[G.R. No. 131394.

March 28, 2005]

JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES, petitioners, vs. COURT OF
APPEALS, SECURITIES AND EXCHANGE COMMISSION, DOLORES ONRUBIA, ELENITA
NOLASCO, JUAN O. NOLASCO III, ESTATE OF FAUSTINA M. ONRUBIA, PHILIPPINE
MERCHANT MARINE SCHOOL, INC., respondents.

DECISION
TINGA, J.:

Presented in the case at bar is the apparently straight-forward but complicated question: 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?
Petitioners seek to nullify the Court of Appeals Decision in CAG.R. SP No. 41473[1] promulgated on 18
August 1997, affirming the SEC Order dated 20 June 1996, and the Resolution[2] of the Court of Appeals dated
31 October 1997 which denied petitioners motion for reconsideration.
The antecedents are not disputed.
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. However, private respondents and their predecessors 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. Sometime 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, the heirs of one of the original incorporators, Juan Acayan, filed a petition with the Securities and
Exchange Commission (SEC) for the registration of their property rights over one hundred (120) founders shares
and twelve (12) common shares owned by their father. The SEC hearing officer held that the heirs of Acayan
were entitled to the claimed shares and called for a special stockholders meeting to elect a new set of
officers.[3] The SEC En Banc affirmed the decision. As a result, the shares of Acayan were recorded in the stock
and transfer book.
On 06 May 1992, a special stockholders meeting was held to elect a new set of directors. Private
respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992 stockholders
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. The petition was dismissed. [4] Appeal was
made to the SEC En Banc, which granted said appeal, holding that the shares of the deceased incorporators
should be duly represented by their respective administrators or heirs concerned. The SEC directed the parties
to call 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.[5]
Petitioners, who are PMMSI stockholders, filed a petition for review with the Court of Appeals. [6] Rebecca
Acayan, Jayne O. Abuid, Willie O. Abuid and Renato Cervantes, stockholders and directors of PMMSI, earlier
filed another petition for review of the same SEC En Bancs orders. The petitions were thereafter
consolidated.[7] The consolidated petitions essentially raised the following issues, viz: (a) 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; and (b) whether the Court
of Appeals gravely erred in applying the Espejo Decision to the benefit of respondents. [8]The Espejo Decision is
the decision of the SEC en banc in SEC Case No. 2289 which ordered the recording of the shares of Jose
Acayan in the stock and transfer book.
The Court of Appeals held that for purposes of transacting business, the quorum should be based on the
outstanding capital stock as found in the articles of incorporation.[9] As to the second issue, the Court of Appeals
held that the ruling in the Acayan case would ipso facto benefit the private respondents, since to require a
separate judicial declaration to recognize the shares of the original incorporators would entail unnecessary delay
and expense. Besides, the Court of Appeals added, the incorporators have already proved their stockholdings
through the provisions of the articles of incorporation.[10]
In the instant petition, petitioners claim that the 1992 stockholders meeting was valid and legal. They submit
that reliance on the 1952 articles of incorporation for determining the quorum negates the existence and validity
of the stock and transfer book which private respondents themselves prepared. In addition, they posit that private
respondents cannot avail of the benefits secured by the heirs of Acayan, as private respondents must show and
prove entitlement to the founders and common shares in a separate and independent action/proceeding.
In private respondents Memorandum[11] dated 08 March 2000, they point out that the instant petition raises
the same facts and issues as those raised in G.R. No. 131315[12], which was denied by the First Division of this
Court on 18 January 1999 for failure to show that the Court of Appeals committed any reversible error. They add
that as a logical consequence, the instant petition should be dismissed on the ground of res judicata.
Furthermore, private respondents claim that in view of the applicability of the rule on res judicata, petitioners
counsel should be cited for contempt for violating the rule against forum-shopping.[13]
For their part, petitioners claim that the principle of res judicata does not apply to the instant case. They
argue that the 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. For the same reasons, they claim that counsel for petitioners cannot be found guilty
of forum-shopping.[14]
In their Manifestation and Motion[15] dated 22 September 2004, private respondents moved for the dismissal
of the instant petition in view of the dismissal of G.R. No. 131315. Attached to the said manifestation is a copy
of the Entry of Judgment[16] issued by the First Division dated 01 December 1999.
The petition must be denied, not on res judicata, but on the ground that like the petition in G.R. No. 131315
it fails to impute reversible error to the challenged Court of Appeals Decision.
Res judicata does not apply in
the case at bar.
Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter settled by
judgment.[17] The doctrine of res judicata provides that a final judgment, on the merits rendered by a court of
competent jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute
bar to subsequent actions involving the same claim, demand, or cause of action. [18] The elements of res
judicata are (a) identity of parties or at least such as representing the same interest in both actions; (b) identity
of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) the identity in the two
(2) particulars is such that any judgment which may be rendered in the other action will, regardless of which
party is successful, amount to res judicata in the action under consideration.[19]
There is no dispute as to the identity of subject matter since the crucial point in both cases is the propriety
of including the still unproven shares of respondents for purposes of determining the quorum. Petitioners,
however, deny that there is identity of parties and causes of actions between the two petitions.
The test often used in determining whether causes of action are identical is to ascertain whether the same
facts or evidence would support and establish the former and present causes of action.[20] More significantly,
there is identity of causes of action when the judgment sought will be inconsistent with the prior judgment. [21] In
both petitions, petitioners assert that the Court of Appeals Decision effectively negates the existence and validity
of the stock and transfer book, as well as automatically grants private respondents shares of stocks which they
do not own, or the ownership of which remains to be unproved. Petitioners in the two petitions rely on the entries
in the stock and transfer book as the proper basis for computing the quorum, and consequently determine the
degree of control one has over the company. Essentially, the affirmance of the SEC Order had the effect of
diminishing their control and interests in the company, as it allowed the participation of the individual private
respondents in the election of officers of the corporation.
Absolute identity of parties is not a condition sine qua non for res judicata to applya shared identity of interest
is sufficient to invoke the coverage of the principle.[22] However, there is no identity of parties between the two
cases. The parties in the two petitions have their own rights and interests in relation to the subject matter in
litigation. As stated by petitioners in their Reply to Respondents Memorandum,[23] there are no two separate
actions filed, but rather, two separate petitions for review on certiorari filed by two distinct parties with the Court
and represented by their own counsels, arising from an adverse consolidated decision promulgated by the Court
of Appeals in one action or proceeding.[24] As such, res judicata is not present in the instant case.
Likewise, there is no basis for declaring petitioners or their counsel guilty of violating the rules against forum-
shopping. In the Verification/Certification[25] portion of the petition, petitioners clearly stated that there was then
a pending motion for reconsideration of the 18 August 1997 Decision of the Court of Appeals in the consolidated
cases (CA-G.R. SP No. 41473 and CA-G.R. SP No. 41403) filed by the Abuids, as well as a motion for
clarification. Moreover, the records indicate that petitioners filed their Manifestation[26] dated 20 January 1998,
informing the Court of their receipt of the petition in G.R. No. 131315 in compliance with their duty to inform the
Court of the pendency of another similar petition. The Court finds that petitioners substantially complied with the
rules against forum-shopping.
The Decision of the Court of
Appeals must be upheld.
The petition in this case involves the same facts and substantially the same issues and arguments as those
in G.R. No. 131315 which the First Division has long denied with finality. The First Division found the petition
before it inadequate in failing to raise any reversible error on the part of the Court of Appeals. We reach a similar
conclusion as regards the present petition.
The crucial issue in this case is whether it is the companys stock and transfer book, or its 1952 Articles of
Incorporation, which determines stockholders shareholdings, and provides the basis for computing the quorum.
We agree with the Court of Appeals.
The articles of incorporation has been described as one that 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.[27] When PMMSI was incorporated, the prevailing law was Act No. 1459,
otherwise known as The Corporation Law. Section 6 thereof states:

Sec. 6. Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippines, may
form a private corporation for any lawful purpose or purposes by filing with the Securities and Exchange
Commission articles of incorporation duly executed and acknowledged before a notary public, setting forth:

....

(7) If it be a stock corporation, the amount of its capital stock, in lawful money of the Philippines, and the number
of shares into which it is divided, and if such stock be in whole or in part without par value then such fact shall
be stated; Provided, however, That as to stock without par value the articles of incorporation need only state the
number of shares into which said capital stock is divided.

(8) If it be a stock corporation, the amount of capital stock or number of shares of no-par stock actually
subscribed, the amount or number of shares of no-par stock subscribed by each and the sum paid by each on
his subscription. . . .[28]

A review of PMMSIs articles of incorporation[29] shows that the corporation complied with the requirements
laid down by Act No. 1459. It provides in part:

7. That the capital stock of the said corporation is NINETY THOUSAND PESOS (P90,000.00) divided into two
classes, namely:
 FOUNDERS STOCK - 1,000 shares at P20 par value- P 20,000.00
COMMON STOCK- 700 shares at P 100 par value P 70,000.00

TOTAL ---------------------1,700 shares----------------------------P 90,000.00

....

8. That the amount of the entire capital stock which has been actually subscribed is TWENTY ONE THOUSAND
SIX HUNDRED PESOS (P21,600.00) and the following persons have subscribed for the number of shares and
amount of capital stock set out after their respective names:

SUBSCRIBER SUBSCRIBED AMOUNT

SUBSCRIBED
No. of Shares Par Value

Crispulo J. Onrubia 120 Founders P 2,400.00

Juan H. Acayan 120 " 2, 400.00
Martin P. Sagarbarria 100 " 2, 000.00
Mauricio G. Gallaga 50 " 1, 000.00
Luis Renteria 50 " 1, 000.00
Faustina M. de Onrubia 140 " 2, 800.00

Mrs. Ramon Araneta 40 " 800.00

Carlos M. Onrubia 80 " 1,600.00
700 P 14,000.00

SUBSCRIBER SUBSCRIBED AMOUNT

SUBSCRIBED
No. of Shares
Par Value

Crispulo J. Onrubia 12 Common

P 1,200.00
Juan H. Acayan 12 " 1,200.00
Martin P. Sagarbarria 8" 800.00
Mauricio G. Gallaga 8" 800.00
Luis Renteria 8" 800.00
Faustina M. de Onrubia 12 " 1,200.00

Mrs. Ramon Araneta 8" 800.00

Carlos M. Onrubia 8" 800.00
76 P 7,600.00[30]

There is no gainsaying that the contents of the articles of incorporation are binding, not only on the
corporation, but also on its shareholders. In the instant case, the articles of incorporation indicate that at the time
of incorporation, the incorporators were bona fide stockholders of seven hundred (700) founders shares and
seventy-six (76) common shares. Hence, at that time, the corporation had 776 issued and outstanding shares.
On the other hand, a stock and transfer book is the 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. [31] A stock and
transfer book is 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.[32] However, a stock and transfer book, like other corporate books and
records, is not in any sense a public record, and thus is not exclusive evidence of the matters and things which
ordinarily are or should be written therein.[33] In fact, it is generally held that the records and minutes of a
corporation are not conclusive even against the corporation but are prima facie evidence only,[34] and may be
impeached or even contradicted by other competent evidence.[35] Thus, parol evidence may be admitted to
supply omissions in the records or explain ambiguities, or to contradict such records.[36]
In 1980, Batas Pambansa Blg. 68, otherwise known as The Corporation Code of the Philippines supplanted
Act No. 1459. BP Blg. 68 provides:

Sec. 24. Election of directors or trustees.At all elections of directors or trustees, there must be present, either in
person or by representative authorized to act by written proxy, the owners of a majority of the outstanding capital
stock, or if there be no capital stock, a majority of the members entitled to vote. . . .

Sec. 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 majority of the members
in the case of non-stock corporation.

Outstanding capital stock, on the other hand, is defined by the Code as:

Sec. 137. Outstanding capital stock defined. The term outstanding capital stock as used in this code, means the
total shares of stock issued to subscribers or stockholders whether or not fully or partially paid (as long as there
is binding subscription agreement) except treasury shares.

Thus, quorum is based on the totality of the shares which have been subscribed and issued, whether it be
founders shares or common shares.[37] In the instant case, two figures are being pitted against each other those
contained in the articles of incorporation, and those listed in the stock and transfer book.
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. This case is one instance
where resort to documents other than the stock and transfer books is necessary. 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. As aptly stated by the
SEC in its Order dated 15 July 1996:[38]

It is to be explained, that if at the onset of incorporation a corporation has 771 shares subscribed, the Stock and
Transfer Book should likewise reflect 771 shares. Any sale, disposition or even reacquisition of the company of
its own shares, in which it becomes treasury shares, would not affect the total number of shares in the Stock and
Transfer Book. All that will change are the entries as to the owners of the shares but not as to the amount of
shares already subscribed.

This is precisely the reason why the Stock and Transfer Book was not given probative value. Did the shares,
which were not recorded in the Stock and Transfer Book, but were recorded in the Articles of Iincorporation just
vanish into thin air? . . . .[39]

As shown above, at the time the corporation was set-up, there were already seven hundred seventy-six
(776) issued and outstanding shares as reflected in the articles of incorporation. No proof was adduced as to
any transaction effected on these shares from the time PMMSI was incorporated up to the time the instant
petition was filed, except for the thirty-three (33) shares which were recorded in the stock and transfer book in
1978, and the additional one hundred thirty-two (132) in 1982. But obviously, the shares so ordered recorded in
the stock and transfer book are among the shares reflected in the articles of incorporation as the shares
subscribed to by the incorporators named therein.
 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.[40] A corporations records are not the only evidence of the
ownership of stock in a corporation.[41] In an American case,[42] persons claiming shareholders status in a
professional corporation were listed as stockholders in the amendment to the articles of incorporation. On that
basis, they were in all respects treated as shareholders. In fact, the acts and conduct of the parties may even
constitute sufficient evidence of ones status as a shareholder or member.[43] In the instant case, no less than the
articles of incorporation 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.
Petitioners argue that the Court of Appeals gravely erred in applying the Espejo decision to the benefit of
respondents. The Court believes that the more precise statement of the issue is whether in its assailed Decision,
the Court of Appeals can declare private respondents as the heirs of the incorporators, and consequently register
the founders shares in their name. However, this issue as recast is not actually determinative of the present
controversy as explained below.
Petitioners claim that the Decision of the Court of Appeals unilaterally divested them of their shares in
PMMSI as recorded in the stock and transfer book and instantly created inexistent shares in favor of private
respondents. We do not agree.
The assailed Decision merely declared that a separate judicial declaration to recognize the shares of the
original incorporators would entail unnecessary delay and expense on the part of the litigants, considering that
the incorporators had already proved ownership of such shares as shown in the articles of incorporation.[44] There
was no declaration of who the individual owners of these shares were on the date of the promulgation of
the Decision. As properly stated by the SEC in its Order dated 20 June 1996, to which the appellate
courts Decision should be related, if at all, the ownership of these shares should only be subjected to the proper
judicial (probate) or extrajudicial proceedings in order to determine the respective shares of the legal heirs of the
deceased incorporators.[45]
WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioners.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.
FIRST DIVISION

PAUL LEE TAN, ANDREW G.R. No. 153468

LIUSON, ESTHER WONG,
STEPHEN CO, JAMES TAN, Present:
JUDITH TAN, ERNESTO
TANCHI JR., EDWIN NGO, PANGANIBAN, CJ.,Chairperson,
VIRGINIA KHOO, SABINO YNARES-SANTIAGO,
PADILLA JR., EDUARDO P. AUSTRIA-MARTINEZ,
LIZARES and GRACE CALLEJO, SR., and
CHRISTIAN HIGH SCHOOL, CHICO-NAZARIO, JJ.
Petitioners,
- versus -
PAUL SYCIP and MERRITTO
LIM, Promulgated:
Respondents. August 17, 2006
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, CJ.:

For stock corporations, the quorum referred to in Section 52 of the Corporation Code is based on the number

of outstanding voting stocks. For nonstock corporations, only those who are actual, living members with voting

rights shall be counted in determining the existence of a quorum during members meetings.Dead members shall not

be counted.

The Case

The present Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court seeks the reversal of

the January 23[2] and May 7, 2002,[3]Resolutions of the Court of Appeals (CA) in CA-GR SP No. 68202. The first

assailed Resolution dismissed the appeal filed by petitioners with the CA.Allegedly, without the proper

authorization of the other petitioners, the Verification and Certification of Non-Forum Shopping were signed by

only one of them -- Atty. Sabino Padilla Jr. The second Resolution denied reconsideration.
The Facts
Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with fifteen (15)

regular members, who also constitute the board of trustees.[4] During the annual members meeting held on April

6, 1998, there were only eleven (11)[5] living member-trustees, as four (4) had already died. Out of the eleven,

seven (7)[6] attended the meeting through their respective proxies. The meeting was convened and chaired by

Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was no quorum. [7] In

the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the

four deceased member-trustees.

When the controversy reached the Securities and Exchange Commission (SEC), petitioners maintained that the

deceased member-trustees should not be counted in the computation of the quorum because, upon their death,

members automatically lost all their rights (including the right to vote) and interests in the corporation.

SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack of quorum. She

held that the basis for determining the quorum in a meeting of members should be their number as specified in

the articles of incorporation, not simply the number of living members.[8] She explained that the qualifying phrase

entitled to vote in Section 24[9] of the Corporation Code, which provided the basis for determining a quorum for

the election of directors or trustees, should be read together with Section 89.[10]

The hearing officer also opined that Article III (2)[11] of the By-Laws of GCHS, insofar as it prescribed the

mode of filling vacancies in the board of trustees, must be interpreted in conjunction with Section 29 [12] of the

Corporation Code. The SEC en banc denied the appeal of petitioners and affirmed the Decision of the hearing

officer in toto.[13] It found to be untenable their contention that the word members, as used in Section 52[14] of the

Corporation Code, referred only to the living members of a nonstock corporation.[15]

As earlier stated, the CA dismissed the appeal of petitioners, because the Verification and Certification

of Non-Forum Shopping had been signed only by Atty. Sabino Padilla Jr. No Special Power of Attorney had been

attached to show his authority to sign for the rest of the petitioners.

Hence, this Petition.[16]

Issues

Petitioners state the issues as follows:

Petitioners principally pray for the resolution of the legal question of whether or not in NON-
STOCK corporations, dead members should still be counted in determination of quorum for
purposed of conducting the Annual Members Meeting.

Petitioners have maintained before the courts below that the DEAD members should no longer
be counted in computing quorum primarily on the ground that members rights are personal and
non-transferable as provided in Sections 90 and 91 of the Corporation Code of the Philippines.

The SEC ruled against the petitioners solely on the basis of a 1989 SEC Opinion that did not even
involve a non-stock corporation as petitioner GCHS.
The Honorable Court of Appeals on the other hand simply refused to resolve this question
and instead dismissed the petition for review on a technicality the failure to timely submit an SPA
from the petitioners authorizing their co-petitioner Padilla, their counsel and also a
petitioner before the Court of Appeals, to sign the petition on behalf of the rest of the petitioners.

Petitioners humbly submit that the action of both the SEC and the Court of Appeals are not in
accord with law particularly the pronouncements of this Honorable Court in Escorpizo v. University
of Baguio (306 SCRA 497), Robern Development Corporation v. Quitain (315 SCRA 150,)
and MC Engineering, Inc. v. NLRC, (360 SCRA 183). Due course should have been given the
petition below and the merits of the case decided in petitioners favor.[17]

In sum, the issues may be stated simply in this wise: 1) whether the CA erred in denying the Petition below, on

the basis of a defective Verification and Certification; and 2) whether dead members should still be counted in

the determination of the quorum, for purposes of conducting the annual members meeting.

The Courts Ruling

The present Petition is partly meritorious.

Procedural Issue:
Verification and Certification
of Non-Forum Shopping

The Petition before the CA was initially flawed, because the Verification and Certification of Non-Forum

Shopping were signed by only one, not by all, of the petitioners; further, it failed to show proof that the signatory
was authorized to sign on behalf of all of them. Subsequently, however, petitioners submitted a Special Power

of Attorney, attesting that Atty. Padilla was authorized to file the action on their behalf. [18]

In the interest of substantial justice, this initial procedural lapse may be excused. [19] There appears to be

no intention to circumvent the need for proper verification and certification, which are aimed at assuring the

truthfulness and correctness of the allegations in the Petition for Review and at discouraging forum

shopping.[20] More important, the substantial merits of petitioners case and the purely legal question involved in

the Petition should be considered special circumstances[21] or compelling reasons that justify an exception to the

strict requirements of the verification and the certification of non-forum shopping.[22]

Main Issue:
Basis for Quorum

Generally, stockholders or members meetings are called for the purpose of electing directors or trustees [23] and

transacting some other business calling for or requiring the action or consent of the shareholders or

members,[24] such as the amendment of the articles of incorporation and bylaws, sale or disposition of all or

substantially all corporate assets, consolidation and merger and the like, or any other business that may properly

come before the meeting.

Under the Corporation Code, stockholders or members periodically elect the board of directors or trustees, who

are charged with the management of the corporation.[25] The board, in turn, periodically elects officers to carry

out management functions on a day-to-day basis. As owners, though, the stockholders or members have

residual powers over fundamental and major corporate changes.

While stockholders and members (in some instances) are entitled to receive profits, the management and

direction of the corporation are lodged with their representatives and agents -- the board of directors or

trustees.[26] In other words, acts of management pertain to the board; and those of ownership, to the stockholders

or members. In the latter case, the board cannot act alone, but must seek approval of the stockholders or

members.[27]
Conformably with the foregoing principles, one of the most important rights of a qualified shareholder or member

is the right

to vote -- either personally or by proxy -- for the directors or trustees who are to manage the corporate

affairs.[28] The right to choose the persons who will direct, manage and operate the corporation is significant,

because it is the main way in which a stockholder can have a voice in the management of corporate affairs, or

in which a member in a nonstock corporation can have a say on how the purposes and goals of the corporation

may be achieved.[29]Once the directors or trustees are elected, the stockholders or members relinquish corporate

powers to the board in accordance with law.

In the absence of an express charter or statutory provision to the contrary, the general rule is that every member

of a nonstock corporation, and every legal owner of shares in a stock corporation, has a right to be present and

to vote in all corporate meetings. Conversely, those who are not stockholders or members have no right to

vote.[30] Voting may be expressed personally, or through proxies who vote in their representative

capacities.[31] Generally, the right to be present and to vote in a meeting is determined by the time in which the

meeting is held.[32]

Section 52 of the Corporation Code states:

Section 52. Quorum in Meetings. Unless otherwise provided for in this Code or in the by-laws, a
quorum shall consist of the stockholders representing a majority of the outstanding capital stock
or a majority of the members in the case of non-stock corporations.

In stock corporations, the presence of a quorum is ascertained and counted on the basis of the outstanding

capital stock, as defined by the Code thus:

SECTION 137. Outstanding capital stock defined. The term outstanding capital stock as used in this
Code, means the total shares of stock issued under binding subscription agreements to
 subscribers or stockholders, whether or not fully or partially paid, except treasury shares.
(Underscoring supplied)

The Right to Vote in

Stock Corporations

The right to vote is inherent in and incidental to the ownership of corporate stocks. [33] It is settled that unissued

stocks may not be voted or considered in determining whether a quorum is present in a stockholders meeting,

or whether a requisite proportion of the stock of the corporation is voted to adopt a certain measure or act. Only

stock actually issued and outstanding may be voted.[34] Under Section 6 of the Corporation Code, each share of

stock is entitled to vote, unless otherwise provided in the articles of incorporation or declared delinquent[35] under

Section 67 of the Code.

Neither the stockholders nor the corporation can vote or represent shares that have never passed to the

ownership of stockholders; or, having so passed, have again been purchased by the corporation. [36] These

shares are not to be taken into consideration in determining majorities. When the law speaks of a

given proportion of the stock, it must be construed to mean the shares that have passed from the corporation,

and that may be voted.[37]

Section 6 of the Corporation Code, in part, provides:

Section 6. Classification of shares. The shares of stock of stock corporations may be divided into classes
or series of shares, or both, any of which classes or series of shares may have such rights,
privileges or restrictions as may be stated in the articles of incorporation: Provided, That no share
may be deprived of voting rights except those classified and issued as preferred or redeemable
shares, unless otherwise provided in this Code: Provided, further, that there shall always be a
class or series of shares which have complete voting rights.

xxxxxxxxx

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the
holders of such shares shall nevertheless be entitled to vote on the following matters:
 1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially
all of the corporation property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in accordance with
this Code; and
8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular
corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights.

Taken in conjunction with Section 137, the last paragraph of Section 6 shows that the intention of the

lawmakers was to base the quorum mentioned in Section 52 on the number of outstanding voting stocks.[38]

The Right to Vote in

Nonstock Corporations

In nonstock corporations, the voting rights attach to membership.[39] Members vote as persons, in accordance

with the law and the bylaws of the corporation. Each member shall be entitled to one vote unless so limited,

broadened, or denied in the articles of incorporation or bylaws.[40] We hold that when the principle for determining

the quorum for stock corporations is applied by analogy to nonstock corporations, only those who

are actual members with voting rights should be counted.

Under Section 52 of the Corporation Code, the majority of the members representing the actual number

of voting rights, not

the number or numerical constant that may originally be specified in the articles of incorporation, constitutes the

quorum.[41]
 The March 3, 1986 SEC Opinion[42] cited by the hearing officer uses the phrase majority vote of the

members; likewise Section 48 of the Corporation Code refers to 50 percent of 94 (the number of

registered members of the association mentioned therein) plus one. The best evidence of who are

the present members of the corporation is the membership book; in the case of stock corporations, it is the stock

and transfer book.[43]

Section 25 of the Code specifically provides that a majority of the directors or trustees, as fixed in the articles of

incorporation, shall constitute a quorum for the transaction of corporate business (unless the articles of

incorporation or the bylaws provide for a greater majority). If the intention of the lawmakers was to base the

quorum in the meetings of stockholders or members on their absolute number as fixed in the articles of

incorporation, it would have expressly specified so. Otherwise, the only logical conclusion is that the legislature

did not have that intention.

Effect of the Death

of a Member or Shareholder

Having thus determined that the quorum in a members meeting is to be reckoned as the actual number

of members of the corporation, the next question to resolve is what happens in the event of the death of one of

them.

In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a shareholder, the

executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to

vote it. Until a settlement and division of the estate is effected, the stocks of the decedent are held by the

administrator or executor.[44]
On the other hand, membership in and all rights arising from a nonstock corporation are personal and non-

transferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise. [45] In other

words, the determination of whether or not dead members are entitled to exercise their voting rights (through

their executor or administrator), depends on those articles of incorporation or bylaws.

Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the death of

the member.[46] Section 91 of the Corporation Code further provides that termination extinguishes all the rights

of a member of the corporation, unless otherwise provided in the articles of incorporation or the bylaws.

Applying Section 91 to the present case, we hold that dead members who are dropped from the membership

roster in the manner and for the cause provided for in the By-Laws of GCHS are not to be counted in determining

the requisite vote in corporate matters or the requisite quorum for the annual members meeting. With 11

remaining members, the quorum in the present case should be 6. Therefore, there being a quorum, the annual

members meeting, conducted with six[47] members present, was valid.

Vacancy in the
Board of Trustees

As regards the filling of vacancies in the board of trustees, Section 29 of the Corporation Code provides:
SECTION 29. Vacancies in the office of director or trustee. -- Any vacancy occurring in
the board of directors or trustees other than by removal by the stockholders or members or by
expiration of term, may be filled by the vote of at least a majority of the remaining directors or
trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders
in a regular or special meeting called for that purpose. A director or trustee so elected to fill a
vacancy shall be elected only for the unexpired term of his predecessor in office.

Undoubtedly, trustees may fill vacancies in the board, provided that those remaining still constitute a

quorum. The phrase may be filled in Section 29 shows that the filling of vacancies in the board by the remaining

directors or trustees constituting a quorum is merely permissive, not mandatory. [48]Corporations, therefore, may
choose how vacancies in their respective boards may be filled up -- either by the remaining directors constituting

a quorum, or by the stockholders or members in a regular or special meeting called for the purpose.[49]

The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of directors; that

is, by a majority vote of the remaining members of the board.[50]

While a majority of the remaining corporate members were present, however, the election of the four

trustees cannot be legally upheld for the obvious reason that it was held in an annual meeting of the members,

not of the board of trustees. We are not unmindful of the fact that the members of GCHS themselves also

constitute the trustees, but we cannot ignore the GCHS bylaw provision, which specifically prescribes that

vacancies in the board must be filled up by the remaining trustees. In other words, these remaining member-

trustees must sit as a board in order to validly elect the new ones.

Indeed, there is a well-defined distinction between a corporate act to be done by the board and that by the

constituent members of the corporation. The board of trustees must act, not individually or separately, but as a

body in a lawful meeting. On the other hand, in their annual meeting, the members may be represented by their

respective proxies, as in the contested annual members meeting of GCHS.

WHEREFORE, the Petition is partly GRANTED. The assailed Resolutions of the Court of Appeals are

hereby REVERSED AND SET ASIDE. The remaining members of the board of trustees of Grace Christian High

School (GCHS) may convene and fill up the vacancies in the board, in accordance with this Decision. No

pronouncement as to costs in this instance.

SO ORDERED.
G.R. No. 74306 March 16, 1992

ENRIQUE RAZON, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and VICENTE B. CHUIDIAN, in his capacity as Administrator of the
Estate of the Deceased JUAN T. CHUIDIAN, respondents.

G.R. No. 74315 March 16, 1992

VICENTE B. CHUIDIAN, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, ENRIQUE RAZ0N, and E. RAZON, INC., respondents.

GUTIERREZ, JR., J.:

The main issue in these consolidated petitions centers on the ownership of 1,500 shares of stock in E. Razon,
Inc. covered by Stock Certificate No. 003 issued on April 23, 1966 and registered under the name of Juan T.
Chuidian in the books of the corporation. The then Court of First Instance of Manila, now Regional Trial Court of
Manila, declared that Enrique Razon, the petitioner in G.R. No. 74306 is the owner of the said shares of stock.
The then Intermediate Appellate Court, now Court of Appeals, however, reversed the trial court's decision and
ruled that Juan T. Chuidian, the deceased father of petitioner Vicente B. Chuidian in G.R. No. 74315 is the owner
of the shares of stock. Both parties filed separate motions for reconsideration. Enrique Razon wanted the
appellate court's decision reversed and the trial court's decision affirmed while Vicente Chuidian asked that all
cash and stock dividends and all the pre-emptive rights accruing to the 1,500 shares of stock be ordered
delivered to him. The appellate court denied both motions. Hence, these petitions.

The relevant Antecedent facts are as follows:

In his complaint filed on June 29, 1971, and amended on November 16, 1971, Vicente B. Chuidian
prayed that defendants Enrique B. Razon, E. Razon, Inc., Geronimo Velasco, Francisco de Borja,
Jose Francisco, Alfredo B. de Leon, Jr., Gabriel Llamas and Luis M. de Razon be ordered to
deliver certificates of stocks representing the shareholdings of the deceased Juan T. Chuidian in
the E. Razon, Inc. with a prayer for an order to restrain the defendants from disposing of the said
shares of stock, for a writ of preliminary attachment v. properties of defendants having possession
of shares of stock and for receivership of the properties of defendant corporation . . .

xxx xxx xxx

In their answer filed on June 18, 1973, defendants alleged that all the shares of stock in the name
of stockholders of record of the corporation were fully paid for by defendant, Razon; that said
shares are subject to the agreement between defendants and incorporators; that the shares of
stock were actually owned and remained in the possession of Razon. Appellees also alleged . . .
that neither the late Juan T. Chuidian nor the appellant had paid any amount whatsoever for the
1,500 shares of stock in question . . .

xxx xxx xxx

The evidence of the plaintiff shown that he is the administrator of the intestate estate of Juan
Telesforo Chuidian in Special Proceedings No. 71054, Court of First Instance of Manila.

Sometime in 1962, Enrique Razon organized the E. Razon, Inc. for the purpose of bidding for the
arrastre services in South Harbor, Manila. The incorporators consisted of Enrique Razon, Enrique
 Valles, Luisa M. de Razon, Jose Tuason, Jr., Victor Lim, Jose F. Castro and Salvador Perez de
Tagle.

On April 23, 1966, stock certificate No. 003 for 1,500 shares of stock of defendant corporation
was issued in the name of Juan T. Chuidian.

On the basis of the 1,500 shares of stock, the late Juan T. Chuidian and after him, the plaintiff-
appellant, were elected as directors of E. Razon, Inc. Both of them actually served and were paid
compensation as directors of E. Razon, Inc.

From the time the certificate of stock was issued on April 1966 up to April 1971, Enrique Razon
had not questioned the ownership by Juan T. Chuidian of the shares of stock in question and had
not brought any action to have the certificate of stock over the said shares cancelled.

The certificate of stock was in the possession of defendant Razon who refused to deliver said
shares to the plaintiff, until the same was surrendered by defendant Razon and deposited in a
safety box in Philippine Bank of Commerce.

Defendants allege that after organizing the E. Razon, Inc., Enrique Razon distributed shares of
stock previously placed in the names of the withdrawing nominal incorporators to some friends
including Juan T. Chuidian

Stock Certificate No. 003 covering 1,500 shares of stock upon instruction of the late Chuidian on
April 23, 1986 was personally delivered by Chuidian on July 1, 1966 to the Corporate Secretary
of Attorney Silverio B. de Leon who was himself an associate of the Chuidian Law Office (Exhs.
C & 11). Since then, Enrique Razon was in possession of said stock certificate even during the
lifetime of the late Chuidian, from the time the late Chuidian delivered the said stock certificate to
defendant Razon until the time (sic) of defendant Razon. By agreement of the parties (sic)
delivered it for deposit with the bank under the joint custody of the parties as confirmed by the
trial court in its order of August 7, 1971.

Thus, the 1,500 shares of stook under Stock Certificate No. 003 were delivered by the late
Chuidian to Enrique because it was the latter who paid for all the subscription on the shares of
stock in the defendant corporation and the understanding was that he (defendant Razon) was the
owner of the said shares of stock and was to have possession thereof until such time as he was
paid therefor by the other nominal incorporators/stockholders (TSN., pp. 4, 8, 10, 24-25, 25-26,
28-31, 31-32, 60, 66-68, July 22, 1980, Exhs. "C", "11", "13" "14"). (Ro11o 74306, pp. 66-68)

In G.R. No. 74306, petitioner Enrique Razon assails the appellate court's decision on its alleged misapplication
of the dead man's statute rule under Section 20(a) Rule 130 of the Rules of Court. According to him, the "dead
man's statute" rule is not applicable to the instant case. Moreover, the private respondent, as plaintiff in the case
did not object to his oral testimony regarding the oral agreement between him and the deceased Juan T. Chuidian
that the ownership of the shares of stock was actually vested in the petitioner unless the deceased opted to pay
the same; and that the petitioner was subjected to a rigid cross examination regarding such testimony.

Section 20(a) Rule 130 of the Rules of Court (Section 23 of the Revised Rules on Evidence) States:

Sec. 20. Disqualification by reason of interest or relationship The following persons cannot
testify as to matters in which they are interested directly or indirectly, as herein enumerated.

(a) Parties or assignors of parties to a case, or persons in whose behalf a case is

prosecuted, against an executor or administrator or other representative of a deceased person,
or against a person of unsound mind, upon a claim or demand against the estate of such
deceased person or against such person of unsound mind, cannot testify as to any matter of fact
 accruing before the death of such deceased person or before such person became of unsound
mind." (Emphasis supplied)

xxx xxx xxx

The purpose of the rule has been explained by this Court in this wise:

The reason for the rule is that if persons having a claim against the estate of the deceased or his
properties were allowed to testify as to the supposed statements made by him (deceased person),
many would be tempted to falsely impute statements to deceased persons as the latter can no
longer deny or refute them, thus unjustly subjecting their properties or rights to false or
unscrupulous claims or demands. The purpose of the law is to "guard against the temptation to
give false testimony in regard to the transaction in question on the part of the surviving party."
(Tongco v. Vianzon, 50 Phil. 698; Go Chi Gun, et al. v. Co Cho, et al., 622 [1955])

The rule, however, delimits the prohibition it contemplates in that it is applicable to a case against the
administrator or its representative of an estate upon a claim against the estate of the deceased person. (See
Tongco v. Vianzon, 50 Phil. 698 [1927])

In the instant case, the testimony excluded by the appellate court is that of the defendant (petitioner herein) to
the affect that the late Juan Chuidian, (the father of private respondent Vicente Chuidian, the administrator of
the estate of Juan Chuidian) and the defendant agreed in the lifetime of Juan Chuidian that the 1,500 shares of
stock in E. Razon, Inc. are actually owned by the defendant unless the deceased Juan Chuidian opted to pay
the same which never happened. The case was filed by the administrator of the estate of the late Juan Chuidian
to recover shares of stock in E. Razon, Inc. allegedly owned by the late Juan T. Chuidian.

It is clear, therefore, that the testimony of the petitioner is not within the prohibition of the rule. The case was not
filed against the administrator of the estate, nor was it filed upon claims against the estate.

Furthermore, the records show that the private respondent never objected to the testimony of the petitioner as
regards the true nature of his transaction with the late elder Chuidian. The petitioner's testimony was subject to
cross-examination by the private respondent's counsel. Hence, granting that the petitioner's testimony is within
the prohibition of Section 20(a), Rule 130 of the Rules of Court, the private respondent is deemed to have waived
the rule. We ruled in the case of Cruz v. Court of Appeals (192 SCRA 209 [1990]):

It is also settled that the court cannot disregard evidence which would ordinarily be incompetent
under the rules but has been rendered admissible by the failure of a party to object thereto. Thus:

. . . The acceptance of an incompetent witness to testify in a civil suit, as well as the allowance of
improper questions that may be put to him while on the stand is a matter resting in the discretion
of the litigant. He may assert his right by timely objection or he may waive it, expressly or by
silence. In any case the option rests with him. Once admitted, the testimony is in the case for what
it is worth and the judge has no power to disregard it for the sole reason that it could have been
excluded, if it had been objected to, nor to strike it out on its own motion (Emphasis supplied).
(Marella v. Reyes, 12 Phil. 1.)

The issue as to whether or not the petitioner's testimony is admissible having been settled, we now proceed to
discuss the fundamental issue on the ownership of the 1,500 shares of stock in E. Razon, Inc.

E. Razon, Inc. was organized in 1962 by petitioner Enrique Razon for the purpose of participating in the bidding
for the arrastre services in South Harbor, Manila. The incorporators were Enrique Razon, Enrique Valles, Luisa
M. de Razon, Jose Tuazon, Jr., Victor L. Lim, Jose F. Castro and Salvador Perez de Tagle. The business,
however, did not start operations until 1966. According to the petitioner, some of the incorporators withdrew from
the said corporation. The petitioner then distributed the stocks previously placed in the names of the withdrawing
nominal incorporators to some friends, among them the late Juan T. Chuidian to whom he gave 1,500 shares of
stock. The shares of stock were registered in the name of Chuidian only as nominal stockholder and with the
agreement that the said shares of stock were owned and held by the petitioner but Chuidian was given the option
to buy the same. In view of this arrangement, Chuidian in 1966 delivered to the petitioner the stock certificate
covering the 1,500 shares of stock of E. Razon, Inc. Since then, the Petitioner had in his possession the
certificate of stock until the time, he delivered it for deposit with the Philippine Bank of Commerce under the
parties' joint custody pursuant to their agreement as embodied in the trial court's order.

The petitioner maintains that his aforesaid oral testimony as regards the true nature of his agreement with the
late Juan Chuidian on the 1,500 shares of stock of E. Razon, Inc. is sufficient to prove his ownership over the
said 1,500 shares of stock.

The petitioner's contention is not correct.

In the case of Embassy Farms, Inc. v. Court of Appeals (188 SCRA 492 [1990]) we ruled:

. . . For an effective, transfer of shares of stock the mode and manner of transfer as prescribed
by law must be followed (Navea v. Peers Marketing Corp., 74 SCRA 65). As provided under
Section 3 of Batas Pambansa Bilang, 68 otherwise known as the Corporation Code of the
Philippines, shares of stock may be transferred by delivery to the transferee of the certificate
properly indorsed. Title may be vested in the transferee by the delivery of the duly indorsed
certificate of stock (18 C.J.S. 928, cited in Rivera v. Florendo, 144 SCRA 643). However, no
transfer shall be valid, except as between the parties until the transfer is properly recorded in the
books of the corporation (Sec. 63, Corporation Code of the Philippines; Section 35 of the
Corporation Law)

In the instant case, there is no dispute that the questioned 1,500 shares of stock of E. Razon, Inc. are in the
name of the late Juan Chuidian in the books of the corporation. Moreover, the records show that during his
lifetime Chuidian was ellected member of the Board of Directors of the corporation which clearly shows that he
was a stockholder of the corporation. (See Section 30, Corporation Code) From the point of view of the
corporation, therefore, Chuidian was the owner of the 1,500 shares of stock. In such a case, the petitioner who
claims ownership over the questioned shares of stock must show that the same were transferred to him by
proving that all the requirements for the effective transfer of shares of stock in accordance with the corporation's
by laws, if any, were followed (See Nava v. Peers Marketing Corporation, 74 SCRA 65 [1976]) or in accordance
with the provisions of law.

The petitioner failed in both instances. The petitioner did not present any by-laws which could show that the
1,500 shares of stock were effectively transferred to him. In the absence of the corporation's by-laws or rules
governing effective transfer of shares of stock, the provisions of the Corporation Law are made applicable to the
instant case.

The law is clear that in order for a transfer of stock certificate to be effective, the certificate must be
properly indorsed and that title to such certificate of stock is vested in the transferee by the delivery of the duly
indorsed certificate of stock. (Section 35, Corporation Code) Since the certificate of stock covering the
questioned 1,500 shares of stock registered in the name of the late Juan Chuidian was never indorsed to the
petitioner, the inevitable conclusion is that the questioned shares of stock belong to Chuidian. The petitioner's
asseveration that he did not require an indorsement of the certificate of stock in view of his intimate friendship
with the late Juan Chuidian can not overcome the failure to follow the procedure required by law or the proper
conduct of business even among friends. To reiterate, indorsement of the certificate of stock is a mandatory
requirement of law for an effective transfer of a certificate of stock.

Moreover, the preponderance of evidence supports the appellate court's factual findings that the shares of stock
were given to Juan T. Chuidian for value. Juan T. Chuidian was the legal counsel who handled the legal affairs
of the corporation. We give credence to the testimony of the private respondent that the shares of stock were
given to Juan T. Chuidian in payment of his legal services to the corporation. Petitioner Razon failed to overcome
this testimony.
In G.R. No. 74315, petitioner Vicente B. Chuidian insists that the appellate court's decision declaring his
deceased father Juan T. Chuidian as owner of the 1,500 shares of stock of E. Razon, Inc. should have included
all cash and stock dividends and all the pre-emptive rights accruing to the said 1,500 shares of stock.

The petition is impressed with merit.

The cash and stock dividends and all the pre-emptive rights are all incidents of stock ownership.

The rights of stockholders are generally enumerated as follows:

xxx xxx xxx

. . . [F]irst, to have a certificate or other evidence of his status as stockholder issued to him;
second, to vote at meetings of the corporation; third, to receive his proportionate share of the
profits of the corporation; and lastly, to participate proportionately in the distribution of the
corporate assets upon the dissolution or winding up. (Purdy's Beach on Private Corporations, sec.
554) (Pascual v. Del Saz Orozco, 19 Phil. 82, 87)

WHEREFORE, judgment is rendered as follows:

a) In G.R. No. 74306, the petition is DISMISSED. The questioned decision and resolution of the then Intermediate
Appellate Court, now the Court of Appeals, are AFFIRMED. Costs against the petitioner.

b) In G.R. No. 74315, the petition is GRANTED. The questioned Resolution insofar as it denied the petitioner's
motion to clarify the dispositive portion of the decision of the then Intermediate Appellate Court, now Court of
Appeals is REVERSED and SET ASIDE. The decision of the appellate court is MODIFIED in that all cash and
stock dividends as, well as all pre-emptive rights that have accrued and attached to the 1,500 shares in E. Razon,
Inc., since 1966 are declared to belong to the estate of Juan T. Chuidian.

SO ORDERED.

Bidin, Davide, Jr. and Romero, JJ., concur.

Feliciano, J., is on leave.

[G.R. No. 129777. January 5, 2001]

TCL SALES CORPORATION and ANNA TENG, petitioners, vs. HON. COURT OF APPEALS and TING PING
LAY, respondents.

DECISION
QUISUMBING, J.:

Before us is a petition for review on certiorari under Rule 45 assailing the decision[1] dated January 31, 1997
and the resolution[2] dated July 2, 1997 of the Court of Appeals in CA G.R. SP No. 42035 captioned TCL Sales
Corporation, et al., vs. Ting Ping Lay. The decision and resolution of respondent court affirmed the en
banc decision[3] of the Securities and Exchange Commission (SEC) dated June 11, 1996, which affirmed with
modification the decision[4] of the SEC hearing officer dated July 20, 1994.
The facts as found by the Court of Appeals are as follows:

Respondent TCL Corporation was organized and registered sometime in 1973. The incorporators were Teng
Ching Lay, Henry Teng (son of Teng Ching Lay), Anna Teng (daughter of Teng Ching Lay), Ismaelita Maluto
and Peter Chiu. The corporation started with an authorized capital stock of 5,000 shares valued at P1,000.00
per share with an aggregate value of P500,000.00. In 1974 the Articles of Incorporation was amended increasing
its authorized capital stock to 20,000 shares valued at P2,000,000.00 of which 8,000 shares were subscribed
and fully paid, as follows:

Teng Ching Lay - 2,800 shares

Henry Teng - 2,000 shares

Anna Teng - 1,280 shares

Ismaelita Maluto - 1,440 shares

Peter Chiu - 480 shares

---------------

Total 8,000 shares

On 2 February 1979, petitioner Ting Ping Lay (the brother of Teng Ching Lay) acquired by purchase four-hundred
eighty (480) shares of stocks (sic) of the corporation from stockholder Peter Chiu.

On 22 September 1985, Ting Ping Lay purchased another one-thousand four-hundred (1,400) shares from his
brother Teng Ching Lay.

On 2 September 1989, Ting Ping Lay acquired 1,440 more shares from Ismaelita Maluto.

Teng Ching Lay served as president and operations manager until his death in 1989. Respondent Anna Teng
served as the Corporate Secretary.

Thereafter, Henry Teng took over the management of the company after his fathers death.

On 31 August 1989, Ting Ping Lay in order to protect his shareholdings with the company requested Anna Teng
to enter the transfer of shares of stocks (sic) for the proper recording of his acquisitions in the Stock and Transfer
Book of the corporation. Likewise, he demanded the issuance of the new certificates of stock in his
favor. However, respondents refused despite repeated demands.

Ting Ping Lay filed a petition for mandamus with the Securities and Exchange Commission against TCL
Corporation and Anna T[e]ng which case was docketed as SEC Case No. 3990.

xxxxxx

After the trial, the hearing officer found for the petitioner, thus:

A. Ordering respondents to record in the Books of the Corporation the following shares:

1. 480 shares acquired by petitioner from Peter Chiu per Deed of Sales (sic) dated February 20, 1979;

2. 1,400 shares acquired by petitioner from Teng Ching Lay per Deed of Sale dated September 22, 1989;

B. Ordering respondents to issue corresponding new certificates of stocks (sic) in the name of the petitioner.

C. Ordering respondents to pay petitioner moral damages in the amount of One Hundred Thousand
(P100,000.00) Pesos and Fifty Thousand (P50,000.00) Pesos for attorneys fees. (pp. 28-29 Rollo).

On 11 June 1996, the Commission en banc modified the aforequoted ruling by deleting the liability of TCL
Corporation relative to the award of moral damages and attorneys fees. The attempt to reconsider said ruling
likewise failed in an order dated 6 August 1996.[5]

Subsequently, herein petitioners filed with respondent Court of Appeals a petition for review of the Order of
the SEC en banc dated June 11, 1996 and its Order dated August 23, 1996 denying their motion for
reconsideration. On January 31, 1997, the Court of Appeals promulgated its decision dismissing said petition for
being filed out of time.[6] It concluded:

In fine, we find no cogent and justifiable grounds to disturb the findings of the SEC en banc.

WHEREFORE, the petition for review is DENIED due course and is hereby DISMISSED. The Clerk of Court is
hereby directed to remand the records of the case to the SEC for the proper execution of the appealed orders.

SO ORDERED.[7]

Hence, the present petition, assigning the following questions for resolution:

I. WHETHER OR NOT THE PERIOD FOR FILING PETITION FOR REVIEW WITH RESPONDENT COURT
IS RECKONED FROM THE DATE THE QUESTIONED ORDER (ANNEX D) WAS RECEIVED BY
PETITIONERS PRESIDENT OR FROM THE DATE OF RECEIPT THEREOF BY PETITIONERS
COUNSEL.

II. WHETHER OR NOT THE SECURITIES AND EXCHANGE COMMISSION HAS JURISDICTION OVER
THE PETITION FOR MANDAMUS FILED BY PRIVATE RESPONDENT.

III. WHETHER OR NOT THE ALLEGED TRANSFER OF SHARES IN FAVOR OF PRIVATE RESPONDENT
ARE VALID AND CAN BE ORDERED RECORDED.

IV. WHETHER OR NOT PETITIONER ANNA TENGS FAILURE TO ACCEDE TO PRIVATE

RESPONDENTS REQUEST FOR TRANSFER OF SHARES IN HIS NAME AMOUNTS TO BAD FAITH AS
WOULD WARRANT PAYMENT OF MORAL DAMAGES AND ATTORNEYS FEES.[8]
 Thus the Court must determine if (1) petitioners filed their petition for review with the Court of Appeals on
time; (2) if the Securities and Exchange Commission (SEC) has jurisdiction over the petition for mandamus; and
(3) if moral damages and attorneys fees may be granted for failure of petitioner Anna Teng to record the transfer
of shares to private respondent. We shall resolve these questions seriatim.
Records reveal that petitioners received a copy of the decision of the SEC en banc on June 14, 1996. They
had fifteen days from this date within which to file a petition for review with the Court of Appeals. This period was
interrupted when petitioners, through Henry Teng, filed a motion for reconsideration on June 23, 1996, thirteen
days into the fifteen-day reglementary period of appeal. The order denying this motion for reconsideration was
received by Henry Teng on August 6, 1996, when he sent his representative to the SEC to obtain a copy
thereof. Subsequently, a petition for review was filed by the petitioners with the Court of Appeals on September
25, 1996.
In its decision promulgated January 31, 1997 the Court of Appeals ruled that the petition for review was filed
out of time. It tolled the remaining period to file said petition from August 6, 1996, the day Henry Teng received
a copy of the decision denying the motion for reconsideration filed on June 23, 1996. The respondent court held
that the petitioners should have filed the petition not later than August 21, 1996, or fifteen days after August 6,
1996.
The respondent court erred in making such ruling. August 6, 1996, was the date when petitioners themselves
through Henry Teng received notice of the decision of the SEC denying their motion for reconsideration, not
counsel of record of said party. When a party is represented by counsel, service of process must be made on
counsel and not on the party.[9] This well-settled rule applies to proceedings before the SEC, as the Rules of
Court apply suppletorily thereto.[10] However, petitioners counsel eventually received notice of the decision. Atty.
Ruben V. Lopez, petitioners counsel of record at the time, was aware of the order denying the motion for
reconsideration on August 22, 1996, when his messenger, a certain Mario Ballesteros, verified the records of
the case in the SEC on said date. Said counsels motion requesting a copy of the August 6, 1996 decision
manifests this.[11] Furthermore, the petition for review was prepared for filing and the verification affidavit was
executed by Henry Teng both on September 13, 1996 or ten days before the alleged date of receipt by petitioners
counsel of the SEC order denying petitioners motion for reconsideration.[12] These material dates in the record
betray counsels claim of receipt of notice of the SEC en banc decision only on September 23, 1996. When Atty.
Lopez had notice of the SEC order through his messenger on August 22, 1996, petitioners had fifteen days from
this date or until September 6, 1996, within which to file the petition for review with the Court of Appeals. Instead,
petitioners filed their petition on September 25, 1996, or nineteen days after the last date for filing the
petition. Petitioners thus filed their petition with the Court of Appeals way beyond the reglementary period, and
it did not acquire jurisdiction over the case.
But even if the Court of Appeals had acquired jurisdiction over the case, the petition would still fail for lack
of merit. The petitioners allege in the present petition that the SEC did not have jurisdiction over the petition for
mandamus filed by Ting Ping Lay, as the same did not arise out of an intra-corporate controversy. They claim
that Ting Ping Lay was not yet a stockholder of record of TCL Corporation.In the case of Abejo vs. de la
Cruz,[13] this Court has ruled that jurisdiction over an action for mandamus lies with the SEC even if the proponent
thereof is not yet a stockholder of record. Thus

But as to the sale and transfer of the Abejos shares, the Bragas cannot oust the SEC of its original and exclusive
jurisdiction to hear and decide the case, by blocking through the corporate secretary, their son, the due recording
of the transfer and sale of the shares in question and claiming that Telectronics is not a stockholder of the
corporation which is the very issue that the SEC is called upon to resolve. As the SEC maintains There is no
requirement that a stockholder of a corporation must be a registered one in order that the Securities and
Exchange Commission may take cognizance of a suit seeking to enforce his rights as such stockholder. This is
because the SEC by express mandate has absolute jurisdiction, supervision and control over all corporations
and is called upon to enforce the provisions of the Corporation Code, among which is the stock purchasers right
to secure the corresponding certificate in his name under the provisions of Section 63 of the Code. Needless to
say, any problem encountered in securing the certificates of stock representing the investment made by the
buyer must be expeditiously dealt with through administrative mandamus proceedings with the SEC, rather than
through the usual tedious court procedure. x x x (Italics supplied)[14]
 Moreover, the SEC en banc found that the petitioners did not refute the validity of the transfers of shares of
stock to Ting Ping Lay, insofar as those shares covered duly indorsed stock certificates were
concerned.[15] Petitioners themselves conceded that they could not assail the documents evincing the transfer of
the shares to Ting Ping Lay.[16]
In Lim Tay vs. Court of Appeals,[17] we held that the registration of shares in a stockholders name, the
issuance of stock certificates, and the right to receive dividends which pertain to the shares are all rights that
flow from ownership. Respondent Ting Ping Lay was able to establish prima facie ownership over the shares of
stocks in question, through deeds of transfer of shares of stock of TCL Corporation. [18] Petitioners could not
repudiate these documents. Hence, the transfer of shares to him must be recorded on the corporations stock
and transfer book.
Noteworthy, Annex F of the petition before us contains a listing of the corporations stockholders and their
respective shares before and after the execution of a certain deed of assignment.[19] Respondent Ting Ping Lay
is listed as a stockholder of the corporation in this document. By this inclusion, petitioners have in effect rebutted
their own claim in their petition that Ting Ping Lay is not and has neither been an incorporator nor a stockholder
of the corporation.[20] Undoubtedly then, the dispute is an intra-corporate controversy, involving as it does
stockholders of TCL Corporation.
The determination of whether or not a shareholder is entitled to exercise the rights of a stockholder is within
the jurisdiction of the SEC.[21] As held by the Court, thru Justice A. Panganiban in Lim Tay:

The duty of a corporate secretary to record transfers of stocks is ministerial. However, he cannot be compelled
to do so when the transferees title to said shares has no prima facie validity or is uncertain. More specifically, a
pledgor, prior to foreclosure and sale, does not acquire ownership rights over the pledged shares and thus cannot
compel the corporate secretary to record his alleged ownership of such shares on the basis merely of the contract
of pledge. Similarly, the SEC does not acquire jurisdiction over a dispute when a partys claim to being a
shareholder is, on the face of the complaint, invalid or inadequate or is otherwise negated by the very allegations
of such complaint. Mandamus will not issue to establish a right, but only to enforce one that is already
established.[22]

The fact that Ting Ping Lay is allegedly not yet a stockholder of record does not remove the case from the
jurisdiction of the SEC, for it is precisely the right of recording and the right to be issued stock certificates that
said respondent sought to enforce by mandamus.
In addition, even if Ting Ping Lay were not a stockholder, he is nonetheless a member of the public whose
investment in the corporation the law seeks to protect and encourage, as his purchase of the shares of stock
has been established.[23] After all, the principal function of the SEC is the supervision and control of corporations,
partnerships and associations with the end in view that investments in these entities may be encouraged and
protected, and their activities pursued for the protection of economic development. [24] In other words, the
jurisdiction of the SEC should be construed in relation to its power of control and supervision over all corporations
to encourage active public participation in the affairs of private corporations by way of investments. [25]
Petitioners are also barred from questioning the jurisdiction of the SEC. While it is a rule that a jurisdictional
question may be raised at any time, this, however, admits of an exception where, as in this case, estoppel has
supervened.[26] This Court has time and again frowned upon the undesirable practice of a party submitting his
case for decision and then accepting the judgment, only if favorable, and attacking it for lack of jurisdiction when
adverse.[27] Instead of opposing the exercise of jurisdiction by SEC seasonably, petitioners invoked said
jurisdiction by participating in the proceedings before it.Petitioners cannot now be allowed to adopt an
inconsistent posture on this score.
Lastly, on issue of the propriety of moral damages and attorneys fees imposed on petitioners, the SEC en
banc held that petitioners refusal to record the transfer of shares to respondent Ting Ping Lay was not based on
any lawful and valid ground. As admitted by Henry Teng during the trial before the SEC hearing officer, what
motivated petitioners to ignore Ting Ping Lays request to record the transfer of the shares was the fact that they
simply did not want to grant the same.[28] Such action, being capricious, whimsical and unwarranted, constitutes
bad faith that must be sanctioned. However, the SEC en banc had modified and deleted the award of moral
damages and attorneys fees imposed on petitioner corporation. The matter of damages now concerns only
petitioner Anna Teng. For it was her refusal as corporate secretary to record the transfer of the shares, without
evidence that such refusal was authorized by TCLs board of directors, that caused damage. On this point, no
error was committed by respondent court in refusing to disturb the SECs decision.
WHEREFORE, the petition is DENIED, and the Decision dated January 31, 1997 as well as the Resolution
dated July 3, 1997 of respondent Court of Appeals are hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.
THIRD DIVISION

JOSELITO MUSNI PUNO G.R. No. 177066

(as heir of the late Carlos Puno),
Petitioner, Present:

YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
- versus - VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

PUNO ENTERPRISES, INC., represented by Promulgated:

JESUSA PUNO,
Respondent. September 11, 2009

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

Upon the death of a stockholder, the heirs do not automatically become stockholders of the corporation;
neither are they mandatorily entitled to the rights and privileges of a stockholder. This, we declare in this petition
for review on certiorari of the Court of Appeals (CA) Decision[1] dated October 11, 2006 and Resolution dated
March 6, 2007 in CA-G.R. CV No. 86137.

The facts of the case follow:

Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno Enterprises, Inc.
On March 14, 2003, petitioner Joselito Musni Puno, claiming to be an heir of Carlos L. Puno, initiated a complaint
for specific performance against respondent. Petitioner averred that he is the son of the deceased with the latters
common-law wife, Amelia Puno. As surviving heir, he claimed entitlement to the rights and privileges of his late
father as stockholder of respondent. The complaint thus prayed that respondent allow petitioner to inspect its
corporate book, render an accounting of all the transactions it entered into from 1962, and give petitioner all the
profits, earnings, dividends, or income pertaining to the shares of Carlos L. Puno. [2]

Respondent filed a motion to dismiss on the ground that petitioner did not have the legal personality to
sue because his birth certificate names him as Joselito Musni Muno. Apropos, there was yet a need for a judicial
declaration that Joselito Musni Puno and Joselito Musni Muno were one and the same.

The court ordered that the proceedings be held in abeyance, ratiocinating that petitioners certificate of
live birth was no proof of his paternity and relation to Carlos L. Puno.
 Petitioner submitted the corrected birth certificate with the name Joselito M. Puno, certified by the Civil
Registrar of the City of Manila, and the Certificate of Finality thereof. To hasten the disposition of the case, the
court conditionally admitted the corrected birth certificate as genuine and authentic and ordered respondent to
file its answer within fifteen days from the order and set the case for pretrial. [3]

On October 11, 2005, the court rendered a Decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering Jesusa Puno and/or Felicidad

Fermin to allow the plaintiff to inspect the corporate books and records of the company from 1962
up to the present including the financial statements of the corporation.

The costs of copying shall be shouldered by the plaintiff. Any expenses to be incurred by
the defendant to be able to comply with this order shall be the subject of a bill of costs.

SO ORDERED.[4]

On appeal, the CA ordered the dismissal of the complaint in its Decision dated October 11, 2006. According to
the CA, petitioner was not able to establish the paternity of and his filiation to Carlos L. Puno since his birth
certificate was prepared without the intervention of and the participatory acknowledgment of paternity by Carlos
L. Puno. Accordingly, the CA said that petitioner had no right to demand that he be allowed to examine
respondents books. Moreover, petitioner was not a stockholder of the corporation but was merely claiming rights
as an heir of Carlos L. Puno, an incorporator of the corporation. His action for specific performance therefore
appeared to be premature; the proper action to be taken was to prove the paternity of and his filiation to Carlos
L. Puno in a petition for the settlement of the estate of the latter.[5]

Petitioners motion for reconsideration was denied by the CA in its Resolution[6] dated March 6, 2007.

In this petition, petitioner raises the following issues:

I. THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT THE

JOSELITO PUNO IS ENTITLED TO THE RELIEFS DEMANDED HE BEING THE
HEIR OF THE LATE CARLOS PUNO, ONE OF THE INCORPORATORS [OF]
RESPONDENT CORPORATION.

II. HONORABLE COURT OF APPEALS ERRED IN RULING THAT FILIATION OF

JOSELITO PUNO, THE PETITIONER[,] IS NOT DULY PROVEN OR ESTABLISHED.

III. THE HONORABLE COURT ERRED IN NOT RULING THAT JOSELITO MUNO AND
JOSELITO PUNO REFERS TO THE ONE AND THE SAME PERSON.

IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT WHAT
RESPONDENT MERELY DISPUTES IS THE SURNAME OF THE PETITIONER WHICH
WAS MISSPELLED AND THE FACTUAL ALLEGATION E.G. RIGHTS OF PETITIONER
AS HEIR OF CARLOS PUNO ARE DEEMED ADMITTED HYPOTHETICALLY IN THE
RESPONDENT[S] MOTION TO DISMISS.
 V. THE HONORABLE COURT OF APPEALS THEREFORE ERRED I[N] DECREEING
THAT PETITIONER IS NOT ENTITLED TO INSPECT THE CORPORATE BOOKS OF
DEFENDANT CORPORATION.[7]

The petition is without merit. Petitioner failed to establish the right to inspect respondent corporations
books and receive dividends on the stocks owned by Carlos L. Puno.

Petitioner anchors his claim on his being an heir of the deceased stockholder. However, we agree with
the appellate court that petitioner was not able to prove satisfactorily his filiation to the deceased stockholder;
thus, the former cannot claim to be an heir of the latter.

Incessantly, we have declared that factual findings of the CA supported by substantial evidence, are
conclusive and binding.[8] In an appeal via certiorari, the Court may not review the factual findings of the CA. It
is not the Courts function under Rule 45 of the Rules of Court to review, examine, and evaluate or weigh the
probative value of the evidence presented.[9]

A certificate of live birth purportedly identifying the putative father is not competent evidence of paternity
when there is no showing that the putative father had a hand in the preparation of the certificate. The local civil
registrar has no authority to record the paternity of an illegitimate child on the information of a third person.[10] As
correctly observed by the CA, only petitioners mother supplied the data in the birth certificate and signed the
same. There was no evidence that Carlos L. Puno acknowledged petitioner as his son.

As for the baptismal certificate, we have already decreed that it can only serve as evidence of the
administration of the sacrament on the date specified but not of the veracity of the entries with respect to the
childs paternity.[11]

In any case, Sections 74 and 75 of the Corporation Code enumerate the persons who are entitled to the
inspection of corporate books, thus

Sec. 74. Books to be kept; stock transfer agent. x x x.

The records of all business transactions of the corporation and the minutes of any meeting
shall be open to the inspection of any director, trustee, stockholder or member of the
corporation at reasonable hours on business days and he may demand, in writing, for a copy of
excerpts from said records or minutes, at his expense.

xxxx

Sec. 75. Right to financial statements. Within ten (10) days from receipt of a written request
of any stockholder or member, the corporation shall furnish to him its most recent financial
statement, which shall include a balance sheet as of the end of the last taxable year and a profit
or loss of statement for said taxable year, showing in reasonable detail its assets and liabilities
and the result of its operations.[12]
 The stockholders right of inspection of the corporations books and records is based upon his ownership
of shares in the corporation and the necessity for self-protection. After all, a shareholder has the right to be
intelligently informed about corporate affairs.[13] Such right rests upon the stockholders underlying ownership of
the corporations assets and property.[14]

Similarly, only stockholders of record are entitled to receive dividends declared by the corporation, a right
inherent in the ownership of the shares.[15]

Upon the death of a shareholder, the heirs do not automatically become stockholders of the corporation
and acquire the rights and privileges of the deceased as shareholder of the corporation. The stocks must be
distributed first to the heirs in estate proceedings, and the transfer of the stocks must be recorded in the books
of the corporation. Section 63 of the Corporation Code provides that no transfer shall be valid, except as between
the parties, until the transfer is recorded in the books of the corporation.[16] During such interim period, the heirs
stand as the equitable owners of the stocks, the executor or administrator duly appointed by the court being
vested with the legal title to the stock.[17]Until a settlement and division of the estate is effected, the stocks of the
decedent are held by the administrator or executor.[18] Consequently, during such time, it is the administrator or
executor who is entitled to exercise the rights of the deceased as stockholder.

Thus, even if petitioner presents sufficient evidence in this case to establish that he is the son of Carlos
L. Puno, he would still not be allowed to inspect respondents books and be entitled to receive dividends from
respondent, absent any showing in its transfer book that some of the shares owned by Carlos L. Puno were
transferred to him. This would only be possible if petitioner has been recognized as an heir and has participated
in the settlement of the estate of the deceased.

Corollary to this is the doctrine that a determination of whether a person, claiming proprietary rights over
the estate of a deceased person, is an heir of the deceased must be ventilated in a special proceeding instituted
precisely for the purpose of settling the estate of the latter. The status of an illegitimate child who claims to be
an heir to a decedents estate cannot be adjudicated in an ordinary civil action, as in a case for the recovery of
property.[19] The doctrine applies to the instant case, which is one for specific performance to direct respondent
corporation to allow petitioner to exercise rights that pertain only to the deceased and his representatives.

WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated
October 11, 2006 and Resolution dated March 6, 2007 are AFFIRMED.

SO ORDERED.