G.R. No.

153468 August 17, 2006 PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG, STEPHEN CO, JAMES TAN, JUDITH TAN, ERNESTO TANCHI JR., EDWIN NGO, VIRGINIA KHOO, SABINO PADILLA JR., EDUARDO P. LIZARES and GRACE CHRISTIAN HIGH SCHOOL, Petitioners, vs. PAUL SYCIP and MERRITTO LIM, Respondents. DECISION PANGANIBAN, CJ.: For stock corporations, the "quorum" referred to in Section 52 of the Corporation Code is based on the number of outstanding voting stocks. For nonstock corporations, only those who are actual, living members with voting rightsshall be counted in determining the existence of a quorum during members meetings. Dead members shall not be counted. The Case The present Petition for Review on Certiorari [1] under Rule 45 of the Rules of Court seeks the reversal of the January 23 2 and May 7, 2002, 3 Resolutions of the Court of Appeals (CA) in CA-GR SP No. 68202. The first assailed Resolution dismissed the appeal filed by petitioners with the CA. Allegedly, without the proper authorization of the other petitioners, the Verification and Certification of Non-Forum Shopping were signed by only one of them -- Atty. Sabino Padilla Jr. The second Resolution denied reconsideration. The Facts Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with fifteen (15) regular members, who also constitute the board of trustees. [4] During the annual members meeting held on April 6, 1998, there were only eleven (11) [5] living member-trustees, as four (4) had already died. Out of the eleven, seven (7) 6 attended the meeting through their respective proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was no quorum. 7 In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four deceased member-trustees. When the controversy reached the Securities and Exchange Commission (SEC), petitioners maintained that the deceased member-trustees should not be counted in the computation of the quorum because, upon their death, members automatically lost all their rights (including the right to vote) and interests in the corporation. SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack of quorum. She held that the basis for determining the quorum in a meeting of members should be their number as specified in the articles of incorporation, not simply the number of living members. 8 She explained that the qualifying phrase "entitled to vote" in Section 24 9 of the Corporation Code, which provided the basis for determining a quorum for the election of directors or trustees, should be read together with Section 89. 10 The hearing officer also opined that Article III (2) 11 of the By-Laws of GCHS, insofar as it prescribed the mode of filling vacancies in the board of trustees, must be interpreted in conjunction with Section

29 12 of the Corporation Code. The SEC en banc denied the appeal of petitioners and affirmed the Decision of the hearing officer in toto.13 It found to be untenable their contention that the word "members," as used in Section 52 14 of the Corporation Code, referred only to the living members of a nonstock corporation. 15 As earlier stated, the CA dismissed the appeal of petitioners, because the Verification and Certification of Non-Forum Shopping had been signed only by Atty. Sabino Padilla Jr. No Special Power of Attorney had been attached to show his authority to sign for the rest of the petitioners. Hence, this Petition. 16 Issues Petitioners state the issues as follows: "Petitioners principally pray for the resolution of the legal question of whether or not in NON-STOCK corporations,dead members should still be counted in determination of quorum for purposed of conducting the Annual Members Meeting. "Petitioners have maintained before the courts below that the DEAD members should no longer be counted in computing quorum primarily on the ground that members rights are personal and nontransferable as provided in Sections 90 and 91 of the Corporation Code of the Philippines. "The SEC ruled against the petitioners solely on the basis of a 1989 SEC Opinion that did not even involve a non-stock corporation as petitioner GCHS. "The Honorable Court of Appeals on the other hand simply refused to resolve this question and instead dismissed the petition for review on a technicality the failure to timely submit an SPA from the petitioners authorizing theirco-petitioner Padilla, their counsel and also a petitioner before the Court of Appeals, to sign the petition on behalf of the rest of the petitioners. "Petitioners humbly submit that the action of both the SEC and the Court of Appeals are not in accord with law particularly the pronouncements of this Honorable Court in Escorpizo v. University of Baguio (306 SCRA 497),Robern Development Corporation v. Quitain (315 SCRA 150,) and MC Engineering, Inc. v. NLRC, (360 SCRA 183). Due course should have been given the petition below and the merits of the case decided in petitioners favor." 17 In sum, the issues may be stated simply in this wise: 1) whether the CA erred in denying the Petition below, on the basis of a defective Verification and Certification; and 2) whether dead members should still be counted in the determination of the quorum, for purposes of conducting the annual members meeting. The Courts Ruling The present Petition is partly meritorious. Procedural Issue: Verification and Certification of Non-Forum Shopping

The Petition before the CA was initially flawed, because the Verification and Certification of NonForum Shopping were signed by only one, not by all, of the petitioners; further, it failed to show proof that the signatory was authorized to sign on behalf of all of them. Subsequently, however, petitioners submitted a Special Power of Attorney, attesting that Atty. Padilla was authorized to file the action on their behalf. 18 In the interest of substantial justice, this initial procedural lapse may be excused. 19 There appears to be no intention to circumvent the need for proper verification and certification, which are aimed at assuring the truthfulness and correctness of the allegations in the Petition for Review and at discouraging forum shopping. 20More important, the substantial merits of petitioners case and the purely legal question involved in the Petition should be considered special circumstances 21 or compelling reasons that justify an exception to the strict requirements of the verification and the certification of non-forum shopping. 22 Main Issue: Basis for Quorum Generally, stockholders or members meetings are called for the purpose of electing directors or trustees 23 and transacting some other business calling for or requiring the action or consent of the shareholders or members, 24such as the amendment of the articles of incorporation and bylaws, sale or disposition of all or substantially all corporate assets, consolidation and merger and the like, or any other business that may properly come before the meeting. Under the Corporation Code, stockholders or members periodically elect the board of directors or trustees, who are charged with the management of the corporation. 25 The board, in turn, periodically elects officers to carry out management functions on a day-to-day basis. As owners, though, the stockholders or members have residual powers over fundamental and major corporate changes. While stockholders and members (in some instances) are entitled to receive profits, the management and direction of the corporation are lodged with their representatives and agents -- the board of directors or trustees. 26 In other words, acts of management pertain to the board; and those of ownership, to the stockholders or members. In the latter case, the board cannot act alone, but must seek approval of the stockholders or members. 27 Conformably with the foregoing principles, one of the most important rights of a qualified shareholder or member is the right to vote -- either personally or by proxy -- for the directors or trustees who are to manage the corporate affairs. 28The right to choose the persons who will direct, manage and operate the corporation is significant, because it is the main way in which a stockholder can have a voice in the management of corporate affairs, or in which a member in a nonstock corporation can have a say on how the purposes and goals of the corporation may be achieved. 29 Once the directors or trustees are elected, the stockholders or members relinquish corporate powers to the board in accordance with law. In the absence of an express charter or statutory provision to the contrary, the general rule is that every member of a nonstock corporation, and every legal owner of shares in a stock corporation, has a right to be present and to vote in all corporate meetings. Conversely, those who are not stockholders or members have no right to vote. 30Voting may be expressed personally, or through proxies who vote in their representative capacities. 31 Generally, the right to be present and to vote in a meeting is determined by the time in which the meeting is held. 32

Section 52 of the Corporation Code states: "Section 52. Quorum in Meetings. Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders representing a majority of the outstanding capital stock or a majority of the members in the case of non-stock corporations." In stock corporations, the presence of a quorum is ascertained and counted on the basis of the outstanding capital stock, as defined by the Code thus: "SECTION 137. Outstanding capital stock defined. The term outstanding capital stock as used in this Code, means the total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares." (Underscoring supplied) The Right to Vote in Stock Corporations The right to vote is inherent in and incidental to the ownership of corporate stocks. 33 It is settled that unissued stocks may not be voted or considered in determining whether a quorum is present in a stockholders meeting, or whether a requisite proportion of the stock of the corporation is voted to adopt a certain measure or act. Only stock actually issued and outstanding may be voted. 34 Under Section 6 of the Corporation Code, each share of stock is entitled to vote, unless otherwise provided in the articles of incorporation or declared delinquent 35 under Section 67 of the Code. Neither the stockholders nor the corporation can vote or represent shares that have never passed to the ownership of stockholders; or, having so passed, have again been purchased by the corporation. 36 These shares are not to be taken into consideration in determining majorities. When the law speaks of a given proportion of the stock, it must be construed to mean the shares that have passed from the corporation, and that may be voted. 37 Section 6 of the Corporation Code, in part, provides: "Section 6. Classification of shares. The shares of stock of stock corporations may be divided into classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation: Provided, 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: Provided, further, that there shall always be a class or series of shares which have complete voting rights. xxxxxxxxx "Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the following matters: 1. Amendment of the articles of incorporation; 2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporation property; 4. Incurring, creating or increasing bonded indebtedness; 5. Increase or decrease of capital stock; 6. Merger or consolidation of the corporation with another corporation or other corporations; 7. Investment of corporate funds in another corporation or business in accordance with this Code; and 8. Dissolution of the corporation. "Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights." Taken in conjunction with Section 137, the last paragraph of Section 6 shows that the intention of the lawmakers was to base the quorum mentioned in Section 52 on the number of outstanding voting stocks. 38 The Right to Vote in Nonstock Corporations In nonstock corporations, the voting rights attach to membership. 39 Members vote as persons, in accordance with the law and the bylaws of the corporation. Each member shall be entitled to one vote unless so limited, broadened, or denied in the articles of incorporation or bylaws. 40 We hold that when the principle for determining the quorum for stock corporations is applied by analogy to nonstock corporations, only those who are actual members with voting rights should be counted. Under Section 52 of the Corporation Code, the majority of the members representing the actual number of voting rights, not the number or numerical constant that may originally be specified in the articles of incorporation, constitutes the quorum. 41 The March 3, 1986 SEC Opinion 42 cited by the hearing officer uses the phrase "majority vote of the members"; likewise Section 48 of the Corporation Code refers to 50 percent of 94 (the number of registered members of the association mentioned therein) plus one. The best evidence of who are the present members of the corporation is the "membership book"; in the case of stock corporations, it is the stock and transfer book. 43 Section 25 of the Code specifically provides that a majority of the directors or trustees, as fixed in the articles of incorporation, shall constitute a quorum for the transaction of corporate business (unless the articles of incorporation or the bylaws provide for a greater majority). If the intention of the lawmakers was to base the quorum in the meetings of stockholders or members on their absolute number as fixed in the articles of incorporation, it would have expressly specified so. Otherwise, the only logical conclusion is that the legislature did not have that intention. Effect of the Death

of a Member or Shareholder Having thus determined that the quorum in a members meeting is to be reckoned as the actual number of members of the corporation, the next question to resolve is what happens in the event of the death of one of them. In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a shareholder, the executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it. Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator or executor. 44 On the other hand, membership in and all rights arising from a nonstock corporation are personal and non-transferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise. 45 In other words, the determination of whether or not "dead members" are entitled to exercise their voting rights (through their executor or administrator), depends on those articles of incorporation or bylaws. Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the death of the member. 46 Section 91 of the Corporation Code further provides that termination extinguishes all the rights of a member of the corporation, unless otherwise provided in the articles of incorporation or the bylaws. Applying Section 91 to the present case, we hold that dead members who are dropped from the membership roster in the manner and for the cause provided for in the By-Laws of GCHS are not to be counted in determining the requisite vote in corporate matters or the requisite quorum for the annual members meeting. With 11 remaining members, the quorum in the present case should be 6. Therefore, there being a quorum, the annual members meeting, conducted with six 47 members present, was valid. Vacancy in the Board of Trustees As regards the filling of vacancies in the board of trustees, Section 29 of the Corporation Code provides: "SECTION 29. Vacancies in the office of director or trustee. -- Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in office." Undoubtedly, trustees may fill vacancies in the board, provided that those remaining still constitute a quorum. The phrase "may be filled" in Section 29 shows that the filling of vacancies in the board by the remaining directors or trustees constituting a quorum is merely permissive, not mandatory. 48 Corporations, therefore, may choose how vacancies in their respective boards may be filled up -- either by the remaining directors constituting a quorum, or by the stockholders or members in a regular or special meeting called for the purpose. 49

The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of directors; that is, by a majority vote of the remaining members of the board. 50 While a majority of the remaining corporate members were present, however, the "election" of the four trustees cannot be legally upheld for the obvious reason that it was held in an annual meeting of the members, not of the board of trustees. We are not unmindful of the fact that the members of GCHS themselves also constitute the trustees, but we cannot ignore the GCHS bylaw provision, which specifically prescribes that vacancies in the board must be filled up by the remaining trustees. In other words, these remaining member-trustees must sit as a boardin order to validly elect the new ones. Indeed, there is a well-defined distinction between a corporate act to be done by the board and that by the constituent members of the corporation. The board of trustees must act, not individually or separately, but as a body in a lawful meeting. On the other hand, in their annual meeting, the members may be represented by their respective proxies, as in the contested annual members meeting of GCHS. WHEREFORE, the Petition is partly GRANTED.The assailed Resolutions of the Court of Appeals are hereby REVERSED AND SET ASIDE. The remaining members of the board of trustees of Grace Christian High School (GCHS) may convene and fill up the vacancies in the board, in accordance with this Decision. No pronouncement as to costs in this instance. SO ORDERED. G.R. No. L-34192 June 30, 1988 NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION, EUSEBIO VILLATUYA MARIO Y. CONSING and ROBERTO S. BENEDICTO, petitioners, vs. HON. BENJAMIN AQUINO, in his official capacity as Presiding Judge of Branch VIII of the Court of First Instance of Rizal, BATJAK INC., GRACIANO A. GARCIA and MARCELINO CALINAWAN JR., respondents. G.R. No. L-34213 June 30, 1988 PHILIPPINE NATIONAL BANK, petitioner, vs. HON. BENJAMIN H. AQUINO, in his capacity as Presiding Judge of the Court of First Instance of Rizal, Branch VIII and BATJAK INCORPORATED, respondents. Cruz, Palafox, Alfonso and Associates for petitioner NIDC in G.R. No. 34192. The Chief Legal Counsel for petitioner PNB in G.R. No. 34213. Reyes and Sundiam Law Office for respondent Batjak, Inc. Duran, Chuanico Oebanda, Benemerito & Associates for private respondents in G.R. Nos. 34192 & 34213. Tolentino, Garcia, Cruz & Reyes for movant in G.R. No. L-34192.

PADILLA, J.: These two (2) separate petitions for certiorari and prohibition, with preliminary injunction, seek to annul and set aside the orders of respondent judge, dated 16 August 1971 and 30 September 1971, in Civil Case No. 14452 of the Court of First Instance of Rizal, entitled Batjak Inc. vs. NIDC et al." The order of 16 August 1971 1 granted the alternative petition of private respondent Batjak, Inc. Batjak
for short) for the appointment of receiver and denied petitioners' motion to dismiss the complaint of said private respondent. The order dated 30 September 1971 2 denied petitioners' motion for reconsideration of the order dated 16 August 1971.

The herein petitions likewise seek to prohibit the respondent judge from hearing and/or conducting any further proceedings in Civil Case No. 14452 of said court. Batjak, (Basic Agricultural Traders Jointly Administered Kasamahan) is a Filipino-American corporation organized under the laws of the Philippines, primarily engaged in the manufacture of coconut oil and copra cake for export. In 1965, Batjak's financial condition deteriorated to the point of bankruptcy. As of that year, Batjak's indebtedness to some private banks and to the Philippine National Bank (PNB) amounted to P11,915,000.00, shown as follows: Republic Bank P 2,324,000.00 Philippine Commercial and Industrial Bank 1,346,000.00 Manila Banking Corporation 2,000,000.00 Manufacturers Bank 440,000.00 Hongkong and Shanghai Banking Corporation 250,000.00 Foreign Export Advances (against immediate shipment) 555,000.00 PNB export advance line (against immediate shipment) 5,000,000.00 TOTAL 11,915,000.00 As security for the payment of its obligations and advances against shipments, Batjak mortgaged its three (3) coco-processing oil mills in Sasa, Davao City, Jimenez, Misamis Occidental and Tanauan, Leyte to Manila Banking Corporation (Manila Bank), Republic Bank (RB), and Philippine Commercial and Industrial Bank (PCIB), respectively. In need for additional operating capital to place the three (3) coco-processing mills at their optimum capacity and maximum efficiency and to settle, pay or otherwise liquidate pending financial obligations with the different private banks, Batjak applied to

PNB for additional financial assistance. On 5 October 1965, a Financial Agreement was submitted by PNB to Batjak for acceptance. The Financial Agreement reads: PHILIPPINE NATIONAL BANK Manila, Philippines International Department O c t o b e r 5 , 1 9 6 5 BATJAK, INCORPORATED 3rd Floor, G. Puyat Bldg. Escolta, Manila Attn.: Mr. CIRIACO B. MENDOZA Vice-President & General Manager Gentlemen: We are pleased to advise that our Board of Directors approved for you the following: 1) That NIDC shall invest P6,722,500.00 in the form of preferred shares of stocks at 9% cumulative, participating and convertible within 5 years at par into common stocks to liquidate your accounts with the Republic Bank, Manufacturers Bank & Trust Company and the PCIB which, however, shall be applied to the latter three (3) banks accounts with the Loans & Discounts Dept. NIDC shall match your P 10 million subscription by an additional investment of P3,277,500 within a period of one to two years at NIDC's option; 2) That NIDC will guaranty for five (5) years your account with the Manila Banking Corporation;

3) That the above banks (Republic Bank, PCIB, MBTC and Manila Banking Corp.) shall release in favor of PNB the first and any mortgage they hold on your properties; 4) That you shall exercise (execute) a first mortgage on all your properties located at Sasa, Davao City; Jimenez, Misamis Occidental; and Tanauan, Leyte and assign leasehold rights on the property on which your plant at Sasa, Davao City is erected in favor of PNB; 5) That a voting trust agreement for five (5) years over 60% of the oustanding paid up and subscribed shares shall be executed by your stockholders in favor of NIDC; 6) That this accomodation shall be secured by the joint and several signatures of officers and directors; 7) That the number of the Board of Directors shall be increased to seven (7), three (3) from your firm and the other four (4) from the PNB-NIDC; 8) That a comptroller, at your expense, shall be appointed by PNB-NIDC to supervise the financial management of your firm; 9) That the past due accounts of P 5 million with the International Department of the PNB shall be transferred to the Loans & Discount Department and to be treated as a Demand Loan; 10) That any excess of NIDC investment as required in Condition 1 after payment of the obligations to three (3) Banks (RB, MBTC, & PCIB) shall be applied to reduce the above Demand Loan of P 5 million; 11) That we shall grant you an export advance of P3 million to be used for copra purchases, subject to the following conditions: a) That the line shall expire on September 30, 1966 but revocable at the Bank(s) option; b) That drawings against the line shall be allowed only when an irrevocable export L/C for coconut products has been established or assigned in your favor and you shall assign to us all proceeds of negotiations to be received from your letters of credit; c) That drawings against the line be limited to 60% of the peso value of the export letters of credit computed at P3.50 per $1.00 but total drawings shall not in any event exceed P3,000,000.00; d) That release or releases against the line shall be covered by promissory note or notes for 90 days but not beyond the expiry dates of the coveting L/C and proceeds of said L/C shall first be applied to the correspondent drawings on the line; e) That drawings against the line shall be charged interest at the rate of 9% per annum and subject to 1/2% penalty charge on all drawings not paid or extended on maturity date; and

f) That within 90 days from date of release against the line, you shall negotiate with us on equivalent amount in export bills, otherwise, the line shag be temporarily suspended until the outstanding export advance is fully liquidated. We are writing the National Investment & Development Corporation, the Republic Bank, the Philippine Commercial & Industrial Bank and the Manufacturers Bank & Trust Company and the Manila Banking Corporation regarding the above. In connection with the above, kindly submit to us two (2) copies of your board resolution certified to under oath by your corporate secretary accepting the conditions enumerated above authorizing the above transactions and the officer or officers to sign on behalf of the corporation. Thank you. Very truly yours, (SGD.) JOSE B. SAMS ON 3 The terms and conditions of the Financial Agreement were duly accepted by Batjak. Under said Agreement, NIDC would, as it actually did, invest P6,722,500.00 in Batjak in the form of preferred shares of stock convertible within five (5) years at par into common stock, to liquidate Batjak's obligations to Republic Bank (RB), Manufacturers Bank and Trust Company (MBTC) and Philippine Commercial & Industrial Bank (PCIB), and the balance of the investment was to be applied to Batjak's past due account of P 5 million with the PNB. Upon receiving payment, RB, PCIB, and MBTC released in favor of PNB the first and any mortgages they held on the properties of Batjak. As agreed, PNB also granted Batjak an export-advance line of P 3 million, later increased to P 5million, and a standby letter of credit facility in the amount of P5,850,000.00. As of 29 September 1966, the financial accomodation that had been extended by PNB to Batjak amounted to a total of P 14,207,859.51. As likewise agreed, Batjak executed a first mortgage in favor of PNB on all its properties located at Jimenez, Misamis Occidental and Tanauan, Leyte. Batjak's plant in Sasa, Davao City was mortgaged to the Manila Bank which, in 1967, instituted foreclosure proceedings against the same but which were aborted by the payment by Batjak of the sum of P2,400,000.00 to Manila Bank, and which amount was advanced to Batjak by NIDC, a wholly-owned subsidiary of PNB. To secure the advance, Batjak mortgaged the oil mill in Sasa, Davao City to NIDC. 4 Next, a Voting Trust Agreement was executed on 26 October 1965 in favor of NIDC by the stockholders representing 60% of the outstanding paid-up and subscribed shares of Batjak. This agreement was for a period of five (5) years and, upon its expiration, was to be subject to negotiation between the parties. The voting Trust Agreement reads:

VOTING TRUST AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This AGREEMENT made and executed by the undersigned stockholders of BATJAK, INC., a corporation duly organized and existing under the laws of the Philippines, whose names are hereinbelow subscribed hereinafter caged the SUBSCRIBERS, and the NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION, hereinafter referred to as the trustee. WITNESSETH: WHEREAS, the SUBSCRIBERS are owners respectively of the capital stock of the BATJAK, INC. (hereinafter called the CORPORATION) in the amounts represented by the number of shares set fort opposite their respective names hereunder; AND WHEREAS, with a view or establishing a safe and competent management to operate the corporation for the best interest of all the stockholders thereof, and as mutually agreed between the SUBSCRIBERS and the TRUSTEE, this Voting Trust Agreement has been executed under the following terms and conditions. NOW THEREFORE, the undersigned stockholders, in consideration of the premises and of the mutual covenants and agreements herein contained and to carry out the foregoing purposes in order to vest in the TRUSTEE the voting rights of the shares of stock held by the undersigned in the CORPORATION as hereinafter stated it is mutually agreed as follows: 1. PERIOD OF DESIGNATION For a period of five (5) years from and after date hereof, without power of revocation on the part of the SUBSCRIBERS, the TRUSTEE designated in the manner herein provided is hereby made, constituted and appointed as a VOTING TRUSTEE to act for and in the name of the SUBSCRIBERS, it being understood, however, that this Voting Trust Agreement shall, upon its expiration be subject to a re-negotiation between the parties, as may be warranted by the balance and attending circumstance of the loan investment of the TRUSTEE or otherwise in the CORPORATION. 2. ASSIGNMENT OF STOCK CERTIFICATES UPON ISSUANCE The undersigned stockholders hereby transfer and assign their common shares to the capital stock of the CORPORATION to the extent shown hereunder: JAMES A. KEISTER 21,500 shares JOHNNY LIEUSON 20,300 shares CBM FINANCE & INVESTMENT CORP. (C.B. Mendoza, Pres.) 5,000 shares ALEJANDRO G. BELTRAN 4,000 shares ESPERANZA A. ZAMORA 3,000 shares

CIRIACO B. MENDOZA 2,000 shares FIDELA DE GUZMAN 2,000 shares LLOYD D. COMBS 2,000 shares RENATO B. BEJAR 200 shares TOTAL 60,000 shares to the TRUSTEE by virtue of the provisions hereof and do hereby authorize the Secretary of the CORPORATION to issue the corresponding certificate directly in the name of the TRUSTEE and on which certificates it shall appear that they have been issued pursuant to this Voting Trust Agreement and the said TRUSTEE shall hold in escrow all such certificates during the term of the Agreement. In turn, the TRUSTEE shall deliver to the undersigned stockholders the corresponding Voting Trust certificates provided for in Sec. 36 of Act No. 1459. 3. VOTING POWER OF TRUSTEE The TRUSTEE and its successors in trust, if anym shall have the power and it shall be its duty to vote the shares of the undersigned subject hereof and covered by this Agreement at all annual, adjourned and special meetings of the CORPORATION on all questions, motions, resolutions and matters including the election of directors and such matters on which the stockholders, by virtue of the by-laws of the CORPORATION and of the existing legislations are entitled to vote, which may be voted upon at any and all said meetings and shall also have the power to execute and acknowledge any agreements or documents that may be necessary in its opinion to express the consent or assent of all or any of the stockholders of the CORPORATION with respect to any matter or thing to which any consent or assent of the stockholders may be necessary, proper or convenient. 4. FILING of AGREEMENT An executed copy of this Agreement shall be filed with the CORPORATION at its office in the City of Manila wherever it may be transfered therefrom and shall constitute irrevocable authority and absolute direction of the officers of the CORPORATION whose duty is to sign and deliver stock certificates to make delivery only to said voting trustee of the shares and certificates of stock subject to the provisions of this Agreement as aforesaid. Such copy of this Agreement shall at all times be open to inspection by any stockholder, as provided by law. 5. DIVIDEND the full and absolute beneficial interest in the shares subject of this Agreement shall remain with the stockholders executing the same and any all dividends which may be declared by the CORPORATION shall belong and be paid to them exclusively in accordance with their stockholdings after deducting therefrom or applying the same to whatever liabilities the stockholders may have in favor of the TRUSTEE by virtue of any Agreement or Contract that may have been or will be executed by and between the TRUSTEE and the CORPORATION or between the former and the undersigned stockholders. 6 COMPENSATION; IMMUNITY The TRUSTEE or its successor in trust shall not receive any compensation for its serviceexcept perhaps that which the CORPORATION may grant to the TRUSTEE's authorized representative, if any.

Expenses costs, champs, and other liabilities incurred in the carrying out of the but herein established or by reason thereof, shall be paid for with the funds of the CORPORATION. The TRUSTEE or any of its duly authorized representative shall incur no liability by reason of any error of law or of any matter or thing done or omitted under this Agreement, except for his own individual malfeasance. 7. REPRESENTATION The TRUSTEE, being a corporation and a juridical person shall accomplish the foregoing objectives and perform its functions under this Agreement as well as enjoy and exercise the powers, privileges, rights and interests herein established through its duly authorized and accredited re resentatives . p with full authority under the specific appointment or designation or Proxy. 8. IRREVOCABILITY This Agreement shall during its 5-year term or any extension thereof be binding upon and inure to the benefit of the undersigned stockholders and their respective legal representatives, pledges, transferees, and/or assigns and shall be irrevocable during the said terms and/or its extension pursuant to the provisions of paragraph 1 hereof. It is hereby understood and the undersigned stockholders have bound as they hereby bind themselves to make a condition of every pledge, transfer of assignment of their interests in the CORPORATION that the interests and participation so pledged, transferred or assigned is evidenced by annotations in the certificates of stocks or in the books of the corporation, shall be subject to this Agreement and the same shall be binding upon the pledgees, transferees and assigns while the trust herein created still subsists. 9. TERMINATION Upon termination of this Agreement as heretofore provided, the certificates delivered to the TRUSTEE by virtue hereof shall be returned and delivered to the undersigned stockholders as the absolute owners thereof, upon surrender of their respective voting trust certificates, and the duties of the TRUSTEE shall cease and terminate. 10. ACCEPTANCE OF TRUST The TRUSTEE hereby accepts the trust created by this Agreement under the signature of its duly authorized representative affixed hereinbelow and agrees to perform the same in accordance with the term/s hereof. IN WITNTESS HEREOF, the undersigned stockholders and the TRUSTEE by its representatives, have hereunto affixed their signatures this 26 day of October, 1965 in the City of Manila, Philippines. (SGD) JAMES A. KEISER (SGD) JOHNNY LIEUSON Stockholder Stockholder CBM FINANCE & INVESTMENT CORPORATION By: (SGD) C.B. MENDOZA President ESPERANZA A. ZAMORA (SGD) ALEJANDRO G. BELTRAN By: (SGD) MARIANO ZAMORA Stockholder

ESPERANZA A. ZAMORA (SGD) FIDELA DE GUZMAN (SGD) CIRIACO B. MENDOZA Stockholder Stockholder (SGD) RENATO B. BEJAR (SGD) LLOYD D. COMBS Stockholder Stockholder NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION By: (SGD) IGNACIO DEBUQUE JR. VicePreside nt 5 In July 1967, forced by the insolvency of Batjak, PNB instituted extrajudicial foreclosure proceedings against the oil mills of Batjak located in Tanauan, Leyte and Jimenez, Misamis Occidental. The properties were sold to PNB as the highest bidder. One year thereafter, or in September 1968, final Certificates of Sale were issued by the provincial sheriffs of Leyte 6 and Misamis Occidental 7 for the
two (2) oil mills in Tanauan and Jimenez in favor of PNB, after Batjak failed to exercise its right to redeem the foreclosed properties within the allowable one year period of redemption. Subsequently, PNB transferred the ownership of the two (2) oil mills to NIDC which, as aforestated, was a wholly-owned PNB subsidiary.

As regards the oil mill located at Sasa, Davao City, the same was similarly foreclosed extrajudicial by NIDC. It was sold to NIDC as the highest bidder. After Batjak failed to redeem the property, NIDC consolidated its ownership of the oil mill. 8 Three (3) years thereafter, or on 31 August 1970, Batjak represented by majority stockholders, through Atty. Amado Duran, legal counsel of private respondent Batjak, wrote a letter to NIDC inquiring if the latter was still interested in negotiating the renewal of the Voting Trust Agreement. 9 On 22 September 1970, legal counsel of Batjak wrote another letter to NIDC informing the
latter that Batjak would now safely assume that NIDC was no longer interested in the renewal of said Voting Trust Agreement and, in view thereof, requested for the turn-over and transfer of all Batjak assets, properties, management and operations. 10

On 23 September 1970, legal counsel of Batjak sent stin another letter to NIDC, this time asking for a complete accounting of the assets, properties, management and operation of Batjak, preparatory to their turn-over and transfer to the stockholders of Batjak. 11

NIDC replied, confirming the fact that it had no intention whatsoever to comply with the demands of Batjak. 12 On 24 February 1971, Batjak filed before the Court of First Instance of Rizal a special civil action for mandamus with preliminary injunction against herein petitioners docketed as Civil Case No. 14452. 13 On 14 April 1971, in said Civil Case No. 14452, Batjak filed an urgent ex parte motion for the issuance of a writ of preliminary prohibitory and mandatory injunction. 14 On the same day, respondent
judge issued a restraining order "prohibiting defendants (herein petitioners) from removing any record, books, commercial papers or cash, and leasing, renting out, disposing of or otherwise transferring any or all of the properties, machineries, raw materials and finished products and/or by-products thereof now in the factory sites of the three (3) modem coco milling plants situated in Jimenez, Misamis Occidental, Sasa, Davao City, and Tanauan, Leyte." 15

The order of 14 April 1971 was subsequently amended by respondent judge upon an ex parte motion of private respondent Batjak so as to include the premises of NIDC in Makati and those of PNB in Manila, as among the premises which private respondent Batjak was authorized to enter in order to conduct an inventory. On 24 April 1971, NIDC and PNB filed an opposition to the ex parte application for the issuance of a writ of preliminary prohibitory and mandatory injunction and a motion to set aside restraining order. Before the court could act on the said motion, private respondent Batjak filed on 3 May 1971 a petition for receivership as alternative to writ of preliminary prohibitory and mandatory injunction. 16 This was opposed by PNB and NIDC . 17 On 8 May 1971., NIDC and PNB filed a motion to dismiss Batjak's complaints. 18 On 16 August 1971, respondent judge issued the now assailed order denying petitioners' motion to dismiss and appointing a set of three (3) receivers. 19 NIDC moved for reconsideration of the aforesaid
order. 20 On 30 September 1971, respondent judge denied the motion for reconsideration.
21

Hence, these two (2) petitions, which have been consolidated, as they involve a resolution of the same issues. In their manifestation with motion for early decision, dated 25 August 1986, private respondent, Batjak contends that the NIDC has already been abolished or scrapped by its parent company, the PNB. After a careful study and examination of the records of the case, the Court finds and holds for the petitioners. 1. On the denial of petitioners' motion to dismiss. As a general rule, an order denying a motion to quash or to dismiss is interlocutory and cannot be the subject of a petition for certiorari. The remedy of the aggrieved party in a denied motion to dismiss is to file an answer and interpose, as defense or defenses, the objection or objections raised by him in said motion to dismiss, then proceed to trial and, in case of adverse decision, to elevate the entire case by appeal in due course. However, under certain situations, recourse to the extraordinary legal remedies of certiorari, prohibition and mandamus to question the denial of a motion to dismiss or quash is considered proper, in the interest of more enlightened and substantial justice. As the court said in Pineda and Ampil Manufacturing Co. vs. Bartolome, 95 Phil. 930,938

For analogous reasons it may be said that the petition for certiorari interposed by the accused against the order of the court a quo denying the motion to quash may be entertained, not only because it was rendered in a criminal case, but because it was rendered, as claimed, with grave abuse of discretion, as found by the Court of Appeals. .. and reiterated in Mead v. Argel 22 citing Yap v. Lutero (105 Phil. 1307): However, were we to require adherence to this pretense, the case at bar would have to be dismissed and petitioner required to go through the inconvenience, not to say the mental agony and torture, of submitting himself to trial on the merits in Case No. 166443, apart from the expenses incidental thereto, despite the fact that his trial and conviction therein would violate one of this [sic] constitutional rights, and that, an appeal to this Court, we would, therefore, have to set aside the judgment of conviction of the lower court. This would, obviously, be most unfair and unjust. Under the circumstances obtaining the present case, the flaw in the procedure followed by petitioner herein may be overlooked, in the interest of a more enlightened and substantial justice. Thus, where there is patent grave abuse of discretion, in denying the motion to dismiss, as in the present case, this Court may entertain the petition for certiorari interposed by the party against whom the said order is issued. In their motion to dismiss Batjaks complaint, in Civil Case No. 14452, NIDC and PNB raised common grounds for its allowance, to wit: 1. This Honorable Court (the trial court) has no jurisdiction over the subject of the action or suit; 2. The venue is improperly laid; and 3. Plaintiff has no legal capacity to sue. In addition, PNB contended that the complaint states no cause of action (Rule 16, Sec. 1, Par. a, c, d & g, Rules of Court). Anent the first ground, it is a well-settled rule that the jurisdiction of a Court of First Instance to issue a writ of preliminary or permanent injunction is confined within the boundaries of the province where the land in controversy is situated. 23 The petition for mandamus of Batjak prayed that NIDC and PNB
be ordered to surrender, relinquish and turnover to Batjak the assets, management and operation of Batjak particularly the three (3) oil mills located in Sasa, Davao City, Jimenez, Misamis Occidental and Tanauan, Leyte.

Clearly, what Batjak asked of respondent court was the exercise of power or authority outside its jurisdiction. On the matter of proper venue, Batjak's complaint should have been filed in the provinces where said oil mills are located. Under Rule 4, Sec. 2, paragraph A of the Rules of Court, "actions affecting title to, or for recovery of possession, or for partition or condemnation of, or foreclosure of mortgage on, real property, shall be commenced and tried in the province where the property or any part thereof lies."

In support of the third ground of their motion to dismiss, PNB and NIDC contend that Batjak's complaint for mandamus is based on its claim or right to recovery of possession of the three (3) oil mills, on the ground of an alleged breach of fiduciary relationship. Noteworthy is the fact that, in the Voting Trust Agreement, the parties thereto were NIDC and certain stockholders of Batjak. Batjak itself was not a signatory thereto. Under Sec. 2, Rule 3 of the Rules of Court, every action must be prosecuted and defended in the name of the real party in interest. Applying the rule in the present case, the action should have been filed by the stockholders of Batjak, who executed the Voting Trust Agreement with NIDC, and not by Batjak itself which is not a party to said agreement, and therefore, not the real party in interest in the suit to enforce the same. In addition, PNB claims that Batjak has no cause of action and prays that the petition for mandamus be dismissed. A careful reading of the Voting Trust Agreement shows that PNB was really not a party thereto. Hence, mandamus will not lie against PNB. Moreover, the action instituted by Batjak before the respondent court was a special civil action for mandamus with prayer for preliminary mandatory injunction. Generally, mandamus is not a writ of right and its allowance or refusal is a matter of discretion to be exercised on equitable principles and in accordance with well-settled rules of law, and that it should never be used to effectuate an injustice, but only to prevent a failure of justice. 24 The writ does not issue as a matter of course. It will
issue only where there is a clear legal right sought to be enforced. It will not issue to enforce a doubtful right. A clear legal right within the meaning of Sec. 3, Rule 65 of the Rules of Court means a right clearly founded in or granted by law, a right which is enforceable as a matter of law.

Applying the above-cited principles of law in the present case, the Court finds no clear right in Batjak to be entitled to the writ prayed for. It should be noted that the petition for mandamus filed by it prayed that NIDC and PNB be ordered to surrender, relinquish and turn-over to Batjak the assets, management, and operation of Batjak particularly the three (3) oil mills and to make the order permanent, after trial, and ordering NIDC and PNB to submit a complete accounting of the assets, management and operation of Batjak from 1965. In effect, what Batjak seeks to recover is title to, or possession of, real property (the three (3) oil mills which really made up the assets of Batjak) but which the records show already belong to NIDC. It is not disputed that the mortgages on the three (3) oil mills were foreclosed by PNB and NIDC and acquired by them as the highest bidder in the appropriate foreclosure sales. Ownership thereto was subsequently consolidated by PNB and NIDC, after Batjak failed to exercise its right of redemption. The three (3) oil mills are now titled in the name of NIDC. From the foregoing, it is evident that Batjak had no clear right to be entitled to the writ prayed for. In Lamb vs. Philippines (22 Phil. 456) citing the case of Gonzales V. Salazar vs. The Board of Pharmacy, 20 Phil. 367, the Court said that the writ of mandamus will not issue to give to the applicant anything to which he is not entitled by law. 2. On the appointment of receiver. A receiver of real or personal property, which is the subject of the action, may be appointed by the court when it appears from the pleadings that the party applying for the appointment of receiver has an interest in said property.25 The right, interest, or claim in property, to entitle one to a receiver over it,
must be present and existing.

As borne out by the records of the case, PNB acquired ownership of two (2) of the three (3) oil mills by virtue of mortgage foreclosure sales. NIDC acquired ownership of the third oil mill also under a mortgage foreclosure sale. Certificates of title were issued to PNB and NIDC after the lapse of the one (1) year redemption period. Subsequently, PNB transferred the ownership of the two (2) oil mills to NIDC. There can be no doubt, therefore, that NIDC not only has possession of, but also title to the three (3) oil mills formerly owned by Batjak. The interest of Batjak over the three (3) oil mills ceased

upon the issuance of the certificates of title to PNB and NIDC confirming their ownership over the said properties. More so, where Batjak does not impugn the validity of the foreclosure proceedings. Neither Batjak nor its stockholders have instituted any legal proceedings to annul the mortgage foreclosure aforementioned. Batjak premises its right to the possession of the three (3) off mills on the Voting Trust Agreement, claiming that under said agreement, NIDC was constituted as trustee of the assets, management and operations of Batjak, that due to the expiration of the Voting Trust Agreement, on 26 October 1970, NIDC should tum over the assets of the three (3) oil mills to Batjak. The relevant provisions of the Voting Trust Agreement, particularly paragraph 4 & No. 1 thereof, are hereby reproduced: NOW THEREFORE, the undersigned stockholders, in consideration of the premises and of the mutual covenants and agreements herein contained and to carry out the foregoing purposes in order to vest in the TRUSTEE the voting right.8 of the shares of stock held by the undersigned in the CORPORATION as hereinafter stated it is mutually agreed as follows: 1. PERIOD OF DESIGNATION For a period of five (5) years from and after date hereof, without power of revocation on the part of the SUBSCRIBERS, the TRUSTEE designated in the manner herein provided is hereby made, constituted and appointed as a VOTING TRUSTEE to act for and in the name of the SUBSCRIBERS, it being understood, however, that this Voting Trust Agreement shall, upon its expiration be subject to a re-negotiation between the parties, as may be warranted by the balance and attending circumstance of the loan investment of the TRUSTEE or otherwise in the CORPORATION. and No. 3 thereof reads: 3. VOTING POWER OF TRUSTEE The TRUSTEE and its successors in trust, if any, shall have the power and it shall be its duty to vote the shares of the undersigned subject hereof and covered by this Agreement at all annual, adjourned and special meetings of the CORPORATION on all questions, motions, resolutions and matters including the election of directors and all such matters on which the stockholders, by virtue of the by-laws of the CORPORATION and of the existing legislations are entitled to vote, which may be voted upon at any and all said meetings and shall also have the power to execute and acknowledge any agreements or documents that may be necessary in its opinion to express the consent or assent of all or any of the stockholders of the CORPORATION with respect to any matter or thing to which any consent or assent of the stockholders may be necessary, proper or convenient. From the foregoing provisions, it is clear that what was assigned to NIDC was the power to vote the shares of stock of the stockholders of Batjak, representing 60% of Batjak's outstanding shares, and who are the signatories to the agreement. The power entrusted to NIDC also included the authority to execute any agreement or document that may be necessary to express the consent or assent to any matter, by the stockholders. Nowhere in the said provisions or in any other part of the Voting Trust Agreement is mention made of any transfer or assignment to NIDC of Batjak's assets, operations, and management. NIDC was constituted as trustee only of the voting rights of 60% of the paid-up and outstanding shares of stock in Batjak. This is confirmed by paragraph No. 9 of the Voting Trust Agreement, thus:

9. TERMINATION Upon termination of this Agreement as heretofore provided, the certificates delivered to the TRUSTEE by virtue hereof shall be returned and delivered to the undersigned stockholders as the absolute owners thereof, upon surrender of their respective voting trust certificates, and the duties of the TRUSTEE shall cease and terminate.Under the aforecited provision, what was to be returned by NIDC as trustee to Batjak's stockholders, upon the termination of the agreement, are the certificates of shares of stock belonging to Batjak's stockholders, not the properties or assets of Batjak itself which were never delivered, in the first place to NIDC, under the terms of said Voting Trust Agreement. In any event, a voting trust transfers only voting or other rights pertaining to the shares subject of the agreement or control over the stock. The law on the matter is Section 59, Paragraph 1 of the Corporation Code (BP 68) which provides: Sec. 59. Voting Trusts One or more stockholders of a stock corporation may create a voting trust for the purpose of confering upon a trustee or trusties the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at any one time: ... 26 The acquisition by PNB-NIDC of the properties in question was not made or effected under the capacity of a trustee but as a foreclosing creditor for the purpose of recovering on a just and valid obligation of Batjak. Moreover, the prevention of imminent danger to property is the guiding principle that governs courts in the matter of appointing receivers. Under Sec. 1 (b), Rule 59 of the Rules of Court, it is necessary in granting the relief of receivership that the property or fired be in danger of loss, removal or material injury. In the case at bar, Batjak in its petition for receivership, or in its amended petition therefor, failed to present any evidence, to establish the requisite condition that the property is in danger of being lost, removed or materially injured unless a receiver is appointed to guard and preserve it. WHEREFORE, the petitions are GRANTED. The orders of the respondent judge, dated 16 August 1971 and 30 September 1971, are hereby ANNULLED and SET ASIDE. The respondent judge and/or his successors are ordered to desist from hearing and/or conducting any further proceedings in Civil Case No. 14452, except to dismiss the same. With costs against private respondents. SO ORDERED. G.R. No. 93695 February 4, 1992 RAMON C. LEE and ANTONIO DM. LACDAO, petitioners, vs. THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS GONZALES, respondents. Cayanga, Zuniga & Angel Law Offices for petitioners. Timbol & Associates for private respondents.

GUTIERREZ, JR., J.: What is the nature of the voting trust agreement executed between two parties in this case? Who owns the stocks of the corporation under the terms of the voting trust agreement? How long can a voting trust agreement remain valid and effective? Did a director of the corporation cease to be such upon the creation of the voting trust agreement? These are the questions the answers to which are necessary in resolving the principal issue in this petition for certiorari whether or not there was proper service of summons on Alfa Integrated Textile Mills (ALFA, for short) through the petitioners as president and vice-president, allegedly, of the subject corporation after the execution of a voting trust agreement between ALFA and the Development Bank of the Philippines (DBP, for short). From the records of the instant case, the following antecedent facts appear: On November 15, 1985, a complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private respondents who, in turn, filed a third party complaint against ALFA and the petitioners on March 17, 1986. On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint which the Regional Trial Court of Makati, Branch 58 denied in an Order dated June 27, 1988. On July 18, 1988, the petitioners filed their answer to the third party complaint. Meanwhile, on July 12, 1988, the trial court issued an order requiring the issuance of an alias summons upon ALFA through the DBP as a consequence of the petitioner's letter informing the court that the summons for ALFA was erroneously served upon them considering that the management of ALFA had been transferred to the DBP. In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to receive summons on behalf of ALFA since the DBP had not taken over the company which has a separate and distinct corporate personality and existence. On August 4, 1988, the trial court issued an order advising the private respondents to take the appropriate steps to serve the summons to ALFA. On August 16, 1988, the private respondents filed a Manifestation and Motion for the Declaration of Proper Service of Summons which the trial court granted on August 17, 1988. On September 12, 1988, the petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of the Revised Rules of Court is not applicable since they were no longer officers of ALFA and that the private respondents should have availed of another mode of service under Rule 14, Section 16 of the said Rules, i.e.,through publication to effect proper service upon ALFA. In their Comment to the Motion for Reconsideration dated September 27, 1988, the private respondents argued that the voting trust agreement dated March 11, 1981 did not divest the petitioners of their positions as president and executive vice-president of ALFA so that service of summons upon ALFA through the petitioners as corporate officers was proper.

On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA through the petitioners, thus, denying the latter's motion for reconsideration and requiring ALFA to filed its answer through the petitioners as its corporate officers. On January 19, 1989, a second motion for reconsideration was filed by the petitioners reiterating their stand that by virtue of the voting trust agreement they ceased to be officers and directors of ALFA, hence, they could no longer receive summons or any court processes for or on behalf of ALFA. In support of their second motion for reconsideration, the petitioners attached thereto a copy of the voting trust agreement between all the stockholders of ALFA (the petitioners included), on the one hand, and the DBP, on the other hand, whereby the management and control of ALFA became vested upon the DBP. On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated January 2, 1989 and declared that service upon the petitioners who were no longer corporate officers of ALFA cannot be considered as proper service of summons on ALFA. On May 15, 1989, the private respondents moved for a reconsideration of the above Order which was affirmed by the court in its Order dated August 14, 1989 denying the private respondent's motion for reconsideration. On September 18, 1989, a petition for certiorari was belatedly submitted by the private respondent before the public respondent which, nonetheless, resolved to give due course thereto on September 21, 1989. On October 17, 1989, the trial court, not having been notified of the pending petition for certiorari with public respondent issued an Order declaring as final the Order dated April 25, 1989. The private respondents in the said Order were required to take positive steps in prosecuting the third party complaint in order that the court would not be constrained to dismiss the same for failure to prosecute. Subsequently, on October 25, 1989 the private respondents filed a motion for reconsideration on which the trial court took no further action. On March 19, 1990, after the petitioners filed their answer to the private respondents' petition for certiorari, the public respondent rendered its decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25, 1989 and August 14, 1989 are hereby SET ASIDE and respondent corporation is ordered to file its answer within the reglementary period. (CA Decision, p. 8; Rollo, p. 24) On April 11, 1990, the petitioners moved for a reconsideration of the decision of the public respondent which resolved to deny the same on May 10, 1990. Hence, the petitioners filed this certiorari petition imputing grave abuse of discretion amounting to lack of jurisdiction on the part of the public respondent in reversing the questioned Orders dated April 25, 1989 and August 14, 1989 of the court a quo, thus, holding that there was proper service of summons on ALFA through the petitioners. In the meantime, the public respondent inadvertently made an entry of judgment on July 16, 1990 erroneously applying the rule that the period during which a motion for reconsideration has been pending must be deducted from the 15-day period to appeal. However, in its Resolution dated January 3, 1991, the public respondent set aside the aforestated entry of judgment after further considering that the rule it relied on applies to appeals from decisions of the Regional Trial Courts to the Court of Appeals, not to appeals from its decision to us pursuant to our ruling in the case

of Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [1989]. (CA Rollo, pp. 249-250) In their memorandum, the petitioners present the following arguments, to wit: (1) that the execution of the voting trust agreement by a stockholders whereby all his shares to the corporation have been transferred to the trustee deprives the stockholders of his position as director of the corporation; to rule otherwise, as the respondent Court of Appeals did, would be violative of section 23 of the Corporation Code ( Rollo, pp. 270-3273); and (2) that the petitioners were no longer acting or holding any of the positions provided under Rule 14, Section 13 of the Rules of Court authorized to receive service of summons for and in behalf of the private domestic corporation so that the service of summons on ALFA effected through the petitioners is not valid and ineffective; to maintain the respondent Court of Appeals' position that ALFA was properly served its summons through the petitioners would be contrary to the general principle that a corporation can only be bound by such acts which are within the scope of its officers' or agents' authority (Rollo, pp. 273-275) In resolving the issue of the propriety of the service of summons in the instant case, we dwell first on the nature of a voting trust agreement and the consequent effects upon its creation in the light of the provisions of the Corporation Code. A voting trust is defined in Ballentine's Law Dictionary as follows: (a) trust created by an agreement between a group of the stockholders of a corporation and the trustee or by a group of identical agreements between individual stockholders and a common trustee, whereby it is provided that for a term of years, or for a period contingent upon a certain event, or until the agreement is terminated, control over the stock owned by such stockholders, either for certain purposes or for all purposes, is to be lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the power to direct how such control shall be used. (98 ALR 2d. 379 sec. 1 [d]; 19 Am J 2d Corp. sec. 685). Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a more definitive meaning may be gathered. The said provision partly reads: Sec. 59. Voting Trusts One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period rights pertaining to the shares for a period not exceeding five (5) years at any one time: Provided, that in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding (5) years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it

shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement. By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation. (5 Fletcher, Cyclopedia of the Law on Private Corporations, section 2075 [1976] p. 331citing Tankersly v. Albright, 374 F. Supp. 538) Under section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a trustee not only the stockholder's voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not entered "for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud." (section 59, 5th paragraph of the Corporation Code) Thus, the traditional concept of a voting trust agreement primarily intended to single out a stockholder's right to vote from his other rights as such and made irrevocable for a limited duration may in practice become a legal device whereby a transfer of the stockholder's shares is effected subject to the specific provision of the voting trust agreement. The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of the corporate shares of a stockholders, on the one hand, and the legal title thereto on the other hand. The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory conditions and such other terms and conditions specified in the agreement. The five year-period may be extended in cases where the voting trust is executed pursuant to a loan agreement whereby the period is made contingent upon full payment of the loan. In the instant case, the point of controversy arises from the effects of the creation of the voting trust agreement. The petitioners maintain that with the execution of the voting trust agreement between them and the other stockholders of ALFA, as one party, and the DBP, as the other party, the former assigned and transferred all their shares in ALFA to DBP, as trustee. They argue that by virtue to of the voting trust agreement the petitioners can no longer be considered directors of ALFA. In support of their contention, the petitioners invoke section 23 of the Corporation Code which provides, in part, that: Every director must own at least one (1) share of the capital stock of the corporation of which he is a director which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be director . . . (Rollo, p. 270) The private respondents, on the contrary, insist that the voting trust agreement between ALFA and the DBP had all the more safeguarded the petitioners' continuance as officers and directors of ALFA inasmuch as the general object of voting trust is to insure permanency of the tenure of the directors

of a corporation. They cited the commentaries by Prof. Aguedo Agbayani on the right and status of the transferring stockholders, to wit: The "transferring stockholder", also called the "depositing stockholder", is equitable owner for the stocks represented by the voting trust certificates and the stock reversible on termination of the trust by surrender. It is said that the voting trust agreement does not destroy the status of the transferring stockholders as such, and thus render them ineligible as directors. But a more accurate statement seems to be that for some purposes the depositing stockholder holding voting trust certificates in lieu of his stock and being the beneficial owner thereof, remains and is treated as a stockholder. It seems to be deducible from the case that he may sue as a stockholder if the suit is in equity or is of an equitable nature, such as, a technical stockholders' suit in right of the corporation. [Commercial Laws of the Philippines by Agbayani, Vol. 3 pp. 492-493, citing 5 Fletcher 326, 327] (Rollo, p. 291) We find the petitioners' position meritorious. Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting trust agreement on the status of a stockholder who is a party to its execution from legal titleholder or owner of the shares subject of the voting trust agreement, he becomes the equitable or beneficial owner. (Salonga,Philippine Law on Private Corporations, 1958 ed., p. 268; Pineda and Carlos, The Law on Private Corporations and Corporate Practice, 1969 ed., p. 175; Campos and Lopez-Campos, The Corporation Code; Comments, Notes & Selected Cases, 1981, ed., p. 386; Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. 3, 1988 ed., p. 536). The penultimate question, therefore, is whether the change in his status deprives the stockholder of the right to qualify as a director under section 23 of the present Corporation Code which deletes the phrase "in his own right." Section 30 of the old Code states that: Every director must own in his own right at least one share of the capital stock of the stock corporation of which he is a director, which stock shall stand in his name on the books of the corporation. A director who ceases to be the owner of at least one share of the capital stock of a stock corporation of which is a director shall thereby cease to be a director . . . (Emphasis supplied) Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the simple act of such director being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of the voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the trustee is required (section 36 of the old Corporation Code). No disqualification arises by virtue of the phrase "in his own right" provided under the old Corporation Code. With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized (see Campos and Lopez-Campos, supra, p. 296) Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of the corporation (2 Fletcher, Cyclopedia of the Law of Private Corporations, section 300, p. 92 [1969]citing People v. Lihme, 269 Ill. 351, 109 N.E. 1051). The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed of all their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners ceased to own at least one share standing in their names on the books

of ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to do with the management of the enterprise. The petitioners ceased to be directors. Hence, the transfer of the petitioners' shares to the DBP created vacancies in their respective positions as directors of ALFA. The transfer of shares from the stockholder of ALFA to the DBP is the essence of the subject voting trust agreement as evident from the following stipulations: 1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of the stocks owned by them respectively and shall do all things necessary for the transfer of their respective shares to the TRUSTEE on the books of ALFA. 2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of shares transferred, which shall be transferrable in the same manner and with the same effect as certificates of stock subject to the provisions of this agreement; 3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special, upon any resolution, matter or business that may be submitted to any such meeting, and shall possess in that respect the same powers as owners of the equitable as well as the legal title to the stock; 4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of qualifying such person as director of ALFA, and cause a certificate of stock evidencing the share so transferred to be issued in the name of such person; xxx xxx xxx 9. Any stockholder not entering into this agreement may transfer his shares to the same trustees without the need of revising this agreement, and this agreement shall have the same force and effect upon that said stockholder. (CA Rollo, pp. 137-138; Emphasis supplied) Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stock covered by the agreement to the DBP as trustee, the latter became the stockholder of record with respect to the said shares of stocks. In the absence of a showing that the DBP had caused to be transferred in their names one share of stock for the purpose of qualifying as directors of ALFA, the petitioners can no longer be deemed to have retained their status as officers of ALFA which was the case before the execution of the subject voting trust agreement. There appears to be no dispute from the records that DBP has taken over full control and management of the firm. Moreover, in the Certification dated January 24, 1989 issued by the DBP through one Elsa A. Guevarra, Vice-President of its Special Accounts Department II, Remedial Management Group, the petitioners were no longer included in the list of officers of ALFA "as of April 1982." (CA Rollo, pp. 140-142) Inasmuch as the private respondents in this case failed to substantiate their claim that the subject voting trust agreement did not deprive the petitioners of their position as directors of ALFA, the public respondent committed a reversible error when it ruled that: . . . while the individual respondents (petitioners Lee and Lacdao) may have ceased to be president and vice-president, respectively, of the corporation at the time of service of summons on them on August 21, 1987, they were at least up to that time, still directors . . .

The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation No. 4 of the subject voting trust agreement. Both parties, ALFA and the DBP, were aware at the time of the execution of the agreement that by virtue of the transfer of shares of ALFA to the DBP, all the directors of ALFA were stripped of their positions as such. There can be no reliance on the inference that the five-year period of the voting trust agreement in question had lapsed in 1986 so that the legal title to the stocks covered by the said voting trust agreement ipso facto reverted to the petitioners as beneficial owners pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads: Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust certificate as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors. On the contrary, it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP. This is shown by the following portions of the agreement. WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a first mortgage on the manufacturing plant of said company; WHEREAS, ALFA is also indebted to other creditors for various financial accomodations and because of the burden of these obligations is encountering very serious difficulties in continuing with its operations. WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA had offered and the TRUSTEE has accepted participation in the management and control of the company and to assure the aforesaid participation by the TRUSTEE, the TRUSTORS have agreed to execute a voting trust covering their shareholding in ALFA in favor of the TRUSTEE; AND WHEREAS, DBP is willing to accept the trust for the purpose aforementioned. NOW, THEREFORE, it is hereby agreed as follows: xxx xxx xxx 6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as the obligations of ALFA with DBP, or any portion thereof, remains outstanding; (CA Rollo, pp. 137-138) Had the five-year period of the voting trust agreement expired in 1986, the DBP would not have transferred all its rights, titles and interests in ALFA "effective June 30, 1986" to the national government through the Asset Privatization Trust (APT) as attested to in a Certification dated January 24, 1989 of the Vice President of the DBP's Special Accounts Department II. In the same certification, it is stated that the DBP, from 1987 until 1989, had handled APT's account which included ALFA's assets pursuant to a management agreement by and between the DBP and APT (CA Rollo, p. 142) Hence, there is evidence on record that at the time of the service of summons on

ALFA through the petitioners on August 21, 1987, the voting trust agreement in question was not yet terminated so that the legal title to the stocks of ALFA, then, still belonged to the DBP. In view of the foregoing, the ultimate issue of whether or not there was proper service of summons on ALFA through the petitioners is readily answered in the negative. Under section 13, Rule 14 of the Revised Rules of Court, it is provided that: Sec. 13. Service upon private domestic corporation or partnership. If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent or any of its directors. It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 [1976]; Osias Academy v. Department of Labor and Employment, et al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above rule on service of processes of a corporation enumerates the representatives of a corporation who can validly receive court processes on its behalf. Not every stockholder or officer can bind the corporation considering the existence of a corporate entity separate from those who compose it. The rationale of the aforecited rule is that service must be made on a representative so integrated with the corporation sued as to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him. (Far Corporation v. Francisco, 146 SCRA 197 [1986] citing Villa Rey Transit, Inc. v. Far East Motor Corp. 81 SCRA 303 [1978]). The petitioners in this case do not fall under any of the enumerated officers. The service of summons upon ALFA, through the petitioners, therefore, is not valid. To rule otherwise, as correctly argued by the petitioners, will contravene the general principle that a corporation can only be bound by such acts which are within the scope of the officer's or agent's authority. (see Vicente v. Geraldez, 52 SCRA 210 [1973]). WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed decision dated March 19, 1990 and the Court of Appeals' resolution of May 10, 1990 are SET ASIDE and the Orders dated April 25, 1989 and October 17, 1989 issued by the Regional Trial Court of Makati, Branch 58 are REINSTATED. SO ORDERED. 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 PreSubscription 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 PreSubscription 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 PreSubscription 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 PreSubscription 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 theparties 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,22provides 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 illequipped 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--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. After all is said and done, no one can close his eyes to the fact that the Masagana Citimall would not be what it has become today were it not for the timely infusion of P190 million by the Ongs in 1994. There are no ifs or buts about it. 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, 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. Costs against the petitioner Tius. SO ORDERED. G.R. No. 123553 July 13, 1998 (CA-G.R. No. 33291) July 13, 1998 NORA A. BITONG, petitioner, vs. COURT OF APPEALS (FIFTH DIVISION), EUGENIA D. APOSTOL, JOSE A. APOSTOL, MR. & MS. PUBLISHING CO., LETTY J. MAGSANOC, AND ADORACION G. NUYDA, respondents. (CA-G.R. No. 33873) July 13, 1998 NORA A. BITONG, petitioner, vs.

COURT OF APPEALS (FIFTH DIVISION) and EDGARDO B. ESPIRITU, respondents.

BELLOSILLO, J.: These twin cases originated from a derivative suit 1 filed by petitioner Nora A. Bitong before
the Securities and Exchange Commission (SEC hereafter) allegedly for the benefit of private respondent Mr. & Ms. Publishing Co., Inc. (Mr. & Ms. hereafter), among others, to hold respondent spouses Eugenia D. Apostol and Jose A. Apostol 2 liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs of Mr. & Ms. to the damage and prejudice of Mr. & Ms. and its stockholders, including petitioner.

Alleging before the SEC that she had been the Treasurer and a Member of the Board of Directors of Mr. & Ms. from the time it was incorporated on 29 October 1976 to 11 April 1989, and was the registered owner of 1,000 shares of stock out of the 4,088 total outstanding shares, petitioner complained of irregularities committed from 1983 to 1987 by Eugenia D. Apostol, President and Chairperson of the Board of Directors. Petitioner claimed that except for the sale of the name Philippine Inquirer to Philippine Daily Inquirer (PDI hereafter) all other transactions and agreements entered into by Mr. & Ms. with PDI were not supported by any bond and/or stockholders' resolution. And, upon instructions of Eugenia D. Apostol, Mr. & Ms. made several cash advances to PDI on various occasions amounting to P3.276 million. On some of these borrowings PDI paid no interest whatsoever. Despite the fact that the advances made by Mr. & Ms. to PDI were booked as advances to an affiliate, there existed no board or stockholders' resolution, contract nor any other document which could legally authorize the creation of and support to an affiliate. Petitioner further alleged that respondents Eugenia and Jose Apostol were stockholders, directors and officers in both Mr. & Ms. and PDI. In fact on 2 May 1986 respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda subscribed to PDI shares of stock at P50,000.00 each or a total of P150,000.00. The stock subscriptions were paid for by Mr. & Ms. and initially treated, as receivables from officers and employees. But, no payments were ever received from respondents, Magsanoc and Nuyda. The petition principally sought to (a) enjoin respondents Eugenia D. Apostol and Jose A. Apostol from further acting as president-director and director, respectively, of Mr. & Ms. and disbursing any money or funds except for the payment of salaries and similar expenses in the ordinary course of business, and from disposing of their Mr. & Ms. shares; (b) enjoin respondents Apostol spouses, Magsanoc and Nuyda from disposing of the PDI shares of stock registered in their names; (c) compel respondents Eugenia and Jose Apostol to account for and reconvey all profits and benefits accruing to them as a result of their improper and fraudulent acts; (d) compel respondents Magsanoc and Nuyda to account for and reconvey to Mr. & Ms. all shares of stock paid from cash advances from it and all accessions or fruits thereof; (e) hold respondents Eugenia and Jose Apostol liable for damages suffered by Mr. & Ms. and the other stockholders, including petitioner, by reason of their improper and fraudulent acts; (f) appoint a management committee for Mr. & Ms. during the pendency of the suit to prevent further dissipation and loss of its assets and funds as well as paralyzation of business operations; and, (g) direct the management committee for Mr. & Ms. to file the necessary action to enforce its rights against PDI and other third parties. Private respondents Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms., on the other hand, refuted the allegations of petitioner by starting with a narration of the beginnings of Mr. & Ms. They recounted that on 9 March 1976 Ex Libris Publishing Co., Inc. (Ex Libris hereafter) was incorporated for the purpose of publishing a weekly magazine. Its original principal stockholders were spouses

Senator Juan Ponce Enrile (then Minister of National Defense) and Cristina Ponce Enrile through Jaka Investments Corporation (JAKA hereafter), and respondents Eugenia and Jose Apostol. When Ex Libris suffered financial difficulties, JAKA and the Apostols, together with new investors Luis Villafuerte and Ramon Siy, restructured Ex Libris by organizing a new corporation known as Mr. & Ms. The original stockholders of Mr. & Ms., i.e., JAKA, Luis Villafuerte, Ramon Siy, the Apostols and Ex Libris continued to be virtually the same up to 1989. Thereafter it was agreed among them that, they being close friends, Mr. & Ms.would be operated as a partnership or a close corporation; respondent Eugenia D. Apostol would manage the affairs of Mr. & Ms.; and, no shares of stock would be sold to third parties without first offering the shares to the other stockholders so that transfers would be limited to and only among the original stockholders. Private respondents also asserted that respondent Eugenia D. Apostol had been informing her business partners of her actions as manager, and obtaining their advice and consent. Consequently the other stockholders consented, either expressly or impliedly, to her management. They offered no objections. As a result, the business prospered. Thus, as shown in a statement prepared by the accounting firm Punongbayan and Araullo, there were increases from 1976 to 1988 in the total assets of Mr. & Ms. from P457,569.00 to P10,143,046.00; in the total stockholders' equity from P203,378.00 to P2,324,954.00; and, in the net sales, from P301,489.00 to P16,325,610.00. Likewise, cash dividends were distributed and received by the stockholders. Private respondents further contended that petitioner, being merely a holder-in-trust of JAKA shares, only represented and continued to represent JAKA in the board. In the beginning, petitioner cooperated with and assisted the management until mid-1986 when relations between her and her principals on one hand, and respondent Eugenia D. Apostol on the other, became strained due to political differences. Hence from mid-1986 to mid-1988 petitioner refused to speak with respondent Eugenia D. Apostol, and in 1988 the former became openly critical of the management of the latter. Nevertheless, respondent Eugenia D. Apostol always made available to petitioner and her representatives all the books of the corporation. Private respondents averred that all the PDI shares owned by respondents Eugenia and Jose Apostol were acquired through their own private funds and that the loan of P750,000.00 by PDI from Mr. & Ms. had been fully paid with 20% interest per annum. And, it was PDI, not Mr. & Ms., which loaned off P250,000.00 each to respondents Magsanoc and Nuyda. Private respondents further argued that petitioner was not the true party to this case, the real party being JAKA which continued to be the true stockholder of Mr. & Ms.; hence, petitioner did not have the personality to initiate and prosecute the derivative suit which, consequently, must be dismissed. On 6 December 1990, the SEC Hearing Panel 3 issued a writ of preliminary injunction enjoining private
respondents from disbursing any money except for the payment of salaries and other similar expenses in the regular course of business. The Hearing Panel also enjoined respondent Apostol spouses, Nuyda and Magsanoc from disposing of their PDI shares, and further ruled

. . . respondents' contention that petitioner is not entitled to the provisional reliefs prayed for because she is not the real party in interest . . . is bereft of any merit. No less than respondents' Amended Answer, specifically paragraph V, No. 8 on Affirmative Allegations/Defenses states that "The petitioner being herself a minor stockholder and holder-in-trust of JAKA shares represented and continues to represent JAKA in the Board." This statement refers to petitioner sitting in the board of directors of Mr. & Ms. in two capacities, one as a minor stockholder and the other as the holder in trust of the shares of JAKA in Mr. & Ms. Such reference alluded to by

the respondents indicates an admission on respondents' part of the petitioner's legal personality to file a derivative suit for the benefit of the respondent Mr. & Ms. Publishing Co., Inc. The Hearing Panel however denied petitioner's prayer for the constitution of a management committee. On 25 March 1991 private respondents filed a Motion to Amend Pleadings to Conform to Evidence alleging that the issue of whether petitioner is the real party-in-interest had been tried by express or implied consent of the parties through the admission of documentary exhibits presented by private respondents proving that the real party-in-interest was JAKA, not petitioner Bitong. As such, No. 8, par. V (Affirmative Allegations/Defenses), Answer to the Amended Petition, was stipulated due to inadvertence and excusable mistake and should be amended. On 10 October 1991 the Hearing Panel denied the motion for amendment. Petitioner testified at the trial that she became the registered and beneficial owner of 997 shares of stock of Mr. & Ms. out of the 4,088 total outstanding shares after she acquired them from JAKA through a deed of sale executed on 25 July 1983 and recorded in the Stock and Transfer Book of Mr. & Ms. under Certificate of Shares of Stock No. 008. She pointed out that Senator Enrile decided that JAKA should completely divest itself of its holdings in Mr. & Ms. and this resulted in the sale to her of JAKA's interest and holdings in that publishing firm. Private respondents refuted the statement of petitioner that she was a stockholder of Mr. & Ms. since 25 July 1983 as respondent Eugenia D. Apostol signed Certificate of Stock No. 008 only on 17 March 1989, and not on 25 July 1983. Respondent Eugenia D. Apostol explained that she stopped using her long signature (Eugenia D. Apostol) in 1987 and changed it to E.D. Apostol, the signature which appeared on the face of Certificate of Stock No. 008 bearing the date 25 July 1983. And, since the Stock and Transfer Book which petitioner presented in evidence was not registered with the SEC, the entries therein including Certificate of Stock No. 008 were fraudulent. Respondent Eugenia D. Apostol claimed that she had not seen the Stock and Transfer Book at anytime until 21 March 1989 when it was delivered by petitioner herself to the office of Mr. & Ms., and that petitioner repeatedly referred to Senator Enrile as "my principal" during the Mr. & Ms. board meeting of 22 September 1988, seven (7) times no less. On 3 August 1993, after trial on the merits, the SEC Hearing Panel dismissed the derivative suit filed by petitioner and dissolved the writ of preliminary injunction barring private respondents from disposing of their PDI shares and any of Mr. & Ms. assets. The Hearing Panel ruled that there was no serious mismanagement of Mr. & Ms. which would warrant drastic corrective measures. It gave credence to the assertion of respondent Eugenia D. Apostol that Mr. & Ms. was operated like a close corporation where important matters were discussed and approved through informal consultations at breakfast conferences. The Hearing Panel also concluded that while the evidence presented tended to show that the real party-in-interest indeed was JAKA and/or Senator Enrile, it viewed the real issue to be the alleged mismanagement, fraud and conflict of interest on the part of respondent Eugenia D. Apostol, and allowed petitioner to prosecute the derivative suit if only to resolve the real issues. Hence, for this purpose, the Hearing Panel considered petitioner to be the real party-ininterest. On 19 August 1993 respondent Apostol spouses sold the PDI shares registered in the name of their holding company, JAED Management Corporation, to Edgardo B. Espiritu. On 25 August 1993 petitioner Bitong appealed to the SEC En Banc.

On 24 January 1994 the SEC En Banc 4 reversed the decision of the Hearing Panel and, among others,
ordered private respondents to account for, return and deliver to Mr. & Ms. any and all funds and assets that they disbursed from the coffers of the corporation including shares of stock, profits, dividends and/or fruits that they might have received as a result of their investment in PDI, including those arising from the P150,000.00 advanced to respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda; account for and return any profits and fruits of all amounts irregularly or unlawfully advanced to PDI and other third persons; and, cease and desist from managing the affairs of Mr. & Ms. for reasons of fraud, mismanagement, disloyalty and conflict of interest.

The SEC En Banc also declared the 19 August 1993 sale of the PDI shares of JAED Management Corporation to Edgardo B. Espiritu to be tainted with fraud, hence, null and void, and considered Mr. & Ms. as the true and lawful owner of all the PDI shares acquired by respondents Eugenia D. Apostol, Magsanoc and Nuyda. It also declared all subsequent transferees of such shares as trustees for the benefit of Mr. & Ms. and ordered them to forthwith deliver said shares to Mr. & Ms. Consequently, respondent Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms. filed a petition for review before respondent Court of Appeals, docketed as CA-GR No. SP 33291, while respondent Edgardo B. Espiritu filed a petition for certiorari and prohibition also before respondent Court of Appeals, docketed as CA-GR No. SP 33873. On 8 December 1994 the two (2) petitions were consolidated. On 31 August 1995 respondent appellate court rendered a decision reversing the SEC En Banc and held that from the evidence on record petitioner was not the owner of any share of stock in Mr. & Ms. and therefore not the real party-in-interest to prosecute the complaint she had instituted against private respondents. Accordingly, petitioner alone and by herself as an agent could not file a derivative suit in behalf of her principal. For not being the real party-in-interest, petitioner's complaint did not state a cause of action, a defense which was never waived; hence, her petition should have been dismissed. Respondent appellate court ruled that the assailed orders of the SEC were issued in excess of jurisdiction, or want of it, and thus were null and void. 5 On 18 January 1996, petitioner's
motion for reconsideration was denied for lack of merit.

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

1. Petitioner is a stockholder and director of Mr. & Ms. . . . . II. THE FACTS 1. Petitioner is the registered owner of 1,000 shares of stock of Mr. & Ms. out of the latter's 4,088 total outstanding shares. Petitioner, at all times material to this petition, is a member of the Board of Directors of Mr. & Ms. and from the inception of Mr. & Ms. until 11 April 1989 was its treasurer . . . On the other hand, the Amended Answer to the Amended Petition states I. PARTIES 1. Respondents admit the allegations contained in Caption I, pars. 1 to 4 of the Petition referring to the personality, addresses and capacity of the parties to the petition except . . . but qualify said admission insofar as they are limited, qualified and/or expanded by allegations in the Affirmative Allegations/Defenses . . . II. THE FACTS 1. Respondents admit paragraph 1 of the Petition, but qualify said admission as to the beneficial ownership of the shares of stock registered in the name of the petitioner, the truth being as stated in the Affirmative Allegations/Defenses of this Answer . . . V. AFFIRMATIVE ALLEGATIONS/DEFENSES Respondents respectfully allege by way of Affirmative Allegations/Defenses, that . . . . 3. Fortunately, respondent Apostol was able to convince Mr. Luis Villafuerte to take interest in the business and he, together with the original investors, restructured the Ex Libris Publishing Company by organizing a new corporation known as Mr. & Ms. Publishing Co., Inc. . . . Mr. Luis Villafuerte contributed his own P100,000.00. JAKA and respondent Jose Z. Apostol, original investors of Ex Libris contributed P100,000.00 each; Ex Libris Publishing Company was paid 800 shares for the name of Mr. & Ms. magazine and goodwill. Thus, the original stockholders of respondent Mr. & Ms. were: Cert./No./Date Name of Stockholder No. of Shares % 001-9-15-76 JAKA Investments Corp. 1,000 21% 002-9-15-76 Luis Villafuerte 1,000 21% 003-9-15-76 Ramon L. Siy 1,000 21% 004-9-15-76 Jose Z. Apostol 1,000 21% 005-9-15-76 Ex Libris Publishing Co. 800 16%

 4,800 96% 4. The above-named original stockholders of respondent Mr. & Ms. continue to be virtually the same stockholders up to this date . . . . 8. The petitioner being herself a minor stockholder and holder-in-trust of JAKA shares, represented and continues to represent JAKA in the Board . . . . 21. Petitioner Nora A. Bitong is not the true party to this case, the true party being JAKA Investments Corporation which continues to be the true stockholder of respondent Mr. & Ms. Publishing Co., Inc., consequently, she does not have the personality to initiate and prosecute this derivative suit, and should therefore be dismissed . . . . The answer of private respondents shows that there was no judicial admission that petitioner was a stockholder of Mr. & Ms. to entitle her to file a derivative suit on behalf of the corporation. Where the statements of the private respondents were qualified with phrases such as, "insofar as they are limited, qualified and/or expanded by," "the truth being as stated in the Affirmative Allegations/Defenses of this Answer" they cannot be considered definite and certain enough, cannot be construed as judicial admissions. 7 More so, the affirmative defenses of private respondents directly refute the representation of petitioner that she is a true and genuine stockholder of Mr. & Ms. by stating unequivocally that petitioner is not the true party to the case but JAKA which continues to be the true stockholder of Mr. & Ms. In fact, one of the reliefs which private respondents prayed for was the dismissal of the petition on the ground that petitioner did not have the legal interest to initiate and prosecute the same. When taken in its totality, the Amended Answer to the Amended Petition, or even the Answer to the Amended Petition alone, clearly raises an issue as to the legal personality of petitioner to file the complaint. Every alleged admission is taken as an entirety of the fact which makes for the one side with the qualifications which limit, modify or destroy its effect on the other side. The reason for this is, where part of a statement of a party is used against him as an admission, the court should weigh any other portion connected with the statement, which tends to neutralize or explain the portion which is against interest. In other words, while the admission is admissible in evidence, its probative value is to be determined from the whole statement and others intimately related or connected therewith as an integrated unit. Although acts or facts admitted do not require proof and cannot be contradicted, however, evidence aliunde can be presented to show that the admission was made through palpable mistake. 8 The rule is always in favor of liberality in construction of pleadings so that the real matter in
dispute may be submitted to the judgment of the court.
9

Petitioner also argues that since private respondents failed to appeal the 6 December 1990 Order and the 3 August 1993 Decision of the SEC Hearing Panel declaring that she was the real party-ininterest and had legal personality to sue, they are now estopped from questioning her personality. Not quite. The 6 December 1990 Order is clearly an interlocutory order which cannot be considered as having finally resolved on the merits the issue of legal capacity of petitioner. The SEC Hearing Panel discussed the issue of legal capacity solely for the purpose of ruling on the application for writ

of preliminary injunction as an incident to the main issues raised in the complaint. Being a mere interlocutory order, it is not appealable. For, an interlocutory order refers to something between the commencement and end of the suit which decides some point or matter but it is not the final decision of the whole controversy. 10 Thus,
even though the 6 December 1990 Order was adverse to private respondents, they had the legal right and option not to elevate the same to the SEC En Banc but rather to await the decision which resolves all the issues raised by the parties and to appeal therefrom by assigning all errors that might have been committed by the Hearing Panel.

On the other hand, the 3 August 1993 Decision of the Hearing Panel dismissing the derivative suit for failure to prove the charges of mismanagement, fraud, disloyalty and conflict of interest and dissolving the writ of preliminary injunction, was favorable to private respondents. Hence, they were not expected to appeal therefrom. In fact, in the 3 August 1993 Decision, the Hearing Panel categorically stated that the evidence presented showed that the real party-in-interest was not petitioner Bitong but JAKA and/or Senator Enrile. Petitioner was merely allowed to prosecute her complaint so as not to sidetrack "the real issue to be resolved (which) was the allegation of mismanagement, fraud and conflict of interest allegedly committed by respondent Eugenia D. Apostol." It was only for this reason that petitioner was considered to be capacitated and competent to file the petition. Accordingly, with the dismissal of the complaint of petitioner against private respondents, there was no compelling reason for the latter to appeal to the SEC En Banc. It was in fact petitioner's turn as the aggrieved party to exercise her right to appeal from the decision. It is worthy to note that even during the appeal of petitioner before the SEC En Banc private respondents maintained their vigorous objection to the appeal and reiterated petitioner's lack of legal capacity to sue before the SEC. Petitioner then contends that she was a holder of the proper certificates of shares of stock and that the transfer was recorded in the Stock and Transfer Book of Mr. & Ms. She invokes Sec. 63 of The Corporation Code which provides that no transfer shall be valid except as between the parties until the transfer is recorded in the books of the corporation, and upon its recording the corporation is bound by it and is estopped to deny the fact of transfer of said shares. Petitioner alleges that even in the absence of a stock certificate, a stockholder solely on the strength of the recording in the stock and transfer book can exercise all the rights as stockholder, including the right to file a derivative suit in the name of the corporation. And, she need not present a separate deed of sale or transfer in her favor to prove ownership of stock. Sec. 63 of The Corporation Code expressly provides Sec. 63. Certificate of stock and transfer of shares. The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the bylaws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer however shall be valid except as between the parties until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred . . . .

This provision above quoted envisions a formal certificate of stock which can be issued only upon compliance with certain requisites. First, the certificates must be signed by the president or vicepresident, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock. 11 Second, delivery of the certificate is an essential element of its issuance. Hence, there is no
issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted therein has no control over the books of the company. 12Third, the par value, as to par value shares, or the full subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder.

The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. However, this presumption may be rebutted. 13 Similarly,
books and records of a corporation which include even the stock and transfer book are generally admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters including one's status as a stockholder. They are ordinarily the best evidence of corporate acts and proceedings.

However, the books and records of a corporation are not conclusive even against the corporation but are prima facie evidence only. Parol evidence may be admitted to supply omissions in the records, explain ambiguities, or show what transpired where no records were kept, or in some cases where such records were contradicted. 14 The effect of entries in the books of the corporation which purport to
be regular records of the proceedings of its board of directors or stockholders can be destroyed by testimony of a more conclusive character than mere suspicion that there was an irregularity in the manner in which the books were kept. 15

The foregoing considerations are founded on the basic principle that stock issued without authority and in violation of law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities. 16 Where there is an inherent lack of power in the corporation to issue the stock,
neither the corporation nor the person to whom the stock is issued is estopped to question its validity since an estopped cannot operate to create stock which under the law cannot have existence. 17

As found by the Hearing Panel and affirmed by respondent Court of Appeals, there is overwhelming evidence that despite what appears on the certificate of stock and stock and transfer book, petitioner was not a bona fidestockholder of Mr. & Ms. before March 1989 or at the time the complained acts were committed to qualify her to institute a stockholder's derivative suit against private respondents. Aside from petitioner's own admissions, several corporate documents disclose that the true party-ininterest is not petitioner but JAKA. Thus, while petitioner asserts in her petition that Certificate of Stock No. 008 dated 25 July 1983 was issued in her name, private respondents argue that this certificate was signed by respondent Eugenia D. Apostol as President only in 1989 and was fraudulently antedated by petitioner who had possession of the Certificate Book and the Stock and Transfer Book. Private respondents stress that petitioner's counsel entered into a stipulation on record before the Hearing Panel that the certificate was indeed signed by respondent Apostol only in 1989 and not in 1983. In her reply, petitioner admits that while respondent Eugenia D. Apostol signed the Certificate of Stock No. 008 in petitioner's name only in 1989, it was issued by the corporate secretary in 1983 and that the other certificates covering shares in Mr. & Ms. had not yet been signed by respondent Eugenia D. Apostol at the time of the filing of the complaint with the SEC although they were issued years before.

Based on the foregoing admission of petitioner, there is no truth to the statement written in Certificate of Stock No. 008 that the same was issued and signed on 25 July 1983 by its duly authorized officers specifically the President and Corporate Secretary because the actual date of signing thereof was 17 March 1989. Verily, a formal certificate of stock could not be considered issued in contemplation of law unless signed by the president or vice-president and countersigned by the secretary or assistant secretary. In this case, contrary to petitioner's submission, the Certificate of Stock No. 008 was only legally issued on 17 March 1989 when it was actually signed by the President of the corporation, and not before that date. While a certificate of stock is not necessary to make one a stockholder, e.g., where he is an incorporator and listed as stockholder in the articles of incorporation although no certificate of stock has yet been issued, it is supposed to serve as paper representative of the stock itself and of the owner's interest therein. Hence, when Certificate of Stock No. 008 was admittedly signed and issued only on 17 March 1989 and not on 25 July 1983, even as it indicates that petitioner owns 997 shares of stock of Mr. & Ms., the certificate has no evidentiary value for the purpose of proving that petitioner was a stockholder since 1983 up to 1989. And even the factual antecedents of the alleged ownership by petitioner in 1983 of shares of stock of Mr. & Ms. are indistinctive if not enshrouded in inconsistencies. In her testimony before the Hearing Panel, petitioner said that early in 1983, to relieve Mr. & Ms. from political pressure, Senator Enrile decided to divest the family holdings in Mr. & Ms. as he was then part of the government and Mr. & Ms. was evolving to be an opposition newspaper. The JAKA shares numbering 1,000 covered by Certificate of Stock No. 001 were thus transferred to respondent Eugenia D. Apostol in trust or in blank. 18 Petitioner now claims that a few days after JAKA's shares were transferred to respondent Eugenia D. Apostol, Senator Enrile sold to petitioner 997 shares of JAKA. For this purpose, a deed of sale was executed and antedated to 10 May 1983. 19 This submission of petitioner is however contradicted
by the records which show that a deed of sale was executed by JAKA transferring 1,000 shares of Mr. & Ms. to respondent Apostol on 10 May 1983 and not to petitioner. 20

Then Senator Enrile testified that in May or June 1983 he was asked at a media interview if his family owned shares of stock in Mr. & Ms. Although he and his family were stockholders at that time he denied it so as not to embarrass the magazine. He called up petitioner and instructed her to work out the documentation of the transfer of shares from JAKA to respondent Apostol to be covered by a declaration of trust. His instruction was to transfer the shares of JAKA in Mr. & Ms. and Ex Libris to respondent Apostol as a nominal holder. He then finally decided to transfer the shareholdings to petitioner. 21 When asked if there was any document or any written evidence of that divestment in favor of petitioner, Senator Enrile answered that there was an endorsement of the shares of stock. He said that there was no other document evidencing the assignment to petitioner because the stocks were personal property that could be transferred even orally. 22 Contrary to Senator Enrile's testimony,
however, petitioner maintains that Senator Enrile executed a deed of sale in her favor.

A careful perusal of the records shows that neither the alleged endorsement of Certificate of Stock No. 001 in the name of JAKA nor the alleged deed of sale executed by Senator Enrile directly in favor of petitioner could have legally transferred or assigned on 25 July 1983 the shares of stock in favor of petitioner because as of 10 May 1983 Certificate of Stock No. 001 in the name of JAKA was already cancelled and a new one, Certificate of Stock No. 007, issued in favor of respondent Apostol by virtue of a Declaration of Trust and Deed of Sale. 23

It should be emphasized that on 10 May 1983 JAKA executed, a deed of sale over 1,000 Mr. & Ms. shares in favor of respondent Eugenio D. Apostol. On the same day, respondent Apostol signed a declaration of trust stating that she was the registered owner of 1,000 Mr. & Ms. shares covered by Certificate of Stock No. 007. The declaration of trust further showed that although respondent Apostol was the registered owner, she held the shares of stock and dividends which might be paid in connection therewith solely in trust for the benefit of JAKA, her principal. It was also stated therein that being a trustee, respondent Apostol agreed, on written request of the principal, to assign and transfer the shares of stock and any and all such distributions or dividends unto the principal or such other person as the principal would nominate or appoint. Petitioner was well aware of this trust, being the person in charge of this documentation and being one of the witnesses to the execution of this document. 24 Hence, the mere alleged endorsement of Certificate of Stock No. 001 by Senator Enrile or
by a duly authorized officer of JAKA to effect the transfer of shares of JAKA to petitioner could not have been legally feasible because Certificate of Stock No. 001 was already canceled by virtue of the deed of sale to respondent Apostol.

And, there is nothing in the records which shows that JAKA had revoked the trust it reposed on respondent Eugenia D. Apostol. Neither was there any evidence that the principal had requested her to assign and transfer the shares of stock to petitioner. If it was true that the shares of stock covered by Certificate of Stock No. 007 had been transferred to petitioner, the person who could legally endorse the certificate was private respondent Eugenia D. Apostol, she being the registered owner and trustee of the shares of stock covered by Certificate of Stock No. 007. It is a settled rule that the trustee should endorse the stock certificate to validate the cancellation of her share and to have the transfer recorded in the books of the corporation. 25 In fine, the records are unclear on how petitioner allegedly acquired the shares of stock of JAKA. Petitioner being the chief executive officer of JAKA and the sole person in charge of all business and financial transactions and affairs of JAKA 26 was supposed to be in the best position to show convincing
evidence on the alleged transfer of shares to her, if indeed there was a transfer. Considering that petitioner's status is being questioned and several factual circumstances have been presented by private respondents disproving petitioner's claim, it was incumbent upon her to submit rebuttal evidence on the manner by which she allegedly became a stockholder. Her failure to do so taken in the light of several substantial inconsistencies in her evidence is fatal to her case.

The rule is that the endorsement of the certificate of stock by the owner or his attorney-in-fact or any other person legally authorized to make the transfer shall be sufficient to effect the transfer of shares only if the same is coupled with delivery. The delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the new transferee. Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and, (c) to be valid against third parties, the transfer must be recorded in the books of the corporation. 27 At most, in the instant case, petitioner has satisfied
only the third requirement. Compliance with the first two requisites has not been clearly and sufficiently shown.

Considering that the requirements provided under Sec. 63 of The Corporation Code should be mandatorily complied with, the rule on presumption of regularity cannot apply. The regularity and validity of the transfer must be proved. As it is, even the credibility of the stock and transfer book and

the entries thereon relied upon by petitioner to show compliance with the third requisite to prove that she was a stockholder since 1983 is highly doubtful. The records show that the original stock and transfer book and the stock certificate book of Mr. & Ms. were in the possession of petitioner before their custody was transferred to the Corporate Secretary, Atty. Augusto San Pedro. 28 On 25 May 1988, Assistant Corporate Secretary Renato Jose
Unson wrote Mr. & Ms. about the lost stock and transfer book which was also noted by the corporation's external auditors, Punongbayan and Araullo, in their audit. Atty. Unson even informed respondent Eugenia D. Apostol as President of Mr. & Ms. that steps would be undertaken to prepare and register a new Stock and Transfer Book with the SEC. Incidentally, perhaps strangely, upon verification with the SEC, it was discovered that the general file of the corporation with the SEC was missing. Hence, it was even possible that the original Stock and Transfer Book might not have been registered at all.

On 20 October 1988 respondent Eugenia D. Apostol wrote Atty. Augusto San Pedro noting the changes he had made in the Stock and Transfer Book without prior notice to the corporate officers. 29 In the 27 October 1988 directors' meeting, respondent Eugenia D. Apostol asked about the
documentation to support the changes in the Stock and Transfer Book with regard to the JAKA shares. Petitioner answered that Atty. San Pedro made the changes upon her instructions conformably with established practice. 30

This simply shows that as of 1988 there still existed certain issues affecting the ownership of the JAKA shares, thus raising doubts whether the alleged transactions recorded in the Stock and Transfer Book were proper, regular and authorized. Then, as if to magnify and compound the uncertainties in the ownership of the shares of stock in question, when the corporate secretary resigned, the Stock and Transfer Book was delivered not to the corporate office where the book should be kept but to petitioner. 31 That JAKA retained its ownership of its Mr. & Ms. shares was clearly shown by its receipt of the dividends issued in December 1986. 32 This only means, very obviously, that Mr. & Ms. shares in
question still belonged to JAKA and not to petitioner. For, dividends are distributed to stockholders pursuant to their right to share in corporate profits. When a dividend is declared, it belongs to the person who is the substantial and beneficial owner of the stock at the time regardless of when the distribution profit was earned. 33

Finally, this Court takes notice of the glaring and open admissions of petitioner made, not just seven (7) but nine (9) times, during the 22 September 1988 meeting of the board of directors that the Enriles were her principals or shareholders, as shown by the minutes thereof which she duly signed 34 5. Mrs. E. Apostol explained to the Directors that through her efforts, the asset base of the Company has improved and profits were realized. It is for this reason that the Company has declared a 100% cash dividend in 1986. She said that it is up for the Board to decide based on this performance whether she should continue to act as Board Chairman or not. In this regard, Ms. N.A. Bitong expressed her recollection of how Ex-Libris/Mr. & Ms. were organized and her participation for and on behalf of her principals, as follows: She recalled that her principals were invited by Mrs. E. Apostol to invest in Ex-Libris and eventually Mr. & Ms. The relationship between her principals and Mrs. E. Apostol made it possible for the latter to have access to several information concerning certain political events and issues. In many instances, her principals supplied first hand and newsworthy information that made Mr. & Ms. a popular paper . . . .

6. According to Ms. Bitong, her principals were instrumental in helping Mr. & Ms. survive during those years that it was cash strapped . . . . Ms. N.A. Bitong pointed out that the practice of using the former Minister's influence and stature in the government is one thing which her principals themselves are strongly against . . . . 7. . . . . At this point, Ms. N. Bitong again expressed her recollection of the subject matter as follows: (a) Mrs. E. Apostol, she remembers, brought up the concept of a cooperative-ran newspaper company in one of her breakfast session with her principals sometime during the end of 1985. Her principals when asked for an opinion, said that they recognized the concept as something very noble and visible . . . . Then Ms. Bitong asked a very specific question "When you conceptualized ExLibris and Mr. & Ms., did you not think of my shareholders the Ponce Enriles as liabilities? How come you associated yourself with them then and not now? What is the difference?" Mrs. Apostol did not answer the question. The admissions of a party against his interest inscribed upon the record books of a corporation are competent and persuasive evidence against him. 35 These admissions render nugatory any argument
that petitioner is a bona fidestockholder of Mr. & Ms. at any time before 1988 or at the time the acts complained of were committed. There is no doubt that petitioner was an employee of JAKA as its managing officer, as testified to by Senator Enrile himself. 36 However, in the absence of a special authority from the board of directors of JAKA to institute a derivative suit for and in its behalf, petitioner is disqualified by law to sue in her own name. The power to sue and be sued in any court by a corporation even as a stockholder is lodged in the board of directors that exercises its corporate powers and not in the president or officer thereof.37

It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust, not of mere error of judgment or abuse of discretion, and intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders. 38 The stockholder's right to institute a derivative suit is not based on
any express provision of The Corporation Code but is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties.

Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress. 39 In effect, the suit is an
action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in default by the wrongful refusal of the directors or management to make suitable measures for its protection. 40

The basis of a stockholder's suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation. 41 WHEREFORE, the petition is DENIED. The 31 August 1995 Decision of the Court of Appeals dismissing the complaint of petitioner Nora A. Bitong in CA-G.R. No. SP 33291, and granting the petition for certiorari and prohibition filed by respondent Edgardo U. Espiritu as well as annulling the 5 November 1993, 24 January 1993 and 18 February 1994 Orders of the SEC En Banc in CA-G.R. No. SP 33873, is AFFIRMED. Costs against petitioner. SO ORDERED.

G.R. No. 137934

August 10, 2001

BATANGAS LAGUNA TAYABAS BUS COMPANY, INC., DOLORES A. POTENCIANO, MAX JOSEPH A. POTENCIANO, MERCEDELIN A. POTENCIANO, and DELFIN C. YORRO, petitioners, vs. BENJAMIN M. BITANGA, RENATO L. LEVERIZA, LAUREANO A. SIY, JAMES A. OLAYVAR, EDUARDO A. AZUCENA, MONINA GRACE S. LIM, and GEMMA M. SANTOS, respondents. x---------------------------------------------------------x G.R. No. 137936 August 10, 2001 DANILO L. CONCEPCION, FE ELOISA GLORIA and EDIJER A. MARTINEZ, in their capacities as ASSOCIATE COMMISSIONERS OF THE SECURITIES AND EXCHANGE COMMISSION, BATANGAS LAGUNA TAYABAS BUS COMPANY, INC., MICHAEL A. POTENCIANO, CANDIDIO A. POTENCIANO, HENRY JOHN A. POTENCIANO, REYNALDO MAGTIBAY, LORNA NAVARRO and RESTITUTO BAYLON, petitioners, vs. THE COURT OF APPEALS, BATANGAS LAGUNA TAYABAS BUS COMPANY, INC., BENJAMIN M. BITANGA, RENATO L. LEVERIZA, LAUREANO A. SIY, JAMES A. OLAYVAR, EDUARDO A. AZUCENA, MONINA GRACE S. LIM, and GEMMA M. SANTOS, respondents. YNARES-SANTIAGO, J.: These cases involve the Batangas Laguna Tayabas Bus Company, Inc., which has been owned by four generations of the Potenciano family. Immediately prior to the events leading to this controversy, the Potencianos owned 87.5% of the outstanding capital stock of BLTB.1 On October 28, 1997, Dolores A. Potenciano, Max Joseph A. Potenciano, Mercedelin A. Potenciano, Delfin C. Yorro, and Maya Industries, Inc., entered into a Sale and Purchase Agreement,2 whereby they sold to BMB Property Holdings, Inc., represented by its President, Benjamin Bitanga, their 21,071,114 shares of stock in BLTB. The said shares represented 47.98% of the total outstanding capital stock of BLTB. The purchase price for the shares of stock was P72,076,425.00, the downpayment of which, in the sum of P44,354,723.00, was made payable upon signing of Agreement, while the balance of P27,721,702.00 was payable on November 26, 1997. The contracting parties stipulated that the downpayment was conditioned upon receipt by the buyer of certain documents upon signing of the Agreement, namely, the Secretary's Certificate stating that the Board of Directors of Maya Industries, Inc. authorized the sale of its shares in BLTB and the execution of the Agreement, and designating Dolores A. Potenciano as its Attorney-in-Fact; the Special Power of Attorney executed by each of the sellers in favor of Dolores A. Potenciano for purposes of the Agreement; the undated written resignation letters of the Directors of BLTB, except Henry John A. Potenciano, Michael A. Potericiano and Candido A. Potenciano); a revocable proxy to vote the subject shares made by the sellers in favor of the buyer; a Declaration of Trust made by the sellers in favor of the buyer acknowledging that the subject shares shall be held in trust by the sellers for the buyer pending their transfer to the latter's name; and the duly executed capital gains tax return forms covering the sale, indicating no taxable gain on the same.3

Furthermore, the buyer guaranteed that it shall take over the management and operations of BLTB but shall immediately surrender the same to the sellers in case it fails to pay the balance of the purchase price on November 26, 1997.4 Barely a month after the Agreement was executed, on November 21, 1997, at a meeting of the stockholders of BLTB, Benjamin Bitanga and Monina Grace Lim were elected as directors of the corporation, replacing Dolores and Max Joseph Potenciano. Subsequently, on November 28, 1997, another stockholders' meeting was held, wherein Laureano A. Siy and Renato L. Leveriza were elected as directors, replacing Candido Potenciano and Delfin Yorro who had both resigned as such. At the same meeting, the Board of Directors of BLTB elected the following officers: Benjamin Bitanga as Chairman of the Board, President and Chief Executive Officer; Monina Grace Lim as Vice President for Finance and Supply and Treasurer; James Olayvar as Vice President for Operations and Maintenance: Eduardo Azucena as Vice President for Administration; Evelio Custodia as Corporate Secretary; and Gemma Santos as Assistant Corporate Secretary.5 During a meeting of the Board of Directors on April 14, 1998, the newly elected directors of BLTB scheduled the annual stockholders' meeting on May 19, 1998, to be held at the principal office of BLTB in San Pablo, Laguna. Before the scheduled meeting, on May 16, 1998, Michael Potenciano wrote Benjamin Bitanga, requesting for a postponement of the stockholders' meeting due to the absence of a thirty-day advance notice. However, there was no response from Bitanga on whether or not the request for postponement was favorably acted upon. On the scheduled date of the meeting, May 19, 1998, a notice of postponement of the stockholders' meeting was published in the Manila Bulletin. Inasmuch as there was no notice of postponement prior to that, a total of two hundred eighty six stockholders, representing 87% of the shares of stock of BLTB, arrived and attended the meeting. The majority of the stockholders present rejected the postponement and voted to proceed with the meeting. The Potenciano group was re-elected to the Board of Directors,6 and a new set of officers was thereafter elected.7 However, the Bitanga group refused to relinquish their positions and continued to act as directors and officers of BLTB. The conflict between the Potencianos and the Bitanga group escalated to levels of unrest and even violence among laborers and employees of the bus company. On May 21, 1998, the Bitanga group filed with the Securities and Exchange Commission a Complaint for Damages and Injunction, docketed as SEC Case No. 05-98-5973.8 Their prayer for the issuance of a temporary restraining order was, however, denied at the ex-parte summary hearing conducted by SEC Chairman Perfecto Yasay, Jr. Likewise, the Potenciano group filed on May 25, 1998, a Complaint for Injunction and Damages with Preliminary Injunction and Temporary Restraining Order with the SEC, docketed as SEC Case No. 05-98-5978.9 SEC Chairman Perfecto Yasay, Jr. issued a temporary restraining order enjoining the Bitanga group from acting as officers and directors of BLTB. On June 8, 1998, the Bitanga group filed another complaint with application for a writ of preliminary injunction and prayer for temporary restraining order, seeking to annul the May 19, 1998 stockholders' meeting. The complaint was docketed as SEC Case No. 06-98-5994. A Hearing Panel of the SEC conducted joint hearings of SEC Cases Nos. 05-98-5973 and 05-985978. On June 17, 1998, the SEC Hearing Panel granted the Bitanga group's application for a writ of preliminary injunction upon the posting of a bond in the amount of P20,000,000.00.10 It declared that the May 19, 1998 stockholders' meeting was void on the grounds that, first, Michael Potenciano had himself asked for its postponement due to improper notice; and, second, there was no quorum, since

BMB Holdings, Inc., represented by the Bitanga group, which then owned 50.26% of BLTB's shares having purchased the same from the Potenciano group, was not present at the said meeting. The Hearing Panel further held that the Bitanga Board remains the legitimate Board in a hold-over capacity. The Potenciano group filed a petition for certiorari11 with the SEC En Banc on June 29, 1998, seeking a writ of preliminary injunction to restrain the implementation of the Hearing Panel's assailed Order. On July 21, 1998, the SEC En Banc set aside the June 17, 1998 Order of the Hearing Panel and issued the writ of preliminary injunction prayed for.12 The Bitanga group immediately filed a petition for certiorari13 with the Court of Appeals on July 22, 1998, followed by a Supplemental Petition on August 10, 1998. The petition was docketed as CAG.R. SP No. 48374. Meanwhile, on July 29, 1998, the SEC En Banc issued a writ of preliminary injunction against the Bitanga group, after the Potencianos posted the required bond of P20,000,000.00.14 On November 23, 1998, the Court of Appeals rendered the now assailed Decision, reversing the assailed Orders of the SEC En Banc and reinstating the Order of the Hearing Panel ordered dated June 17, 1998.15 The Court of Appeals denied the Motions for Reconsideration in a Resolution dated March 25, 1999.16 Petitioners Batangas Laguna Tayabas Bus Company, Inc., Dolores A. Potenciano, Max Joseph A. Potenciano, Mercedelin A. Potenciano and Delfin C. Yorro filed the instant petition for review, docketed as G.R. No. 137934, against respondents Benjamin M. Bitanga, Renato L. Leveriza, Laureano A. Siy, James A. Olayvar, Eduardo A. Azucena, Monina Grace S. Lim and Gemma M. Santos. Petitioners contend that I WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT DISREGARDED, CONTRARY TO WELL-ESTABLISHED JURISPRUDENCE, THE FACTUAL FINDINGS OF THE SEC WHICH IS A SPECIALIZED QUASI-JUDICIAL AGENCY, AND INVALIDATED THE PRELIMINARY INJUNCTION ISSUED BY THE LATTER. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR BECAUSE THERE IS NO SHOWING THAT THE SEC MADE ANY ERROR IN EITHER JURISDICTION OR JUDGMENT. II WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT RESPONDENTS WERE DEPRIVED OF THEIR RIGHT TO DUE PROCESS BECAUSE: (1) A FULL-BLOWN HEARING WAS CONDUCTED ON 6 JULY 1998 WHERE THE PARTIES FULLY ARGUED THEIR POSITIONS AND WERE HEARD BY THE SEC EN BANC; (2) THE LAW DOES NOT REQUIRE A SEPARATE HEARING FOR THE FIXING OF THE AMOUNT OF THE INJUNCTION BOND; AND (3) IN ANY CASE, THE ALLEGED FAILURE OF THE SEC TO FIX THE AMOUNT OF THE INJUNCTION BOND IN ITS 21 JULY 1998 ORDER AND SUBSEQUENT FIXING THEREOF IN ITS 26 JULY 1998 ORDER IS NOT A FATAL ERROR.

III WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE 21 JULY 1998 ORDER OF THE SEC RESOLVED THE MAIN CASE. THE SEC, ACTING WITHIN THE BOUNDS OF ITS JURISDICTION, MERELY MADE A PRELIMINARY EVALUATION TO RESOLVE THE PRAYER FOR PRELIMINARY INJUNCTION, WHICH, BY ITS VERY NATURE, IS AN ANCILLARY REMEDY. THE MAIN PETITION REMAINS PENDING BEFORE THE SEC FOR THE RESOLUTION OF ITS MERITS.17 Another petition for review, docketed as G.R. No. 137936, was filed by petitioners Danilo L. Concepcion, Fe Eloisa Gloria and Edijer A. Martinez, in their capacities as Associate Commissioners of the Securities and Exchange Commission, Batangas Laguna Tayabas Bus Company, Inc., Dolores A. Potenciano, Max Joseph A. Potenciano, Michael A. Potenciano, Mercedelin A. Potenciano, Candido A. Potenciano, Henry John A. Potenciano, Delfin C. Yorro, Reynaldo Magtibay, Lorna Navarro and Restituto Baylon based on the following grounds: I THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN HOLDING THAT THE JULY 21, 1998 ORDER OF THE SEC IN SEC EN BANC CASE NO. 611 RESOLVED THE MAIN CASE. II THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN HOLDING THAT THE PRIVATE RESPONDENTS WERE DENIED THEIR RIGHT TO DUE PROCESS. III THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE SEC ORDER OF JULY 21, 1998 IS VALID AND IN DISREGARDING THE FACTUAL FINDINGS OF THE SEC.18 The two petitions for review were consolidated. We find that the petitions are impressed with merit. Contrary to the findings of the Court of Appeals, the Bitanga group was not deprived of due process when the SEC En Banc issued its Order dated July 21, 1998. Due process, in essence, is simply an opportunity to be heard.19 It cannot be denied that in the case at bar, a hearing on the prayer for injunction was held on July 9, 1998. Both parties were represented at the said hearing, and the Bitanga group presented its arguments in opposition to the injunctive relief. This alone negates any proposition that the Bitanga group was denied due process. In applications for preliminary injunction, the requirement of hearing and prior notice before injunction may issue has been relaxed to the point that not all petitions for preliminary injunction must undergo a trial-type hearing, it being hornbook doctrine that a formal or trial-type is not at all times and in all instances essential to due process. Due process simply means giving every contending party the opportunity to be heard and the court to consider every piece of evidence presented in their favor. Accordingly, this Court has recently rejected a claim of denial of due

process where such claimant was given the opportunity to be heard, having submitted his counteraffidavit and memorandum in support of his position.20 Much ado has been made over the fact that the injunction order was issued with "deliberate speed" even before the Bitanga group filed its Comment to the Potenciano group's Petition. However, the said Comment is rather directed to the petition of the Potenciano group; it is not essential to the resolution of the prayer for injunction. The Rules of Court do not require that issues be joined before preliminary injunction may issue. Preliminary injunction may be granted at any stage of an action or proceeding prior to the judgment or final order, ordering a party or a court, agency or a person to refrain from a particular act or acts. For as long as the requisites for its issuance are present in the case, the injunctive writ was properly issued.21 Respondents argue that the SEC En Banc's July 21, 1998 Order amounted to a ruling on the main case. We disagree. A reading of the said Order readily reveals that it merely delved on the propriety of granting a writ of preliminary injunction against the Bitanga group. The main case is far from being disposed of as there are several issues still awaiting resolution, including, whether or not the Bitanga group has taken funds and assets of BLTB and if so, in what amount and consisting of what assets; and whether or not the Potenciano group is entitled to the payment of exemplary damages, attorney's fees and costs of suit. There is no merit, therefore, in the statement that the SEC En Banc's ruling is a prejudgment of the main case, as several matters need yet to be addressed. The fact that the aforesaid Order was merely provisional in character may be gleaned from the very nature of the injunctive writ granted. Generally, injunction is a preservative remedy for the protection of one's substantive right or interest. It is not a cause of action in itself but merely a provisional remedy, an adjunct to a main suit.22 Thus, it has been held that an order granting a writ of preliminary injunction is an interlocutory order.23 As distinguished from a final order which disposes of the subject matter in its entirety or terminates a particular proceeding or action, leaving nothing else to be done but to enforce by execution what has been determined by the court, an interlocutory order does not dispose of a case completely, but leaves something more to be adjudicated upon.24 In the case at bar, it cannot be said that the July 21, 1998 Order of the SEC En Banc terminated the Potenciano group's petition in its entirety. As mentioned above, there remain several issues which have yet to be resolved and adjudicated upon by the SEC. The next issue whether or not the SEC En Banc committed error in jurisdiction as to entitle the Bitanga group to the extraordinary remedy of certiorari should likewise be resolved in the negative. In the July 21, 1998 Order of the SEC En Banc, the validity of the BLTB stockholders' meeting held on May 19, 1998 was sustained, in light of the time-honored doctrine in corporation law that a transfer of shares is not valid unless recorded in the books of the corporation. The SEC En Banc went on to rule that It is not disputed that the transfer of the shares of the group of Dolores Potenciano to the Bitanga group has not yet been recorded in the books of the corporation. Hence, the group of Dolores Potenciano, in whose names those shares still stand, were the ones entitled to attend and vote at the stockholders' meeting of the BLTB on 19 May 1998. This being the case, the Hearing Panel committed grave abuse of discretion in holding otherwise and in concluding that there was no quorum in said meeting.25

Based on the foregoing premises, the SEC En Banc issued a writ of preliminary injunction against the Bitanga group. In so ruling, the SEC En Banc merely exercised its wisdom and competence as a specialized administrative agency specifically tasked to deal with corporate law issues. We are in full accord with the SEC En Banc on this matter. Indeed, until registration is accomplished, the transfer, though valid between the parties, cannot be effective as against the corporation. Thus, the unrecorded transferee, the Bitanga group in this case, cannot vote nor be voted for. The purpose of registration, therefore, is two-fold: to enable the transferee to exercise all the rights of a stockholder, including the right to vote and to be voted for, and to inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and subject to the liabilities of a stockholder.26 Until challenged in a proper proceeding, a stockholder of record has a right to participate in any meeting;27 his vote can be properly counted to determine whether a stockholders' resolution was approved, despite the claim of the alleged transferee.28 On the other hand, a person who has purchased stock, and who desires to be recognized as a stockholder for the purpose of voting, must secure such a standing by having the transfer recorded on the corporate books.29 Until the transfer is registered, the transferee is not a stockholder but an outsider.30 We find no error either in jurisdiction or judgment on the part of the SEC En Banc, since its conclusions of law were anchored on established principles and jurisprudence. Indeed, nowhere in the Bitanga group's petition for certiorari before the Court of Appeals was it shown that the SEC En Banc committed such patent, gross and prejudicial errors of law or fact, or a capricious disregard of settled law and jurisprudence, as to amount to a grave abuse of discretion or lack of jurisdiction on its part. Absent such showing, neither the Court of Appeals nor this Court should engage in a review of the facts found nor even of the law as interpreted or applied by the SEC En Banc, for the writ of certiorari is an extraordinary remedy, and certiorari jurisdiction is not to be equated with appellate jurisdiction. The main thrust of a petition for certiorari under Rule 65 of the Rules of Court is only the correction of errors of jurisdiction including the commission of grave abuse of discretion amounting to lack or excess of jurisdiction. However, for this Court or the Court of Appeals to properly exercise the power of judicial review over a decision of an administrative agency, such as the SEC, it must first be shown that the tribunal, board or officer exercising judicial or quasi judicial functions has indeed acted without or in excess of its or his jurisdiction, and that there is no appeal, or any plain, speedy and adequate remedy in the ordinary course of law. In the absence of any showing of lack of jurisdiction or grave abuse tantamount to lack or excess of jurisdiction, judicial review may not be had over an administrative agency's decision.31 We have gone over the records of the case at bar and we see no cogent reason to hold that the SEC En Banc had abused its discretion. Moreover, it is a fundamental rule that factual findings of quasi-judicial agencies like the SEC, if supported by substantial evidence, are generally accorded not only great respect but even finality, and are binding upon this Court, unless petitioner is able to show that it had arbitrarily disregarded evidence before it or had misapprehended evidence to such an extent as to compel a contrary conclusion if such evidence had been properly appreciated. This rule is rooted in the doctrine that this Court is not a trier of facts, as well as in the respect to be accorded the determinations made by administrative bodies in general on matters falling within their respective fields of specialization or expertise.32 In light of all the foregoing, we find that the Court of Appeals erred in granting the extraordinary remedy of certiorari to the Bitanga group. It is elementary that a special civil action for certiorari is limited to correcting errors of jurisdiction or grave abuse of discretion.33 None of these have been found to obtain in the petition before the Court of Appeals. What is more, it is also settled that the issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of the court taking cognizance of the case, the only limitation being that this discretion should be exercised based upon the grounds and

in the manner provided by law. The exercise of sound judicial discretion by the lower court in injunctive matters should not be interfered with except in cases of manifest abuse.34 WHEREFORE, in view of all the foregoing, the instant petitions for review are GRANTED. The Decision of the Court of Appeals dated November 23, 1998 in CA-G.R. SP No. 48374 and its resolution dated March 25, 1999 are SET ASIDE. The Orders of the SEC En Banc dated July 21, 1998 and July 27, 1998 in SEC Case No. EB 611 are ordered REINSTATED. SO ORDERED. G.R. No. 124535 September 28, 2001

THE RURAL BANK OF LIPA CITY, INC., THE OFFICERS AND DIRECTORS, BERNARDO BAUTISTA, JAIME CUSTODIO, OCTAVIO KATIGBAK, FRANCISCO CUSTODIO, and JUANITA BAUTISTA OF THE RURAL BANK OF LIPA CITY, INC., petitioners, vs. HONORABLE COURT OF APPEALS, HONORABLE COMMISSION EN BANC, SECURITIES AND EXCHANGE COMMISSION, HONORABLE ENRIQUE L. FLORES, JR., in his capacity as Hearing Officer, REYNALDO VILLANUEVA, SR, AVELINA M. VILLANUEVA, CATALINO VILLANUEVA, ANDRES GONZALES, AURORA LACERNA, CELSO LAYGO, EDGARDO REYES, ALEJANDRA TONOGAN and ELENA USI, respondents. YNARES-SANTIAGO, J.: Before us is a petition for review on certiorari assailing the Decision of the Court of Appeals dated February 27, 1996, as well as the Resolution dated March 29, 1996, in CA-G.R. SP No. 38861. The instant controversy arose from a dispute between the Rural Bank of Lipa City, Incorporated (hereinafter referred to as the Bank), represented by its officers and members of its Board of Directors, and certain stockholders of the said bank. The records reveal the following antecedent facts: Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed a Deed of Assignment,1 wherein he assigned his shares, as well as those of eight (8) other shareholders under his control with a total of 10,467 shares, in favor of the stockholders of the Bank represented by its directors Bernardo Bautista, Jaime Custodio and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina, executed an Agreement2 wherein they acknowledged their indebtedness to the Bank in the amount of Four Million Pesos (P4,000,000.00), and stipulated that said debt will be paid out of the proceeds of the sale of their real property described in the Agreement. At a meeting of the Board of Directors of the Bank on November 15, 1993, the Villanueva spouses assured the Board that their debt would be paid on or before December 31 of that same year; otherwise, the Bank would be entitled to liquidate their shareholdings, including those under their control. In such an event, should the proceeds of the sale of said shares fail to satisfy in full the obligation, the unpaid balance shall be secured by other collateral sufficient therefor. When the Villanueva spouses failed to settle their obligation to the Bank on the due date, the Board sent them a letter3 demanding: (1) the surrender of all the stock certificates issued to them; and (2) the delivery of sufficient collateral to secure the balance of their debt amounting to P3,346,898.54. The Villanuevas ignored the bank's demands, whereupon their shares of stock were converted into

Treasury Stocks. Later, the Villanuevas, through their counsel, questioned the legality of the conversion of their shares.4 On January 15, 1994, the stockholders of the Bank met to elect the new directors and set of officers for the year 1994. The Villanuevas were not notified of said meeting. In a letter dated January 19, 1994, Atty. Amado Ignacio, counsel for the Villanueva spouses, questioned the legality of the said stockholders' meeting and the validity of all the proceedings therein. In reply, the new set of officers of the Bank informed Atty. Ignacio that the Villanuevas were no longer entitled to notice of the said meeting since they had relinquished their rights as stockholders in favor of the Bank. Consequently, the Villanueva spouses filed with the Securities and Exchange Commission (SEC), a petition for annulment of the stockholders' meeting and election of directors and officers on January 15, 1994, with damages and prayer for preliminary injunction5 , docketed as SEC Case No. 02-944683. Joining them as co-petitioners were Catalino Villanueva, Andres Gonzales, Aurora Lacerna, Celso Laygo, Edgardo Reyes, Alejandro Tonogan, and Elena Usi. Named respondents were the newly-elected officers and directors of the Rural Bank, namely: Bernardo Bautista, Jaime Custodio, Octavio Katigbak, Francisco Custodio and Juanita Bautista. The Villanuevas' main contention was that the stockholders' meeting and election of officers and directors held on January 15, 1994 were invalid because: (1) they were conducted in violation of the by-laws of the Rural Bank; (2) they were not given due notice of said meeting and election notwithstanding the fact that they had not waived their right to notice; (3) they were deprived of their right to vote despite their being holders of common stock with corresponding voting rights; (4) their names were irregularly excluded from the list of stockholders; and (5) the candidacy of petitioner Avelina Villanueva for directorship was arbitrarily disregarded by respondent Bernardo Bautista and company during the said meeting On February 16, 1994, the SEC issued a temporary restraining order enjoining the respondents, petitioners herein, from acting as directors and officers of the Bank, and from performing their duties and functions as such.6 In their joint Answer,7 the respondents therein raised the following defenses: 1) The petitioners have no legal capacity to sue; 2) The petition states no cause of action; 3) The complaint is insufficient; 4) The petitioners' claims had already been paid, waived, abandoned, or otherwise extinguished; 5) The petitioners are estopped from challenging the conversion of their shares. Petitioners, respondents therein, thus moved for the lifting of the temporary restraining order and the dismissal of the petition for lack of merit, and for the upholding of the validity of the stockholders' meeting and election of directors and officers held on January 15, 1994. By way of counterclaim, petitioners prayed for actual, moral and exemplary damages. On April 6, 1994, the Villanuevas' application for the issuance of a writ of preliminary injunction was denied by the SEC Hearing Officer on the ground of lack of sufficient basis for the issuance thereof.

However, a motion for reconsideration8 was granted on December 16, 1994, upon finding that since the Villanuevas' have not disposed of their shares, whether voluntarily or involuntarily, they were still stockholders entitled to notice of the annual stockholders' meeting was sustained by the SEC. Accordingly, a writ of preliminary injunction was issued enjoining the petitioners from acting as directors and officers of the bank.9 Thereafter, petitioners filed an urgent motion to quash the writ of preliminary injunction,10 challenging the propriety of the said writ considering that they had not yet received a copy of the order granting the application for the writ of preliminary injunction. With the impending 1995 annual stockholders' meeting only nine (9) days away, the Villanuevas filed an Omnibus Motion11 praying that the said meeting and election of officers scheduled on January 14, 1995 be suspended or held in abeyance, and that the 1993 Board of Directors be allowed, in the meantime, to act as such. One (1) day before the scheduled stockholders meeting, the SEC Hearing Officer granted the Omnibus Motion by issuing a temporary restraining order preventing petitioners from holding the stockholders meeting and electing the board of directors and officers of the Bank.12 A petition for Certiorari and Annulment with Damages was filed by the Rural Bank, its directors and officers before the SEC en banc,13 naming as respondents therein SEC Hearing Officer Enrique L. Flores, Jr., and the Villanuevas, erstwhile petitioners in SEC Case No. 02-94-4683. The said petition alleged that the orders dated December 16, 1994 and January 13, 1995, which allowed the issuance of the writ of preliminary injunction and prevented the bank from holding its 1995 annual stockholders' meeting, respectively, were issued by the SEC Hearing Officer with grave abuse of discretion amounting to lack or excess of jurisdiction. Corollarily, the Bank, its directors and its officers questioned the SEC Hearing Officer's right to restrain the stockholders' meeting and election of officers and directors considering that the Villanueva spouses and the other petitioners in SEC Case No. 02-94-4683 were no longer stockholders with voting rights, having already assigned all their shares to the Bank. In their Comment/Opposition, the Villanuevas and other private respondents argued that the filing of the petition for certiorari was premature and there was no grave abuse of discretion on the part of the SEC Hearing Officer, nor did he act without or in excess of his jurisdiction. On June 7, 1995, the SEC en banc denied the petition for certiorari in an Order,14 which stated: In the case now before us, petitioners could not show any proof of despotic or arbitrary exercise of discretion committed by the hearing officer in issuing the assailed orders save and except the allegation that the private respondents have already transferred their stockholdings in favor of the stockholders of the Bank. This, however, is the very issue of the controversy in the case a quo and which, to our mind, should rightfully be litigated and proven before the hearing officer. This is so because of the undisputed fact the (sic) private respondents are still in possession of the stock certificates evidencing their stockholdings and as held by the Supreme Court in Embassy Farms, Inc. v. Court of Appeals, et al., 188 SCRA 492, citingNava v. Peers Marketing Corp., the non-delivery of the stock certificate does not make the transfer of the shares of stock effective. For an effective transfer of stock, the mode of transfer as prescribed by law must be followed. We likewise find that the provision of the Corporation Code cited by the herein petitioner, particularly Section 83 thereof, to support the claim that the private respondents are no longer stockholders of the Bank is misplaced. The said law applies to acquisition of shares of stock by the corporation in the exercise of a stockholder's right of appraisal or when the said stockholder opts to dissent on a specific corporate act in those instances provided by law

and demands the payment of the fair value of his shares. It does not contemplate a "transfer" whereby the stockholder, in the exercise of his right to dispose of his shares (jus disponendi) sells or assigns his stockholdings in favor of another person where the provisions of Section 63 of the same Code should be complied with. The hearing officer, therefore, had a basis in issuing the questioned orders since the private respondents' rights as stockholders may be prejudiced should the writ of injunction not be issued. The private respondents are presumably stockholders of the Bank in view of the fact that they have in their possession the stock certificates evidencing their stockholdings. Until proven otherwise, they remain to be such and the hearing officer, being the one directly confronted with the facts and pieces of evidence in the case, may issue such orders and resolutions which may be necessary or reasonable relative thereto to protect their rights and interest in the meantime that the said case is still pending trial on the merits. A subsequent motion for reconsideration15 was likewise denied by the SEC en banc in a Resolution16 dated September 29, 1995. A petition for review was thus filed before the Court of Appeals, which was docketed as CA-G.R. SP No. 38861, assailing the Order dated June 7, 1995 and the Resolution dated September 29, 1995 of the SEC en banc in SEC EB No. 440. The ultimate issue raised before the Court of Appeals was whether or not the SEC en banc erred in finding: 1. That the Hon. Hearing Officer in SEC Case No. 02-94-4683 did not commit any grave abuse of discretion that would warrant the filing of a petition for certiorari; 2. That the private respondents are still stockholders of the subject bank and further stated that "it does not contemplate a transfer" whereby the stockholders, in the exercise of his right to dispose of his shares (Jus Disponendi) sells or assigns his stockholdings in favor of another person where the provisions of Sec. 63 of the same Code should be complied with; and 3. That the private respondents are presumably stockholders of the bank in view of the fact that they have in their possession the stock certificates evidencing their stockholdings. On February 27, 1996, the Court of Appeals rendered the assailed Decision17 dismissing the petition for review for lack of merit. The appellate court found that: The public respondent is correct in holding that the Hearing Officer did not commit grave abuse of discretion. The officer, in exercising his judicial functions, did not exercise his judgment in a capricious, whimsical, arbitrary or despotic manner. The questioned Orders issued by the Hearing Officer were based on pertinent law and the facts of the case. Section 63 of the Corporation Code states: "x x x Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner x x x. 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 the case at bench, when private respondents executed a deed of assignment of their shares of stocks in favor of the Stockholders of the Rural Bank of Lipa City, represented by Bernardo Bautista, Jaime Custodio and Octavio Katigbak, title to such shares will not be

effective unless the duly indorsed certificate of stock is delivered to them. For an effective transfer of shares of stock, the mode and manner of transfer as prescribed by law should be followed. Private respondents are still presumed to be the owners of the shares and to be stockholders of the Rural Bank. We find no reversible error in the questioned orders. Petitioners' motion for reconsideration was likewise denied by the Court of Appeals in an Order18 dated March 29, 1996. Hence, the instant petition for review seeking to annul the Court of Appeals' decision dated February 27, 1996 and the resolution dated March 29, 1996. In particular, the decision is challenged for its ruling that notwithstanding the execution of the deed of assignment in favor of the petitioners, transfer of title to such shares is ineffective until and unless the duly indorsed certificate of stock is delivered to them. Moreover, petitioners faulted the Court of Appeals for not taking into consideration the acts of disloyalty committed by the Villanueva spouses against the Bank. We find no merit in the instant petition. The Court of Appeals did not err or abuse its discretion in affirming the order of the SEC en banc, which in turn upheld the order of the SEC Hearing Officer, for the said rulings were in accordance with law and jurisprudence. The Corporation Code specifically provides: SECTION 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 stocks 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. (Emphasis ours) Petitioners argue that by virtue of the Deed of Assignment,19 private respondents had relinquished to them any and all rights they may have had as stockholders of the Bank. While it may be true that there was an assignment of private respondents' shares to the petitioners, said assignment was not sufficient to effect the transfer of shares since there was no endorsement of the certificates of stock by the owners, their attorneys-in-fact or any other person legally authorized to make the transfer. Moreover, petitioners admit that the assignment of shares was not coupled with delivery, the absence of which is a fatal defect. The rule is that the delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the transferee.20Thus, title may be vested in the transferee only by delivery of the duly indorsed certificate of stock.21 We have uniformly held that for a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed by law.22 The requirements are: (a) There must be delivery of the stock certificate: (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons

legally authorized to make the transfer; and (c) To be valid against third parties, the transfer must be recorded in the books of the corporation. As it is, compliance with any of these requisites has not been clearly and sufficiently shown. It may be argued that despite non-compliance with the requisite endorsement and delivery, the assignment was valid between the parties, meaning the private respondents as assignors and the petitioners as assignees. While the assignment may be valid and binding on the petitioners and private respondents, it does not necessarily make the transfer effective. Consequently, the petitioners, as mere assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not be entitled to dividends, insofar as the assigned shares are concerned Parenthetically, the private respondents cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of ownership and transfer of the shares in question is resolved with finality. There being no showing that any of the requisites mandated by law23 was complied with, the SEC Hearing Officer did not abuse his discretion in granting the issuance of the preliminary injunction prayed for by petitioners in SEC Case No. 02-94-4683 (herein private respondents). Accordingly, the order of the SEC en banc affirming the ruling of the SEC Hearing Officer, and the Court of Appeals decision upholding the SEC en banc order, are valid and in accordance with law and jurisprudence, thus warranting the denial of the instant petition for review. To enable the shareholders of the Rural Bank of Lipa City, Inc. to meet and elect their directors, the temporary restraining order issued by the SEC Hearing Officer on January 13, 1995 must be lifted. However, private respondents shall be notified of the meeting and be allowed to exercise their rights as stockholders thereat. While this case was pending, Republic Act No. 879924 was enacted, transferring to the courts of general jurisdiction or the appropriate Regional Trial Court the SEC's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A.25 One of those cases enumerated is any controversy "arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates, between any and/or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity." The instant controversy clearly falls under this category of cases which are now cognizable by the Regional Trial Court. Pursuant to Section 5.2 of R.A. No. 8799, this Court designated specific branches of the Regional Trial Courts to try and decide cases formerly cognizable by the SEC. For the Fourth Judicial Region, specifically in the Province of Batangas, the RTC of Batangas City, Branch 32 is the designated court.26 WHEREFORE, in view of all the foregoing, the instant petition for review on certiorari is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 38861 are hereby AFFIRMED. The case is ordered REMANDED to the Regional Trial Court of Batangas City, Branch 32, for proper disposition. The temporary restraining order issued by the SEC Hearing Officer dated January 13, 1995 is ordered LIFTED. SO ORDERED. G.R. No. 58168 December 19, 1989 CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA MAGSAYSAY-CORPUZ, assisted be her husband, Dr. Jose Corpuz, FELICIDAD P.

MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners, vs. THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix of the Estate of the late Genaro F. Magsaysay respondents.

FERNAN, C.J.: In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the decision of the Court of Appeals dated July l3, 1981, 1 affirming that of the Court of First Instance of Zambales and
Olongapo City which denied petitioners' motion to intervene in an annulment suit filed by herein private respondent, and [2] its resolution dated September 7, 1981, denying their motion for reconsideration.

Petitioners are raising a purely legal question; whether or not respondent Court of Appeals correctly denied their motion for intervention. The facts are not controverted. On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales. In her complaint, she alleged that in 1958, she and her husband acquired, thru conjugal funds, a parcel of land with improvements, known as "Pequena Island", covered by TCT No. 3258; that after the death of her husband, she discovered [a] an annotation at the back of TCT No. 3258 that "the land was acquired by her husband from his separate capital;" [b] the registration of a Deed of Assignment dated June 25, 1976 purportedly executed by the late Senator in favor of SUBIC, as a result of which TCT No. 3258 was cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the registration of Deed of Mortgage dated April 28, 1977 in the amount of P 2,700,000.00 executed by SUBIC in favor of FILMANBANK; that the foregoing acts were void and done in an attempt to defraud the conjugal partnership considering that the land is conjugal, her marital consent to the annotation on TCT No. 3258 was not obtained, the change made by the Register of Deeds of the titleholders was effected without the approval of the Commissioner of Land Registration and that the late Senator did not execute the purported Deed of Assignment or his consent thereto, if obtained, was secured by mistake, violence and intimidation. She further alleged that the assignment in favor of SUBIC was without consideration and consequently null and void. She prayed that the Deed of Assignment and the Deed of Mortgage be annulled and that the Register of Deeds be ordered to cancel TCT No. 22431 and to issue a new title in her favor. On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for intervention on the ground that on June 20, 1978, their brother conveyed to them one-half (1/2 ) of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in the subject matter of litigation and that they have a legal interest in the success of the suit with respect to SUBIC. On July 26, 1979, the court denied the motion for intervention, and ruled that petitioners have no legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct from its stockholders.

On appeal, respondent Court of Appeals found no factual or legal justification to disturb the findings of the lower court. The appellate court further stated that whatever claims the petitioners have against the late Senator or against SUBIC for that matter can be ventilated in a separate proceeding, such that with the denial of the motion for intervention, they are not left without any remedy or judicial relief under existing law. Petitioners' motion for reconsideration was denied. Hence, the instant recourse. Petitioners anchor their right to intervene on the purported assignment made by the late Senator of a certain portion of his shareholdings to them as evidenced by a Deed of Sale dated June 20, 1978. 2 Such transfer, petitioners posit, clothes them with an interest, protected by law, in the matter of
litigation.

Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862 & 853 (1927), 3petitioners strongly argue that their ownership of 41.66% of the entire outstanding capital stock
of SUBIC entitles them to a significant vote in the corporate affairs; that they are affected by the action of the widow of their late brother for it concerns the only tangible asset of the corporation and that it appears that they are more vitally interested in the outcome of the case than SUBIC.

Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the respondent court's holding that petitioners herein have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings below. In the case of Batama Farmers' Cooperative Marketing Association, Inc. v. Rosal, 4 we held: "As clearly stated in Section 2 of Rule 12
of the Rules of Court, to be permitted to intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of either of the parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other disposition of the property in the custody of the court or an officer thereof ."

To allow intervention, [a] it must be shown that the movant has legal interest in the matter in litigation, or otherwise qualified; and [b] consideration must be given as to whether the adjudication of the rights of the original parties may be delayed or prejudiced, or whether the intervenor's rights may be protected in a separate proceeding or not. Both requirements must concur as the first is not more important than the second. 5 The interest which entitles a person to intervene in a suit between other parties must be in the matter in litigation and of such direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment. Otherwise, if persons not parties of the action could be allowed to intervene, proceedings will become unnecessarily complicated, expensive and interminable. And this is not the policy of the law. 6 The words "an interest in the subject" mean a direct interest in the cause of action as pleaded, and which would put the intervenor in a legal position to litigate a fact alleged in the complaint, without the establishment of which plaintiff could not recover. 7 Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations. While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his

interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person. 8 Petitioners further contend that the availability of other remedies, as declared by the Court of appeals, is totally immaterial to the availability of the remedy of intervention. We cannot give credit to such averment. As earlier stated, that the movant's interest may be protected in a separate proceeding is a factor to be considered in allowing or disallowing a motion for intervention. It is significant to note at this juncture that as per records, there are four pending cases involving the parties herein, enumerated as follows: [1] Special Proceedings No. 122122 before the CFI of Manila, Branch XXII, entitled "Concepcion Magsaysay-Labrador, et al. v. Subic Land Corp., et al.", involving the validity of the transfer by the late Genaro Magsaysay of one-half of his shareholdings in Subic Land Corporation; [2] Civil Case No. 2577-0 before the CFI of Zambales, Branch III, "Adelaida Rodriguez-Magsaysay v. Panganiban, etc.; Concepcion Labrador, et al. Intervenors", seeking to annul the purported Deed of Assignment in favor of SUBIC and its annotation at the back of TCT No. 3258 in the name of respondent's deceased husband; [3] SEC Case No. 001770, filed by respondent praying, among other things that she be declared in her capacity as the surviving spouse and administratrix of the estate of Genaro Magsaysay as the sole subscriber and stockholder of SUBIC. There, petitioners, by motion, sought to intervene. Their motion to reconsider the denial of their motion to intervene was granted; [4] SP No. Q-26739 before the CFI of Rizal, Branch IV, petitioners herein filing a contingent claim pursuant to Section 5, Rule 86, Revised Rules of Court. 9 Petitioners' interests are no doubt amply protected in these cases. Neither do we lend credence to petitioners' argument that they are more interested in the outcome of the case than the corporation-assignee, owing to the fact that the latter is willing to compromise with widow-respondent and since a compromise involves the giving of reciprocal concessions, the only conceivable concession the corporation may give is a total or partial relinquishment of the corporate assets. 10 Such claim all the more bolsters the contingent nature of petitioners' interest in the subject of litigation. The factual findings of the trial court are clear on this point. The petitioners cannot claim the right to intervene on the strength of the transfer of shares allegedly executed by the late Senator. The corporation did not keep books and records. 11 Perforce, no transfer was ever recorded, much less
effected as to prejudice third parties. The transfer must be registered in the books of the corporation to affect third persons. The law on corporations is explicit. Section 63 of the Corporation Code provides, thus: "No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred."

And even assuming arguendo that there was a valid transfer, petitioners are nonetheless barred from intervening inasmuch as their rights can be ventilated and amply protected in another proceeding. WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners. SO ORDERED. G.R. No. L-23241 March 14, 1925

HENRY FLEISCHER, plaintiff-appellee, vs. BOTICA NOLASCO CO., INC., defendant-appellant. Antonio Gonzalez for appellant. Emilio M. Javier for appellee. JOHNSON, J.: This action was commenced in the Court of First Instance of the Province of Oriental Negros on the 14th day of August, 1923, against the board of directors of the Botica Nolasco, Inc., a corporation duly organized and existing under the laws of the Philippine Islands. The plaintiff prayed that said board of directors be ordered to register in the books of the corporation five shares of its stock in the name of Henry Fleischer, the plaintiff, and to pay him the sum of P500 for damages sustained by him resulting from the refusal of said body to register the shares of stock in question. The defendant filed a demurrer on the ground that the facts alleged in the complaint did not constitute sufficient cause of action, and that the action was not brought against the proper party, which was the Botica Nolasco, Inc. The demurrer was sustained, and the plaintiff was granted five days to amend his complaint. On November 15, 1923, the plaintiff filed an amended complaint against the Botica Nolasco, Inc., alleging that he became the owner of five shares of stock of said corporation, by purchase from their original owner, one Manuel Gonzalez; that the said shares were fully paid; and that the defendant refused to register said shares in his name in the books of the corporation in spite of repeated demands to that effect made by him upon said corporation, which refusal caused him damages amounting to P500. Plaintiff prayed for a judgment ordering the Botica Nolasco, Inc. to register in his name in the books of the corporation the five shares of stock recorded in said books in the name of Manuel Gonzalez, and to indemnify him in the sum of P500 as damages, and to pay the costs. The defendant again filed a demurrer on the ground that the amended complaint did not state facts sufficient to constitute a cause of action, and that said amended complaint was ambiguous, unintelligible, uncertain, which demurrer was overruled by the court. The defendant answered the amended complaint denying generally and specifically each and every one of the material allegations thereof, and, as a special defense, alleged that the defendant, pursuant to article 12 of its by-laws, had preferential right to buy from the plaintiff said shares at the par value of P100 a share, plus P90 as dividends corresponding to the year 1922, and that said offer was refused by the plaintiff. The defendant prayed for a judgment absolving it from all liability under the complaint and directing the plaintiff to deliver to the defendant the five shares of stock in question, and to pay damages in the sum of P500, and the costs. Upon the issue presented by the pleadings above stated, the cause was brought on for trial, at the conclusion of which, and on August 21, 1924, the Honorable N. Capistrano, judge, held that, in his opinion, article 12 of the by-laws of the corporation which gives it preferential right to buy its shares from retiring stockholders, is in conflict with Act No. 1459 (Corporation Law), especially with section 35 thereof; and rendered a judgment ordering the defendant corporation, through its board of directors, to register in the books of said corporation the said five shares of stock in the name of the plaintiff, Henry Fleischer, as the shareholder or owner thereof, instead of the original owner, Manuel Gonzalez, with costs against the defendant. The defendant appealed from said judgment, and now makes several assignment of error, all of which, in substance, raise the question whether or not article 12 of the by-laws of the corporation is in conflict with the provisions of the Corporation Law (Act No. 1459).

There is no controversy as to the facts of the present case. They are simple and may be stated as follows: That Manuel Gonzalez was the original owner of the five shares of stock in question, Nos. 16, 17, 18, 19 and 20 of the Botica Nolasco, Inc.; that on March 11, 1923, he assigned and delivered said five shares to the plaintiff, Henry Fleischer, by accomplishing the form of endorsement provided on the back thereof, together with other credits, in consideration of a large sum of money owed by Gonzalez to Fleischer (Exhibits A, B, B-1, B-2, B-3, B-4); that on March 13, 1923, Dr. Eduardo Miciano, who was the secretary-treasurer of said corporation, offered to buy from Henry Fleischer, on behalf of the corporation, said shares of stock, at their par value of P100 a share, for P500; that by virtue of article 12 of the by-laws of Botica Nolasco, Inc., said corporation had the preferential right to buy from Manuel Gonzalez said shares (Exhibit 2); that the plaintiff refused to sell them to the defendant; that the plaintiff requested Doctor Miciano to register said shares in his name; that Doctor Miciano refused to do so, saying that it would be in contravention of the by-laws of the corporation. It also appears from the record that on the 13th day of March, 1923, two days after the assignment of the shares to the plaintiff, Manuel Gonzales made a written statement to the Botica Nolasco, Inc., requesting that the five shares of stock sold by him to Henry Fleischer be noted transferred to Fleischer's name. He also acknowledged in said written statement the preferential right of the corporation to buy said five shares (Exhibit 3). On June 14, 1923, Gonzalez wrote a letter to the Botica Nolasco, withdrawing and cancelling his written statement of March 13, 1923 (Exhibit C), to which letter the Botica Nolasco on June 15, 1923, replied, declaring that his written statement was in conformity with the by-laws of the corporation; that his letter of June 14th was of no effect, and that the shares in question had been registered in the name of the Botica Nolasco, Inc., (Exhibit X). As indicated above, the important question raised in this appeal is whether or not article 12 of the bylaws of the Botica Nolasco, Inc., is in conflict with the provisions of the Corporation Law (Act No. 1459). Appellant invoked said article as its ground for denying the request of the plaintiff that the shares in question be registered in his (plaintiff's) name, and for claiming that it (Botica Nolasco, Inc.) had the preferential right to buy said shares from Gonzalez. Appellant now contends that article 12 of the said by-laws is in conformity with the provisions of Act No. 1459. Said article is as follows: ART. 12. Las acciones de la Corporacion pueden ser transferidas a otra persona, pero para que estas transferencias tengan validez legal, deben constar en los registros de la Corporacion con el debido endoso del accionista a cuyo nombre se ha expedido la accion o acciones que se transfieran, o un documento de transferencia. Entendiendose que, ningun accionista transferira accion alguna a otra persona sin participar antes por escrito al Secretario-Tesorero. En igualdad de condiciones, la sociedad tendra el derecho de adquirir para si la accion o acciones que se traten de transferir. (Exhibit 2.) The above-quoted article constitutes a by-law or regulation adopted by the Botica Nolasco, Inc., governing the transfer of shares of stock of said corporation. The latter part of said article creates in favor of the Botica Nolasco, Inc., a preferential right to buy, under the same conditions, the share or shares of stock of a retiring shareholder. Has said corporation any power, under the Corporation Law (Act. No. 1459), to adopt such by-law? The particular provisions of the Corporation Law referring to transfer of shares of stock are as follows: SEC. 13. Every corporation has the power:

xxx

xxx

xxx

(7) To make by-laws, not inconsistent with any existing law, for the fixing or changing of the number of its officers and directors within the limits prescribed by law, and for the transferring of its stock, the administration of its corporate affairs, etc. xxx xxx xxx

SEC. 35. The capital stock of stock corporations shall de 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 bylaws. 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, that 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. Section 13, paragraph 7, above-quoted, empowers a corporation to make by-laws, not inconsistent with any existing law, for the transferring of its stock. It follows from said provision, that a by-law adopted by a corporation relating to transfer of stock should be in harmony with the law on the subject of transfer of stock. The law on this subject is found in section 35 of Act No. 1459 above quoted. Said section specifically provides that the shares of stock "are personal property and may be transferred by delivery of the certificate indorsed by the owner, etc." Said section 35 defines the nature, character and transferability of shares of stock. Under said section they are personal property and may be transferred as therein provided. Said section contemplates no restriction as to whom they may be transferred or sold. It does not suggest that any discrimination may be created by the corporation in favor or against a certain purchaser. The holder of shares, as owner of personal property, is at liberty, under said section, to dispose of them in favor of whomsoever he pleases, without any other limitation in this respect, than the general provisions of law. Therefore, a stock corporation in adopting a by-law governing transfer of shares of stock should take into consideration the specific provisions of section 35 of Act No. 1459, and said by-law should be made to harmonize with said provisions. It should not be inconsistent therewith. The by-law now in question was adopted under the power conferred upon the corporation by section 13, paragraph 7, above quoted; but in adopting said by-law the corporation has transcended the limits fixed by law in the same section, and has not taken into consideration the provisions of section 35 of Act No. 1459. As a general rule, the by-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objects of the corporation, and are not contradictory to the general policy of the laws of the land. (Supreme Commandery of the Knights of the Golden Rule vs. Ainsworth, 71 Ala., 436; 46 Am. Rep., 332.) On the other hand, it is equally well settled that by-laws of a corporation must be reasonable and for a corporate purpose, and always within the charter limits. They must always be strictly subordinate to the constitution and the general laws of the land. They must not infringe the policy of the state, nor be hostile to public welfare. (46 Am. Rep., 332.) They must not disturb vested rights or impair the obligation of a contract, take away or abridge the substantial rights of stockholder or member, affect

rights of property or create obligations unknown to the law. (People's Home Savings Bank vs. Superior Court, 104 Cal., 649; 43 Am. St. Rep., 147; Ireland vs. Globe Milling Co., 79 Am. St. Rep., 769.) The validity of the by-law of a corporation is purely a question of law. (South Florida Railroad Co. vs. Rhodes, 25 Fla., 40.) The power to enact by-laws restraining the sale and transfer of stock must be found in the governing statute or the charter. Restrictions upon the traffic in stock must have their source in legislative enactment, as the corporation itself cannot create such impediments. By-law are intended merely for the protection of the corporation, and prescribe regulation and not restriction; they are always subject to the charter of the corporation. The corporation, in the absence of such a power, cannot ordinarily inquire into or pass upon the legality of the transaction by which its stock passes from one person to another, nor can it question the consideration upon which a sale is based. A by-law cannot take away or abridge the substantial rights of stockholder. Under a statute authorizing by- laws for the transfer of stock, a corporation can do no more than prescribe a general mode of transfer on the corporate books and cannot justify an unreasonable restriction upon the right of sale. (4 Thompson on Corporations, sec. 4137, p. 674. The right of unrestrained transfer of shares inheres in the very nature of a corporation, and courts will carefully scrutinize any attempt to impose restrictions or limitations upon the right of stockholders to sell and assign their stock. The right to impose any restraint in this respect must be conferred upon the corporation either by the governing statute or by the articles of the corporation. It cannot be done by a by-law without statutory or charter authority. (4 Thompson on Corporations, sec. 4334, pp. 818, 819.) The jus disponendi, being an incident of the ownership of property, the general rule (subject to exceptions hereafter pointed out and discussed) is that every owner of corporate shares has the same uncontrollable right to alien them which attaches to the ownership of any other species of property. A shareholder is under no obligation to refrain from selling his shares at the sacrifice of his personal interest, in order to secure the welfare of the corporation, or to enable another shareholder to make gains and profits. (10 Cyc., p. 577.) It follows from the foregoing that a corporation has no power to prevent or to restrain transfers of its shares, unless such power is expressly conferred in its charter or governing statute. This conclusion follows from the further consideration that by-laws or other regulations restraining such transfers, unless derived from authority expressly granted by the legislature, would be regarded as impositions in restraint of trade. (10 Cyc., p. 578.) The foregoing authorities go farther than the stand we are taking on this question. They hold that the power of a corporation to enact by-laws restraining the sale and transfer of shares, should not only be in harmony with the law or charter of the corporation, but such power should be expressly granted in said law or charter. The only restraint imposed by the Corporation Law upon transfer of shares is found in section 35 of Act No. 1459, quoted above, as follows: "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." This restriction is necessary in order that the officers of the corporation may know who are the stockholders, which is essential in conducting elections of officers, in calling meeting of stockholders, and for other purposes. but any restriction of the nature

of that imposed in the by-law now in question, is ultra vires, violative of the property rights of shareholders, and in restraint of trade. And moreover, the by-laws now in question cannot have any effect on the appellee. He had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by said by-law between the shareholder Manuel Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser. An unauthorized by-law forbidding a shareholder to sell his shares without first offering them to the corporation for a period of thirty days is not binding upon an assignee of the stock as a personal contract, although his assignor knew of the by-law and took part in its adoption. (10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.) When no restriction is placed by public law on the transfer of corporate stock, a purchaser is not affected by any contractual restriction of which he had no notice. (Brinkerhoff-Farris Trust and Savings Co. vs. Home Lumber Co., 118 Mo., 447.) The assignment of shares of stock in a corporation by one who has assented to an unauthorized by-law has only the effect of a contract by, and enforceable against, the assignor; the assignee is not bound by such by-law by virtue of the assignment alone. (Ireland vs. Globe Milling Co., 21 R.I., 9.) A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the board of directors, while it may be enforced as a reasonable regulation for the protection of the corporation against worthless stockholders, cannot be made available to defeat the rights of third persons. (Farmers' and Merchants' Bank of Lineville vs. Wasson, 48 Iowa, 336.) Counsel for defendant incidentally argues in his brief, that the plaintiff does not have any right of action against the defendant corporation, but against the president and secretary thereof, inasmuch as the signing and registration of shares is incumbent upon said officers pursuant to section 35 of the Corporation Law. This contention cannot be sustained now. The question should have been raised in the lower court. It is too late to raise it now in this appeal. Besides, as stated above, the corporation was made defendant in this action upon the demurrer of the attorney of the original defendant in the lower court, who contended that the Botica Nolasco, Inc., should be made the party defendant in this action. Accordingly, upon order of the court, the complaint was amended and the said corporation was made the party defendant. Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will lie to compel the officers of the corporation to transfer said stock upon the books of the corporation. (26 Cyc. 347; Hager vs. Bryan, 19 Phil., 138.) In view of all the foregoing, we are of the opinion, and so hold, that the decision of the lower court is in accordance with law and should be and is hereby affirmed, with costs. So ordered.