Tolentino v. Creser Precision Systems, Inc.

[SEC-SICD * CASE NO. 09-95-5149. September 3, 1998.] JEANETTE D. TOLENTINO , complainant , vs .CRESER PRECISION SYSTEMS, INC.,and FRANCIS L. ROMUALDEZ, JR. , respondents . D E C I S I O N For resolution of the Commission is the complaint for declaration of ownership of shares of stock and the nullification of all transactions involving Stock Certificates Nos. 88-01-015, 88-01-016 and 88-015-018 covering said shares of stock. Complainant further prays for the delivery of the present stock certificates covering the shares in question; for attorney's fees and the cost of the suit. Complainant alleges that she was initially the owner of 8,800 shares of stock of CPSI and, subsequently, became the owner additionally of 20,000 shares by virtue of the order of this Commission dated May 13, 1988 approving CPSI's application for the increase of its authorized capital stock from 10 million to 20 million and exempting from registration the issuance of additional shares including the 20,000 shares being claimed by complainant as these were intended to merely offset advances made by the stockholders of records. Complainant claims that she held in her name the 28,800 shares as of April 30, 1993 and was CPSI's Chairman of the Board and President from June 1988 until March 1995 when she was illegally ousted following a special meeting to elect a new set of officers. According to complainant, Stock Certificates Nos. 88-01-015, 88-01-16 and 88-15 018 covering her 28,800 shares were cancelled by respondent Francis Romualdez, Jr. and in lieu thereof, new certificates were issued in the latter's name, although there was no consideration or payment involved nor did she owe him or respondent corporation any sum of money. In their Answer, respondents controverted complainant's allegations, as follows: (a) Respondent corporation CPSI was incorporated on September 02, 1977 by Louie, Guy and respondent Francis all surnamed Romualdez including three of their friends; (b) Being a manufacturer of mortar fuzes and other military ordinances, the Armed Forces of the Philippines (AFP) has been CPSI's most important customer; (c) After the 1986 EDSA revolution, CPSI begun having a hard time collecting its receivables from the AFP and also in securing new supply contracts because, rightly or wrongly, of the relationship of CPSI's officers, stockholders and/or directors with the former First Lady Imelda Romualdez Marcos; (d) Following the advice of well-meaning friends in the military, the Romualdez, consequently, transferred all their shareholdings to their brother, respondent Francis, Jr.; * (f) The latter in turn appointed complainant, who has been CPSI's external auditor. as President and as suggested by complainant herself; placed 28,800 shares of stock complainant's name to make the changes in the new management set-up of CPSI more credible to the AFP; (g) The transfer of shares of CPSI in complainant's name had no valuable consideration whatsoever and it was distinctly clear between complainant and respondent that the former would be holding subject shares of stock as a mere nominee/trustee of respondent Francis Romualdez Jr.;(h) To confirm the arrangement, complainant endorsed the stock certificates issued in her name and delivered them to respondent Francis Romualdez, Jr. as well as executed deeds or assignment for the sale transfer and conveyance to the latter of all her rights title and interests over the shares in question. Respondents therefore, assert that complainant has no cause of action against them and by way of counterclaim, seek the award by the Commission in their favor of moral and exemplary damages, attorney's fees and litigation expenses. During the pre-trial conference, the parties stipulated on these issues for resolution: (a) Whether or not the complainant is the owner of the 28,800 shares of stock in the corporation; (b) Whether or not complainant can be held liable to the respondents for moral and exemplary damages as well as attorney's fees and litigation expenses. Trial on the merits thereafter followed and based on the evidence on record, this Commission finds for the respondents. Complainant failed to discharge the burden of proving that she was in fact the absolute owner of 28,800 shares of CPSI. Inconsistencies in her testimony revealed her manifest uncertainty as to the exact number of shares she claims to have initially, acquired in CPSI. In her complaint, she claimed having first acquired 8,800 shares only to change it to 2,800 shares when she testified for the first time and then to 6000 shares during her cross-examination Regardless of which figure may be correct, complainant just the same. could not present any proof of her payment of the consideration for the initial batch of 8,800 shares she had allegedly acquired. Complainant herself refuted the conclusion that could have been drawn from the Deed of Sale [Exh. I] she presented in evidence showing her alleged payment of the consideration for 2800 shares in the amount of P280,000.00 when she likewise could not present, when pressed to do so on cross examination proof independently of said deed that CPSI did in fact receive any such payment from her. Similarly, the record is bereft of proof of payment by complainant of the consideration in the amount of P600,000.00 for the 6000 shares she claims she also owns by way of any cancelled check, statement of account, a manager's check or appropriate entries in a passbook. Although she committed to do so in the course of her testimony, complainant never presented the supposed Deed of Assignment she claims as executed for the 6000 shares. The same is true for complainant's claim to an additional subscription of 20,000 shares. It is not disputed by the parties that these 20,000 shares form part of the 100,000 shares resulting from the increase in the corporation's authorized capital stock; and approved by the Commission's BED in its Order of June 01, 1988 [Exh. F.,inclusive] . The authorized increase represented the advances made supposedly by all of the stockholders of record and converted into equity. Complainant, however, has not presented proof of the advances attributed to her. It seems inconsistent with human experience that complainant who is a CPA by profession and was in fact CPSI's erstwhile external auditor could not have seen to the proper supporting documentation for her purported payments for her original subscription to 8800 shares of CPSI and subsequently for her claimed advances in not an insubstantial sum of P2 million for which she was allegedly issued an additional 20,000 shares. For want therefore of the requisite consideration paid by or attributable to complainant no such sale of the 28000 shares or the assignment of her advances in the aggregate amount of P2 million as what the Deed of Sale [Exh. I] and the Deed of Assignment [Exh. G] purport to be, may be deemed to have actually taken place. The contracts entered into were merely simulated as the real intention for their execution involved some transaction other than one of sale or assignment. Simulation of a contract may be absolute or relative [Article 1345, Civil Code]. The former takes place when the parties do not intend to be bound at all; the latter when the parties conceal their true agreement [Ibid] as in the case of the deeds subject hereof Article 1346 of the Civil Code provides: ..."A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, good customs public order or public policy, binds the parties to their real agreement." Consequently. there can be no valid issuance of any shares of CPSI in the name of complainant or the other stockholders who testified, namely: Keirulf Vitug and Pelea as it has not been established that they have indeed paid for themselves. any of the accepted forms of consideration under Section 62 of the Corporation Code. Respondent's submission that the real agreement with complainant, just as in the case of their three (3) witnesses. Jose Keirulf Fernando Vitug and Jaime Pelea. was for her to act temporarily as nominee or trustee of respondent Romualdez, Jr. is well taken. A trust has been defined to be as follows: a. It is a right to the beneficial enjoyment of property, the legal title to which is vested in another; b. It is fiduciary relationship concerning property which obliges the person holding it to deal with the property for the benefit of another. The person holding, in view of his equitable title. is allowed to exercise certain powers belonging to the owner of the legal title". [IV Paras, Civil Code of the Philippines 785 (1989) citing 65 C.J. 212; Pacheco vs. Arro, G.R. No. 48090, February 16, 1950, 85 Phil. 505; and 54 Am. Jur. 21] Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law [Article 1441 Civil Code] .It is the former kind of trust which is involved in the case at bar. Express evidence concerning an immovable or any interest therein may be proved by parol evidence [Article 1443, Civil Code] .By implication. therefore, for a trust over personal property such as shares of stock an oral agreement is valid and enforceable between the parties. [IV Paras, op. cit. at 789] As heretofore shown, respondents have sufficiently established the existence of a trust relationship not only as between complainant and respondent Romualdez, Jr.,but as between the latter and the other stockholders concerned. Unrebutted by complainant are the due execution and authenticity of the various deeds of sale [Exhs. 13, 16, 19, 21 & 25] and waivers of pre-emptive right [Exhs. 12, 15, 18, 22 & 26] attributed to practically all of the stockholders of record; their indorsement in blank and delivery to respondent Romualdez Jr. of the stock certificates [Exhs. 11, 14, 17, 20, 23 & 24] covering their respective shares in CPSI. All three (3) witnesses for respondent related the attendant circumstances with distinct uniformity and spontaneity. Fully documented [Exhs. 27 to 30 inclusive] and well explained also by respondent Romualdez. Jr. is the basis for his assertion that the increase in CPSI's authorized capital stock as a result of the advances solely extended by him to the corporation when he negotiated for and paid its discounted loan obligation with the Development Bank of the Philippines Asset Privatization Trust (DBP APT) in the amount of P9,238.900 plus his deposit in subscription in the amount of P1 million. Complainant's contention to the contrary based on the two promissory notes [Exhs. J J-1] evidencing an alleged obligation in her favor by the corporation has been refuted therefore by respondents. In contrast complainant's attempt to cast doubt on the genuineness of similar deeds of sale [Exhs. 1 &2 inclusive] and waiver of pre-emptive rights [Exhs. 10, inclusive] attributed to her and her admitted indorsement of Stock; Certificates Nos. 88-01-015, 88-01-016. and 88-01-018 [Exhs. 7, 8 & 9. inclusive] fails to inspire belief. Complainant's claim that she would affix her signature on blank papers and thereafter would leave them in the company vault whenever she is on a business trip abroad which is accessible to and the key to which is readily available to virtually just about anybody in the company is plainly incredible. Even more so is her testimony that she indorsed in blank Stock Certificates Nos. 88-01-015, 88-01-016, 88-01-018 [Exhs. 7-9, inclusive] which cover CPSI shares worth millions of pesos and left them too in the same company vault. The more credible explanation is that she willingly and freely delivered said stock certificates following their indorsement by her to respondent Romualdez, Jr. having known and acknowledged at the outset her relationship with the latter as that of "trustor and trustee".Besides complainant failed to state in her complaint with particularity the circumstances constituting the possible forgery of her signatures such that she is deemed to have waived it as one of her causes of action upon which she can be allowed to present evidence [Section 5, Rule 8, 1998 Revised Rules of Civil Procedure] Even assuming arguendo as they appear on the deeds of sale [Exhs. 1 & 2, inclusive] and waivers of pre-emptive right [Exhs. 10, inclusive] are forgeries as such an allegation is affirmative in nature [Section 1, Rule 131, 1989 Revised Rules of Evidence which, unfortunately, she likewise failed to do. Their indorsement in blank and delivery then being a fait accompli, title to the shares in question vested in respondent Romualdez Jr. as transferee thereof. [Section 63, Corporation Code; SEC Case No. 1392 entitled: Datu Taguranao Benito vs. Jamiatul Phils.] For lack of sufficient evidence, however, respondents' counterclaim for moral and exemplary damages against complainant must necessarily fail. On the other hand, there being an agreement between respondents and their counsel and co-counsel of record for attorney's fees which remained unrebutted by complainant and with respondents been unjustifiably compelled to respond the present suit reimbursement by complainant of a reasonable amount is in order. WHEREFORE, in view of all the foregoing considerations, the instant complaint is, as it should be, hereby DISMISSED. On respondents' counterclaim complainant is hereby adjudged to pay respondents P50,000.00 as and for attorney's fees. No pronouncement as to cost. SO ORDERED. (SGD.) ROMMEL G. OLIVA Hearing Officer * Copied verbatim from documents obtained directly from the Securities and Exchange Commission.