Assigned Cases outline 5 (ADDITIONAL)

Guy vs Guy

SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO, and the HEIRS OF THE LATE GRACE G. CHEU,
Petitioners,

vs.

GILBERT G. GUY, Respondent.

Facts: With 519,997 shares of stock as reflected in Stock Certificate Nos. 004-014, herein respondent
Gilbert G. Guy (Gilbert) practically owned almost 80 percent 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
(Francisco) with 130,000 shares, Simny Guy (Simny), Benjamin Lim and Paulino Delfin Pe, with one share
each, respectively. 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. She claimed that with their eldest son, Gaspar G. Guy (Gaspar), having
entered the Focolare Missionary in 1970s, renouncing worldly possessions, she and Francisco put the
future of the Guy group of companies in Gilbert’s hands. Gilbert was expected to bring to new heights
their family multi-million businesses and they, his parents, had high hopes in him.

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.

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 Guy-Cheu (Grace), Geraldine Guy (Geraldine), and Gladys
Guy (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 September 2004, or five years after the redistribution of GoodGold’s shares of stock, Gilbert filed with
the Regional Trial Court (RTC) of Manila, a Complaint for the "Declaration of Nullity of Transfers of
Shares in GoodGold." Gilbert alleged, among others, that no stock certificate ever existed;9 that his
signature at the back of the spurious Stock Certificate Nos. 004-014 which purportedly endorsed the
same and that of the corporate secretary, Emmanuel Paras, at the obverse side of the certificates were
forged, and, hence, should be nullified. Gilbert, however, withdrew the complaint, after the National
Bureau of Investigation (NBI) submitted a report to the RTC of Manila authenticating Gilbert’s signature
in the endorsed certificates.

The present controversy arose, when in 2008, three years after the complaint with the RTC of Manila was
withdrawn, Gilbert again filed a complaint, this time, 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,"
docketed as SEC-MC08-112, against his mother, Simny, his sisters, Geraldine, Gladys, and the heirs of his
late sister Grace.

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.14 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." The RTC
dismissed the case declaring it a nuisance and harassment suit. On appeal, The CA, however, found
merit on Gilbert’s contention that the complaint should be heard on the merits.

Ruling: Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of

directors or other persons may be classified into individual suits, class suits, and derivative suits.30

An individual suit may be instituted by a stockholder against another stockholder for wrongs committed
against him personally, and to determine their individual rights31 – this is an individual suit between
stockholders. But an individual suit may also be instituted against a corporation, the same having a
separate juridical personality, which by its own may be sued. It is of course, essential that the suing
stockholder has a cause of action against the corporation.32

Individual suits against another stockholder or against a corporation are remedies which an aggrieved
stockholder may avail of and which are recognized in our jurisdiction as embedded in the Interim Rules
on Intra-Corporate Controversy. Together with this right is the parallel obligation of a party to comply
with the compulsory joinder of indispensable parties whether they may be stockholders or the
corporation itself.

It bears emphasis that this controversy started with Gilbert’s complaint filed with the RTC of
Mandaluyong City in his capacity as stockholder, director and Vice-President of GoodGold.

Gilbert omitted Francisco as defendant in his complaint. While Gilbert could have opted to waive his
shares in the name of Francisco to justify the latter’s non-inclusion in the complaint, Gilbert did not do
so, but instead, wanted everything back and even wanted the whole transfer of shares declared
fraudulent. This cannot be done, without including Francisco as defendant in the original case. The
transfer of the shares cannot be, as Gilbert wanted, declared entirely fraudulent without including those
of Francisco who owns almost a third of the total number.
Francisco, in both the 2004 and 2008 complaints, is an indispensable party without whom no final
determination can be had for the following reasons: (a) the complaint prays that the shares now under
the name of the defendants and Francisco be declared fraudulent; (b) Francisco owns 195,000 shares
some of which, Gilbert prays be returned to him; (c) Francisco signed the certificates of stocks
evidencing the alleged fraudulent shares previously in the name of Gilbert. The inclusion of the shares of
Francisco in the complaint makes Francisco an indispensable party.

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.

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. In Santamaria v. Hongkong and Shanghai Banking
Corp.,61 this Court held that 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 into his name from the issuing corporation. Such certificate is deemed quasi-negotiable, and
as such the transferee thereof is justified in believing that it belongs to the holder and transferor.

While there is a contrary ruling, as an exception to the general rule enunciated above, what the Court
held in Neugene Marketing Inc., et al., v CA,62 where stock certificates endorsed in blank were stolen
from the possession of the beneficial owners thereof constraining this Court to declare the transfer void
for lack of delivery and want of value, the same cannot apply to Gilbert 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.

Lee vs Trocino

ERIC L. LEE, Petitioner,

vs.

HON. HENRY J. TROCINO, PRESIDING JUDGE OF THE REGIONAL TRIAL COURT, SIXTH JUDICIAL REGION,
BRANCH 62, BAGO CITY, THE OFFICE OF THE EX-OFFICIO SHERIFF OF THE REGIONAL TRIAL COURT, SIXTH
JUDICIAL REGION, BRANCH 62, BAGO CITY, and MAGDALENO M. PEÑA, Respondents.

Facts B: On October 13, 2008, petitioner filed an Urgent Motion for Consolidation seeking that the
instant case be consolidated with the following petitions pending with the other Divisions of the Court,
notably : (Urban Bank, Inc. v. Peña), where the First Division of the Court resolved, to suspend or stay
the running of Urban Bank’s one-year period to redeem its properties sold at the public auction held on
October 4, 11 and 25, 2001, as well as the consolidation of the titles thereto in favor of the buyers at
auction. In said case, Makati Sports Club, Inc. was prohibited from transferring Urban Bank’s club
shares therein to the winning bidders in the October 11, 2001 execution sale.

1. Our ruling that Urban Bank is liable under an agency agreement. Petitioner claims that the issue is
subject of the November 6, 2003 decision of the Court of Appeals in CA- G.R. CV No. 65756 and pending
in this Court via G.R. No. 162562. Petitioner posits that since the judgment of the trial court in Civil Case
No. 754 – which forms the basis for the grant of execution pending appeal – was reversed in CA-G.R. CV
No. 65756, it is premature for us to declare Peña as the owner of the shares subject of the present
petition, because there remains the possibility that the judgment in CA-G.R. CV No. 65756 could be
affirmed or that respondent therein could be exonerated entirely from liability in G.R. No. 162562;

2. Our pronouncement that there was good ground to allow execution pending appeal. Petitioner
asserts that the propriety of the trial court’s grant of execution pending appeal is the issue sought to be
resolved in the petition in G.R. No. 145822;

According to petitioner, the above Resolution of the First Division suspended or stayed the transfer or
consolidation of titles in favor of buyers "at any prior execution sale," which includes buyers of
petitioner’s shares of stock at the execution proceedings in issue here.

Petitioner argues that execution pending appeal is not possible in the absence of an indemnity bond
that was subsequently required of the judgment creditor. This argument is without basis, because the
Rules do not require the posting of an indemnity bond before execution pending appeal may be made.

The standard set under Section 2(a), Rule 39 merely requires "good reasons," a "special order," and "due
hearing." Due hearing would not require a hearing in open court, but simply the right to be heard, which
SIDDCOR availed of when it filed its opposition to the motion for immediate execution. The Resolution
dated 16 October 1998 satisfies the "special order" requirement, and it does enumerate at length the
"good reasons" for allowing execution pending appeal. As to the appreciation of "good reasons," we
simply note that the advanced age alone of Sandoval would have sufficiently justified execution pending
appeal, pursuant to the well-settled jurisprudential rule. The wrongfulness of the attachment, and the
length of time respondents have been deprived of their money by reason of the wrongful attachment
further justifies execution pending appeal under these circumstances.71awphi1

Moreover, petitioner’s argument that a bond must first be posted before the writ of execution pending
appeal may issue, is without merit because there may be good reasons allowing execution pending
appeal that have a direct bearing on the prevailing party’s ability and capacity to post a bond.
Petitioner’s posture would limit the courts’ ability to determine what are good and compelling reasons
that would allow a writ of execution pending appeal, since the prevailing party’s ability to post a bond
would be the primary consideration in the grant or denial of the writ, and not the good and compelling
reasons attendant to the case. Finally, just as we have held that the mere filing of a bond alone does not
constitute the "good reason" envisioned by the Rules,8 then neither may the failure of the court to
require the posting of a bond automatically render the execution pending appeal irregular.

What petitioner appears to do is to attempt to evade the effects of the sale of his shares of stock to the
buyers at the execution sale, which sale immediately transferred title thereto to the buyers. It should be
restated that since there is no right to redeem personal property, the rights of ownership are vested to
the purchaser at the foreclosure (or execution) sale and are not entangled in any suspensive condition
that is implicit in a redemptive period.9 Besides, the Resolution of the First Division of the Court dated
November 13, 2002 refers to or affects only real and personal property, specifically, the Makati Sports
Club, Inc. shares of stock belonging to Urban Bank; it cannot extend to the property or shares of stock
subject of the present petition, which are nowhere mentioned in the said Resolution.

Thus said, we find no valid reason why the buyers at execution sale of petitioner’s shares of stock should
be prevented from obtaining title to the same. The pendency of a case involving the petitioner and Peña
does not affect the registrability of the shares of stock bought at execution sale, although the
registration is without prejudice to the proceedings to determine the liability of the parties as against
each other, specifically between Urban Bank, its directors and officers (which includes petitioner), and
Peña. As we have ruled before,

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. x x x 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 x x x."

In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in this 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. x x x"

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:

"x x x 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. x x x"

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."

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."

"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."

SANTAMARIA vs HONGKONG

JOSEFA SANTAMARIA, assisted by her husband, FRANCISCO SANTAMARIA, Jr., plaintiff-appellee,

vs.

THE HONGKONG AND SHANGHAI BANKING CORPORATION and R. W. TAPLIN, defendants-appellant.

Facts: Sometime in February, 1937, Mrs. Josefa T. Santamaria bought 10,000 shares of the Batangas
Minerals, Inc., through the offices of Woo, Uy-Tioco & Naftaly, a stock brokerage firm and pay therefore
the sum of P8,041.20. The buyer received Stock Certificate No. 517, Exh. "F", issued in the name of
Woo, Uy-Tioco & Naftaly and indorsed in bank by this firm. On March 9, 1937, Mrs. Santamaria placed
an order for the purchase of 10,000 shares of the Crown Mines, Inc. with R.J. Campos & Co., a brokerage
firm, and delivered Certificate No. 517 to the latter as security therefor with the understanding that said
certificate would be returned to her upon payment of the 10,000 Crown Mines, Inc. shares. Two days
later, on March 11, Mrs. Santamaria went to R.J. Campos & Co., Inc. to pay for her order of 10,000
Crown Mines shares and to get back Certificate No. 517. Cosculluela then informed her that R.J. Campos
& Co., Inc. was no longer allowed to transact business due to a prohibition order from Securities and
Exchange Commission. She was also inform that her Stock certificate was in the possession of the
Hongkong and Shanghai Banking Corporation. Certificate No. 517 came into possession of the Hongkong
and Shanghai Banking Corporation because R.J. Campos & Co., Inc. had opened an overdraft account
with this bank and to this effect it had executed on April 16, 1936 a document of hypothecation, Exhibit
1, by the term of which R.J. Campos & Co., Inc. pledged to the said bank "all stocks, shares and securities
which I/we may hereafter come into their possession of my/our account and whether originally
deposited for safe custody only or for any other purpose whatever or which may hereinafter be
deposited by me/us in lieu of or in addition to the Stocks Shares and Securities now deposited or for any
other purposes whatsoever." On March 11, 1937, Certificate No. 517, already indorsed by R.J. Campos
Co. Inc. to the Hongkong & Shanghai Banking Corporation, was sent by the latter to the office of the
Batangas Minerals, Inc. with the request that the same be cancelled and a new certificate be issued in
the name of R.W. Taplin as trustee and nominee of the banking corporation. Robert W. Taplin was an
officer of this institution in charge of the securities belonging to or claimed by the bank. As per this
request the Batangas Minerals, Inc. on March 12, 1937, issued Certificate No. 715 in lieu of Certificate
No. 517, in the name of Robert W. Taplin as trustee and nominee of the Hongkong & Shanghai Banking
Corporation. In her interview with Taplin, the bank's representative, she informed him that the
certificate belonged to her, and she demanded that it be returned to her. Taplin then replied that the
bank did not know anything about the transaction had between her and R.J. Campos & Co., Inc., and
that he could not do anything until the case of the bank with Campos shall have been terminated. This
declaration was not contradicted by the adverse party. "In Civil Case No. 51224, R.J. Campos & Co., Inc.
was declared insolvent, and on July 12, 1937, the Hongkong & Shanghai Banking Corporation asked
permission in the insolvency court to sell the R.J. Campos & Co., Inc., securities listed in its motion by
virtue of the document of hypothecation Exhibit 1. In an order dated July 15, 1937, the insolvency court
granted this motion.

"On June 3, 1938, to 10,000 shares of Batangas Minerals, Inc. represented by Certificate No. 715, were
sold to the same bank by the Sheriff for P300 at the foreclosure sale authorized by said order.

R.J. Campos, the president of R.J. Campos & Co., Inc., was prosecuted for estafa and found guilty of this
crime and was sentenced by the Manila Court of First Instance in Criminal Case No. 54428, to an
imprisonment and to indemnify the offended party, Mrs. Josefa Santamaria, in the amount of P8,041.20
representing the value of the 10,000 shares of Batangas Minerals, Inc. When Mrs. Santamaria failed in
her efforts to force the civil judgment rendered in her favor in the criminal case because the accused
became insolvent, she filed her complaint in this case on October 11, 1940. At the trial both parties
agreed that the 10,000 Batangas Minerals shares formerly represented by Certificate No. 517 and
thereafter by Certificate No. 715, have no actual market value. The errors assigned by the defendants-
appellants as committed by the lower court are:

I. The trial court erred in finding that the plaintiff-appellee was not chargeable with negligence in the
transaction which gave rise to this case.

II. The trial court erred in holding that it was the obligation of the bank to have inquired into the
ownership of the certificate when it received it from R.J. Campos & Company and in concluding that the
bank was negligent for not having done so.

Ruling: 1. Petitioner was negligent. Certificate of stock No. 517 was made out in the name of Wo, Uy-
Tioco & Naftaly, brokers, and was duly indorsed in bank by said brokers. This certificate of stock was
delivered by plaintiff to R.J. Campos & Co., Inc. to comply with a requirement that she deposit
something on account if she wanted to buy 10,000 shares of Crown Mines Inc. In making said deposit,
plaintiff did not take any precaution to protect herself against the possible misuse of the shares
represented by the certificate of stock. Plaintiff could have asked the corporation that had issued said
certificate to cancel it and issue another in lieu thereof in her name to apprise the holder that she was
the owner of said certificate. This she failed to do, and instead she delivered said certificate, as it was, to
R.J. Campos & Co., Inc., thereby clothing the latter with apparent title to the shares represented by said
certificate including apparent authority to negotiate it by delivering it to said company while it was
indorsed in blank by the person or firm appearing on its face as the owner thereof. The defendant Bank
had no knowledge of the circumstances under which the certificate of stock was delivered to R.J.
Campos & Co., Inc., and had a perfect right to assume that R.J. Campos & Co., Inc. was lawfully in
possession of the certificate in view of the fact that it was a street certificate, and was in such form as
would entitle any possessor thereof to a transfer of the stock on the books of the corporation
concerned. There is no question that, in this case, plaintiff made the negotiation of the certificate of
stock to other parties possible and the confidence she placed in R.J. Campos & Co., Inc. made the wrong
done possible. This was the proximate cause of the damage suffered by her. She is, therefore, estopped
from claiming further title to or interest therein as against a bona fide pledge or transferee thereof, for
it is a well-known rule that a bona fide pledgee or transferee of a stock from the apparent owner is not
chargeable with knowledge of the limitations placed on it by the real owner, or of any secret agreement
relating to the use which might be made of the stock by the holder.

On the other hand, it appears that this certificate of stock, indorsed as it was in blank by Woo, Uy-Tioco
& Naftaly, stock brokers, was delivered to The Hongkong and Shanghai Banking Corporation by R.J.
Campos & Co., Inc., duly indorsed by the latter, pursuant to a letter of hypothecation executed by R.J.
Campos & Co., Inc., in favor of said Bank (Exhibit "1"). The said certificate was delivered to the Bank in
the ordinary course of business, together with many other securities, and at the time it was delivered,
the Bank had no Knowledge that the shares represented by the certificate belonged to the plaintiff for,
as already said, it was in the form of street certificate which was transferable by mere delivery. The rule
is "where one of two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss
must fall on the one who first trusted the wrong doer and put in his hands the means of inflicting such
loss" (Fletcher Cyclopedia of Corporations, supra).

It is therefore clear that plaintiff, in failing to take the necessary precautions upon delivering the
certificate of stock to her broker, was chargeable with negligence in the transaction which resulted to
her own prejudice, and as such, she is estopped from asserting title to it as against the defendant Bank.

2. Was the defendants Bank obligated to inquire who was the real owner of the shares represented by
the certificate of stock, and could it be charged with negligence for having failed to do so?

It should be noted that the certificate of stock in question was issued in the name of the brokerage firm-
Woo, Uy-Tioco & Naftaly and that it was duly indorsed in blank by said firm, and that said indorsement
was guaranteed by R.J. Campos & Co., Inc., which in turn indorsed it in blank. This certificate is what it is
known as street certificate. Upon its face, the holder was entitled to demand its transfer into his name
from the issuing corporation. The Bank was not obligated to look beyond the certificate to ascertain the
ownership of the stock at the time it received the same from R.J. Campos & Co., Inc., for it was given to
the Bank pursuant to their letter of hypothecation. Even if said certificate had been in the name of the
plaintiff but indorsed in blank, the Bank would still have been justified in believing that R.J. Campos &
Co., Inc. had title thereto for the reason that it is a well-known practice that a certificate of stock,
indorsed in blank, is deemed quasi negotiable, and as such the transferee thereof is justified in believing
that it belongs to the holder and transferorThe only evidence in the record to show that the certificate
of stock in question may not have belonged to R.J. Campos & Co., Inc. is the testimony of the plaintiff to
the effect that she had approached Robert W. Taplin on March 13, 1937, and informed him that she was
the true owner of said certificate and demanded the return thereof, or its value, but even assuming for
the sake of argument that what plaintiff has stated is true, such an incident would merely show that
plaintiff has an adverse claim to the ownership of said certificate of stock, but that would not necessarily
place the Bank in the position to inquire as to the real basis of her claim, nor would it place the Bank in
the obligation to recognize her claim and return to her the certificate outright. A mere claim and of
ownership does not establish the fact of ownership. The right of the plaintiff in such a case would be
against the transferor. In fact, this is the attitude plaintiff has adopted when she filed a charge for estafa
against Rafael J. Campos, which culminated in his prosecution and conviction, and it is only when she
found him to be insolvent that she decided to go against the Bank. The fact that on the right margin of
the said certificate the name of the plaintiff appeared written, granting it to be true, can not be
considered sufficient reason to indicate that its owner was the plaintiff considering that said certificate
was indorsed in blank by her brokers Woo, Uy-Tioco & Naftaly, was guaranteed by indorsement in blank
by R.J. Campos & Co., Inc., and was transferred in due course by the latter to the Bank under their letter
of hypothecation. Said indicium could at best give the impression that the plaintiff was the original
holder of the certificate.

The Court has noticed that the defendant Bank was willing from the very beginning to compromise this
case by delivering to the plaintiff certificate of stock No. 715 that was issued to said Bank by the issuer
corporation in lieu of the original as alleged and prayed for in its amended answer to the complaint
dated April 2, 1941. Considering that in the light of the law and precedents applicable in this case, the
most that plaintiff could claim is the return to her of the said certificate of stock (Howson vs. Mechanics
Sav. Bank, 183 Atl., p. 697), the Court, regardless of the conclusions arrived at as above stated, is
inclined to grant the formal tender made by the defendant to the plaintiff of said certificate.

De los Santos vs McGrath

APOLINARIO G. DE LOS SANTOS and ISABELO ASTRAQUILLO, plaintiffs-appellees,

vs.

J. HOWARD MCGRATH ATTORNEY GENERAL OF THE UNITED STATES, SUCCESSOR TO THE PHILIPPINE
ALIEN PROPERTY ADMINISTRATION OF THE UNITED STATES, defendant-appellant.

REPUBLIC OF THE PHILIPPINES, intervenor-appellant.

Facts: This action involves the title to 1,600,000 shares of stock of the Lepanto Consolidated Mining Co.,
Inc., a corporation duly organized and existing under the laws of the Philippines, hereinafter referred to,
for the sake of brevity, as the Lepanto. Originally, one-half of said shares of stock were claimed by
plaintiff, Apolinario de los Santos, and the other half, by his co-plaintiff Isabelo Astraquillo. During the
pendency of this case, the latter has allegedly conveyed and assigned his interest in and to said half
claimed by him to the former. The shares of stock in question are covered by several stock certificates
issued in favor of Vicente Madrigal, who is registered in the books of the Lepanto as owner of said stocks
and whose indorsement in blank appears on the back of said certificates, all of which, except certificates
No. 2279 — marked Exhibit 2 — covering 55,000 shares, are in plaintiffs' possession. So was said Exhibit
2, up to sometime in 1945 or 1946 when said possession was lost under the conditions set forth in
subsequent pages.

De los Santos bought 55,000 shares from Juan Campos, in Manila, early in December, 1942; that he
bought 300,000 shares from Carl Hess, in the same city, several days later; and that, before Christmas of
1942, be bought 800,000 shares from Carl Hess, this time for the account and benefit of Astraquillo. By
virtue of vesting P-12, dated February 18, 1945, title to the 1,600,000 shares of stock in dispute was,
however, vested in the Alien Property Custodian of the U. S. (hereinafter referred to as the Property
Custodian) as Japanese property. The Vested Property Claims Committee of the Philippine Alien
Property Administration made a "determination," that "title to the shares in question shall remain in the
name of the Philippine Alien Property Administrator." Consequently, plaintiffs instituted the present
action to establish title to the aforementioned shares of stock. In their complaint, they pray that
judgment be rendered declaring them lawful owners of said shares of stock, with such dividends, profits
and rights as may have accrued thereto; requiring the defendant to render accounts and to transfer said
shares of stock to plaintiffs' names; and sentencing the former to pay the costs. The defendant herein is
the Attorney General of the U. S., successor to the "Administrator". He contends, substantially, that,
prior to the outbreak of the war in the Pacific, said shares of stock were bought by Vicente Madrigal, in
trust for, and for the benefit of, the Mitsui Bussan Kaisha. Madrigal delivered the corresponding stock
certificates, with his blank indorsement thereon, to the Mitsuis, which kept said certificates, in the files
of its office in Manila, until the liberation of the latter by the American forces early in 1945; that the
Mitsuis had never sold, or otherwise disposed of, said shares of stock; and that the stock certificates
aforementioned must have been stolen or looted, therefore, during the emergency resulting from said
liberation. Inasmuch as, pursuant to the Philippine Property Act, all property vested in the United States,
or any of its officials, under the Trading with the Enemy Act, as amended, located in the Philippines at
the time of such vesting, or the proceeds thereof, shall be transferred to the Republic of the Philippines,
the latter sought permission, and was allowed, to intervene in this case and filed an answer adopting in
substance the theory of the defendant. The CFI of Manila adjudged in favor of plaintiffs declaring the
former the absolute owners of the shares of stock of the Lepanto consolidated Mining Company, covered
by the certificates of stock, respectively, in their (plaintiffs') possession. The transfer of said shares of
stock in favor of the Alien Property Custodian of the U. S. of America, now Philippine Alien Property
Administration, is hereby declared null and void and of no effect. Consequently, the Lepanto consolidated
mining Company is ordered to cancel the certificates of stock issued in the name of the Philippine Alien
Property Custodian or Philippine Alien Property Administrator, as the case may be.
The defendant and the intervenor have appealed from this decision. The main question for
determination in this appeal is whether or not plaintiffs had purchased the shares of stock in question.

Mr. Madrigal, whose testimony before the claims Committee of the Philippine Alien Property
Administration was admitted with plaintiffs' consent, stated that he purchased the shares of stock in
question, among others, for the Mitsuis and at their request; that he paid with his own funds the
corresponding price, which was later reimbursed to him by the Mitsuis; that he held the corresponding
stock certificates, which were issued in his name, with the understanding that he would effect the
necessary transfer, to the Mitsuis, upon demand; and that, shortly before the outbreak of war, he
delivered said stock certificates, with his blank endorsement thereon, to the Mitsuis, to whom said stock
belonged.

Matsune Kitajima declared that in June 1941 he relieved one Kobayashi, as manager of the branch office
of the Mitsuis in Manila; that he then receive from Kobayashi the stock certificates for about 1,900,000
shares of the Lepanto, belonging to the Mitsuis, but issued in favor of the Vicente Madrigal, except the
certificates for 200,000 shares, which were in the name of the Mitsuis; that all these certificates were in
kept in a steel safe in said office of the Mitsuis; that, in July 1941, he returned the stock certificates to
Madrigal, with the request that he buy for the Mitsuis, from time to time, some more shares of stock, in
small lots; that Madrigal bought 200,000 additional shares of the Lepanto for the Mitsuis; that, late in
November or early in December, 1941, the stock certificates of the aforementioned 2,100,000 shares
were returned to the Mitsuis, which had decided to stop buying, in view of the strained international
situation then prevailing; that, as branch manager of the Mitsuis, he was the only official authorized to
dispose of the shares in question, none of which was alienated by him; and that he had the
aforementioned stock certificates in his possession continuously until early in April 1943, when he
delivered the same to his successor in office, Kingy Miwa.

Miguel Simon, brother of Carl Hess, from whom plaintiffs claim to have purchased 1,100,000 shares of
stock, affirmed that Hess lived in front of his (Simon's) house; that they were close to each other and
had long been associated in business; that he was the office manager of "Hess and Zeitling" before the
war; that Hess used to tell him his daily transactions during the occupation; that at that time, Hess did
not have in possession any certificates of stock of the Lepanto in the name of Vicente Madrigal; that
neither did Hess, during that period, operate as broker, for being American, he was under Japanese
surveillance, and that Hess had made, during the occupation, no transaction involving mining shares.
After analyzing the foregoing evidence for the defense, the lower court found the same "inherently
improbable" and seemingly concluded that, as a consequence, it should accept plaintiffs' version, for
which reason judgment was rendered as above stated. It is well settled, in this jurisdiction, that the
findings of fact — particularly those relating to the credibility of the opposing witnesses — made by the
Judge a quo, should not be disturbed on appeal, in the absence of strong and cogent reasons therefor.
This policy is predicated upon the circumstance that the trial court has had an opportunity, denied to
the appellate court to observe the behaviour of the witnesses during the hearing, a potent factor in
gauging their bias and veracity. In the case at bar, however, we notice that, rejecting the theory of the
defense, the court of origin was guided, not by the conduct of the witnesses in the name course of their
testimony, but by what His Honor, the trial Judge, regarded as the inherent weakness thereof, in the
evaluation of which court does not enjoy the advantage already adverted to.

Moreover, the decision appealed from appears to have assumed that plaintiffs' pretense must
necessarily be relied upon, owing to the infirmities said to have been found in the theory of the defense.
This view suffers from a fatal defect. It overlooks that fact that the burden of proof is upon the plaintiffs,
and that, accordingly, a decision in their favor is not in order unless a preponderance of the evidence
supports their claim.

According to De los Santos, on or about December 8, 1942, he purchased from Juan Campos, in Manila,
500,000 shares of stock of the Lepanto, for the aggregate sum of P30,000.00, or about P0.06 each share,
paid in cash, in exchange for the corresponding stock certificates, which were delivered to him. Several
days later, he bought from Carl Hess, in Manila, 300,000 shares of the Lepanto, at the same rate. Soon
after, he visited his daughter in Baguio, where he, likewise, saw his co-plaintiff, and former secretary,
Isabelo Astraquillo. Before leaving Astraquillo's house, De los Santos happened to mention his aforesaid
purchases of Lepanto shares, at P0.06 each, whereupon, Astraquillo expressed the wish to buy 800,000
shares at the same price, the amount of which he delivered to De los Santos the next day. Upon his
return to Manila, De los Santos purchased from Hess said 800,000 shares, the certificates of which were
turned over by the former to Astraquillo, in Baguio, at about Christmas time. Over 3 years later, or in
January 1946, De los Santos repaired to the offices of the Lepanto in Manila to ascertain whether it
accepted certificates of stock for registration. He then received a negative answer. Upon further inquiry,
he learned, in February 1946, that the shares in the name of Madrigal were blocked. So engaged the
services of Atty. A. Scheerer, who secured an order of release from the Freezing Control Office of the
United States Treasury Department. As he brought a copy of this order to the offices of the Lepanto, on
or about May 1, 1946, he was advised that no transfer could be affected without the authority of Clyde
DeWitt, the company president. Thereupon, De los Santos caused to be filed, with the offices of the
Property Custodian, the corresponding claim for the shares of stock in question, with the result already
adverted to.

Primitivo Javier narrated that, late in 1945, he received Exhibit 2 from his uncle, Astraquillo, who wanted
to sell the 55,000 shares represented by said stock certificate (No. 2279) at a price ranging from P0.12 to
P0.15 each share. He, in turn, delivered the certificate to Recio, a licensed broker. Subsequently, Recio
reported to him that he (Recio) had brought Exhibit 2 to the office of Mr. DeWitt, whom he did not see
on his first visit; that he then left Exhibit 2 in the hands of a person who worked in said office, one Atty.
Orlina, who issued a receipt therefor; that, when Recio came back, later on, DeWitt told him that Exhibit
2 was defective; and that, accordingly, Exhibit 2 was left in the possession of Mr. DeWitt. Javier relayed
this information to Astraquillo, who, thereupon, came to Manila. Both went to the temporary residence
of Recio in Sampaloc, his house in San Juan del Monte, Rizal, having been destroyed by fire late in
December 1945. Recio then advised them that said receipt had been burned with his house.
It thus appears that the only evidence on the alleged sale of the shares of stock in question to the
plaintiffs — the main issue in the case at bar — is the testimony of Apolinario de los Santos, who now
claims to be the sole owner thereof. Juan Campos and Carl Hess, the alleged vendors, could not take the
witness stand, for Hess was executed by the Japanese, and Campos died during the liberation of Manila.
Thus, death has sealed the lips of the only persons who could have positively corroborated or
contradicted the aforementioned testimony of De los Santos. The need for caution becomes more
imperative when we bear in mind that an important piece of documentary evidence, which allegedly
existed after liberation, and could have effectively corroborated one phase of the plaintiff's contention,
had, according to their evidence, disappeared through still another unfortunate turn of the wheel of
fate. It will be recalled that late in 1945, Leonardo Recio, allegedly acting on behalf of Astraquillo,
offered to sell to Atty. DeWitt the 55,000 shares represented by stock certificate No. 2279 (Exhibit 2).
Recio testified that, having been unable to see DeWitt, when he (Recio) went to the latter's office, for
the first time, said Exhibit 2 was left by him (Recio) in the hands of Atty. Orlina who worked therein and
gave him a receipt therefor. This receipt, if produced, would have surely afforded us tangible proof of
the veracity of, at least this part of plaintiffs' story. Yet, we are now told that, one day in December,
1945, Recio's house accidentally caught fire, and that the latter consumed, also, said receipt, kept in a
wallet, which, by accident, he had failed to bring with him. Aren't there too many accidents in plaintiffs'
version? At any rate, we have thus been deprived of all means to check with reasonable certainty the
truth of any of the controverted portions of their pretense. In other words, the same is based, and must
stand or fall, therefore, upon the uncorroborated testimony of plaintiff Apolinario de los Santos, and the
credence and weight that may be given thereto. Upon a review of the record, we find, however, that
said testimony is highly improbable and inherently weak, for, among other things:

(1) De los Santos declared that, in December, 1942, he purchased 300,000 shares from Juan Campos and
1,300,000 shares from Carl Hess, at P0.06 each share. As an enterprise controlled by Americans, the
Lepanto had been seized by the Japanese who, accordingly, were operating it. At that time, there were
no clear, or, even, substantial, indications that changes would take place, either in the local or in the
international situation in the near of foreseeable future. In deed, the morale of the population in
democratic countries, particularly in the Philippines, was then at its lowest ebb. . In other words, the
conditions were such as to warrant the general belief that the Lepanto would remain under the
authority and management of the Japanese Imperial forces for an indefinite period of time. As a
consequence, the Lepanto stock had not merely a doubtful value, but — as admitted by Santos — even,
no market value at all (p. 132, t.s.n). Indeed, the stockholders could neither collect dividends nor
exercise their voting power, or otherwise participate in the operation of the enterprise. Moreover, there
was a possibility of its assets being fully confiscated, for all practical purposes, should Japan emerge
victorious in the was in the Pacific, which it appeared to be winning easily up to that time

(2) Inasmuch as citizens of the United States held a majority of the shares of stock of the Lepanto, the
same had from the view point of the Japanese, an enemy character, and the purchase of said stocks
was, therefore, a hostile act. As a matter of fact, in the proceedings before the Vested Property Claims
Committee, the parties — including plaintiffs herein — had stipulated "that such transfers and dealings
in said stock were prohibited by the Japanese during the occupation and hence were dangerous.
(3) Astraquillo is merely a former employee of De los Santos, who had, therefore, no reason to risk his
neck, not only by allegedly buying 800,000 shares of stock for Astraquillo, but, also, by avowedly
bringing with himthe corresponding stock certificates from Manila to Baguio, to make delivery thereof
to Astraquillo, as the defense would have us believe, notwithstanding the many Japanese check points
in the 250 kilometers highway connecting both cities and the absence of any monetary or other gain he
could have derived from the acts he professes to have performed.

Even, however, if Juan Campos and Carl Hess had sold the shares of stock in question, as testified to by
De los Santos, the result, insofar as plaintiffs are concerned, would be the same. It is not disputed that
said shares of stock were registered, in the records of the Lepanto, in the name of Vicente Madrigal.
Neither it is denied that the latter was, as regards said shares of stock, a mere trustee for the benefit of
the Mitsuis. The record shows — and there is no evidence to the contrary — that Madrigal had never
disposed of said shares of stock in any manner whatsoever, except by turning over the corresponding
stock certificates, late in 1941, to the Mitsuis, the beneficial and true owners thereof. It has, moreover,
been established,, by the uncontradicted testimony of Kitajima and Miwa, the managers of the Mitsuis
in the Philippines, from 1941 to 1945, that the Mitsuis had neither sold, conveyed, or alienated said
shares of stock, nor delivered the aforementioned stock certificates, to anybody during said period.
Section 35 of the Corporation Law reads:

The capital stock corporations shall be divided into shares for which certificates signed by the
president or the vice-president, countersigned by the secretary or clerk and sealed with the seal
of the corporation, shall be issued in accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate endorsed 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 entered and
noted upon the books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the certificate, and the number of shares
transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable on
the books of the corporation.

Pursuant to this provision, a share of stock may be transferred by endorsement of the corresponding
stock certificate, coupled with its delivery. However, the transfer shall "not be valid, except as between
the parties," until it is "entered and noted upon the books of the corporation." no such entry in the
name of the plaintiffs herein having been made, it follows that the transfer allegedly effected by Juan
Campos and Carl Hess in their favor is "not valid, except as between" themselves. It does not bind either
Madrigal or the Mitsuis, who are not parties to said alleged transaction. What is more, the same is "not
valid," or, in the words of the Supreme Court of Wisconsin (Re Murphy, 51 Wisc. 519, 8 N. W. 419) —
which were quoted approval in Uson vs. Diosomito (61 Phil., 535) — "absolutely void" and, hence, as
good as non-existent, insofar as Madrigal and the Mitsuis are concerned. For this reason, although a
stock certificate is sometimes regarded as quasi-negotiable, in the sense that it may be transferred by
endorsement, coupled with delivery, it is well settled that the instrument is non-negotiable, because the
holder thereof takes it without prejudice to such rights or defenses as the registered owner or creditor
may have under the law, except insofar as such rights or defenses are subject to the limitations imposed
by the principles governing estoppel.

Certificates of stock are not negotiable instruments (post, Par. 102), consequently, a transferee under a
forged assignment acquires no title which can be asserted against the true owner, unless his own
negligence has been such as to create an estoppel against him (Clarke on Corporations, Sec. Ed. p. 415).
If the owner of the certificate has endorsed it in blank, and it is stolen from him, no title is acquired by
an innocent purchaser for value

"Neither the absence of blame on the part of the officers of the company in allowing an unauthorized
transfer of stock, nor the good faith of the purchaser of stolen property, will avail as an answer to the
demand of the true owner. The great principle that no one can deprived of his property without his
assent, except by processes of the law, requires, in the case mentioned, that the property wrongfully
transferred or stolen should be restored to its rightful owner." The doctrine that a bona fide purchaser
of shares under a forged or unauthorized transfer acquires no title as against the true owner does not
apply where the circumstances are such as to estop the latter from asserting his title. . . .

A reason often given for the rule is that it is a case for the application of the maxim that where one of
two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss must fall on the
one who first trusted the wrongdoer and put in his hands the means of inflicting such loss. But
"negligence which will work an estoppel of this kind must be a proximate cause of the purchase or
advancement of money by the holder of the property, and must enter into the transaction itself "; the
negligence must be in or immediately connected with the transfer itself . Furthermore, "to establish this
estoppel it must appear that the true owner had conferred upon the person who has diverted the
security the indicia of ownership, or an apparent title or authority to transfer the title." So the owner is
not guilty of negligence in merely entrusting another with the possession of his certificate of stock, if he
does not, by assignment or otherwise, clothe him with the apparent title. Nor is he deprived of his title
or his remedy against the corporation because he intrusts a third person with the key of a box in which
the certificate are kept, where the latter takes them from the box and by forging the owner's name to a
power of attorney procures their transfer on the corporate books. Nor is the mere indorsement of an
assignment and power of attorney in blank on a certificate of stock, which is afterwards lost or stolen,
such negligence as will estop the owner from asserting his title as against a bona fide purchaser from the
finder or thief, or from holding the corporation liable for allowing a transfer on its books, where the loss
or theft of the certificate was not due to any negligence on the part of the owner, although there is
some dangerous and wholly unjustifiable dictum to the contrary. So it has been held that the fact that
stock pledged to a bank is endorsed in blank by the owner does not estop him from asserting title
thereto as against a bona fide purchaser for value who derives his title from one who stole the
certificate from the pledgee. And this has also been held to be true though the thief was an officer of
the pledgee, since his act in wrongfully appropriating the certificate cannot be regarded as a
misappropriation by the bank to whose custody the certificate was intrusted by the owner, even though
the bank may be liable to the pledgor. . . . . A person is not guilty of negligence in leaving a certificate of
stock endorsed in blank in a safe deposit box used by himself and another jointly, so as to be estopped
from asserting his title after the certificate has been stolen by the other, and sold or pledged to a bona
fide purchaser or pledgee. Nor is he negligent in putting a certificate so endorsed in a place to which an
employee had access, where he has no reason to doubt the latter's honesty,

In the case at bar, neither madrigal nor the Mitsuis had alienated shares of stock in question. It is not
even claimed that either had, through negligence, given — occasion for an improper or irregular
disposition of the corresponding stock certificates. Plaintiffs merely argue without any evidence
whatsoever thereon — that Kitajima might have, or must have, assigned the certificates on or before
December 1942, although, as above stated, this is, not only, improbable, under the conditions, then
obtaining, but, also., impossible, considering that, in April 1943, Kitajima delivered the instruments to
Miwa, who kept them in its possession until 1945. At any rate, such assignment by Miwa — granting for
the sake of argument the accuracy of the surmise of plaintiffs herein — was unauthorized by the
mitsuis, who, in the light of the precedents cited above, are not chargeable with negligence. In other
words, assuming that Kitajima had been guilty of embezzlement, by negotiating the stock certificates in
question for his personal benefit, as claimed by the plaintiffs, the title of his assignees and successors in
interest would still be subject to the rights of the registered owner, namely, Madrigal, and consequently,
of the party for whose benefit and account the latter held the corresponding shares of stock, that is to
say, the Mitsuis. At any rate, at the time of the alleged sales in their favor, plaintiffs were aware of
sufficient facts to put them on notice of the need of inquiring into the regularity of the transactions and
the title of the supposed vendors. Indeed, the certificates of stock in question were in the name of
madrigal. Obviously, therefore, the alleged sellers (Campos and Hess) were not registered owners of the
corresponding shares of stock. Being presumed to know the law — particularly the provisions of section
35 of Act No. 1459 — and, as experienced traders in shares of stock, plaintiffs must have, accordingly,
been conscious of the consequent infirmities in the title of the supposed vendors, or of the handicaps
thereof. Moreover, the aforementioned sales were admittedly hostile to the Japanese, who had
prohibited it and plaintiffs had actual knowledge of these facts and of the risks attendant to the alleged
transaction. In other words, plaintiffs advisedly assumed those risks and, hence, they can not validly
claim, against the registered stockholder, the status of purchasers in good faith.

The lower court held, and plaintiffs maintain that, not being the registered owners of the shares of stock
in question, the Mitsuis can not assert a better right than said plaintiffs. This pretense is untenable.
Inasmuch as Madrigal, the registered owner of said shares of stock, has always acknowledged that he
held the same merely as an agent of, or trustee for, the mitsuis — and this is not denied — it follows
that the latter are entitled to invoke such rights as Madrigal had as registered stockholder. Upon the
other hand, even the alleged sale by Juan Campos and Carl Hess to plaintiffs herein is contested by the
defense and, to our mind, has not been established by a preponderance of the evidence. Hence, as the
undisputed principal or beneficiary of the registered owner (Madrigal), the Mitsuis may claim his rights,
which cannot be exercised by the plaintiffs, not only because their alleged title is not derived either from
madrigal or from the Mitsuis, but, also, because it is in derogation, of said rights. madrigal and the
Mitsuis are not privies to the alleged sales by Campos and Hess to the plaintiffs, contrary to the latter's
pretense.

In conclusion, when the Property Custodian issued the Vesting Order complained of, the shares of stock
in question belonged to the Mitsuis, admittedly an enemy corporation, so that Vesting Order is in
conformity with law and should be upheld. Wherefore, the decision appealed from is hereby reversed,
and the complaint, accordingly, dismissed, with costs against the plaintiffs-appellees. It is so ordered.

OTHER DIGESTS OF THE FACTS

FACTS:

600,000 shares of stock of the Lepanto Consolidated Mining Co., Inc., (Lepanto), a corporation duly
organized and existing under the laws of the Philippines

Originally, 1/2 shares of stock were claimed by Apolinario de los Santos, and the other half by Isabelo
Astraquillo. During the pendency of this case, the Astraquillo has allegedly conveyed and assigned his
interest in and to de los Santos.

Vicente Madrigal is registered in the books of the Lepanto as owner of said stocks and whose
indorsement in blank appears on the back of said certificates

contend that De los Santos bought:

55,000 shares from Juan Campos

300,000 shares from Carl Hess

800,000 shares from Carl Hess for the benefit of Astraquillo

delivered to stock broker Leonardo Recio stock certificate No. 2279 55,000 shares to see Mr. DeWitt,
who, probably, would be interested in purchasing the shares

DeWitt retained the shares reasoning that it was blocked by the US and receipt was burned at Recio's
dwelling

By virtue of vesting P-12, dated February 18, 1945, title to the 1,600,000 shares of stock in dispute was,
however, vested in the Alien Property Custodian of the U. S.

Plaintiffs filed their respective claims with the Property Custodian

Defendant Attorney General of the U. S., successor to the Administrator contends, substantially, that,
prior to the outbreak of the war in the Pacific, shares of stock were bought by Vicente Madrigal, in trust
for, and for the benefit of, the Mitsui Bussan Kaisha a corporation organized in accordance with the laws
of Japan, the true owner thereof, with branch office in the Philippines
March, 1942: Madrigal delivered stock certificates, with his blank indorsement thereon, to the Mitsuis,
which kept said certificates, in the files of its office in Manila, until the liberation of the latter by the
American forces early in 1945; that the Mitsuis had never sold, or otherwise disposed of, said shares of
stock; and that the stock certificates aforementioned must have been stolen or looted, therefore, during
the emergency resulting from said liberation.

CFI: favored plaintiffs

Defendants Appealed

Hess, during that period, operate as broker, for being American, he was under Japanese surveillance,
and that Hess had made, during the occupation, no transaction involving mining shares, except when he
sold 12,000 shares of the Benguet Consolidated, inherited from his mother, sometime in 1943.

ISSUE: W/N the plaintiffs are entitled to the shares

CAGAYAN VALLEY DRUG vs CIR

Facts: Petitioner, a corporation duly organized and existing under Philippine laws, is a duly licensed
retailer of medicine and other pharmaceutical products. It operates two drugstores, one in Tuguegarao,
Cagayan, and the other in Roxas, Isabela, under the name and style of Mercury Drug. Petitioner alleged
that in 1995, it granted 20% sales discounts to qualified senior citizens on purchases of medicine
pursuant to Republic Act No. (RA) 7432. . . In compliance with Revenue Regulation No. (RR) 2-94,
petitioner treated the 20% sales discounts granted to qualified senior citizens in 1995 as deductions
from the gross sales in order to arrive at the net sales, instead of treating them as tax credit as provided
by Section 4 of RA 7432. On December 27, 1996, however, petitioner filed with the Bureau of Internal
Revenue (BIR) a claim for tax refund/tax credit of the full amount of the 20% sales discount it granted to
senior citizens for the year 1995, allegedly totaling to PhP 123,083 in accordance with Sec. 4 of RA 7432.

The BIRs inaction on petitioners claim for refund/tax credit compelled petitioner to file on March 18,
1998 a petition for review before the CTA docketed as C.T.A. Case No. 5581 in order to forestall the two-
year prescriptive period. CTA rendered a Decision dismissing the petition for review for lack of merit.
The CTA sustained petitioners contention that pursuant to Sec. 4 of RA 7432, the 20% sales discounts
petitioner extended to qualified senior citizens in 1995 should be treated as tax credit and not as
deductions from the gross sales as erroneously interpreted in RR 2-94. Notwithstanding petitioners
entitlement to a tax credit from the 20% sales discounts it extended to qualified senior citizens in 1995,
the CTA nonetheless dismissed petitioners action for refund or tax credit on account of petitioners net
loss in 1995. On appeal, the CA issued the assailed Resolution[7] dismissing the petition on procedural
grounds. The CA held that the person who signed the verification and certification of absence of forum
shopping, a certain Jacinto J. Concepcion, President of petitioner, failed to adduce proof that he was
duly authorized by the board of directors to do so.

Issue: whether or not the verification and certification of non-forum shopping signed by the President of
petitioner is sufficient compliance with Secs. 4 and 5, Rule 7 of the 1997 Rules of Civil Procedure.

Held: With respect to an individual litigant, there is no question that litigants must sign the sworn
verification and certification unless they execute a power of attorney authorizing another person to sign
it. With respect to a juridical person, Sec. 4, Rule 7 on verification and Sec. 5, Rule 7 on certification
against forum shopping are silent as to who the authorized signatory should be. Said rules do not
indicate if the submission of a board resolution authorizing the officer or representative is necessary.

It must be borne in mind that Sec. 23, in relation to Sec. 25 of the Corporation Code, clearly enunciates
that all corporate powers are exercised, all business conducted, and all properties controlled by the
board of directors. A corporation has a separate and distinct personality from its directors and officers
and can only exercise its corporate powers through the board of directors. Thus, it is clear that an
individual corporate officer cannot solely exercise any corporate power pertaining to the corporation
without authority from the board of directors. This has been our constant holding in cases instituted by
a corporation. In a slew of cases, however, we have recognized the authority of some corporate officers
to sign the verification and certification against forum shopping. In Mactan-Cebu International Airport
Authority v. CA, we recognized the authority of a general manager or acting general manager to sign
the verification and certificate against forum shopping; in Pfizer v. Galan, we upheld the validity of a
verification signed by an employment specialist who had not even presented any proof of her authority
to represent the company; in Novelty Philippines, Inc., v. CA, we ruled that a personnel officer who
signed the petition but did not attach the authority from the company is authorized to sign the
verification and non-forum shopping certificate and in Lepanto Consolidated Mining Company v. WMC
Resources International Pty. Ltd. (Lepanto), we ruled that the Chairperson of the Board and President of
the Company can sign the verification and certificate against non-forum shopping even without the
submission of the boards authorization.

In sum, we have held that the following officials or employees of the company can sign the verification
and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2)
the President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel
Officer, and (5) an Employment Specialist in a labor case.

While the above cases do not provide a complete listing of authorized signatories to the verification and
certification required by the rules, the determination of the sufficiency of the authority was done on a
case to case basis. The rationale applied in the foregoing cases is to justify the authority of corporate
officers or representatives of the corporation to sign the verification or certificate against forum
shopping, being in a position to verify the truthfulness and correctness of the allegations in the petition.

In Philippine Airlines v. Flight Attendants and Stewards Association of the Philippines, we ruled that only
individuals vested with authority by a valid board resolution may sign the certificate of non-forum
shopping on behalf of a corporation. The action can be dismissed if the certification was submitted
unaccompanied by proof of the signatorys authority. We believe that appending the board resolution
to the complaint or petition is the better procedure to obviate any question on the authority of the
signatory to the verification and certification. The required submission of the board resolution is
grounded on the basic precept that corporate powers are exercised by the board of directors, and not
solely by an officer of the corporation. Hence, the power to sue and be sued in any court or quasi-
judicial tribunal is necessarily lodged with the said board.

In the case at bar, we so hold that petitioner substantially complied with Secs. 4 and 5, Rule 7 of the
1997 Revised Rules on Civil Procedure. First, the requisite board resolution has been submitted albeit
belatedly by petitioner. Second, we apply our ruling in Lepanto with the rationale that the President of
petitioner is in a position to verify the truthfulness and correctness of the allegations in the petition.
Third, the President of petitioner has signed the complaint before the CTA at the inception of this judicial
claim for refund or tax credit.

Hayes vs Canada Atlantic & Plant S.S. Co.

Facts:1. Canada, Altlantic & Plant SS Co., Ltd. is a Canadian corporation, and Hayes was a director and
the president thereof.

2. The corporation sued Hayes for the recovery of the money Hayes got as his salary on the ground that
no salary was legally established, and for $506.33 paid to Hayes for rent of a room in Boston, (the
purpose of which is not stated).

3. Subject of this case is the propriety of two executive meetings and the matters discussed and
established therein: a. Removed the treasurer (Perry) and appointed a new one (Gale); b. Directed the
payment of $506.33 and of a salary to Hayes, even though his salary was never fixed or authorized; c.
Fixed an annual salary of $1,854.20 for Gale as managing director; d. Amended the by-laws on the
following matters: i. Special meetings of shareholders can only be called by the Pres; ii. Meetings of
directors can only be called by the Pres; and iii. Executive Committee is to consist of only one director
aside from the Pres. 4. The notice for the meeting was allegedly done in the following manner: two
members of the committee came into the office of the third and said: ‘We are going to have a meeting
right away, and the meeting will come to order. ‘

5. The Circuit Court ruled in favor of the corporation thus this petition by Hayes. a. Hayes argues that
the actions in the meetings were valid and within the authority of the Executive Committee as provided
in Sec. 8 of their by-laws:

i. “The directors shall annually appoint from among themselves two directors, who, with the president,
shall form an executive committee, and said committee shall have full powers of the board of directors
when said board is not in session.”

b. Hayes interprets “ full powers” as one with no limitation whatsoever, making their actions in the
meetings valid.

ISSUE with HOLDING

1. W/N the actions were valid, thus barring recovery of the corp. from Hayes

– NO

a. All the proceedings in the meetings were in the pecuniary interests of Hayes and Gale, and they were
the only persons who were voting in relation thereto.

b. When these two undertook to amend the by-laws, they proceeded in such a way that, if their actions
had been effectual, the two, acting in their own pecuniary interests, would have absorbed the entire
powers of the corporation.

c. In the absence of any statute, by-law, or practice of a corporation fixing the time or method of calling
meetings of the executive committee or board of directors, a reasonable notice is necessary to the
validity of such meetings.

i. The notice given in this case did not comply with this.

d. It is also intolerable to maintain that “full powers” in the provision for the

appointment of the by-laws is absolute. It is to be understood as restricted to ordinary business

transactions of the corporation.

e. Neither the President nor any director is entitled to compensation for services without some special
provision of statute, or some action of the stockholders or other directors.

“Full powers” is not absolute. It is to be understood as limited to those relating to ordinary business
transactions of the corporation.