Gilbert S. Tan, et al. vs. Ma. Elena B. Herrera, et al.

[SEC-SICD * CASE NO. 04-95-5044. February 18, 1998.] GILBERT S. TAN, DAISY T. TIENG, DIANA T. UY, and DOROTHY S. TAN , complainants , vs . MA. ELENA B. HERRERA, HENRY HERRERA, JOSELITO C. BALTAZAR I, and OLIVIA CHUA , respondents . D E C I S I O N The instant controversy involves a corporate battle to gain control of Puerto Construction and Development Corporation ("the Corporation") on the basis of alleged deeds of assignment of shares of stocks in the corporation by Florentino Pascual, Andrew Chua, Cynthia Chua and Olivia Chua. LLphil There are two groups claiming majority control over the corporation, namely: Rolando Pascual, Ma. Elena Herrera, Henry Herrera and Joselito Baltazar I as representative of Nick Chua, Andrew Chua, Cynthia Chua, Olivia Chua and Francisco Pascual who claim to represent 59% of the total outstanding shares of stock of the corporation. On the other hand, complainants Gilbert S. Tan, Daisy T. Tieng, Diana T. Uy and Dorothy S. Tan assert ownership of 52,600 shares of stock of the corporation or 87.6 % of its total outstanding shares of 60,000. The antecedent events are as follows: On March 16, 1995, Joselito Baltazar I requested the corporate secretary to record in the books of the corporation three (3) Deeds of Assignment allegedly executed by Rolando Pascual in favor of himself, Joseph Herrera and Ma. Elena Herrera (Exh. "T"). Diana Uy, as the corporate secretary, withheld action on the request for failure to comply with the requirement of the corporation's by-laws (Sec. 2, Art. V), specifically, the surrender of the original certificates of stock duly endorsed for cancellation. (Annex "C", Complaint) On April 25, 1995, Rolando Pascual, Elena Herrera, Henry Herrera and Joselito Baltazar I informed the Securities and Exchange Commission ("SEC") that they have set an annual stockholders' meeting and for this reason requested for a SEC representative to observe the conduct of the said meeting. Although not officers of the corporation, respondents scheduled the meeting on the pretext that they hold majority control over the corporation (Annex "D" Complaint). Informed of the said scheduled stockholders' meeting and allegation of majority control over the corporation, petitioners filed with the SEC April 27, 1995, the above-captioned complaint to enjoin respondents from holding the stockholders' meeting and from exercising any rights pertaining to legitimate stockholders of the corporation. Complainants asserted that respondents cannot possibly acquire a majority control over the corporation from assignments and proxies executed by Francisco Pascual as the latter (from whom respondents have acquired their shares) was no longer a stockholder of the corporation at the time of the said assignments and that respondent Joselito Baltazar I cannot act as a proxy of Nick Chua, Andrew Chua, Cynthia Chua and Olivia Chua because they had likewise divested themselves of all their interests in the corporation. Complainants further demonstrated that the basis of their majority control over the corporation is grounded on a documented and unbroken series of assignment of shares from Francisco Pascual and the Chuas to Florentino Siy and subsequently from Florentino Siy to them. In their Answer to the Complaint, respondents alleged that their control over 35,400 shares of stock of the corporation was reached after an assignment of 4,400 shares of stock in their favor and from holding proxy rights over 17,000 shares. [Pars. 3 and 33, Answer] Respondents countered that the assignment of shares executed by Francisco Pascual, Andrew, Cynthia and Olivia Chua in favor of Florentino Siy were unauthorized, falsified and illegal. On April 27, 1995, the Commission issued a Temporary Restraining Order enjoining respondents from holding the stockholders meeting scheduled on April 29, 1995. Thereafter, a hearing was conducted on the application for a writ of preliminary injunction. Only complainants appeared and presented evidence. Respondents, despite due notice and without any justifiable reason, failed and/or refused to present any evidence to support their claim or to dispute the allegations of the complainants despite the numerous opportunity accorded them. Consequently, the preliminary injunction was granted (Order dated February 06, 1996). At the scheduled Preliminary Conference of the case on January 29, 1997, respondents again failed to appear without any justifiable reason. They likewise failed to submit their Preliminary Conference Brief. For the aforementioned reasons, they were declared as in default (Order dated 29 January 1997). Complainants rested their case by adopting the evidence they adduced during the hearing on their application for a preliminary injunction. Thus, as prayed for, the case was SUBMITTED FOR DECISION. cdll Respondents moved for a reconsideration of the Order declaring them as in default but their motion was denied for have been filed out of time. Respondents thereafter filed a motion to set aside the order of default. Said motion was denied for being a second motion for reconsideration prescribed by the SICD Rules of Procedure (Order dated October 7, 1997). Thus, this case is now for decision based solely on the uncontroverted evidence presented by the complainants. It appears from records on file with the Commission (See General Information Sheet received by the Commission on April 30, 1994; Exh. "E") that complainants own 87.6% or 52,500 shares out of 60,000 outstanding shares of the corporation, distributed as follows: Gilbert Tan 17,500 Diana Tan Uy 12,500 Daisy Tieng 13,700 Dorothy Tan 8,900 ===== Total: 52,600 The present stock ownership of complainants can be traced through a historical transfer of assignments of shares. Beginning January 1985, the stockholders of the corporation were comprised of: Stockholder Stock Certificate No. No. of shares 1. George Tan 9; 35 2,000 2. Gilbert Tan 16 10,000 3. Diana Tan 17 5,000 4. Cynthia Tan 19 5,000 5. Olivia Tan 20 5,000 6. Andrew Chua 21 5,000 7. Francisco Pascual 28; 32; 38 15,000 8. Nicasio Chua 30 2,000 9. Dorothy Tan 34 1,400 10. Daisy Tieng 36 6,200 11. Rolando Pascual 37 3,400 ======= 60,000 General Information Sheet (Exh. "E") On August 27, 1993, Florentino Siy surrendered to the corporation stock certificate No. 19, 20, 21, 28, 32 and 38 (Exh. "D-16", "D-17", "D-18", "D-25", "D-28", and "F") under the names of Cynthia Chua, Olivia Chua, Andrew Chua and Francisco Pascual for cancellation. The abovementioned shares of stock were previously assigned to Florentino Siy by virtue of the Deeds of Assignment executed by Francisco Pascual on January 21, 1985 (Exh. "G-2"0, Cynthia Chua on January 26, 1982 (Exh. "G-3"), Andrew Chua on January 26, 1982 (Exh. "G-4") and Olivia Chua on January 5, 1982 (Exh. "G-5"). The certificates of stock were in the possession of Florentino Siy on account of the said assignment. Consequently, Florentino Siy was issued stock certificate No. 38 to cover the shares of stock assigned to him. Later, Florentino Siy's entire stock holding in the corporation was assigned and distributed to the complainants as shown in the Deed of Assignment executed on August 27, 1993 (Exh. "G"). It is undisputed that Cynthia Chua, Olivia Chua, Andrew Chua and Francisco Pascual, Jr. were all former stockholders of the corporation. However, they divested themselves of all interest in the corporation when they assigned their respective shares in the corporation to Florentino Siy thereafter assigned his shares of stock in the corporation to the complainants. These series of assignments were all documented and fully explained by complainants. In support of the allegations, complainants presented the following Deeds of Assignment: Exh. "G-2" executed by Francisco Pascual on January 21, 1985; Exh. "G-4" executed by Andrew Chua on January 5, 1982; Exh "G-5" executed by Olivia Chua on January 26, 1985; Exh. "G-3" executed by Cynthia Chua on January 26, 1985; and, Exh. "G" executed by Florentino Siy on August 27, 1993. and presented the testimony of Diana Tan Uy, the corporation's corporate secretary since 1984. The assignment of 15,000 shares owned by Cynthia, Olivia and Andrew Chua to Florentino Siy is supported by their respective Deeds of Assignments (Exhs. "G-3" to "G-5"). Their corresponding certificates of stock, duly endorsed and cancelled by the corporate secretary in compliance with the by-laws of the corporation were likewise presented. (Exhs. "D-16" to "D-18", TSN, pp. 19-22, August 4, 1995). The assignment of 15,000 shares owned by Francisco Pascual, Jr. to Florentino Siy is supported by a Deed of Assignment (Exh. "G-2") and its corresponding certificate of stock, duly endorsed by the assignor and canceled by the corporate secretary (Exhs. "D-25", "D-28" and "F"). The 30,000 shares of stock now owned by Florentino Siy was transferred to the complainants through a Deed of Assignment (Exh. "G"). It is significant to note that respondents never attempted to contest the genuineness and authenticity of the Deeds of Assignments. Neither did respondents controvert the duly endorsed and surrendered stock certificates. On the other hand, the testimonial and documentary evidence presented by the complainants indubitably shown that respondents claim of fifty-nine (59%) percent control over the corporation appeared baseless. In their Answer to the Complaint, respondents failed to show any supporting document to the assignment of shares and proxies. Henry Herrera and Elena Herrera claim to be the assignees of 400 shares of stock (200 each) from Rolando Pascual. Joselito Baltazar claims to be the assignee of 4,000 shares from Francisco Pascual. However, the alleged assignees never produced the certificates of stock which were supposedly assigned to them. The fact is, the records show that the assignors were no longer stockholders of the corporation at the time of the supposed assignment since the assignors have already divested themselves of their shareholdings beforehand. The same is true for the proxy authority made in favor of Joselito Baltazar over 11,000 shares of Francisco Pascual and 15,000 shares from Cynthia, Olivia and Andrew Chua (5,000 shares each). The abovementioned persons were no longer stockholders of the corporation and could not exercise any proprietary rights over corporate stocks. Naturally then, when respondents requested the assignments to be recorded in the books of the corporation, they were unable to present the original stock certificates duly endorsed. As such, the corporate secretary rightfully refused to recognize and record in the books of the corporation the alleged assignments executed by Rolando and Francisco Pascual for non-surrender of the original stock certificate duly endorsed. The rule in assignment of shares of stock in a corporation is "As confirmed by this Court, "shares of stock may be transferred by delivery to the transferee of the certificate properly indorsed. 'Title may be vested in the transferee by delivery of the certificate with a written assignment or indorsement thereof' (18 C. J. S. 928). There should be compliance with the mode of transfer prescribed by law (18 C. J. S. 930)' "(Nava v. Peers Marketing Corp., G.R. No. L-28120, Nov. 25, 1976)." [Rivera et al. vs. Florendo et al.; G. R. No. L-57586, October 8, 1986.] xxx xxx xxx The usual practice is for the stockholder to sign the form on the back of the stock certificate. The certificate may thereafter be transferred from one person to another. If the holder of the certificate desires to assume the legal rights of a shareholder to enable him to vote at corporate elections and to receive dividends, he fills up the blanks in the form by inserting his own name as transferee. Then he delivers the certificate to the secretary of the corporation so that the transfer may be entered in the corporation's books. The certificate is then surrendered and a new one issued to the transferee. (Hager vs. Bryan, G.R. No. L-6230, March 21, 1911, 19 Phil. 138, 143-4)." [Nava vs. Peers Marketing Corp., et al.; G.R. No. L-28120, November 25, 1976] Relevantly, the By-Laws of the corporation prescribed the rule on transfer of stocks. Section 2 thereof provides: "2. Transfer of Stock Transfers of stock shall be made by endorsement of the certificate and delivery thereof, but such transfer shall not be effective and binding so far as the corporation, and before a new certificate is issued, the old certificate must be surrendered for cancellation and canceled upon the face thereof. The stock books of the corporation shall be closed for transfer during five (5) days next preceding the date upon which dividends are declared payable and during such additional time as the Board of Directors may from time to time determine." [Article V, Section 2, By-Laws] Faced with these uncontroverted evidence, documentary as well as testimonial, we rule in favor of the complainants who have actually demonstrated by more than the requisite quantum of substantial evidence how they acquired the 52,600 shares of stock in the corporation. Respondents' allegations appear baseless. Respondents claim that Francisco Pascual assigned his shares of stock in the corporation on September 16, 1994 in favor of Joselito Baltazar falls flat in the face of the Deeds of Assignment (Exh. "G-2") presented by the complainant showing that Francisco Pascual already sold his shares of stock in favor of Florentino Siy on January 21, 1985 or nine (9) years before. Stated otherwise, Francisco Pascual cannot sell or assign what he does not own anymore. Lending credence to this argument is respondents' failure to substantiate their claim by presenting the original stock certificates duly endorsed by Francisco Pascual. The same goes for the proxy shares of the Chuas. The Chuas already sold their interest in the corporation on 1982 and 1985 years before the alleged proxy authority in favor of Joselito Baltazar was made. Furthermore, respondents failed to present any of the so-called proxy letters. For its unjustified refusal to supply any evidence of their claim, respondents failed to discharge the burden of preponderant proof necessary to prevail in this case. "All told, we are constrained to hold that respondent corporation has dismally failed to comply with the pertinent rules for the admission of the evidence by which it sought to prove its contentions. Furthermore, there are questions left unanswered and begging for cogent explanations why said respondent did not or could not comply with the evidentiary rules. Its default inevitably depletes the weight of its evidence which cannot just be in vacuo, with the result that for lack of the requisite quantum of evidence, it has not discharged the burden of preponderant proof necessary to prevail in this case." [Eugenio vs. Court of Appeals; G. R. No. 103737, December 15, 1994] WHEREFORE, premises considered, this Commission rules that respondents M. Elena Herrera, Henry Herrera, Joselito C. Baltazar I and Olivia Chua are not legitimate stockholders of Puerto Construction and Development Corporation. Accordingly, they are permanently enjoined from exercising any rights pertaining exclusively to the legitimate stockholders thereof. LibLex SO ORDERED. (SGD.) GERARD M. LUKBAN Hearing Officer