Business Organization II Case Digests

Ermeline J. Tampus

Case Title: SIMNY G. GUY vs. GILBERT G. GUY

Case No.: G.R. No. 189486 and G.R. 189699 September 5, 2012

Case Doctrine: When a stock certificate is endorsed in blank by the owner

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

Facts:
With 519,997 shares of stock as reflected in Stock Certificate Nos. 004-014, Gilbert G.
Guy practically owned almost 80% of the 650,000 subscribed capital stock of
GoodGold Realty & Development Corporation, one of the multi-million corporations
which Gilbert claimed to have established in his 30s. GoodGold’s remaining shares
were divided among Francisco Guy, Simny Guy, Benjamin Lim and Paulino Delfin
Pe. Gilbert is the son of spouses Francisco and Simny. Simny, one of the petitioners,
however, alleged that it was she and her husband who established GoodGold,
putting the bulk of its shares under Gilbert’s name.

Simny further claimed that upon the advice of their lawyers, upon the incorporation
of GoodGold, they issued stock certificates reflecting the shares held by each
stockholder duly signed by Francisco as President and Atty. Emmanuel Paras as
Corporate Secretary, with corresponding blank endorsements at the back of each
certificate – including Stock Certificate Nos. 004-014 under Gilbert’s name. These
certificates were all with Gilbert’s irrevocable endorsement and power of attorney to
have these stocks transferred in the books of corporation. All of these certificates
were always in the undisturbed possession of the spouses Francisco and Simny,
including Stock Certificate Nos. 004-014.

In 1999, the aging Francisco instructed Benjamin Lim, a nominal shareholder of

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

Accordingly, some of GoodGold’s certificates were cancelled and new ones were
issued to represent the redistribution of GoodGold’s shares of stock. The new
certificates of stock were signed by Francisco and Atty. Emmanuel Paras, as
President and Corporate Secretary, respectively.

In 2008, Gilbert again filed a complaint with the RTC of Mandaluyong, captioned as
"Intra-Corporate Controversy: For the Declaration of Nullity of Fraudulent Transfers
of Shares of Stock Certificates, Fabricated Stock Certificates, Falsified General
Information Sheets, Minutes of Meetings, and Damages with Application for the
Issuance of a Writ of Preliminary and Mandatory Injunction," against his mother,
Simny, his sisters, Geraldine, Gladys, and the heirs of his late sister Grace.

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

On November 6, 2008, the RTC denied the motion for inhibition. The RTC also
dismissed the case, declaring it a nuisance and harassment suit. The CA, however,
found merit on Gilbert’s contention that the complaint should be heard on the
merits. It held that:

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

Hence, these consolidated petitions.

Issue:
WON there was indeed a transfer of shares of stock.

Ruling:
In all averments of fraud or mistake, the circumstances constituting fraud or mistake
must be stated with particularity to appraise the other party of what he is to be
called on to answer, and so that it may be determined whether the facts and
circumstances alleged amount to fraud. These particulars would necessarily include
the time, place and specific acts of fraud committed. The reason for this rule is that
an allegation of fraud concerns the morality of the defendant’s conduct and he is
entitled to know fully the ground on which the allegations are made, so he may have
every opportunity to prepare his case to clear himself at the trial.

Tested against established standards, the Court found that the charges of fraud
which Gilbert accuses his siblings are not supported by the required factual
allegations. In Reyes v. RTC of Makati, which we now reiterate, mutatis mutandis,
while the complaint contained allegations of fraud purportedly committed by his
siblings, these allegations are not particular enough to bring the controversy within
the special commercial court’s jurisdiction; they are not statements of ultimate facts,
but are mere conclusions of law: how and why the alleged transfer of shares can be
characterized as "fraudulent" were not explained and elaborated on. As emphasized
in Reyes:

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Not every allegation of fraud done in a corporate setting or perpetrated by

corporate officers will bring the case within the special commercial court’s
jurisdiction. To fall within this jurisdiction, there must be sufficient nexus showing
that the corporation’s nature, structure, or powers were used to facilitate the
fraudulent device or scheme.

Significantly, no corporate power or office was alleged to have facilitated the transfer
of Gilbert’s shares. How the petitioners perpetrated the fraud, if ever they did, is an
indispensable allegation which Gilbert must have had alleged with particularity in
his complaint, but which he failed to.

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

Finally, because the stock certificates which Gilbert endorsed in blank were in the
undisturbed possession of his parents who were the beneficial owners thereof and
who themselves as such owners caused the transfer in their names. Indeed, even if
Gilbert’s parents were not the beneficial owners, an endorsement in blank of the
stock certificates coupled with its delivery, entitles the holder thereof to demand the
transfer of said stock certificates in his name from the issuing corporation.

Case Title: ANNA TENG vs. SEC

Case No.: G.R. No. 184332 February 17, 2016

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Case Doctrine: The surrender of the original certificate of stock is necessary

before the issuance of a new one so that the old certificate may
be cancelled. A corporation is not bound and cannot be
required to issue a new certificate unless the original
certificate is produced and surrendered. Surrender and
cancellation of the old certificates serve to protect not only the
corporation but the legitimate shareholder and the public as
well, as it ensures that there is only one document covering a
particular share of stock.

Facts:
Ting Ping purchased shares of TCL Sales Corporation from Peter Chiu, from his
brother Teng Ching, who was also the president and operations manager of TCL and
from Ismaelita Maluto. Upon Teng Ching's death in 1989, his son Henry Teng took
over the management of TCL. To protect his shareholdings with TCL, Ting Ping on
August 31, 1989 requested TCL's Corporate Secretary, Anna Teng, to enter the
transfer in the Stock and Transfer Book of TCL for the proper recording of his
acquisition. He also demanded the issuance of new certificates of stock in his favor.
TCL and Teng, however, refused despite repeated demands prompting Ting Ping to
file a petition for mandamus with the SEC against TCL and Teng.

July 20, 1994, the SEC granted Ting Ping's petition, ordering TCL and Teng to record
in the Books of the Corporation the shares and to issue corresponding new
certificates of stocks in the name of Ting Ping. Upon appeal, the CA promulgated the
assailed decision dismissing the petition and denying the motion to expunge the
SEC's comment. Hence, petition for certiorari and prohibition under Rule 65.

Issue:
WON the surrender of the certificates of stock is a requisite before registration of the
transfer may be made in the corporate books and for the issuance of new certificates
in its stead.

Ruling:
Yes. A certificate of stock is a written instrument signed by the proper officer of a
corporation stating or acknowledging that the person named in the document is the
owner of a designated number of shares of its stock. It is prima facie evidence that
the holder is a shareholder of a corporation. A certificate, however, is merely a
tangible evidence of ownership of shares of stock.

Section 63 of the Corporation Code prescribes the manner by which a share of stock
may be transferred. Under the provision, certain minimum requisites must be
complied with for there to be a valid transfer of stocks, to wit:

(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

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(c) to be valid against third parties, the transfer must be recorded in the books
of the corporation.

It is the delivery of the certificate, coupled with the endorsement by the owner or
his duly authorized representative that is the operative act of transfer of shares
from the original owner to the transferee. As held in Fil-Estate Golf and Dev’t vs.
Vertex Sales and Trading, "a sale of shares of stock, physical delivery of a stock
certificate is one of the essential requisites for the transfer of ownership of the stocks
purchased."

The delivery contemplated in Section 63, however, pertains to the delivery of the
certificate of shares by the transferor to the transferee, that is, from the original
stockholder named in the certificate to the person or entity the stockholder was
transferring the shares to, whether by sale or some other valid form of absolute
conveyance of ownership. In this case, Ting Ping 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. Petitioners could not repudiate these documents.
Hence, the transfer of shares to him must be recorded on the corporation's stock and
transfer book.

Upon registration of the transfer in the books of the corporation, the transferee may
now then exercise all the rights of a stockholder, which include the right to have
stocks transferred to his name. In Ponce v. Alsons Cement Corp., the Court stated
that the stock and transfer book is the basis for ascertaining the persons entitled to
the rights and subject to the liabilities of a stockholder. Where a transferee is not yet
recognized as a stockholder, the corporation is under no specific legal duty to issue
stock certificates in the transferee's name."

The surrender of the original certificate of stock is necessary before the issuance of a
new one so that the old certificate may be cancelled. A corporation is not bound and
cannot be required to issue a new certificate unless the original certificate is
produced and surrendered. Surrender and cancellation of the old certificates serve to
protect not only the corporation but the legitimate shareholder and the public as
well, as it ensures that there is only one document covering a particular share of
stock.

Thus, Ting Ping is hereby ordered to surrender the certificates of stock covering the
shares respectively transferred by Ismaelita Maluto and Peter Chiu. Anna Teng or
the incumbent corporate secretary of TCL Sales Corporation, on the other hand, is
hereby ordered, under pain of contempt, to immediately cancel Ismaelita Maluto's
and Peter Chiu's certificates of stock and to issue new ones in the name of Ting Ping
Lay, which shall include Ismaelita Maluto's shares not covered by any existing
certificate of stock but otherwise validly transferred to Ting Ping Lay.

Case Title: SIME DARBY PILIPINAS, INC. vs.

JESUS B. MENDOZA

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Case No.: G.R. No. 202247 June 19, 2013

Case Doctrine: While the share was bought by Sime Darby and placed under
the name of Mendoza, his title is only limited to the usufruct,
or the use and enjoyment of the club’s facilities and privileges
while employed with the company.

Facts:
Sime Darby Pilipinas, Inc. employed Jesus B. Mendoza as sales manager. On 3 July
1987, Sime Darby bought a Class "A" club share in Alabang Country Club from
Margarita de Araneta as evidenced by a Deed of Absolute Sale. The share, however,
was placed under the name of Mendoza in trust for Sime Darby since the By-Laws of
ACC state that only natural persons may own a club share. As part of the
arrangement, Mendoza endorsed the Club Share Certificate in blank and executed a
Deed of Assignment, also in blank, and handed over the documents to Sime Darby.

When Mendoza retired in April 1995, Sime Darby fully paid Mendoza his separation
pay amounting to more than ₱3,000,000. Sometime in July 2004, Sime Darby found
an interested buyer of the club share for ₱1,101,363.64. Before the sale could push
through, the broker required Sime Darby to secure an authorization to sell from
Mendoza since the club share was still registered in Mendoza’s name. However,
Mendoza refused to sign the required authority to sell or special power of attorney
unless Sime Darby paid him the amount of ₱300,000, claiming that this represented
his unpaid separation benefits. As a result, the sale did not push through and Sime
Darby was compelled to return the payment to the prospective buyer.

Thereafter, Sime Darby filed a complaint for damages with writ of preliminary
injunction against Mendoza with the RTC of Makati City. Sime Darby claimed that it
was the practice of the company to extend to its senior managers and executives the
privilege of using and enjoying the facilities of various club memberships. That
despite having retired from Sime Darby for less than 10 years, Mendoza resumed
using the facilities and privileges of ACC, to the damage and prejudice of Sime Darby.
Thus, Sime Darby prayed that a restraining order be issued, pending the hearing on
the issuance of a writ of preliminary injunction, enjoining Mendoza from availing of
the club’s facilities and privileges as if he is the owner of the club share.

Meanwhile, Mendoza filed an Answer alleging ownership of the club share. Mendoza
stated that Sime Darby purchased the Class "A" club share and placed it under his
name as part of his employee benefits and bonus for past exemplary service. Mendoza
also alleged that when he retired in 1995, Sime Darby failed to give some of his
retirement benefits amounting to ₱300,000.

On 30 April 2007, the trial court rendered a Decision in favor of Sime Darby, hence
enjoining defendant Jesus B. Mendoza, from making use of Stock Certificate No. 1880
of the Alabang Golf and Country Club, Inc. On appeal, the appellate court ruled that
Sime Darby failed to prove that it has a clear and unmistakable right over the club
share of ACC. Hence, the instant petition.

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Issue:
WON the CA erred in declaring that Mendoza is the owner of the club share.

Ruling:
Yes. In the present case, Sime Darby presented evidence that it acquired the Class
"A" club share of ACC in 1987 through a Deed of Sale. Being a corporation which is
expressly disallowed by ACC’s By-Laws to acquire and register the club share under
its name, Sime Darby had the share registered under the name of respondent
Mendoza, Sime Darby’s former sales manager, under a trust arrangement. Such fact
was clearly proved when in the application form dated 17 July 1987 of the ACC for
the purchase of the club share, Sime Darby placed its name in full as the owner of
the share and Mendoza as the assignee of the club share. Also, in connection with
the application for membership, Sime Darby sent a letter dated 17 September 1987
addressed to ACC confirming that "Mendoza, as Sime Darby’s Sales Manager, is
entitled to club membership benefit of the Company."

While the share was bought by Sime Darby and placed under the name of Mendoza,
his title is only limited to the usufruct, or the use and enjoyment of the club’s
facilities and privileges while employed with the company. Sime Darby paid for the
purchase price of the club share, thus, Mendoza was given only the legal title. In
fine, a resulting trust is presumed as a matter of law. The burden then shifts to the
transferee to show otherwise.

Further, it can be gathered then that Sime Darby did not intend to give up its
beneficial interest and right over the share. The company merely wanted Mendoza
to hold the share in trust since Sime Darby, as a corporation, cannot register a club
share in its own name under the rules of the ACC. At the same time, Mendoza, as a
senior manager of the company, was extended the privilege of availing a club
membership, as generously practiced by Sime Darby.

In sum, the Court granted damages and injunctive relief sought by Sime Darby, as
the true owner of the ACC Class "A" club share. Sime Darby has the right to be
protected from Mendoza's act of using the facilities and privileges of ACC. Since the
records show that Sime Darby was dissolved on 31 December 2011, it has 3 years to
convey its property and close its affairs as a body corporate under the Corporation
Code. Thus, Sime Darby may choose to dispose of the club share in any manner it
sees fit without undue interference from Mendoza, who lost his right to use the club
share when he retired from the company.

Case Title: VICENTE C. PONCE vs. ALSONS CEMENT

CORPORATION
Case No.: G.R. NO. 139802 December 10, 2002

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Case Doctrine: The stock and transfer book is the basis for ascertaining the
persons entitled to the rights and subject to the liabilities of a
stockholder. Where a transferee is not yet recognized as a
stockholder, the corporation is under no specific legal duty to
issue stock certificates in the transferee’s name.
Facts:
On January 25, 1996, Vicente C. Ponce, filed a complaint with the SEC for mandamus
and damages against Alsons Cement Corporation and its corporate secretary
Francisco M. Giron, Jr. In his complaint, Ponce alleged, among others, that:

 The late Fausto G. Gaid was an incorporator of Victory Cement Corporation,

having subscribed to and fully paid 239,500 shares of said corporation.
 On February 8, 1968, plaintiff and Fausto Gaid executed a "Deed of
Undertaking" and "Indorsement" whereby the latter acknowledges that the
former is the owner of said shares and he was therefore assigning/endorsing
the same to plaintiff.
 On April 10, 1968, VCC was renamed Floro Cement Corporation.
 On October 22, 1990, FCC was renamed Alsons Cement Corporation as
shown by the Amended Articles of Incorporation of ACC.
 From the time of incorporation of VCC up to the present, no certificates of
stock corresponding to the 239,500 subscribed and fully paid shares of Gaid
were issued in the name of Fausto G. Gaid and/or Vicente Ponce.
 Despite repeated demands, the ACC refused and continue to refuse without
any justifiable reason to issue to Ponce the certificates of stocks corresponding
to the 239,500 shares of Gaid, in violation of Ponce’s right to secure the
corresponding certificate of stock in his name.

With these allegations, Ponce prayed that judgment be rendered ordering

respondents to issue in his name certificates of stocks covering the 239,500 shares of
stocks and its legal increments and to pay him damages.

Instead of filing an answer, respondents moved to dismiss the complaint on the

ground, among others that: the complaint states no cause of action; mandamus is
improper and not available to petitioner. They argued, inter alia, that there being no
allegation that the alleged "INDORSEMENT" was recorded in the books of the
corporation, said indorsement by Gaid to the plaintiff of the shares of stock in
question—assuming that the indorsement was in fact a transfer of stocks—was not
valid against third persons such as ALSONS under Section 63 of the Corporation
Code. There was, therefore, no specific legal duty on the part of the respondents to
issue the corresponding certificates of stock, and mandamus will not lie.

SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to dismiss in an Order,
which held that: Insofar as the issuance of certificates of stock is concerned, the real
party in interest is Fausto Gaid, or his estate or his heirs. Consequently, the
Commission En Banc found that the Hearing Officer erred in holding that petitioner
is not the real party in interest.

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On appeal, the CA held that in the absence of any allegation that the transfer of the
shares between Fausto Gaid and Vicente C. Ponce was registered in the stock and
transfer book of ALSONS, Ponce failed to state a cause of action. Thus, said the CA,
"the complaint for mandamus should be dismissed for failure to state a cause of
action."

Issue:
WON the CA erred in holding that Ponce has no cause of action for a writ of
mandamus.

Ruling:
The CA did not err in ruling that petitioner had no cause of action, and that his
petition for mandamus was properly dismissed. There is no question that Fausto
Gaid was an original subscriber of ALSONS’s 239,500 shares and, it is undisputed
that petitioner had not made a previous request upon the corporate secretary of
ALSONS, Francisco M. Giron Jr., to record the alleged transfer of stocks.
Pursuant to Sec. 63 of the Corporation Code on Certificate of stock and transfer of
shares, a transfer of shares of stock not recorded in the stock and transfer book of the
corporation is non-existent as far as the corporation is concerned. As between the
corporation on the one hand, and its shareholders and third persons on the other, the
corporation looks only to its books for the purpose of determining who its
shareholders are. It is only when the transfer has been recorded in the stock and
transfer book that a corporation may rightfully regard the transferee as one of its
stockholders. From this time, the consequent obligation on the part of the
corporation to recognize such rights as it is mandated by law to recognize arises.
Hence, without such recording, the transferee may not be regarded by the
corporation as one among its stockholders and the corporation may legally refuse
the issuance of stock certificates in the name of the transferee even when there has
been compliance with the requirements of Section 64 of the Corporation Code. This
is the import of Section 63 which states that "No transfer, however, shall be valid,
except between the parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of shares
transferred." The situation would be different if the petitioner was himself the
registered owner of the stock which he sought to transfer to a third party, for then he
would be entitled to the remedy of mandamus.

From the corporation’s point of view, the transfer is not effective until it is recorded.
Unless and until such recording is made the demand for the issuance of stock
certificates to the alleged transferee has no legal basis. As between the corporation
on the one hand, and its shareholders and third persons on the other, the corporation
looks only to its books for the purpose of determining who its shareholders are. In

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other words, the stock and transfer book is the basis for ascertaining the persons
entitled to the rights and subject to the liabilities of a stockholder. Where a transferee
is not yet recognized as a stockholder, the corporation is under no specific legal duty
to issue stock certificates in the transferee’s name.
It follows that, as held by the CA, until registration is accomplished, the transfer,
though valid between the parties, cannot be effective as against the corporation.
Thus, in the absence of any allegation that the transfer of the shares between Gaid
and Ponce was registered in the stock and transfer book of the petitioner
corporation, the private respondent has failed to state a cause of action.
Absent an allegation that the transfer of shares is recorded in the stock and transfer
book of ALSONS, there appears no basis for a clear and indisputable duty or clear
legal obligation that can be imposed upon the respondent corporate secretary, so as
to justify the issuance of the writ of mandamus to compel him to perform the
transfer of the shares to petitioner. The test of sufficiency of the facts alleged in a
petition is whether or not, admitting the facts alleged, the court could render a valid
judgment thereon in accordance with the prayer of the petition. This test would not
be satisfied if, as in this case, not all the elements of a cause of action are alleged in
the complaint. Where the corporate secretary is under no clear legal duty to issue
stock certificates because of the petitioner’s failure to record earlier the transfer of
shares, one of the elements of the cause of action for mandamus is clearly missing.

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