The International Corporate Bank, Inc. vs. Producers Bank of The Philippines, et al.

[SEC-SICD * CASE NO. 2541. August 30, 1990.] THE INTERNATIONAL CORPORATE BANK, INC. (as successor-in-interest of ASIA PACIFIC FINANCE CORP.) , petitioner , vs . PRODUCERS BANK OF THE PHILIPPINES, ET AL. , respondents . D E C I S I O N In its petition for mandamus, petitioner prays for an Order to direct the respondent and corporate secretary to enter in its stock and transfer book the sale to petitioner by Messr. Ramon Lee, Pablo Gonzales, Johnny Teng and Antonio Lacdao of shares of stock and to issue the corresponding stock transfer certificates in the name of petitioner. LLjur In support of its petition, petitioner alleged that on June 18, 1979 and for value received, Messrs. Ramon Lee, Pablo Gonzales, Johnny Teng and Antonio Lacdao (Ramon Lee, et al. for brevity) sold, assigned and transferred to Asia Pacific Finance Corporation (APCOR) their shares of stock in respondent Producers Bank, more particularly described as follows: OWNER STOCK CERT . CO. NO. OF SHARES Ramon Lee 1480 20,000 Pablo Gonzales 1784 2,000 Johnny Teng 1486 10,000 Antonio Lacdao 1438 5,000 Pablo Gonzales 1768 250 Pablo Gonzales 2097 362 Antonio Lacdao 1769 250 Antonio Lacdao 1783 2,546 Antonio Lacdao 2098 389 Antonio Lacdao 2154 2,050 Johnny Teng 1767 500 Johnny Teng 2096 525 by delivering the afore-identified stock certificates and endorsing them to APCOR; that sometime in August 1981, APCOR, together with Atrium Capital Corporation, were merged with petitioner, by reason of which the latter, as the surviving corporation, assumed their assets and liabilities; that notwithstanding demands on the respondents to record the transfer to petitioner in the stock and transfer book of respondent Producers Bank and to issue new stock certificates in the name of the petitioner, respondents failed and refused to do so. Hence, the petition for mandamus. In answer to the petition, respondents denied the material averments of the petition for lack of information as to the truth or falsity thereof and by way of affirmative defenses, alleged that on various dates, Messrs. Ramon Lee, Pablo Gonzales, Johnny Teng and Antonio Lacdao, all stockholders of Producers Bank, together with the Alfa group of companies, were granted loans and commercial letters of credit by the respondent bank to which they executed several Promissory Notes in favor of respondent bank; in addition to the Promissory Notes and letters of credit, Ramon Lee, et al. executed a continuing Surety Agreement in favor of the respondent bank to secure their obligations upon maturity; that the joint and solidary obligations of Ramon Lee, et al. under the Promissory Notes and letters of credit fell due and that notwithstanding repeated demands, they failed and refused to pay the respondent bank; that because of the default, respondent bank invoke its prior right and preference of credit over the shares of stocks, annotating its lien on such shares early in January 1981 pursuant to its contractual covenants with such stockholders in accordance with the provisions of Sec. 24 of the General Banking Act and Sec 63 2nd paragraph of the Corporation Code. Respondent further invoke the defense of lack of jurisdiction, failure to state a cause of action and that ownership over subject shares is within the jurisdiction of the ordinary courts. Hearings were conducted where both parties presented their respective evidence. On the part of the petitioner, it presented the shares of stock of Messrs. Ramon Lee (Exh "K") Pablo Gonzales (Exhibits "E", "H" and "J"), Johnny Teng (Exhibits "D", "L" and "I") and Antonio Lacdao (Exhibits "A", "B", "C", "F" and "G"), all duly endorsed on November 20, 1980 and delivered to petitioner. Upon the other hand, respondents submitted the Promissory Notes dated September 24, 1980, signed by Ramon Lee and Antonio Lacdao as officers of Alfa Integrated Textile Mills, Inc. (Alfa for short), which secured a loan from respondent bank in the amount of ONE MILLION SIX HUNDRED FIFTY THOUSAND (P1,650,000.00) PESOS (Exh. "1"); another Promissory Note dated December 3, 1980, signed by Ramon Lee and Antonio Lacdao, as officers of Alfa for a loan in the amount of EIGHT MILLION EIGHT HUNDRED THOUSAND (P8,800,000.00) PESOS obtained by Alfa from respondent bank (Exh. "2"); Promissory Note dated October 22, 1980, signed by Messrs. Johnny Teng, Antonio Lacdao and Ramon Lee in the amount of FOUR MILLION FIVE HUNDRED THOUSAND TWO HUNDRED TWENTY THREE (P4,500,223.00) PESOS for a loan obtained by Alfa from respondent bank (Exh. "3"), Promissory Note dated December 4, 1980, signed by Ramon Lee and Antonio Lacdao in the amount of SIX MILLION THREE HUNDRED FIFTY THREE THOUSAND AND THIRTY ONE (P6,353,031.00) PESOS (Exh. "4"), Promissory Note dated June 9, 1981, for a loan obtained by Alfa from respondent bank signed by Ramon Lee and Johnny Teng in the amount of ONE MILLION TWO HUNDRED TWO THOUSAND FOUR HUNDRED SIXTEEN PESOS AND SIXTY TWO CENTAVOS (P1,202,416.62) for a loan obtained by Alfa RTW Manufacturing Corporation from respondent bank, of which Ramon Lee and Johnny Teng are principal officers (Exh. "5"), Surety Agreement dated July 10, 1979, signed by Ramon Lee, Antonio Lacdao and Johnny Teng as sureties for the payment of the loan obtained by Alfa RTW Manufacturing Corporation from respondent bank (Exh. "6"), Surety Agreement dated August 3, 1976, signed by Ramon Lee and Johnny Teng, as sureties for the payment of the loan obtained by Alfa in favor of the respondent bank (Exh. "7"), Statement of Account of Alfa and Alfa RTW (Exh. "8"), Entries in the Stock and Transfer Book of respondent bank reflecting the number of shares previously held by Messrs. Ramon Lee, Johnny Teng, Pablo Gonzales and Antonio Lacdao and that on January 5, 1981, the claim of the respondent bank against the shares of stock of the aforementioned stockholders were duly registered and annotated in the Stock and Transfer Book and the cancellation of their shares of stock in application of the value thereof as partial payment of the obligation of Alfa and Alfa RTW (Exhibits "9", " 10", "11" and "12") and finally Exhibit " 13", which is a letter dated January 5, 1981 of Antonio M. Pery, Senior Vice- President of Producers Bank to the office of the Corporate Secretary stating the factual and legal basis for the cancellation of the shares of stock of Messrs. Ramon Lee, Johnny Teng, Pablo Gonzales and Antonio Lacdao and the application of the value thereof to the obligation of Alfa and Alfa RTW in favor of respondent bank. llcd The endorsement of the shares of stock of Messrs. Ramon Lee, Johnny Teng, Pablo Gonzales and Antonio Lacdao on November 20, 1980 and their delivery to the petitioner consummated the transfer of ownership of said shares as of their endorsement on November 20, 1980. This finds support in Section 63 of the Corporation Code which provides that "Shares of stock so issued are personal property and may be transferred by the delivery of the certificate or certificates indorsed by the owner or his attorneys-in-fact or other person legally authorized to make the transfer." By the respondents very own admission in their answer and their evidence, the annotation of its lien on such shares, and the cancellation of the shares of stock of Messrs. Ramon Lee, Johnny Teng, Pablo Gonzales and Antonio Lacdao were all made on January 5, 1981. But as previously stated, the transfer of the shares of stock of said persons to petitioner were consummated on November 20, 1980. When the bank, therefore, annotated and cancelled the shares of stock of Ramon Lee, et al., they do not own their respective shares anymore, having transferred their ownership over their respective shares to the petitioner. Respondents invoked Section 24 of the General Banking Act and Section 63 of the Corporation Code in justifying their actions. Section 24 of the General Banking Act provides: "SECTION 24. No commercial bank shall make any loan or discount on the security of shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase be necessary to prevent loss upon a debt previously contracted in good faith, and the stock so purchased or acquired, or for any reason in the course of its operation, shall within six months from the time of its purchase or acquisition be sold or disposed of at public or private sale, or in default thereof, a receiver shall be appointed to close up the business of the bank in accordance with law." Section 63 of the Corporation Code of the Philippines, insofar as pertinent to the case, reads as follows: "SECTION 63. Certificate of Stock and Transfer of Shares . . . . "No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation." After a thorough and careful analysis of the aforequoted provisions of the General Banking Act and the Corporation Code of the Philippines, it is the opinion of this Hearing Officer and so holds that the same are not applicable in this case. Insofar as the provisions of the General Banking Act is concerned, while it is true that Ramon Lee, et al. are liable under the Promissory Notes and Surety Agreements, being signatories thereto and may be considered debt previously contracted in good faith, the fact remains, however, that when the respondent bank exercised its option to purchase or acquire the shares of stock of Ramon Lee and his group on January 5, 1981, said shares of stock were no longer owned by them. But even assuming that said provision of the General Banking Act is applicable in this case, the same provision required the respondent bank to sell or dispose of said shares at a public or private sale. There is no evidence adduced that the respondent bank complied with said provision of the law. Since the respondent bank is in pari delicto, it cannot invoke said provision of the law, for a court of equity will not interpose to restore to one of them rights which it has thus parted with (Detroit v. R. Co. 56. Fed. 867). As to the provision of the Corporation Code of the Philippines, there is nothing in the Promissory Notes nor in the Surety Agreements which categorically provided for the shares of stock of Ramon Lee, et al. as sureties for the loans obtained. What the Promissory Notes and Surety Agreements provided were "any or all moneys, securities and things of value which are now or which may hereafter be in its hands on deposit or otherwise to the credit of, or belonging to all or any one of us, and the PRODUCERS BANK OF THE PHILIPPINES is hereby authorized to sell at public or private sale such securities or things of value for the purpose of applying the proceeds to such payments." Again, when the respondent bank decided to avail of the provision of the Promissory Notes and Surety Agreements, Ramon Lee, et al. no longer own their respective shares of stock and like in the General Banking Act, there is no evidence whatsoever to prove that respondent bank complied with the provision regarding the "public or private sale for the purpose of applying the proceeds to such payments." What respondent bank did was it cancelled the shares of stock of Ramon Lee, et al. and merely applied the value thereof to their indebtedness as reflected in Exhibit "13". WHEREFORE, the respondent bank, thru its incumbent Corporate Secretary is hereby commanded to enter in its stock and transfer book the transfer of the shares of stock of Messrs. Ramon Lee, Johnny Teng, Pablo Gonzales and Antonio Lacdao in favor of the petitioner and issue the corresponding stock certificates in the name of petitioner. LibLex Without pronouncement as to cost. SO ORDERED. (SGD.) FELIPE S. TONGCO Hearing Officer