The late Manuel A. Torres, Jr. was the majority shareholder of Tormil Realty & Development Corporation, while private respondents were minority shareholders. Torres assigned various properties and shares to Tormil for tax purposes. Later, Torres revoked two assignments. Private respondents filed a complaint with the SEC. Torres then assigned qualifying shares to petitioners to elect them to the board of directors, but the assignments were not properly recorded. The court ruled the assignments and subsequent election were invalid because the requirements of law regarding recording share transfers were not followed. Being a family corporation did not exempt it from following corporate law.
The late Manuel A. Torres, Jr. was the majority shareholder of Tormil Realty & Development Corporation, while private respondents were minority shareholders. Torres assigned various properties and shares to Tormil for tax purposes. Later, Torres revoked two assignments. Private respondents filed a complaint with the SEC. Torres then assigned qualifying shares to petitioners to elect them to the board of directors, but the assignments were not properly recorded. The court ruled the assignments and subsequent election were invalid because the requirements of law regarding recording share transfers were not followed. Being a family corporation did not exempt it from following corporate law.
The late Manuel A. Torres, Jr. was the majority shareholder of Tormil Realty & Development Corporation, while private respondents were minority shareholders. Torres assigned various properties and shares to Tormil for tax purposes. Later, Torres revoked two assignments. Private respondents filed a complaint with the SEC. Torres then assigned qualifying shares to petitioners to elect them to the board of directors, but the assignments were not properly recorded. The court ruled the assignments and subsequent election were invalid because the requirements of law regarding recording share transfers were not followed. Being a family corporation did not exempt it from following corporate law.
The late Manuel A. Torres, Jr. was the majority shareholder of Tormil Realty & Development Corporation, while private respondents were minority shareholders. Torres assigned various properties and shares to Tormil for tax purposes. Later, Torres revoked two assignments. Private respondents filed a complaint with the SEC. Torres then assigned qualifying shares to petitioners to elect them to the board of directors, but the assignments were not properly recorded. The court ruled the assignments and subsequent election were invalid because the requirements of law regarding recording share transfers were not followed. Being a family corporation did not exempt it from following corporate law.
23. MANUEL A. TORRES, JR., (Deceased), GRACIANO J.
TOBIAS, RODOLFO L. JOCSON, JR., MELVIN S. JURISPRUDENCIA, AUGUSTUS CESAR AZURA and EDGARDO D. PABALAN, petitioners, vs. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, TORMIL REALTY & DEVELOPMENT CORPORATION, ANTONIO P. TORRES, JR., MA. CRISTINA T. CARLOS, MA. LUISA T. MORALES and DANTE D. MORALES, respondents.
G.R. No. 120138 September 5, 1997
FACTS:
The late Manuel A. Torres, Jr. (Judge Torres) was the majority stockholder of Tormil Realty & Development Corporation while private respondents who are the children of Judge Torres' deceased brother Antonio A. Torres, constituted the minority stockholders.
In 1984, Judge Torres, in order to make substantial savings in taxes,
adopted an "estate planning" scheme under which he assigned to Tormil Realty & Development Corporation (Tormil) various real properties he owned and his shares of stock in other corporations in exchange for 225,972 Tormil Realty shares. Hence, on various dates in July and August of 1984, ten (10) deeds of assignment were executed by the late Judge Torres
Consequently, the aforelisted properties were duly recorded in the
inventory of assets of Tormil realty and the revenues generated by the said properties were correspondingly entered in the corporation’s books of account and financial records. Likewise, all the assigned parcel of land were duly registered with the respective register of deeds in the name of Tormil realty, except for the ones located in Makati and Pasay City. Due to the insufficient number of shares of stock issued to Judge Torres and the alleged refusal to private respondents to approved the needed increase in the corporations authorized capital stock, on September 11, 1986 Judge Torres revoked the two deeds of assignment covering the properties in Makati and Pasay City.
Noting the disappearance of the Makati and Pasay City properties from the corporations inventory of assets and financial records, private respondents, on March 31, 1987, were constrained to file a complaint with the Securities and Exchange Commission (SEC) docketed as SEC Case No. 3153 to compel Judge Torres to deliver to Tormil corporation the two deed of assignment covering the aforementioned Makati and Pasay City properties which had unilaterally revoked and to cause the registration of the corresponding titles in the name of Tormil.
Moreover, the 1987 annual stockholders meeting and election of
directors of Tormil corporation was scheduled on 25 March 1987 in compliance with the provisions of its by-laws.
Pursuant thereto, Judge Torres assigned from his own shares, one (l) share each to petitioners Tobias, Jocson, Jurisprudencia, Azura and Pabalan. These assigned shares were in the nature of "qualifying shares," for the sole purpose of meeting the legal requirement to be able to elect them to the Board of Directors as Torres' nominees.
However, the said assignment of shares were not recorded by the
corporate secretary, Maria Cristina T. Carlos (niece) in the stock and transfer book of Tormil. When the validity of said assignments were questioned, Judge Torres ratiocinated that it is impractical for him to order Carlos to make the entries because Carlos is one of his opposition. So what Judge Torres did was to make the entries himself because he was keeping the stock and transfer book. He further ratiocinated that he can do what the secretary can do because in the first place, he is the president.
Since the private respondents were against the inclusion of petitioners,
they refused to take part in the election. Judge Torres and his five assignees then decided to conduct the election among themselves considering that the six of them constitutes a quorum.
ISSUE:
Whether or not the inclusion of five petitioners and the subsequent
election is valid.
HELD:
No. The assignment of shares of stocks did not comply with the requirements of the law.
The court said that, petitioners cannot use the flimsy excuse that it would have been a vain attempt to force the incumbent corporate secretary to register the aforestated assignments in the stock and transfer book because the latter belonged to the opposite faction. It is the corporate secretary's duty and obligation to register valid transfers of stocks and if said corporate officer refuses to comply, the transferor-stockholder may rightfully bring suit to compel performance. In other words, there are remedies within the law that petitioners could have availed of, instead of taking the law in their own hands, as the cliche goes.
The court likewise sustain respondent SEC when it ruled, interpreting
Sec. 74 (Sec. 73) of the Corporation Code, as follows:
In the absence of (any) provision to the contrary, the corporate
secretary is the custodian of corporate records. Corollarily, he keeps the stock and transfer book and makes proper and necessary entries therein.
Contrary to the generally accepted corporate practice, the stock and
transfer book of TORMIL was not kept by Ms. Maria Cristina T. Carlos, the corporate secretary but by respondent Torres, the President and Chairman of the Board of Directors of TORMIL. In contravention to the above cited provision, the stock and transfer book was not kept at the principal office of the corporation either but at the place of respondent Torres.
These being the obtaining circumstances, any entries made in the stock and transfer book on March 8, 1987 by respondent Torres of an alleged transfer of nominal shares to Pabalan and Co. cannot therefore be given any valid effect. Where the entries made are not valid, Pabalan and Co. cannot therefore be considered stockholders of record of TORMIL. Because they are not stockholders, they cannot therefore be elected as directors of TORMIL. To rule otherwise would not only encourage violation of clear mandate of Sec. 74 of the Corporation Code that stock and transfer book shall be kept in the principal office of the corporation but would likewise open the flood gates of confusion in the corporation as to who has the proper custody of the stock and transfer book and who are the real stockholders of records of a certain corporation as any holder of the stock and transfer book, though not the corporate secretary, at pleasure would make entries therein.
Lastly, the court said that all corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple family corporation is not an exemption. Such corporations cannot have rules and practices other than those established by law.
