Ricardo Monasterio vs. Rural Bank of Sipocot, Inc., et al.

[SEC-SICD * CASE NO. 1441. March 14, 1980.] RICARDO MONASTERIO , petitioner , vs . RURAL BANK OF SIPOCOT, INC., MELCHOR VILLANUEVA, PEDRO CRUZ, RAMON VILLALUZ, MANUEL MOTOS and MAMERTO GUSTILO , respondents . D E C I S I O N In December of 1975, the Land Bank of the Philippines sold its 1,150 shares of preferred stock in the respondent Rural Bank of Sipocot, Inc., valued at P115,000.00 and covered by Preferred Stock No. 4, to Mariano Monasterio. The respondent Rural Bank of Sipocot, Inc., through a resolution (Resolution No. 1976-11, Exh 3-a) of its Board of Directors on February 1, 1976, approved the aforementioned sale and authorized the immediate recording thereof in its Stock and Transfer Book. Accordingly, Stock Certificate No. 065, covering the 1,150 shares of common stock, was issued to Mariano Monasterio (Exh. "C-2"). llcd On April 8, 1976, Mariano Monasterio and his wife Paula A. Monasterio sold the 1,150 shares of common stock (Stock Certificate No. 065) to their nephew, petitioner Ricardo Monasterio. Petitioner Ricardo Monasterio, in a letter, dated July 3, 1976, formally informed respondent Rural Bank of Sipocot, Inc. of such sale, forwarding Stock Certificate No. 065, duly indorsed, and a copy of the Deed of Sale (Exh. "C-3") in his favor, with the request that said Stock Certificate No. 065 be cancelled and a new one issued to his name. There was no action to this request until October 6, 1976, when respondent Rural Bank of Sipocot, Inc., informed, through a letter, petitioner Ricardo Monasterio that the 1,150 preferred shares bought by Mariano Monasterio from the Land Bank of the Philippines were not automatically converted into common shares because, as per opinion of the Securities and Exchange Commission, dated July 26, 1976, it shall require, aside from the sale by the Land Bank to Mariano Monasterio, an amendment of the Articles of Incorporation (Exh. "C-4"). Consequently on October 2, 1976, the Board of Directors of the respondent Rural Bank, authorized the correction of the entry in the Stock and Transfer book by reverting the common share (Certificate of Stock No. 065) into preferred shares. Petitioner Ricardo Monasterio claims that there is no possibility of the Articles of Incorporation or respondent Rural Bank of Sipocot, Inc. being amended, because it appears to be in the grip of two rival stockholders' block, neither of which has sufficient strength to muster the required two-thirds (2/3) vote necessary to amend the Articles of Incorporation; hence, herein petitioner, caught in the crossfire, is without any hope, at least in the foreseeable future, of having a say or voice in the management of the corporation in which he holds a substantial interest. Upon the other hand, respondents alleged that the 1,150 preferred shares bought by Mariano Monasterio (subsequently acquired by petitioner Ricardo Monasterio) were not automatically converted into common shares because, as stated, it shall require an amendment of the Articles of Incorporation. Besides, respondents denied that the resolution (Exh. "3-a") of respondent Bank's Board of Directors on February 1, 1976 approved the aforementioned sale for it mentioned only "the recording in the books of the shares purchased by Mariano Monasterio from Land Bank." Moreover, respondents questioned the signature of Mariano Monasterio in the Deed of Sale since he was already very ill and dying and considered a "stretcher" case when brought to the Veterans Memorial Hospital on April 11, 1976, hence, no longer in complete and full control of his faculties. In fact he died on April 14, 1976. The Deed of Sale in favor of petitioner Ricardo Monasterio is therefore, suspicious and doubtful. At the trial, petitioner Ricardo Monasterio testified, among others, on the fact of sale. He presented the Deed of Sale (Exh. "C-3") and identified the signatures of the spouses Mariano Monasterio and Paulina A. Monasterio. He testified further that, as a result of the sale, Mariano Monasterio gave to him Certificate of Stock No. 065 duly indorsed by Mariano Monasterio and Paulina A. Monasterio (Exh. "C-2a"). Thereafter, he wrote the Rural Bank of Sipocot informing it of the sale to him of the stocks covered by Certificate No. 065. He was not issued, however, a new certificate of stock in lieu of Certificate of Stock No. 065. On cross-examination, petitioner Ricardo Monasterio, testified, among others, that he is the nephew of Mariano Monasterio; that the spouses Mariano and Paulina Monasterio have eleven children, some of whom are already of legal age; that when he bought the stocks of Mariano Monasterio for P115,000.00, the price was shared by his brothers and sisters, although he was not issued a receipt for the amount; that Mariano Monasterio decided to sell his stocks because he was undergoing medical treatment. The next witness presented by petitioner Ricardo Monasterio was Mr. Jesus Groyon who testified, among others, that the last stockholders meeting of the rural bank was on October 23, 1976; that in October 1976, the stockholders are, aside from him, his wife, Dr. Carlomagno Manuel, Rosita Manuel, Jose Realubit, Remigio Rigor, Melchor Villanueva, Maniquit Peralta, Pedro Cruz, Mr. Motos, and Mr. Villaluz; that in the October 1976 election, Mr. Realubit and Dr. Manuel sided with Mr. Groyon, that the Groyon group owns 2,100 shares and the other group composed of Mr. Villanueva, Mr. Rigor, Mr. Cruz, Mr. Motos and Mr. Villanueva owns 2,900 shares. The respondents presented only one witness Dra. Fidela Moreno of the Veterans' Memorial Hospital, who testified, among others, that the late Mariano Monasterio was admitted to the said hospital on April 11, 1976 and she attended to him; that based on the hospital summary (Exh. "4") Mariano Monasterio was confined at the hospital from April 11 to 14, 1976; that Mariano Monasterio was sick of cancer of the lungs which has already spread; and was at the terminal stage; that on April 14, 1976, Mariano Monasterio developed apnea and went into subsequent cardio-respiratory arrest and died. There are two issues to be resolved in the instant case. One is whether or not the 1,150 shares in question were automatically converted to common shares, with the corresponding right to vote, upon their transfer by the Land Bank of the Philippines to Mariano Monasterio and subsequently to herein petitioner; the second, is whether or not respondents can be compelled to record the transfer to petitioner of said 1,150 shares of common stock. LLjur As earlier stated, it is respondents' stand, based on an opinion of this Commission, that the sale by the Land Bank of its preferred shares to the public did not automatically convert the same to common shares because an amendment of the Articles of Incorporation is still required .The said opinion states, to wit: "xxx xxx xxx The classification of the shares of stock of the Rural Bank shall be provided in the Articles of Incorporation such as preferred stocks representing the investment of the government and common stock representing private capital. So that, changes in the share shall require the amendment of Articles of Incorporation. (Martin, Philippine Commercial Laws, Vol. 4, p. 330) Therefore, the preferred shares owned by the Land Bank sold to the public are not automatically converted to common shares but shall require amendment to the Articles of Incorporation to effect such change." The opinion of the Commission, however, has been partly rendered inoperative with the issuance of P.D. No. 1452 on June 11, 1978, which provides, among others: "That pending the amendment of the Articles of Incorporation of Rural Bank, if necessary, for the purpose of reflecting the conversion into common stock of preferred stock sold to private shareholders, the transfer shall be recorded by the Rural Bank in the stock and transfer book and such shareholders shall thereafter enjoy all the rights and privileges of the common stockholders . . . . " Furthermore, this Decree likewise applies to preferred stock purchased by private persons even before June 11, 1978 (Op. 78-100, CB General Counsel, August 24, 1978, DRBSLA LC 78-30, November 28, 1978). With the advent of Presidential Decree No. 1452, there is, therefore, no longer any legal basis for the opinion of the Commission upon which respondent Rural Bank of Sipocot, Inc. has based its refusal to recognize the 1,150 shares of common stock, covered by Stock Certificate No. 065, as originally recorded in its Stock and Transfer Book. Under the said decree, pending amendment of the Articles of Incorporation, the transfer of preferred shares to private individuals may be recorded and reflected in the books of the rural bank. On the second issue, respondents contend that the deed of sale in favor of petitioner is of doubtful validity because at the time of its execution, the mental faculties of the transferor Mariano Monasterio, have already been impaired. However, it has been held that the corporation cannot inquire into the legality of the transfer of stock, or of the consideration for the transfer. (Miller v. Houston City St. Ry Co., 44 Fed. 366). Thus, the respondents can be compelled to record the transfer to petitioner of said 1,150 shares of common stocks. Nevertheless, even without the questioned Deed of Sale, the fact remains that Mariano Monasterio and his wife Paulina Monasterio duly indorsed the Certificate of Stock No. 065 in favor of petitioner Ricardo Monasterio (Exh. "C-2-a"). The signatures on said Certificates have never been assailed and as such they constitute an irrevocable authority for the Rural Bank of Sipocot to transfer said stock on its books in the name of petitioner Ricardo Monasterio. Hence, it is immaterial and irrelevant for respondents to claim that the Deed of Sale is not genuine, inasmuch as the indorsements on the certificate of stock have never been claimed as spurious. WHEREFORE, judgment is hereby rendered in favor of petitioner and against respondents, ordering the latter: 1. To record in its stock and transfer book the sale to petitioner by Mariano Monasterio of the stocks covered by certificate of stock No. 065; 2. To cancel the certificate of stock No. 065 and to issue a new one to petitioner." Without pronouncement as to costs. LLpr SO ORDERED. (SGD.) EMMANUEL R. SISON Hearing Officer