BATANGAS LAGUNA TAYABAS BUS COMPANY, INC vs.

BITANGA

G.R. No. 137934/ G.R. No. 137936 August 10, 2001

FACTS: On October 28, 1997, Dolores Potenciano, Max Joseph Potenciano,

Mercedelin Potenciano, Delfin Yorro, and Maya Industries, Inc., entered into a Sale
and Purchase Agreement, whereby they sold to BMB Property Holdings, Inc.,
represented by its President, Benjamin Bitanga, their 21,071,114 shares of stock in
BLTB. The said shares represented 47.98% of the total outstanding capital stock of
BLTB. The purchase price for the shares of stock was P72,076,425.00. A
downpayment was made while the balance was payable on November 26, 1997.
The contracting parties stipulated that the downpayment was conditioned upon
receipt by the buyer of certain documents upon signing of the Agreement, namely,
the Secretary's Certificate stating that the Board of Directors of Maya Industries, Inc.
authorized the sale of its shares in BLTB and the execution of the Agreement, and
designating Dolores A. Potenciano as its Attorney-in-Fact; the Special Power of
Attorney executed by each of the sellers in favor of Dolores A. Potenciano for
purposes of the Agreement; the undated written resignation letters of the Directors
of BLTB, except Henry John A. Potenciano, Michael A. Potericiano and Candido A.
Potenciano; a revocable proxy to vote the subject shares made by the sellers in
favor of the buyer; a Declaration of Trust made by the sellers in favor of the
buyer acknowledging that the subject shares shall be held in trust by the
sellers for the buyer pending their transfer to the latter's name; and the
duly executed capital gains tax return forms covering the sale, indicating no taxable
gain on the same. Furthermore, the buyer guaranteed that it shall take over the
management and operations of BLTB but shall immediately surrender the same to
the sellers in case it fails to pay the balance of the purchase price on November 26,
1997. On November 21, 1997, at a meeting of the stockholders of BLTB, Benjamin
Bitanga and Monina Grace Lim were elected as directors of the corporation
Subsequently, on November 28, 1997, another stockholders' meeting was held,
wherein Laureano A. Siy and Renato L. Leveriza were elected as directors. At the
same meeting, the Board of Directors of BLTB elected James Olayvar, Eduardo
Azucena, Evelio Custodia, and Gemma Santos as officers. During a meeting of the
Board of Directors on April 14, 1998, the newly elected directors of BLTB scheduled
the annual stockholders' meeting on May 19, 1998, to be held at the principal office
of BLTB in San Pablo, Laguna. Before the scheduled meeting, Michael Potenciano
wrote Benjamin Bitanga, requesting for a postponement of the stockholders'
meeting due to the absence of a thirty-day advance notice. However, no response
from Bitanga on whether or not the request for postponement was favorably acted
upon. On the scheduled date of the meeting, inasmuch as there was no notice of
postponement prior to that, a total of 286 stockholders, representing 87% of the
shares of stock of BLTB, arrived and attended the meeting. The majority of the
stockholders present rejected the postponement and voted to proceed with the
meeting. The Potenciano group was re-elected to the Board of Directors, and a new
set of officers was thereafter elected. On May 21, 1998, the Bitanga group filed with
the SEC a Complaint for Damages and Injunction. Their prayer for the issuance of a
temporary restraining order was, however, denied at the ex-parte summary hearing
conducted by SEC Chairman Perfecto Yasay, Jr. Likewise, the Potenciano group filed
on May 25, 1998, a Complaint for Injunction and Damages with Preliminary
Injunction and Temporary Restraining Order with the SEC. The SEC Chairman
Perfecto Yasay, Jr. issued a temporary restraining order enjoining the Bitanga group
from acting as officers and directors of BLTB. On June 8, 1998, the Bitanga group
filed another complaint with application for a writ of preliminary injunction and
prayer for temporary restraining order, seeking to annul the May 19, 1998
stockholders' meeting. A joint hearing was conducted. On June 17, 1998, the SEC
Hearing Panel granted the Bitanga group's application for a writ of preliminary
injunction upon the posting of a bond in the amount of P20,000,000.00. It declared
that the May 19, 1998 stockholders' meeting was void on the grounds that, first,
Michael Potenciano had himself asked for its postponement due to improper notice;
and, second, there was no quorum, since BMB Holdings, Inc., represented by the
Bitanga group, which then owned 50.26% of BLTB's shares having purchased the
same from the Potenciano group, was not present at the said meeting. The Hearing
Panel further held that the Bitanga Board remains the legitimate Board in a hold-
over capacity. The Potenciano group filed a petition for certiorari with the SEC En
Banc on June 29, 1998, seeking a writ of preliminary injunction to restrain the
implementation of the Hearing Panel's assailed Order. On July 21, 1998, the SEC En
Banc set aside the June 17, 1998 Order of the Hearing Panel and issued the writ of
preliminary injunction prayed for. The Bitanga group immediately filed a petition for
certiorari with the Court of Appeals on July 22, 1998, followed by a Supplemental
Petition on August 10, 1998. Meanwhile, on July 29, 1998, the SEC En Banc issued a
writ of preliminary injunction against the Bitanga group, after the Potencianos
posted the required bond of P20,000,000.00. On November 23, 1998, the CA
rendered the now assailed Decision, reversing the assailed Orders of the SEC En
Banc and reinstating the Order of the Hearing Panel ordered dated June 17, 1998.
The CA denied the Motions for Reconsideration in a Resolution dated March 25,
1999. Hence, this petition for review.

ISSUE: Whether or not the stockholders' meeting on May 19, 1998 was void since
BMB Holdings, Inc., represented by the Bitanga group was not present at the said
meeting.

RULING: Until registration is accomplished, the transfer, though valid between the
parties, cannot be effective as against the corporation. Thus, the unrecorded
transferee, the Bitanga group in this case, cannot vote nor be voted for. The
purpose of registration, therefore, is two-fold: to enable the transferee to exercise
all the rights of a stockholder, including the right to vote and to be voted for, and to
inform the corporation of any change in share ownership so that it can ascertain the
persons entitled to the rights and subject to the liabilities of a stockholder. Until
challenged in a proper proceeding, a stockholder of record has a right to participate
in any meeting; his vote can be properly counted to determine whether a
stockholders' resolution was approved, despite the claim of the alleged transferee.
On the other hand, a person who has purchased stock, and who desires to be
recognized as a stockholder for the purpose of voting, must secure such a standing
by having the transfer recorded on the corporate books. Until the transfer is
registered, the transferee is not a stockholder but an outsider.

WHEREFORE, in view of all the foregoing, the instant petitions for review are
GRANTED. The Decision of the Court of Appeals dated November 23, 1998 in CA-
G.R. SP No. 48374 and its resolution dated March 25, 1999 are SET ASIDE. The
Orders of the SEC En Banc dated July 21, 1998 and July 27, 1998 in SEC Case No. EB
611 are ordered REINSTATED.

Bitong vs. CA [292 SCRA 503 (July 13 1998)] Ownership of Corporate Shares/ Stock
Certificates: Valid Issuance

Facts: Bitong was the treasurer and member of the BoD of Mr. & Mrs. Corporation.
She filed a complaint with the SEC to hold respondent spouses Apostol liable for
fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and
mismanagement in directing the affairs of the corporation to the prejudice of the
stockholders. She alleges that certain transactions entered into by the corporation
were not supported by any stockholders resolution. The complaint sought to enjoin
Apostol from further acting as president-director of the corporation and from
disbursing any money or funds. Apostol contends that Bitong was merely a holder-
in-trust of the JAKA shares of the corporation, hence, not entitled to the relief she
prays for. SEC Hearing Panel issued a writ enjoining Apostol. After hearing the
evidence, SEC Hearing Panel dissolved the writ and dismissed the complaint filed by
Bitong. Bitong appealed to the SEC en banc. The latter reversed SEC Hearing Panel
decision. Apostol filed petition for review with the CA. CA reversed SEC en banc
ruling holding that Bitong was not the owner of any share of stock in the corporation
and therefore, not a real party in interest to prosecute the complaint. Hence, this
petition with the SC.

Issue: Whether or not Bitong was the real party in interest.

Held: Based on the evidence presented, it could be gleaned that Bitong was not a
bona fide stockholder of the corporation. Several corporate documents disclose
that the true party in interest was JAKA. Although her buying of the shares were
recorded in the Stock and Transfer Book of the corporation, and as provided by Sec.
63 of the Corp Code that no transfer shall be valid except as between the parties
until the transfer is recorded in the books of the corporation, and upon its recording
the corporation is bound by it and is estopped to deny the fact of transfer of said
shares, this provision is not conclusive even against the corporation but are prima
facie evidence only. Parol evidence may be admitted to supply the omissions in the
records, explain ambiguities, or show what transpired where no records were kept,
or in some cases where such records were contradicted. Besides, the provision
envisions a formal certificate of stock which can be issued only upon compliance
with certain requisites: (1) 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, (2) delivery of the certificate; (3) the par value, as to
par value shares, or the full subscription as to no par value shares, must be first
fully paid; (4) the original certificate must be surrendered where the person
requesting the issuance of a certificate is a transferee from a stockholder. These
considerations are founded on the basic principle that stock issued without
authority and in violation of the 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
estoppel cannot operate to create stock which under the law cannot have existence.

Case Digest on CHUA GAN V. SAMAHANG MAGSASAKA, INC.

62 PHIL 473 (1935)

Facts: A certain Co Toco was the owner of 5,894 shares of Samahang Magsasaka,
Inc. which he mortgaged to Chua Chiu to guarantee the payment of a P20,000.00
debt. The corresponding certificates were delivered to Chua Chiu and was duly
registered in the office of the register of deeds of Manila and in the office of the said
corporation. About five months after, Chua Chui assigned all his rights and interest
in said mortgage to the plaintiff, Chua Gan which was also duly recorded. Co Toco
defaulted. The plaintiff foreclosed on the mortgage. In the public auction he won as
the highest bidder. However, upon presenting the certificates to the corporation for
registration, the officers refused because they and the plaintiff could not agree on
the noting of nine other attachments that had been issued, served and noted on
the books of the corporation against the shares of Co Toco.

Issue: Whether or not the said mortgage takes priority over the already noted writs
of attachment.

Decision: The Supreme Court ruled that the attaching creditors are entitled to
priority over the defectively registered mortgage of the appellant. The court argues
that the registration in the register of deeds must be done both at the place where
the owner is domiciled and at the place where the principal office of the corporation
is located. The purpose of this is to give sufficient constructive of any claim or
encumbrance over the recorded shares to third persons. Furthermore, any share
still standing in the name of the debtor on the books of the corporation will be liable
to seizure by attachment or levy on execution at the instance of other creditors.
Thus, the game here is to have the highest or most preferred priority over any
pledged or mortgaged shares.

Comment: The pledge of stocks is better than a chattel mortgage since the former
requires the surrender of the object of pledge to the pledgee.

NON-TRANSFERABILITY AND TERMINATION OF MEMBERSHIP IN NON-STOCK

CORPORATION

Membership in a non-stock corporation is considered personal to the member and

he cannot transfer his rights as such, unless the articles of incorporation or by-laws
otherwise provide. The pertinent provisions are:

90. Non-Transferability of membership. Membership in a non-stock corporation,

and all rights arising therefrom, are personal and non-transferable, unless the
articles of incorporation or the by-laws otherwise provide.

91. Termination of Membership. Membership shall be terminated in the

manner and for the causes provided in the articles of incorporation or the bylaws.
Termination of membership shall have the effect of extinguishing all rights of a
member in the corporation or in its property, unless otherwise provided in the
articles of incorporation or the by-laws.

The Rural Bank of Lipa City Inc., etc. vs. Court of Appeals [GR 124535, 28
September 2001]
Facts:

Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed a
Deed of Assignment, wherein he assigned his shares, as well as those of 8 other
shareholders under his control with a total of 10,467 shares, in favor of the
stockholders of the Bank represented by its directors Bernardo Bautista, Jaime
Custodio and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and
his wife, Avelina, executed an Agreement wherein they acknowledged their
indebtedness to the Bank in the amount of P4,000,000.00, and stipulated that said
debt will be paid out of the proceeds of the sale of their real property described in
the Agreement. At a meeting of the Board of Directors of the Bank on 15 November
1993, the Villanueva spouses assured the Board that their debt would be paid on or
before December 31 of that same year; otherwise, the Bank would be entitled to
liquidate their shareholdings, including those under their control. In such an event,
should the proceeds of the sale of said shares fail to satisfy in full the obligation,
the unpaid balance shall be secured by other collateral sufficient therefor. When the
Villanueva spouses failed to settle their obligation to the Bank on the due date, the
Board sent them a letter demanding: (1) the surrender of all the stock certificates
issued to them; and (2) the delivery of sufficient collateral to secure the balance of
their debt amounting to P3,346,898.54.

The Villanuevas ignored the bank's demands, whereupon their shares of stock were
converted into Treasury Stocks. Later, the Villanuevas, through their counsel,
questioned the legality of the conversion of their shares. On 15 January 1994, the
stockholders of the Bank met to elect the new directors and set of officers for the
year 1994. The Villanuevas were not notified of said meeting. In a letter dated 19
January 1994, Atty. Amado Ignacio, counsel for the Villanueva spouses, questioned
the legality of the said stockholders' meeting and the validity of all the proceedings
therein. In reply, the new set of officers of the Bank informed Atty. Ignacio that the
Villanuevas were no longer entitled to notice of the said meeting since they had
relinquished their rights as stockholders in favor of the Bank. Consequently, the
Villanueva spouses filed with the Securities and Exchange Commission (SEC), a
petition for annulment of the stockholders' meeting and election of directors and
officers on 15 January 1994, with damages and prayer for preliminary injunction
(SEC Case 02-94-4683_. Joining them as co-petitioners were Catalino Villanueva,
Andres Gonzales, Aurora Lacerna, Celso Laygo, Edgardo Reyes, Alejandro

Tonogan, and Elena Usi. Named respondents were the newly-elected officers and
directors of the Rural Bank, namely: Bernardo Bautista, Jaime Custodio, Octavio
Katigbak, Francisco Custodio and Juanita Bautista. On 6 April 1994, the Villanuevas'
application for the issuance of a writ of preliminary injunction was denied by the
SEC Hearing Officer on the ground of lack of sufficient basis for the issuance
thereof.
However, a motion for reconsideration was granted on 16 December 1994, upon
finding that since the Villanuevas' have not disposed of their shares, whether
voluntarily or involuntarily, they were still stockholders entitled to notice of the
annual stockholders' meeting was sustained by the SEC. Accordingly, a writ of
preliminary injunction was issued enjoining Bautista, et. al. from acting as directors
and officers of the bank. Thereafter, Bautista, et al. filed an urgent motion to quash
the writ of preliminary injunction, challenging the propriety of the said writ
considering that they had not yet received a copy of the order granting the
application for the writ of preliminary injunction. With the impending 1995 annual
stockholders' meeting only 9 days away, the Villanuevas filed an Omnibus Motion
praying that the said meeting and election of officers scheduled on 14 January
1995 be suspended or held in abeyance, and that the 1993 Board of Directors be
allowed, in the meantime, to act as such. 1 day before the scheduled stockholders
meeting, the SEC Hearing Officer granted the Omnibus Motion by issuing a
temporary restraining order preventing Bautista, et al. from holding the
stockholders meeting and electing the board of directors and officers of the Bank. A
petition for Certiorari and Annulment with Damages was filed by the Rural Bank, its
directors and officers before the SEC en banc. On 7 June 1995, the SEC en banc
denied the petition for certiorari. A subsequent motion for reconsideration was
likewise denied by the SEC en banc in a Resolution dated 29 September 1995. A
petition for review was filed before the Court of Appeals (CAGR SP 38861), assailing
the Order dated 7 June 1995 and the Resolution dated 29 September 1995 of the
SEC en banc in SEC EB 440. The appellate court upheld the ruling of the SEC.
Bautista, et al.'s motion for reconsideration was likewise denied by the Court of
Appeals in an Order dated 29 March 1996. The bank, Bautista, et al. filed the instant
petition for review.

Issue: Whether there was valid transfer of the shares to the Bank.

Held: For a valid transfer of stocks, there must be strict compliance with the mode
of transfer prescribed by law. The requirements are: (a) There must be delivery of
the stock certificate: (b) The certificate must be endorsed by the owner or his
attorney-in-fact or other persons legally authorized to make the transfer; and (c) To
be valid against third parties, the transfer must be recorded in the books of the
corporation. As it is, compliance with any of these requisites has not been clearly
and sufficiently shown. Still, while the assignment may be valid and binding on the
bank, et al. and the Villanuevas, it does not necessarily make the transfer effective.
Consequently, the bank et al., as mere assignees, cannot enjoy the status of a
stockholder, cannot vote nor be voted for, and will not be entitled to dividends,
insofar as the assigned shares are concerned. Parenthetically, the Villanuevas
cannot, as yet, be deprived of their rightsas stockholders, until and unless the issue
of ownership and transfer of the shares in question is resolved with finality.
TORRES VS CA DIGEST

278 SCRA 793 Business Organization Corporation Law Transfer of Shares of

Stocks Corporate Records

Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty &
Development Corporation (TRDC). TRDC is a small family owned corporation and
other stockholders thereof include Judge Torres nieces and nephews. However,
even though Judge Torres owns the majority of TRDC and was also the president
thereof, he is only entitled to one vote among the 9-seat Board of Directors, hence,
his vote can be easily overridden by minority stockholders. So in 1987, before the
regular election of TRDC officers, Judge Torres assigned one share (qualifying share)
each to 5 outsiders for the purpose of qualifying them to be elected as directors in
the board and thereby strengthen Judge Torres power over other family members.

However, the said assignment of shares were not recorded by the corporate
secretary, Ma. Christina Carlos (niece) in the stock and transfer book of TRDC. When
the validity of said assignments were questioned, Judge Torres ratiocinated that it is
impractical for him to order Carlos to make the entries because Carlos is one of his
opposition. So what Judge Torres did was to make the entries himself because he
was keeping the stock and transfer book. He further ratiocinated that he can do
what a mere secretary can do because in the first place, he is the president.

Since the other family members were against the inclusion of the five outsiders,
they refused to take part in the election. Judge Torres and his five assignees then
decided to conduct the election among themselves considering that the 6 of them
constitute a quorum.

ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or not
the subsequent election is valid.

HELD: No. The assignment of the shares of stocks did not comply with procedural
requirements. It did not comply with the by laws of TRDC nor did it comply with
Section 74 of the Corporation Code. Section 74 provides that the stock and transfer
book should be kept at the principal office of the corporation. Here, it was Judge
Torres who was keeping it and was bringing it with him. Further, his excuse of not
ordering the secretary to make the entries is flimsy. The proper procedure is to order
the secretary to make the entry of said assignment in the book, and if she refuses,
Judge Torres can come to court and compel her to make the entry. There are judicial
remedies for this. Needless to say, the subsequent election is invalid because the
assignment of shares is invalid by reason of procedural infirmity. The Supreme Court
also emphasized: all corporations, big or small, must abide by the provisions of the
Corporation Code. Being a simple family corporation is not an exemption. Such
corporations cannot have rules and practices other than those established by law.

PROVIDENT INTERNATIONAL RESOURCES CORPORATION (PIRC) vs. VENUS G.R. No.

167041, June 17, 2008

Facts:

Herein petitioner, PIRC, is registered with the SEC on September 20, 1979. As a
group known as the Marcelo group, were its incorporators, original stockholders, and
directors. The Asistio group claimed that the Marcelo group acquired shares in PIRC
as mere trustees for the Asistio group. The Marcelo group allegedly executed a
waiver of pre-emptive right, blank deeds of assignment, and blank deeds of
transfer; endorsed in blank their respective stock certificates over all of the
outstanding capital stock registered in their names; and completed the blank deeds
in 2002 to effect transfers to the Asistio group. On August 6, 2002, the Company
Registration and Monitoring Department (CRMD) of the SEC issued a certification
stating that verification made on the available records of PIRC showed failure to
register its stock and transfer book (STB). The Asistio group registered PIRCs STB.
Upon learning of this, PIRCs assistant corporate secretary requested the SEC for a
certification of the registration in 1979 of PIRCs STB. It presents the 1979-registered
STB bearing the SEC stamp and the signature of the officer in charge of book
registration. Subsequently the Asistio group filed in the RTC a complaint against the
Marcelo group. The Asistio group prayed that the Marcelo group be enjoined from
acting as directors of PIRC, from physically holding office at PIRCs office, and from
taking custody of PIRCs corporate records. On October 30, 2002, the CRMD of the
SEC issued a letter recalling the certification it had issued on August 6, 2002 and
canceling the 2002-registered STB. The Asistio group appealed to the SEC Board of
Commissioners. They claimed that the issue of which of the two STBs is valid is
intra-corporate in nature; hence, the RTC, not the SEC, has jurisdiction.

Issue:
Whether the SEC has the jurisdiction to recall and cancel a stock and transfer book
which it issued in 2002?

Ruling:

Yes. The powers and functions of the SEC under the Securities Regulation Code
(Republic Act No. 8799), it can be said that the SECs regulatory authority over
private corporations encompasses a wide margin of areas, touching nearly all of a
corporations concerns. This authority more vividly springs from the fact that a
corporation owes its existence to the concession of its corporate franchise from the
state. Going to the particular facts of the instant case, the Supreme Court find that
the SEC has the primary competence and means to determine and verify whether
the subject 1979 STB presented by the incumbent assistant corporate secretary was
indeed authentic, and duly registered by the SEC as early as September 1979. As
the administrative agency responsible for the registration and monitoring of STBs, it
is the body cognizant of the STB registration procedures, and in possession of the
pertinent files, records and specimen signatures of authorized officers relating to
the registration of STBs. The evaluation of whether a STB was authorized by the SEC
primarily requires an examination of the STB itself and the SEC files. This function
necessarily belongs to the SEC as part of its regulatory jurisdiction. The Supreme
Court further ruled that as the regulatory body, it is the SECs duty to ensure that
there is only one set of STB for each corporation. The determination of whether or
not the 1979-registered STB is valid and of whether to cancel and revoke the August
6, 2002 certification and the registration of the 2002 STB on

the ground that there already is an existing STB is impliedly and necessarily within

the regulatory jurisdiction of the SEC.

Lanuza vs. CA

GR No. 131394 | March 28, 2005

Facts: Petitioners seek to nullify the Court of Appeals Decision in CA G.R. SP

No. 414731 promulgated on 18 August 1997, affirming the SEC Order dated 20 June
1996, and the Resolution2 of the Court of Appeals dated 31 October 1997 which
denied petitioners motion for reconsideration. In 1952, the Philippine
Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred (700)
founders shares and seventy-six (76) common shares as its initial capital stock
subscription reflected in the articles of incorporation Onrubia et. al, who were
in control of PMMSI registered the companys stock and transfer book for the first
time in 1978, recording thirty-three (33) common shares as the only issued and
outstanding shares of PMMSI. In 1979, a special stockholders meeting was
called and held on the basis of what was considered as a quorum of twenty-seven
(27) common shares, representing more than two-thirds (2/3) of the common shares
issued and outstanding. In 1982, Juan Acayan, one of the heirs of the
incorporators filed a petition for the registration of their property rights was filed
before the SEC over 120 founders shares and 12 common shares owned by their
father SEC Hearing Officer: heirs of Acayan were entitled to the claimed shares
and called for a special stockholders meeting to elect a new set of officers.
SEC en banc: affirmed the decision As a result, the shares of Acayan were
recorded in the stock and transfer book. On May 6, 1992, a special
stockholders meeting was held to elect a new set of directors Onrubia et al
filed a petition with SEC questioning the validity of said meeting alleging that the
quorum for the said meeting should not be based on the 165 issued and
outstanding shares as per the stock and transfer book, but on the initial subscribed
capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952
Articles of Incorporation Petition was dismissed SC en banc: shares of
the deceased incorporators should be duly represented by their respective
administrators or heirs concerned. Called for a stockholders meeting on the basis of
the stockholdings reflected in the articles of incorporation for the purpose of
electing a new set of officers for the corporation Lanuza, Acayan et al, who are
PMMSI stockholders, filed a petition for review with the CA, raising the following
issues: 1. whether the basis the outstanding capital stock and accordingly also
for determining the quorum at stockholders meetings it should be the 1978 stock
and transfer book or if it should be the 1952 articles of incorporation (They
contended that the basis is the stock and transfer book, not articles of incorporation
in computing the quorum) 2. whether the Espejo decision (decision of SEC en
banc ordering the recording of the shares of Jose Acayan in the stock and transfer
book) is applicable to the benefit of Onrubia et al CA decision: 1. For
purposes of transacting business, the quorum should be based on the outstanding
capital stock as found in the articles of incorporation 2. To require a separate
judicial declaration to recognize the shares of the original incorporators would entail
unnecessary delay and expense. Besides. the incorporators have already proved
their stockholdings through the provisions of the articles of incorporation.
Appeal was made by Lanuza et al before the SC Lanuza et al contention:

a. 1992 stockholders meeting was valid and legal

b. b. Reliance on the 1952 articles of incorporation for determining the quorum
negates the existence and validity of the stock and transfer book Onrubia et
al prepared
c. c. Onrubia et al must show and prove entitlement to the founders and
common shares in a separate and independent action/proceeding in order to
avail of the benefits secured by the heirs of Acayan
d. Onrubia et als contention, based on the Memorandum: petition should
be dismissed on the ground of res judicata Another appeal was made
Lanuza et als contention: instant petition is separate and distinct from G.R.
No. 131315, there being no identity of parties, and more importantly, the
parties in the two petitions have their own distinct rights and interests in
relation to the subject matter in litigation Onrubia et als manifestation
and motion: moved for the dismissal of the case
e. Issue: What should be the basis of quorum for a stockholders meetingthe
outstanding capital stock as indicated in the articles of incorporation or that
contained in the companys stock and transfer book?
f. Ruling: Articles of Incorporation - Defines the charter of the
corporation and the contractual relationships between the State and the
corporation, the stockholders and the State, and between the corporation and
its stockholders. - Contents are binding, not only on the corporation, but
also on its shareholders. Stock and transfer book - Book which
records the names and addresses of all stockholders arranged alphabetically,
 the installments paid and unpaid on all stock for which subscription has been
made, and the date of payment thereof; a statement of every alienation, sale
or transfer of stock made, the date thereof and by and to whom made; and
such other entries as may be prescribed by law - necessary as a measure
of precaution, expediency and convenience since it provides the only certain
and accurate method of establishing the various corporate acts and
transactions and of showing the ownership of stock and like matters - Not
public record, and thus is not exclusive evidence of the matters and things
which ordinarily are or should be written therein In this case, the
articles of incorporation indicate that at the time of incorporation, the
incorporators were bona fide stockholders of 700 founders shares and 76
common shares. Hence, at that time, the corporation had 776 issued and
outstanding shares. According to Sec. 52 of the Corp Code, a quorum
shall consist of the stockholders representing a majority of the outstanding
capital stock. As such, quorum is based on the totality of the shares which
have been subscribed and issued, whether it be founders shares or common
shares To base the computation of quorum solely on the obviously
deficient, if not inaccurate stock and transfer book, and completely
disregarding the issued and outstanding shares as indicated in the articles of
incorporation would work injustice to the owners and/or successors in interest
of the said shares. The stock and transfer book of PMMSI cannot be used as
the sole basis for determining the quorum as it does not reflect the totality of
shares which have been subscribed, more so when the articles of
incorporation show a significantly larger amount of shares issued and
outstanding as compared to that listed in the stock and transfer book.
One who is actually a stockholder cannot be denied his right to vote by the
corporation merely because the corporate officers failed to keep its records
accurately. A corporations records are not the only evidence of the ownership
of stock in a corporation. It is no less than the articles of incorporation
that declare the incorporators to have in their name the founders and several
common shares. Thus, to disregard the contents of the articles of
incorporation would be to pretend that the basic document which legally
triggered the creation of the corporation does not exist and accordingly to
allow great injustice to be caused to the incorporators and their heirs
g. WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED.
Costs against petitioners

Neugene Marketing Inc. vs. CA [303 SCRA 295 (Feb 18 1999)] Ownership of
Corporate Share/Stock Certificates
Facts: Neugene was duly registered with SEC to engage in trading business. Private
Respondents Sy, Yang, and Suen, holders of 5250 shares or 2/3 of the outstanding
capital stock sent notice to the BoD for a board meeting. In this meeting, they
approved a resolution dissolving Neugene. SEC thus issued a Certificate of
Dissolution of Neugene. Petitioners Tan, Martin, Moreno and Lee brought an action
to annul said SEC Certification contending that they were the majority stockholders
of the corporation, and that prior to the board meeting, the private respondents had
already divested themselves of their stockholdings by endorsing them in blank and
delivering them to the Uy family. The latter in turn awarded said stock certificates
to Johnny Uy, who in turn sold the same to petitioners. Hence, private respondents
could no longer validly vote for the dissolution of Neugene at the time of the board
meeting. Private respondents contend that the assignment of shares were simulated
and fraudulently effected since the endorsement in blank by them of the stock
certificates to the Uy family was only for safekeeping when they were stolen from a
vault by Johnny Uy. SEC nullified the Certificate of Dissolution. CA, on the other
hand, upheld Neugenes dissolution. Hence, this petition with the SC.

Issue: Whether or not private respondents divested themselves of their

stockholdings when they voted for the resolution dissolving Neugene.

Held: No. Entries in the Stock and Transfer Book show that at the time of
dissolution of Neugene, the private respondents owned at least 2/3 of the
outstanding capital stock, in sufficient compliance with Sec. 118 of the Corporation
Code of the Philippines. Petitioners submitted the same Stock and Transfer Book to
show that the certificates of private respondents were cancelled. But after a careful
examination of the evidence on record, SC found that the stock certificates of
private respondents were stolen and therefore not validly transfered, and the
transfers of stock relied upon by petitioners were fraudulently recorded in the Stock
and Transfer Book of Neugene. The true relationship between stockholders of
Neugene and that of the Uy family was that they had an understanding that the
beneficial ownership of Neugene would remain with the Uy family, such that the
shares of stock were endorsed in blank, upon issuance, by the shareholders and
entrusted to the Uy family for safekeeping. Such beneficial ownership has been
admitted through the testimonies not only of private respondents but also of
petitioners.