SMC Stock Transfer Service Corporation vs. Jose Baccay Scholarship Fund

[SEC-SICD * CASE NO. 05-96-5352. October 11, 1999.] SMC STOCK TRANSFER SERVICE CORPORATION , petitioner , vs .JOSE BACCAY SCHOLARSHIP FUND, JOSE BACCAY FOUNDATION, INC.,SILLIMAN UNIVERSITY, MERVIN J. MISAJON, in his capacity as President of Silliman University, and JOSE BACCAY, JR. , respondents . D E C I S I O N This is an interpleader case filed by the petitioner praying that herein respondents interplead and litigate among themselves their conflicting claims with respect to certain shares of stock of San Miguel Corporation. The undisputed facts are as follows: Petitioner SMC Stock Transfer Service Corporation (hereafter "SSTSC" or "petitioner") is a corporation duly organized and existing under and by virtue of the laws of the Philippines. It is the stock transfer agent of San Miguel Corporation (hereafter "SMC"),likewise a corporation duly organized and existing under and by virtue of the laws of the Philippines. Among the stockholders of record of SMC as shown in the records of its transfer agent, SSTSC, is "Jose Baccay Scholarship Fund, Silliman University",with recorded address at Silliman University, Dumaguete City. Silliman University (hereafter "Silliman") is an educational institution and a corporation organized and existing under and by virtue of the laws of the Philippines. Jose Baccay Scholarship Fund (hereafter "Fund") is a scholarship program for the poor but deserving students of Silliman. It is, however, not a juridical entity and therefore has no legal personality of its own. Accordingly, it should not have been made a party respondent in this case. Sometime in February 1995, SMC declared for the second quarter of 1995 a thirty percent (30%) stock dividend in favor of all its stockholders of record as of April 28, 1995, payable on May 26, 1995. Prior to the payment date, or on May 23, 1995, respondent Jose Baccay, Jr. (hereafter "Baccay, Jr.") visited the office of SSTSC and represented himself to be the son of the late Jose Baccay, Sr. and requested that the address of "Jose Baccay Scholarship Fund, Silliman University" (as the recorded stockholder of the SMC shares of stock) be changed from c/o Silliman University to c/o Jose Baccay Foundation, Inc. (one of the respondents in this case, hereafter the "Foundation") at Jose Baccay Farms, Arcaydo Compound, Regional Center Site, Purok 6, Rawis, Legaspi City. Based on the request and representations of Baccay, Jr.,SSTSC released and delivered by registered mail on May 26, 1995 SMC stock certificate No. A- 273620 covering 10,146 SMC shares representing the said 30% stock dividend for the second quarter of 1995 to the Foundation at its above mentioned address in Legaspi City. Respondents Baccay, Jr. and Foundation would later deny having received said stock dividend of 10,146 SMC shares under SMC stock certificate no. A-273620, but would admit receipt of the cash dividend in the amount of P8,836.50 which was also declared by SMC for the second quarter of 1995. cdll Thereafter, after having been informed by SSTSC that the SMC stock certificate covering the stock dividend consisting of 10,146 SMC shares were released and delivered by SSTSC to the Foundation, respondent Mervin J. Misajon (hereafter "Misajon"),in his capacity as President of respondent Silliman, wrote SSTSC expressing alarm that the stock certificate representing the 30% stock dividend was released to an unauthorized person and at an unauthorized address, and that the only entity authorized to receive such dividend is Silliman with address at Dumaguete City. Respondent Misajon also demanded from SSTSC to rectify the error and to immediately deliver to Silliman the said stock dividend. Exchange of letters between respondents Baccay, Jr. and Foundation, on one hand, and respondents Silliman and Misajon, on the other, then ensued, each group claiming rights over the said 30% stock dividend consisting of 10,146 SMC shares, as well as the P8,836.50 SMC cash dividend. On May 28, 1996, SSTSC filed its complaint for interpleader for the respondents to interplead and litigate among themselves their conflicting claims. Respondents Baccay, Jr. and Foundation filed their original answer on June 26, 1996, but later filed their amended answer on August 6, 1996. Respondents Silliman and Misajon filed their answer on August 12, 1996, to which, respondents Baccay, Jr. and Foundation filed a reply on September 10, 1996. After the parties filed their respective preliminary conference briefs, preliminary conference was conducted during which the interpleading parties agreed to limit the issues during the trial of the case, as follows: a) who is entitled to the 30% stock dividend covered by stock certificate number A-273620 for 10,146 shares; b) who is entitled to the cash dividend of P8,836.50; c) who is the rightful owner of the subject San Miguel Corporation (SMC) shares of stock; d) whether or not the right of the Baccay group (referring to respondents Baccay, Jr. and Foundation) to contest the ownership of the subject SMC shares of stock has already prescribed; and e) whether or not Silliman University merely holds in trust the subject stock dividend and the principal shares of stock (Preliminary ' Conference Order dated January 31, 1997). Respondents Baccay, Jr. and Foundation allege that on or about October 21, 1974, the late Jose Baccay, Sr. executed a deed of assignment in favor of respondent Foundation, assigning to the latter 4,900 Common A shares of SMC. That out of the said 4,900 assigned SMC shares of stock, 613 shares were in turn assigned by the Foundation to the custodial care of Silliman under the Fund addressed at Silliman University, Dumaguete City for the purpose of budgeting and allocating to it regular quarterly cash dividend specifically for Bicolano scholars. That the 4,900 SMC shares assigned to the Foundation were acknowledged and provided in Article 2, paragraph 5 of the Articles of Incorporation of the Foundation as follows "That the amount to be devoted for the operation of this foundation shall be the earnings of Four Thousand Nine Hundred (4,900) shares of stocks of San Miguel Corporation, Inc. with a market value of One Hundred Sixty One Thousand Seven Hundred (P161,700.00) Pesos and the amount of Four Thousand (P4,000.00) Pesos contributed by the original incorporators plus gifts. .." The Articles of Incorporation of the Foundation which was presented in November 1974 was registered with this Commission in January 1975. Respondents Baccay, Jr. and Foundation further allege that the Fund is a creation of the Foundation for the sole purpose of carrying out the purposes for which the Foundation was created. That from the time the late Jose Baccay, Sr. assigned the said SMC shares of stock to the Foundation, ownership over the shares vests in the Foundation. That considering that the said shares were assigned to the Foundation before they were delivered to the custodial care or possession of Silliman, any donation or endorsement made thereon by Jose Baccay, Sr. to Silliman is null and void. That the owner of said shares from the very beginning up to the present is the Foundation and the Fund, and not Silliman, and that accordingly, the Foundation and the Fund are entitled to the stock and cash dividends in issue, as well as the succeeding stock dividends that may have been declared thereafter. Respondents Silliman and Misajon, on the other hand, allege that the owner and holder of the SMC shares on which the stock and cash dividends in issue was declared is not the Fund but Silliman. That the late Jose Baccay, Sr. transferred to Silliman the said shares to fund a scholarship project for the poor but deserving students of Silliman. That since then, said SMC shares were registered in the name of Silliman as the owner and holder thereof, with the name of the Fund written on the covering stock certificates only to indicate the purpose for which the same are intended. That Silliman, as the true and registered owner of the said SMC shares, received and collected cash and stock dividends thereon, and administered the same in accordance with the purpose for which they are intended. That the claim of respondents Baccay, Jr. and Foundation that the SMC shares belong to the Foundation is belied by the fact that the. SMC shares were, and still are, registered not in the name of the Foundation but of Silliman as shown in the records of the petitioner as the transfer agent for the SMC shares, as well as on the stock certificates covering the same. That even assuming, without admitting that SMC shares were indeed assigned to Silliman by the Foundation as alleged by respondents Baccay, Jr. and Foundation, the latter can no longer dispute Silliman's ownership thereof since any right to question the same had already prescribed. And that being the true and registered owner of the said SMC shares, Silliman and nobody else is the one entitled to receive and collect the said 30% stock dividend consisting of 10,146 SMC shares, as well as the P8,836.50 cash dividend declared thereon. In their reply, respondents Baccay, Jr. and Foundation allege that Silliman is but a trustee of the SMC shares and accordingly action to recover the same from Silliman will not prescribe. Trial on the merits followed during which the parties adduced oral and documentary evidence in support of their respective claims. Respondents thereafter submitted their respective memoranda. In the meantime, various stock and cash dividends were subsequently declared on the SMC shares which are now in the custody of SSTSC pending the outcome of this case. As of May 29, 1998, the SMC shares, including the stock dividend in question and the subsequent stock dividends declared, have grown to 53,200 shares [please see Exhibit VI-D, Silliman].Accrued cash dividends as of July 31, 1998 aggregate to P118,323.20 [please see Exhibit XI, Silliman]. After a careful and thorough evaluation of the allegations and the evidence presented by the parties in this case, this Hearing Officer is inclined to rule in favor of respondents Silliman and Misajon. In order to determine who is entitled to the 30% stock dividend consisting of 10,146 SMC shares and the P8,836.50 cash dividend in issue, it would be necessary to ascertain who is the rightful owner of the principal SMC shares on which said stock and cash dividends were declared. Whoever is the rightful owner of the principal SMC shares should be one entitled to the said stock and cash dividends in issue. It was established by clear evidence that prior to the declaration of the stock and cash dividends in issue, 33,822 SMC shares, which are the principal SMC shares, stand in the name and account of "Jose Baccay Scholarship Fund, Silliman University" as the owner thereof. It was likewise established that the principal SMC shares under the said name and account started with just 220 shares (the "mother shares") representing stock transfers to the said name or account between the period from February 18, 1965 to February 7, 1968. There had been no stock transfers to the said name or account other than the original 220 shares, and the same only increased in number to 33,822 shares, which are the principal shares, on account of various stock dividends subsequently declared thereon. With these established facts, it was impossible that the principal SMC shares could have come from the 4,900 SMC shares alleged by respondents Baccay, Jr. and Foundation to have been assigned in 1974 by the late Jose Baccay, Sr. to the Foundation which in turn allegedly transfer 613 shares to Silliman. These facts also belie the claim of respondents Baccay, Jr. and Foundation that the Fund is a creation of the Foundation. Clearly, the Fund already existed since 1965 and it cannot be a creation of the Foundation which came into existence only much later when it was incorporated in 1975. In corporate practice, whoever appears as the owner in the stock certificate covering shares of stock of a corporation and the stock records of the corporation is generally recognized as the owner of the said shares. Respondents Baccay, Jr. and Foundation would claim that since the stock certificates covering the principal SMC shares indicate as the owner "Jose Baccay Scholarship Fund, Silliman University",the Fund is the owner and Silliman is only the address. Respondent Silliman on the other hand maintains a contrary view and claims that Silliman is the owner and the name of the Fund was simply added to indicate the purpose for which the shares are held by Silliman. It is not disputed that the Fund is not a juridical person, as a consequence of which, it cannot own property. Article 46 of the Civil Code expressly provides that "Juridical persons may acquire and possess property of all kinds, as well as incur obligations and bring civil or criminal actions, in conformity with the laws and regulations of their organization". Conversely, one who is not a juridical person, which is the case of the Fund, cannot acquire and possess property. "Thus an unincorporated association cannot perform corporate acts. It cannot sue and be sued, it cannot enter into contracts in the name of the association and neither can it acquire properties under its common name. ( SEC opinion dated March 24, 1972 ,Rompal Mining Company citing Fletcher Cyc. Corp.,Sec. 21, p.64). This Hearing Officer agrees with respondent Silliman that considering that the Fund has no juridical personality and therefore cannot own property such as the SMC shares, the fact that the name of Silliman is written on the face of the stock certificates immediately after the name of the Fund and on the space provided for the name of the owner-stockholder, is a clear indication, if not a conclusive proof, that Silliman is the owner of the principal SMC shares. Moreover, it was established that Silliman has been in the possession of the principal SMC shares since 1965 and has been exercising rights of ownership over the same since that time. Such possession by Silliman raises a disputable presumption of ownership in law, which legal presumption, respondents Baccay, Jr. and Foundation failed to overcome. Article 433 of the Civil Code states: "Actual possession under claim of ownership raises a disputable presumption of ownership. The true owner must resort to judicial process for the recovery of the property." In the same manner, Article 541 of the Civil Code states: "A possessor in the concept of an owner has in his favor a presumption that he possesses with a just title and he cannot be obliged to show or prove it " Thus in a general way, it is said that: POSSESSION IS PRESUMED OWNERSHIP (Paras, Civil Code of the Philippines, Book II, 13th Edition, p. 541). The Supreme Court has ruled that actual possession of the property under claim of ownership raises the disputable presumption of ownership; the true owner must resort to judicial process for recovery of the property. (Chan v. Court of Appeals, G.R. No. L-27488, June 30, 1970) As regards the issue of whether Silliman merely holds in trust the principal SMC shares of stock and the stock and cash dividends in issue, this Hearing Officer finds that no such trust exists and respondents Baccay, Jr. and Foundation failed to substantiate by any evidence their claim that the mother SMC shares were transferred by the Foundation to Silliman as trustee thereof. In fact it was clearly established by evidence that contrary to the claim of respondents Baccay, Jr. and Foundation, no SMC shares whatsoever has been received by Silliman from respondent Foundation, after the latter's incorporation in 1975. On the issue of prescription, considering that it has been established that Silliman had been in the possession and control of the SMC shares since 1965, or more than thirty (30) years before its ownership was questioned by respondents Baccay, Jr. and Foundation, together with the above finding that no trust exists over the SMC shares, this Hearing Officer finds that prescription of action already sets in pursuant to Articles 1132, 1139 and 1140 of the Civil Code.Accordingly, respondents Baccay, Jr. and Foundation can no longer question the ownership of Silliman over the SMC shares. Based on all the foregoing, this Hearing Officer finds that ownership of the principal SMC shares belongs to Silliman, and accordingly, it is the one entitled to the stock; and cash dividends in issue. WHEREFORE, judgment is hereby rendered: a) Declaring, that the ownership of the principal SMC shares belong to respondent Silliman University, hence, it is the one entitled to the stocks dividend consisting of 10,146 SMC shares and the P8,836.50 cash dividend in issue; b) Ordering respondents Jose Baccay, Jr. and Jose Baccay Foundation, Inc. to return and deliver to Silliman University SMC stock certificate no. A-273620 covering 10,146 SMC shares representing the 30% stock dividend, as well as the P8,836.50 cash dividend; c) Ordering petitioner SMC Stock Transfer Service Corporation to release and deliver to Silliman University any and all stock and cash dividends accruing to the name or account of "Jose Baccay Scholarship Fund, Silliman University",and to immediately cause or effect in accordance with law the cancellation and replacement of SMC stock certificate no. A-273620 covering 10,146 SMC shares, if the same is determined to have been lost, and to deliver the replacement certificate to Silliman University. No pronouncement as to the cost. SO ORDERED. (SGD.) ROSITA R. GUERRERO Hearing Officer