Sulit v. Mortel, Jr.

[SEC-SICD * CASE NO. 11-96-5485. September 21, 1998.] EDUARDO S. SULIT and PASIA PHIL. GROUP, INC. , petitioners , vs .NEMESIO H. MORTEL, JR. , respondent . D E C I S I O N This is a petition for Mandamus, Sum of Money with Damages filed principally by Eduardo S. Sulit (Sulit, for brevity) who also impleaded Pasia Phil. Group, Inc. (Pasia, for brevity) as party petitioner by way of derivative suit only, against Nemesio H. Mortel, Jr.,Nestor Gualberto, Marcelino R. Mortel, Mariano H. Mirano and Danilo Sta. Ana, all of whom are stockholders and directors of Pasia except Danilo Sta. Ana, who shall be referred to as respondents. The petition seeks to compel respondents to allow Sulit to inspect and examine all corporate books and records of the corporation. Respondents, in their Answer question the personality and qualification of Sulit to inspect and examine the books of the corporation as they deny his being a stockholder thereof. The facts of this case, as culled from the evidence both testimonial and documentary, adduced by the parties herein are, as follows: That Pasia is a corporation duly registered with the Securities and Exchange Commission on October 30, 1987 (Exhs. "A-1"" and "A-2" for Sulit and Exh "1" for respondents);that the original incorporators, stockholder and directors of Pasia are Nemesio H. Mortel, Jr.,Marciano H. Mirano, Ricardo D. Dino, Ma. Luisa H. Gualberto, Florencia H. Leyba and Marcelino R. Mortel that Pasia is a closed corporation with restriction on the transfers, sale, pledge or disposition of the shares as provided for under Article II thereof; that a letter dated July 15, 1992 by stockholder and director Ricardo D. Dino addressed to the President of Pasia Capt. Nemesio H. Mortel, Jr. (Exh. "A-3" for Sulit and Exh. "3" for respondents) was received by the Corporation informing its Board of Directors (Board, for brevity) that he is disposing his shares of stock in Pasia to his brother-in-law in the person of Capt. Eduardo S. Sulit who is the petitioner in this case at the same time requesting that same be approved; that acting on said letter, the Board in a Special Meeting held on July 31, 1992, approved the request of Dino to transfer his shares of stock to Sulit who was also allowed to assume the position of Dino as Director and Vice President of Pasia; that as testified to by witness Marcelino Mortel for respondents, the approval of the Board of Pasia was given in the mistaken belief that Sulit is a descendant of Dino and therefore qualified to be a stockholder and director of Pasia that a notarized Deed of Sale executed by Dino in favor of Sulit dated February 7, 1995 (Exh. "A-4") was presented by Sulit to prove that all the 4,000 shares of Dino and Pasia had been transferred to him and that said shares were previously to other stockholders in compliance with the provision of Article II of the Articles of Incorporation of Pasia; that respondents through their sole witness, Marcelino Mortel, who is also a director and Corporate Secretary of Pasia, denied having received said Deed of Sale (Exh. "A-4") and recording the same in the Stock Transfer Book of Pasia. The only issue to be resolved in this case, is whether or not petitioner Sulit is a stockholder of Pasia Phil. Group, Inc. On this question, the position of Sulit is that the approval by the Board of Pasia during its special meeting on July 31, 1992, as reflected in the excerpt of the minutes of said meeting (Exh. "A-5") of the request of stockholder Dino for the approval of the transfer of his shares to Sulit and the subsequent acts of the Board in recognizing him a stockholder and director in the place of Dino (Exh. "A-6") are sufficient proofs that he is a stockholder of Pasia since July 31, 1992, up to the present. To further bolster his position Sulit also represented the Deed of Sale dated February 7, 1995 (Exh. "A-4") and assisting all these 4,000 subscribed shares of stock in Pasia to Sulit. On the other hand, respondents contend that the approval of the Board on the request of Dino to transfer his shares to Sulit was made in the mistaken belief that the assignment was in accordance with Article II of the Articles of Incorporation of Pasia. Respondents further contend that they are misled in accepting Sulit as qualified to replace Dino despite the fact that the former is not a descendant of the latter but only a brother-in-law which is a clear violation of the restriction imposed in the Articles of Incorporation of Pasia. Respondents also denied having knowledge of the Deed of Sale (Exh. "A-4") executed by Dino in favor of Sulit nor having the same entered and recorded in Corporation's Stock and Transfer Book. A very important question which we consider crucial in the resolution of this case is, what is the effect of the approval of the Board of Pasia on the request of Dino (Exh. "A-3" and Exh "3") to transfer his shares to Sulit. An examination of the letter request of Dino dated July 15, 1992 (Exh. "A-3" and Exh. "3") reveals that it was only a request to transfer the shares of Dino to Sulit without an actual transfer of shares being made since no formal document transferring said shares has been executed thereafter. This being the case, the Board's approval was nothing there being really no actual transfer of shares from Dino to Sulit. The Board which was misled in approving the said request committed not only an ultra vires act but an illegal act which cannot be validated by its subsequent acts of recognizing Sulit as a stockholder and director and installing him as Vice President of Pasia. The records as well as the evidence of the case failed to show that a deed of assignment, conveyance or transfer of the shares of Dino ever accompanied his letter request of July 15, 1992, and there being none, Sulit cannot claim to be a stockholder of Pasia. The action of the Board in approving a non-existing transfer of shares is, to say the least, an illegal act and therefore void and cannot be validated (Republic vs. Acoje Mining Co., Inc. L-18062, February 28, 1963). Although Sulit submitted as part of his evidence a Deed of Sale (Exh. "A-4"), the same appears to have been executed only on February 7, 1995 or more than two (2) years after Dino informed the Board of Pasia of his intention to transfer on July 15, 1992. Respondents denied any knowledge of said Deed of Sale or of having received and recorded the same in the Stock and Transfer Book of the Corporation. It is interesting to note that no evidence was presented by Sulit to prove that the Deed of Sale dated February 7, 1995 was received by respondents and that the same was recorded as required under Sec. 60 of the Corporation Code. The Supreme Court is quite emphatic on this point as it held that "transfer of shares to be valid must be entered and noted in the book of the corporation" (Hodges vs. Lezama, L-17327, August 30, 1963) Even assuming without admitting that the transfer of shares from Dino to Sulit was consummated, said transfer however, was illegal and invalid considering that the said transfer was in violation of the restriction imposed under Article XI of the Articles of Incorporation of Pasia which provides that the shares of stocks of any stockholder shall be disposed or transferred only to the lawful descendant aside from existing stockholders. Under the above-Article of Pasia, as a close corporation, Dino cannot transfer his shares of stocks to Sulit his brother in-law, the latter being not a descendant. WHEREFORE, in view of the foregoing, this Commission believes and so holds that petitioner Eduardo S. Sulit is not a stockholder of Pasia Phil. Group, Inc. and as such, is not entitled to any right to inspect and examine the records and books of the corporation. Accordingly, this case should be, as it is hereby DISMISSED. SO ORDERED. (SGD.) PAULINO Q. GALLEGOS Hearing Officer