers to an amount of money received by the corporation as a
deposit with the possibility of applying the same as payment for
the future issuance of capital stock.47 In Commissioner of Internal
A. They did not issue any shares because that is not
Revenue v. Construction Resources of Asia, Inc.,48 we held:
the payment of subscription. That is just a mere
deposit.
We are firmly convinced that the Government stands to lose
nothing in imposing the documentary stamp tax only on those
Atty. Napiza
stock certificates duly issued, or wherein the stockholders can
freely exercise the attributes of ownership and with value at the
Q. Would you know, Mr. Rosario, how much is the time they are originally issued. As regards those certificates of
Subscribed Capital of First Express Pawnshop? stocks temporarily subject to suspensive conditions they
shall be liable for said tax only when released from said
Mr. Rosario Jr. conditions, for then and only then shall they truly acquire
any practical value for their owners.  (Boldfacing supplied)
lavvphil

A. The Subscribed Capital of First Express Pawnshop

Company, Inc. for the year 1998 is ₱500 thousand. Clearly, the deposit on stock subscription as reflected in
respondent’s Balance Sheet as of 1998 is not a subscription
Atty. Napiza agreement subject to the payment of DST. There is no ₱800,000
worth of subscribed capital stock that is reflected in respondent’s
Q. How about the Paid Up Capital? GIS. The deposit on stock subscription is merely an amount of
money received by a corporation with a view of applying the
Mr. Rosario Jr. same as payment for additional issuance of shares in the future,
an event which may or may not happen. The person making a
A. The Paid Up Capital is ₱250 thousand. deposit on stock subscription does not have the standing of a
stockholder and he is not entitled to dividends, voting rights or
other prerogatives and attributes of a stockholder. Hence,
Atty. Napiza respondent is not liable for the payment of DST on its deposit on
subscription for the reason that there is yet no subscription that
Q. Are (sic) all those figures appear in the balance sheet? creates rights and obligations between the subscriber and the
corporation.
Mr. Rosario Jr.
 On the Finality of Assessment as Prescribed
under Section 228 of the Tax Code
Section 228 of the Tax Code provides:
SEC. 228. Protesting of Assessment. - When the
Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer
of his findings: Provided, however, That a preassessment notice
shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as
appearing on the face of the return; or
(b) When a discrepancy has been determined between
the tax withheld and the amount actually remitted by the
withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax
credit of excess creditable withholding tax for a taxable
period was determined to have carried over and
automatically applied the same amount claimed against
the estimated tax liabilities for the taxable quarter or
quarters of the succeeding taxable year; or
(d) When the excise tax due on excisable articles has not
been paid; or
(e) When an article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been
sold, traded or transferred to non-exempt persons.
The taxpayer shall be informed in writing of the law and the facts
on which the assessment is made; otherwise, the assessment
shall be void.
Within a period to be prescribed by implementing rules and
regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the Commissioner or his
duly authorized representative shall issue an assessment based
on his findings.
Such assessment may be protested administratively by filing a
request for reconsideration or reinvestigation within thirty (30)
days from receipt of the assessment in such form and manner as
may be prescribed by implementing rules and regulations. Within
sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted;
otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of the said decision, or from the lapse of the
one hundred eighty (180)-day period; otherwise, the decision
shall become final, executory and demandable. (Boldfacing
supplied)
Section 228 of the Tax Code49 provides the remedy to dispute a
tax assessment within a certain period of time. It states that an
assessment may be protested by filing a request for
reconsideration or reinvestigation within 30 days from receipt of
the assessment by the taxpayer. Within 60 days from filing of the
protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.
In this case, respondent received the tax assessment on 3
January 2002 and it had until 2 February 2002 to submit its
protest. On 1 February 2002, respondent submitted its protest
and attached the GIS and Balance Sheet as of 31 December
1998. Respondent explained that it received ₱800,000 as a
deposit with the possibility of applying the same as payment for
the future issuance of capital stock.
Within 60 days from the filing of protest or until 2 April 2002,
respondent should submit relevant supporting documents.
Respondent, having submitted the supporting documents
together with its protest, did not present additional documents
anymore.
In a letter dated 12 March 2002, petitioner requested respondent
to present proof of payment of DST on subscription. In a letter-
reply, respondent stated that it could not produce any proof of
DST payment because it was not required to pay DST under the
law considering that the deposit on subscription was an advance
made by its stockholders for future subscription, and no stock
certificates were issued.
Since respondent has not allegedly submitted any relevant
supporting documents, petitioner now claims that the assessment
has become final, executory and demandable, hence,
unappealable.
We reject petitioner’s view that the assessment has become final
and unappealable. It cannot be said that respondent failed to
submit relevant supporting documents that would render the
assessment final because when respondent submitted its protest,
respondent attached the GIS and Balance Sheet. Further,
petitioner cannot insist on the submission of proof of DST
payment because such document does not exist as respondent
claims that it is not liable to pay, and has not paid, the DST on the
deposit on subscription.
The term "relevant supporting documents" should be understood
as those documents necessary to support the legal basis in
disputing a tax assessment as determined by the taxpayer. The
BIR can only inform the taxpayer to submit additional documents.
The BIR cannot demand what type of supporting documents
should be submitted. Otherwise, a taxpayer will be at the mercy
of the BIR, which may require the production of documents that a
taxpayer cannot submit. 1awphi1
After respondent submitted its letter-reply stating that it could not
comply with the presentation of the proof of DST payment, no
reply was received from petitioner.
Section 228 states that if the protest is not acted upon within 180
days from submission of documents, the taxpayer adversely
affected by the inaction may appeal to the CTA within 30 days
from the lapse of the 180-day period. Respondent, having
submitted its supporting documents on the same day the protest
was filed, had until 31 July 2002 to wait for petitioner’s reply to its
protest. On 28 August 2002 or within 30 days after the lapse of
the 180-day period counted from the filing of the protest as the
supporting documents were simultaneously filed, respondent filed
a petition before the CTA.
Respondent has complied with the requisites in disputing an
assessment pursuant to Section 228 of the Tax Code. Hence, the
tax assessment cannot be considered as final, executory and
demandable. Further, respondent’s deposit on subscription is not
subject to the payment of DST. Consequently, respondent is not
liable to pay the deficiency DST of ₱12,328.45.
Wherefore, we DENY the petition. We AFFIRM the Court of Tax
Appeals’ Decision dated 24 March 2006 in the consolidated
cases of C.T.A. EB Nos. 60 and 62.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-19761             January 29, 1923
PHILIPPINE TRUST COMPANY, as assignee in insolvency of
"La Cooperativa Naval Filipina," plaintiff-appellee,
vs.
MARCIANO RIVERA, defendant-appellant.
Araneta and Zaragoza for appellant.
Ross and Lawrence for appellee.
STREET, J.:
This action was instituted on November 21, 1921, in the Court of
First Instance of Manila, by the Philippine Trust Company, as
assignee in insolvency of La Cooperativa Naval Filipina, against
Marciano Rivera, for the purpose of recovering a balance of
P22,500, alleged to be due upon defendant's subscription to the
capital stock of said insolvent corporation. The trial judge having
given judgment in favor of the plaintiff for the amount sued for, the
defendant appealed.
It appears in evidence that in 1918 the Cooperativa Naval
Filipina was duly incorporated under the laws of the Philippine
Islands, with a capital of P100,000, divided into one thousand
shares of a par value of P100 each. Among the incorporators of
this company was numbered the defendant Mariano Rivera, who
subscribed for 450 shares representing a value of P45,000, the
remainder of the stock being taken by other persons. The articles
of incorporation were duly registered in the Bureau of Commerce
and Industry on October 30 of the same year.
In the course of time the company became insolvent and went
into the hands of the Philippine Trust Company, as assignee in
bankruptcy; and by it this action was instituted to recover one-half
of the stock subscription of the defendant, which admittedly has
never been paid.
The reason given for the failure of the defendant to pay the entire
subscription is, that not long after the Cooperativa Naval
Filipina had been incorporated, a meeting of its stockholders
occurred, at which a resolution was adopted to the effect that the
capital should be reduced by 50 per centum and the subscribers
released from the obligation to pay any unpaid balance of their
subscription in excess of 50 per centum of the same. As a result
of this resolution it seems to have been supposed that the
subscription of the various shareholders had been cancelled to
the extent stated; and fully paid certificate were issued to each
shareholders for one-half of his subscription. It does not appear
that the formalities prescribed in section 17 of the Corporation
Law (Act No. 1459), as amended, relative to the reduction of
capital stock in corporations were observed, and in particular it
does not appear that any certificate was at any time filed in the
Bureau of Commerce and Industry, showing such reduction.
His Honor, the trial judge, therefore held that the resolution relied
upon the defendant was without effect and that the defendant
was still liable for the unpaid balance of his subscription. In this
we think his Honor was clearly right.
It is established doctrine that subscription to the capital of a
corporation constitute a find to which creditors have a right to look
for satisfaction of their claims and that the assignee in insolvency
can maintain an action upon any unpaid stock subscription in
order to realize assets for the payment of its debts.
(Velasco vs. Poizat, 37 Phil., 802.) A corporation has no power to
release an original subscriber to its capital stock from the
obligation of paying for his shares, without a valuable
consideration for such release; and as against creditors a
reduction of the capital stock can take place only in the manner
an under the conditions prescribed by the statute or the charter or
the articles of incorporation. Moreover, strict compliance with the
statutory regulations is necessary (14 C. J., 498, 620).

In the case before us the resolution releasing the shareholders

from their obligation to pay 50 per centum of their respective
subscriptions was an attempted withdrawal of so much capital
from the fund upon which the company's creditors were entitled
ultimately to rely and, having been effected without compliance
with the statutory requirements, was wholly ineffectual.

The judgment will be affirmed with cost, and it is so ordered.

Araullo, C. J., Malcolm, Avanceña, Villamor, Ostrand, Johns, and

Romualdez, JJ., concur.
 Republic of the Philippines No. of Total
SUPREME COURT Subscriber Amount paid
shares subscription
Manila
Donnina C. Halley 35,000 ₱ 350,000.00 ₱87,500.00
THIRD DIVISION Roberto V. Cabrera, 18,000 ₱ 180,000.00 ₱45,000.00
Jr.
G.R. No. 157549               May 30, 2011 Albert T. Yu 18,000 ₱ 180,000.00 ₱45,000.00

DONNINA C. HALLEY, Petitioner, Zenaida V. Yu 2,000 ₱ 20,000.00 ₱5,000.00

vs. Rizalino C. Vineza 2,000 ₱ 20,000.00 ₱5,000.00
PRINTWELL, INC., Respondent.
TOTAL 75,000 ₱750,000.00 ₱187,500.00
DECISION
Printwellengaged in commercial and industrial printing.BMPI
BERSAMIN, J: commissioned Printwell for the printing of the magazine
Philippines, Inc. (together with wrappers and subscription cards)
Stockholders of a corporation are liable for the debts of the that BMPI published and sold. For that purpose, Printwell
corporation up to the extent of their unpaid subscriptions. They extended 30-day credit accommodations to BMPI.
cannot invoke the veil of corporate identity as a shield from
liability, because the veil may be lifted to avoid defrauding In the period from October 11, 1988 until July 12, 1989, BMPI
corporate creditors. placedwith Printwell several orders on credit, evidenced
byinvoices and delivery receipts totaling₱316,342.76.Considering
Weaffirm with modification the decisionpromulgated on August that BMPI paidonly₱25,000.00,Printwell suedBMPIon January 26,
14, 2002,1whereby the Court of Appeals(CA) upheld thedecision 1990 for the collection of the unpaid balance of ₱291,342.76 in
of the Regional Trial Court, Branch 71, in Pasig City the RTC.4
(RTC),2ordering the defendants (including the petitioner)to pay to
Printwell, Inc. (Printwell) the principal sum of ₱291,342.76 plus On February 8, 1990,Printwell amended thecomplaint in order to
interest. implead as defendants all the original stockholders and
incorporators to recover on theirunpaid subscriptions, as follows: 5
Antecedents
Name Unpaid Shares
The petitioner wasan incorporator and original director of Donnina C. Halley ₱ 262,500.00
Business Media Philippines, Inc. (BMPI), which, at its
incorporation on November 12, 1987,3had an authorized capital Roberto V. Cabrera, Jr. ₱135,000.00
stock of ₱3,000,000.00 divided into 300,000 shares each with a Albert T. Yu ₱135,000.00
par value of ₱10.00,of which 75,000 were initially subscribed, to
wit: Zenaida V. Yu ₱15,000.00
 Rizalino C. Viñeza ₱15,000.00
TOTAL ₱ 562,500.00
The defendants filed a consolidated answer,6averring that they all
had paid their subscriptions in full; that BMPI had a separate
personality from those of its stockholders; thatRizalino C. Viñeza
had assigned his fully-paid up sharesto a certain Gerardo R.
Jacinto in 1989; andthat the directors and stockholders of BMPI
had resolved to dissolve BMPI during the annual meetingheld on
February 5, 1990.
To prove payment of their subscriptions, the
defendantstockholderssubmitted in evidenceBMPI official receipt
(OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222,
OR no. 223, andOR no. 227,to wit:
In addition, the stockholderssubmitted other documentsin
evidence, namely:(a) an audit report dated March 30, 1989
prepared by Ilagan, Cepillo & Associates (submitted to the SEC
and the BIR);7(b) BMPIbalance sheet8 and income statement9as
of December 31, 1988; (c) BMPI income tax return for the year
1988 (stamped "received" by the BIR);10(d) journal vouchers;11(e)
cash deposit slips;12 and(f)Bank of the Philippine Islands (BPI)
savings account passbookin the name of BMPI.13
Ruling of the RTC
On November 3, 1993, the RTC rendereda decision in favor of
Printwell, rejecting the allegation of payment in full of the
subscriptions in view of an irregularity in the issuance of the ORs
and observingthat the defendants had used BMPI’s corporate
personality to evade payment and create injustice, viz:

Receipt Date Name Amount The claim of individual defendants that they have fully paid their
No. subscriptions to defend[a]nt corporation, is not worthy of
consideration, because: —
217 November 5, Albert T. Yu ₱ 45,000.00
1987 a) in the case of defendants-spouses Albert and Zenaida Yu, it
218 May 13, 1988 Albert T. Yu will be noted that the alleged payment made on May 13, 1988
135,000.00amounting to ₱135,000.00, is covered by Official Receipt No. 218
(Exh. "2"), whereas the alleged payment made earlier on
220 May 13, 1988 Roberto V. Cabrera, November 5, 1987, amounting to ₱5,000.00, is covered by
Jr. 135,000.00Official Receipt No. 222 (Exh. "3"). This is cogent proof that said
221 November 5, Roberto V. Cabrera, ₱ 45,000.00receipts were belatedly issued just to suit their theory since in the
1987 Jr. ordinary course of business, a receipt issued earlier must have
serial numbers lower than those issued on a later date. But in the
222 November 5, Zenaida V. Yu ₱ 5,000.00
case at bar, the receipt issued on November 5, 1987 has serial
1987
numbers (222) higher than those issued on a later date (May 13,
223 May 13, 1988 Zenaida V. Yu ₱ 15,000.001988).
227 May 13, 1988 Donnina C. Halley
262,500.00b) The claim that since there was no call by the Board of
Directors of defendant corporation for the payment of unpaid
subscriptions will not be a valid excuse to free individual
defendants from liability. Since the individual defendants are
members of the Board of Directors of defendantcorporation, it
was within their exclusive power to prevent the fulfillment of the
condition, by simply not making a call for the payment of the
unpaid subscriptions. Their inaction should not work to their
benefit and unjust enrichment at the expense of plaintiff.
right to look for satisfaction of their claims (Philippine National
Bank vs. Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, a
corporation has no legal capacity to release a subscriber to its
capital stock from the obligation to pay for his shares, and any
agreement to this effect is invalid (Velasco vs. Poizat, 37 Phil.
802).

Assuming arguendo that the individual defendants have paid their The liability of the individual stockholders in the instant case shall
unpaid subscriptions, still, it is very apparent that individual be pro-rated as follows:
defendants merely used the corporate fiction as a cloak or cover
to create an injustice; hence, the alleged separate personality of Names Amount
defendant corporation should be disregarded (Tan Boon Bee &
Co., Inc. vs. Judge Jarencio, G.R. No. 41337, 30 June 1988). 14 Donnina C. Halley ₱149,955.65
Roberto V. Cabrera, Jr. 77,144.55
Applying the trust fund doctrine, the RTC declared the defendant
stockholders liable to Printwell pro rata, thusly: Albert T. Yu 77,144.55
Zenaida V. Yu 8,579.00
Defendant Business Media, Inc. is a registered corporation
(Exhibits "A", "A-1" to "A-9"), and, as appearing from the Articles Rizalino V. Vineza 8,579.00
of Incorporation, individual defendants have the following unpaid --------------------------------
subscriptions:
Total ₱321,342.7515

Names Unpaid Subscription

The RTC disposed as follows:
Donnina C. Halley ₱262,500.00
Roberto V. Cabrera, Jr. 135.000.00 WHEREFORE, judgment is hereby rendered in favor of plaintiff
and against defendants, ordering defendants to pay to plaintiff the
Albert T. Yu 135,000.00 amount of ₱291,342.76, as principal, with interest thereon at 20%
Zenaida V. Yu 15,000.00 per annum, from date of default, until fully paid, plus ₱30,000.00
as attorney’s fees, plus costs of suit.
Rizalino V. Vineza 15,000.00
-------------------------------- Defendants’ counterclaims are ordered dismissed for lack of
merit.
Total ₱562,500.00
SO ORDERED.16
and it is an established doctrine that subscriptions to the capital
stock of a corporation constitute a fund to which creditors have a Ruling of the CA
All the defendants, except BMPI, appealed.
Spouses Donnina and Simon Halley, andRizalinoViñeza defined
the following errors committed by the RTC, as follows:
I.
THE TRIAL COURT ERRED IN HOLDING APPELLANTS-
STOCKHOLDERS LIABLE FOR THE LIABILITIES OF THE
DEFENDANT CORPORATION.
II.
ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE
TO THE EXTENT OF THEIR UNPAID SUBSCRIPTION OF
SHARES OF STOCK, IF ANY, THE TRIAL COURT
NONETHELESS ERRED IN NOT FINDING THAT
APPELLANTS-STOCKHOLDERS HAVE, AT THE TIME THE
SUIT WAS FILED, NO SUCH UNPAID SUBSCRIPTIONS.
On their part, Spouses Albert and Zenaida Yu averred:
I.
THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND
WEIGHT TO DEFENDANTS-APPELLANTS SPOUSES ALBERT
AND ZENAIDA YU’S EXHIBITS 2 AND 3 DESPITE THE
UNREBUTTED TESTIMONY THEREON BY APPELLANT
ALBERT YU AND THE ABSENCE OF PROOF
CONTROVERTING THEM.
II.
THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS
SPOUSES ALBERT AND ZENAIDA YU PERSONALLY LIABLE
FOR THE CONTRACTUAL OBLIGATION OF BUSINESS MEDIA
PHILS., INC. DESPITE FULL PAYMENT BY SAID
DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE
SUBSCRIPTIONS TO THE CAPITAL STOCK OF BUSINESS
MEDIA PHILS., INC.
Roberto V. Cabrera, Jr. argued:
I.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO
TO APPLY THE DOCTRINE OF PIERCING THE VEIL OF
CORPORATE PERSONALITY IN ABSENCE OF ANY SHOWING
OF EXTRA-ORDINARY CIRCUMSTANCES THAT WOULD
JUSTIFY RESORT THERETO.
II.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO
TO RULE THAT INDIVIDUAL DEFENDANTS ARE LIABLE TO
PAY THE PLAINTIFF-APPELLEE’S CLAIM BASED ON THEIR
RESPECTIVE SUBSCRIPTION. NOTWITHSTANDING
OVERWHELMING EVIDENCE SHOWING FULL SETTLEMENT
OF SUBSCRIBED CAPITAL BY THE INDIVIDUAL
DEFENDANTS.
On August 14, 2002, the CA affirmed the RTC, holding that the
defendants’ resort to the corporate personality would createan
injustice becausePrintwell would thereby be at a loss against
whom it would assert the right to collect, viz:
Settled is the rule that when the veil of corporate fiction is used as
a means of perpetrating fraud or an illegal act or as a vehicle for
the evasion of an existing obligation, the circumvention of
statutes, the achievements or perfection of monopoly or generally
the perpetration of knavery or crime, the veil with which the law
covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals (First
Philippine International Bank vs. Court of Appeals, 252 SCRA
259). Moreover, under this doctrine, the corporate existence may
be disregarded where the entity is formed or used for non-
legitimate purposes, such as to evade a just and due obligations
or to justify wrong (Claparols vs. CIR, 65 SCRA 613).
In the case at bench, it is undisputed that BMPI made several
orders on credit from appellee PRINTWELL involving the printing
of business magazines, wrappers and subscription cards, in the
total amount of P291,342.76 (Record pp. 3-5, Annex "A") which
facts were never denied by appellants’ stockholders that they owe
appellee the amount of P291,342.76. The said goods were
delivered to and received by BMPI but it failed to pay its overdue
account to appellee as well as the interest thereon, at the rate of
20% per annum until fully paid. It was also during this time that
appellants stockholders were in charge of the operation of BMPI
despite the fact that they were not able to pay their unpaid
subscriptions to BMPI yet greatly benefited from said
transactions. In view of the unpaid subscriptions, BMPI failed to
pay appellee of its liability, hence appellee in order to protect its
right can collect from the appellants’ stockholders regarding their
unpaid subscriptions. To deny appellee from recovering from
appellants would place appellee in a limbo on where to assert
their right to collect from BMPI since the stockholders who are
appellants herein are availing the defense of corporate fiction to
evade payment of its obligations.17
Further, the CA concurred with the RTC on theapplicability of
thetrust fund doctrine, under which corporate debtors might look
to the unpaid subscriptions for the satisfaction of unpaid
corporate debts, stating thus:
It is an established doctrine that subscription to the capital stock
of a corporation constitute a fund to which creditors have a right
to look up to for satisfaction of their claims, and that the assignee
in insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts
(PNB vs. Bitulok Sawmill, 23 SCRA 1366).
Premised on the above-doctrine, an inference could be made that
the funds, which consists of the payment of subscriptions of the
stockholders, is where the creditors can claim monetary
considerations for the satisfaction of their claims. If these funds
which ought to be fully subscribed by the stockholders were not
paid or remain an unpaid subscription of the corporation then the
creditors have no other recourse to collect from the corporation of
its liability. Such occurrence was evident in the case at bar
wherein the appellants as stockholders failed to fully pay their
unpaid subscriptions, which left the creditors helpless in collecting
their claim due to insufficiency of funds of the corporation.
Likewise, the claim of appellants that they already paid the unpaid
subscriptions could not be given weight because said payment
did not reflect in the Articles of Incorporations of BMPI that the
unpaid subscriptions were fully paid by the appellants’
stockholders. For it is a rule that a stockholder may be sued
directly by creditors to the extent of their unpaid subscriptions to
the corporation (Keller vs. COB Marketing, 141 SCRA 86).
Moreover, a corporation has no power to release a subscription
or its capital stock, without valuable consideration for such
releases, and as against creditors, a reduction of the capital stock
can take place only in the manner and under the conditions
prescribed by the statute or the charter or the Articles of
Incorporation. (PNB vs. Bitulok Sawmill, 23 SCRA 1366). 18
The CAdeclared thatthe inconsistency in the issuance of the ORs
rendered the claim of full payment of the subscriptions to the
capital stock unworthy of consideration; andheld that the veil of
corporate fiction could be pierced when it was used as a shield to
perpetrate a fraud or to confuse legitimate issues, to wit:
Finally, appellants SPS YU, argued that the fact of full payment
for the unpaid subscriptions was incontrovertibly established by
competent testimonial and documentary evidence, namely –
Exhibits "1", "2", "3" & "4", which were never disputed by
appellee, clearly shows that they should not be held liable for
payment of the said unpaid subscriptions of BMPI.
The reliance is misplaced.
We are hereby reproducing the contents of the above-mentioned
exhibits, to wit:
Exh: "1" – YU – Official Receipt No. 217 dated November 5, 1987
amounting to ₱45,000.00 allegedly representing the initial
payment of subscriptions of stockholder Albert Yu.
Exh: "2" – YU – Official Receipt No. 218 dated May 13, 1988
amounting to ₱135,000.00 allegedly representing full payment of
balance of subscriptions of stockholder Albert Yu. (Record p.
352).
Exh: "3" – YU – Official Receipt No. 222 dated November 5, 1987
amounting to ₱5,000.00 allegedly representing the initial payment
of subscriptions of stockholder Zenaida Yu.
Exh: "4" – YU – Official Receipt No. 223 dated May 13, 1988
amounting to ₱15,000.00 allegedly representing the full payment
of balance of subscriptions of stockholder Zenaida Yu. (Record p.
353).
Based on the above exhibits, we are in accord with the lower
court’s findings that the claim of the individual appellants that they
fully paid their subscription to the defendant BMPI is not worthy of
consideration, because, in the case of appellants SPS. YU, there
is an inconsistency regarding the issuance of the official receipt
since the alleged payment made on May 13, 1988 amounting to
₱135,000.00 was covered by Official Receipt No. 218 (Record, p.
352), whereas the alleged payment made earlier on November 5,
1987 amounting to ₱5,000.00 is covered by Official Receipt No.
222 (Record, p. 353). Such issuance is a clear indication that said
receipts were belatedly issued just to suit their claim that they
have fully paid the unpaid subscriptions since in the ordinary
course of business, a receipt is issued earlier must have serial
numbers lower than those issued on a later date. But in the case
at bar, the receipt issued on November 5, 1987 had a serial
number (222) higher than those issued on May 13, 1988 (218).
And even assuming arguendo that the individual appellants have
paid their unpaid subscriptions, still, it is very apparent that the
veil of corporate fiction may be pierced when made as a shield to
perpetuate fraud and/or confuse legitimate issues. (Jacinto vs.
Court of Appeals, 198 SCRA 211). 19
Spouses Halley and Viñeza moved for a reconsideration, but the
CA denied their motion for reconsideration.
Issues
Only Donnina Halley has come to the Court to seek a
further review, positing the following for our consideration
and resolution, to wit:
I.
THE COURT OF APPEALS ERRED IN AFFIRMING IN
TOTO THE DECISION THAT DID NOTSTATE THE
FACTS AND THE LAW UPON WHICH THE JUDGMENT
WAS BASED BUT MERELY COPIED THE CONTENTS
OF RESPONDENT’S MEMORANDUM ADOPTING THE
SAME AS THE REASON FOR THE DECISION
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THE
DECISION OF THE REGIONAL TRIAL COURT WHICH
ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL
OF CORPORATE FICTION
III.
 THE HONORABLE COURT OF APPEALS ERRED IN
APPLYING THE TRUST FUND DOCTRINE WHEN THE
GROUNDS THEREFOR HAVE NOT BEEN SATISFIED.
On the first error, the petitioner contends that the RTC lifted
verbatim from the memorandum of Printwell; and submits that the
RTCthereby violatedthe requirement imposed in Section 14,
Article VIII of the Constitution20 as well as in Section 1,Rule 36 of
the Rules of Court,21to the effect that a judgment or final order of a
court should state clearly and distinctly the facts and the law on
which it is based. The petitioner claims that the RTC’s violation
indicated that the RTC did not analyze the case before rendering
its decision, thus denying her the opportunity to analyze the
decision; andthat a suspicion of partiality arose from the fact that
the RTC decision was but a replica of Printwell’s
memorandum.She cites Francisco v. Permskul,22 in which the
Court has stated that the reason underlying the constitutional
requirement, that every decision should clearly and distinctly state
the facts and the law on which it is based, is to inform the reader
of how the court has reached its decision and thereby give the
losing party an opportunity to study and analyze the decision and
enable such party to appropriately assign the errors committed
therein on appeal.
On the second and third errors, the petitioner maintains that the
CA and the RTC erroneously pierced the veil of corporate fiction
despite the absence of cogent proof showing that she, as
stockholder of BMPI, had any hand in transacting with Printwell;
thatthe CA and the RTC failed to appreciate the evidence that
she had fully paid her subscriptions; and the CA and the
RTCwrongly relied on the articles of incorporation in determining
the current list of unpaid subscriptions despite the articles of
incorporationbeing at best reflectiveonly of the pre-incorporation
status of BMPI.
As her submissions indicate, the petitioner assails the decisions
of the CA on: (a) the propriety of disregarding the separate
personalities of BMPI and its stockholdersby piercing the thin veil
that separated them; and (b) the application of the trust fund
doctrine.
Ruling
The petition for review fails.
I
The RTC did not violate
the Constitution and the Rules of Court
The contention of the petitioner, that the RTC merely copied the
memorandum of Printwell in writing its decision, and did not
analyze the records on its own, thereby manifesting a bias in
favor of Printwell, is unfounded.
It is noted that the petition for review merely generally alleges that
starting from its page 5, the decision of the RTC "copied verbatim
the allegations of herein Respondents in its Memorandum before
the said court," as if "the Memorandum was the draft of the
Decision of the Regional Trial Court of Pasig,"23but fails to specify
either the portions allegedly lifted verbatim from the
memorandum, or why she regards the decision as copied. The
omission renders thepetition for review insufficient to support her
contention, considering that the mere similarityin language or
thought between Printwell’s memorandum and the trial court’s
decisiondid not necessarily justify the conclusion that the RTC
simply lifted verbatim or copied from thememorandum.
It is to be observed in this connection that a trial or appellate
judge may occasionally viewa party’s memorandum or brief as
worthy of due consideration either entirely or partly. When he
does so, the judgemay adopt and incorporatein his
adjudicationthe memorandum or the parts of it he deems
suitable,and yet not be guilty of the accusation of lifting or copying
from the memorandum.24 This isbecause ofthe avowed objective
of the memorandum to contribute in the proper illumination and
correct determination of the controversy.Nor is there anything
untoward in the congruence of ideas and views about the legal
issues between himself and the party drafting the
memorandum.The frequency of similarities in argumentation,
phraseology, expression, and citation of authorities between the
decisions of the courts and the memoranda of the parties, which
may be great or small, can be fairly attributable tothe adherence
by our courts of law and the legal profession to widely knownor
universally accepted precedents set in earlier judicial actions with
identical factual milieus or posing related judicial dilemmas.
We also do not agree with the petitioner that the RTC’s manner of
writing the decisiondeprivedher ofthe opportunity to analyze its
decisionas to be able to assign errors on appeal. The contrary
appears, considering that she was able to impute and
assignerrors to the RTCthat she extensively discussed in her
appeal in the CA, indicating her thorough analysis ofthe decision
of the RTC.
Our own readingof the trial court’s decision persuasively shows
that the RTC did comply with the requirements regarding the
content and the manner of writing a decision prescribed in the
Constitution and the Rules of Court. The decision of the RTC
contained clear and distinct findings of facts, and stated the
applicablelaw and jurisprudence, fully explaining why the
defendants were being held liable to the plaintiff. In short, the
reader was at once informed of the factual and legal reasons for
the ultimate result.
II
Corporate personality not to be used to foster injustice
Printwell impleaded the petitioner and the other stockholders of
BMPI for two reasons, namely: (a) to reach the unpaid
subscriptions because it appeared that such subscriptions were
the remaining visible assets of BMPI; and (b) to avoid multiplicity
of suits.25
The petitionersubmits that she had no participation in the
transaction between BMPI and Printwell;that BMPI acted on its
own; and that shehad no hand in persuading BMPI to renege on
its obligation to pay. Hence, she should not be personally liable.
We rule against the petitioner’s submission.
Although a corporation has a personality separate and distinct
from those of its stockholders, directors, or officers, 26such
separate and distinct personality is merely a fiction created by law
for the sake of convenience and to promote the ends of
justice.27The corporate personality may be disregarded, and the
individuals composing the corporation will be treated as
individuals, if the corporate entity is being used as a cloak or
cover for fraud or illegality;as a justification for a wrong; as an
alter ego, an adjunct, or a business conduit for the sole benefit of
the stockholders.28 As a general rule, a corporation is looked upon
as a legal entity, unless and until sufficient reason to the contrary
appears. Thus,the courts always presume good faith, andfor that
reason accord prime importance to the separate personality of
the corporation, disregarding the corporate personality only after
the wrongdoing is first clearly and convincingly established. 29It
thus behooves the courts to be careful in assessing the milieu
where the piercing of the corporate veil shall be done. 30
Although nowhere in Printwell’s amended complaint or in the
testimonies Printwell offered can it be read or inferred from that
the petitioner was instrumental in persuading BMPI to renege
onits obligation to pay; or that sheinduced Printwell to extend the
credit accommodation by misrepresenting the solvency of BMPI
toPrintwell, her personal liability, together with that of her co-
defendants, remainedbecause the CA found her and the other
defendant stockholders to be in charge of the operations of BMPI
at the time the unpaid obligation was transacted and incurred, to
wit:
In the case at bench, it is undisputed that BMPI made several
orders on credit from appellee PRINTWELL involving the printing
of business magazines, wrappers and subscription cards, in the
total amount of ₱291,342.76 (Record pp. 3-5, Annex "A") which
facts were never denied by appellants’ stockholders that they
owe(d) appellee the amount of ₱291,342.76. The said goods
were delivered to and received by BMPI but it failed to pay its
overdue account to appellee as well as the interest thereon, at
the rate of 20% per annum until fully paid. It was also during this
time that appellants stockholders were in charge of the operation
of BMPI despite the fact that they were not able to pay their
unpaid subscriptions to BMPI yet greatly benefited from said
transactions. In view of the unpaid subscriptions, BMPI failed to
pay appellee of its liability, hence appellee in order to protect its
right can collect from the appellants stockholders regarding their
unpaid subscriptions. To deny appellee from recovering from
appellants would place appellee in a limbo on where to assert
their right to collect from BMPI since the stockholders who are
appellants herein are availing the defense of corporate fiction to
evade payment of its obligations.31
It follows, therefore, that whether or not the petitioner persuaded
BMPI to renege on its obligations to pay, and whether or not she
induced Printwell to transact with BMPI were not gooddefensesin
the suit.
1avvphi1
III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions
Both the RTC and the CA applied the trust fund doctrineagainst
the defendant stockholders, including the petitioner.
The petitionerargues, however,that the trust fund doctrinewas
inapplicablebecause she had already fully paid her subscriptions
to the capital stock of BMPI. She thus insiststhat both lower
courts erred in disregarding the evidence on the complete
payment of the subscription, like receipts, income tax returns, and
relevant financial statements.
The petitioner’s argumentis devoid of substance.
The trust fund doctrineenunciates a –
xxx rule that the property of a corporation is a trust fund for the
payment of creditors, but such property can be called a trust fund
‘only by way of analogy or metaphor.’ As between the corporation
itself and its creditors it is a simple debtor, and as between its
creditors and stockholders its assets are in equity a fund for the
payment of its debts.32
The trust fund doctrine, first enunciated in the American case of
Wood v. Dummer,33was adopted in our jurisdiction in Philippine
Trust Co. v. Rivera,34where thisCourt declared that:
It is established doctrine that subscriptions to the capital of a
corporation constitute a fund to which creditors have a right to
look for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts.
(Velasco vs. Poizat, 37 Phil., 802) xxx35
We clarify that the trust fund doctrineis not limited to reaching the
stockholder’s unpaid subscriptions. The scope of the doctrine
when the corporation is insolvent encompasses not only the
capital stock, but also other property and assets generally
regarded in equity as a trust fund for the payment of corporate
debts.36All assets and property belonging to the corporation held
in trust for the benefit of creditors thatwere distributed or in the
possession of the stockholders, regardless of full paymentof their
subscriptions, may be reached by the creditor in satisfaction of its
claim.
Also, under the trust fund doctrine,a corporation has no legal
capacity to release an original subscriber to its capital stock from
the obligation of paying for his shares, in whole or in
part,37 without a valuable consideration,38 or fraudulently, to the
prejudice of creditors.39The creditor is allowed to maintain an
action upon any unpaid subscriptions and thereby steps into the
shoes of the corporation for the satisfaction of its debt. 40To make
out a prima facie case in a suit against stockholders of an
insolvent corporation to compel them to contribute to the payment
of its debts by making good unpaid balances upon their
subscriptions, it is only necessary to establish that
thestockholders have not in good faith paid the par value of the
stocks of the corporation.41
The petitionerposits that the finding of irregularity attending the
issuance of the receipts (ORs) issued to the other
stockholders/subscribers should not affect her becauseher receipt
did not suffer similar irregularity.
Notwithstanding that the RTC and the CA did not find any
irregularity in the OR issued in her favor,we still cannot sustain
the petitioner’s defense of full payment of her subscription.
In civil cases, theparty who pleads payment has the burden of
proving it, that even where the plaintiff must allege nonpayment,
the general rule is that the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove nonpayment. In
other words, the debtor bears the burden of showing with legal
certainty that the obligation has been discharged by payment. 42
Apparently, the petitioner failed to discharge her burden.
A receipt is the written acknowledgment of the fact of payment in
money or other settlement between the seller and the buyer of
goods, thedebtor or thecreditor, or theperson rendering services,
and theclient or thecustomer.43Althougha receipt is the best
evidence of the fact of payment, it isnot conclusive, but merely
presumptive;nor is it exclusive evidence,considering thatparole
evidence may also establishthe fact of payment.44
The petitioner’s ORNo. 227,presentedto prove the payment of the
balance of her subscription, indicated that her supposed payment
had beenmade by means of a check. Thus, to discharge
theburden to prove payment of her subscription, she had to
adduce evidence satisfactorily proving that her payment by check
wasregardedas payment under the law.
Paymentis defined as the delivery of money.45Yet, because a
check is not money and only substitutes for money, the delivery
of a check does not operate as payment and does not discharge
the obligation under a judgment. 46 The delivery of a bill of
exchange only produces the fact of payment when the bill has
been encashed.47The following passage fromBank of Philippine
Islands v. Royeca48is enlightening:
Settled is the rule that payment must be made in legal tender. A
check is not legal tender and, therefore, cannot constitute a valid
tender of payment. Since a negotiable instrument is only a
substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. Mere delivery
of checks does not discharge the obligation under a judgment.
The obligation is not extinguished and remains suspended until
the payment by commercial document is actually realized.
To establish their defense, the respondents therefore had to
present proof, not only that they delivered the checks to the
petitioner, but also that the checks were encashed. The
respondents failed to do so. Had the checks been actually
encashed, the respondents could have easily produced the
cancelled checks as evidence to prove the same. Instead, they
merely averred that they believed in good faith that the checks
were encashed because they were not notified of the dishonor of
the checks and three years had already lapsed since they issued
the checks.
Because of this failure of the respondents to present sufficient
proof of payment, it was no longer necessary for the petitioner to
prove non-payment, particularly proof that the checks were
dishonored. The burden of evidence is shifted only if the party
upon whom it is lodged was able to adduce preponderant
evidence to prove its claim.
Ostensibly, therefore, the petitioner’s mere submission of the
receipt issued in exchange of the check did not satisfactorily
establish her allegation of full payment of her subscription.
Indeed, she could not even inform the trial court about the identity
of her drawee bank,49and about whether the check was cleared
and its amount paid to BMPI.50In fact, she did not present the
check itself.
Theincome tax return (ITR) and statement of assets and liabilities
of BMPI, albeit presented, had no bearing on the issue of
payment of the subscription because they did not by themselves
prove payment. ITRsestablish ataxpayer’s liability for taxes or a
taxpayer’s claim for refund. In the same manner, the deposit slips
and entries in the passbook issued in the name of BMPI were
hardly relevant due to their not reflecting the alleged payments.
It is notable, too, that the petitioner and her co-stockholders did
not support their allegation of complete payment of their
respective subscriptions with the stock and transfer book of
BMPI. Indeed, books and records of a corporation (including the
stock and transfer book) are admissible in evidence in favor of or
against the corporation and its members to prove the corporate
acts, its financial status and other matters (like the status of the
stockholders), and are ordinarily the best evidence of corporate
acts and proceedings.51Specifically, a stock and transfer book is
necessary as a measure of precaution, expediency, and
convenience because 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.52That she tendered no explanation why the stock and
transfer book was not presented warrants the inference that the
book did not reflect the actual payment of her subscription.
Nor did the petitioner present any certificate of stock issued by
BMPI to her. Such a certificate covering her subscription might
have been a reliable evidence of full payment of the
subscriptions, considering that under Section 65 of the
Corporation Code a certificate of stock issues only to a subscriber
who has fully paid his subscription. The lack of any explanation
for the absence of a stock certificate in her favor likewise
warrants an unfavorable inference on the issue of payment.
Lastly, the petitioner maintains that both lower courts erred in
relying on the articles of incorporationas proof of the liabilities of
the stockholders subscribing to BMPI’s stocks, averring that the
articles of incorporationdid not reflect the latest subscription
status of BMPI.
Although the articles of incorporation may possibly reflect only the
pre-incorporation status of a corporation, the lower courts’
reliance on that document to determine whether the original
subscribersalready fully paid their subscriptions or not was
neither unwarranted nor erroneous. As earlier explained, the
burden of establishing the fact of full payment belonged not to
Printwell even if it was the plaintiff, but to the stockholders like the
petitioner who, as the defendants, averredfull payment of their
subscriptions as a defense. Their failure to substantiate their
averment of full payment, as well as their failure to counter the
reliance on the recitals found in the articles of incorporation
simply meant their failure or inability to satisfactorily prove their
defense of full payment of the subscriptions.
To reiterate, the petitionerwas liablepursuant to the trust fund
doctrine for the corporate obligation of BMPI by virtue of her
subscription being still unpaid. Printwell, as BMPI’s creditor,had a
right to reachher unpaid subscription in satisfaction of its claim.
IV
Liability of stockholders for corporate debts isup
to the extentof their unpaid subscription
The RTC declared the stockholders pro rata liable for the LUCAS P. BERSAMIN
debt(based on the proportion to their shares in the capital stock of Associate Justice
BMPI); and held the petitionerpersonally liable onlyin the amount
of ₱149,955.65. WE CONCUR:

We do not agree. The RTC lacked the legal and factual support CONCHITA CARPIOMORALES
for its prorating the liability. Hence, we need to modify the extent Associate Justice
of the petitioner’s personal liability to Printwell. The prevailing rule Chairperson
is that a stockholder is personally liable for the financial
obligations of the corporation to the extent of his unpaid ARTURO D. BRION MARTIN S. VILLARAMA
subscription.53In view ofthe petitioner’s unpaid subscription being Associate Justice Associate Justice
worth ₱262,500.00, shewas liable up to that amount.
MARIA LOURDES P. A. SERENO
Interest is also imposable on the unpaid obligation. Absent any
Associate Justice
stipulation, interest is fixed at 12% per annum from the date the
amended complaint was filed on February 8, 1990 until the
obligation (i.e., to the extent of the petitioner’s personal liability of ATTESTATION
₱262,500.00) is fully paid.54
I attest that the conclusions in the above Decision had been
Lastly, we find no basis togrant attorney’s fees, the award for reached in consultation before the case was assigned to the
which must be supported by findings of fact and of law as writer of the opinion of the Court’s Division.
provided under Article 2208 of the Civil Code55incorporated in the
body of decision of the trial court. The absence of the requisite CONCHITA CARPIO MORALES
findings from the RTC decision warrants the deletion of the Associate Justice
attorney’s fees. Chairperson

ACCORDINGLY, we deny the petition for review on certiorari;and

affirm with modification the decision promulgated on August 14,
2002by ordering the petitionerto pay to Printwell, Inc. the sum of
₱262,500.00, plus interest of 12% per annum to be computed
from February 8, 1990 until full payment.

The petitioner shall paycost of suit in this appeal.

SO ORDERED.

SPECIAL SECOND DIVISION
G.R. No. 144476            April 8, 2003
ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L.
ONG, WILLIAM T. ONG, WILLIE T. ONG, and JULIE ONG
ALONZO, petitioners,
vs.
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU,
D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, INTRALAND
RESOURCES DEVELOPMENT CORP., MASAGANA
TELAMART, INC., REGISTER OF DEEDS OF PASAY CITY,
and the SECURITIES AND EXCHANGE
COMMISSION, respondents.
x-----------------------------x
G.R. No. 144629            April 8, 2003
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU,
D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, and
INTRALAND RESOURCES DEVELOPMENT
CORP., petitioners,
vs.
ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L.
ONG, WILLIAM T. ONG, WILLIE T. ONG, and JULIA ONG
ALONZO, respondents.
RESOLUTION
CORONA, J.:
Before us are the (1) motion for reconsideration, dated March 15,
2002, of petitioner movants Ong Yong, Juanita Tan Ong, Wilson
Ong, Anna Ong, William Ong, Willie Ong and Julia Ong Alonzo
(the Ongs); (2) motion for partial reconsideration, dated March 15,
2002, of petitioner movant Willie Ong seeking a reversal of this
Court's Decision,1 dated February 1, 2002, in G.R. Nos. 144476
and 144629 affirming with modification the decision2 of the Court
of Appeals, dated October 5, 1999, which in turn upheld, likewise
with modification, the decision of the SEC en banc, dated
September 11, 1998; and (3) motion for issuance of writ of
execution of petitioners David S. Tiu, Cely Y. Tiu, Moly Yu Gow,
Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu
(the Tius) of our February 1, 2002 Decision.
A brief recapitulation of the facts shows that:
In 1994, the construction of the Masagana Citimall in
Pasay City was threatened with stoppage and
incompletion when its owner, the First Landlink Asia
Development Corporation (FLADC), which was owned by
the Tius, encountered dire financial difficulties. It was
heavily indebted to the Philippine National Bank (PNB) for
P190 million. To stave off foreclosure of the mortgage on
the two lots where the mall was being built, the Tius
invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna
L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs),
to invest in FLADC. Under the Pre-Subscription
Agreement they entered into, the Ongs and the Tius
agreed to maintain equal shareholdings in FLADC: the
Ongs were to subscribe to 1,000,000 shares at a par
value of P100.00 each while the Tius were to subscribe to
an additional 549,800 shares at P100.00 each in addition
to their already existing subscription of 450,200 shares.
Furthermore, they agreed that the Tius were entitled to
nominate the Vice-President and the Treasurer plus five
directors while the Ongs were entitled to nominate the
President, the Secretary and six directors (including the
chairman) to the board of directors of FLADC. Moreover,
the Ongs were given the right to manage and operate the
mall.
Accordingly, the Ongs paid P100 million in cash for their
subscription to 1,000,000 shares of stock while the Tius
committed to contribute to FLADC a four-storey building and two
parcels of land respectively valued at P20 million (for 200,000
shares), P30 million (for 300,000 shares) and P49.8 million (for
49,800 shares) to cover their additional 549,800 stock
subscription therein. The Ongs paid in another P70 million3 to
FLADC and P20 million to the Tius over and above their P100
million investment, the total sum of which (P190 million) was used
to settle the P190 million mortgage indebtedness of FLADC to
PNB.
The business harmony between the Ongs and the Tius in
FLADC, however, was shortlived because the Tius, on February
23, 1996, rescinded the Pre-Subscription Agreement. The Tius
accused the Ongs of (1) refusing to credit to them the FLADC
shares covering their real property contributions; (2) preventing
David S. Tiu and Cely Y. Tiu from assuming the positions of and
performing their duties as Vice-President and Treasurer,
respectively, and (3) refusing to give them the office spaces
agreed upon.
According to the Tius, the agreement was for David S. Tiu and
Cely S. Tiu to assume the positions and perform the duties of
Vice-President and Treasurer, respectively, but the Ongs
prevented them from doing so. Furthermore, the Ongs refused to
provide them the space for their executive offices as Vice-
President and Treasurer. Finally, and most serious of all, the
Ongs refused to give them the shares corresponding to their
property contributions of a four-story building, a 1,902.30 square-
meter lot and a 151 square-meter lot. Hence, they felt they were
justified in setting aside their Pre-Subscription Agreement with the
Ongs who allegedly refused to comply with their undertakings.
In their defense, the Ongs said that David S. Tiu and Cely Y. Tiu
had in fact assumed the positions of Vice-President and
Treasurer of FLADC but that it was they who refused to comply
with the corporate duties assigned to them. It was the contention
of the Ongs that they wanted the Tius to sign the checks of the
corporation and undertake their management duties but that the
Tius shied away from helping them manage the corporation. On
the issue of office space, the Ongs pointed out that the Tius did in
fact already have existing executive offices in the mall since they
owned it 100% before the Ongs came in. What the Tius really
wanted were new offices which were anyway subsequently
provided to them. On the most important issue of their alleged
failure to credit the Tius with the FLADC shares commensurate to
the Tius' property contributions, the Ongs asserted that, although
the Tius executed a deed of assignment for the 1,902.30 square-
meter lot in favor of FLADC, they (the Tius) refused to pay P
570,690 for capital gains tax and documentary stamp tax. Without
the payment thereof, the SEC would not approve the valuation of
the Tius' property contribution (as opposed to cash contribution).
This, in turn, would make it impossible to secure a new Transfer
Certificate of Title (TCT) over the property in FLADC's name. In
any event, it was easy for the Tius to simply pay the said transfer
taxes and, after the new TCT was issued in FLADC's name, they
could then be given the corresponding shares of stocks. On the
151 square-meter property, the Tius never executed a deed of
assignment in favor of FLADC. The Tius initially claimed that they
could not as yet surrender the TCT because it was "still being
reconstituted" by the Lichaucos from whom the Tius bought it.
The Ongs later on discovered that FLADC had in reality owned
the property all along, even before their Pre-Subscription
Agreement was executed in 1994. This meant that the 151
square-meter property was at that time already the corporate
property of FLADC for which the Tius were not entitled to the
issuance of new shares of stock.
The controversy finally came to a head when this case was
commenced4 by the Tius on February 27, 1996 at the Securities
and Exchange Commission (SEC), seeking confirmation of their
rescission of the Pre-Subscription Agreement. After hearing, the
SEC, through then Hearing Officer Rolando G. Andaya, Jr.,
issued a decision on May 19, 1997 confirming the rescission
sought by the Tius, as follows:
WHEREFORE, judgment is hereby rendered confirming
the rescission of the Pre-Subscription Agreement, and
consequently ordering:
(a) The cancellation of the 1,000,000 shares subscription
of the individual defendants in FLADC;
(b) FLADC to pay the amount of P170,000,000.00 to the
individual defendants representing the return of their
contribution for 1,000,000 shares of FLADC;
(c) The plaintiffs to submit with (sic) the Securities and
Exchange Commission amended articles of incorporation
of FLADC to conform with this decision;
(d) The defendants to surrender to the plaintiffs TCT Nos.
132493, 132494, 134066 (formerly 15587), 135325 and
134204 and any other title or deed in the name of FLADC,
failing in which said titles are declared void;
(e) The Register of Deeds to issue new certificates of
titles in favor of the plaintiffs and to cancel the annotation
of the Pre-Subscription Agreement dated 15 August 1994
on TCT No. 134066 (formerly 15587);
(f) The individual defendants, individually and collectively,
their agents and representatives, to desist from exercising
or performing any and all acts pertaining to stockholder,
director or officer of FLADC or in any manner intervene in
the management and affairs of FLADC;
(g) The individual defendants, jointly and severally, to
return to FLADC interest payment in the amount of
P8,866,669.00 and all interest payments as well as any
payments on principal received from the P70,000,000.00
inexistent loan, plus the legal rate of interest thereon from
the date of their receipt of such payment until fully paid;
(h) The plaintiff David Tiu to pay individual defendants the
sum of P20,000,000.00 representing his loan from said
defendants plus legal interest from the date of receipt of
such amount.
SO ORDERED.5
On motion of both parties, the above decision was partially
reconsidered but only insofar as the Ongs' P70 million was
declared not as a premium on capital stock but an advance (loan)
by the Ongs to FLADC and that the imposition of interest on it
was correct.6
Both parties appealed7 to the SEC en banc which rendered a
decision on September 11, 1998, affirming the May 19, 1997
decision of the Hearing Officer. The SEC en banc confirmed the
rescission of the Pre-Subscription Agreement but reverted to
classifying the P70 million paid by the Ongs as premium on
capital and not as a loan or advance to FLADC, hence, not
entitled to earn interest.8
On appeal, the Court of Appeals (CA) rendered a decision on
October 5, 1999, thus:
WHEREFORE, the Order dated September 11, 1998
issued by the Securities and Exchange Commission En
Banc in SEC AC CASE NOS. 598 and 601 confirming the
rescission of the Pre-Subscription Agreement dated
August 15, 1994 is hereby AFFIRMED, subject to the
following MODIFICATIONS:
1. The Ong and Tiu Groups are ordered to liquidate First
Landlink Asia Development Corporation in accordance
with the following cash and property contributions of the
parties therein.
 (a) Ong Group – P100,000,000.00 cash
contribution for one (1) million shares in First
Landlink Asia Development Corporation at a par
value of P100.00 per share;
(b) Tiu Group:
1) P45,020,000.00 original cash
contribution for 450,200 shares in First
Landlink Asia Development Corporation at
a par value of P100.00 per share;
2) A four-storey building described in
Transfer Certificate of Title No. 15587 in
the name of Intraland Resources and
Development Corporation valued at
P20,000,000.00 for 200,000 shares in
First Landlink Asia Development
Corporation at a par value of P100.00 per
share;
3) A 1,902.30 square-meter parcel of land
covered by Transfer Certificate of Title No.
15587 in the name of Masagana Telamart,
Inc. valued at P30,000,000.00 for 300,000
shares in First Landlink Asia Development
Corporation at a par value of P100.00 per
share.
2) Whatever remains of the assets of the First Landlink
Asia Development Corporation and the management
thereof is (sic) hereby ordered transferred to the Tiu
Group.
3) First Landlink Asia Development Corporation is hereby
ordered to pay the amount of P70,000,000.00 that was
advanced to it by the Ong Group upon the finality of this
decision. Should the former incur in delay in the payment
thereof, it shall pay the legal interest thereon pursuant to
Article 2209 of the New Civil Code.
4) The Tius are hereby ordered to pay the amount of
P20,000,000.00 loaned them by the Ongs upon the
finality of this decision. Should the former incur in delay in
the payment thereof, it shall pay the legal interest thereon
pursuant to Article 2209 of the New Civil Code.
SO ORDERED.9
An interesting sidelight of the CA decision was its description of
the rescission made by the Tius as the "height of ingratitude" and
as "pulling a fast one" on the Ongs. The CA moreover found the
Tius guilty of withholding FLADC funds from the Ongs and
diverting corporate income to their own MATTERCO
account.10 These were findings later on affirmed in our own
February 1, 2002 Decision which is the subject of the instant
motion for reconsideration.11
But there was also a strange aspect of the CA decision. The CA
concluded that both the Ongs and the Tius were in pari
delicto (which would not have legally entitled them to rescission)
but, "for practical considerations," that is, their inability to work
together, it was best to separate the two groups by rescinding the
Pre-Subscription Agreement, returning the original investment of
the Ongs and awarding practically everything else to the Tius.
Their motions for reconsideration having been denied, both
parties filed separate petitions for review before this Court.
In their petition docketed as G.R. No. 144476, Ong et al. vs. Tiu
et al., the Ongs argued that the Tius may not properly avail of
rescission under Article 1191 of the Civil Code considering that
the Pre-Subscription Agreement did not provide for reciprocity of
obligations; that the rights over the subject matter of the
rescission (capital assets and properties) had been acquired by a
third party (FLADC); that they did not commit a substantial and
fundamental breach of their agreement since they did not prevent
the Tius from assuming the positions of Vice-President and
Treasurer of FLADC, and that the failure to credit the 300,000
shares corresponding to the 1,902.30 square-meter property
covered by TCT No. 134066 (formerly 15587) was due to the
refusal of the Tius to pay the required transfer taxes to secure the
approval of the SEC for the property contribution and, thereafter,
the issuance of title in FLADC's name. They also argued that the
liquidation of FLADC may not legally be ordered by the appellate
court even for so called "practical considerations" or even to
prevent "further squabbles and numerous litigations," since the
same are not valid grounds under the Corporation Code.
Moreover, the Ongs bewailed the failure of the CA to grant
interest on their P70 million and P20 million advances to FLADC
and David S. Tiu, respectively, and to award costs and damages.
In their petition docketed as G.R. No. 144629, Tiu et al. vs. Ong
et al., the Tius, on the other hand, contended that the rescission
should have been limited to the restitution of the parties'
respective investments and not the liquidation of FLADC based
on the erroneous perception by the court that: the Masagana
Citimall was threatened with incompletion since FLADC was in
financial distress; that the Tius invited the Ongs to invest in
FLADC to settle its P190 million loan from PNB; that they violated
the Pre-Subscription Agreement when it was the Lichaucos and
not the Tius who executed the deed of assignment over the 151
square-meter property commensurate to 49,800 shares in FLADC
thereby failing to pay the price for the said shares; that they did
not turn over to the Ongs the entire amount of FLADC funds; that
they were diverting rentals from lease contracts due to FLADC to
their own MATTERCO account; that the P70 million paid by the
Ongs was an advance and not a premium on capital; and that, by
rescinding the Pre-Subscription Agreement, they wanted to
wrestle away the management of the mall and prevent the Ongs
from enjoying the profits of their P190 million investment in
FLADC.
On February 1, 2002, this Court promulgated its Decision (the
subject of the instant motions), affirming the assailed decision of
the Court of Appeals but with the following modifications:
1. the P20 million loan extended by the Ongs to the Tius
shall earn interest at twelve percent (12%) per annum to
be computed from the time of judicial demand which is
from April 23, 1996;
2. the P70 million advanced by the Ongs to the FLADC
shall earn interest at ten percent (10%) per annum to be
computed from the date of the FLADC Board Resolution
which is June 19, 1996; and
3. the Tius shall be credited with 49,800 shares in FLADC
for their property contribution, specifically, the 151 sq. m.
parcel of land.
This Court affirmed the fact that both the Ongs and the Tius
violated their respective obligations under the Pre-Subscription
Agreement. The Ongs prevented the Tius from assuming the
positions of Vice-President and Treasurer of the corporation. On
the other hand, the Decision established that the Tius failed to
turn over FLADC funds to the Ongs and that the Tius diverted
rentals due to FLADC to their MATTERCO account.
Consequently, it held that rescission was not possible since both
parties were in pari delicto. However, this Court agreed with the
Court of Appeals that the remedy of specific performance, as
espoused by the Ongs, was not practical and sound either and
would only lead to further "squabbles and numerous litigations"
between the parties.
On March 15, 2002, the Tius filed before this Court a Motion for
Issuance of a Writ of Execution on the grounds that: (a) the SEC
order had become executory as early as September 11, 1998
pursuant to Sections 1 and 12, Rule 43 of the Rules of Court; (b)
any further delay would be injurious to the rights of the Tius since
the case had been pending for more than six years; and (c) the
SEC no longer had quasi-judicial jurisdiction under RA 8799
(Securities Regulation Code). The Ongs filed their opposition,
contending that the Decision dated February 1, 2002 was not yet
final and executory; that no good reason existed to issue a
warrant of execution; and that, pursuant to Section 5.2 of RA
8799, the SEC retained jurisdiction over pending cases involving
intra-corporate disputes already submitted for final resolution
upon the effectivity of the said law.
Aside from their opposition to the Tius' Motion for Issuance of Writ
of Execution, the Ongs filed their own "Motion for
Reconsideration; Alternatively, Motion for Modification (of the
February 1, 2002 Decision)" on March 15, 2002, raising two main
points: (a) that specific performance and not rescission was the
proper remedy under the premises; and (b) that, assuming
rescission to be proper, the subject decision of this Court should
be modified to entitle movants to their proportionate share in the
mall.
On their first point (specific performance and not rescission was
the proper remedy), movants Ong argue that their alleged breach
of the Pre-Subscription Agreement was, at most, casual which did
not justify the rescission of the contract. They stress that
providing appropriate offices for David S. Tiu and Cely Y. Tiu as
Vice-President and Treasurer, respectively, had no bearing on
their obligations under the Pre-Subscription Agreement since the
said obligation (to provide executive offices) pertained to FLADC
itself. Such obligation arose from the relations between the said
officers and the corporation and not any of the individual parties
such as the Ongs. Likewise, the alleged failure of the Ongs to
credit shares of stock in favor of the Tius for their property
contributions also pertained to the corporation and not to the
Ongs. Just the same, it could not be done in view of the Tius'
refusal to pay the necessary transfer taxes which in turn resulted
in the inability to secure SEC approval for the property
contributions and the issuance of a new TCT in the name of
FLADC.
Besides, according to the Ongs, the principal objective of both
parties in entering into the Pre-Subscription Agreement in 1994
was to raise the P190 million desperately needed for the payment
of FLADC's loan to PNB. Hence, in this light, the alleged failure to
provide office space for the two corporate officers was no more
than an inconsequential infringement. For rescission to be
justified, the law requires that the breach of contract should be so
"substantial or fundamental" as to defeat the primary objective of
the parties in making the agreement. At any rate, the Ongs claim
that it was the Tius who were guilty of fundamental violations in
failing to remit funds due to FLADC and diverting the same to
their MATTERCO account.
The Ongs also allege that, in view of the findings of the Court that
both parties were guilty of violating the Pre-Subscription
Agreement, neither of them could resort to rescission under the
principle of pari delicto. In addition, since the cash and other
contributions now sought to be returned already belong to
FLADC, an innocent third party, said remedy may no longer be
availed of under the law.
On their second point (assuming rescission to be proper, the
Ongs should be given their proportionate share of the mall),
movants Ong vehemently take exception to the second item in
the dispositive portion of the questioned Decision insofar as it
decreed that whatever remains of the assets of FLADC and the
management thereof (after liquidation) shall be transferred to the
Tius. They point out that the mall itself, which would have been
foreclosed by PNB if not for their timely investment of P190
million in 1994 and which is now worth about P1 billion mainly
because of their efforts, should be included in any partition and
distribution. They (the Ongs) should not merely be given interest
on their capital investments. The said portion of our Decision,
according to them, amounted to the unjust enrichment of the Tius
and ran contrary to our own pronouncement that the act of the
Tius in unilaterally rescinding the agreement was "the height of
ingratitude" and an attempt "to pull a fast one" as it would prevent
the Ongs from enjoying the fruits of their P190 million investment
in FLADC. It also contravenes this Court's assurance in the
questioned Decision that the Ongs and Tius "will have a bountiful
return of their respective investments derived from the profits of
the corporation."
Willie Ong filed a separate "Motion for Partial Reconsideration"
dated March 8, 2002, pointing out that there was no violation of
the Pre-Subscription Agreement on the part of the Ongs; that,
after more than seven years since the mall began its operations,
rescission had become not only impractical but would also
adversely affect the rights of innocent parties; and that it would
be highly inequitable and unfair to simply return the P100 million
investment of the Ongs and give the remaining assets now
amounting to about P1 billion to the Tius.
The Tius, in their opposition to the Ongs' motion for
reconsideration, counter that the arguments therein are a mere
re-hash of the contentions in the Ongs' petition for review and
previous motion for reconsideration of the Court of Appeals'
decision. The Tius compare the arguments in said pleadings to
prove that the Ongs do not raise new issues, and, based on well-
settled jurisprudence,12 the Ongs' present motion is therefore pro-
forma and did not prevent the Decision of this Court from
attaining finality.
On January 29, 2003, the Special Second Division of this Court
held oral arguments on the respective positions of the parties. On
February 27, 2003, Dr. Willie Ong and the rest of the movants
Ong filed their respective memoranda. On February 28, 2003, the
Tius submitted their memorandum.
We grant the Ongs' motions for reconsideration.
This is not the first time that this Court has reversed itself on a
motion for reconsideration. In Philippine Consumers Foundation,
Inc. vs. National Telecommunications Commission,13 this Court,
through then Chief Justice Felix V. Makasiar, said that its
members may and do change their minds, after a re-study of the
facts and the law, illuminated by a mutual exchange of
views.14 After a thorough re-examination of the case, we find that
our Decision of February 1, 2002 overlooked certain aspects
which, if not corrected, will cause extreme and irreparable
damage and prejudice to the Ongs, FLADC and its creditors.
The procedural rule on pro-forma motions pointed out by the Tius
should not be blindly applied to meritorious motions for
reconsideration. As long as the same adequately raises a valid
ground15 (i.e., the decision or final order is contrary to law), this
Court has to evaluate the merits of the arguments to prevent an
unjust decision from attaining finality. In Security Bank and Trust
Company vs. Cuenca,16 we ruled that a motion for reconsideration
is not pro-forma for the reason alone that it reiterates the
arguments earlier passed upon and rejected by the appellate
court. We explained there that a movant may raise the same
arguments, if only to convince this Court that its ruling was
erroneous. Moreover, the rule (that a motion is pro-forma if it only
repeats the arguments in the previous pleadings) will not apply if
said arguments were not squarely passed upon and answered in
the decision sought to be reconsidered. In the case at bar, no
ruling was made on some of the petitioner Ongs' arguments. For
instance, no clear ruling was made on why an order distributing
corporate assets and property to the stockholders would not
violate the statutory preconditions for corporate dissolution or
decrease of authorized capital stock. Thus, it would serve the
ends of justice to entertain the subject motion for reconsideration
since some important issues therein, although mere repetitions,
were not considered or clearly resolved by this Court.
Going now to the merits, we resolve whether the Tius could
legally rescind the Pre-Subscription Agreement. We rule that they
could not.
FLADC was originally incorporated with an authorized capital
stock of 500,000 shares with the Tius owning 450,200 shares
representing the paid-up capital. When the Tius invited the Ongs
to invest in FLADC as stockholders, an increase of the authorized
capital stock became necessary to give each group equal (50-50)
shareholdings as agreed upon in the Pre-Subscription
Agreement. The authorized capital stock was thus increased from
500,000 shares to 2,000,000 shares with a par value of P100
each, with the Ongs subscribing to 1,000,000 shares and the Tius
to 549,800 more shares in addition to their 450,200 shares to
complete 1,000,000 shares. Thus, the subject matter of the
contract was the 1,000,000 unissued shares of FLADC stock
allocated to the Ongs. Since these were unissued shares, the
parties' Pre-Subscription Agreement was in fact a subscription
contract as defined under Section 60, Title VII of the Corporation
Code:
Any contract for the acquisition of unissued stock in
an existing corporation or a corporation still to be formed
shall be deemed a subscription within the meaning of this
Title, notwithstanding the fact that the parties refer to it as
a purchase or some other contract (Italics supplied).
A subscription contract necessarily involves the corporation as
one of the contracting parties since the subject matter of the
transaction is property owned by the corporation – its shares of
stock. Thus, the subscription contract (denominated by the
parties as a Pre-Subscription Agreement) whereby the Ongs
invested P100 million for 1,000,000 shares of stock was, from the
viewpoint of the law, one between the Ongs and FLADC, not
between the Ongs and the Tius. Otherwise stated, the Tius did
not contract in their personal capacities with the Ongs since they
were not selling any of their own shares to them. It was FLADC
that did.
Considering therefore that the real contracting parties to the
subscription agreement were FLADC and the Ongs alone, a civil
case for rescission on the ground of breach of contract filed by
the Tius in their personal capacities will not prosper. Assuming it
had valid reasons to do so, only FLADC (and certainly not the
Tius) had the legal personality to file suit rescinding the
subscription agreement with the Ongs inasmuch as it was the real
party in interest therein. Article 1311 of the Civil Code provides
that "contracts take effect only between the parties, their assigns
and heirs…" Therefore, a party who has not taken part in the
transaction cannot sue or be sued for performance or for
cancellation thereof, unless he shows that he has a real interest
affected thereby.17
In their February 28, 2003 Memorandum, the Tius claim that
there are two contracts embodied in the Pre-Subscription
Agreement: a shareholder's agreement between the Tius and the
Ongs defining and governing their relationship and a subscription
contract between the Tius, the Ongs and FLADC regarding the
subscription of the parties to the corporation. They point out that
these two component parts form one whole agreement and that
their terms and conditions are intrinsically related and dependent
on each other. Thus, the breach of the shareholders' agreement,
which was allegedly the consideration for the subscription
contract, was also a breach of the latter.
Aside from the fact that this is an entirely new angle never raised
in any of their previous pleadings until after the oral arguments on
January 29, 2003, we find this argument too strained for comfort.
It is obviously intended to remedy and cover up the Tius' lack of
legal personality to rescind an agreement in which they were
personally not parties-in-interest. Assuming arguendo that there
were two "sub-agreements" embodied in the Pre-Subscription
Agreement, this Court fails to see how the shareholders
agreement between the Ongs and Tius can, within the bounds of
reason, be interpreted as the consideration of the subscription
contract between FLADC and the Ongs. There was nothing in the
Pre-Subscription Agreement even remotely suggesting such
alleged interdependence. Be that as it may, however, the Tius are
nevertheless not the proper parties to raise this point because
they were not parties to the subscription contract between FLADC
and the Ongs. Thus, they are not in a position to claim that the
shareholders agreement between them and the Ongs was what
induced FLADC and the Ongs to enter into the subscription
contract. It is the Ongs alone who can say that. Though FLADC
was represented by the Tius in the subscription contract, FLADC
had a separate juridical personality from the Tius. The case
before us does not warrant piercing the veil of corporate fiction
since there is no proof that the corporation is being used "as a
cloak or cover for fraud or illegality, or to work injustice." 18
The Tius also argue that, since the Ongs represent FLADC as its
management, breach by the Ongs is breach by FLADC. This
must also fail because such an argument disregards the separate
juridical personality of FLADC.
The Tius allege that they were prevented from participating in the
management of the corporation. There is evidence that the Ongs
did prevent the rightfully elected Treasurer, Cely Tiu, from
exercising her function as such. The records show that the
President, Wilson Ong, supervised the collection and receipt of
rentals in the Masagana Citimall; 19 that he ordered the same to be
deposited in the bank;20 and that he held on to the cash and
properties of the corporation.21 Section 25 of the Corporation
Code prohibits the President from acting concurrently as
Treasurer of the corporation. The rationale behind the provision is
to ensure the effective monitoring of each officer's separate
functions.
However, although the Tius were adversely affected by the Ongs'
unwillingness to let them assume their positions, rescission due
to breach of contract is definitely the wrong remedy for their
personal grievances. The Corporation Code, SEC rules and
even the Rules of Court provide for appropriate and
adequate intra-corporate remedies, other than rescission, in
situations like this. Rescission is certainly not one of them,
specially if the party asking for it has no legal personality to do so
and the requirements of the law therefor have not been met. A
contrary doctrine will tread on extremely dangerous ground
because it will allow just any stockholder, for just about any real
or imagined offense, to demand rescission of his subscription and
call for the distribution of some part of the corporate assets to him
without complying with the requirements of the Corporation Code.
Hence, the Tius, in their personal capacities, cannot seek the
ultimate and extraordinary remedy of rescission of the subject
agreement based on a less than substantial breach of
subscription contract. Not only are they not parties to the
subscription contract between the Ongs and FLADC; they also
have other available and effective remedies under the law.
All this notwithstanding, granting but not conceding that the Tius
possess the legal standing to sue for rescission based on breach
of contract, said action will nevertheless still not prosper since
rescission will violate the Trust Fund Doctrine and the procedures
for the valid distribution of assets and property under the
Corporation Code.
The Trust Fund Doctrine, first enunciated by this Court in the
1923 case of Philippine Trust Co. vs. Rivera,22 provides that
subscriptions to the capital stock of a corporation constitute a
fund to which the creditors have a right to look for the satisfaction
of their claims.23 This doctrine is the underlying principle in the
procedure for the distribution of capital assets, embodied in the
Corporation Code, which allows the distribution of corporate
capital only in three instances: (1) amendment of the Articles of
Incorporation to reduce the authorized capital stock,24 (2)
purchase of redeemable shares by the corporation, regardless of
the existence of unrestricted retained earnings,25 and (3)
dissolution and eventual liquidation of the corporation.
Furthermore, the doctrine is articulated in Section 41 on the
power of a corporation to acquire its own shares26 and in Section
122 on the prohibition against the distribution of corporate assets
and property unless the stringent requirements therefor are
complied with.27
The distribution of corporate assets and property cannot be made
to depend on the whims and caprices of the stockholders, officers
or directors of the corporation, or even, for that matter, on the
earnest desire of the court a quo "to prevent further squabbles
and future litigations" unless the indispensable conditions and
procedures for the protection of corporate creditors are followed.
Otherwise, the "corporate peace" laudably hoped for by the court
will remain nothing but a dream because this time, it will be the
creditors' turn to engage in "squabbles and litigations" should the
court order an unlawful distribution in blatant disregard of the
Trust Fund Doctrine.
In the instant case, the rescission of the Pre-Subscription
Agreement will effectively result in the unauthorized distribution of
the capital assets and property of the corporation, thereby
violating the Trust Fund Doctrine and the Corporation Code, since
rescission of a subscription agreement is not one of the instances
when distribution of capital assets and property of the corporation
is allowed.
Contrary to the Tius' allegation, rescission will, in the final
analysis, result in the premature liquidation of the corporation
without the benefit of prior dissolution in accordance with
Sections 117, 118, 119 and 120 of the Corporation Code. 28 The
Tius maintain that rescinding the subscription contract is not
synonymous to corporate liquidation because all rescission will
entail would be the simple restoration of the status quo ante and
a return to the two groups of their cash and property
contributions. We wish it were that simple. Very noticeable is the
fact that the Tius do not explain why rescission in the instant case
will not effectively result in liquidation. The Tius merely refer in
cavalier fashion to the end-result of rescission (which incidentally
is 100% favorable to them) but turn a blind eye to its unfair,
inequitable and disastrous effect on the corporation, its creditors
and the Ongs.
In their Memorandum dated February 28, 2003, the Tius claim
that rescission of the agreement will not result in an unauthorized
liquidation of the corporation because their case is actually a
petition to decrease capital stock pursuant to Section 38 of the
Corporation Code. Section 122 of the law provides that "(e)xcept
by decrease of capital stock…, no corporation shall distribute any
of its assets or property except upon lawful dissolution and after
payment of all its debts and liabilities." The Tius claim that their
case for rescission, being a petition to decrease capital stock,
does not violate the liquidation procedures under our laws. All
that needs to be done, according to them, is for this Court to
order (1) FLADC to file with the SEC a petition to issue a
certificate of decrease of capital stock and (2) the SEC to approve
said decrease. This new argument has no merit.
The Tius' case for rescission cannot validly be deemed a petition
to decrease capital stock because such action never complied
with the formal requirements for decrease of capital stock under
Section 33 of the Corporation Code. No majority vote of the board
of directors was ever taken. Neither was there any stockholders
meeting at which the approval of stockholders owning at least
two-thirds of the outstanding capital stock was secured. There
was no revised treasurer's affidavit and no proof that said
decrease will not prejudice the creditors' rights. On the contrary,
all their pleadings contained were alleged acts of violations by the
Ongs to justify an order of rescission.
Furthermore, it is an improper judicial intrusion into the internal
affairs of the corporation to compel FLADC to file at the SEC a
petition for the issuance of a certificate of decrease of stock.
Decreasing a corporation's authorized capital stock is an
amendment of the Articles of Incorporation. It is a decision that
only the stockholders and the directors can make, considering
that they are the contracting parties thereto. In this case, the Tius
are actually not just asking for a review of the legality and
fairness of a corporate decision. They want this Court to make a
corporate decision for FLADC. We decline to intervene and order
corporate structural changes not voluntarily agreed upon by its
stockholders and directors.
Truth to tell, a judicial order to decrease capital stock without the
assent of FLADC's directors and stockholders is a violation of the
"business judgment rule" which states that:
 xxx xxx xxx (C)ontracts intra vires entered into by the
board of directors are binding upon the corporation and
courts will not interfere unless such contracts are so
unconscionable and oppressive as to amount to wanton
destruction to the rights of the minority, as when plaintiffs
aver that the defendants (members of the board), have
concluded a transaction among themselves as will result
in serious injury to the plaintiffs stockholders.29
The reason behind the rule is aptly explained by Dean Cesar L.
Villanueva, an esteemed author in corporate law, thus:
Courts and other tribunals are wont to override the
business judgment of the board mainly because, courts
are not in the business of business, and the laissez
faire rule or the free enterprise system prevailing in our
social and economic set-up dictates that it is better for the
State and its organs to leave business to the
businessmen; especially so, when courts are ill-equipped
to make business decisions. More importantly, the social
contract in the corporate family to decide the course of the
corporate business has been vested in the board and not
with courts.30
Apparently, the Tius do not realize the illegal consequences of
seeking rescission and control of the corporation to the exclusion
of the Ongs. Such an act infringes on the law on reduction of
capital stock. Ordering the return and distribution of the Ongs'
capital contribution without dissolving the corporation or
decreasing its authorized capital stock is not only against the law
but is also prejudicial to corporate creditors who enjoy absolute
priority of payment over and above any individual stockholder
thereof.
Stripped to its barest essentials, the issue of rescission in this
case is not difficult to understand. If rescission is denied, will
injustice be inflicted on any of the parties? The answer is no
because the financial interests of both the Tius and the Ongs will
remain intact and safe within FLADC. On the other hand, if
rescission is granted, will any of the parties suffer an injustice?
Definitely yes because the Ongs will find themselves out in the
streets with nothing but the money they had in 1994 while the
Tius will not only enjoy a windfall estimated to be anywhere from
P450 million to P900 million31 but will also take over an extremely
profitable business without much effort at all.
Another very important point follows. The Court of Appeals and,
later on, our Decision dated February 1, 2002, stated that both
groups were in pari delicto, meaning, that both the Tius and the
Ongs committed breaches of the Pre-Subscription Agreement.
This may be true to a certain extent but, judging from the
comparative gravity of the acts separately committed by each
group, we find that the Ongs' acts were relatively tame vis-à-vis
those committed by the Tius in not surrendering FLADC funds to
the corporation and diverting corporate income to their own
MATTERCO account. The Ongs were right in not issuing to the
Tius the shares corresponding to the four-story building and the
1,902.30 square-meter lot because no title for it could be issued
in FLADC's name, owing to the Tius' refusal to pay the transfer
taxes. And as far as the 151 square-meter lot was concerned,
why should FLADC issue additional shares to the Tius for
property already owned by the corporation and which, in the final
analysis, was already factored into the shareholdings of the Tius
before the Ongs came in?
We are appalled by the attempt by the Tius, in the words of the
Court of Appeals, to "pull a fast one" on the Ongs because that
was where the problem precisely started. It is clear that, when the
finances of FLADC improved considerably after the equity
infusion of the Ongs, the Tius started planning to take over the
corporation again and exclude the Ongs from it. It appears that
the Tius' refusal to pay transfer taxes might not have really been
at all unintentional because, by failing to pay that relatively small
amount which they could easily afford, the Tius should have
expected that they were not going to be given the corresponding
shares. It was, from every angle, the perfect excuse for
blackballing the Ongs. In other words, the Tius created a problem
then used that same problem as their pretext for showing their
partners the door. In the process, they stood to be rewarded with
a bonanza of anywhere between P450 million to P900 million in
assets (from an investment of only P45 million which was nearly
foreclosed by PNB), to the extreme and irreparable damage of
the Ongs, FLADC and its creditors.
Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu is
hereby DENIED for being moot.
Accordingly, the Decision of this Court, dated February 1, 2002,
affirming with modification the decision of the Court of Appeals,
dated October 5, 1999, and the SEC en banc, dated September
11, 1998, is hereby REVERSED.

After all is said and done, no one can close his eyes to the fact Costs against the petitioner Tius.
that the Masagana Citimall would not be what it has become
today were it not for the timely infusion of P190 million by the SO ORDERED.
Ongs in 1994. There are no ifs or buts about it.
Bellosillo, (Chairman), Quisumbing, and Callejo, Sr., JJ., concur.
Without the Ongs, the Tius would have lost everything they
originally invested in said mall. If only for this and the fact that this
Resolution can truly pave the way for both groups to enjoy the
fruits of their investments — assuming good faith and honest
intentions — we cannot allow the rescission of the subject
subscription agreement. The Ongs' shortcomings were far from
serious and certainly less than substantial; they were in fact
remediable and correctable under the law. It would be totally
against all rules of justice, fairness and equity to deprive the Ongs
of their interests on petty and tenuous grounds.

WHEREFORE, the motion for reconsideration, dated March 15,

2002, of petitioners Ong Yong, Juanita Tan Ong, Wilson Ong,
Anna Ong, William Ong, Willie Ong and Julie Ong Alonzo and the
motion for partial reconsideration, dated March 15, 2002, of
petitioner Willie Ong are hereby GRANTED. The Petition for
Confirmation of the Rescission of the Pre-Subscription
Agreement docketed as SEC Case No. 02-96-5269 is hereby
DISMISSED for lack of merit. The unilateral rescission by the Tius
of the subject Pre-Subscription Agreement, dated August 15,
1994, is hereby declared as null and void.

The motion for the issuance of a writ of execution, dated March

15, 2002, of petitioners David S. Tiu, Cely Y. Tiu, Moly Yu Gow,
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-28120 November 25, 1976
RICARDO A. NAVA, petitioner-appellant.
vs.
PEERS MARKETING CORPORATION, RENATO R. CUSI and
AMPARO CUSI, respondents-appellees.
Rolando M. Medalla, for appellant.
Jose Y. Montalvo, for appellees.
AQUINO, J:
This is a mandamus case, Teofilo Po as an incorporator
subscribed to eighty shares of Peers Marketing Corporation at
one hundred pesos a share or a total par value of eight thousand
pesos. Po paid two thousand pesos or twenty-five percent of the
amount of his subscription. No certificate of stock was issued to
him or, for that matter, to any incorporator, subscriber or
stockholder.
On April 2, 1966 Po sold to Ricardo A. Nava for two thousand
pesos twenty of his eighty shares. In the deed of sale Po
represented that he was "the absolute and registered owner of
twenty shares" of Peers Marketing Corporation.
Nava requested the officers of the corporation to register the sale
in the books of the corporation. The request was denied because
Po has not paid fully the amount of his subscription. Nava was
informed that Po was delinquent in the payment of the balance
due on his subscription and that the corporation had a claim on
his entire subscription of eighty shares which included the twenty
shares that had been sold to Nava.
On December 21, 1966 Nava filed this mandamus action in the
Court of First Instance of Negros Occidental, Bacolod City Branch
to compel the corporation and Renato R. Cusi and Amparo Cusi,
its executive vice-president and secretary, respectively, to
register the said twenty shares in Nava's name in the
corporation's transfer book.
The respondents in their answer pleaded the defense that no
shares of stock against which the corporation holds an unpaid
claim are transferable in the books of the corporation.
After hearing, the trial court dismissed the petition. Nava
appealed on the ground that the decision "is contrary to law ". His
sole assignment of error is that the trial court erred in applying the
ruling in Fua Cun vs. Summers and China Banking Corporation,
44 Phil. 705 to justify respondents' refusal in registering the
twenty shares in Nava's name in the books of the corporation.
The rule enunciated in the Fua Cun case is that payment of one-
half of the subscription does not entitle the subscriber to a
certificate of stock for one-half of the number of shares
subscribed.
Appellant Nava contends that the Fua Cun case was decided
under section 36 of the Corporation Law which provides that "no
certificate of stock shall be issued to a subscriber as fully paid up
until the full par value thereof has been paid by him to the
corporation". Section 36 was amended by Act No. 3518. It is now
section 37. Section 37 provides that "no certificate of stock shall
be issued to a subscriber as fully paid up until the full par
value thereof, or the full subscription in case of no par stock, has
been paid by him to the corporation".
The issue is whether the officers of Peers Marketing Corporation
can be compelled by mandamus to enter in its stock and transfer
book the sale made by Po to Nava of the twenty shares forming
part of Po's subscription of eighty shares, with a total par value of
P8,000 and for which Po had paid only P2,000, it being admitted
that the corporation has an unpaid claim of P6,000 as the balance
due on Po's subscription and that the twenty shares are not
covered by any stock certificate.
Apparently, no provision of the by-laws of the corporation covers
that situation. The parties did not bother to submit in evidence the
by-laws nor invoke any of its provisions. The corporation can
include in its by-laws rules, not inconsistent with law, governing
the transfer of its shares of stock (Sec. 137 , Act No. 1459;
Fleischer vs. Botica Nolasco Co., 47 Phil. 583, 589).
We hold that the transfer made by Po to Nava is not the
"alienation, sale, or transfer of stock" that is supposed to be
recorded in the stock and transfer book, as contemplated in
section 52 of the Corporation Law.
As a rule, the shares which may be alienated are those which are
covered by certificates of stock, as shown in the following
provisions of the Corporation Law and as intimated in Hager vs.
Bryan, 19 Phil. 138 (overruling the decision in Hager vs. Bryan,
21 Phil. 523. See 19 Phil. 616, notes, and Hodges vs. Lezama,
14 SCRA 1030).
SEC. 35. The capital stock of stock corporations
shall be divided into shares for
which certificates signed by the president or the
vice-president, countersigned by the secretary or
clerk and sealed with the seal of the corporation,
shall be issued in accordance with the by-laws.
Shares of stock so issued are personal property
and may be transferred by delivery of
the certificate indorsed by the owner or his
attorney in fact or other person legally authorized
to make the transfer. No transfer, however, shall
be valid, except as between the, parties, until the
transfer is entered and noted upon the books of
the corporation so as to show the names of the
parties to the transaction, the date of the transfer,
the number of the certificate, and the number of
shares transferred.
No share of stock against which the corporation
holds any unpaid claim shall be transferable on
the books of the corporation.
SEC. 36. (re voting trust agreement) ...
The certificates of stock so transferred shall be
surrendered and cancelled, and new certificates
therefor issued to such person or persons, or
corporation, as such trustee or trustees, in which
new certificates it shall appear that they are
issued pursuant to said agreement.
x x x           x x x          x x x
(Emphasis supplied).
(In the case of nonstock corporations a membership certificate is
usually issued. Lee E. Won vs. Wack Wack Golf & Country Club,
Inc., 104 Phil. 466; Wack Wack Golf & Country Club, Inc. vs.
Won, L-23851, March 26, 1976, 70 SCRA 165).
As prescribed in section 35, shares of stock may be transferred
by delivery to the transferee of the certificate properly indorsed.
"Title may be vested in the transferee by delivery of the certificate
with a written assignment or indorsement thereof" (18 C.J.S.
928). There should be compliance with the mode of transfer
prescribed by law (18 C.J.S. 930).
The usual practice is for the stockholder to sign the form on the
back of the stock certificate. The certificate may thereafter be
transferred from one person to another. If the holder of the
certificate desires to assume the legal rights of a shareholder to
enable him to vote at corporate elections and to receive
dividends, he fills up the blanks in the form by inserting his own
name as transferee. Then he delivers the certificate to the
secretary of the corporation so that the transfer may be entered in
the corporation's books. The certificate is then surrendered and a
new one issued to the transferee. (Hager vs. Bryan, 19 Phil. 138,
143-4).
That procedure cannot be followed in the instant case because,
as already noted, the twenty shares in question are not covered
by any certificate of stock in Po's name. Moreover, the
corporation has a claim on the said shares for the unpaid balance
of Po's subscription. A stock subscription is a subsisting liability
from the time the subscription is made. The subscriber is as much
bound to pay his subscription as he would be to pay any other
debt. The right of the corporation to demand payment is no less
incontestable. (Velasco vs. Poizat, 37 Phil. 802; Lumanlan vs.
Cura, 59 Phil. 746).
A corporation cannot release an original subscriber from paying
for his shares without a valuable consideration (Philippine
National Bank vs. Bitulok Sawmill, Inc.,
L-24177-85, June 29, 1968, 23 SCRA 1366) or without the
unanimous consent of the stockholders (Lingayen Gulf Electric
Power Co., Inc. vs. Baltazar, 93 Phil 404).
Under the facts of this case, there is no clear legal duty on the
part of the officers of the corporation to register the twenty shares
in Nava's name, Hence, there is no cause of action
for mandamus.
Nava argues that under section 37 a certificate of stock may be
issued for shares the par value of which have already been paid
for although the entire subscription has not been fully paid. He
contends that Peers Marketing Corporation should issue a
certificate of stock for the twenty shares, notwithstanding that Po
had not paid fully his subscription for the eighty shares, because
section 37 requires full payment for the subscription, as a
condition precedent for the issuance of the certificate of stock,
only in the case of no par stock.
Nava relies on Baltazar v Lingayen Gulf Electric Power Co., Inc.,
L-16236-38, June 30, 1965, 14 SCRA 522, where it was held that
section 37 "requires as a condition before a shareholder can vote
his shares that his full subscription be paid in the case of no par
value stock; and in case of stock corporation with par value, the
stockholder can vote the shares fully paid by him only,
irrespective of the unpaid delinquent shares".
There is no parallelism between this case and the Baltazar case.
It is noteworthy that in the Baltazar case the stockholder, an
incorporator, was the holder of a certificate of stock for the shares
the par value of which had been paid by him. The issue was
whether the said shares had voting rights although the
incorporator had not paid fully the total amount of his
subscription. That is not the issue in this case.
In the Baltazar case, it was held that where a stockholder
subscribed to a certain number of shares with par value and he
made a partial payment and was issued a certificate for the
shares covered by his partial payment, he is entitled to vote the
said shares, although he has not paid the balance of his
subscription and a call or demand had been made for the
payment of the par value of the delinquent shares.
As already stressed, in this case no stock certificate was issued
to Po. Without stock certificate, which is the evidence of
ownership of corporate stock, the assignment of corporate shares
is effective only between the parties to the transaction (Davis vs.
Wachter, 140 So. 361).

The delivery of the stock certificate, which represents the shares

to be alienated , is essential for the protection of both the
corporation and its stockholders (Smallwood vs. Moretti, 128 So.
2d 628).

In view of the foregoing considerations, the trial court's judgment

dismissing the petition for mandamus is affirmed. Costs against
the petitioner-appellant.

SO ORDERED.

Fernando (Chairman), Barredo, Antonio and Concepcion, Jr., JJ.,

concur.
 Corporation and its corporate secretary Francisco M. Giron, Jr. In
his complaint, petitioner alleged, among others, that:
SECOND DIVISION
G.R. NO. 139802           December 10, 2002
VICENTE C. PONCE, petitioner,
vs.
ALSONS CEMENT CORPORATION, and FRANCISCO M.
GIRON, JR., respondents.
DECISION
QUISUMBING, J.:
This petition for review seeks to annul the decision1 of the Court
of Appeals, in CA-G.R. SP No. 46692, which set aside the
decision2 of the Securities and Exchange Commission (SEC) En
Banc in SEC-AC No. 545 and reinstated the order 3 of the Hearing
Officer dismissing herein petitioner’s complaint. Also assailed is
the CA’s resolution4 of August 10, 1999, denying petitioner’s
motion for reconsideration.
On January 25, 1996, plaintiff (now petitioner) Vicente C. Ponce,
filed a complaint5 with the SEC for mandamus and damages
against defendants (now respondents) Alsons Cement
xxx
5. The late Fausto G. Gaid was an incorporator of Victory
Cement Corporation (VCC), having subscribed to and
fully paid 239,500 shares of said corporation.
6. On February 8, 1968, plaintiff and Fausto Gaid
executed a "Deed of Undertaking" and "Indorsement"
whereby the latter acknowledges that the former is the
owner of said shares and he was therefore
assigning/endorsing the same to the plaintiff. A copy of
the said deed/indorsement is attached as Annex "A".
7. On April 10, 1968, VCC was renamed Floro Cement
Corporation (FCC for brevity).
8. On October 22, 1990, FCC was renamed Alsons
Cement Corporation (ACC for brevity) as shown by the
Amended Articles of Incorporation of ACC, a copy of
which is attached as Annex "B".
9. From the time of incorporation of VCC up to the
present, no certificates of stock corresponding to the
239,500 subscribed and fully paid shares of Gaid were
issued in the name of Fausto G. Gaid and/or the plaintiff.
10. Despite repeated demands, the defendants refused
and continue to refuse without any justifiable reason to
issue to plaintiff the certificates of stocks corresponding to
the 239,500 shares of Gaid, in violation of plaintiff’s right
to secure the corresponding certificate of stock in his
name.6
Attached to the complaint was the Deed of Undertaking and
Indorsement7 upon which petitioner based his petition for
mandamus. Said deed and indorsement read as follows:
DEED OF UNDERTAKING
KNOW ALL MEN BY THESE PRESENTS:
I, VICENTE C. PONCE, is the owner of the total subscription of
Fausto Gaid with Victory Cement Corporation in the total amount
of TWO HUNDRED THIRTY NINE THOUSAND FIVE HUNDRED
(P239,500.00) PESOS and that Fausto Gaid does not have any
liability whatsoever on the subscription agreement in favor of
Victory Cement Corporation.
(SGD.) VICENTE C. PONCE
February 8, 1968
CONFORME:
(SGD.) FAUSTO GAID
INDORSEMENT
I, FAUSTO GAID is indorsing the total amount of TWO
HUNDRED THIRTY NINE THOUSAND FIVE HUNDRED
(239,500.00) stocks of Victory Cement Corporation to VICENTE
C. PONCE.
(SGD.) FAUSTO GAID
With these allegations, petitioner prayed that judgment be
rendered ordering respondents (a) to issue in his name
certificates of stocks covering the 239,500 shares of stocks and
its legal increments and (b) to pay him damages.8
Instead of filing an answer, respondents moved to dismiss the
complaint on the grounds that: (a) the complaint states no cause
of action; mandamus is improper and not available to petitioner;
(b) the petitioner is not the real party in interest; (c) the cause of
action is barred by the statute of limitations; and (d) in any case,
the petitioner’s cause of action is barred by laches. 9 They argued,
inter alia, that there being no allegation that the alleged
"INDORSEMENT" was recorded in the books of the corporation,
said indorsement by Gaid to the plaintiff of the shares of stock in
question—assuming that the indorsement was in fact a transfer of
stocks—was not valid against third persons such as ALSONS
under Section 63 of the Corporation Code. 10 There was, therefore,
no specific legal duty on the part of the respondents to issue the
corresponding certificates of stock, and mandamus will not lie. 11
Petitioner filed his opposition to the motion to dismiss on
February 19, 1996 contending that: (1) mandamus is the proper
remedy when a corporation and its corporate secretary wrongfully
refuse to record a transfer of shares and issue the corresponding
certificates of stocks; (2) he is the proper party in interest since he
stands to be benefited or injured by a judgment in the case; (3)
the statute of limitations did not begin to run until defendant
refused to issue the certificates of stock in favor of the plaintiff on
April 13, 1992.
After respondents filed their reply, SEC Hearing Officer Enrique L.
Flores, Jr. granted the motion to dismiss in an Order dated
February 29, 1996, which held that:
xxx
Insofar as the issuance of certificates of stock is concerned, the
real party in interest is Fausto G. Gaid, or his estate or his heirs.
Gaid was an incorporator and an original stockholder of the
defendant corporation who subscribed and fully paid for 239,500
shares of stock (Annex "B"). In accordance with Section 37 of the
old Corporation Law (Act No. 1459) obtaining in 1968 when the
defendant corporation was incorporated, as well as Section 64 of
the present Corporation Code (Batas Pambansa Blg. 68), a
stockholder who has fully paid for his subscription together with
interest and expenses in case of delinquent shares, is entitled to
the issuance of a certificate of stock for his shares. According to
paragraph 9 of the Complaint, no stock certificate was issued to
Gaid.
Comes now the plaintiff who seeks to step into the shoes of Gaid
and thereby become a stockholder of the defendant corporation
by demanding issuance of the certificates of stock in his name.
This he cannot do, for two reasons: there is no record of any
assignment or transfer in the books of the defendant corporation,
and there is no instruction or authority from the transferor (Gaid)
for such assignment or transfer. Indeed, nothing is alleged in the
complaint on these two points.
xxx
In the present case, there is not even any indorsement of any
stock certificate to speak of. What the plaintiff possesses is a
document by which Gaid supposedly transferred the shares to
him. Assuming the document has this effect, nevertheless there is
neither any allegation nor any showing that it is recorded in the
books of the defendant corporation, such recording being a
prerequisite to the issuance of a stock certificate in favor of the
transferee.12
Petitioner appealed the Order of dismissal. On January 6, 1997,
the Commission En Banc reversed the appealed Order and
directed the Hearing Officer to proceed with the case. In ruling
that a transfer or assignment of stocks need not be registered first
before it can take cognizance of the case to enforce the
petitioner’s rights as a stockholder, the Commission En Banc
cited our ruling in Abejo vs. De la Cruz, 149 SCRA 654 (1987) to
the effect that:
xxx As the SEC maintains, "There is no requirement that a
stockholder of a corporation must be a registered one in order
that the Securities and Exchange Commission may take
cognizance of a suit seeking to enforce his rights as such
stockholder". This is because the SEC by express mandate has
"absolute jurisdiction, supervision and control over all
corporations" and is called upon to enforce the provisions of the
Corporation Code, among which is the stock purchaser’s right to
secure the corresponding certificate in his name under the
provisions of Section 63 of the Code. Needless to say, any
problem encountered in securing the certificates of stock
representing the investment made by the buyer must be
expeditiously dealt with through administrative mandamus
proceedings with the SEC, rather than through the usual tedious
regular court procedure. xxx
Applying this principle in the case on hand, a transfer or
assignment of stocks need not be registered first before the
Commission can take cognizance of the case to enforce his rights
as a stockholder. Also, the problem encountered in securing the
certificates of stock made by the buyer must be expeditiously
taken up through the so-called administrative mandamus
proceedings with the SEC than in the regular courts.13
The Commission En Banc also found that the Hearing Officer
erred in holding that petitioner is not the real party in interest.
xxx
As appearing in the allegations of the complaint, plaintiff-appellant
is the transferee of the shares of stock of Gaid and is therefore
entitled to avail of the suit to obtain the proper remedy to make
him the rightful owner and holder of a stock certificate to be
issued in his name. Moreover, defendant-appellees failed to show
that the transferor nor his heirs have refuted the ownership of the
transferee. Assuming these allegations to be true, the corporation
has a mere ministerial duty to register in its stock and transfer
book the shares of stock in the name of the plaintiff-appellant
subject to the determination of the validity of the deed of
assignment in the proper tribunal. 14
Their motion for reconsideration having been denied, herein
respondents appealed the decision15 of the SEC En Banc and the
resolution16 denying their motion for reconsideration to the Court
of Appeals.
In its decision, the Court of Appeals held that in the absence of
any allegation that the transfer of the shares between Fausto
Gaid and Vicente C. Ponce was registered in the stock and
transfer book of ALSONS, Ponce failed to state a cause of action.
Thus, said the CA, "the complaint for mandamus should be
dismissed for failure to state a cause of action."17 petitioner’s
motion for reconsideration was likewise denied in a
resolution18 dated August 10, 1999.
Hence, the instant petition for review on certiorari alleging that:
I. … THE HONORABLE COURT OF APPEALS ERRED
IN HOLDING THAT THE COMPLAINT FOR ISSUANCE
OF A CERTIFICATE OF STOCK FILED BY PETITIONER
FAILED TO STATE A CAUSE OF ACTION BECAUSE IT
DID NOT ALLEGE THAT THE TRANSFER OF THE
SHARES (SUBJECT MATTER OF THE COMPLAINT)
WAS REGISTERED IN THE STOCK AND TRANSFER
BOOK OF THE CORPORATION, CITING SECTION 63
OF THE CORPORATION CODE.
II. … THE HONORABLE COURT OF APPEALS ERRED
IN NOT APPLYING THE CASES OF "ABEJO VS. DE LA
CRUZ", 149 SCRA 654 AND "RURAL BANK OF
SALINAS, INC., ET AL VS. COURT OF APPEALS, ET
AL.", G.R. NO. 96674, JUNE 26, 1992.
III. … THE HONORABLE COURT OF APPEALS ERRED
IN APPLYING A 1911 CASE, "HAGER VS. BRYAN", 19
PHIL. 138, TO DISMISS THE COMPLAINT FOR
ISSUANCE OF A CERTIFICATE OF STOCK.19
At issue is whether the Court of Appeals erred in holding that
herein petitioner has no cause of action for a writ of mandamus.
Petitioner first contends that the act of recording the transfer of
shares in the stock and transfer book and that of issuing a
certificate of stock for the transferred shares involves only one
continuous process. Thus, when a corporate secretary is
presented with a document of transfer of fully paid shares, it is his
duty to record the transfer in the stock and transfer book of the
corporation, issue a new stock certificate in the name of the
transferee, and cancel the old one. A transferee who requests for
the issuance of a stock certificate need not spell out each and
every act that needs to be done by the corporate secretary, as a
request for issuance of stock certificates necessarily includes a
request for the recording of the transfer. Ergo, the failure to
record the transfer does not mean that the transferee cannot ask
for the issuance of stock certificates.
Secondly, according to petitioner, there is no law, rule or
regulation requiring a transferor of shares of stock to first issue
express instructions or execute a power of attorney for the
transfer of said shares before a certificate of stock is issued in the
name of the transferee and the transfer registered in the books of
the corporation. He contends that Hager vs. Bryan, 19 Phil. 138
(1911), and Rivera vs. Florendo, 144 SCRA 643 (1986), cited by
respondents, do not apply to this case. These cases contemplate
a situation where a certificate of stock has been issued by the
company whereas in this case at bar, no stock certificates have
been issued even in the name of the original stockholder, Fausto
Gaid.
Finally, petitioner maintains that since he is under no compulsion
to register the transfer or to secure stock certificates in his name,
his cause of action is deemed not to have accrued until
respondent ALSONS denied his request.
Respondents, in their comment, maintain that the transfer of
shares of stock not recorded in the stock and transfer book of the
corporation is non-existent insofar as the corporation is
concerned and no certificate of stock can be issued in the name
of the transferee. Until the recording is made, the transfer cannot
be the basis of issuance of a certificate of stock. They add that
petitioner is not the real party in interest, the real party in interest
being Fausto Gaid since it is his name that appears in the records
of the corporation. They conclude that petitioner’s cause of action
is barred by prescription and laches since 24 years elapsed
before he made any demand upon ALSONS.
We find the instant petition without merit. The Court of Appeals
did not err in ruling that petitioner had no cause of action, and that
his petition for mandamus was properly dismissed.
There is no question that Fausto Gaid was an original subscriber
of respondent corporation’s 239,500 shares. This is clear from the
numerous pleadings filed by either party. It is also clear from the
Amended Articles of Incorporation20 approved on August 9,
199521 that each share had a par value of P1.00 per share. And, it
is undisputed that petitioner had not made a previous request
upon the corporate secretary of ALSONS, respondent Francisco
M. Giron Jr., to record the alleged transfer of stocks.
The Corporation Code states that:
SEC. 63. Certificate of stock and transfer of shares.–The capital
stock of stock corporations shall be divided into shares for which
certificates signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation shall be issued in accordance with
the by-laws. Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person
legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is
recorded in the books of the corporation so as to show the names
of the parties to the transaction, the date of the transfer, the
number of the certificate or certificates and the number of shares
transferred.
No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the corporation.
Pursuant to the foregoing provision, a transfer of shares of stock
not recorded in the stock and transfer book of the corporation is
non-existent as far as the corporation is concerned. 22 As between
the corporation on the one hand, and its shareholders and third
persons on the other, the corporation looks only to its books for
the purpose of determining who its shareholders are. 23 It is only
when the transfer has been recorded in the stock and transfer
book that a corporation may rightfully regard the transferee as
one of its stockholders. From this time, the consequent obligation
on the part of the corporation to recognize such rights as it is
mandated by law to recognize arises.
Hence, without such recording, the transferee may not be
regarded by the corporation as one among its stockholders and
the corporation may legally refuse the issuance of stock
certificates in the name of the transferee even when there has
been compliance with the requirements of Section 6424 of the
Corporation Code. This is the import of Section 63 which states
that "No transfer, however, shall be valid, except 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." The situation
would be different if the petitioner was himself the registered
owner of the stock which he sought to transfer to a third party, for
then he would be entitled to the remedy of mandamus. 25
From the corporation’s point of view, the transfer is not effective
until it is recorded. Unless and until such recording is made the
demand for the issuance of stock certificates to the alleged
transferee has no legal basis. As between the corporation on the
one hand, and its shareholders and third persons on the other,
the corporation looks only to its books for the purpose of
determining who its shareholders are.26 In other words, the stock
and transfer book is the basis for ascertaining the persons
entitled to the rights and subject to the liabilities of a stockholder.
Where a transferee is not yet recognized as a stockholder, the
corporation is under no specific legal duty to issue stock
certificates in the transferee’s name.
It follows that, as held by the Court of Appeals:
x x x until registration is accomplished, the transfer, though valid
between the parties, cannot be effective as against the
corporation. Thus, in the absence of any allegation that the
transfer of the shares between Gaid and the private respondent
[herein petitioner] was registered in the stock and transfer book of
the petitioner corporation, the private respondent has failed to
state a cause of action.27
Petitioner insists that it is precisely the duty of the corporate
secretary, when presented with the document of fully paid shares,
to effect the transfer by recording the transfer in the stock and
transfer book of the corporation and to issue stock certificates in
the name of the transferee. On this point, the SEC En Banc cited
Rural Bank of Salinas, Inc. vs. Court of Appeals, 28 where we held
that:
For the petitioner Rural Bank of Salinas to refuse registration of
the transferred shares in its stock and transfer book, which duty is
ministerial on its part, is to render nugatory and ineffectual the
spirit and intent of Section 63 of the Corporation Code. Thus,
respondent Court of Appeals did not err in upholding the decision
of respondent SEC affirming the Decision of its Hearing Officer
directing the registration of the 473 shares in the stock and
transfer book in the names of private respondents. At all events,
the registration is without prejudice to the proceedings in court to
determine the validity of the Deeds of Assignment of the shares
of stock in question.
In Rural Bank of Salinas, Inc., however, private respondent
Melania Guerrero had a Special Power of Attorney executed in
her favor by Clemente Guerrero, the registered stockholder. It
gave Guerrero full authority to sell or otherwise dispose of the
473 shares of stock registered in Clemente’s name and to
execute the proper documents therefor. Pursuant to the authority
so given, Melania assigned the 473 shares of stock owned by
Guerrero and presented to the Rural Bank of Salinas the deeds of
assignment covering the assigned shares. Melania Guerrero
prayed for the transfer of the stocks in the stock and transfer book
and the issuance of stock certificates in the name of the new
owners thereof. Based on those circumstances, there was a clear
duty on the part of the corporate secretary to register the 473
shares in favor of the new owners, since the person who sought
the transfer of shares had express instructions from and specific
authority given by the registered stockholder to cause the
disposition of stocks registered in his name.
That cannot be said of this case. The deed of undertaking with
indorsement presented by petitioner does not establish, on its
face, his right to demand for the registration of the transfer and
the issuance of certificates of stocks. In Hager vs. Bryan, 19 Phil.
138 (1911), this Court held that a petition for mandamus fails to
state a cause of action where it appears that the petitioner is not
the registered stockholder and there is no allegation that he holds
any power of attorney from the registered stockholder, from
whom he obtained the stocks, to make the transfer, thus:
It appears, however, from the original as well as the amended
petition, that this petitioner is not the registered owner of the stock
which he seeks to have transferred, and except in so far as he
alleges that he is the owner of the stock and that it was "indorsed"
to him on February 5 by the Bryan-Landon Company, in whose
name it is registered on the books of the Visayan Electric
Company, there is no allegation that the petitioner holds any
power of attorney from the Bryan-Landon Company authorizing
him to make demand on the secretary of the Visayan Electric
Company to make the transfer which petitioner seeks to have
made through the medium of the mandamus of this court.
Without discussing or deciding the respective rights of the parties
which might be properly asserted in an ordinary action or an
action in the nature of an equitable suit, we are all agreed that in
a case such as that at bar, a mandamus should not issue to
compel the secretary of a corporation to make a transfer of the
stock on the books of the company, unless it affirmatively
appears that he has failed or refused so to do, upon the demand
either of the person in whose name the stock is registered, or of
some person holding a power of attorney for that purpose from
the registered owner of the stock. There is no allegation in the
petition that the petitioner or anyone else holds a power of
attorney from the Bryan-Landon Company authorizing a demand
for the transfer of the stock, or that the Bryan-Landon Company
has ever itself made such demand upon the Visayan Electric
Company, and in the absence of such allegation we are not able
to say that there was such a clear indisputable duty, such a clear
legal obligation upon the respondent, as to justify the issuance of
the writ to compel him to perform it.
Under the provisions of our statute touching the transfer of stock
(secs. 35 and 36 of Act No. 1459), 29 the mere indorsement of
stock certificates does not in itself give to the indorsee such a
right to have a transfer of the shares of stock on the books of the
company as will entitle him to the writ of mandamus to compel the
company and its officers to make such transfer at his demand,
because, under such circumstances the duty, the legal obligation,
is not so clear and indisputable as to justify the issuance of the
writ. As a general rule and especially under the above-cited
statute, as between the corporation on the one hand, and its
shareholders and third persons on the other, the corporation
looks only to its books for the purpose of determining who its
shareholders are, so that a mere indorsee of a stock certificate,
claiming to be the owner, will not necessarily be recognized as
such by the corporation and its officers, in the absence of express
instructions of the registered owner to make such transfer to the
indorsee, or a power of attorney authorizing such transfer. 30
In Rivera vs. Florendo, 144 SCRA 643, 657 (1986), we reiterated
that a mere indorsement by the supposed owners of the stock, in
the absence of express instructions from them, cannot be the
basis of an action for mandamus and that the rights of the parties
have to be threshed out in an ordinary action. That Hager and
Rivera involved petitions for mandamus to compel the registration
of the transfer, while this case is one for issuance of stock, is of
no moment. It has been made clear, thus far, that before a
transferee may ask for the issuance of stock certificates, he must
first cause the registration of the transfer and thereby enjoy the
status of a stockholder insofar as the corporation is concerned. A
corporate secretary may not be compelled to register transfers of
shares on the basis merely of an indorsement of stock
certificates. With more reason, in our view, a corporate secretary
may not be compelled to issue stock certificates without such
registration.31
Petitioner’s reliance on our ruling in Abejo vs. De la Cruz, 149
SCRA 654 (1987), that notice given to the corporation of the sale
of the shares and presentation of the certificates for transfer is
equivalent to registration is misplaced. In this case there is no
allegation in the complaint that petitioner ever gave notice to
respondents of the alleged transfer in his favor. Moreover, that
case arose between and among the principal stockholders of the
corporation, Pocket Bell, due to the refusal of the corporate
secretary to record the transfers in favor of Telectronics of the
corporation’s controlling 56% shares of stock which were covered
by duly endorsed stock certificates. As aforesaid, the request for
the recording of a transfer is different from the request for the
issuance of stock certificates in the transferee’s name. Finally, in
Abejo we did not say that transfer of shares need not be recorded
in the books of the corporation before the transferee may ask for
the issuance of stock certificates. The Court’s statement, that
"there is no requirement that a stockholder of a corporation must
be a registered one in order that the Securities and Exchange
Commission may take cognizance of a suit seeking to enforce his certificate. In Won vs. Wack Wack Golf and Country Club, Inc.,
rights as such stockholder among which is the stock purchaser’s 104 Phil. 466 (1958), we held that considering that the law does
right to secure the corresponding certificate in his name," 32 was not prescribe a period within which the registration should be
addressed to the issue of jurisdiction, which is not pertinent to the effected, the action to enforce the right does not accrue until there
issue at hand. has been a demand and a refusal concerning the transfer. In the
present case, petitioner’s complaint for mandamus must fail, not
Absent an allegation that the transfer of shares is recorded in the because of laches or estoppel, but because he had alleged no
stock and transfer book of respondent ALSONS, there appears cause of action sufficient for the issuance of the writ.
no basis for a clear and indisputable duty or clear legal obligation
that can be imposed upon the respondent corporate secretary, so WHEREFORE, the petition is DENIED for lack of merit. The
as to justify the issuance of the writ of mandamus to compel him decision of the Court of Appeals, in CA-G.R. SP No. 46692,
to perform the transfer of the shares to petitioner. The test of which set aside that of the Securities and Exchange Commission
sufficiency of the facts alleged in a petition is whether or not, En Banc in SEC-AC No. 545 and reinstated the order of the
admitting the facts alleged, the court could render a valid Hearing Officer, is hereby AFFIRMED.
judgment thereon in accordance with the prayer of the
petition.33 This test would not be satisfied if, as in this case, not all No pronouncement as to costs.
the elements of a cause of action are alleged in the
complaint.34 Where the corporate secretary is under no clear legal SO ORDERED.
duty to issue stock certificates because of the petitioner’s failure
to record earlier the transfer of shares, one of the elements of the
Bellosillo, (Chairman), Mendoza, Austria-Martinez, and Callejo,
cause of action for mandamus is clearly missing.
Sr., JJ., concur.
That petitioner was under no obligation to request for the
registration of the transfer is not in issue. It has no pertinence in
this controversy. One may own shares of corporate stock without
possessing a stock certificate. In Tan vs. SEC, 206 SCRA 740
(1992), we had occasion to declare that a certificate of stock is
not necessary to render one a stockholder in a corporation. But a
certificate of stock is the tangible evidence of the stock itself and
of the various interests therein. The certificate is the evidence of
the holder’s interest and status in the corporation, his ownership
of the share represented thereby. The certificate is in law, so to
speak, an equivalent of such ownership. It expresses the contract
between the corporation and the stockholder, but it is not
essential to the existence of a share in stock or the creation of the
relation of shareholder to the corporation.35 In fact, it rests on the
will of the stockholder whether he wants to be issued stock
certificates, and a stockholder may opt not to be issued a
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 177066               September 11, 2009
JOSELITO MUSNI PUNO (as heir of the late Carlos
Puno), Petitioner,
vs.
PUNO ENTERPRISES, INC., represented by JESUSA
PUNO, Respondent.
DECISION
NACHURA, J.:
Upon the death of a stockholder, the heirs do not automatically
become stockholders of the corporation; neither are they
mandatorily entitled to the rights and privileges of a stockholder.
This, we declare in this petition for review on certiorari of the
Court of Appeals (CA) Decision1 dated October 11, 2006 and
Resolution dated March 6, 2007 in CA-G.R. CV No. 86137.
The facts of the case follow:
Carlos L. Puno, who died on June 25, 1963, was an incorporator
of respondent Puno Enterprises, Inc. On March 14, 2003,
petitioner Joselito Musni Puno, claiming to be an heir of Carlos L.
Puno, initiated a complaint for specific performance against
respondent. Petitioner averred that he is the son of the deceased
with the latter’s common-law wife, Amelia Puno. As surviving heir,
he claimed entitlement to the rights and privileges of his late
father as stockholder of respondent. The complaint thus prayed
that respondent allow petitioner to inspect its corporate book,
render an accounting of all the transactions it entered into from
1962, and give petitioner all the profits, earnings, dividends, or
income pertaining to the shares of Carlos L. Puno. 2
Respondent filed a motion to dismiss on the ground that petitioner
did not have the legal personality to sue because his birth
certificate names him as "Joselito Musni Muno." Apropos, there
was yet a need for a judicial declaration that "Joselito Musni
Puno" and "Joselito Musni Muno" were one and the same.
The court ordered that the proceedings be held in abeyance,
ratiocinating that petitioner’s certificate of live birth was no proof
of his paternity and relation to Carlos L. Puno.
Petitioner submitted the corrected birth certificate with the name
"Joselito M. Puno," certified by the Civil Registrar of the City of
Manila, and the Certificate of Finality thereof. To hasten the
disposition of the case, the court conditionally admitted the
corrected birth certificate as genuine and authentic and ordered
respondent to file its answer within fifteen days from the order
and set the case for pretrial.3
On October 11, 2005, the court rendered a Decision, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering Jesusa
Puno and/or Felicidad Fermin to allow the plaintiff to inspect the
corporate books and records of the company from 1962 up to the
present including the financial statements of the corporation.
The costs of copying shall be shouldered by the plaintiff. Any
expenses to be incurred by the defendant to be able to comply
with this order shall be the subject of a bill of costs.
SO ORDERED.4
On appeal, the CA ordered the dismissal of the complaint in its
Decision dated October 11, 2006. According to the CA, petitioner
was not able to establish the paternity of and his filiation to Carlos
L. Puno since his birth certificate was prepared without the
intervention of and the participatory acknowledgment of paternity
by Carlos L. Puno. Accordingly, the CA said that petitioner had no
right to demand that he be allowed to examine respondent’s
books. Moreover, petitioner was not a stockholder of the
corporation but was merely claiming rights as an heir of Carlos L.
Puno, an incorporator of the corporation. His action for specific
performance therefore appeared to be premature; the proper
action to be taken was to prove the paternity of and his filiation to
Carlos L. Puno in a petition for the settlement of the estate of the
latter.5
Petitioner’s motion for reconsideration was denied by the CA in its
Resolution6 dated March 6, 2007.
In this petition, petitioner raises the following issues:
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT
RULING THAT THE JOSELITO PUNO IS ENTITLED TO THE
RELIEFS DEMANDED HE BEING THE HEIR OF THE LATE
CARLOS PUNO, ONE OF THE INCORPORATORS [OF]
RESPONDENT CORPORATION.
II. HONORABLE COURT OF APPEALS ERRED IN RULING
THAT FILIATION OF JOSELITO PUNO, THE PETITIONER[,] IS
NOT DULY PROVEN OR ESTABLISHED.
III. THE HONORABLE COURT ERRED IN NOT RULING THAT
JOSELITO MUNO AND JOSELITO PUNO REFERS TO THE
ONE AND THE SAME PERSON.
IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT
RULING THAT WHAT RESPONDENT MERELY DISPUTES IS
THE SURNAME OF THE PETITIONER WHICH WAS
MISSPELLED AND THE FACTUAL ALLEGATION E.G. RIGHTS
OF PETITIONER AS HEIR OF CARLOS PUNO ARE DEEMED
ADMITTED HYPOTHETICALLY IN THE RESPONDENT[’S]
MOTION TO DISMISS.
V. THE HONORABLE COURT OF APPEALS THEREFORE
ERRED I[N] DECREEING THAT PETITIONER IS NOT
ENTITLED TO INSPECT THE CORPORATE BOOKS OF
DEFENDANT CORPORATION.7
The petition is without merit. Petitioner failed to establish the right
to inspect respondent corporation’s books and receive dividends
on the stocks owned by Carlos L. Puno.
Petitioner anchors his claim on his being an heir of the deceased
stockholder. However, we agree with the appellate court that
petitioner was not able to prove satisfactorily his filiation to the
deceased stockholder; thus, the former cannot claim to be an heir
of the latter.
Incessantly, we have declared that factual findings of the CA
supported by substantial evidence, are conclusive and
binding.8 In an appeal via certiorari, the Court may not review the
factual findings of the CA. It is not the Court’s function under Rule
45 of the Rules of Court to review, examine, and evaluate or
weigh the probative value of the evidence presented. 9
A certificate of live birth purportedly identifying the putative father
is not competent evidence of paternity when there is no showing
that the putative father had a hand in the preparation of the
certificate. The local civil registrar has no authority to record the
paternity of an illegitimate child on the information of a third
person.10 As correctly observed by the CA, only petitioner’s
mother supplied the data in the birth certificate and signed the
same. There was no evidence that Carlos L. Puno acknowledged
petitioner as his son.
As for the baptismal certificate, we have already decreed that it
can only serve as evidence of the administration of the sacrament
on the date specified but not of the veracity of the entries with
respect to the child’s paternity.11
In any case, Sections 74 and 75 of the Corporation Code
enumerate the persons who are entitled to the inspection of
corporate books, thus —
Sec. 74. Books to be kept; stock transfer agent. — x x x.
The records of all business transactions of the corporation and
the minutes of any meeting shall be open to the inspection of any
director, trustee, stockholder or member of the corporation at
reasonable hours on business days and he may demand, in
writing, for a copy of excerpts from said records or minutes, at his
expense.
xxxx
Sec. 75. Right to financial statements. — Within ten (10) days
from receipt of a written request of any stockholder or member,
the corporation shall furnish to him its most recent financial
statement, which shall include a balance sheet as of the end of
the last taxable year and a profit or loss of statement for said
taxable year, showing in reasonable detail its assets and liabilities
and the result of its operations.12
The stockholder’s right of inspection of the corporation’s books
and records is based upon his ownership of shares in the
corporation and the necessity for self-protection. After all, a
shareholder has the right to be intelligently informed about
corporate affairs.13 Such right rests upon the stockholder’s
underlying ownership of the corporation’s assets and property. 14
Similarly, only stockholders of record are entitled to receive
dividends declared by the corporation, a right inherent in the
ownership of the shares.15 1avvphi1
Upon the death of a shareholder, the heirs do not automatically
become stockholders of the corporation and acquire the rights
and privileges of the deceased as shareholder of the corporation.
The stocks must be distributed first to the heirs in estate
proceedings, and the transfer of the stocks must be recorded in
the books of the corporation. Section 63 of the Corporation Code
provides that no transfer shall be valid, except as between the
parties, until the transfer is recorded in the books of the
corporation.16 During such interim period, the heirs stand as the
equitable owners of the stocks, the executor or administrator duly
appointed by the court being vested with the legal title to the
stock.17 Until a settlement and division of the estate is effected,
the stocks of the decedent are held by the administrator or
executor.18 Consequently, during such time, it is the administrator
or executor who is entitled to exercise the rights of the deceased
as stockholder.
Thus, even if petitioner presents sufficient evidence in this case to
establish that he is the son of Carlos L. Puno, he would still not
be allowed to inspect respondent’s books and be entitled to
receive dividends from respondent, absent any showing in its
transfer book that some of the shares owned by Carlos L. Puno
were transferred to him. This would only be possible if petitioner
has been recognized as an heir and has participated in the
settlement of the estate of the deceased.
Corollary to this is the doctrine that a determination of whether a
person, claiming proprietary rights over the estate of a deceased
person, is an heir of the deceased must be ventilated in a special
proceeding instituted precisely for the purpose of settling the
estate of the latter. The status of an illegitimate child who claims
to be an heir to a decedent’s estate cannot be adjudicated in an
ordinary civil action, as in a case for the recovery of
property.19 The doctrine applies to the instant case, which is one
for specific performance — to direct respondent corporation to
allow petitioner to exercise rights that pertain only to the
deceased and his representatives.
WHEREFORE, premises considered, the petition is DENIED. The the above Decision had been reached in consultation before the
Court of Appeals Decision dated October 11, 2006 and case was assigned to the writer of the opinion of the Court’s
Resolution dated March 6, 2007 are AFFIRMED. Division.

SO ORDERED. REYNATO S. PUNO

Chief Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MINITA V. CHICO- PRESBITERO J.

NAZARIO VELASCO, JR.
Associate Justice Associate Justice

DIOSDADO M. PERALTA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached

in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the

Division Chairperson's Attestation, I certify that the conclusions in
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-33320 May 30, 1983
RAMON A. GONZALES, petitioner,
vs.
THE PHILIPPINE NATIONAL BANK, respondent.
Ramon A. Gonzales in his own behalf.
Juan Diaz for respondent.
VASQUEZ, J.:
Petitioner Ramon A. Gonzales instituted in the erstwhile Court of
First Instance of Manila a special civil action for mandamus
against the herein respondent praying that the latter be ordered to
allow him to look into the books and records of the respondent
bank in order to satisfy himself as to the truth of the published
reports that the respondent has guaranteed the obligation of
Southern Negros Development Corporation in the purchase of a
US$ 23 million sugar-mill to be financed by Japanese suppliers
and financiers; that the respondent is financing the construction of
the P 21 million Cebu-Mactan Bridge to be constructed by V.C.
Ponce, Inc., and the construction of Passi Sugar Mill at Iloilo by
the Honiron Philippines, Inc., as well as to inquire into the validity
of Id transactions. The petitioner has alleged hat his written
request for such examination was denied by the respondent. The
trial court having dismissed the petition for mandamus, the instant
appeal to review the said dismissal was filed.
The facts that gave rise to the subject controversy have been set
forth by the trial court in the decision herein sought to be
reviewed, as follows:
Briefly stated, the following facts gathered from
the stipulation of the parties served as the
backdrop of this proceeding.
Previous to the present action, the petitioner
instituted several cases in this Court questioning
different transactions entered into by the Bark with
other parties. First among them is Civil Case No.
69345 filed on April 27, 1967, by petitioner as a
taxpayer versus Sec. Antonio Raquiza of Public
Works and Communications, the Commissioner of
Public Highways, the Bank, Continental Ore Phil.,
Inc., Continental Ore, Huber Corporation, Allis
Chalmers and General Motors Corporation In the
course of the hearing of said case on August 3,
1967, the personality of herein petitioner to sue
the bank and question the letters of credit it has
extended for the importation by the Republic of
the Philippines of public works equipment
intended for the massive development program of
the President was raised. In view thereof, he
expressed and made known his intention to
acquire one share of stock from Congressman
Justiniano Montano which, on the following day,
August 30, 1967, was transferred in his name in
the books of the Bank.
Subsequent to his aforementioned acquisition of
one share of stock of the Bank, petitioner, in his
dual capacity as a taxpayer and stockholder, filed
the following cases involving the bank or the
members of its Board of Directors to wit:
l. On October l8,1967, Civil Case No. 71044
versus the Board of Directors of the Bank; the
National Investment and Development Corp.,
Marubeni Iida Co., Ltd., and Agro-Inc. Dev. Co. or
Saravia;
2. On May 11, 1968, Civil Case No. 72936 versus
Roberto Benedicto and other Directors of the
Bank, Passi (Iloilo) Sugar Central, Inc., Calinog-
Lambunao Sugar Mill Integrated Farming, Inc.,
Talog sugar Milling Co., Inc., Safary Central, Inc.,
and Batangas Sugar Central Inc.;
3. On May 8, 1969, Civil Case No. 76427 versus
Alfredo Montelibano and the Directors of both the
PNB and DBP;
On January 11, 1969, however, petitioner
addressed a letter to the President of the Bank
(Annex A, Pet.), requesting submission to look
into the records of its transactions covering the
purchase of a sugar central by the Southern
Negros Development Corp. to be financed by
Japanese suppliers and financiers; its financing of
the Cebu-Mactan Bridge to be constructed by
V.C. Ponce, Inc. and the construction of the Passi
Sugar Mills in Iloilo. On January 23, 1969, the
Asst. Vice-President and Legal Counsel of the
Bank answered petitioner's letter denying his
request for being not germane to his interest as a
one-share stockholder and for the cloud of doubt
as to his real intention and purpose in acquiring
said share. (Annex B, Pet.) In view of the Bank's
refusal the petitioner instituted this action.' (Rollo,
pp. 16-18.)
The petitioner has adopted the above finding of facts made by the
trial court in its brief which he characterized as having been
"correctly stated." (Petitioner-Appellant"s Brief, pp. 57.)
The court a quo denied the prayer of the petitioner that he be
allowed to examine and inspect the books and records of the
respondent bank regarding the transactions mentioned on the
grounds that the right of a stockholder to inspect the record of the
business transactions of a corporation granted under Section 51
of the former Corporation Law (Act No. 1459, as amended) is not
absolute, but is limited to purposes reasonably related to the
interest of the stockholder, must be asked for in good faith for a
specific and honest purpose and not gratify curiosity or for
speculative or vicious purposes; that such examination would
violate the confidentiality of the records of the respondent bank as
provided in Section 16 of its charter, Republic Act No. 1300, as
amended; and that the petitioner has not exhausted his
administrative remedies.
Assailing the conclusions of the lower court, the petitioner has
assigned the single error to the lower court of having ruled that
his alleged improper motive in asking for an examination of the
books and records of the respondent bank disqualifies him to
exercise the right of a stockholder to such inspection under
Section 51 of Act No. 1459, as amended. Said provision reads in
part as follows:
Sec. 51. ... The record of all business transactions
of the corporation and the minutes of any meeting
shall be open to the inspection of any director,
member or stockholder of the corporation at
reasonable hours.
Petitioner maintains that the above-quoted provision does not
justify the qualification made by the lower court that the inspection
of corporate records may be denied on the ground that it is
intended for an improper motive or purpose, the law having
granted such right to a stockholder in clear and unconditional
terms. He further argues that, assuming that a proper motive or
purpose for the desired examination is necessary for its exercise,
there is nothing improper in his purpose for asking for the
examination and inspection herein involved.
Petitioner may no longer insist on his interpretation of Section 51
of Act No. 1459, as amended, regarding the right of a stockholder
to inspect and examine the books and records of a corporation.
The former Corporation Law (Act No. 1459, as amended) has
been replaced by Batas Pambansa Blg. 68, otherwise known as
the "Corporation Code of the Philippines."
The right of inspection granted to a stockholder under Section 51
of Act No. 1459 has been retained, but with some modifications.
The second and third paragraphs of Section 74 of Batas
Pambansa Blg. 68 provide the following:
The records of all business transactions of the
corporation and the minutes of any meeting shag
be open to inspection by any director, trustee,
stockholder or member of the corporation at
reasonable hours on business days and he may
demand, in writing, for a copy of excerpts from
said records or minutes, at his expense.
Any officer or agent of the corporation who shall
refuse to allow any director, trustee, stockholder
or member of the corporation to examine and
copy excerpts from its records or minutes, in
accordance with the provisions of this Code, shall
be liable to such director, trustee, stockholder or
member for damages, and in addition, shall be
guilty of an offense which shall be punishable
under Section 144 of this Code: Provided, That if
such refusal is made pursuant to a resolution or
order of the board of directors or trustees, the
liability under this section for such action shall be
imposed upon the directors or trustees who voted
for such refusal; and Provided, further, That it
shall be a defense to any action under this section
that the person demanding to examine and copy
excerpts from the corporation's records and
minutes has improperly used any information
secured through any prior examination of the
records or minutes of such corporation or of any
other corporation, or was not acting in good faith
or for a legitimate purpose in making his demand.
As may be noted from the above-quoted provisions, among the
changes introduced in the new Code with respect to the right of
inspection granted to a stockholder are the following the records
must be kept at the principal office of the corporation; the
inspection must be made on business days; the stockholder may
demand a copy of the excerpts of the records or minutes; and the
refusal to allow such inspection shall subject the erring officer or
agent of the corporation to civil and criminal liabilities. However,
while seemingly enlarging the right of inspection, the new Code
has prescribed limitations to the same. It is now expressly
required as a condition for such examination that the one
requesting it must not have been guilty of using improperly any
information through a prior examination, and that the person
asking for such examination must be "acting in good faith and for
a legitimate purpose in making his demand."
The unqualified provision on the right of inspection previously
contained in Section 51, Act No. 1459, as amended, no longer
holds true under the provisions of the present law. The argument
of the petitioner that the right granted to him under Section 51 of
the former Corporation Law should not be dependent on the
propriety of his motive or purpose in asking for the inspection of
the books of the respondent bank loses whatever validity it might
have had before the amendment of the law. If there is any doubt
in the correctness of the ruling of the trial court that the right of
inspection granted under Section 51 of the old Corporation Law
must be dependent on a showing of proper motive on the part of
the stockholder demanding the same, it is now dissipated by the
clear language of the pertinent provision contained in Section 74
of Batas Pambansa Blg. 68.
Although the petitioner has claimed that he has justifiable motives
in seeking the inspection of the books of the respondent bank, he
has not set forth the reasons and the purposes for which he
desires such inspection, except to satisfy himself as to the truth of
published reports regarding certain transactions entered into by
the respondent bank and to inquire into their validity. The
circumstances under which he acquired one share of stock in the
respondent bank purposely to exercise the right of inspection do
not argue in favor of his good faith and proper motivation.
Admittedly he sought to be a stockholder in order to pry into
transactions entered into by the respondent bank even before he
became a stockholder. His obvious purpose was to arm himself
with materials which he can use against the respondent bank for
acts done by the latter when the petitioner was a total stranger to
the same. He could have been impelled by a laudable sense of
civic consciousness, but it could not be said that his purpose is
germane to his interest as a stockholder.
We also find merit in the contention of the respondent bank that
the inspection sought to be exercised by the petitioner would be
violative of the provisions of its charter. (Republic Act No. 1300,
as amended.) Sections 15, 16 and 30 of the said charter provide
respectively as follows:
Sec. 15. Inspection by Department of Supervision
and Examination of the Central Bank. — The
National Bank shall be subject to inspection by the
Department of Supervision and Examination of
the Central Bank'
Sec. 16. Confidential information. —The
Superintendent of Banks and the Auditor General,
or other officers designated by law to inspect or
investigate the condition of the National Bank,
shall not reveal to any person other than the
President of the Philippines, the Secretary of
Finance, and the Board of Directors the details of
the inspection or investigation, nor shall they give
any information relative to the funds in its custody,
its current accounts or deposits belonging to
private individuals, corporations, or any other
entity, except by order of a Court of competent
jurisdiction,'
Sec. 30. Penalties for violation of the provisions of
this Act.— Any director, officer, employee, or
agent of the Bank, who violates or permits the
violation of any of the provisions of this Act, or any
person aiding or abetting the violations of any of
the provisions of this Act, shall be punished by a
fine not to exceed ten thousand pesos or by
imprisonment of not more than five years, or both
such fine and imprisonment.
The Philippine National Bank is not an ordinary corporation.
Having a charter of its own, it is not governed, as a rule, by the
Corporation Code of the Philippines. Section 4 of the said Code
provides:
SEC. 4. Corporations created by special laws or
charters. — Corporations created by special laws
or charters shall be governed primarily by the
provisions of the special law or charter creating
them or applicable to them. supplemented by the
provisions of this Code, insofar as they are
applicable.
The provision of Section 74 of Batas Pambansa Blg. 68 of the
new Corporation Code with respect to the right of a stockholder to
demand an inspection or examination of the books of the
corporation may not be reconciled with the abovequoted
provisions of the charter of the respondent bank. It is not correct
to claim, therefore, that the right of inspection under Section 74 of
the new Corporation Code may apply in a supplementary
capacity to the charter of the respondent bank.

WHEREFORE, the petition is hereby DISMISSED, without costs.

Melencio-Herrera, Plana and Gutierrez, Jr., JJ., concur.

Teehankee (Chairman), concurs in the result.

Relova, J., is on leave.