Torres vs. CA - GR 120138, Sept.

5, 1997;

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.