1. China Banking VS CA. GR 117604. March 26.

1997*

Securities and Exchange Commission; Actions; Jurisdiction; The better

policy in determining which body has jurisdiction over a case would be to
consider not only the status of relationship of the parties but also the
nature of the question that is the subject of their controversy.—The basic
issue we must first hurdle is which body has jurisdiction over the
controversy, the regular courts or the SEC. P.D. No. 902-A conferred
upon the SEC the following pertinent powers: * * * The aforecited law was
expounded upon in Viray v. CA and in the recent cases of Mainland
Construction Co., Inc. v. Movilla and Bernardo v. CA, thus: . . . . The
better policy in determining which body has jurisdiction over a case
would be to consider not only the status or relationship of the parties but
also the nature of the question that is the subject of their controversy.

Corporation Law; The purchase of a share or membership certificate

at public auction by a party (and the issuance to it of the
corresponding Certificate of Sale) transfers ownership of the same to
the latter and thus entitle it to have the said share registered in its
name as a member.—As to the first query, there is no question that the
purchase of the subject share or membership certificate at public auction
by petitioner (and the issuance to it of the corresponding Certificate of
Sale) transferred ownership of the same to the latter and thus entitled
petitioner to have the said share registered in its name as a member of
VGCCI. It is readily observed that VGCCI did not assail the transfer
directly and has in fact, in its letter of 27 September 1974, expressly
recognized the pledge agreement executed by the original owner,
Calapatia, in favor of petitioner and has even noted said agreement in its
corporate books. In addition, Calapatia, the original owner of the subject
share, has not contested the said transfer. By virtue of the afore-
mentioned sale, petitioner became a bona fide stockholder of VGCCI and,
therefore, the conflict that arose between petitioner and VGCCI aptly
exemplifies an intra-corporate controversy between a corporation and its
stockholder under Sec. 5(b) of P.D. 902-A.

The proper interpretation and application of a corporation’s by-laws

is a subject which irrefutably calls for the special competence of the
SEC.—An important consideration, moreover, is the nature of the
controversy between petitioner and private respondent corporation.
VGCCI claims a prior right over the subject share anchored mainly on
Sec. 3, Art. VIII of its by-laws which provides that “after a member shall
have been posted as delinquent, the Board may order his/her/its share
sold to satisfy the claims of the Club . . .” It is pursuant to this provision
that VGCCI also sold the subject share at public auction, of which it was
the highest bidder. VGCCI caps its argument by asserting that its
corporate by-laws should prevail. The bone of contention, thus, is the
proper interpretation and application of VGCCI’s aforequoted bylaws, a
subject which irrefutably calls for the special competence of the SEC.
Corporation Law; By-Laws; In order to be bound, a third party must
have acquired knowledge of the pertinent by-laws at the time the
transaction or agreement between said third person and the
shareholder was entered into.—In order to be bound, the third party
must have acquired knowledge of the pertinent by—laws at the time the
transaction or agreement between said third party and the shareholder
was entered into, in this case, at the time the pledge agreement was
executed. VGCCI could have easily informed petitioner of its by-laws
when it sent notice formally recognizing petitioner as pledgee of one of its
shares registered in Calapatia’s name. Petitioner’s belated notice of said
by-laws at the time of foreclosure will not suffice.

A membership share is quite different in character from a pawn

ticket.—Similarly, VGCCI’s contention that petitioner is duty-bound to
know its by-laws because of Art. 2099 of the Civil Code which stipulates
that the creditor must take care of the thing pledged with the diligence of
a good father of a family, fails to convince. The case of Cruz & Serrano v.
Chua A. H. Lee, is clearly not applicable: In applying this provision to the
situation before us it must be borne in mind that the ordinary pawn
ticket is a document by virtue of which the property in the thing pledged
passes from hand to hand by mere delivery of the ticket; and the contract
of the pledge is, therefore, absolvable to bearer. It results that one who
takes a pawn ticket in pledge acquires domination over the pledge; and it
is the holder who must renew the pledge, if it is to be kept alive. It is
quite obvious from the aforequoted case that a membership share is
quite different in character from a pawn ticket and to reiterate, petitioner
was never informed of Calapatia’s unpaid accounts and the restrictive
provisions in VGCCI’s by-laws.

The term “unpaid claim” in Sec. 63 of the Corporation Code refers

to “any unpaid claim arising from unpaid subscription, and not to
any indebtedness which a subscriber or stockholder may owe the
corporation arising from any other transaction,” such as monthly
dues.—Finally, Sec. 63 of the Corporation Code which provides that “no
shares of stock against which the corporation holds any unpaid claim
shall be transferable in the books of the corporation” cannot be utilized
by VGCCI. The term “unpaid claim” refers to “any unpaid claim arising
from unpaid subscription, and not to any indebtedness which a
subscriber or stockholder may owe the corporation arising from any
other transaction.” In the case at bar, the subscription for the share in
question has been fully paid as evidenced by the issuance of Membership
Certificate No. 1219. What Calapatia owed the corporation were merely
the monthly dues. Hence, the aforequoted provision does not apply.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Lim, Vigilia & Orencia for petitioner.
Jose F. Manacop for private respondent.
 KAPUNAN, J.:

Through a petition for review on certiorari under Rule 45 of the Revised

Rules of Court, petitioner China Banking Corporation seeks the reversal of
the decision of the Court of Appeals dated 15 August 1994 nullifying the
Securities and Exchange Commission’s order and resolution dated 4 June
1993 and 7 December 1993, respectively, for lack of jurisdiction. Similarly
impugned is the Court of Appeals’ resolution dated 4 September 1994
which denied petitioner’s motion for reconsideration.

The case unfolds thus:

 On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a

stockholder of private respondent Valley Golf & Country Club, Inc.
(VGCCI, for brevity), pledged his Stock Certificate No. 1219 to
petitioner China Banking Corporation (CBC, for brevity).
o On 16 September 1974, petitioner wrote VGCCI requesting
that the aforementioned pledge agreement be recorded in its
books.
o In a letter dated 27 September 1974, VGCCI replied that the
deed of pledge executed by Calapatia in petitioner’s favor
was duly noted in its corporate books.
 On 3 August 1983, Calapatia obtained a loan of P20,000.00 from
China Bank, payment of which was secured by the aforestated pledge
agreement still existing between Calapatia and petitioner.

 Due to Calapatia’s failure to pay his obligation, China Bank, on 12

April 1985, filed a petition for extrajudicial foreclosure before Notary
Public Antonio T. de Vera of Manila, requesting the latter to conduct a
public auction sale of the pledged stock.

o On 14 May 1985, petitioner informed VGCCI of the

abovementioned foreclosure proceedings and requested that
the pledged stock be transferred to its (petitioner’s) name
and the same be recorded in the corporate books.

o However, on 15 July 1985, VGCCI wrote petitioner expressing

its inability to accede to petitioner’s request in view of
Calapatia’s unsettled accounts with the club.

o Despite the foregoing, Notary Public de Vera held a public

auction on 17 September 1985 and China Bank emerged as
the highest bidder at P20,000.00 for the pledged stock.
Consequently, petitioner was issued the corresponding
certificate of sale.

 On 21 November 1985, VGCCI sent Calapatia a notice demanding full

payment of his overdue account in the amount of P18,783.24.8 Said
notice was followed by a demand letter dated 12 December 1985 for the
 same amount and another notice dated 22 November 1986 for
P23,483.24.

o On 4 December 1986, VGCCI caused to be published in the

newspaper Daily Express a notice of auction sale of a
number of its stock certificates, to be held on 10 December
1986 at 10:00 a.m. Included therein was Calapatia’s own share
of stock (Stock Certificate No. 1219).

o Through a letter dated 15 December 1986, VGCCI informed

Calapatia of the termination of his membership due to the
sale of his share of stock in the 10 December 1986
auction.

 On 5 May 1989, petitioner advised VGCCI that it is the new owner of

Calapatia’s Stock Certificate No. 1219 by virtue of being the highest
bidder in the 17 September 1985 auction and requested that a new
certificate of stock be issued in its name.
o On 2 March 1990, VGCCI replied that “for reason of
delinquency” Calapatia’s stock was sold at the public auction
held on 10 December 1986 for P25,000.00.
 On 9 March 1990, petitioner protested the sale by VGCCI of the
subject share of stock and thereafter filed a case with the Regional
Trial Court of Makati for the nullification of the 10 December 1986
auction and for the issuance of a new stock certificate in its name.
o On 18 June 1990, the Regional Trial Court of Makati dismissed
the complaint for lack of jurisdiction over the subject matter on
the theory that it involves an intra-corporate dispute and on
27 August 1990 denied petitioner’s motion for reconsideration.

 On 20 September 1990, petitioner filed a complaint with the Securities

and Exchange Commission (SEC) for the nullification of the sale of
Calapatia’s stock by VGCCI; the cancellation of any new stock
certificate issued pursuant thereto; for the issuance of a new certificate
in petitioner’s name; and for damages, attorney’s fees and costs of
litigation.

Ruling of the SEC

 On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a

decision in favor of VGCCI, stating in the main that “(c)onsidering
that the said share is delinquent, (VGCCI) had valid reason not to
transfer the share in the name of the petitioner in the books of
(VGCCI) until liquidation of delinquency.”
 Consequently, the case was dismissed.
 On 14 April 1992, Hearing Officer Perea denied petitioner’s motion for
reconsideration.
 Petitioner appealed to the SEC en banc and on 4 June 1993, the
Commission issued an order reversing the decision of its hearing
officer. It declared thus:
 The Commission en banc believes that appellant-petitioner has a
prior right over the pledged share and because of pledgor’s failure
to pay the principal debt upon maturity, appellant-petitioner can
proceed with the foreclosure of the pledged share.

WHEREFORE, premises considered, the Orders of January 3,

1992 and April 14, 1992 are hereby SET ASIDE. The auction sale
conducted by appellee-respondent Club on December 10, 1986 is
declared NULL and VOID. Finally, appellee-respondent Club is
ordered to issue another membership certificate in the name of
appellant-petitioner bank.

SO ORDERED
 VGCCI sought reconsideration of the abovecited order. However, the
SEC denied the same in its resolution dated 7 December 1993.

Ruling of the CA

 The sudden turn of events sent VGCCI to seek redress from the Court
of Appeals.
 On 15 August 1994, the Court of Appeals rendered its decision
nullifying and setting aside the orders of the SEC and its hearing
officer on ground of lack of jurisdiction over the subject matter and,
consequently, dismissed petitioner’s original complaint.
 The Court of Appeals declared that the controversy between CBC and
VGCCI is not intra-corporate. It ruled as follows:
 In order that the respondent Commission can take cognizance of a
case, the controversy must pertain to any of the following
relationships:

a. between the corporation, partnership or association and

the public;
b. between the corporation, partnership or association and
its stockholders, partners, members, or officers;
c. between the corporation, partnership or association and
the state in so far as its franchise, permit or license to
operate is concerned, and
d. among the stockholders, partners or associates
themselves (Union Glass and Container Corporation vs.
SEC, November 28, 1983, 126 SCRA 31).
The establishment of any of the relationship mentioned will
not necessarily always confer jurisdiction over the dispute
on the Securities and Exchange Commission to the
exclusion of the regular courts. The statement made in
Philex Mining Corp. vs. Reyes, 118 SCRA 602, that the rule
admits of no exceptions or distinctions is not that absolute.
The better policy in determining which body has
jurisdiction over a case would be to consider not only the
status or relationship of the parties but also the nature of
the question that is the subject of their controversy (Viray
 vs. Court of Appeals, November 9, 1990, 191 SCRA 308,
322-323).
 Indeed, the controversy between petitioner and respondent bank
which involves ownership of the stock that used to belong to
Calapatia, Jr. is not within the competence of respondent
Commission to decide. It is not any of those mentioned in the
aforecited case.
 WHEREFORE, the decision dated June 4, 1993, and order dated
December 7, 1993 of respondent Securities and Exchange
Commission (Annexes Y and BB, petition) and of its hearing officer
dated January 3, 1992 and April 14, 1992 (Annexes S and W,
petition) are all nullified and set aside for lack of jurisdiction over the
subject matter of the case. Accordingly, the complaint of respondent
China Banking Corporation (Annex Q, petition) is DISMISSED. No
pronouncement as to costs in this instance.
 Petitioner moved for reconsideration but the same was denied by the
Court of Appeals in its resolution dated 5 October 1994.21

ISSUES

The basic issue we must first hurdle is which body has jurisdiction
over the controversy, the regular courts or the SEC.

RULING:

WHEREFORE, premises considered, the assailed decision Court of

Appeals is REVERSED and the order of the SEC en banc dated 4
June 1993 is hereby AFFIRMED

In defending its actions, VGCCI likewise maintains that petitioner is

bound by its by-laws.

It argues in this wise:

The general rule really is that third persons are not bound by the by-
laws of a corporation since they are not privy thereto (Fleischer v.
Botica Nolasco, 47 Phil. 584).

The exception to this is when third persons have actual or constructive

knowledge of the same.

In the case at bar, petitioner had actual knowledge of the bylaws of

private respondent when petitioner foreclosed the pledge made by
Calapatia and when petitioner purchased the share foreclosed on
September 17, 1985.

This is proven by the fact that prior thereto, i.e., on May 14, 1985
petitioner even quoted a portion of private respondent’s by-laws which is
material to the issue herein in a letter it wrote to private respondent.
Because of this actual knowledge of such by-laws then the same bound
the petioner as of the time when petitioner purchased the share.

Since the by-laws was already binding upon petitioner when the latter
purchased the share of Calapatia on September 17, 1985 then the
petitioner purchased the said share subject to the right of the private
respondent to sell the said share for reasons of delinquency and the right
of private respondent to have a first lien on said shares as these rights
are provided for in the by-laws very very clearly.

VGCCI misunderstood the import of our ruling in Fleischer v. Botica

Nolasco Co.:

And moreover, the by-law now in question cannot have any effect on the
appellee. He had no knowledge of such by-law when the shares were
assigned to him. He obtained them in good faith and for a valuable
consideration. He was not a privy to the contract created by said by-law
between the shareholder Manuel Gonzales and the Botica Nolasco, Inc.
Said by-law cannot operate to defeat his rights as a purchaser.

“An unauthorized by-law forbidding a shareholder to sell his shares

without first offering them to the corporation for a period of thirty days is
not binding upon an assignee of the stock as a personal contract,
although his assignor knew of the by-law and took part in its adoption.”
(10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.)

“When no restriction is placed by public law on the transfer of corporate

stock, a purchaser is not affected by any contractual restriction of which
he had no notice.” (Brinkerhoff-Farris Trust & Savings Co. vs. Home
Lumber Co., 118 Mo., 447.)

“The assignment of shares of stock in a corporation by one who has

assented to an unauthorized by-law has only the effect of a contract by,
and enforceable against, the assignor; the assignee is not bound by such
by-law by virtue of the assignment alone.” (Ireland vs. Globe Milling Co.,
21 R.I., 9.)

“A by-law of a corporation which provides that transfers of stock shall

not be valid unless approved by the board of directors, while it may be
enforced as a reasonable regulation for the protection of the corporation
against worthless stockholders, cannot be made available to defeat the
rights of third persons.” (Farmers’and Merchants’ Bank of Lineville vs.
Wasson, 48 Iowa, 336.) (Italics ours]

In order to be bound, the third party must have acquired knowledge

of the pertinent by-laws at the time the transaction or agreement
between said third party and the shareholder was entered into, in
this case, at the time the pledge agreement was executed. VGCCI
could have easily informed petitioner of its by-laws when it sent notice
formally recognizing petitioner as pledgee of one of its shares registered
in Calapatia’s name.

Petitioner’s belated notice of said by-laws at the time of foreclosure will

not suffice. The ruling of the SEC en banc is particularly instructive:

By-laws signifies the rules and regulations or private laws enacted by the
corporation to regulate, govern and control its own actions, affairs and
concerns and its stockholders or members and directors and officers
with relation thereto and among themselves in their relation to it.

In other words, by-laws are the relatively permanent and continuing

rules of action adopted by the corporation for its own government and
that of the individuals composing it and having the direction,
management and control of its affairs, in whole or in part, in the
management and control of its affairs and activities. (9 Fletcher 4166,
1982 Ed.)

The purpose of a by-law is to regulate the conduct and define the duties
of the members towards the corporation and among themselves. They are
self-imposed and, although adopted pursuant to statutory authority,
have no status as public law. (Ibid.)

Therefore, it is the generally accepted rule that third persons are not
bound by by-laws, except when they have knowledge of the provisions
either actually or constructively.

In the case of Fleischer v. Botica Nolasco, 47 Phil. 584, the Supreme Court
held that the bylaw restricting the transfer of shares cannot have any
effect on the transferee of the shares in question as he “had no knowledge
of such by-law when the shares were assigned to him. He obtained them
in good faith and for a valuable consideration. He was not a privy to the
contract created by the by-law between the shareholder x x x and the
Botica Nolasco, Inc. Said by-law cannot operate to defeat his right as a
purchaser.” (Ialics supplied.)

By analogy of the above-cited case, the Commission en banc is of the

opinion that said case is applicable to the present controversy. Appellant-
petitioner bank as a third party can not be bound by appellee-
respondent’s by-laws. It must be recalled that when appellee-respondent
communicated to appellant-petitioner bank that the pledge agreement
was duly noted in the club’s books there was no mention of the
shareholder-pledgor’s unpaid accounts. The transcript of stenographic
notes of the June 25, 1991 Hearing reveals that the pledgor became
delinquent only in 1975. Thus, appellantpetitioner was in good faith
when the pledge agreement was contracted.

The Commission en banc also believes that for the exception to the
generally accepted rule that third persons are not bound by bylaws
to be applicable and binding upon the pledgee, knowledge of the
provisions of the VGCCI By-laws must be acquired at the time the
pledge agreement was contracted. Knowledge of said provisions, either
actual or constructive, at the time of foreclosure will not affect pledgee’s
right over the pledged share. Art. 2087 of the Civil Code provides that it
is also of the essence of these contracts that when the principal
obligation becomes due, the things in which the pledge or mortgage
consists may be alienated for the payment to the creditor.

In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc., the
Commission issued an opinion to the effect that:
According to the weight of authority, the pledgee’s right is entitled to full
protection without surrender of the certificate, their cancellation, and the
issuance to him of new ones, and when done, the pledgee will be fully
protected against a subsequent purchaser who would be charged with
constructive notice that the certificate is covered by the pledge. (12-A
Fletcher 502)

The pledgee is entitled to retain possession of the stock until the pledgor
pays or tenders to him the amount due on the debt secured. In other
words, the pledgee has the right to resort to its collateral for the payment
of the debts. (Ibid., 502)
To cancel the pledged certificate outright and the issuance of new
certificate to a third person who purchased the same certificate covered
by the pledge, will certainly defeat the right of the pledgee to resort to its
collateral for the payment of the debt.

The pledgor or his representative or registered stockholders has no right

to require a return of the pledged stock until the debt for which it was
given as security is paid and satisfied, regardless of the length of time
which have elapsed since debt was created. (12-A Fletcher 409)

A bona fide pledgee takes free from any latent or secret equities or liens
in favor either of the corporation or of third persons,if he has no notice
thereof, but not otherwise. He also takes it free of liens or claims that
may subsequently arise in favor of the corporation if it has notice of the
pledge, although no demand for a transfer of the stock to the pledgee on
the corporate books has been made. (12-A Fletcher 5634, 1982 ed., citing
Snyder v. Eagle Fruit Co., 75 F2d 739)38

Similarly, VGCCI’s contention that petitioner is duty-bound to know its

by-laws because of Art. 2099 of the Civil Code which stipulates that the
creditor must take care of the thing pledged with the diligence of a good
father of a family, fails to convince.

The case of Cruz & Serrano v. Chua A.H. Lee,39 is clearly not applicable:

In applying this provision to the situation before us it must be borne in

mind that the ordinary pawn ticket is a document by virtue of which the
property in the thing pledged passes from hand to hand by mere delivery
 of the ticket; and the contract of the pledge is, therefore, absolvable to
bearer. It results that one who takes a pawn ticket in pledge acquires
domination over the pledge; and it is the holder who must renew the
pledge, if it is to be kept alive.

It is quite obvious from the aforequoted case that a membership share is

quite different in character from a pawn ticket and to reiterate, petitioner
was never informed of Calapatia’s unpaid accounts and the restrictive
provisions in VGCCI’s by-laws.

Finally, Sec. 63 of the Corporation Code which provides that “no shares
of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation” cannot be utilized by
VGCCI. The term “unpaid claim” refers to “any unpaid claim arising from
unpaid subcription, and not to any indebtedness which a subscriber or
stockholder may owe the corporation arising from any other
transaction.”40 In the case at bar, the subscription for
the share in question has been fully paid as evidenced by the issuance of
Membership Certificate No. 1219.

What Calapatia owed the corporation were merely the monthly dues.
Hence, the aforeqouted provision does not apply

2. PMI Colleges vs NLRC, 1997*

Corporation Law; By-Laws; Since by-laws operate merely as internal rules

among the stockholders, they cannot affect or prejudice third persons who
deal with the corporation, unless they have knowledge of the same.—
Neither can we concede that such contract would be invalid just because the
signatory thereon was not the Chairman of the Board which allegedly violated
petitioner’s bylaws. Since by-laws operate merely as internal rules among the
stockholders, they cannot affect or prejudice third persons who deal with the
corporation, unless they have knowledge of the same. No proof appears on
record that private respondent ever knew anything about the provisions of said
by-laws. In fact, petitioner itself merely asserts the same without even bothering
to attach a copy or excerpt thereof to show that there is such a provision. How
can it now expect the Labor Arbiter and the NLRC to believe it? That this
allegation has never been denied by private respondent does not necessarily
signify admission of its existence because technicalities of law and procedure
and the rules obtaining in the courts of law do not strictly apply to proceedings
of this nature.
Subject of the instant petition for certiorari under Rule 65 of the Rules of Court is
the resolution1 of public respondent National Labor Relations Commission
rendered on August 4, 1995, affirming in toto the December 7, 1994 decision3 of
Labor Arbiter Pablo C. Espiritu declaring petitioner PMI Colleges liable to pay
private respondent Alejandro Galvan P405,000.00 in unpaid wages and
P40,532.00 as attorney’s fees.
A chronicle of the pertinent events on record leading to the filing of the instant
petition is as follows:

FACTS
 On July 7, 1991, petitioner, an educational institution offering
courses on basic seaman’s training and other marine related courses,
hired private Alejandro Galvan as contractual instructor with an
agreement that the latter shall be paid at an hourly rate of P30.00 to
P50.00, depending on the description of load subjects and on the
schedule for teaching the same. Pursuant to this engagement, private
respondent then organized classes in marine engineering.

 Initially, Galvan and other instructors were compensated for services

rendered during the first three periods of the abovementioned
contract.

 However, for reasons unknown to private respondent, he stopped

receiving payment for the succeeding rendition of services.

 This claim of non-payment was embodied in a letter dated March 3,

1992, written by petitioner’s Acting Director, Casimiro A. Aguinaldo,
addressed to its President, Atty. Santiago Pastor, calling attention to
and appealing for the early approval and release of the salaries of its
instructors including that of private respondent.

 It appeared further in said letter that the salary of private respondent

corresponding to the shipyard and plant visits and the ongoing on-
the-job training of Class on board MV “Sweet Glory” of Sweet Lines,
Inc. was not yet included.

 This request of the Acting Director apparently went unheeded.

 Repeated demands having likewise failed, private respondent was

soon constrained to file a complaint before the National Capital
Region Arbitration Branch on September 14, 1993 seeking payment
for salaries earned from the following:

a. basic seaman course Classes 41 and 42 for the period covering

October 1991 to September 1992;
b. shipyard and plant visits and on-the-job training of Classes 41
and 42 for the period covering October 1991 to September
1992 on board M/V “Sweet Glory” vessel; and
c. as Acting Director of Seaman Training Course for 3-1/2
months.

 In support of the abovementioned claims, private respondent

submitted documentary evidence which were annexed to his
complaint, such as the detailed load and schedule of classes with
number of class hours and rate per hour (Annex “A”); PMI Colleges
Basic Seaman Training Course (Annex “B”); the aforementioned letter-
 request for payment of salaries by the Acting Director of PMI Colleges
(Annex “C”); unpaid load of private respondent (Annex “D”); and
vouchers prepared by the accounting department of petitioner but
whose amounts indicated therein were actually never paid to private
respondent (Exhibit “E”).

 Private respondent’s claims, as expected, were resisted by petitioner.

It alleged that classes in the courses offered which complainant
claimed to have remained unpaid were not held or conducted in the
school premises of PMI Colleges.

 Only private respondent, it was argued, knew whether classes were

indeed conducted. In the same vein, petitioner maintained that it
exercised no appropriate and proper supervision of the said classes
which activities allegedly violated certain rules and regulations of the
Department of Education, Culture and Sports (DECS).

 Furthermore, the claims, according to petitioner, were all exaggerated

and that, at any rate, private respondent abandoned his work at the
time he should have commenced the same.

 In reply, private respondent belied petitioner’s allegations contending,

among others, that he conducted lectures within the premises of
petitioner’s rented space located at 5th Floor, Manufacturers Bldg.,
Sta. Cruz, Manila; that his students duly enrolled with the Registrar’s
Office of petitioner; that shipyard and plant visits were conducted at
Fort San Felipe, Cavite Naval Base; that petitioner was fully aware of
said shipyard and plant visits because it even wrote a letter for that
purpose; and that basic seaman courses 41 and 42 were sanctioned
by the DECS as shown by the records of the Registrar’s Office.

 Later in the proceedings below, petitioner manifested that Mr.

Tomas G. Cloma, Jr., a member of the petitioner’s Board of
Trustees wrote a letter to the Chairman of the Board on May 23,
1994, clarifying the case of private respondent and stating
therein, inter alia, that under petitioner’s by-laws only the
Chairman is authorized to sign any contract and that private
respondent, in any event, failed to submit documents on the
alleged shipyard and plant visits in Cavite Naval Base.

 Attempts at amicable settlement having failed, the parties were

required to submit their respective position papers.

Labor Arbiter Ruling:

 Thereafter, on June 16, 1994, the Labor Arbiter issued an order

declaring the case submitted for decision on the basis of the position
papers which the parties filed. Petitioner, however, vigorously
opposed this order insisting that there should be a formal trial on the
merits in view of the important factual issues raised. In another order
 dated July 22, 1994, the Labor Arbiter impliedly denied petitioner’s
opposition, reiterating that the case was already submitted for
decision. Hence, a decision was subsequently rendered by the
Labor Arbiter on December 7, 1994 finding for the private
respondent.

NLRC Ruling:

 On appeal, the NLRC affirmed the same in toto in its decision of

August 4, 1995.

 Aggrieved, petitioner now pleads for the Court to resolve the following
issues in its favor, to wit:

Issue:

II. Whether claims for salaries/wages for services relative toon-the-job training
and shipboard and plant visits by instructors, assuming the same were really
conducted, have valid bases;

Ruling:

WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED

for lack of merit while the resolution of the National Labor Relations Commission
dated August 4, 1995 is hereby AFFIRMED.
SO ORDERED

We see no compelling reason to grant petitioner’s plea; the same must,

therefore, be dismissed.

In any event, granting that we may have to delve into the facts and evidence of
the parties, we still find no puissant justification for us to adjudge both the
Labor Arbiter’s and NLRC’s appreciation of such evidence as indicative of any
grave abuse of discretion.

First. Petitioner places so much emphasis on its argument that private

respondent did not produce a copy of the contract pursuant to which he
rendered services.

This argument is, of course, puerile. The absence of such copy does not in any
manner negate the existence of a contract of employment since “(C)ontracts
shall be obligatory, in whatever form they have been entered into, provided all
the essential requisites for their validity are present.”9 The only exception to
this rule is “when the law requires that a contract be in some form in order that
it may be valid or enforceable, or that a contract be proved in a certain way.”

However, there is no requirement under the law that the contract of

employment of the kind entered into by petitioner with private respondent
should be in any particular form. While it may have been desirable for private
 respondent to have produced a copy of his contract if one really exists, but the
absence thereof, in any case, does not militate against his claims inasmuch as:
“No particular form of evidence is required to prove the existence of an
employer-employee relationship. Any competent and relevant evidence to prove
the relationship may be admitted.

For, if only documentary evidence would be required to show that relationship,

no scheming employer would ever be brought before the bar of justice, as no
employer would wish to come out with any trace of the illegality he has
authored considering that it should take much weightier proof to invalidate a
written instrument. x x x”

At any rate, the vouchers prepared by petitioner’s own accounting department

and the letter-request of its Acting Director asking for payment of private
respondent’s services suffice to support a reasonable conclusion that private
respondent was employed with petitioner.

How else could one explain the fact that private respondent was supposed to be
paid the amounts mentioned in those documents if he were not employed?

Petitioner’s evidence is wanting in this respect while private respondent

affirmatively stated that the same arose out of his employment with petitioner.

As between the two, the latter is weightier inasmuch as we accord affirmative

testimony greater value than a negative one.

For the foregoing reasons, we find it difficult to agree with petitioner’s assertion
that the absence of a copy of the alleged contract should nullify private
respondent’s claims.

Neither can we concede that such contract would be invalid just because the
signatory thereon was not the Chairman of the Board which allegedly violated
petitioner’s by-laws. Since by-laws operate merely as internal rules among
the stockholders, they cannot affect or prejudice third persons who deal
with the corporation, unless they have knowledge of the same.

No proof appears on record that private respondent ever knew anything about
the provisions of said by-laws. In fact, petitioner itself merely asserts the same
without even bothering to attach a copy or excerpt thereof to show that there is
such a provision. How can it now expect the Labor Arbiter and the NLRC to
believe it?

That this allegation has never been denied by private respondent does not
necessarily signify admission of its existence because technicalities of law and
procedure and the rules obtaining in the courts of law do not strictly apply to
proceedings of this nature.

3. Board of Directors vs Tan (nOTICE REQUIRED BY bY lAWS)

[G.R. No. L-12282. March 31, 1959.]

THE BOARD OF DIRECTORS and ELECTION COMMITTEE OF THE SMB

WORKERS SAVINGS AND LOAN ASSOCIATION, INC., ET AL., Petitioners, v.
HON BIENVENIDO A. TAN, ETC., ET AL., Respondent.

Panfilo M. Manguera and Restituto L. Opiz, for Petitioners.

Cipriano Cid & Associates for Respondents.

SYLLABUS

1. CORPORATION LAW; LABOR ASSOCIATIONS; PROVISIONS OF

CONSTITUTION AND BY-LAWS SHOULD BE COMPLIED WITH. — The
constitution and by-laws of the petitioner association provide that notice of a
special meeting of members should be given at least five days before the date of
the meeting. It appears that the notice was posted on 26 March and the election
was set for 28 March. Therefore, the five days previous notice required would
not be complied with.

2. ID.; ID.; AUTHORITY OF COURTS TO APPOINT COMMITTEE TO SUPERVISE

ELECTION OF OFFICIALS. --When it appears that a fair election cannot be had,
the court in the exercise of its equity jurisdiction may appoint a committee with
the authority to call, conduct and supervise the election of the directors or the
association.

DECISION

PADILLA, J.:

 Petitioners pray for a writ of certiorari with preliminary injunction.

 On 17 January 1957 John de Castillo Et. Al., commenced a suit in the

Court of First Instance of Manila

a. to declare null and void the election of the members of the board of
directors of the SMB Workers Savings and Loan Association, Inc. and
of the members of the Election Committee for the year 1957 held on
12 January;
b. to compel the board of directors of the association to call for and hold
another election in accordance with its constitution and by-laws and
the Corporation Law;
c. to restrain the defendants who had been illegally elected as members
of the board of directors from exercising the functions of their office;
 d. to order the defendants to pay the plaintiffs attorney’s fees and costs
of the suit; and to grant them other just equitable relief (civil No.
31584, Annex A).

 The defendants filed an answer (Annex B), and after joinder of issues the
Court set the case for trial.
 On the day set for trial of the case, neither the defendants nor their
attorney appeared. The Court proceeded to receive the plaintiffs’
evidence.

 On 11 February, the Court rendered judgment

a) declaring the election held on 11 and 12 January null and void,
b) ordering the defendants to call for and hold another election in
accordance with the constitution and by-laws of the association
and the Corporation Law, and
c) sentencing the defendants to pay the plaintiffs the sum of P1,500
as attorney’s fees, and to pay the costs of the suit (Annex C).
 On 15 February, before the expiration of the time to appeal, the plaintiffs
moved for immediate execution of the judgment (Annex F).
 On 4 March the Court granted the plaintiffs motion and issued the writ
of execution prayed for (Annex G).
 On 9 March the defendants moved for stay of execution of the judgment,
for which they offered to file a supersedeas bond in the amount to be
fixed by the Court (Annex H).
 On 23 March the Court denied the defendants’ motion. I
 n compliance with the judgment rendered by the Court, on 26 March the
election committee composed of Quintin Tesalona, Manuel Dumaup and
Jose Capino Santos set the meeting of the members of the association for
28 March at 5:30 o’clock in the afternoon to elect the new members of
the board of directors (Annex J & 4).
 On 27 March the plaintiffs filed an ex-parte motion alleging
a. that the election committee that had called the meeting of members of
the association is composed of the same members that had conducted
and supervised the election of the members of the board of directors
that was declared null and void by the Court;
b. that in view thereof it would be inequitable to allow them to conduct
and supervise again the forth-coming election;
c. that the election to be conducted and supervised by the said
committee would not be held in accordance with the constitution
and by-laws of the association providing for five days notice to
the members before the election, since the notice was posted and
sent out only on 26 March, and the election would be held on 28
March, or two days after notice;
d. that the notice that beginning 26 March any member could secure his
ballot and proxy from the office of the association is in violation of
section 5, article III of the constitution and by-laws, which prohibits
voting by proxy in the election of members of the board of
directors, and
 e. that the defendants did not show that arrangement is being made "to
guarantee that the election will be held in accordance with the
constitution and by-laws and by the law."
f. They prayed that the Court appoint its representative or
representatives, whose compensation shall be paid out of the funds of
the association, to supervise and conduct the election ordered by it
(Annex 4)

RTC Decision

 On the same day, 27 March, the Court entered an order providing as

follows:
 . . . the Court hereby orders that the election scheduled for March 28,
1957 be, as it hereby is, cancelled, and a committee of three is hereby
constituted and appointed to call, conduct and supervise the election of
the members of the board of directors of the association for 1957, said
committee to be composed of: Mr. Candido C. Viernes as representative
of the Court and to act as Chairman; and one representative each from
the plaintiffs and defendants, as members, as members. The committee
is vested with the sole and exclusive power and authority to call conduct
and supervise the election of the members of the board of directors of the
association for the year 1957.

The chairman of the committee shall receive a compensation of P50.00

per day and the members thereof P30.00 each per day, said
compensation to be paid by the association.

SO ORDERED. (Annex E & 3.)

 On 28 March the defendants moved for reconsideration of the foregoing

order (Annex L).
 On 30 March the Court denied the motion for reconsideration.

RULING:

Claiming that in issuing the order of 27 March 1957 (Annexes E &

3) and in denying their motion for reconsideration, the Court acted
without or in excess of jurisdiction or with grave abuse of
discretion; and that there being no appeal or any plain, speedy
and adequate remedy in the ordinary course of law, the petitioners
pray for a writ of certiorari to annul and set aside the order
assailed, and a writ of preliminary injunction to restrain the
respondent court from enforcing its order of 27 March 1957
(Annexes E & 3) after the filing of a bond in the amount to be fixed
by this Court; for costs to be taxed against the respondents, and
for such other just and equitable relief as may be granted to them.
On 14 May 1957, after the petitioners had filed a bond in the sum
of P200, this Court issued the writ of preliminary injunction
 prayed for.

Section 3, article III, of the constitution and by-laws of the association

provides:

Notice of the time and place of holding of any annual meeting, or any
special meeting, of the members, shall be given either by posting the
same in a postage prepaid envelope, addressed to each member on
record at the address left by such member with the Secretary of the
Association, or at his known post-office address, or by delivering the
same in person, at least five (5) days before the date set for such
meeting. . . .

In lieu of addressing or serving personal notices to the members, notice

of a regular annual meeting or of a special meeting of the members
may be given by posting copies of said notice at the different
departments and plants of the San Miguel Brewery Inc., not less
than five (5) days prior to the date of the meeting. (Annex K.)

Notice of a special meeting of members should be given at least five days

before the date of the meeting. It appears that the notice was posted on
26 March and the election was set for 28 March. Therefore, the five days
previous notice required would not be complied with.

The writ prayed for is denied and the writ of preliminary injunction
heretofore issued dissolved, with costs against the petitioners.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador,

Concepcion, Reyes, J.B.L. and Endencia, JJ., concur.

4. Villongco Vs. Yabut

Carolina Que Villongco v. Cecilia Que Yabut; G.R. No. 225022

Cecilia Que Yabut v. Carolina Que Villongco; G.R. No. 225024

Unissued stocks may not be voted or considered in determining whether

a quorum is present in a stockholders’ meeting. Only stocks actually
issued and outstanding may be voted.-
—The right to vote is inherent in and incidental to the ownership of corporate
stocks. It is settled that unissued stocks may not be voted or considered in
determining whether a quorum is present in a stockholders’ meeting. Only stocks
actually issued and outstanding may be voted. Thus, for stock corporations, the
quorum is based on the number of outstanding voting stocks. The distinction of
undisputed or disputed shares of stocks is not provided for in the law or the
jurisprudence. Ubi lex non distinguit nec nos distinguere debemus — when the
law does not distinguish we should not distinguish. Thus, the 200,000
outstanding capital stocks of Phil-Ville should be the basis for determining the
presence of a quorum, without any distinction.
 Facts:

 Phil-Ville Development and Housing Corporation (Phil-Ville) is a family

corporation founded by Geronima Gallego Que (Geronima) that is
engaged in the real estate business.
 The authorized capital stock of PhilVille is Twenty Million Pesos
(₱20,000,000) divided into Two Hundred Thousand (200,000) shares with
a par value of One Hundred Pesos (₱l00.00) per share.
 During her lifetime, Geronima owned 3,140 shares of stock while the
remaining 196,860 shares were equally distributed among Geronima’s
six children, namely: Carolina Que Villongco, Ana Maria Que Tan,
Angelica Que Gonzales, Cecilia Que Yabut, Ma. Corazon Que Garcia, and
Maria Luisa Que Camara.
 Geronima died on August 31, 2007. By virtue of the Sale of Shares of
Stocks dated June 11, 2005 purportedly executed by Cecilia as the
attorney-in-fact of Geronima, Cecilia allegedly effected an inequitable
distribution of the 3,140 shares that belonged to Geronima.
 Accordingly, the distribution of Geronima’s shares in accordance with the Sale
of Shares of Stocks was reflected in the General Information Sheets filed by Phil-
Ville in 2010 and 2011.
 On January 18, 2013, Cecilia, Eumir Carlo Que Camara and Ma. Corazon
[Cecilia Que, et. al.] wrote a letter to Ana Maria, Corporate Secretary of Phil-
Ville, to send out notices for the holding of the annual stockholders’ meeting.
 However, before Ana Maria could reply thereto, on January 21, 2013, several
letters were sent to Phil-Ville’s stockholders containing a document captioned
“Notice of Annual Stockholders’ Meeting” signed by Cecilia and Ma. Corazon as
directors.
 Thereafter, Carolina, Ana Maria, and Angelica, comprising the majority of the
Board of Directors of Phil-Ville held an emergency meeting and made a decision,
by consensus, to postpone the annual stockholders’ meeting of Phil-Ville until
the issue of the distribution of the 3,140 shares of stocks in the name of certain
stockholders is settled.
 All the stockholders were apprised of the decision to postpone the meeting in a
letter dated January 21, 2013. Ana Maria, in her capacity as Corporate
Secretary and Director of Phil-Ville likewise gave notice to the Securities and
Exchange Commission (SEC) with regard to the postponement of the meeting.
 Despite the postponement, however, Cecilia Que, et al. proceeded with the
scheduled annual stockholder’s meeting participated only by a few
stockholders.
 In the said meeting, they elected the new members of the Board of Directors
and officers of Phil-Ville namely: Cecilia, Ma. Corazon and Eumir,
Chairman/Vice President/Treasurer, President/General Manager, and
Secretary, respectively.
 Meantime, two days prior to the stockholders’ meeting, Carolina, Ana Maria,
and Angelica, together with several others, had already filed a Complaint for
Annulment of Sale/Distribution or Settlement of Shares of
Stock/Injunction against Cecilia, Eumir Carlo and Ma. Corazon. T
 hey subsequently filed an Amended and Supplemental Complaint for Annulment
of Sale/Distribution or Settlement of Shares of Stock/Annulment of
Meeting/Injunction (with Prayer for the Issuance of Temporary Restraining Order
and Writ of Preliminary Prohibitory and Mandatory Injunction).
 While Civil Case No. CV-940-MN was still pending, on January 15, 2014, Eumir
Carlo sent a Notice of Annual Stockholders’ Meeting to all the stockholders of
Phil-Ville, notifying them of the setting of the annual stockholders’ meeting on
January 25, 2014 at 5:00 P.M. at Max’s Restaurant, Gov. Pascual comer M.H.
Del Pilar Streets, Tugatog, Malabon City. During the meeting, Cecilia, Ma.
Corazon and Eumir Carlo were elected as directors and later elected themselves
to the following positions: Cecilia as Chairperson/Vice President/Treasurer; Ma.
Corazon as Vice-Chairperson/ President/General Manager; and Eumir Carlo as
Corporate Secretary/Secretary.
 Consequently, on February 10, 2014, Carolina, Ana Maria, Angelica, Elaine and
Edison Williams [Carolina, et al.] filed the instant election case against Cecilia
Que, et al. before the RTC of Malabon City docketed as SEC Case No. 14-001-
MN.
 The Complaint prayed that the election of Cecilia, Ma. Corazon and Eumir Carlo
as directors be declared void considering
a. the invalidity of the holding of the meeting at Max’s Restaurant for
lack of quorum therein,
b. the questionable manner by which it was conducted, including the
invalid inclusion in the voting of the shares of the late Geronima,
c. the questionable validation of proxies,
d. the representation and exercise of voting rights by the alleged proxies
representing those who were not personally present at the said
meeting, and
e. the invalidity of the proclamation of the winners.
 Carolina, et al. also questioned the election of Cecilia, Ma. Corazon and Eumir
Carlo as officers of the corporation. They likewise prayed that all the actions
taken by the petitioners in relation to their election as directors and officers of
the corporation be declared void, including but not limited to the filing of the
General Information Sheet with the Securities and Exchange Commission on
January 27, 2014.
 Carolina et. al., claimed that the basis for determining quorum should have
been the total number of undisputed shares of stocks of Phil-Ville due to the
exceptional nature of the case since the 3,140 shares of the late Geronima and
the fractional .67, .67, and .66 shares of Eumir Que Camara; Paolo Que
Camara and Abimar Que Camara are the subject of another dispute filed before
the RTC. Thus, excluding the 3,142 shares from the 200,000 outstanding
capital stock, the proper basis of determining the presence of quorum should be
196,858 shares of stocks.

Issue:
Whether the disputed shares should be excluded from the basis of quorum.

Ruling:
Total outstanding capital stocks, without distinction as to disputed or
undisputed shares of stock, is the basis in determining the presence of
quorum.

Carolina et. al., claimed that the basis for determining quorum should have
been the total number of undisputed shares of stocks of Phil-Ville due to the
exceptional nature of the case since the 3,140 shares of the late Geronima and
the fractional .67, .67, and .66 shares of Eumir Que Camara, Paolo Que
Camara and Abimar Que Camara are the subject of another dispute filed before
the RTC. Thus, excluding the 3,142 shares from the 200,000 outstanding
capital stock, the proper basis of determining the presence of quorum should be
196,858 shares of stocks.22 We do not agree.

Section 52 of the Corporation Code states that:

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.

While Section 137 of the same Code defines "outstanding capital stock", 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.

The right to vote is inherent in and incidental to the ownership of corporate

stocks. It is settled that unissued stocks may not be voted or considered in
determining whether a quorum is present in a stockholders' meeting. Only
stocks actually issued and outstanding may be voted.23 Thus, for stock
corporations, the quorum is based on the number of outstanding voting
stocks.24 The distinction of undisputed or disputed shares of stocks is not
provided for in the law or the jurisprudence. Ubi lex non distinguit nec nos
distinguere debemus — when the law does not distinguish we should not
distinguish. Thus, the 200,000 outstanding capital stocks of Phil-Ville should
be the basis for determining the presence of a quorum, without any distinction.

Therefore, to constitute a quorum, the presence of 100,001 shares of stocks in

Phil-Ville is necessary.

We agree with the CA when it held that only 98,430 shares of stocks. were
present during the January 25, 2014 stockholders meeting at Max's
Restaurant, therefore, no quorum had been established.

There is no evidence that the 3,140 shares which allegedly had been transferred
to 1) Carolina's children, namely: Francis Villongco, Carlo Villongco, Michael
Villongco and Marcelia Villongco; 2) Ana Maria's daughter, namely: Elaine
Victoria Que Tan; 3) Angelica Que; 4) Cecilia's children, namely: Geminiano,
Carlos, Geronimo and John Elston; 5) Ma. Corazon's son, Anthony; and, 6)
 Maria Luisa's children, namely: Eumir Carlo Camara, Paolo Camara, and
Abimar Camara; where transferred and recorded in the stocks and transfer
book of Phil-Ville.

Section 6325 of the Corporation Code states that "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. "

As held in the case of Interport Resources Corporation v. Securities Specialist,

Inc.,26 held that:

A transfer of shares of stock not recorded in the stock and transfer book of the
corporation is non-existent as far as the corporation is concerned. As between
the corporation on the one hand, and its shareholders and third persons on the
other, the corporation looks only to its books for the purpose of determining
who its shareholders are. It is only when the transfer has been recorded in the
stock and transfer book that a corporation may rightfully regard the transferee
as one of its stockholders. From this time, the consequent obligation on the part
of the corporation to recognize such rights as it is mandated by law to recognize
arises.27

The contention of Cecilia Que, et al., that they should not be faulted for their
failure to present the stock and transfer book because the same is in the
possession of the corporate secretary, Ana Maria Que Tan, who has an interest
adverse from them, is devoid of merit. It is basic that a stockholder has the
right to inspect the books of the corporation,28 and if the stockholder is refused
by an officer of the corporation to inspect or examine the books of the
corporation, the stockholder is not without any remedy. The Corporation Code
grants the stockholder a remedy—to file a case in accordance with Section
144.29

In this case, there is no evidence that the 3,140 shares of the late Geronima
were recorded in the stocks and transfer book of Phil-Ville. Thus, insofar as
Phil-Ville is concerned, the 3,140 shares of the late Geronima allegedly
transferred to several persons is non-existent. Therefore, the transferees of the
said shares cannot exercise the rights granted unto stockholders of a
corporation, including the right to vote and to be voted upon.

5. Mallare vs A&E, GR 233646, June 16, 2021*

G.R. No. 233646, June 16, 2021

FLORENCIO T. MALLARE, ARISTOTLE Y. MALLARE AND
MELODY TRACY MALLARE, Petitioners, v. A&E INDUSTRIAL
CORPORATION, Respondent.
DECISION
DELOS SANTOS, J.:
 Before the Court is a Petition for Review on Certiorari [With Prayer
for Issuance of Temporary Restraining Order (TRO) and Writ of
Preliminary Injunction (WPI)]1 under Rule 45 of the Rules of Court,
seeking to reverse and set aside the Decision 2 dated August 18,
2017 of the Court of Appeals (CA) in CA-G.R. SP No. 143728. The
CA annulled and set aside the Order 3 dated October 6, 2015 of the
Regional Trial Court (RTC) of Manila, Branch 46, which denied the
application for the issuance of a WPI incorporated in the Verified
Complaint (With Application for the Issuance of a Writ of Preliminary
Injunction/ for injunction, quo warranto, and damages filed by
respondent A&E Industrial Corporation (A&E).

The present controversy stemmed from an intra-corporate dispute

between the two factions of stockholders of A&E: (1) petitioners
Florencio T. Mallare (Florencio), Aristotle Y. Mallare (Aristotle), and
Melody Tracy Mallare (Melody) who are collectively known as the
Mallare Group; and (2) Anthony Hwang (Anthony), Evelyn Hwang
(Evelyn), Elizabeth Lim Tong (Elizabeth), Stefan Hugo Hwang
(Stefan), and Sarah Patricia Hwang (Sarah) who are collectively
referred to as the Hwang Group.

The Factual Background

A&E is a domestic corporation principally engaged in the

management and operation of a real estate business. It was
incorporated on December 16, 1975 by Florencio, Jane
Mallare5 (Jane), Anthony, Evelyn, and Pacencia Mallare. Anthony
is Evelyn 's husband and the son of Jane from a former pat1ner.
Jane married Florencio with whom she had one (1) child named
Aristotle, who is married to Melody. 6

In its general information sheet (GIS) dated March 14, 2011, A&E
listed the following names as its
stockholders:chanroblesvirtualawlibrary
SHARES
NAME AMOUNT
SUBSCRIBED
     
Florencio T. Mallare 117,500 P1,175,000.0
0
Jane Y. Mallare 120,000 P1,200,000.0
0
Anthony Edmund Hwang 118,750 P1,187,500.0
0
Evelyn L. Hwang 75,000 P750,000.00
Aristotle Y. Mallare 118,750 P1,187,500.0
0
Melody Tracy Mallare 75,000 P750,000.00
Total 625,000 P6,250,000.0
0
Meanwhile, A&E's directors and officers are:
DIRECTORS CORPORATE POSITION
   
Florencio T. Mallare President
Jane Y. Mallare Chief Finance Officer and
Corporated Secretary
Anthony Edmund Hwang Vice President
Aristotle Y. Mallare Chief Executive Officer
 On December 9, 2011 , Jane died and the positions of corporate
secretary and CFO were left vacant. 7

Version of the Mallare Group

 After Jane passed away, Aristotle was designated as A&E's interim

corporate secretary.8

 A&E failed to hold a stockholders' meeting for the year 2012 due to lack
of quorum.
 Consequently, Florencio, Aristotle, Melody, Anthony, and Evelyn
remained board members and officers of A&E in a holdover capacity. 10

 On July 5, 2012, Florencio and Aristotle filed a Petition for the

Judicial Settlement of Intestate Estate of the Late Jane
Mallare before the RTC of Quezon City. They included therein the
120,000 shares of Jane in A&E. During the pendency of the petition, the
majority of the remaining d1. rectors cont.mued to operate the
company.11

 On August 13, 2012, Anthony filed a Petition for the Settlement of

Intestate Estate of Jane Yu Mallare and Issuance of Letters
Administration before the RTC of Quezon City. It likewise included Jane 's
120,000 shares. Anthony's petition was later denied on the ground of
litis pendencia.12

 On February 23, 2013, A&E conducted its annual stockholders' meeting

attended by the Mallare Group, its legal counsel Alejandro Gaston, and
Atty. Lalaine Monserate as independent observer from the Securities and
Exchange Commission (SEC).
  However, the meeting was adjourned for failure to constitute a
quorum.14

 In his Judicial Affidavit, Aristotle stated that only 49.8% of the shares
were represented at the stockholders' meeting, broken down as follows:
19% (Aristotle), 18.8% (Florencio), and 12% (Melody). He explained that
he used the GIS dated May 31, 2012 to determine the presence of the
quorum.15 He also averred that despite notices sent to Anthony and
Evelyn, who represent 19% and 12% of A&E's subscribed capital,
respectively, they failed to attend the meeting.

 On April 1, 2013, Aristotle, in his capacity as interim corporate secretary,

filed A&E's 2013 GIS, indicating therein that there was no quorum in the
February 23, 2013 stockholders' meeting and carrying over the names
listed in the 2012 GIS as A&E 's directors and officers for 2013.

 Florencio, Aristotle, and Melody alleged that in view of the stockholders'

failure to hold the said meeting and vote for the new members of the
board, they continued to exercise the functions of their office as A&E's
2013 directors and officers on the basis of a holdover authority.

 Sometime in April 2013, Aristotle found out that the Hwang Group also
conducted a separate stockholders' meeting.

 On January 6, 2014, A&E, purportedly representing majority of the

stockholders and the board of directors, filed a Verified Complaint20 for
injunction, quo warranto, and damages with an application for the iss
uance of a TRO and/or WPI before the RTC Manila. 21

Version of A&E (represented by the

Hwang Group as its directors and
officers)

Upon Jane's death, Anthony was designated as A&E's corporate

secretary, chief financial officer and treasurer in a meeting of the board
of directors held on December 22, 2011. 22

On March 16, 2012, Anthony filed A&E's GIS for the year 2011, whi ch
indicated the corporate officers, as follows:
DIRECTORS CORPORATE POSITION
   
Florencio T. Mallare President
Anthony Edmund Chief Finance Officer/Corporated
Hwang Secretary
Aristotle Y. Mallare Chief Executive Officer
A&E did not hold an annual stockholders' meeting for the year
2012. Thus, the designated officers and directors of A&E
continued holding their positions in a holdover capacity. 23

On May 5, 2012, the Mallare group turned antagonistic toward

Anthony and committed the following acts:
1. 1. The Mallare group prevented Anthony from having any access
to the files, records, and documents of A&E,24
2. The Mallare group did not secure Anthony's consent, approval, or
signature for A&E 's transactions;25
3. On May 22, 2012, Florencio and Aristotle executed a Notice of
Adverse Claim, alleging that Anthony had misrepresented himself
as A&E's corporate secretary when he submitted the 2011 GIS to
the SEC;26
4. On May 31, 2012, Florencio wrote to the SEC, claiming that A&E's
GIS filed on March 16, 2012 and signed by Anthony is false. He
also submitted a GIS signed by Aristotle, stating that no annual
stockholders' meeting was held in February 2012; 27 and
5. On July 13, 2012, Florencio filed a criminal complaint for perjury,
estafa, and other fonns of swindling against Anthony in the Office
of the City Prosecutor of Quezon City.28
On November 26, 2012, Anthony also filed a criminal case for
perjury against Florencio and Aristotle. 29 Thereafter, he executed
three separate Deeds of Assignment of Shares of Stock in favor of
Elizabeth, Stefan, and Sarah, assigning to them the right to vote
one share of stock each in A&E.30

On February 13, 2013, Anthony sent out, by registered mail ,

notices of A&E's annual stockholders' meeting. 31

On February 23, 2013, A&E conducted its annual stockholders'

meeting, resulting in the election of a new set of directors and
officers.32 A total of 313,750 shares or 50.2% of the total
outstanding shares of A&E voted, viz.:chanroblesvirtualawlibrary
Stockholders Present: Shares:
Anthony Edmund Hwang 118,747
Evelyn L. Hwang 75,000
Eli zabeth Lim Tong 1
Stefan Hugo Hwang 1
Sarah Patricia Hwang 1
Stockholders Represented: Shares:
Jane Y. Mallare 120,000
Total 313,750
Total No. of Shares Outstanding 625,000
Percentage of Shares Present and Outstanding 50.20%
The shares of Jane were represented by Anthony by virtue of
the Assignment of Voting Rights dated May 17, 2011 executed by
Jane.33

During the stockholders' meeting, the Hwang Group was

unanimously elected as the new members of A&E's board of
directors.34 Meanwhile, A&E 's newly elected officers were Anthony
as corporate secretary, Evelyn as chairperson/president, and
Elizabeth as treasurer. 35 These were duly reported to the SEC and
reflected in A&E 's GIS dated February 25, 2013. 36   This
notwithstanding, Florencio, Aristotle, and Melody have continued
to misrepresent themselves as directors and officers of A&E,
including but not limited to: 1. Filing of a false GIS; 37
1. Demanding from A&E's board of directors to cease and
desist from performing their functions;38
2. Interfering    with corporate matters, including the
collection of lease payments;39
3. Disbursing    and appropriating    corporate funds for
persona1 use;40
4. Unauthorized opening of a new bank account in the name
of A&E;41
5. Continued possession of corporate office and properties to
the exclusion of A&E's duly elected board of directors and
officers;42 and
6. Harassment of A&E employees.43

The Ruling of the RTC

On January 23, 2014, the RTC of Manila, Branch 46, issued an

Order,44 denying A&E's application for a TRO. It declared that the
initial evidence was insufficient to show that the circumstances
surrounding the case were of extreme urgency and that A&E
would suffer grave injustice and irreparable injury. 45

In an Order46 dated October 6, 2015, the RTC enunciated that the

case for injunction, quo warranto, and damages should move
forward without issuing a WPI. The dispositive portion of the
Order reads:

WHEREFORE, premises considered the prayer for the

issuance of the Writ of Preliminary Injunction is
hereby DENIED.

Let a NOTICE OF PRE-TRIAL be issued to the parties.

 SO ORDERED.47
The RTC ratiocinated that considering the evidence
presented during the hearing for the issuance of the writ, it
was discernable that resolving the intricacies of the
requisites of preliminary injunction would also technically
resolve the merits of the main case.48

Dissatisfied, A&E filed a Petition for Certiorari49 under Rule

65 of the Rules of Civil Procedure, ascribing grave abuse of
discretion on the part of the RTC for denying its application
for the issuance of WPI.

On July 11, 2016, the RTC, Branch 92, Quezon City, issued
an Order, appointing Florencio as special administrator of
the estate of the late Jane Mallare.50

The Ruling of the CA

On August 18, 2017, the CA granted the petition. The dispositive

portion of theCA Decision reads:
WHEREFORE, premises considered, the instant petition
is GRANTED. There being grave abuse of discretion on the part of
public respondent, the assailed Order dated October 6, 2015 is
hereby ANNULLED and SET ASIDE.

Accordingly, let a WRIT OF PRELIMINARY INJUNCTION be

issued, as it is hereby issued, enjoining herein private respondents
from usurping the office and position of the Board of Directors and
officers of A&E Industrial Corporation elected on February 23,
2013 and from misrepresenting to third parties and to the public
as such and from possessing and disbursing corporate funds,
properties and assets of A&E Industrial Corporation, conditioned
upon the posting of a bond by petitioner A&E-Hwang in the
amount of Two Hundred Thousand Pesos (Php200,000.00).

The proceedings in the lower court should continue with dispatch.

SO ORDERED.51

The CA held that the issuance of the WPI would not result in a
prejudgment of the main case. It emphasized that the grant of
preliminary injunction is provisional and that its purpose is only
to preserve the status quo to protect the interests of A&E,
represented by the Hwang Group as its duly elected board
members and officers, during the pendency of the main action. It
noted that the fact that Florencio, Aristotle, and Melody are
holdover directors and officers of A&E has been supervened by the
holding of the annual stockholders' meeting on Febmary 23, 2013,
which is given presumptive validity until nullified. 52
The Arguments of the Parties

The petitioners maintain that any judgment, order, or

pronouncement relating to the main case for quo warranto,
rendered or issued during its pendency, would be tantamount to
its resolution without trial.53 They argue that the issue as to who
has the authority to act as board of directors and officers and
exercise control over the affairs of A&E must be resolved in the
main case for quo warranto and should therefore not be disposed
of through the simple expedient of issuing a WPI.54 They regarded
the CA's pronouncement - that the February 23, 2013
stockholders' meeting is presumed valid - as having no legal basis
since it is only the executor or administrator of Jane's estate who
is vested with the legal title to the stock and entitled to exercise
voting rights. They also postulate that should the CA desire to
preserve the status quo, the status quo should be based on the
uncontested March 14, 2011 GIS of A&E because that was the
last actual, peaceable, and uncontested situation that preceded
the instant controversy.55

A&E, on the other hand, counters that the preliminary injunction

sought and granted is merely a preventive remedy intended to
preclude further injury to it caused by the simultaneous exercise
of its corporate powers by separate groups. Thus, it can hardly be
claimed that that the issuance of WPI had the effect of
pronouncing, at the earliest opportunity, and without trial that the
Hwang Group is the duly elected/appointed A&E directors and
officers.56 It contends that A&E's right to be protected from acts of
misappropriation and from the dissipation of corporate funds
warrants the issuance of WPI, regardless of whether the
individuals committing such acts are legitimate directors or mere
stockholders.57 It asseverates that the CA correctly ruled on the
presumptive validity of the February 23, 2013 election of the
Board of Directors, stating that the petitioners failed to assail said
election within the 15-day prescriptive period provided in the
Interim Rules of Procedure for Intra-Corporate
Controversies.58 Thus, the petitioners are already barred from
questioning the February 23, 2013 election ofthe Board of
Directors and challenging the authority of the Hwang Group to
institute the main case for quo warranto for A&E.59

The Issue

Whether the CA erred in its finding of grave abuse of discretion on

the part of the RTC when it denied the application for the issuance
of WPI.

The Court's Ruling

 The petition is granted.

At the outset, the Court notes the conflicting factual findings and
conclusion of the RTC and theCA that prompt us to peruse the
records.

A preliminary injunction is an ancillary and interlocutory order

granted at any stage of an action or proceeding prior to the
judgment or final order, requiring a party or a court, agency, or a
person to either: (1) refrain from a particular act or acts
(preliminary prohibitory injunction); or (2) perform a particular act
or acts (preliminary mandatory injunction).60 It is a provisional
remedy available under Rule 58 of the Rules of Court for the
protection and preservation of the rights and interests of a litigant
while the principal action is pending.

The main action filed by A&E is one for injunction, quo warranto,

and damages to enjoin the Mallare Group from usurping the office,
powers, and functions of the board of directors and officers of A&E
and from misrepresenting themselves as such. 61 Among the reliefs
prayed for in the complaint is the issuance of WPI, which has for
its object the preservation of the status quo until the merits can be
heard fully.62

Under Rule 58, Section 3 of the Rules of Court, an application for

the issuance of WPI may be granted on any of the following
grounds:
Section 3. Grounds for issuance of preliminary injunction. – A preliminary
injunction may be granted when it is established:

(a) That the applicant is entitled to the relief demanded, and the whole or
part of such relief consists in restraining the commission or continuance
of the act or acts complained of, or in requiring the performance of an act
or acts either for a limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or

acts complained of during the litigation would probably work injustice to
the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is

attempting to do, or i s procuring or suffering to be done some act or acts
probably in violation of the rights of the applicant respecting the subject
of the action or proceeding, and tending to render the judgment
ineffectual.

It bears stressing, however, that even if the factual circumstances

of the case fall under any of the grounds enumerated in Rule 58,
Section 3, a writ of injunction will only lie when the applicant has
satisfactorily shown that: (1) he/she/it has a clear and
 unmistakable right to be protected; (2) there is a material and
substantial invasion of such right; (3) there exists an urgent need
for the writ to prevent irreparable injury to the applicant; and (4)
no other ordinary, speedy, and adequate remedy exists to prevent
the infliction of ineparable injury. 63 Of these, the most crucial is
the existence of a right to be protected. The applicant must be able
to establish a right in esse that is "clearly founded on or granted
by law or is enforceable as a matter of law." 64

In an application for an injunctive relief, "the right sought to be

protected should at least be shown to exist prima facie."65Prima
facie evidence refers to "such evidence as, in the judgment of the
law, is sufficient to establish a given fact, or the group or chain of
facts constituting the party's claim or defense and, which if not
rebutted or contradicted, will remain sufficient." 66

In this case, the Court finds that the Hwang Group's right to be
protected by injunction was not shown and that there was no
basis for the grant of judicial protection.

To recall, the RTC denied the application for the injunctive relief
upon its determination that its issuance would prejudge the main
case for injunction, quo warranto, and damages. The CA, for its
part, reversed the RTC's order of denial and issued the preliminary
injunction. We quote the pertinent portions of theCA Decision :

Based on the initial evidence, documentary and testimonial, presented by

petitioner A&E-Hwang during the scheduled hearings for the application
for preliminary injunction, petitioner A&E-Hwang was able to establish
that it has a clear and legal right to be protected from the acts of herein
private respondents representing themselves as corporate officers/Board
of A&E corporation.

It was able to show that through the annual stockholders meeting held

on February 23, 2013, Anthony Edmund Hwang, Evelyn L. Hwang,
Elizabeth Lim Tong, Stefan Hugo Hwang and Sarah Patricia Hwang were
elected as Board of Directors of A&E corporation and that the elected
officers were: Anthony Edmund Hwang, as Corporate Secretary; Evelyn
L. Hwang, as Chairman/President; and Elizabeth Lim Tong, as
Treasurer. Further, petitioner A&E-Hwang was able to establish that the
required notices were sent to all stockholders of record and that the
existence of a quorum was determined to valid ly proceed with the said
annual stockholders meeting. 

As it appears, Anthony is the majority shareholder of A&E corporation.

He has the right to vote 238,750 shares in A&E corporation:
(1) 120,000 shares as assignee of Jane pursuant to the deed of
Assignment of Voting Rights; and
(2) 118,750 shares as owner thereof.
This Court gives presumptive validity to the elections held on February
23, 2013 wherein the Hwang group was the elected members of the
Board and officers of A&E corporation. 

Until a determination by the public respondent as to the validity of

the Assignment of Voting Rights executed by Jane in favor of her son.
Anthony, i. e ., whether Anthony can validly exercise and vote said
shares in the meeting, whether said deed of Assignment of Voting Rights
is null and void , whether it is the Special Administrator who is entitled
to vote said shares, among others - this Court thus recognizes, in the
meantime, the Hwang group as the duly elected members of the
Board and officers of A&E corporation.

Private respondents contend that the Assignment of Voting Rights is null

and void on the ground of defect in its notarization, i.e., that the Notary
Public did not notarize the said deed; that there is no record of said deed
in the Notarial Section of the Office of the Clerk of Court of RTC, Quezon
City; and that Anthony did not appear before the said Notary Public
because he was not in the Philippines at that time.

However, this alleged defect in the notarization of the Assignment of

Voting Rights would not affect the genuineness of the signature of Jane
as appearing in said deed, unless proven otherwise. Hence, in the
meantime, this Court gives presumptive validity to the elections held on
February 23, 2013, wherein Anthony had the right to vote 238,750
shares, including that of the 120,000 shares of Jane which the latter
assigned to Anthony.

Be it noted that private respondents claim that they are the holdover
directors and officers of A&E corporation, as reflected in the March 14,
2011 GIS of the corporation. There being no election held on 2012 and
that the election held on February 23, 2013 did not push through for
failure to muster a quorum, private respondents assert that they are
exercising the functions of their office as directors and officers of the
corporation in a holdover capacity. As such, they are the legitimate
members of the Board and officers of A&E corporation.

However, the fact that they are holdover directors and officers of A&E has
been supervened by the holding of the annual stockholders meeting on
February 23, 2013, which, as We have explained above, is given
presumptive validity until nullified. Moreover, records show that private
respondents have not initiated any action to challenge the validity of the
February 23, 2013 elections. While it appears that private respondents
already knew of the said election on April 1, 2013, the fact remains that
they have not assailed the same through any proceeding.

Thus, in the meantime, this Court makes a provisional determination,

only for the purpose of resolving the propriety of issuing a writ of
preliminary injunction, that it is the Hwang group which is the duly
elected directors and officers of A&E corporation, and they are rightfully
entitled to exercise the corporate powers of the corporation. This is
the status quo - the last actual, peaceable and uncontested situation
which preceded the instant controversy. 67 (Underscoring supplied

Here, the Hwang Group consistently claims that it has clear and legal
right to exercise corporate powers after having been elected as directors
and officers during the February 23, 2013 stockholders' meeting of A&E,
at which meeting a quorum was purportedly present.

Anthony represented and voted the shares of stock registered in the

name of his deceased moth er Jane on the strength of the Assignment of
Voting Rights executed by Jane in his favor.6The CA readily welcomed
such assertion and accorded presumptive validity to the meeting and
election notwithstanding the Mallare Group's legitimate objection as to
Anthony's right to represent and vote Jane's shares.

However, it is well to note that at the time the CA rendered its Decision
and granted the injunctive relief, Florencio was already appointed special
administrator of Jane's estate.

Both the law and jurisprudence hold that in case of death of a

shareholder, the executor or administrator duly appointed by the court is
vested with the legal title to the share and entitled to vote it. The shares of
stocks of the decedent are held by the administratoro   division of the
estate is effected. 69

Moreover, the CA appears to have overlooked the practical consequences

of the stockholder's death on the determination of quorum in meetings.

Under the Revised Corporation Code, the quorum in meetings is

based on the presence of the stockholders or members entitled to
vote representing the majority of the outstanding capital stock or
majority of the members.70 Similarly, for the purpose of board election,
the law mandates that the owners of majority of the outstanding capital
stock must be present, either in person or by proxy at the meeting held
for the purpose.

A more circumspect analysis of the allegations and evidence of the

parties would have convinced the appellate court that the Hwang Group's
right or title is doubtful or disputed and that the issuance of injunctive
writ is improper.

In Bicol Medical Center v. Bator,72 the Court emphatically stressed that

while a preliminary injunction is an ancillary remedy, it is issued only
after due hearing, where both parties are given the opportunity to
present their respective evidence. It is imperative that the evidence
presented by both parties are considered. Courts cannot limit prima
facie evidence merely to the evidence presented by the applicant and
disregard the other party's evidence, especially when they considerably
rebut and address the applicant's allegations for the issuance of
 preliminary InJUnction. Lamentably, that was what precisely happened
in this case when the CA brushed aside the Mallare Group's evidence
refuting the Hwang Group's claim that it has a clear and unmistakable
right to be protected.

Finally, the RTC cannot be faulted for denying A&E 's prayer for the
issuance of WPI. The Court takes notice that the Hwang Group's
allegations in its application for the injunctive relief were mere rehash
and reiteration of their contentions in the principal action. Granting the
injunctive relief would effectively substantiate the validity and soundness
of the applicant's claim, thereby preempting the merits of the main
action for injunction, quo warranto, and damages. It is an entrenched
rule in our jurisdiction that "the courts should avoid issuing a writ of
preliminary injunction that would in effect dispose of the main case
without trial. Otherwise, there would be a prejudgment of the main case
and a reversal of the rule on the burden of proof since it would assume
the proposition which petitioners are inceptively bound to prove." 73

In light of the above disquisition, there being no right clearly founded on

or granted by law or is enforceable as a matter of law, the dissolution of
the writ of preliminary injunction issued by the CA in favor of A&E,
represented by the Hwang Group, is warranted. To echo the Court's
words in Olalia v. Hizon,74 "there is no power the exercise of which is
more delicate, which requires greater caution, deliberation and sound
discretion, or more dangerous in a doubtful case, than the issuance of an
injunction."75 "Every court should remember that an injunction is a
limitation upon the freedom of action of the defendant and should not be
granted lightly or precipitately. It should be granted only when the court
is full y satisfied that the law permits it and the emergency demands it." 76

WHEREFORE, in view of the foregoing reasons, the Court GRANTS the

Petition for Review on Certiorari of Florencio T. Mallare, Aristotle Y.
Mallare, and Melody Tracy Mallare; ANNULS and SETS ASIDE the
Decision dated August 18, 2017 of the Court of Appeals in CA G.R. SP
No. 143728; DISSOLVES and LIFTS the writ of preliminary injunction
issued by the Court of Appeals; ORDERS the Regional Trial Court of
Manila, Branch 46 to act on Civil Case No. 14131241 with dispatch;
and ORDERS A&E Industrial Corporation to pay the costs of the
suit.chanrobles

6. NIDC vs Aquino

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 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 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:

 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.

Vice-President 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.

 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.
 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.

 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.

 NIDC replied, confirming the fact that it had no intention whatsoever to

comply with the demands of Batjak.

 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.

 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. 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."

 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 .

 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. 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.

Ruling

After a careful study and examination of the records of the case, the Court finds
and holds for the petitioners.

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).

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. 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.

7. CIR vS CA. 1999*

The undisputed facts are as follows:

Sometime in the 1930s, Don Andres Soriano, a citizen and resident of the United
States, formed the corporation "A. Soriano Y Cia", predecessor of ANSCOR, with a
P1,000,000.00 capitalization divided into 10,000 common shares at a par value of
P100/share. ANSCOR is wholly owned and controlled by the family of Don Andres,
who are all non-resident aliens. 4 In 1937, Don Andres subscribed to 4,963 shares of
the 5,000 shares originally issued. 5
On September 12, 1945, ANSCOR's authorized capital stock was increased to
P2,500,000.00 divided into 25,000 common shares with the same par value of the
additional 15,000 shares, only 10,000 was issued which were all subscribed by Don
Andres, after the other stockholders waived in favor of the former their pre-emptive
rights to subscribe to the new issues. 6 This increased his subscription to 14,963
common shares. 7 A month later, 8Don Andres transferred 1,250 shares each to his
two sons, Jose and Andres, Jr., as their initial investments in ANSCOR. 9 Both sons
are foreigners. 10
By 1947, ANSCOR declared stock dividends. Other stock dividend declarations were
made between 1949 and December 20, 1963. 11 On December 30, 1964 Don Andres
died. As of that date, the records revealed that he has a total shareholdings of 185,154
shares 12 — 50,495 of which are original issues and the balance of 134.659 shares
as stock dividend declarations.  13 Correspondingly, one-half of that shareholdings or
92,577 14 shares were transferred to his wife, Doña Carmen Soriano, as her conjugal
share. The other half formed part of his estate. 15
A day after Don Andres died, ANSCOR increased its capital stock to P20M 16 and in
1966 further increased it to P30M. 17 In the same year (December 1966), stock
dividends worth 46,290 and 46,287 shares were respectively received by the Don
Andres estate 18 and Doña Carmen from ANSCOR. Hence, increasing their
accumulated shareholdings to 138,867 and 138,864 19common shares each. 20
On December 28, 1967, Doña Carmen requested a ruling from the United States
Internal Revenue Service (IRS), inquiring if an exchange of common with preferred
shares may be considered as a tax avoidance scheme 21 under Section 367 of the 1954
U.S. Revenue Act. 22 By January 2, 1968, ANSCOR reclassified its existing 300,000
common shares into 150,000 common and 150,000 preferred shares. 23
In a letter-reply dated February 1968, the IRS opined that the exchange is only a
recapitalization scheme and not tax avoidance. 24 Consequently, 25 on March 31, 1968
Doña Carmen exchanged her whole 138,864 common shares for 138,860 of the newly
reclassified preferred shares. The estate of Don Andres in turn, exchanged 11,140 of
its common shares, for the remaining 11,140 preferred shares, thus reducing its (the
estate) common shares to 127,727. 26
On June 30, 1968, pursuant to a Board Resolution, ANSCOR redeemed 28,000
common shares from the Don Andres' estate. By November 1968, the Board further
increased ANSCOR's capital stock to P75M divided into 150,000 preferred shares and
600,000 common shares. 27 About a year later, ANSCOR again redeemed 80,000
common shares from the Don Andres' estate, 28 further reducing the latter's common
shareholdings to 19,727. As stated in the Board Resolutions, ANSCOR's business
purpose for both redemptions of stocks is to partially retire said stocks as treasury
shares in order to reduce the company's foreign exchange remittances in case cash
dividends are declared. 29
In 1973, after examining ANSCOR's books of account and records, Revenue examiners
issued a report proposing that ANSCOR be assessed for deficiency withholding tax-at-
source, pursuant to Sections 53 and 54 of the 1939 Revenue Code, 30 for the year
1968 and the second quarter of 1969 based on the transactions of exchange and
redemption of stocks. 31 The Bureau of Internal Revenue (BIR) made the corresponding
assessments despite the claim of ANSCOR that it availed of the tax amnesty under
Presidential Decree 
(P.D.) 23 32 which were amended by P.D.'s 67 and 157. 33However, petitioner ruled that
the invoked decrees do not cover Sections 53 and 54 in relation to Article 83(b) of the
1939 Revenue Act under which ANSCOR was assessed. 34 ANSCOR's subsequent
protest on the assessments was denied in 1983 by petitioner. 35
Subsequently, ANSCOR filed a petition for review with the CTA assailing the tax
assessments on the redemptions and exchange of stocks. In its decision, the Tax
Court reversed petitioner's ruling, after finding sufficient evidence to overcome
the prima facie correctness of the questioned assessments. 36 In a petition for review
the CA as mentioned, affirmed the ruling of the CTA. 37Hence, this petition.
The bone of contention is the interpretation and application of Section 83(b) of the
1939 Revenue Act 38 which provides:
Sec. 83. Distribution of dividends or assets by corporations. —
(b) Stock dividends — A stock dividend representing the transfer of
surplus to capital account shall not be subject to tax. However, if a
corporation cancels or redeems stock issued as a dividend at such time
and in such manner as to make the distribution and cancellation or
redemption, in whole or in part, essentially equivalent to the distribution
of a taxable dividend, the amount so distributed in redemption or
cancellation of the stock shall be considered as taxable income to the
extent it represents a distribution of earnings or profits accumulated
after March first, nineteen hundred and thirteen. (Emphasis supplied)
Specifically, the issue is whether ANSCOR's redemption of stocks from its
stockholder as well as the exchange of common with preferred shares can be
considered as "essentially equivalent to the distribution of taxable dividend"
making the proceeds thereof taxable under the provisions of the above-quoted
law.
Petitioner contends that the exchange transaction a tantamount to "cancellation"
under Section 83(b) making the proceeds thereof taxable. It also argues that the
Section applies to stock dividends which is the bulk of stocks that ANSCOR redeemed.
Further, petitioner claims that under the "net effect test," the estate of Don Andres
gained from the redemption. Accordingly, it was the duty of ANSCOR to withhold the
tax-at-source arising from the two transactions, pursuant to Section 53 and 54 of the
1939 Revenue Act. 39
ANSCOR, however, avers that it has no duty to withhold any tax either from the Don
Andres estate or from Doña Carmen based on the two transactions, because the same
were done for legitimate business purposes which are (a) to reduce its foreign
exchange remittances in the event the company would declare cash dividends, 40 and
to (b) subsequently "filipinized" ownership of ANSCOR, as allegedly, envisioned by Don
Andres. 41 It likewise invoked the amnesty provisions of P.D. 67.
We must emphasize that the application of Sec. 83(b) depends on the special factual
circumstances of each case. 42 The findings of facts of a special court (CTA) exercising
particular expertise on the subject of tax, generally binds this Court, 43 considering
that it is substantially similar to the findings of the CA which is the final arbiter of
questions of facts. 44 The issue in this case does not only deal with facts but whether
the law applies to a particular set of facts. Moreover, this Court is not necessarily
bound by the lower courts' conclusions of law drawn from such facts. 45
TAX ON STOCK DIVIDENDS
General Rule
Sec. 83(b) of the 1939 NIRC was taken from the Section 115(g)(1) of the U.S. Revenue
Code of 1928. 60 It laid down the general rule known as the proportionate
test 61 wherein stock dividends once issued form part of the capital and, thus, subject
to income tax.62 Specifically, the general rule states that:
A stock dividend representing the transfer of surplus to capital
account shall not be subject to tax.
Having been derived from a foreign law, resort to the jurisprudence of its origin may
shed light.
Under the US Revenue Code, this provision originally referred to "stock dividends"
only, without any exception. Stock dividends, strictly speaking, represent capital
and do not constitute income to its
recipient. 63 So that the mere issuance thereof is not yet subject to income tax 64 as
they are nothing but an "enrichment through increase in value of capital 
investment." 65 
As capital, the stock dividends postpone the realization of profits because the "fund
represented by the new stock has been transferred from surplus to capital and no
longer available for actual distribution." 
Income in tax law is "an amount of money coming to a person within a specified time,
whether as payment for services, interest, or profit from investment." 67 It means cash
or its equivalent. 68 It is gain derived and severed from capital, 69 from labor or from
both combined 70 — so that to tax a stock dividend would be to tax a capital increase
rather than the income. 71 In a loose sense, stock dividends issued by the corporation,
are considered unrealized gain, and cannot be subjected to income tax until that gain
has been realized. Before the realization, stock dividends are nothing but a
representation of an interest in the corporate properties. 72 As capital, it is not yet
subject to income tax. It should be noted that capital and income are different. Capital
is wealth or fund; whereas income is profit or gain or the flow of wealth. 73 The
determining factor for the imposition of income tax is whether any gain or profit was
derived from a transaction. 74
The Exception
However, if a corporation cancels or redeems stock issued as
a dividend at such time and in such manner as to make the distribution
and cancellation or redemption, in whole or in part, essentially equivalent
to the distribution of a taxable dividend, the amount so distributed in
redemption or cancellation of the stock shall be considered
as taxable income to the extent it represents a distribution of
earnings or profits accumulated after March first, nineteen hundred
and thirteen. (Emphasis supplied).
In a response to the ruling of the American Supreme Court in the case of Eisner v.
Macomber 75 (that pro rata stock dividends are not taxable income), the exempting
clause above quoted was added because provision corporation found a loophole in the
original provision. They resorted to devious means to circumvent the law and evade
the tax. Corporate earnings would be distributed under the guise of its initial
capitalization by declaring the stock dividends previously issued and later redeem said
dividends by paying cash to the stockholder. This process of issuance-redemption
amounts to a distribution of taxable cash dividends which was lust delayed so as to
escape the tax. It becomes a convenient technical strategy to avoid the effects of
taxation.
Thus, to plug the loophole — the exempting clause was added. It provides that the
redemption or cancellation of stock dividends, depending on the "time" and "manner"
it was made, is essentially equivalent to a distribution of taxable dividends," making
the proceeds thereof "taxable income" "to the extent it represents profits". The
exception was designed to prevent the issuance and cancellation or redemption of
stock dividends, which is fundamentally not taxable, from being made use of as a
device for the actual distribution of cash dividends, which is taxable. 76 Thus,
the provision had the obvious purpose of preventing a corporation from
avoiding dividend tax treatment by distributing earnings to its
shareholders in two transactions — a pro rata stock dividend followed
by a pro rata redemption — that would have the same economic
consequences as a simple dividend. 77
Although redemption and cancellation are generally considered capital
transactions, as such. they are not subject to tax. However, it does not
necessarily mean that a shareholder may not realize a taxable gain from such
transactions. 78 Simply put, depending on the circumstances, the proceeds of
redemption of stock dividends are essentially distribution of cash dividends,
which when paid becomes the absolute property of the stockholder. Thereafter,
the latter becomes the exclusive owner thereof and can exercise the freedom of
choice. 79 Having realized gain from that redemption, the income earner cannot
escape income tax. 80
As qualified by the phrase "such time and in such manner," the exception was not
intended to characterize as taxable dividend every distribution of earnings arising from
the redemption of stock dividend. 81 So that, whether the amount distributed in the
redemption should be treated as the equivalent of a "taxable dividend" is a question of
fact, 82 which is determinable on "the basis of the particular facts of the transaction in
question. 83 No decisive test can be used to determine the application of the exemption
under Section 83(b). The use of the words "such manner" and "essentially equivalent"
negative any idea that a weighted formula can resolve a crucial issue — Should the
distribution be treated as taxable dividend. 84 On this aspect, American courts
developed certain recognized criteria, which includes the following: 85
1) the presence or absence of real business purpose,
2) the amount of earnings and profits available for the
declaration of a regular dividends and the corporation's
past record with respect to the declaration of dividends,
3) the effect of the distribution, as compared with the
declaration of regular dividend,
4) the lapse of time between issuance and redemption, 86
5) the presence of a substantial surplus 87 and a generous
supply of cash which invites suspicion as does a meager
policy in relation both to current earnings and accumulated
surplus, 88
REDEMPTION AND CANCELLATION
 For the exempting clause of Section, 83(b) to apply, it is indispensable that: (a)
there is redemption or cancellation; (b) the transaction involves stock dividends
and (c) the "time and manner" of the transaction makes it "essentially
equivalent to a distribution of taxable dividends." Of these, the most important
is the third.
Redemption is repurchase, a reacquisition of stock by a corporation which issued the
stock 89 in exchange for property, whether or not the acquired stock is cancelled,
retired or held in the treasury. 90 Essentially, the corporation gets back some of its
stock, distributes cash or property to the shareholder in payment for the stock, and
continues in business as before. The redemption of stock dividends previously issued
is used as a veil for the constructive distribution of cash dividends. In the instant
case, there is no dispute that ANSCOR redeemed shares of stocks from a stockholder
(Don Andres) twice (28,000 and 80,000 common shares). But where did the shares
redeemed come from? If its source is the original capital subscriptions upon
establishment of the corporation or from initial capital investment in an existing
enterprise, its redemption to the concurrent value of acquisition may not invite the
application of Sec. 83(b) under the 1939 Tax Code, as it is not income but a mere
return of capital. On the contrary, if the redeemed shares are from stock dividend
declarations other than as initial capital investment, the proceeds of the redemption is
additional wealth, for it is not merely a return of capital but a gain thereon.
It is not the stock dividends but the proceeds of its redemption that may be deemed as
taxable dividends. Here, it is undisputed that at the time of the last redemption, the
original common shares owned by the estate were only 25,247.5 91 This means that
from the total of 108,000 shares redeemed from the estate, the balance of 82,752.5
(108,000 less 25,247.5) must have come from stock dividends. Besides, in the absence
of evidence to the contrary, the Tax Code presumes that every distribution of corporate
property, in whole or in part, is made out of corporate profits 92 such as stock
dividends. The capital cannot be distributed in the form of redemption of stock
dividends without violating the trust fund doctrine — wherein the capital stock,
property and other assets of the corporation are regarded as equity in trust for the
payment of the corporate creditors. 93 Once capital, it is always capital. 94 That
doctrine was intended for the protection of corporate creditors. 95

8. Halley vs Printwell, May 30, 2011*

FACTS:
BMPI (Business Media Philippines Inc.) is a corporation under the control of its
stockholders, including Donnina Halley. In the course of its business, BMPI
commissioned PRINTWELL to print Philippines, Inc. (a magazine published and
distributed by BMPI).
PRINTWELL extended 30-day credit accommodation in favor of BMPI and in a period
of 9 mos.
BMPI placed several orders amounting to 316,000.
However, only 25,000 was paid hence a balance of 291,000. PRINTWELL sued BMPI
for collection of the unpaid balance and later on impleaded BMP's original
stockholders and incorporators to recover on their unpaid subscriptions.
It appears that BMPI has an authorized capital stock of 3M divided into 300,000
shares with P10 par value. Only 75,000 shares worth P750,000 were originally
subscribed of which P187,500 were paid up capital. Halley subscribed to 35,000
shares worth P350,000 but only paid P87,500.
Halley contends that:p
1. They all had already paid their subscriptions in full
2. BMPI had a separate and distinct personality
3. BOD and SH had resolved to dissolve BMPI
RTC and CA:
Applying the trust fund doctrine, the RTC declared the defendant stockholders liable
to Printwell pro rata, t

ISSUE: Whether or not petitioner Donnina Halley is personally liable though she
submits she had no participation in the transaction between BMPI and Printwell and
that BMPlacted on its own.

HELD:

III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions
Both the RTC and the CA applied the trust fund doctrineagainst the defendant
stockholders, including the petitioner.
The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause
she had already fully paid her subscriptions to the capital stock of BMPI. She thus
insiststhat both lower courts erred in disregarding the evidence on the complete
payment of the subscription, like receipts, income tax returns, and relevant financial
statements.
The petitioner’s argumentis devoid of substance.
The trust fund doctrineenunciates a –
xxx rule that the property of a corporation is a trust fund for the payment of creditors,
but such property can be called a trust fund ‘only by way of analogy or metaphor.’ As
between the corporation itself and its creditors it is a simple debtor, and as between
its creditors and stockholders its assets are in equity a fund for the payment of its
debts.32
The trust fund doctrine, first enunciated in the American case of Wood v.
Dummer,33was adopted in our jurisdiction in Philippine Trust Co. v. Rivera, 34where
thisCourt declared that:
It is established doctrine that subscriptions to the capital of a corporation constitute a
fund to which creditors have a right to look for satisfaction of their claims and that the
assignee in insolvency can maintain an action upon any unpaid stock subscription in
order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802)
xxx35
We clarify that the trust fund doctrineis not limited to reaching the stockholder’s
unpaid subscriptions. The scope of the doctrine when the corporation is insolvent
encompasses not only the capital stock, but also other property and assets generally
regarded in equity as a trust fund for the payment of corporate debts. 36All assets and
property belonging to the corporation held in trust for the benefit of creditors thatwere
distributed or in the possession of the stockholders, regardless of full paymentof their
subscriptions, may be reached by the creditor in satisfaction of its claim.
Also, under the trust fund doctrine,a corporation has no legal capacity to release an
original subscriber to its capital stock from the obligation of paying for his shares, in
whole or in part,37 without a valuable consideration,38 or fraudulently, to the prejudice
of creditors.39The creditor is allowed to maintain an action upon any unpaid
subscriptions and thereby steps into the shoes of the corporation for the satisfaction
of its debt.40To make out a prima facie case in a suit against stockholders of an
insolvent corporation to compel them to contribute to the payment of its debts by
making good unpaid balances upon their subscriptions, it is only necessary to
establish that thestockholders have not in good faith paid the par value of the stocks
of the corporation.41
The petitionerposits that the finding of irregularity attending the issuance of the
receipts (ORs) issued to the other stockholders/subscribers should not affect her
becauseher receipt did not suffer similar irregularity.
Notwithstanding that the RTC and the CA did not find any irregularity in the OR
issued in her favor,we still cannot sustain the petitioner’s defense of full payment of
her subscription.
In civil cases, theparty who pleads payment has the burden of proving it, that even
where the plaintiff must allege nonpayment, the general rule is that the burden rests
on the defendant to prove payment, rather than on the plaintiff to prove nonpayment.
In other words, the debtor bears the burden of showing with legal certainty that the
obligation has been discharged by payment.42
Apparently, the petitioner failed to discharge her burden.
A receipt is the written acknowledgment of the fact of payment in money or other
settlement between the seller and the buyer of goods, thedebtor or thecreditor, or
theperson rendering services, and theclient or thecustomer. 43Althougha receipt is the
best evidence of the fact of payment, it isnot conclusive, but merely presumptive;nor is
it exclusive evidence,considering thatparole evidence may also establishthe fact of
payment.44
The petitioner’s ORNo. 227,presentedto prove the payment of the balance of her
subscription, indicated that her supposed payment had beenmade by means of a
check. Thus, to discharge theburden to prove payment of her subscription, she had to
adduce evidence satisfactorily proving that her payment by check wasregardedas
payment under the law.
Paymentis defined as the delivery of money. 45Yet, because a check is not money and
only substitutes for money, the delivery of a check does not operate as payment and
does not discharge the obligation under a judgment. 46 The delivery of a bill of exchange
only produces the fact of payment when the bill has been encashed. 47The following
passage fromBank of Philippine Islands v. Royeca 48is enlightening:
Settled is the rule that payment must be made in legal tender. A check is not legal
tender and, therefore, cannot constitute a valid tender of payment. Since a negotiable
instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually realized.
To establish their defense, the respondents therefore had to present proof, not only
that they delivered the checks to the petitioner, but also that the checks were
encashed. The respondents failed to do so. Had the checks been actually encashed,
the respondents could have easily produced the cancelled checks as evidence to prove
the same. Instead, they merely averred that they believed in good faith that the checks
were encashed because they were not notified of the dishonor of the checks and three
years had already lapsed since they issued the checks.
Because of this failure of the respondents to present sufficient proof of payment, it was
no longer necessary for the petitioner to prove non-payment, particularly proof that
the checks were dishonored. The burden of evidence is shifted only if the party upon
whom it is lodged was able to adduce preponderant evidence to prove its claim.
Ostensibly, therefore, the petitioner’s mere submission of the receipt issued in
exchange of the check did not satisfactorily establish her allegation of full payment of
her subscription. Indeed, she could not even inform the trial court about the identity
of her drawee bank,49and about whether the check was cleared and its amount paid to
BMPI.50In fact, she did not present the check itself.
Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit
presented, had no bearing on the issue of payment of the subscription because they
did not by themselves prove payment. ITRsestablish ataxpayer’s liability for taxes or a
taxpayer’s claim for refund. In the same manner, the deposit slips and entries in the
passbook issued in the name of BMPI were hardly relevant due to their not reflecting
the alleged payments.
It is notable, too, that the petitioner and her co-stockholders did not support their
allegation of complete payment of their respective subscriptions with the stock and
transfer book of BMPI. Indeed, books and records of a corporation (including the stock
and transfer book) are admissible in evidence in favor of or against the corporation
and its members to prove the corporate acts, its financial status and other matters
(like the status of the stockholders), and are ordinarily the best evidence of corporate
acts and proceedings.51Specifically, a stock and transfer book is necessary as a
measure of precaution, expediency, and convenience because it provides the only
certain and accurate method of establishing the various corporate acts and
transactions and of showing the ownership of stock and like matters. 52That she
tendered no explanation why the stock and transfer book was not presented warrants
the inference that the book did not reflect the actual payment of her subscription.
Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a
certificate covering her subscription might have been a reliable evidence of full
payment of the subscriptions, considering that under Section 65 of the Corporation
Code a certificate of stock issues only to a subscriber who has fully paid his
subscription. The lack of any explanation for the absence of a stock certificate in her
favor likewise warrants an unfavorable inference on the issue of payment.
Lastly, the petitioner maintains that both lower courts erred in relying on the articles
of incorporationas proof of the liabilities of the stockholders subscribing to BMPI’s
stocks, averring that the articles of incorporationdid not reflect the latest subscription
status of BMPI.
Although the articles of incorporation may possibly reflect only the pre-incorporation
status of a corporation, the lower courts’ reliance on that document to determine
whether the original subscribersalready fully paid their subscriptions or not was
neither unwarranted nor erroneous. As earlier explained, the burden of establishing
the fact of full payment belonged not to Printwell even if it was the plaintiff, but to the
stockholders like the petitioner who, as the defendants, averredfull payment of their
subscriptions as a defense. Their failure to substantiate their averment of full
payment, as well as their failure to counter the reliance on the recitals found in the
articles of incorporation simply meant their failure or inability to satisfactorily prove
their defense of full payment of the subscriptions.
To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the
corporate obligation of BMPI by virtue of her subscription being still unpaid.
Printwell, as BMPI’s creditor,had a right to reachher unpaid subscription in
satisfaction of its claim.

9. [Ong Yong vs Tiu, April 8. 2003*

Topic: Subscription of Contracts

Case: Ong Yong vs. David S. Tiu
G.R. No. 144476
Facts:
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 for P190 Million. To
stave off the foreclosure, Tiu invited the petitioners to invest in FLADC. Under the Pre-Subscription Agreement they
entered into, the Ongs and Tius agreed to maintain equal shareholdings in FLADC.

Ong subscribed 1,000,000 shares at a par value of P100.00 each while Tius were to subscribe to an addritional
549,800 shares at P100.00 each in addition to their already existing subscription of450,200 shares.

On February 23,1996, Tius rescinded the Pre Subscription Agreement, accusing Ongs of refusing to credit to
them the FLADC shares covering their real property contributions, preventing them from assuming the
positions of and performing their duties.

Ongs in their defense, said that the Tius had in fact assumed the positions of Vice-president and Treasurer of FLADC
but it was they who refused to comply with the corporate duties assigned to them. Tius, according to Ongs, refused to
pay P570,690 for capital gains tax and documentary stamp tax so it is impossible for them to secure anew TCT over
the property in FLADC name.
Issue:
Whether or not the recsicsion is proper

Ruling:

All this notwithstanding, granting but not conceding that the Tius possess the legal standing to sue
for rescission based on breach of contract, said action will nevertheless still not prosper since
rescission will violate the Trust Fund Doctrine and the procedures for the valid distribution of assets
and property under the Corporation Code. 
The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust Co. vs.
Rivera,22 provides that subscriptions to the capital stock of a corporation constitute a fund to which
the creditors have a right to look for the satisfaction of their claims. 23 This doctrine is the underlying
principle in the procedure for the distribution of capital assets, embodied in the Corporation Code,
which allows the distribution of corporate capital only in three instances: (1) amendment of the
Articles of Incorporation to reduce the authorized capital stock, 24 (2) purchase of redeemable shares
by the corporation, regardless of the existence of unrestricted retained earnings, 25 and (3) dissolution
and eventual liquidation of the corporation. Furthermore, the doctrine is articulated in Section 41 on
the power of a corporation to acquire its own shares 26 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

10. Lincoln Philippines vs CA, 1998*

FACTS:

Jardine-CMG Life Insurance Company, Inc., is a domestic corporation engaged

in the life insurance business. It issued 50,000 shares of stock as stock
dividends, with a par value of P100 or a total of P5 million. Petitioner paid
documentary stamp taxes on each certificate on the basis of its par value.

The CIR decided that the book value of the shares should be used as a basis for
determining the amount of the documentary stamp tax. The CIR issued a
deficiency documentary stamp tax assessment of P78,991.25 in excess of the
par value of the stock dividends.

Petitioner appealed to the CTA which held that the amount of the documentary
stamp tax should be based on the par value stated on each certificate of stock
reversing the CIR's decision. The CIR appealed with the CA and again held in
favor of the CIR.

ISSUE: Whether the amount to be paid for stock dividends as documentary

stamp tax, is the par value or the book value of the shares.

RULING:

The par value. The Court reaffirmed the CTA's decision.

Petitioner is correct in basing the assessment on the book value thereof

rejecting the principles enunciated in Commissioner of Internal Revenue vs.
Heald Lumber Co. as the said case refers to purchases of no-par certificates of
stocks and not to stock dividends.

The documentary stamp tax is not levied upon the shares of stock per se but
rather on the privilege of issuing certificates of stock.

It is clear that stock dividends are shares of stock and not certificates of stock
which merely represent them. There is no reason for determining the actual
value of such dividends for purposes of the documentary stamp tax if the
certificates representing them indicate a par value.

11.Bitong vs CA, 1998*

FACTS:

Petitioner Nora Bitong, claiming to be a former Treasurer and Member of the Board of
Directors of Mr. & Ms.Publishing Co. filed a derivative suit before the SEC allegedly for
the benefit of private respondent Mr. & Ms.PublishingCo., Inc. to hold respondent
spouses Eugenia & Jose Apostol liable for fraud, misrepresentation, disloyalty, among
others. complained of irregularities committed from 1983 to 1987 b

The petition principally sought to enjoin respondent spouses from further acting a
president-director and director, respectively.

Private respondents refuted the allegations of petitioner saying that she was merely a
holder-in-trust of JAKA shares and only represented and continue to represent JAKA
in the board.

JAKA, owned by spouses Senator Juan Ponce Enrile and Cristina Ponce Enrile, is one
of the original stockholders of Mr. & Ms. Co.

The respondents averred that the real party-in-interest was JAKA and not petitioner.

Bitong testified at trial that she became the registered owner of 997 shares of stock of
Mr. & Ms.after she acquired them from JAKA through a deed of sale.

The SEC Hearing Panel dismissed the derivative suit. The SEC En Banc reversed the
decision of the Hearing Panel. The Court of Appeals reversed the decision of the SEC
En Bancand held that from the evidence in record, petitioner was not the owner of the
shares of stock in Mr. & Ms. and therefore not a real party-in-interest to prosecute the
claim.

She was merely an agent who cannot file a derivative suit in behalf of her principal.

ISSUE:
Whether or not petitioner is a bona fide stockholder of Mr. & Ms. Publishing at the
time of the transaction complained of which invests him with standing to institute a
derivative action for the benefit of the corporation.

RULING:

NO.

Petitioner admitted respondent Eugenia D. Apostol signed the Certificate of Stock No.
008 in petitioner's name in 1989, BUT 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.
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.

Hence, when Certificate of Stock No. 008 was admittedly signed and issued only on 17
March 1989 and not on 25 July 1983, even as it indicates that petitioner owns 997
shares of stock of Mr. & Ms., the certificate has no evidentiary value for the purpose of
proving that petitioner was a stockholder since 1983 up to 1989.

The basis of a stockholder's suit is always one in equity.

However, it cannot prosper without first complying with the legal requisites for its
institution. The most important of these is the bona fide ownership by a stockholder of
a stock in his own right at the time of the transaction complained of which invests him
with standing to institute a derivative action for the benefit of the corporation.

xxx

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.

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.

xxx
Sec. 63 of the Corporation Code envisions a formal certificate of stock which can be
issued only upon compliance with certain requisites.

First , the certificates must be signed by the president or vice-president, countersigned

by the secretary or assistant secretary, and sealed with the seal of the corporation. A
mere typewritten statement advising a stockholder of the extent of his ownership in a
corporation without qualification and/or authentication cannot be considered as a
formal certificate of stock.

Second , delivery of the certificate is an essential element of its issuance. Hence, there
is no issuance of a stock certificate where it is never detached from the stock books
although blanks therein are properly filled up if the person whose name is inserted
therein has no control over the books of the company.
Third, the par value, as to par value shares, or the full subscription as to no par value
shares, must first be fully paid.

Fourth, the original certificate must be surrendered where the person requesting the
issuance of a certificate is a transferee from a stockholder.

The certificate of stock itself once issued is a continuing affirmation or representation

that the stock described therein is valid and genuine and is at least prima facie
evidence that it was legally issued in the absence of evidence to the contrary. However,
this presumption may be rebutted.

Similarly, books and records of a corporation which include even the stock and
transfer book are generally admissible in evidence in favor of or against the
corporation and its members to prove the corporate acts, its financial status and other
matters including one's status as a stockholder. They are ordinarily the best evidence
of corporate acts and proceedings.

However, the books and records of a corporation are not conclusive even against the
corporation but are prima facie evidence only. Parol evidence may be admitted to
supply omissions in the records, explain ambiguities, or show what transpired where
no records were kept, or in some cases where such records were contradicted.

The effect of entries in the books of the corporation which purport to be regular
records of the proceedings of its board of directors or stockholders can be destroyed by
testimony of a more conclusive character than mere suspicion that there was an
irregularity in the manner in which the books were kept.

These considerations are founded on the basic principle that stock issued without
authority and in violation of law is void and confers no rights on the person to whom it
is issued and subjects him to no liabilities.

Where there is an inherent lack of power in the corporation to issue the stock, neither
the corporation nor the person to whom the stock is issued is estopped to question its
validity since an estopped cannot operate to create stock which under the law cannot
have existence.

12.Chemphil Export vs CA, Dec. 12, 1995* (mortgage of shares)

G.R. Nos. 112438-39. December 12, 1995.*

CHEMPHIL EXPORT & IMPORT CORPORATION (CEIC), petitioner, vs. THE HONORABLE COURT
OF APPEALS, JAIME Y. GONZALES, as Assignee of the Bank of the Philippine Islands (BPI), RIZAL
COMMERCIAL BANKING CORPORATION (RCBC), LAND BANK OF THE PHILIPPINES (LBP),
PHILIPPINE COMMERCIAL & INTERNATIONAL BANK (PCIB) and THE PHILIPPINE
INVESTMENT SYSTEM ORGANIZATION (PISO), respondents.
G.R. No. 113394. December 12, 1995.*
PHILIPPINE COMMERCIAL INDUSTRIAL BANK (AND ITS ASSIGNEE JAIME Y. GONZALES),
petitioner, vs. HONORABLE COURT OF APPEALS and CHEMPHIL EXPORT AND IMPORT
CORPORATION (CEIC), respondents.

Attachment; Corporations; Both the Revised Rules of Court and the Corporation
Code do not require annotation in the corporation’s stock and transfer books for
the attachment of shares of stock to be valid and binding on the corporation and
third parties.—The attachment lien acquired by the consortium is valid and effective.
Both the Revised Rules of Court and the Corporation Code do not require annotation in
the corporation’s stock and transfer books for the attachment of shares of stock to be
valid and binding on the corporation and third party.

Attachments of shares of stock are not included in the term “transfer” as provided
in Sec. 63 of the Corporation Code.—Are attachments of shares of stock included in the
term “transfer” as provided in Sec. 63 of the Corporation Code? We rule in the negative.
As succinctly declared in the case of Monserrat v. Ceron, “chattel mortgage over shares
of stock need not be registered in the corporation’s stock and transfer book inasmuch as
chattel mortgage over shares of stock does not involve a “transfer of shares,” and that
only absolute transfers of shares of stock are required to be recorded in the corporation’s
stock and transfer book in order to have “force and effect as against third persons.”

An attachment does not constitute an absolute conveyance of property but is

primarily used as a means “to seize the debtor’s property in order to secure the debt
or claim of the creditor in the event that a judgment is rendered.”—Although the
Monserrat case refers to a chattel mortgage over shares of stock, the same may be applied
to the attachment of the disputed shares of stock in the present controversy since an
attachment does not constitute an absolute conveyance of property but is primarily used
as a means “to seize the debtor’s property in order to secure the debt or claim of the
creditor in the event that a judgment is rendered.”

A purchaser of attached property acquires it subject to an attachment legally and validly

levied thereon.—The only basis, then, for petitioner CEIC’s claim is the Deed of Sale
under which it purchased the disputed shares. It is, however, a settled rule that a
purchaser of attached property acquires it subject to an attachment legally and validly
levied thereon.

Actions; Garnishments; Corporations; Secretaries; A notice of garnishment served

on the secretary of the president binds the corporation.—CEIC vigorously argues that
the consortium’s writ of attachment over the disputed shares of Chemphil is null and
void, insisting as it does, that the notice of garnishment was not validly served on the
designated officers on 19 July 1985. It was served on Thelly Ruiz who was neither the
president nor the managing agent of Chemphil. It makes no difference, CEIC further
avers, that Thelly Ruiz was the secretary of the President of Chemphil, for under the
above-quoted provision she is not among the officers so authorized or designated to be
served with the notice of garnishment. We cannot subscribe to such a narrow view of the
rule on proper service of writs of attachment. A secretary’s major function is to assist his
or her superior. He/ she is in effect an extension of the latter. Obviously, as such, one of
her duties is to receive letters and notices for and in behalf of her superior, as in the case
at bench. The notice of garnishment was addressed to and was actually received by
Chemphil’s president through his secretary who formally received it for him. Thus, in
one case, we ruled that the secretary of the president may be considered an “agent” of the
corporation and held that service of summons on him is binding on the corporation.

PETITION for review of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.
     Quasha, Asperilla, Ancheta, Peña & Nolasco for Chemphil Export & Import
Corporation.

     Ponce Enrile, Cayetano, Reyes & Manalastas for RCBC.

     Fortun & Narvasa for Jaime Y. Gonzales.
     Rilloraza, Africa, De Ocampo & Africa for PCIB.
     Nestor Mejia for Dynetics & A.M. Garcia.
     Puruganan, Chato, Tan & Geronimo for PISO.
     Sabino B. Padilla IV for BPI and Land Bank.

KAPUNAN, J.:

Before us is a legal tug-of-war between the Chemphil Export and Import Corporation (hereinafter referred to as CEIC),
on one side, and the PISO and Jaime Gonzales as assignee of the Bank of the Philippine Islands (BPI), Rizal
Commercial Banking Corporation (RCBC), Land Bank of the Philippines (LBP) and Philippine Commercial
International Bank (PCIB), on the other (hereinafter referred to as the consortium), over 1,717,678 shares of stock
(hereinafter referred to as the “disputed shares”) in the Chemical Industries of the Philippines (Chemphil/CIP).
Our task is to determine who is the rightful owner of the disputed shares.

Pursuant to our resolution dated 30 May 1994, the instant case is a consolidation of two petitions for review filed
before us as follows:
In G.R. Nos. 112438-39, CEIC seeks the reversal of the decision of the Court of Appeals (former Twelfth Division)
promulgated on 30 June 1993 and its resolution of 29 October 1993, denying petitioner’s motion for reconsideration in
the consolidated cases entitled “Dynetics, Inc., et al. v. PISO, et al.” (CA-G.R. No. 20467) and “Dynetics, Inc., et al. v.
PISO, et al.; CEIC, Intervenor-Appellee” (CA-G.R. CV No. 26511).
The dispositive portion of the assailed decision reads, thus:
WHEREFORE, this Court resolves in these consolidated cases as follows:
1. 1.
The Orders of the Regional Trial Court, dated March 25, 1988, and May 20, 1988, subject of CA-G.R. CV
No. 10467, are SET ASIDE and judgment is hereby rendered in favor of the consortium and against appellee
Dynetics, Inc., the amount of the judgment, to be determined by Regional Trial Court, taking into account the
value of assets that the consortium may have already recovered and shall have recovered in accordance with
the other portions of this decision.
2. 2.
The Orders of the Regional Trial Court dated December 19, 1989 and March 5, 1990 are hereby REVERSED
 and SET ASIDE and judgment is hereby rendered confirming the ownership of the consortium over the
Chemphil shares of stock, subject of CA-G.R. CV No. 26511, and the Order dated September 4, 1989, is
reinstated. No pronouncement as to costs.
SO ORDERED.

In G.R. No. 113394, PCIB and its assignee, Jaime Gonzales, ask for the annulment of the Court of Appeals’ decision
(former Special Ninth Division) promulgated on 26 March 1993 in “PCIB v. Hon. Job B. Madayag & CEIC” (CA-G.R.
SP NO. 20474) dismissing the petition for certiorari, prohibition and mandamus filed by PCIB and of said court’s
resolution dated 11 January 1994 denying their motion for reconsideration of its decision.2

The antecedent facts leading to the aforementioned controversies are as follows:

 On September 25, 1984, Dynetics, Inc. and Antonio M. Garcia filed a

complaint for declaratory relief and/or injunction against the PISO, BPI,
LBP, PCIB and RCBC or the consortium with the Regional Trial Court of
Makati, Branch 45 (Civil Case No. 8527), seeking judicial declaration,
construction and interpretation of the validity of the surety agreement that
Dynetics and Garcia had entered into with the consortium and to
perpetually enjoin the latter from claiming, collecting and enforcing any
purported obligations which Dynetics and Garcia might have undertaken in
said agreement.

 The consortium filed their respective answers with counter-claims alleging

that the surety agreement in question was valid and binding and that
Dynetics and Garcia were liable under the terms of the said agreement. It
likewise applied for the issuance of a writ of preliminary attachment against
Dynetics and Garcia.

 Seven months later, or on 23 April 1985, Dynetics, Antonio Garcia and

Matrix Management & Trading Corporation filed a complaint for
declaratory relief and/or injunction against the Security Bank & Trust Co.
(SBTC case) before the Regional Trial Court of Makati, Branch 135
docketed as Civil Case No. 10398.5
______________
3 Rollo of G.R. Nos. 112438-39, pp. 75, 377, 37. Chemark, Inc. secured from foreign banks a loan in the amount of US $4.5 Million to finance its
projects. To guarantee payment, Chemark entered into an Indemnity Agreement with the consortium. In turn, the consortium entered into a
Surety Agreement with Dynetics, Garcia and Marco Electric Manufacturing Corporation whereby the latter bound themselves to reimburse the
consortium for any payment it may be bound to make pursuant to the aforestated Indemnity Agreement. Dynetics, et al. alleged that they are not
liable to the consortium under the said Surety Agreement because there was no valid consideration, their obligations have been extinguished
through novation, etc. (Record of CA-G.R. CV No. 26511, pp. 8-16.)
4 Id., at 75 and 377.
5 Id., at 377. The plaintiffs sought a judicial declaration that they were not liable to SBTC under the Indemnity Agreements they had executed in
favor of Chemark Electric Motors, Inc. which had been extended a credit accommodation of about P20,000,000 by SBTC, alleging as grounds
therefor, among others, that the Indemnity Agreements were executed without valid consideration; that assuming that there was a valid
consideration for the instruments, they were null and void for being ultra vires, etc. SBTC filed its Answer with Counterclaim stating that
defendants defaulted in their obligation and praying for the payment thereof.
______________

 On 2 July 1985, the trial court granted SBTC’s prayer for the issuance of a
writ of preliminary attachment and on 9 July 1985, a notice of
garnishment covering Garcia’s shares in CIP/Chemphil (including the
 disputed shares) was served on Chemphil through its then President.
The notice of garnishment was duly annotated in the stock and transfer
books of Chemphil on the same date.

 On 6 September 1985, the writ of attachment in favor of SBTC was lifted.

However, the same was reinstated on 30 October 1985.7

 In the meantime, on 12 July 1985, the Regional Trial Court in Civil Case
No. 8527 (the consortium case) denied the application of Dynetics and
Garcia for preliminary injunction and instead granted the
consortium’s prayer for a consolidated writ of preliminary attachment.

 Hence, on 19 July 1985, after the consortium had filed the required bond, a
writ of attachment was issued and various real and personal properties of
Dynetics and Garcia were garnished, including the disputed shares.8 This
garnishment, however, was not annotated in Chemphil’s stock and
transfer book.

 On 8 September 1987, PCIB filed a motion to dismiss the complaint of

Dynetics and Garcia for lack of interest to prosecute and to submit its
counterclaims for decision, adopting the evidence it had adduced at the
hearing of its application for preliminary attachment.9

 On 25 March 1988, the Regional Trial Court dismissed the complaint of

Dynetics and Garcia in Civil Case No. 8527, as well as the counterclaims of
the consortium, thus:

Resolving defendant’s, Philippine Commercial International Bank, “MOTION TO DISMISS

WITH MOTION TO SUBMIT DEFENDANT PCIBANK’s COUNTERCLAIM FOR
DECISION, dated September 7, 1987:
1. (1)
The motion to dismiss is granted; and the instant case is hereby ordered dismissed
pursuant to Sec. 3, Rule 17 of the Revised Rules of Court, plaintiff having failed to
comply with the order dated July 16, 1987, and having not taken further steps to
prosecute the case; and
2. (2)
The motion to submit said defendant’s counterclaim for decision is denied; there is
no need; said counterclaim is likewise dismissed under the authority of Dalman v.
City Court of Dipolog City, L-63194, January 21, 1985, wherein the Supreme Court
stated that if the civil case is dismissed, so also is the counterclaim filed therein. “A
person cannot eat his cake and have it at the same time” (p. 645, record, Vol. I).10

 The motions for reconsideration filed by the consortium were, likewise,

denied by the trial court in its order dated 20 May 1988:
 The Court could have stood pat on its order dated 25 March 1988, in regard to which the defendants-banks
concerned filed motions for reconsideration.

However, inasmuch as plaintiffs commented on said motions that: “3). In any event, so as not to unduly
foreclose on the rights of the respective parties to refile and prosecute their respective causes of action, plaintiffs
manifest their conformity to the modification of this Honorable Court’s order to indicate that the dismissal of
the complaint and the counterclaims is without prejudice.” (p. 2, plaintiffs’ COMMENT etc. dated May 20,
1988). The Court is inclined to so modify the said order.
WHEREFORE, the order issued on March 25, 1988, is hereby modified in the sense that the dismissal of the
complaint as well as of the counterclaims of defendants RCBC, LBP, PCIB and BPI shall be considered as
without prejudice (p. 675, record, Vol. I).11

 Unsatisfied with the aforementioned order, the consortium appealed to the

Court of Appeals, docketed as CA-G.R. CV No. 20467.

 On 17 January 1989 during the pendency of consortium’s appeal in CA-

G.R. CV No. 20467, Antonio Garcia and the consortium entered into a
Compromise Agreement which the Court of Appeals approved on 22
May 1989 and became the basis of its judgment by compromise.
Antonio Garcia was dropped as a party to the appeal leaving the consortium
to proceed solely against Dynetics, Inc.

 On 27 June 1989, entry of judgment was made by the Clerk of Court


Hereunder quoted are the salient portions of said compromise agreement:
x x x     x x x     x x x.
1. 3.
Defendants, in consideration of avoiding an extended litigation, having agreed to limit their claim against
plaintiff Antonio M. Garcia to a principal sum of P145 Million immediately demandable and to waive all other
claims to interest, penalties, attorney’s fees and other charges. The aforesaid compromise amount of
indebtedness of P145 Million shall earn interest of eighteen percent (18%) from the date of this Compromise.
2. 4.
Plaintiff Antonio M. Garcia and herein defendants have no further claims against each other.
3. 5.
This Compromise shall be without prejudice to such claims as the parties herein may have against plaintiff
Dynetics, Inc.
4. 6.
Plaintiff Antonio M. Garcia shall have two (2) months from date of this Compromise within which to work for
the entry and participation of his other creditor, Security Bank and Trust Co., into this Compromise. Upon the
expiration of this period, without Security Bank and Trust Co. having joined, this Compromise shall be
submitted to the Court for its information and approval (pp. 27, 28-31, rollo, CA-G.R. CV No. 10467).14
 It appears that on 15 July 1988, Antonio Garcia under a Deed of Sale
transferred to Ferro Chemicals, Inc. (FCI) the disputed shares and other
properties for P79,207,331.28.

 It was agreed upon that part of the purchase price shall be paid by FCI
directly to SBTC for whatever judgment credits that may be adjudged in the
latter’s favor and against Antonio Garcia in the aforementioned SBTC case.

 On 6 March 1989, FCI, through its President Antonio M. Garcia, issued a

Bank of America Check No. 860114 in favor of SBTC in the amount of
P35,462,869.62.16 SBTC refused to accept the check claiming that the
amount was not sufficient to discharge the debt.
 The check was thus consigned by Antonio Garcia and Dynetics with the
Regional Trial Court as payment of their judgment debt in the SBTC case.

 On 26 June 1989, FCI assigned its 4,119,614 shares in Chemphil, which

included the disputed shares, to petitioner CEIC. The shares were registered
and recorded in the corporate books of Chemphil in CEIC’s name and the
corresponding stock certificates were issued to it.

 Meanwhile, Antonio Garcia, in the consortium case, failed to comply with

the terms of the compromise agreement he entered into with the consortium
on 17 January 1989.

 As a result, on 18 July 1989, the consortium filed a motion for execution

which was granted by the trial court on 11 August 1989. Among Garcia’s
properties that were levied upon on execution were his 1,717,678 shares
in Chemphil (the disputed shares) previously garnished on 19 July
1985.

 On 22 August 1989, the consortium acquired the disputed shares of stock at

the public auction sale conducted by the sheriff for P85,000,000.00.

 On the same day, a Certificate of Sale covering the disputed shares was
issued to it.

 On 30 |August 1989,21 the consortium filed a motion (dated 29 August

1989) to order the corporate secretary of Chemphil to enter in its stock
and transfer books the sheriff’s certificate of sale dated 22 August
1989, and to issue new certificates of stock in the name of the banks
concerned. The trial court granted said motion in its order dated 4
September 1989, thus:
For being legally proper, defendant’s MOTION TO ORDER THE CORPORATE SECRETARY OF
CHEMICAL INDUSTRIES OF THE PHILS., INC. (CHEMPHIL) TO ENTER IN THE STOCK AND
TRANSFER BOOKS OF CHEMPHIL THE SHERIFF’S CERTIFICATE OF SALE DATED AUGUST
22, 1989 AND TO ISSUE NEW CERTIFICATES OF STOCK IN THE NAME OF THE DEFENDANT
BANKS, dated August 29, 1989, is hereby granted.
WHEREFORE, the corporate secretary of the aforesaid corporation, or whoever is acting for and in his behalf,
is hereby ordered to (1) record and/or register the Certificate of Sale dated August 22, 1989 issued by Deputy
Sheriff Cristobal S. Jabson of this Court; (2) to cancel the certificates of stock of plaintiff Antonio M. Garcia
and all those which may have subsequently been issued in replacement and/or in substitution thereof; and (3) to
issue in lieu of the said shares new shares of stock in the name of the defendant Banks, namely, PCIB, BPI,
RCBC, LBP and PISO bank in such proportion as their respective claims would appear in this suit (p. 82,
record, Vol. II).22

 On 26 September 1989, CEIC filed a motion to intervene (dated 25

September 1989) in the consortium case seeking the recall of the
 abovementioned order on grounds that it is the rightful owner of the
disputed shares.

 It further alleged that the disputed shares were previously owned by

Antonio M. Garcia but subsequently sold by him on 15 July 1988 to
Ferro Chemicals, Inc. (FCI) which in turn assigned the same to CEIC
in an agreement dated 26 June 1989.

 On 27 September 1989, the trial court granted CEIC’s motion allowing it to

intervene, but limited only to the incidents covered by the order dated 4
September 1989. In the same order, the trial court directed Chemphil’s
corporate secretary to temporarily refrain from implementing the 4
September 1989 order.

 On 2 October 1989, the consortium filed their opposition to CEIC’s motion

for intervention alleging that their attachment lien over the disputed shares
of stocks must prevail over the private sale in favor of the CEIC
considering that said shares of stock were garnished in the consortium’s
favor as early as 19 July 1985.25

 On 4 October 1989, the consortium filed their opposition to CEIC’s motion

to set aside the 4 September 1989 order and moved to lift the 27 September
1989 order.

 On 12 October 1989, the consortium filed a manifestation and motion to lift

the 27 September 1989 order, to reinstate the 4 September 1989 order and
to direct CEIC to surrender the disputed stock certificates of Chemphil in
its possession within twenty-four (24) hours, failing in which the President,
Corporate Secretary and stock and transfer agent of Chemphil be directed to
register the names of the banks making up the consortium as owners of said
shares, sign the new certificates of stocks evidencing their ownership over
said shares and to immediately deliver the stock certificates to them.

 Resolving the foregoing motions, the trial court rendered an order dated 19
December 1989, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the Urgent Motion dated September 25, 1989 filed by CEIC is hereby
GRANTED. Accordingly, the Order of September 4, 1989, is hereby SET ASIDE, and any and all acts of the
Corporate Secretary of CHEMPHIL and/or whoever is acting for and in his behalf, as may have already been
done, carried out or implemented pursuant to the Order of September 4, 1989, are hereby nullified.

PERFORCE, the CONSORTIUM’S Motions dated October 3, 1989 and October 11, 1989, are both hereby denied for lack
of merit.
The Cease and Desist Order dated September 27, 1989, is hereby AFFIRMED and made PERMANENT.

SO ORDERED.28
In so ruling, the trial court ratiocinated in this wise:
xxx
 After careful and assiduous consideration of the facts and applicable law and jurisprudence, the Court holds that CEIC’s
Urgent Motion to Set Aside the Order of September 4, 1989 is impressed with merit.

The CONSORTIUM has admitted that the writ of attachment/ garnishment issued on July 19, 1985 on the shares of stock
belonging to plaintiff Antonio M. Garcia was not annotated and registered in the stock and transfer books of
CHEMPHIL.

On the other hand, the prior attachment issued in favor of SBTC on July 2, 1985 by Branch 135 of this Court in Civil Case
No. 10398, against the same CHEMPHIL shares of Antonio M. Garcia, was duly registered and annotated in the
stock and transfer books of CHEMPHIL. The matter of non-recording of the Consortium’s attachment in Chemphil’s
stock and transfer book on the shares of Antonio M. Garcia assumes significance considering CEIC’s position that FCI and
later CEIC acquired the CHEMPHIL shares of Antonio M. Garcia without knowledge of the attachment of the
CONSORTIUM.

This is also important as CEIC claims that it has been subrogated to the rights of SBTC since CEIC’s predecessor-
in-interest, the FCI, had paid SBTC the amount of P35,462,869.12 pursuant to the Deed of Sale and Purchase of
Shares of Stock executed by Antonio M. Garcia on July 15, 1988. By reason of such payment, sale with the knowledge
and consent of Antonio M. Garcia, FCI and CEIC, as party-in-interest to FCI, are subrogated by operation of law to the
rights of SBTC. The Court is not unaware of the citation in CEIC’s reply that “as between two (2) attaching creditors, the
one whose claims was first registered on the books of the corporation enjoy priority.” (Samahang Magsasaka, Inc. vs. Chua
Gan, 96 Phil. 974.)

The Court holds that a levy on the shares of corporate stock to be valid and binding on third persons, the notice of
attachment or garnishment must be registered and annotated in the stock and transfer books of the corporation,
more so when the shares of the corporation are listed and traded in the stock exchange, as in this case. As a matter of
fact, in the CONSORTIUM’S motion of August 30, 1989, they specifically move to “order the Corporate Secretary of
CHEMPHIL to enter in the stock and transfer books of CHEMPHIL the Sheriff’s Certificate of Sale dated August 22,
1989.” This goes to show that, contrary to the arguments of the CONSORTIUM, in order that attachment, garnishment
and/or encumbrances affecting rights and ownership on shares of a corporation to be valid and binding, the same has to be
recorded in the stock and transfer books.

Since neither CEIC nor FCI had notice of the CONSORTIUM’s attachment of July 19, 1985, CEIC’s shares of stock in
CHEMPHIL, legally acquired from Antonio M. Garcia, cannot be levied upon in execution to satisfy his judgment debts.
At the time of the Sheriff’s levy on execution, Antonio M. Garcia has no more shares in CHEMPHIL which could be
levied upon.29
xxx

 On 23 January 1990, the consortium and PCIB filed separate motions for
reconsideration of the aforestated order which were opposed by petitioner
CEIC.

 On 5 March 1990, the trial court denied the motions for reconsideration.31

 On 16 March 1990, the consortium appealed to the Court of Appeals (CA-

G.R. No. 26511). In its Resolution dated 9 August 1990, the Court of
Appeals consolidated CA-G.R. No. 26511 with CA-G.R. No. 20467.32
The issues raised in the two cases, as formulated by the Court of Appeals, are as follows:
I
WHETHER OR NOT, UNDER THE PECULIAR CIRCUMSTANCES OF THE CASE, THE TRIAL COURT ERRED IN
DISMISSING THE COUNTERCLAIMS OF THE CONSORTIUM IN CIVIL CASE NO. 8527;
II
WHETHER OR NOT THE DISMISSAL OF CIVIL CASE NO. 8527 RESULTED IN THE DISCHARGE OF THE WRIT OF
ATTACHMENT ISSUED THEREIN EVEN AS THE CONSORTIUM APPEALED THE ORDER DISMISSING CIVIL CASE
NO. 8527;
III
WHETHER OR NOT THE JUDGMENT BASED ON COMPROMISE RENDERED BY THIS COURT ON MAY 22, 1989
HAD THE EFFECT OF DISCHARGING THE ATTACHMENTS ISSUED IN CIVIL CASE NO. 8527;
IV
WHETHER OR NOT THE ATTACHMENT OF SHARES OF STOCK, IN ORDER TO BIND THIRD PERSONS, MUST BE
RECORDED IN THE STOCK AND TRANSFER BOOK OF THE CORPORATION; AND
V
WHETHER OR NOT FERRO CHEMICALS, INC. (FCI), AND ITS SUCCESSOR-IN-INTEREST, CEIC, WERE
SUBROGATED TO THE RIGHTS OF SECURITY BANK & TRUST COMPANY (SBTC) IN A SEPARATE CIVIL
ACTION. (This issue appears to be material as SBTC is alleged to have obtained an earlier attachment over the same Chemphil
shares that the consortium seeks to recover in the case at bar).33
On 6 April 1990, the PCIB separately filed with the Court of Appeals a petition for certiorari, prohibition and mandamus with a
prayer for the issuance of a writ of preliminary injunction (CA-G.R. No. SP-20474), likewise, assailing the very same orders
dated 19 December 1989 and 5 March 1990, subject of CA-G.R. No. 26511.34

On 30 June 1993, the Court of Appeals (Twelfth Division) in CA-G.R. No. 26511 and CA-G.R. No. 20467 rendered a decisioi
reversing the orders of the trial court and confirming the ownership of the consortium over the disputed shares. CEIC’s motion
for reconsideration was denied on 29 October 1993.35
In ruling for the consortium, the Court of Appeals made the following ratiocination:36

On the first issue, it ruled that the evidence offered by the consortium in support of its counterclaims, coupled with the failure of
Dynetics and Garcia to prosecute their case, was sufficient basis for the RTC to pass upon and determine the consortium’s
counterclaims.
The Court of Appeals found no application for the ruling in Dalman v. City Court of Dipolog, 134 SCRA 243 (1985) that “a
person cannot eat his cake and have it at the same time. If the civil case is dismissed, so also is the counterclaim filed
therein” because the factual background of the present action is different.

In the instant case, both Dynetics and Garcia and the consortium presented testimonial and documentary evidence which clearly
should have supported a judgment on the merits in favor of the consortium.

As the consortium correctly argued, the net atrocious effect of the Regional Trial Court’s ruling is that it allows a situation where
a party litigant is forced to plead and prove compulsory counterclaims only to be denied those counterclaims on account of the
adverse party’s failure to prosecute his case. Verily, the consortium had no alternative but to present its counterclaims in Civil
Case No. 8527 since its counterclaims are compulsory in nature.

On the second issue, the Court of Appeals opined that unless a writ of attachment is lifted by a special order specifically
providing for the discharge thereof, or unless a case has been finally dismissed against the party in whose favor the attachment
has been issued, the attachment lien subsists.

When the consortium, therefore, took an appeal from the Regional Trial Court’s orders of March 25, 1988 and May 20, 1988,
such appeal had the effect of preserving the consortium’s attachment liens secured at the inception of Civil Case No. 8527,
invoking the rule in Olib v. Pastoral, 188 SCRA 692 (1988) that where the main action is appealed, the attachment issued in the
said main case is also considered appealed.

Anent the third issue, the compromise agreement between the consortium and Garcia dated 17 January 1989 did not result in the
abandonment of its attachment lien over his properties. Said agreement was approved by the Court of Appeals in a Resolution
dated 22 May 1989. The judgment based on the compromise agreement had the effect of preserving the said attachment lien as
security for the satisfaction of said judgment (citing BF Homes, Inc. v. CA, 190 SCRA 262, [1990]).

As to the fourth issue, the Court of Appeals agreed with the consortium’s position that the attachment of shares of stock in a
corporation need not be recorded in the corporation’s stock and transfer book in order to bind third persons.
Section 7(d), Rule 57 of the Rules of Court was complied with by the consortium (through the Sheriff of the trial court) when the
notice of garnishment over the Chemphil shares of Garcia was served on the president of Chemphil on July 19, 1985.

Indeed, to bind third persons, no law requires that an attachment of shares of stock be recorded in the stock and transfer book of
a corporation. The statement attributed by the Regional Trial Court to the Supreme Court in Samahang Magsasaka, Inc. vs.
Gonzalo Chua Guan, G.R. No. L-7252, February 25, 1955 (unreported), to the effect that “as between two attaching creditors,
the one whose claim was registered first on the books of the corporation enjoys priority,” is an obiter dictum that does not
modify the procedure laid down in Section 7(d), Rule 57 of the Rules of Court.

Therefore, ruled the Court of Appeals, the attachment made over the Chemphil shares in the name of Garcia on July 19, 1985
was made in accordance with law and the lien created thereby remained valid and subsisting at the time Garcia sold those shares
to FCI (predecessor-in-interest of appellee CEIC) in 1988.

Anent the last issue, the Court of Appeals rejected CEIC’s subrogation theory based on Art. 1302 (2) of the New Civil Code
stating that the obligation to SBTC was paid by Garcia himself and not by a third party (FCI).

The Court of Appeals further opined that while the check used to pay SBTC was a FCI corporate check, it was funds of Garcia in
FCI that was used to pay off SBTC. That the funds used to pay off SBTC were funds of Garcia has not been refuted by FCI or
CEIC. It is clear, therefore, that there was an attempt on the part of Garcia to use FCI and CEIC as convenient vehicles to deny
the consortium its right to make itself whole through an execution sale of the Chemphil shares attached by the consortium at the
inception of Civil Case No. 8527. The consortium, therefore, is entitled to the issuance of the Chemphil shares of stock in its
favor. The Regional Trial Court’s order of September 4, 1989, should, therefore, be reinstated in toto.

Accordingly, the question of whether or not the attachment lien in favor of SBTC in the SBTC case is superior to the attachment
lien in favor of the consortium in Civil Case No. 8527 becomes immaterial with respect to the right of intervenor-appellee CEIC.
The said issue would have been relevant had CEIC established its subrogation to the rights of SBTC.
 On 26 March 1993, the Court of Appeals (Special Ninth Division) in CA-G.R. No. SP 20474 rendered a decision denying due
course to and dismissing PCIB’s petition for certiorari on grounds that PCIB violated the rule against forum-shopping and that
no grave abuse of discretion was committed by respondent Regional Trial Court in issuing its assailed orders dated 19 December
1989 and 5 March 1990.

 PCIB’s motion for reconsideration was denied on 11 January 1994.37

 On 7 July 1993, the consortium, with the exception of PISO, assigned
without recourse all its rights and interests in the disputed shares to Jaime
Gonzales.38
 \\On 3 January 1994, CEIC filed the instant petition for review docketed as
G.R. Nos. 112438-39 and assigned the following errors:
I.
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN SETTING ASIDE AND REVERSING THE ORDERS OF THE
REGIONAL TRIAL COURT DATED DECEMBER 5, 1989 AND MARCH 5, 1990 AND IN NOT CONFIRMING PETITIONER’S
OWNERSHIP OVER THE DISPUTED CHEMPHIL SHARES AGAINST THE FRIVOLOUS AND UNFOUNDED CLAIMS OF THE
CONSORTIUM.
II.
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED:
______________
(1)
In not holding that the Consortium’s attachment over the disputed Chemphil shares did not vest any priority right in its favor and
cannot bind third parties since admittedly its attachment on 19 July 1985 was not recorded in the stock and transfer books of
Chemphil, and subordinate to the attachment of SBTC which SBTC registered and annotated in the stock and transfer books of
Chemphil on 2 July 1985, and that the Consortium’s attachment failed to comply with Sec. 7(d), Rule 57 of the Rules as evidenced by
the notice of garnishment of the deputy sheriff of the trial court dated 19 July 1985 (annex “D”) which the sheriff served on a certain
Thelly Ruiz who was neither President nor managing agent of Chemphil;
1. (2)
In not applying the case law enunciated by this Honorable Supreme Court in Samahang Magsasaka, Inc. vs. Gonzalo Chua Guan, 96
Phil. 974 that as between two attaching creditors, the one whose claim was registered first in the books of the corporation enjoys
priority, and which respondent Court erroneously characterized as mere obiter dictum;
2. (3)
In not holding that the dismissal of the appeal of the Consortium from the order of the trial court dismissing its counterclaim against
Antonio M. Garcia and the finality of the compromise agreement which ended the litigation between the Consortium and Antonio M.
Garcia in the Dynetics case had ipso jure discharged the Consortium’s purported attachment over the disputed shares.
III.
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT CEIC HAD BEEN SUBROGATED TO THE
RIGHTS OF SBTC SINCE CEIC’S PREDECESSOR IN INTEREST HAD PAID SBTC PURSUANT TO THE DEED OF SALE AND
PURCHASE OF STOCK EXECUTED BY ANTONIO M. GARCIA ON JULY 15, 1988, AND THAT BY REASON OF SUCH PAYMENT,
WITH THE CONSENT AND KNOWLEDGE OF ANTONIO M. GARCIA, FCI AND CEIC, AS PARTY IN INTEREST TO FCI, WERE
SUBROGATED BY OPERATION OF LAW TO THE RIGHTS OF SBTC.
IV.
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED AND MADE UNWARRANTED INFERENCES AND CONCLUSIONS,
WITHOUT ANY SUPPORTING EVIDENCE, THAT THERE WAS AN
277
VOL. 251, DECEMBER 12, 1995 277
Chemphil Export & Import Corporation vs. Court of Appeals
ATTEMPT ON THE PART OF ANTONIO M. GARCIA TO USE FCI AND CEIC AS CONVENIENT VEHICLES TO DENY THE
CONSORTIUM ITS RIGHTS TO MAKE ITSELF WHOLE THROUGH AN EXECUTION OF THE CHEMPHIL SHARES PURPORTEDLY
ATTACHED BY THE CONSORTIUM ON 19 JULY 1985.39
On 2 March 1994, PCIB filed its own petition for review docketed as G.R. No. 113394 wherein it raised the following issues:
1. I.
RESPONDENT COURT OF APPEALS COMMITTED SERIOUS ERROR IN RENDERING THE DECISION AND RESOLUTION
IN QUESTION (ANNEXES A AND B) IN DEFIANCE OF LAW AND JURISPRUDENCE BY FINDING RESPONDENT CEIC
AS HAVING BEEN SUBROGATED TO THE RIGHTS OF SBTC BY THE PAYMENT BY FCI OF GARCIA’S DEBTS TO THE
LATTER DESPITE THE FACT THAT—
2. A.
FCI PAID THE SBTC DEBT BY VIRTUE OF A CONTRACT BETWEEN FCI AND GARCIA, THUS, LEGAL SUBROGATION
DOES NOT ARISE;
3. B.
THE SBTC DEBT WAS PAID BY GARCIA HIMSELF AND NOT BY FCI, HENCE, SUBROGATION BY PAYMENT COULD
NOT HAVE OCCURRED;
4. C.
FCI DID NOT ACQUIRE ANY RIGHT OVER THE DISPUTED SHARES AS SBTC HAD NOT YET LEVIED UPON NOR
BOUGHT THOSE SHARES ON EXECUTION. ACCORDINGLY, WHAT FCI ACQUIRED FROM SBTC WAS SIMPLY A
JUDGMENT CREDIT AND AN ATTACHMENT LIEN TO SECURE ITS SATISFACTION.
 5. II.
RESPONDENT COURT OF APPEALS COMMITTED SERIOUS ERROR IN SUSTAINING THE ORDERS OF THE TRIAL
COURT DATED DECEMBER 19, 1989 AND MARCH 5, 1990 WHICH DENIED PETITIONER’S OWNERSHIP OVER THE
DISPUTED SHARES NOTWITHSTANDING PROVISIONS OF LAW AND EXTANT JURISPRUDENCE ON THE MATTER
THAT PETITIONER AND THE CONSORTIUM HAVE PREFERRED SENIOR RIGHTS THEREOVER.
___________
39 Id.,at 44-46.
278
278 SUPREME COURT REPORTS
ANNOTATED
Chemphil Export & Import Corporation vs. Court of Appeals
1. III.
RESPONDENT COURT OF APPEALS COMMITTED SERIOUS ERROR IN CONCLUDING THAT THE DISMISSAL OF THE
COMPLAINT AND THE COUNTERCLAIM IN CIVIL CASE NO. 8527 ALSO RESULTED IN THE DISCHARGE OF THE
WRIT OF ATTACHMENT DESPITE THE RULINGS OF THIS HONORABLE COURT IN BF HOMES VS. COURT OF
APPEALS, G.R. NOS. 76879 AND 77143, OCTOBER 3, 1990, 190 SCRA 262, AND IN OLIB VS. PASTORAL, G.R. NO. 81120,
AUGUST 20, 1990, 188 SCRA 692 TO THE CONTRARY.
2. IV.
RESPONDENT COURT OF APPEALS EXCEEDED ITS JURISDICTION IN RULING ON THE MERITS OF THE MAIN CASE
NOTWITHSTANDING THAT THOSE MATTERS WERE NOT ON APPEAL BEFORE IT.
3. V.
RESPONDENT COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT PETITIONER IS GUILTY OF
FORUM SHOPPING DESPITE THE FACT THAT SC CIRCULAR NO. 28-91 WAS NOT YET IN FORCE AND EFFECT AT THE
TIME THE PETITION WAS FILED BEFORE RESPONDENT APPELLATE COURT, AND THAT ITS COUNSEL AT THAT
TIME HAD ADEQUATE BASIS TO BELIEVE THAT CERTIORARI AND NOT AN APPEAL OF THE TRIAL COURT’S
ORDERS WAS THE APPROPRIATE RELIEF.40
As previously stated, the issue boils down to who is legally entitled to the disputed
shares of Chemphil. We shall resolve this controversy by examining the validity of
the claims of each party and, thus, determine whose claim has priority.

CEIC argues that the consortium’s attachment lien over the disputed Chemphil shares
is null and void and not binding on third parties due to the latter’s failure to register
said lien in the stock and transfer books of Chemphil as mandated by the rule laid
down by the Samahang Magsasaka v. Chua Guan.

The attachment lien acquired by the consortium is valid and effective. Both the Revised
Rules of Court and the Corporation Code do not require annotation in the corporation’s
stock and transfer books for the attachment of shares of stock to be valid and binding on
the corporation and third party.

Section 74 of the Corporation Code which enumerates the instances where registration in
the stock and transfer books of a corporation provides:
Sec. 74. Books to be kept; stock transfer agent.—
x x x      x x x      x x x.
Stock corporations must also keep a book to be known as the stock and transfer book, in
which must be kept a record of all stocks in the names of the stockholders alphabetically
arranged; the installments paid and unpaid on all stock for which subscription has been
made, and the date of payment of any settlement; a statement of every alienation, sale or
transfer of stock made, the date thereof, and by and to whom made; and such other entries
as the by-laws may prescribe. The stock and transfer book shall be kept in the principal
office of the corporation or in the office of its stock transfer agent and shall be open for
inspection by any director or stockholder of the corporation at reasonable hours on
business days. (Italics ours.)
x x x      x x x      x x x.
Section 63 of the same Code states:

SEC. 63. Certificate of stock and transfer of shares.—The capital stock of stock
corporations shall be divided into shares for which certificates signed by the president or
vice president, countersigned by the secretary or assistant secretary, and sealed with the
seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so
issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-infact 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. (Italics ours.)

Are attachments of shares of stock included in the term “transfer” as provided in

Sec 63 of the Corporation Code? We rule in the negative As succinctly declared in the
case of Monserrat v. Ceron, “chattel mortgage over shares of stock need not be
registered in the corporation’s stock and transfer book inasmuch as chattel mortgage
over shares of stock does not involve a “transfer of shares,” and that only absolute
transfers of shares of stock are required to be recorded in the corporation’s stock and
transfer book in order to have “force and effect as against third persons.”
x x x      x x x      x x x.

The word “transferencia” (transfer) is defined by the “Diccionario de la Academia de la

Lengua Castellana” as “accion y efecto de transfeir” (the act and effect of transferring);
and the verb “transferir,” as “ceder or renunciar en otro el derecho o dominio que se tiene
sobre una cosa, haciendole dueno de ella” (to assign or waive the right in, or absolute
ownership of, a thing in favor of another, making him the owner thereof).

In the Law Dictionary of “Words and Phrases,” third series, volume 7, p. 5867, the word
“transfer” is defined as follows:
______________

“Transfer” means any act by which property of one person is vested in another, and
“transfer of shares,” as used in Uniform Stock Transfer Act (Comp. St. Supp. 690),
implies any means whereby one may be divested of and another acquire ownership
of stock. (Wallach vs. Stein [N.J.], 136 A., 209, 210.)”
x x x      x x x      x x x.
In the case of Noble vs. Ft. Smith Wholesale Grocery Co. (127 Pac, 14, 17; 34 Okl., 662;
46 L.R.A. [N.S.], 455), cited in Words and Phrases, second series, vol. 4, p. 978, the
following appears: “A ‘transfer’ is the act by which the owner of a thing delivers it to
another with the intent of passing the rights which he has in it to the latter, and a chattel
mortgage is not within the meaning of such term.”
x x x      x x x      x x x.50

Although the Monserrat case refers to a chattel mortgage over shares of stock, the same
may be applied to the attachment of the disputed shares of stock in the present
controversy since an attachment does not constitute an absolute conveyance of
property but is primarily used as a means “to seize the debtor’s property in order to
secure the debt or claim of the creditor in the event that a judgment is rendered.”

Known commentators on the Corporation Code expound, thus:

x x x      x x x      x x x.
Shares of stock being personal property, may be the subject matter of
pledge and chattel mortgage. Such collateral transfers are however not covered by
the registration requirement of Section 63, since our Supreme Court has held that
such provision applies only to absolute transfers thus, the registration in the
corporate books of pledges and chattel mortgages of shares cannot have any legal
effect.

The requirement that the transfer shall be recorded in the books of the
corporation to be valid as against third persons has reference only to absolute
transfers or absolute conveyance of the ownership or title to a share.

Consequently, the entry or notation on the books of the corporation of

pledges and chattel mortgages on shares is not necessary to their validity (although
it is advisable to do so) since they do not involve absolute alienation of ownership
of stock (Monserrat vs. Ceron, 58 Phil. 469 [1933]; Chua Guan vs. Samahang
Magsasaka, Inc., 62 Phil. 472 [1935]).

To affect third persons, it is enough that the date and description of the
shares pledged appear in a public instrument. (Art. 2096, Civil Code.) With
respect to a chattel mortgage constituted on shares of stock, what is necessary is its
registration in the Chattel Mortgage Registry. (Act No. 1508 and Art. 2140,
Civil Code.)53

CEIC’s reliance on the Samahang Magsasaka case is misplaced. Nowhere

in the said decision was it categorically stated that annotation of the attachment in
the corporate books is mandatory for its validity and for the purpose of giving
notice to third persons.
 The only basis, then, for petitioner CEIC’s claim is the Deed of Sale under
which it purchased the disputed shares. It is, however, a settled rule that a
purchaser of attached property acquires it subject to an attachment legally
and validly levied thereon.

Our corollary inquiry is whether or not the consortium has indeed a prior
valid and existing attachment lien over the disputed shares.

Jaime Gonzales’/Consortium’s Claim

Is the consortium’s attachment lien over the disputed shares valid?

CEIC vigorously argues that the consortium’s writ of attachment over the
disputed shares of Chemphil is null and void, insisting as it does, that the notice of
garnishment was not validly served on the designated officers on 19 July 1985.

To support its contention, CEIC presented the sheriff’s notice of

garnishment55 dated 19 July 1985 which showed on its face that said notice was
received by one Thelly Ruiz who was neither the president nor managing agent of
Chemphil. It makes no difference, CEIC further avers, that Thelly Ruiz was the
secretary of the President of Chemphil, for under the above-quoted provision she
is not among the officers so authorized or designated to be served with the notice
of garnishment.

We cannot subscribe to such a narrow view of the rule on proper service of

writs of attachment.

A secretary’s major function is to assist his or her superior. He/ she is in

effect an extension of the latter. Obviously, as such, one of her duties is to receive
letters and notices for and in behalf of her superior, as in the case at bench.

The notice of garnishment was addressed to and was actually received by

Chemphil’s president through his secretary who formally received it for him.
Thus, in one case, we ruled that the secretary of the president may be considered
an “agent” of the corporation and held that service of summons on him is binding
on the corporation.

Moreover, the service and receipt of the notice of garnishment on 19 July

1985 was duly acknowledged and confirmed by the corporate secretary of
Chemphil, Rolando Navarro and his successor Avelino Cruz through their
respective certifications dated 15 August 198957 and 21 August 1989.58
 We rule, therefore, that there was substantial compliance with Sec. 7(d),
Rule 57 of the Rules of Court.

The case of Chemphil Export and Import Corporation (CEIC) vs. Court of
Appeals, 251 SCRA 257 (1995), is instructive. This case ("CEIC case") involved a
consortium of banks which obtained a writ of preliminary attachment in a civil
case ("consortium case") over shares of stock belonging to Mr. Antonio Garcia in
the Chemical Industries of the Philippines ("Chemphil"). The attachment, which
was served on the secretary to the President of Chemphil on 19 July 1985, was
not registered in the stock and transfer book of Chemphil. A few years
thereafter, or on 15 July 1988, Mr. Garcia sold the same shares of stock to the
Ferro Chemicals, Inc. ("FCI") for P79 million. FCI subsequently assigned the
shares to the Chemphil Export and Import Corporation ("CEIC"). The shares
were registered and recorded in the corporate books of Chemphil in CEIC’s
name and the corresponding stock certificates were issued to it.

The consortium case was appealed to the Court of Appeals. While the appeal
was pending, Mr. Garcia and the bank consortium amicably settled the case
whereby the former agreed to pay P145 million to the latter. The Court of
Appeals rendered a judgment by compromise. Unfortunately, Mr. Garcia failed
to comply with the compromise agreement. The consortium of banks caused to
be sold on execution the shares of stock (earlier attached by them), which were
the same shares subsequently sold by Mr. Garcia to CEIC. A certificate of sale
covering the shares was issued in the name of the bank consortium.

The Supreme Court stated that "the issue in the instant case... is the priority
between an attaching creditor (the consortium) and a purchaser (FCI/CEIC) of
the disputed shares of stock and not between two attaching creditors"?

The Supreme Court ruled that the attachment lien acquired by the bank
consortium is valid and effective even as against the buyer (FCI) and its
assignee (CEIC), notwithstanding the fact that said attachment lien was not
registered in the corporate books of Chemphil. "Both the Revised Rules of Court
and the Corporation Code", according to the Court, "do not require annotation
in the corporation’s stock and transfer book for the attachment of shares of
stock to be valid and binding on the corporation and third party."
Consequently, when FCI purchased the shares of stock from Mr. Garcia, it
purchased them subject to the attachment lien of the bank consortium. In this
regard, the High Court explained that a preliminary attachment is a security for
the satisfaction of whatever judgment may be obtained by the attaching creditor
in a court action, which continues until the judgment debt is fully satisfied.

So the answer to the question is that the attaching creditor enjoys priority to
the shares of stock

13.Guy vs Guy, GR189486. Sept. 5. 2012* (street certificate)

G.R. No. 189486.  September 5, 2012.*
SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO, and the HEIRS OF THE LATE GRACE G. CHEU, petitioners, vs.
GILBERT G. GUY, respondent.

G.R. No. 189699.  September 5, 2012.

SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO, and the HEIRS OF THE LATE GRACE G. CHEU, petitioners,
vs. THE HON. OFELIA C. CALO, in her capacity as Presiding Judge of the RTC-Mandaluyong City-Branch 211 and
GILBERT G. GUY, respondents.

Remedial Law; Civil Procedure; Actions; Intra-Corporate Controversies;

Individual suits against another stockholder or against a corporation are
remedies which an aggrieved stockholder may avail of and which are recognized
in our jurisdiction as embedded in the Interim Rules on Intra-Corporate
Controversy.―Individual suits against another stockholder or against a corporation
are remedies which an aggrieved stockholder may avail of and which are recognized in
our jurisdiction as embedded in the Interim Rules on Intra-Corporate Controversy.
Together with this right is the parallel obligation of a party to comply with the
compulsory joinder of indispensable parties whether they may be stockholders or the
corporation itself.

Stock Certificates; Street Certificates; In Santamaria v. Hongkong and Shanghai

Banking Corp., 89 Phil. 780 (1951), the Supreme Court held that when a stock
certificate is endorsed in blank by the owner thereof, it constitutes what is
termed as “street certificate.”―In Santamaria v. Hongkong and Shanghai Banking
Corp., this Court held that when a stock certificate is endorsed in blank by the owner
thereof, it constitutes what is termed as “street certificate,” so that upon its face, the
holder is entitled to demand its transfer into his name from the issuing corporation.
Such certificate is deemed quasi-negotiable, and as such the transferee thereof is
justified in believing that it belongs to the holder and transferor.

PETITION for review on certiorari of the decision and resolution of the Court of
Appeals; and SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.
   The facts are stated in the opinion of the Court.
  Ignacio & Ignacio Law Firm for private respondent.

PEREZ,  J.:

The Facts

 With 519,997 shares of stock as reflected in Stock Certificate Nos. 004-

014, herein respondent Gilbert G. Guy (Gilbert) practically owned
almost 80 percent of the 650,000 subscribed capital stock of
GoodGold Realty & Development Corporation (GoodGold),one of the
multi-million corporations which Gilbert claimed to have established in
his 30s.

 GoodGold’s remaining shares were divided among Francisco Guy

(Francisco) with 130,000 shares, Simny Guy (Simny), Benjamin Lim and
Paulino Delfin Pe, with one share each, respectively.
 Gilbert is the son of spouses Francisco and Simny.

 Simny, one of the petitioners, however, alleged that it was she and her
husband who established GoodGold, putting the bulk of its shares under
Gilbert’s name.

 She claimed that with their eldest son, Gaspar G. Guy (Gaspar), having
entered the Focolare Missionary in 1970s, renouncing worldly
possessions, she and Francisco put the future of the Guy group of
companies in Gilbert’s hands.

 Gilbert was expected to bring to new heights their family multi-million

businesses and they, his parents, had high hopes in him.

 Simny further claimed that upon the advice of their lawyers, upon the
incorporation of GoodGold, they issued stock certificates reflecting the
shares held by each stockholder duly signed by Francisco as President
and Atty. Emmanuel Paras as Corporate Secretary, with corresponding
blank endorsements at the back of each certificate―including Stock
Certificate Nos. 004-014 under Gilbert’s name.

 These certificates were all with Gilbert’s irrevocable endorsement and

power of attorney to have these stocks transferred in the books of
corporation.

 All of these certificates were always in the undisturbed possession of the

spouses Francisco and Simny, including Stock Certificate Nos. 004-014.

 In 1999, the aging Francisco instructed Benjamin Lim, a nominal

shareholder of GoodGold and his trusted employee,to collaborate with
Atty. Emmanuel Paras, to redistribute GoodGold’s shareholdings evenly
among his children, namely, Gilbert, Grace Guy-Cheu (Grace), Geraldine
Guy (Geraldine), and Gladys Guy (Gladys), while maintaining a
proportionate share for himself and his wife, Simny.

 Accordingly, some of GoodGold’s certificates were cancelled and new

ones were issued to represent the redistribution of GoodGold’s shares of
stock.

 The new certificates of stock were signed by Francisco and Atty.

Emmanuel Paras, as President and Corporate Secretary, respectively.

 The shares of stock were distributed among the following stockholders:

NAME NO. OF SHARES
Francisco Guy                       [husband] 195,000
Simny G. Guy                        [wife] 195,000
Gilbert G. Guy                       [son] 65,000
Geraldine G. Guy                  [daughter] 65,000
Grace G.Cheu (or her heirs) [daughter] 65,000
Gladys G.Yao                         [daughter] 65,000
 Total 650,000

 In September 2004, or five years after the redistribution of GoodGold’s

shares of stock, Gilbert filed with the Regional Trial Court (RTC) of
Manila, a Complaint for the “Declaration of Nullity of Transfers of
Shares in GoodGold and of General Information Sheets and Minutes
of Meeting, and for Damages with Application for a Preliminary
Injunctive Relief,” against his mother, Simny, and his sisters,
Geraldine, Grace, and Gladys.8

 Gilbert alleged, among others, that no stock certificate ever existed; that
his signature at the back of the spurious Stock Certificate Nos. 004-014
which purportedly endorsed the same and that of the corporate
secretary, Emmanuel Paras, at the obverse side of the certificates were
forged, and, hence, should be nullified.

 Gilbert, however, withdrew the complaint, after the National

Bureau of Investigation (NBI) submitted a report to the RTC of
Manila authenticating Gilbert’s signature in the endorsed
certificates.

 The NBI report stated:

FINDINGS:
Comparative analysis of the specimens submitted under magnification using varied lighting process
and with the aid of photographic enlargements disclosed the presence of significant and
fundamental similarities in the personal handwriting habits existing between the questioned
signatures of “GILBERT G. GUY” and “EMMANUEL C. PARAS,” on one hand, and their
corresponding standard specimen/exemplar signatures, on the other hand, such as in:
- Basic design of letters/elements;
- Manner of execution/line quality;
- Minute identifying details.
CONCLUSION:
A.  The questioned and the standard specimen/exemplar signatures [of] Gilbert G. Guy were written
by one and the same person;
B.  The questioned and the standard specimen/exemplar signatures [of] “EMMANUEL C. PARAS”
were written by one and the same person. (Emphasis supplied)12

 The present controversy arose, when in 2008, three years after the
complaint with the RTC of Manila was withdrawn, Gilbert again filed a
complaint, this time, with the RTC of Mandaluyong, captioned as “Intra-
Corporate Controversy: For the Declaration of Nullity of Fraudulent
Transfers of Shares of Stock Certificates, Fabricated Stock Certificates,
Falsified General Information Sheets, Minutes of Meetings, and Damages
with Application for the Issuance of a Writ of Preliminary and Mandatory
Injunction,” docketed as SEC-MC08-112, against his mother, Simny, his
sisters, Geraldine, Gladys, and the heirs of his late sister Grace.

 Gilbert alleged that he never signed any document which would justify
and support the transfer of his shares to his siblings and that he has in
no way, disposed, alienated, encumbered, assigned or sold any or part of
his shares in GoodGold.
  He also denied the existence of the certificates of stocks. According
to him, “there were no certificates of stocks under [his] name for
the shares of stock subscribed by him were never issued nor
delivered to him from the time of the inception of the corporation.”

 Gilbert added that the Amended General Information Sheets (GIS) of

GoodGold for the years 2000 to 2004 which his siblings submitted to the
Securities and Exchange Commission (SEC) were spurious as these did
not reflect his true shares in the corporation which supposedly totaled to
595,000 shares; that no valid stockholders’ annual meeting for the year
2004 was held, hence proceedings taken thereon, including the election
of corporate officers were null and void;17 and, that his siblings are
foreign citizens, thus, cannot own more than forty percent of the
authorized capital stock of the corporation.

 Gilbert also asked in his complaint for the issuance of a Writ of

Preliminary and Mandatory Injunction to protect his rights.

 In an Order dated 30 June 2008,20 the RTC denied Gilbert’s Motion for
Injunctive Relief21 which constrained him to file a motion for
reconsideration, and, thereafter, a Motion for Inhibition against Judge
Edwin Sorongon, praying that the latter recuse himself from further
taking part in the case.

 Meanwhile, Gilbert’s siblings filed a manifestation claiming that the

complaint is a nuisance and harassment suit under Section 1(b), Rule 1
of the Interim Rules of Procedure on Intra-Corporate Controversies.

 In an Order dated 6 November 2008,22 the RTC denied the motion for
inhibition. The RTC also dismissed the case, declaring it a nuisance and
harassment suit, viz.:

WHEREFORE, the court resolves:

(1)  To DENY as it is hereby DENIED [respondent’s] Motion for Inhibition;
(2) To DENY as it is hereby DENIED [respondent’s] Motion for Reconsideration of the
June 30, 2008 Order; and,
(3)  To declare as it is herby declared the instant case as a nuisance or harassment
suit. Accordingly, pursuant to Section 1(b), Rule 1 of the Interim Rules of Procedure
for Intra-Corporate Dispute, the instant case is hereby DISMISSED. No
pronouncement as to costs.23

This constrained Gilbert to assail the above Order before the Court of Appeals (CA).
The petition for review was docketed as CA-G.R. SP No. 106405.

_______________
19 Id., at pp. 133-134.
20 Id., at pp. 92-97.
21 Id., at p. 97.
22 Id., at pp. 98-105.
23 Id., at p. 105.
222

222 SUPREME COURT REPORTS ANNOTATED

Guy vs. Guy

In a Decision24 dated 27 May 2009, the CA upheld Judge Sorongon’s refusal to inhibit
from hearing the case on the ground that Gilbert failed to substantiate his allegation
of Judge Sorongon’s partiality and bias.25

The CA, in the same decision, also denied Gilbert’s Petition for the Issuance of Writ of
Preliminary Injunction for failure to establish a clear and unmistakable right that was
violated as required under Section 3, Rule 58 of the 1997 Rules of Civil Procedure.26

The CA, however, found merit on Gilbert’s contention that the complaint should be
heard on the merits. It held that:

A reading of the Order, supra, dismissing the [respondent’s] complaint for being a
harassment suit revealed that the court a quo relied heavily on the pieces of
documentary evidence presented by the [Petitioners] to negate [Respondent’s]
allegation of fraudulent transfer of shares of stock, fabrication of stock certificates and
falsification of General Information Sheets (GIS), inter alia. It bears emphasis that the
[Respondent] is even questioning the genuiness and authenticity of the [Petitioner’s]
documentary evidence. To our mind, only a full-blown trial on the merits can afford
the determination of the genuineness and authenticity of the documentary evidence
and other factual issues which will ultimately resolve whether there was indeed a
transfer of shares of stock.27

When a stock certificate is endorsed

in blank by the owner thereof, it
constitutes what is termed as "street
certificate," so that upon its face, the
holder is entitled to demand its
transfer his name from the issuing
corporation.

With Gilbert’s failure to allege specific acts of fraud in his complaint and his failure to
rebut the NBI report, this Court pronounces, as a consequence thereof, that the
signatures appearing on the stock certificates, including his blank endorsement
thereon were authentic. With the stock certificates having been endorsed in blank by
Gilbert, which he himself delivered to his parents, the same can be cancelled and
transferred in the names of herein petitioners.

In Santamaria v. Hongkong and Shanghai Banking Corp., this Court held that when a
stock certificate is endorsed in blank by the owner thereof, it constitutes what is
termed as "street certificate," so that upon its face, the holder is entitled to demand its
transfer into his name from the issuing corporation. Such certificate is deemed quasi-
negotiable, and as such the transferee thereof is justified in believing that it belongs to
the holder and transferor.
While there is a contrary ruling, as an exception to the general rule enunciated above,
what the Court held in Neugene Marketing Inc., et al., v CA,where stock certificates
endorsed in blank were stolen from the possession of the beneficial owners thereof
constraining this Court to declare the transfer void for lack of delivery and want of
value, the same cannot apply to Gilbert because the stock certificates which
Gilbert endorsed in blank were in the undisturbed possession of his parents who
were the beneficial owners thereof and who themselves as such owners caused
the transfer in their names. Indeed, even if Gilbert’s parents were not the beneficial
owners, an endorsement in blank of the stock certificates coupled with its delivery,
entitles the holder thereof to demand the transfer of said stock certificates in his name
from the issuing corporation.

Interestingly, Gilbert also used the above discussed reasons as his arguments in
Gilbert Guy v. Court of Appeals, et a.l, a case earlier decided by this Court. In that
petition, Lincoln Continental, a corporation purportedly owned by Gilbert, filed with
the RTC, Branch 24, Manila, a Complaint for Annulment of the Transfer of Shares of
Stock against Gilbert’s siblings, including his mother, Simny.

The complaint basically alleged that Lincoln Continental owns 20,160 shares of stock
of Northern Islands; and that Gilbert’s siblings, in order to oust him from the
management of Northern Islands, falsely transferred the said shares of stock in his
sisters’ names.

This Court dismissed Gilbert’s petition and ruled in favor of his siblings viz:

One thing is clear. It was established before the trial court, affirmed by the Court of
Appeals, that Lincoln Continental held the disputed shares of stock of Northern
Islands merely in trust for the Guy sisters. In fact, the evidence proffered by Lincoln
Continental itself supports this conclusion. It bears emphasis that this factual finding
by the trial court was affirmed by the Court of Appeals, being supported by evidence,
and is, therefore, final and conclusive upon this Court.

Article 1440 of the Civil Code provides that:

"ART. 1440. A person who establishes a trust is called the trustor; one in whom
confidence is reposed as regards property for the benefit of another person is known
as the trustee; and the person for whose benefit the trust has been created is referred
to as the beneficiary."

In the early case of Gayondato v. Treasurer of the Philippine Islands, this Court
defines trust, in its technical sense, as "a right of property, real or personal, held by
one party for the benefit of another." Differently stated, a trust is "a fiduciary
relationship with respect to property, subjecting the person holding the same to the
obligation of dealing with the property for the benefit of another person."

Both Lincoln Continental and Gilbert claim that the latter holds legal title to the
shares in question. But record shows that there is no evidence to support their claim.
Rather, the evidence on record clearly indicates that the stock certificates representing
the contested shares are in respondents' possession. Significantly, there is no proof to
support his allegation that the transfer of the shares of stock to respondent sisters is
fraudulent. As aptly held by the Court of Appeals, fraud is never presumed but must
be established by clear and convincing evidence. Gilbert failed to discharge this
burden. We agree with the Court of Appeals that respondent sisters own the shares of
stocks, Gilbert being their mere trustee. 66 (Underlining supplied).

14.Tee Ling Kiat vs Ayala Corp., March 7, 2018*

SECOND DIVISION
March 7, 2018
G.R. No. 192530
TEE LING KIAT, Petitioner vs.AYALA CORPORATION (Substituted herein by its Assignee And Successor-in-
Interest, BIENVENIDO B.M. AMORA, JR.), Respondent
DECISION

CAGUIOA, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court. (Petition) filed by
Petitioner Tee Ling Kiat against Respondent Ayala Corporation, substituted by its assignee and successor-
ininterest, Bienvenido B.M. Amora, Jr., (Amora), assailing the Court of Appeals' (CA): (1) Decision2 dated
September 24, 2009; and (2) Resolution3 dated May 26, 2010 in CA-G.R. SP No. 105081.

In the assailed Decision and Resolution, the CA affirmed the Order4 of the Regional Trial Court - Makati City,
Branch 59 (RTC Branch 59) dated February 20, 2008 and Order5 dated June 26, 2008, which dismissed Tee
Ling Kiat's Third-Party Claim6 in Civil Case No. 40074.

The Antecedent Facts

The present petition arose from a judgment for a sum of money obtained by Ayala Corporation against
Continental Manufacturing Corporation (CMC) and Spouses Dewey and Lily Dee (Spouses Dee)8 in 1990.

 On January 28, 1981, Ayala Corporation instituted a Complaint for Sum

of Money with an application for a writ of attachment against the
Spouses Dee.

 The complaint was initially raffled to Branch 15 of the Court of First

Instance of Rizal.

 It appears that on May 21, 1980, Ayala Investment and Development

Corporation (AIDC) granted in favor of CMC a money market line in the
maximum amount of ₱2,000,000.00.With Dewey Dee as the President
of CMC then, the Spouses Dee executed a Surety Agreement on the
same date, as guarantee for the money market line.

 One of CMC's availments under the money market line was evinced by a
Promissory Note dated November 20, 1980 for ₱800,000.00 due on
January 16, 1981.

 AIDC subsequently endorsed the Promissory Note to Ayala

Corporation.
 CMC defaulted on its obligation under the promissory note, leading Ayala
Corporation to institute a claim for sum of money against CMC and the
Spouses Dee.

 Ruling on the Complaint for Sum of Money, the RTC - Makati City,
Branch 149 (RTC Branch 149) ruled in favor of Ayala Corporation in a
Decision15 dated November 29, 1990, the dispositive portion of which
reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering [CMC and
Spouses Dee] to pay [Ayala Corporation]:
1. The sum of Eight Hundred Thousand (₱800,000.00) Pesos representing the amount of
the subject promissory note plus Twelve (12%) Percent per annum interest from date of
maturity until fully paid;
2. The sum of Twenty Thousand (₱20,000.00) Pesos as attorney's fees; and
3. The costs of suit.
SO ORDERED.16

 With the above Decision having attained finality, the RTC Branch 149
forthwith issued a Writ of Execution17 against the Spouses Dee,
commanding the sheriff to "cause the execution of the aforesaid
judgment against Sps. Dewey and Lily Dee, including payment in full of
your lawful fees for the service of this writ."19 (Italics supplied)

 Thereafter, on November 21, 2006, a Notice of Levy on Execution20 was

issued and addressed to the Register of Deeds of Antipolo City, to levy
upon "the rights, claims, shares, interest, title and participation" that the
Spouses Dee may have in parcels of land covered by Transfer Certificates
of Title (TCT) Nos. R-24038,22 R-24039,23 and R-2404024 and any
improvements thereon.

 The parcels of land were registered in the name of Vonnel Industrial

Park, Inc. (VIP).26 According to the Sheriffs Retum27 filed on January
04, 2007, the titles over the subject properties are registered in the name
of VIP, in which Dewey Dee was an incorporator.

 Tee Ling Kiat's Third-Party Claim

 On March 26, 2007, before the scheduled sale on execution,29 Tee Ling
Kiat filed a Third-Party Claim, alleging that:

 xx x the aforesaid levy was made based on the information that Mr.
Dewey Dee was one of the incorporators of VIP. Apparently, the Sheriff
who caused the levy made the assumption that since Mr. Dewey is one of
the incorporators of VIP, then it follows that he is a stockholder thereof.
Consequently, as such stockholder, he would have rights, claims, shares,
interest, title and participation in the real properties belonging to VIP.

 However, while Mr. Dewey Dee was indeed one of the incorporators of
VIP, he is no longer a stockholder thereof. He no longer has any rights,
claims, shares, interest, title and participation in VIP or any of its
 properties. As early as December 1980, Mr. Dewey Dee has already sold
to Mr. Tee Ling Kiat all his stocks in VIP, as evidenced by a cancelled
check which he issued in Mr. Tee Ling Kiat's favor. x x x

Moreover, we would like to point out that even assuming that Mr. Dewey
Dee is still a stockholder of VIP, at most he merely has rights, claims,
shares, interest, title and participation to its shares of stocks, but not as
to the real properties registered under its name, x x x It is well to note
that this property is the sole and exclusive property of VIP and that there
is no showing that Mr. Dewey Dee has any right, claim, share, interest,
title and participation therein.

 It must be likewise be emphasized that VIP is a corporate entity which has a

legal personality separate and distinct from Mr. Dewey Dee and/or Ms. Lily L.
Dee.

 Attached to the Third-Party Claim was a copy of an Affidavit31 executed by Tee

Ling Kiat, attesting to the fact that he is a stockholder of VIP and that he
acquired knowledge of the levy on the subject properties only through
newspaper, as well as a photocopy of cancelled checks issued by Tee Ling Kiat
in Dewey Dee's favor, allegedly as payment for the purchase of the latter's
shares in VIP.

 Acting on the Third-Party Claim, the Office of the Clerk of Court of the
RTC issued a Notice of Third-Party Claim34 on March 28, 2007. Amora,
who by then had substituted Ayala Corporation, posted a bond in the
amount of ₱2,658,700.00.35 VIP and Tee Ling Kiat opposed the posting
of the bond in an Ex-Parte Motion36, claiming that the bond was less
than the value of the property levied upon.

 Nevertheless, the court approved the bond, leading VIP and Tee Ling Kiat
to file an Omnibus Motion37 to declare null and void the Notice of Levy
on Execution and all proceedings and issuances arising out of the same.

 In the Omnibus Motion, VIP and Tee Ling Kiat reiterated that Dewey Dee
no longer had any interest in the levied property and that the bond was
far less than the value of the property levied.

 In his Opposition to Third Party Claimants' Omnibus Motion, Amora

claimed that from the date of VIP's incorporation until present, no
general information sheets and audited financial statements have been
submitted by VIP to the Securities and Exchange Commission (SEC).

 Further, nowhere in the SEC records does Tee Ling Kiat's name appear
as a stockholder.Meanwhile, the case was re-raffled to the RTC Branch
due to the inhibition of the judge formerly hearing the case.

Ruling of the RTC Branch 5

The RTC, in an Order dated February 20, 2008, denied VIP and Tee Ling Kiat's
Omnibus Motion and disallowed the third-party claim because the alleged sale
of shares of stock from Dewey Dee to Tee Ling Kiat was not proven.

Specifically, the RTC ruled that:

First, Tee Ling Kiat failed to adduce evidence to prove that the sale of shares of
stock from Dewey Dee to Tee Ling Kiat had taken place in accordance with the
law. The purported Deed of Sale of Shares of Stock was not recorded in the
stock and transfer books of VIP, as required by Section 63 of the Corporation
Code. 45

Thus, there was no valid transfer of shares as against third persons. The R TC
observed that in support of the purported sale of shares of stock, Tee Ling Kiat
merely submitted a cancelled check46 issued by Tee Ling Kiat in favor of Dewey
Dee and a photocopy47 of the Deed of Sale of Shares of Stock dated December
29, 1980.

Second, the SEC had revoked48 VIP's Certificate of Registration as early as

August 11, 200349 for failure to comply with reportorial requirements.
Consequently, in accordance with Section 122 of the Corporation Code50 which
provides for the three-year period for the winding down of corporate affairs, VIP
no longer had any capacity to sue when the third-party claim was instituted on
March 26, 2007.51

Finally, the indemnity bond posted by Amora was sufficient because Tee Ling
Kiat was merely claiming "rights, claims, shares, interest, title and
participation"52 of Dewey Dee in the subject property, and not the entire
property.

Tee Ling Kiat's Motion for Reconsideration53 of the above Order having been
denied in an RTC Order dated June 26, 2008, Tee Ling Kiat filed a petition for
certiorari under Rule 65 of the Rules of Court before the CA. This time,
however, the petition for certiorari was instituted solely in Tee Ling Kiat's
name.54

Ruling of the CA

The CA, in the assailed Decision dated September 24, 2009, denied Tee Ling
Kiat's petition for certiorari, on the ground that Tee Ling Kiat is not a real party-
in-interest, especially considering that the alleged sale of Dewey Dee's shares of
stock to Tee Ling Kiat has not been proven.

In particular, the CA observed that Tee Ling Kiat failed to prove to the Court the
existence or veracity of the claimed Deed of Sale of Shares of Stock.

The CA held that "[i]t is not sufficient to attach photocopies of the deed or
payment of checks to the motion, [Tee Ling Kiat] needed to submit evidence to
prove that the transaction took place."55
Before the CA, Tee Ling Kiat also raised, for the first time, that he can be
properly considered a trustee of VIP, entitled to hold properties on the latter's
behalf. The CA observed, however, that there was no evidence produced to show
that Tee Ling Kiat is a trustee of the corporation.56

Thus, the CA held that Tee Ling Kiat utterly failed: (i) to prove that he is a
stockholder of VIP; and assuming he is, (ii) to show that he was authorized by
the corporation for the purpose of prosecuting the claim on behalf of the
corporation.57

In a Resolution dated May 26, 2010, the CA denied Tee Ling Kiat's motion for
reconsideration for lack of merit.58 In denying Tee Ling Kiat's motion for
reconsideration, the CA maintained its finding that Tee Ling Kiat lacked any
legal personality to file the third-party claim, and consequently, the petition for
certiorari before the CA.

Hence, this petition.

In asking the Court to set aside the assailed CA Decision and Resolution, Tee
Ling Kiat submits that:

first, as regards the recording of the alleged sale of stocks, the burden was on
Ayala Corporation to overcome the disputable presumption that VIP followed its
ordinary course of business as provided for in Section 3(q), Rule 131 of the
Rules of Court. Considering that the duty to record the sale of shares of stock in
the books lies with VIP, Tee Ling Kiat claims that such recording "need not be
proved" by him.59 Second, that assuming Dewey Dee was still a stockholder of
VIP, that what would have been the proper subjects of levy were the precise and
actual shares of Dewey Dee and not the subject properties.60
Tee Ling Kiat further prays for the Court's issuance of a Temporary Restraining
Order (TRO) directing Amora and the sheriffs of RTC Branch 149 to immediately
desist from executing the RTC Orders61 and to issue a Writ of Preliminary
Injunction (WPI) after due notice and hearing.62
In a Resolution63 dated July 7, 2010, the Court required Amora to comment on
the petition which he did on October 15, 2010.64 In a Resolution65 dated June
13, 2011, the Court noted Tee Ling Kiat's reply.66
Issue
The sole issue for the Court's resolution is whether the CA committed any
reversible error in issuing its Decision dated September 24, 2009 and
Resolution dated May 26, 2010.
Our Ruling
The petition lacks merit.
At the crux of determining whether the CA committed any reversible error in
issuing the assailed Decision and Resolution is the question of whether it has
been sufficiently proven by Tee Ling Kiat that Dewey Dee had in fact sold his
shares of stock to Tee Ling Kiat in 1980, such that, as a result, Tee Ling Kiat
can be considered a real party-in-interest in the Third-Party Claim, and
consequently, in the petition for certiorari before the CA.
Such determination, however, inevitably necessitates a review of the probative
value of the evidence adduced by Tee Ling Kiat.1âшphi1 In this regard, the
Rules of Court67 categorically state that a Rule 45 petition shall only raise
questions of law. On the one hand, a question of law arises when there is doubt
as to what the law is on a certain state of facts.68 On the other hand, a
question of fact arises when doubt arises as to the truth or falsity of alleged
facts. 69 Once it is clear that the resolution of an issue invites a review of the
evidence presented by the parties, the question raised is one of fact70 which
this Court is precluded from reviewing in a Rule 45 petition.
Here, Tee Ling Kiat imputes error on the CA by the simple expedient of arguing
that he did not personally need to prove that the sale of shares of stock between
Dewey Dee and himself had in fact transpired, as the duty to record the sale in
the corporate books lies with VIP. Such an argument, however, fails to recognize
that the very right of Tee Ling Kiat, as a thirdparty claimant, to institute a
terceria is founded on his claimed title over the levied property.71
Consequently, although courts can exercise their limited supervisory powers in
determining whether the sheriff acted correctly in executing the judgment, they
may only do so if the third-party claimant has unmistakably established his
ownership or right of possession over the subject property.72 Accordingly, if the
third-party claimant's evidence does not persuade the court of the validity of his
title or right possession thereto, the third-party claim will, and should be,
denied. 73
Suffice it to state that the only evidence adduced by Tee Ling Kiat to support his
claim that Dewey Dee's shares in VIP have been sold to him are a cancelled
check74 issued by Tee Ling Kiat in favor of Dewey Dee and a photocopy 75 of
the Deed of Sale of Shares of Stock dated December 29, 1980. A photocopy of a
document has no probative value and is inadmissible in evidence.76 The
records likewise do not show that Tee Ling Kiat offered any explanation as to
why the original Deed of Sale of Shares of Stock could not be produced, instead
alleging that because of the disputable presumption "[t]hat the ordinary course
of business has been followed'77provided in Section 3(q) of Rule 131 of the
Rules of Court, then the burden is not on him to prove that he is a stockholder,
but on Amora, to prove that he is not a stockholder. 78
This argument is off tangent. Meaning, even if it could be assumed that the sale
of shares of stock contained in the photocopies had indeed transpired, such
transfer is only valid as to the parties thereto, but is not binding on the
corporation if the same is not recorded in the books of the corporation. Section
63 of the Corporation Code of the Philippines provides that: "No transfer, x x x
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."79 Here, the records show that the
purported transaction between Tee Ling Kiat and Dewey Dee has never been
recorded in VIP's corporate books. Thus, the transfer, not having been recorded
in the corporate books in accordance with law, is not valid or binding as to the
corporation or as to third persons.
On a final note, the Court observes that the judgment for a sum of money dated
November 29, 1990 obtained by Ayala Corporation was against the Spouses
Dewey and Lily Dee in their personal capacities as sureties in the money market
line transaction. Yet, in the execution of said judgment, the properties levied
upon were registered in the name of VIP, a juridical entity with personality
separate and distinct from Dewey Dee. It is a basic principle of law that money
 judgments are enforceable only against property incontrovertibly belonging to
the judgment debtor,80 and certainly, a person other than the judgment debtor
who claims ownership over the levied properties is not precluded from
challenging the levy through any of the remedies provided for under the Rules
of Court.81 In the pursuit of such remedies, however, the third-party must, to
reiterate, unmistakably establish ownership over the levied property,82 which
Tee Ling Kiat failed to do.
In as much as the validity of the third-party claim would only be relevant if the
person instituting the same has established that he has a real interest in the
levied property, the Court will not belabor the merits of the third-party claim in
view of the conclusive determination that Tee Ling Kiat has not adduced
evidence to prove that the shares of stock of Dewey Dee were indeed sold to
him.
Given the foregoing, the Court finds no reversible error on the part of the CA in
affirming the RTC Orders dated February 20, 2008 and June 26, 2008, which
dismissed Tee Ling Kiat's third-party claim in Civil Case No. 40074.83
For the reasons foregoing, the Court DENIES the petition.
WHEREFORE, premises considered, the instant petition for review is DENIED.
The Decision dated September 24, 2009 and Resolution dated May 26, 2010 of
the Court of Appeals in CA-G.R. SP No. 105081 are hereby AFFIRMED.

15.Enano Bote vs Alvarez, GR 223572, Nov. 10, 2020*

16.ISnG vs Khan. 1989
17.Cua vs Ocampo, Dec. 4, 2009*