G.R. No.

208844, November 10, 2015

F & S VELASCO COMPANY, INC., IRWIN J. SEVA, ROSINA B. VELASCO-SCRIBNER, MERCEDEZ
SUNICO, AND JOSE SATURNINO O. VELASCO*, Petitioners, v. DR. ROMMEL L. MADRID, PETER
PAUL L. DANAO, MANUEL L. ARIMADO, AND MAUREEN R. LABALAN, Respondents.

FACTS: On June 8, 1987, FSVCI was duly organized and registered as a corporation with:
- Francisco O. Velasco (Francisco), - herein respondent Dr. Rommel L. Madrid (Madrid),
- Simona J. Velasco (Simona), - and Petitioner Saturnino O. Velasco (Saturnino)
- Angela V. Madrid (Angela),
as its incorporators.

When Simona and Francisco died on June 12, 1998 and June 22, 1999, respectively, their
daughter, Angela, inherited their shares, thereby giving her control of 70.82% of FSVCI's total
shares of stock.

As of May 11, 2009, the distribution of FSVCI's 24,000 total shares of stock is as follows:
(a) Angela with 16,998 shares;
(b) Madrid with 1,000 shares;
(c) petitioner Rosina B. Velasco-Scribner (Scribner) with 6,000 shares; and
(d) petitioners Irwin J. Seva (Seva) and Mercedez Sunico (Sunico) with one (1) share each.

On Sept 20, 2009 and during her tenure as Chairman of the BOD of FSVCI, Angela died intestate
and without issue.

On Oct 8, 2009, Madrid, as Angela's spouse, executed an Affidavit of Self-Adjudication covering

the latter's estate which includes her 70.82% ownership of FSVCI's shares of stock. Believing that
he is already the controlling stockholder of FSVCI by virtue of such self-adjudication, Madrid
called for a Special Stockholders' and Re-Organizational Meeting to be held on Nov 18, 2009.

On Nov 10, 2009 and in preparation for said meeting, Madrid executed separate deeds of
assignment transferring one share each to Vitaliano B. Ricafort and to respondents Peter Paul L.
Danao (Danao), Maureen R. Labalan (Labalan), and Manuel L. Arimado (Arimado; collectively,
Madrid Group).

Meanwhile, Seva, in his then-capacity as FSVCI corporate secretary, sent a Notice of an

Emergency Meeting to FSVCI's remaining stockholders for the purpose of electing a new
president and vice-president, as well as the opening of a bank account. Such meeting was held
on Nov 6, 2009 which was attended by Saturnino, Seva, and Sunico, during which, Saturnino was
recognized as a member of the FSVCI Board of Directors and thereafter, as FSVCI President, while
Scribner was elected FSVCI Vice-President (Saturnino Group).
Despite the election conducted by the Saturnino Group, the Madrid Group proceeded with the
Special Stockholders' and Re-Organizational Meeting on Nov 18, 2009, wherein:
(a) the current members of FSVCI Board of Directors (save for Madrid)
were ousted and replaced by the members of the Madrid Group; and

(b) Madrid, Danao, Arimado, and Labalan were elected Pres, VP, Corporate Secretary, and
Treaurer, respectively, of FSVCI (Nov 18, 2009 Meeting).

In view of the Nov 18, 2009 Meeting, the Saturnino Group filed a petition for Declaration of
Nullity of Corporate Election with a TRO against the Madrid Group before the RTC

ISSUE: Whether or not:

1. the Nov 18, 2009 Meeting organized by Madrid is legal and valid; NO

RULING: The petition is partly meritorious.

xxx xxx xxx
Through Orders dated Dec 29, 2010 and March 29, 2011, the RTC-Makati already recognized
Madrid as Angela's sole heir to the exclusion of others - i.e., Angela's purported biological sister,
Lourdita J. Estevez (Estevez) - and, thus, appointed him as Special Administrator of Angela's
estate.

The Court is constrained to view that Madrid is indeed Angela's sole heir and her death caused
the immediate transfer of her properties, including her 70.82% ownership of FSVCI's shares of
stock, to Madrid.

As such, Madrid may compel the issuance of certificates of stock in his favor, as well as the
registration of Angela's stocks in his name in FSVCI's Stock and Transfer Book.

Be that as it may, it must be clarified that Madrid's inheritance of Angela's shares of stock does
not ipso facto afford him the rights accorded to such majority ownership of FSVCI's shares of
stock. Section 63 of the Corporation Code governs the rule on transfers of shares of stock. It
reads:
SEC. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shall
be divided into shares for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation
shall be issued in accordance with the by-laws. Shares of stock so issued are personal property
and may be transferred by delivery of the certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the transaction, the date of the transfer, the
number of the certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in
the books of the corporation.
Verily, all transfers of shares of stock must be registered in the corporate books in order to be
binding on the corporation. Specifically, this refers to the Stock and Transfer Book, which is
described in Section 74 of the same Code as follows:

SEC. 74. Books to be kept; stock transfer agent. - x x x.

xxxx
Stock corporations must also keep a book to be known as the "stock and transfer book", in which
must be kept a record of all stocks in the names of the stockholders alphabetically arranged; the
installments paid and unpaid on all stock for which subscription has been made, and the date of
payment of any installment; a statement of every alienation, sale or transfer of stock made, the
date thereof, and by and to whom made; and such other entries as the by-laws may prescribe.
The stock and transfer book shall be kept in the principal office of the corporation or in the office
of its stock transfer agent and shall be open for inspection by any director or stockholder of the
corporation at reasonable hours on business days.
xxxx
In this regard, the case of Batangas Laguna Tayabas Bus Co., Inc. v. Bitanga instructs that an
owner of shares of stock cannot be accorded the rights pertaining to a stockholder - such as the
right to call for a meeting and the right to vote, or be voted for - if his ownership of such shares
is not recorded in the Stock and Transfer Book, viz.:

Indeed, until registration is accomplished, the transfer, though valid between the parties, cannot
be effective as against the corporation. Thus, the unrecorded transferee, the Bitanga group in
this case, cannot vote nor be voted for.

The purpose of registration, therefore, is two-fold: to enable the transferee to exercise all the
rights of a stockholder, including the right to vote and to be voted for, and to inform the
corporation of any change in share ownership so that it can ascertain the persons entitled to
the rights and subject to the liabilities of a stockholder.

Until challenged in a proper proceeding, a stockholder of record has a right to participate in any
meeting; his vote can be properly counted to determine whether a stockholders' resolution was
approved, despite the claim of the alleged transferee. On the other hand, a person who has
purchased stock, and who desires to be recognized as a stockholder for the purpose of voting,
must secure such a standing by having the transfer recorded on the corporate books. Until the
transfer is registered, the transferee is not a stockholder but an outsider.

In the case at bar, records reveal that at the time Madrid called for the Nov 18, 2009 Meeting, as
well as the actual conduct thereof, he was already the owner of 74.98% shares of stock of FSVCI
as a result of his inheritance of Angela's 70.82% ownership thereof.

However, records are bereft of any showing that the transfer of Angela's shares of stock to
Madrid had been registered in FSVCFs Stock and Transfer Book when he made such call and
when the Nov 18, 2009 Meeting was held. Thus, the CA erred in holding that Madrid complied
with the required registration of transfers of shares of stock through mere reliance on FSVCI's
GIS dated November 18, 2009.

In this relation, it is noteworthy to point out that the submission of a GIS of a corporation before
the SEC is pursuant to the objective sought by Section 26 of the Corporation Code which is to give
the public information, under sanction of oath of responsible officers, of the nature of business,
financial condition, and operational status of the company, as well as its key officers or managers,
so that those dealing and who intend to do business with it may know or have the means of
knowing facts concerning the corporation's financial resources and business responsibility.

The contents of the GIS, however, should not be deemed conclusive as to the identities of the
registered stockholders of the corporation, as well as their respective ownership of shares of
stock, as the controlling document should be the corporate books, specifically the Stock and
Transfer Book. Jurisprudence in Lao v. Lao is instructive on this matter, to wit:

The mere inclusion as shareholder of petitioners in the General Information Sheet of PFSC is
insufficient proof that they are shareholders of the company.

Petitioners bank heavily on the General Information Sheet submitted by PFSC to the SEC in which
they were named as shareholders of PFSC. They claim that respondent is now estopped from
contesting the General Information Sheet.

While it may be true that petitioners were named as shareholders in the General Information
Sheet submitted to the SEC, that document alone does not conclusively prove that they are
shareholders of PFSC. The information in the document will still have to be correlated with the
corporate books of PFSC. As between the General Information Sheet and the corporate books,
it is the latter that is controlling.

The SC agrees with the RTC that mere inclusion in the General Information Sheets as
stockholders and officers does not make one a stockholder of a corporation, for this may have
come to pass by mistake, expediency or negligence. As professed by respondent-appellee, this
was done merely to comply with the reportorial requirements with the SEC.

This maybe against the law but "practice, no matter how long continued, cannot give rise to any
vested right."

If a transferee of shares of stock who failed to register such transfer in the Stock and Transfer
Book of the Corporation could not exercise the rights granted unto him by law as stockholder,
with more reason that such rights be denied to a person who is not a stockholder of a
corporation. Petitioners-appellants never secured such a standing as stockholders of PFSC and
consequently, their petition should be denied.
In light of the foregoing, Madrid could not have made a valid call of the Nove 18, 2009 Meeting
as his stock ownership of FSVCI as registered in the Stock and Transfer Book is only 4.16% in
view of the non-registration of Angela's shares of stock in the FSVCI Stock and Transfer Book in
his favor. As there was no showing that he was able to remedy the situation by the time the
meeting was held, the conduct of such meeting, as well as the matters resolved therein, including
the reorganization of the FSVCI Board of Directors and the election of new corporate officers,
should all be declared null and void.

Thus, in view of the nullity of the Nov 6, 2009 Meeting conducted by the Saturnino Group which
ruling of the RTC had already attained finality, as well as the November 18, 2009 Meeting
conducted by the Madrid Group - both of which attempted to wrest control of FSVCI by
reorganizing the Board of Directors and electing a new set of corporate officers - the FSVCI Board
of Directors at the time of Angela's death (i.e. Madrid, Seva, Scribner, and Sunico) should be
reconstituted, and thereafter, fill the vacant seat left by Angela in accordance with Section 29 of
the Corporation Code. Such Board of Directors shall only act in a hold-over capacity until their
successors are elected and qualified, pursuant to Section 23 of the Corporation Code.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated March 1, 2013 and the Resolution
dated August 7, 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 113279 are hereby REVERSED and
SET ASIDE. The Special Stockholders' and Re-Organizational Meeting of petitioner F & S Velasco Company,
Inc. called by respondent Rommel L. Madrid and held on November 18, 2009 is declared NULL and VOID.

Accordingly, the Board of Directors of petitioner F & S Velasco Company, Inc. prior to the death of Angela
V. Madrid - consisting of the remaining members petitioners Rosina B. Velasco-Scribner, Irwin J. Seva, and
Mercedez Sunico and respondent Dr. Rommel L. Madrid - is hereby ORDERED reconstituted. The Board
of Directors is ORDERED to fill the vacant seat left by Angela V. Madrid and, thereafter, act in a hold-over
capacity until their successors are elected and qualified, in accordance with prevailing laws, rules, and
jurisprudence.

SO ORDERED.