G.R. No.

96674 June 26, 1992

RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA
TRIAS and FRANCISCO TRIAS, petitioners,
vs.
COURT OF APPEALS*, SECURITIES AND EXCHANGE
COMMISSION, MELANIA A. GUERRERO, LUZ ANDICO,
WILHEMINA G. ROSALES, FRANCISCO M. GUERRERO, JR., and
FRANCISCO GUERRERO , SR., respondents.

PARAS, J.:
The basic controversy in this case is whether or not the respondent
court erred in sustaining the Securities and Exchange Commission
when it compelled by Mandamus the Rural Bank of Salinas to register
in its stock and transfer book the transfer of 473 shares of stock to
private respondents. Petitioners maintain that the Petition for
Mandamus should have been denied upon the following grounds.
(1) Mandamus cannot be a remedy cognizable by the Securities and
Exchange Commission when the purpose is to register certificates of
stock in the names of claimants who are not yet stockholders of a
corporation:
(2) There exist valid reasons for refusing to register the transfer of the
subject of stock, namely:
(a) a pending controversy over the ownership of the certificates of
stock with the Regional Trial Court;
(b) claims that the Deeds of Assignment covering the subject
certificates of stock were fictitious and antedated; and
(c) claims on a resultant possible deprivation of inheritance share in
relation with a conflicting claim over the subject certificates of stock.
The facts are not disputed.

On June 10, 1979, Clemente G. Guerrero, President of the Rural

Bank of Salinas, Inc., executed a Special Power of Attorney in favor
of his wife, private respondent Melania Guerrero, giving and granting
the latter full power and authority to sell or otherwise dispose of
and/or mortgage 473 shares of stock of the Bank registered in his
name (represented by the Bank's stock certificates nos. 26, 49 and
65), to execute the proper documents therefor, and to receive and
sign receipts for the dispositions.
On February 27, 1980, and pursuant to said Special Power of
Attorney, private respondent Melania Guerrero, as Attorney-in-Fact,
executed a Deed of Assignment for 472 shares out of the 473 shares,
in favor of private respondents Luz Andico (457 shares), Wilhelmina
Rosales (10 shares) and Francisco Guerrero, Jr. (5 shares).
Almost four months later, or two (2) days before the death of
Clemente Guerrero on June 24, 1980, private respondent Melania
Guerrero, pursuant to the same Special Power of Attorney, executed
a Deed of Assignment for the remaining one (1) share of stock in
favor of private respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero presented to
petitioner Rural Bank of Salinas the two (2) Deeds of Assignment for
registration with a request for the transfer in the Bank's stock and
transfer book of the 473 shares of stock so assigned, the cancellation
of stock certificates in the name of Clemente G. Guerrero, and the
issuance of new stock certificates covering the transferred shares of
stocks in the name of the new owners thereof. However, petitioner
Bank denied the request of respondent Melania Guerrero.
On December 5, 1980, private respondent Melania Guerrero filed
with the Securities and Exchange Commission" (SEC) an action for
mandamus against petitioners Rural Bank of Salinas, its President
and Corporate Secretary. The case was docketed as SEC Case No.
1979.
Petitioners filed their Answer with counterclaim on December 19,
1980 alleging the upon the death of Clemente G. Guerrero, his 473
shares of stock became the property of his estate, and his property
and that of his widow should first be settled and liquidated in

accordance with law before any distribution can be effected so that

petitioners may not be a party to any scheme to evade payment of
estate or inheritance tax and in order to avoid liability to any third
persons or creditors of the late Clemente G. Guerrero.
On January 29, 1981, a motion for intervention was filed by Maripol
Guerrero, a legally adopted daughter of the late Clemente G.
Guerrero and private respondent Melania Guerrero, who stated
therein that on November 26, 1980 (almost two weeks before the
filing of the petition for Mandamus) a Petition for the administration of
the estate of the late Clemente G. Guerrero had been filed with the
Regional Trial Court, Pasig, Branch XI, docketed as Special
Proceedings No. 9400. Maripol Guerrero further claimed that the
Deeds of Assignment for the subject shares of stock are fictitious and
antedated; that said conveyances are donations since the
considerations therefor are below the book value of the shares, the
assignees/private respondents being close relatives of private
respondent Melania Guerrero; and that the transfer of the shares in
question to assignees/private respondents, other than private
respondent Melania Guerrero, would deprive her (Maripol Guerrero)
of her rightful share in the inheritance. The SEC hearing officer
denied the Motion for Intervention for lack of merit. On appeal, the
SEC En Banc affirmed the decision of the hearing officer.
Intervenor Guerrero filed a complaint before the then Court of First
Instance of Rizal, Quezon City Branch, against private respondents
for the annulment of the Deeds of Assignment, docketed as Civil
Case No. Q-32050. Petitioners, on the other hand, filed a Motion to
Dismiss and/or to Suspend Hearing of SEC Case No. 1979 until after
the question of whether the subject Deeds of Assignment are
fictitious, void or simulated is resolved in Civil Case No. Q-32050.
The SEC Hearing Officer denied said motion.
On December 10, 1984, the SEC Hearing Officer rendered a
Decision granting the writ of Mandamus prayed for by the private
respondents and directing petitioners to cancel stock certificates nos.
26, 49 and 65 of the Bank, all in the name of Clemente G. Guerrero,
and to issue new certificates in the names of private respondents,
except Melania Guerrero. The dispositive, portion of the decision
reads:

WHEREFORE, judgment is hereby rendered in favor of the

petitioners and against the respondents, directing the latter,
particularly the corporate secretary of respondent Rural Bank of
Salinas, Inc., to register in the latter's Stock and Transfer Book the
transfer of 473 shares of stock of respondent Bank and to cancel
Stock Certificates Nos. 26, 45 and 65 and issue new Stock
Certificates covering the transferred shares in favor of petitioners, as
follows:
1. Luz Andico 457 shares
2. Wilhelmina Rosales 10 shares
3. Francisco Guerrero, Jr. 5 shares
4. Francisco Guerrero, Sr. 1 share
and to pay to the above-named petitioners, the dividends for said
shares corresponding to the years 1981, 1982, 1983 and 1984
without interest.
No pronouncement as to costs.
SO ORDERED. (p. 88, Rollo)
On appeal, the SEC En Banc affirmed the decision of the Hearing
Officer. Petitioner filed a petition for review with the Court of Appeals
but said Court likewise affirmed the decision of the SEC.
We rule in favor of the respondents.
Section 5 (b) of P.D. No. 902-A grants to the SEC the original and
exclusive jurisdiction to hear and decide cases involving
intracorporate controversies. An intracorporate controversy has been
defined as one which arises between a stockholder and the
corporation. There is no distinction, qualification, nor any exception
whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The case at
bar involves shares of stock, their registration, cancellation and
issuances thereof by petitioner Rural Bank of Salinas. It is therefore
within the power of respondent SEC to adjudicate.

Respondent SEC correctly ruled in favor of the registering of the

shares of stock in question in private respondent's names. Such
ruling finds support under Section 63 of the Corporation Code, to wit:
Sec. 63. . . . Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the
books of the corporation . . .
In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court
interpreted Sec. 63 in his wise:
Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation
Code]) contemplates no restriction as to whom the stocks may be
transferred. It does not suggest that any discrimination may be
created by the corporation in favor of, or against a certain purchaser.
The owner of shares, as owner of personal property, is at liberty,
under said section to dispose them in favor of whomever he pleases,
without limitation in this respect, than the general provisions of law. . .
.
The only limitation imposed by Section 63 of the Corporation Code is
when the corporation holds any unpaid claim against the shares
intended to be transferred, which is absent here.
A corporation, either by its board, its by-laws, or the act of its officers,
cannot create restrictions in stock transfers, because:
. . . Restrictions in the traffic of stock must have their source in
legislative enactment, as the corporation itself cannot create such
impediment. By-laws are intended merely for the protection of the
corporation, and prescribe regulation, not restriction; they are always
subject to the charter of the corporation. The corporation, in the
absence of such power, cannot ordinarily inquire into or pass upon
the legality of the transactions by which its stock passes from one
person to another, nor can it question the consideration upon which a
sale is based. . . . (Tomson on Corporation Sec. 4137, cited in
Fleisher vs. Nolasco, Supra).

The right of a transferee/assignee to have stocks transferred to his

name is an inherent right flowing from his ownership of the stocks.
Thus:
Whenever a corporation refuses to transfer and register stock in
cases like the present, mandamus will lie to compel the officers of the
corporation to transfer said stock in the books of the corporation" (26,
Cyc. 347, Hyer vs. Bryan, 19 Phil. 138; Fleisher vs. Botica Nolasco,
47 Phil. 583, 594).
The corporation's obligation to register is ministerial.
In transferring stock, the secretary of a corporation acts in purely
ministerial capacity, and does not try to decide the question of
ownership. (Fletcher, Sec. 5528, page 434).
The duty of the corporation to transfer is a ministerial one and if it
refuses to make such transaction without good cause, it may be
compelled to do so by mandamus. (See. 5518, 12 Fletcher 394)
For the petitioner Rural Bank of Salinas to refuse registration of the
transferred shares in its stock and transfer book, which duty is
ministerial on its part, is to render nugatory and ineffectual the spirit
and intent of Section 63 of the Corporation Code. Thus, respondent
Court of Appeals did not err in upholding the Decision of respondent
SEC affirming the Decision of its Hearing Officer directing the
registration of the 473 shares in the stock and transfer book in the
names of private respondents. At all events, the registration is without
prejudice to the proceedings in court to determine the validity of the
Deeds of Assignment of the shares of stock in question.
WHEREFORE, the petition is DISMISSED for lack of merit.
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 bylaws 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 preemptive 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.
DIGEST
FACTS:
E. Razon, Inc. was organized by Enrique Razon. Some of its nominal incorporators withdrew,
thus Razon distributed their shares to some of his friends, which included Juan T. Chuidian, to
whom he transferred 1,500 shares of stock. It was agreed between the two that Chuidian was
only given the option to buy the said shares, but Razon would be the owner. A stock certificate
was issued by the Corporation in the name of Chuidian, covering the 1,500 shares of stock. The
said transfer was also recorded in the corporate books of the Corporation. The said certificate,
however, was held by Razon, who delivered it to the Philippine Bank of Commerce. Chuidian
thereafter died, and his administrator filed an action to recover the certificate of shares of stock
from Razon, representing Chuidians shareholdings in the Corporation. The CFI declared Razon
as the owner of the said shares. The IAC however reversed, and ruled that Chuidian was the
owner of the said shares of stock as evidence by the certificate, and as recorded in the corporate
books.
ISSUE:
WON Chuidian is the owner of the contested shares of stock as evidenced by the certificate and
the record in the corporate books.
RULING:
Yes. Razons oral testimony alleging the existence of an agreement between the two parties
cannot prevail over what appear in the certificate of shares of stock and the corporate books. The
law is clear that in order for a transfer of stock certificates to be effective as between the parties,
the certificate must be properly indorsed and that the title to such certificate of stock is vested in
the transferee by the delivery of the duly indorsed certificate of stock. Since the certificate of stock
covering the questioned 1,500 shares of stock registered in the name of the late Chuidian was
never indorsed to Razon, the inevitable conclusion is that the questioned shares of stock belong
to Chuidian. The indorsement of the certificate of shares of stock is a mandatory requirement of
law for an effective transfer of a certificate of stock.

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

ANTONIA TORRES, assisted by her husband,

ANGELO TORRES; and EMETERIA
BARING, petitioners, vs. COURT OF
APPEALS
and
MANUEL
TORRES,
respondents.
DECISION
PANGANIBAN, J.:

Courts may not extricate parties from the necessary

consequences of their acts. That the terms of a contract turn out to
be financially disadvantageous to them will not relieve them of
their obligations therein. The lack of an inventory of real property
will not ipso facto release the contracting partners from their
respective obligations to each other arising from acts executed in
accordance with their agreement.
The Case

The Petition for Review on Certiorari before us assails the

March 5, 1998 Decision[1] Second Division of the Court of
Appeals[2] (CA) in CA-GR CV No. 42378 and its June 25, 1998
Resolution denying reconsideration. The assailed Decision
affirmed the ruling of the Regional Trial Court (RTC) of Cebu City
in Civil Case No. R-21208, which disposed as follows:
WHEREFORE,foralltheforegoingconsiderations,theCourt,
findingforthedefendantandagainsttheplaintiffs,ordersthe
dismissaloftheplaintiffscomplaint.Thecounterclaimsofthe
defendantarelikewiseordereddismissed.Nopronouncementas
tocosts.[3]

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners,

entered into a "joint venture agreement" with Respondent Manuel
Torres for the development of a parcel of land into a subdivision.
Pursuant to the contract, they executed a Deed of Sale covering the
said parcel of land in favor of respondent, who then had it
registered in his name. By mortgaging the property, respondent
obtained from Equitable Bank a loan of P40,000 which, under the
Joint Venture Agreement, was to be used for the development of
the subdivision.[4] All three of them also agreed to share the proceeds from the
sale of the subdivided lots.

The project did not push through, and the land was
subsequently foreclosed by the bank.
According to petitioners, the project failed because of
respondents lack of funds or means and skills. They add that
respondent used the loan not for the development of the
subdivision, but in furtherance of his own company, Universal
Umbrella Company.
On the other hand, respondent alleged that he used the loan to
implement the Agreement. With the said amount, he was able to
effect the survey and the subdivision of the lots. He secured the
Lapu Lapu City Councils approval of the subdivision project
which he advertised in a local newspaper. He also caused the
construction of roads, curbs and gutters. Likewise, he entered into
a contract with an engineering firm for the building of sixty lowcost housing units and actually even set up a model house on one
of the subdivision lots. He did all of these for a total expense of
P85,000.
Respondent claimed that the subdivision project failed,
however, because petitioners and their relatives had separately
caused the annotations of adverse claims on the title to the land,

which eventually scared away prospective buyers. Despite his

requests, petitioners refused to cause the clearing of the claims,
thereby forcing him to give up on the project.[5]
Subsequently, petitioners filed a criminal case for estafa
against respondent and his wife, who were however acquitted.
Thereafter, they filed the present civil case which, upon
respondent's motion, was later dismissed by the trial court in an
Order dated September 6, 1982. On appeal, however, the appellate
court remanded the case for further proceedings. Thereafter, the
RTC issued its assailed Decision, which, as earlier stated, was
affirmed by the CA.
Hence, this Petition.[6]
Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that

petitioners and respondent had formed a partnership for the
development of the subdivision. Thus, they must bear the loss
suffered by the partnership in the same proportion as their share in
the profits stipulated in the contract. Disagreeing with the trial
courts pronouncement that losses as well as profits in a joint
venture should be distributed equally,[7] the CA invoked Article
1797 of the Civil Code which provides:
Article1797Thelossesandprofitsshallbedistributedin
conformitywiththeagreement.Ifonlytheshareofeachpartnerin
theprofitshasbeenagreedupon,theshareofeachinthelosses
shallbeinthesameproportion.
The CA elucidated further:
Intheabsenceofstipulation,theshareofeachpartnerinthe
profitsandlossesshallbeinproportiontowhathemayhave
contributed,buttheindustrialpartnershallnotbeliableforthe

losses.Asfortheprofits,theindustrialpartnershallreceivesuch
shareasmaybejustandequitableunderthecircumstances.If
besideshisserviceshehascontributedcapital,heshallalsoreceive
ashareintheprofitsinproportiontohiscapital.
The Issue

Petitioners impute to the Court of Appeals the following error:

xxx[The]CourtofAppealserredinconcludingthatthe
transactionxxxbetweenthepetitionersandrespondentwasthat
ofajointventure/partnership,ignoringoutrighttheprovisionof
Article1769,andotherrelatedprovisionsoftheCivilCodeofthe
Philippines.[8]
The Courts Ruling

The Petition is bereft of merit.

Main Issue: Existence of a Partnership

Petitioners deny having formed a partnership with respondent.

They contend that the Joint Venture Agreement and the earlier
Deed of Sale, both of which were the bases of the appellate courts
finding of a partnership, were void.
In the same breath, however, they assert that under those very
same contracts, respondent is liable for his failure to implement the
project. Because the agreement entitled them to receive 60 percent
of the proceeds from the sale of the subdivision lots, they pray that
respondent pay them damages equivalent to 60 percent of the value
of the property.[9]
The pertinent portions of the Joint Venture Agreement read as
follows:

KNOWALLMENBYTHESEPRESENTS:
ThisAGREEMENT,ismadeandenteredintoatCebuCity,
Philippines,this5thdayofMarch,1969,byandbetweenMR.
MANUELR.TORRES,xxxtheFIRSTPARTY,likewise,MRS.
ANTONIAB.TORRES,andMISSEMETERIABARING,xxx
theSECONDPARTY:
WITNESSETH:
That,whereas,theSECONDPARTY,voluntarilyofferedthe
FIRSTPARTY,thispropertylocatedatLapuLapuCity,Islandof
Mactan,underLotNo.1368coveringTCTNo.T0184withatotal
areaof17,009squaremeters,tobesubdividedbytheFIRST
PARTY;
Whereas,theFIRSTPARTYhadgiventheSECONDPARTY,
thesumof:TWENTYTHOUSAND(P20,000.00)Pesos,
PhilippineCurrency,upontheexecutionofthiscontractforthe
propertyentrustedbytheSECONDPARTY,forsubdivision
projectsanddevelopmentpurposes;
NOWTHEREFORE,forandinconsiderationoftheabove
covenantsandpromiseshereincontainedtherespectiveparties
heretodoherebystipulateandagreeasfollows:
ONE:ThattheSECONDPARTYsignedanabsoluteDeedof
SalexxxdatedMarch5,1969,intheamountofTWENTYFIVE
THOUSANDFIVEHUNDREDTHIRTEEN&FIFTYCTVS.
(P25,513.50)PhilippineCurrency,for1,700squaremetersatONE
[PESO]&FIFTYCTVS.(P1.50)PhilippineCurrency,infavorof
theFIRSTPARTY,buttheSECONDPARTYdidnotactually
receivethepayment.

SECOND:ThattheSECONDPARTY,hadreceivedfromthe
FIRSTPARTY,thenecessaryamountofTWENTYTHOUSAND
(P20,000.00)pesos,Philippinecurrency,fortheirpersonal
obligationsandthisparticularamountwillserveasanadvance
paymentfromtheFIRSTPARTYforthepropertymentionedtobe
subdividedandtobedeductedfromthesales.
THIRD:ThattheFIRSTPARTY,willnotcollectfromthe
SECONDPARTY,theinterestandtheprincipalamountinvolving
theamountofTWENTYTHOUSAND(P20,000.00)Pesos,
PhilippineCurrency,untilthesubdivisionprojectisterminated
andreadyforsaletoanyinterestedparties,andtheamountof
TWENTYTHOUSAND(P20,000.00)pesos,Philippinecurrency,
willbedeductedaccordingly.
FOURTH:Thatallgeneralexpense[s]andallcost[s]involvedin
thesubdivisionprojectshouldbepaidbytheFIRSTPARTY,
exclusivelyandalltheexpenseswillnotbedeductedfromthe
salesafterthedevelopmentofthesubdivisionproject.
FIFTH:Thatthesalesofthesubdividedlotswillbedividedinto
SIXTYPERCENTUM60%fortheSECONDPARTYand
FORTYPERCENTUM40%fortheFIRSTPARTY,and
additionalprofitsorwhateverincomederivingfromthesaleswill
bedividedequallyaccordingtothexxxpercentage[agreedupon]
bybothparties.
SIXTH:Thattheintendedsubdivisionprojectoftheproperty
involvedwillstarttheworkandallimprovementsuponthe
adjacentlotswillbenegotiatedinbothparties[']favorandallsales
shall[be]decidedbybothparties.
SEVENTH:ThattheSECONDPARTIES,shouldbegivenan
optiontogetbackthepropertymentionedprovidedtheamountof

TWENTYTHOUSAND(P20,000.00)Pesos,PhilippineCurrency,
borrowedbytheSECONDPARTY,willbepaidinfulltothe
FIRSTPARTY,includingallnecessaryimprovementsspentbythe
FIRSTPARTY,andtheFIRSTPARTYwillbegivenagrace
periodtoturnoverthepropertymentionedabove.
ThatthisAGREEMENTshallbebindingandobligatorytothe
partieswhoexecutedsamefreelyandvoluntarilyfortheusesand
purposesthereinstated.[10]
A reading of the terms embodied in the Agreement indubitably
shows the existence of a partnership pursuant to Article 1767 of the
Civil Code, which provides:
ART.1767.Bythecontractofpartnershiptwoormorepersons
bindthemselvestocontributemoney,property,orindustrytoa
commonfund,withtheintentionofdividingtheprofitsamong
themselves.
Under the above-quoted Agreement, petitioners would
contribute property to the partnership in the form of land which
was to be developed into a subdivision; while respondent would
give, in addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the said
project would be divided according to the stipulated percentage.
Clearly, the contract manifested the intention of the parties to form
a partnership.[11]
It should be stressed that the parties implemented the contract.
Thus, petitioners transferred the title to the land to facilitate its use
in the name of the respondent. On the other hand, respondent
caused the subject land to be mortgaged, the proceeds of which
were used for the survey and the subdivision of the land. As noted
earlier, he developed the roads, the curbs and the gutters of the
subdivision and entered into a contract to construct low-cost

housing units on the property.

Respondents actions clearly belie petitioners contention that
he made no contribution to the partnership. Under Article 1767 of
the Civil Code, a partner may contribute not only money or
property, but also industry.
Petitioners Bound by Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the

parties not only to what has been expressly stipulated, but also to
all necessary consequences thereof, as follows:
ART.1315.Contractsareperfectedbymereconsent,andfrom
thatmomentthepartiesareboundnotonlytothefulfillmentof
whathasbeenexpresslystipulatedbutalsotoalltheconsequences
which,accordingtotheirnature,maybeinkeepingwithgood
faith,usageandlaw.
It is undisputed that petitioners are educated and are thus
presumed to have understood the terms of the contract they
voluntarily signed. If it was not in consonance with their
expectations, they should have objected to it and insisted on the
provisions they wanted.
Courts are not authorized to extricate parties from the
necessary consequences of their acts, and the fact that the
contractual stipulations may turn out to be financially
disadvantageous will not relieve parties thereto of their obligations.
They cannot now disavow the relationship formed from such
agreement due to their supposed misunderstanding of its terms.
Alleged Nullity of the Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void

under Article 1773 of the Civil Code, which provides:

ART.1773.Acontractofpartnershipisvoid,whenever
immovablepropertyiscontributedthereto,ifaninventoryofsaid
propertyisnotmade,signedbytheparties,andattachedtothe
publicinstrument.
They contend that since the parties did not make, sign or
attach to the public instrument an inventory of the real property
contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to
protect third persons. Thus, the eminent Arturo M. Tolentino states
that under the aforecited provision which is a complement of
Article 1771,[12] the execution of a public instrument would be
useless if there is no inventory of the property contributed, because
without its designation and description, they cannot be subject to
inscription in the Registry of Property, and their contribution
cannot prejudice third persons. This will result in fraud to those
who contract with the partnership in the belief [in] the efficacy of
the guaranty in which the immovables may consist. Thus, the
contract is declared void by the law when no such inventory is
made. The case at bar does not involve third parties who may be
prejudiced.
Second, petitioners themselves invoke the allegedly void
contract as basis for their claim that respondent should pay them
60 percent of the value of the property.[13] They cannot in one
breath deny the contract and in another recognize it, depending on
what momentarily suits their purpose. Parties cannot adopt
inconsistent positions in regard to a contract and courts will not
tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent
courts from considering the Joint Venture Agreement an ordinary
contract from which the parties rights and obligations to each
other may be inferred and enforced.
Partnership Agreement Not the Result of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is

void under Article 1422[14] of the Civil Code, because it is the
direct result of an earlier illegal contract, which was for the sale of
the land without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly
states that the consideration for the sale was the expectation of
profits from the subdivision project. Its first stipulation states that
petitioners did not actually receive payment for the parcel of land
sold to respondent. Consideration, more properly denominated as
cause, can take different forms, such as the prestation or promise
of a thing or service by another.[15]
In this case, the cause of the contract of sale consisted not in
the stated peso value of the land, but in the expectation of profits
from the subdivision project, for which the land was intended to be
used. As explained by the trial court, the land was in effect given
to the partnership as [petitioners] participation therein. x x x
There was therefore a consideration for the sale, the [petitioners]
acting in the expectation that, should the venture come into
fruition, they [would] get sixty percent of the net profits.
Liability of the Parties

Claiming that respondent was solely responsible for the failure

of the subdivision project, petitioners maintain that he should be
made to pay damages equivalent to 60 percent of the value of the
property, which was their share in the profits under the Joint
Venture Agreement.
We are not persuaded. True, the Court of Appeals held that
petitioners acts were not the cause of the failure of the project. [16]
But it also ruled that neither was respondent responsible therefor.
[17] In imputing the blame solely to him, petitioners failed to give
any reason why we should disregard the factual findings of the
appellate court relieving him of fault. Verily, factual issues cannot

be resolved in a petition for review under Rule 45, as in this case.

Petitioners have not alleged, not to say shown, that their Petition
constitutes one of the exceptions to this doctrine.[18] Accordingly,
we find no reversible error in the CA's ruling that petitioners are
not entitled to damages.
WHEREFORE, the Petition is hereby DENIED and the
challenged Decision AFFIRMED. Costs against petitioners.
SO ORDERED.
DIGEST

In 1969, sisters Antonia Torres and Emeteria Baring

entered into a joint venture agreement with Manuel
Torres. Under the agreement, the sisters agreed to
execute a deed of sale in favor Manuel over a parcel of
land, the sisters received no cash payment from Manuel
but the promise of profits (60% for the sisters and 40%
for Manuel) said parcel of land is to be developed as a
subdivision.
Manuel then had the title of the land transferred in his
name and he subsequently mortgaged the property. He
used the proceeds from the mortgage to start building
roads, curbs and gutters. Manuel also contracted an
engineering firm for the building of housing units. But
due to adverse claims in the land, prospective buyers
were scared off and the subdivision project eventually
failed.
The sisters then filed a civil case against Manuel for
damages equivalent to 60% of the value of the property,
which according to the sisters, is whats due them as per
the contract.
The lower court ruled in favor of Manuel and the Court of
Appeals affirmed the lower court.

The sisters then appealed before the Supreme Court

where they argued that there is no partnership between
them and Manuel because the joint venture agreement
is void.
ISSUE: Whether or not there exists a partnership.
HELD: Yes. The joint venture agreement the sisters
entered into with Manuel is a partnership agreement
whereby they agreed to contribute property (their land)
which was to be developed as a subdivision. While on
the other hand, though Manuel did not contribute
capital, he is an industrial partner for his contribution for
general expenses and other costs. Furthermore, the
income from the said project would be divided according
to the stipulated percentage (60-40). Clearly, the
contract manifested the intention of the parties to form a
partnership. Further still, the sisters cannot invoke their
right to the 60% value of the property and at the same
time deny the same contract which entitles them to it.
At any rate, the failure of the partnership cannot be
blamed on the sisters, nor can it be blamed to Manuel
(the sisters on their appeal did not show evidence as to
Manuels fault in the failure of the partnership). The
sisters must then bear their loss (which is 60%). Manuel
does not bear the loss of the other 40% because as an
industrial partner he is exempt from losses.
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