G.R. No. 59956 - Moran, Jr. vs. Court of Appeals

Case Summary (G.R. No. 59956)

Specific judicial reliefs requested

Petitioner principally sought: (a) injunctions restraining the Apostols from further management and disposition of corporate funds and shares (except ordinary salaries/expenses); (b) injunctions restraining Magsanoc and Nuyda from disposing of PDI shares registered in their names; (c) accounting and reconveyance of profits and benefits obtained by the Apostols; (d) reconveyance of stock and fruits to Mr. & Ms.; (e) damages; (f) appointment of a management committee pending suit; and (g) direction for the management committee to enforce corporate claims.

Respondents’ Factual Narrative and Defenses

Corporate origins, close corporation character, and asserted consent

Respondents explained the corporate history from Ex Libris to Mr. & Ms., identifying original stockholders (JAKA, Luis Villafuerte, Ramon Siy, the Apostols, Ex Libris) and describing the company as operated like a close corporation among friends with informal consensus through consultations and breakfast meetings. They asserted that Eugenia Apostol kept partners informed and obtained consent, that the business prospered with increasing assets, equity and sales, and that dividends were distributed.

Denial of petitioner’s ownership and standing; alternate explanations of transactions

Respondents contended petitioner acted only as a holder-in-trust representing JAKA and was not the true beneficial owner. They disputed petitioner’s claim of share ownership prior to 1989, alleged irregular or fraudulent stockbook entries, and argued that loans to PDI had been repaid (including claimed interest) and that some advances were PDI’s loans to nominal subscribers. Respondents specifically pleaded that the real party-in-interest was JAKA, not Bitong, and thus she lacked capacity to prosecute a derivative suit.

SEC Hearing Panel and Initial Injunctive Rulings

Preliminary injunction and interlocutory rulings

On 6 December 1990 the SEC Hearing Panel issued a writ of preliminary injunction restraining respondents from disbursing corporate funds except for ordinary salaries/expenses and enjoining disposal of certain PDI shares. The Panel treated respondent admissions in the pleadings as sufficient to consider Bitong the real party-in-interest for purposes of provisional relief, but denied the requested appointment of a management committee. Respondents later sought to amend pleadings to assert that JAKA, not Bitong, was the real party-in-interest; the Hearing Panel denied that motion on 10 October 1991.

Trial, Hearing Panel Final Decision, and SEC En Banc Review

Trial evidence and Hearing Panel dismissal

After trial, on 3 August 1993 the SEC Hearing Panel dismissed the derivative suit and dissolved the preliminary injunction, concluding there was no serious mismanagement warranting drastic corrective measures. The Panel observed that Mr. & Ms. was run informally as a close corporation and noted evidence indicating the real party-in-interest might be JAKA or Senator Enrile; nonetheless, it previously had allowed Bitong to prosecute the suit to address the substantive issues.

SEC En Banc reversal ordering accountings and cessation of management

On appeal, the SEC En Banc (24 January 1994) reversed the Hearing Panel and ordered respondents to account for and return funds and assets disbursed from corporate coffers (including shares and fruits arising from alleged advances), to cease managing Mr. & Ms. for reasons of fraud, mismanagement, disloyalty and conflict of interest, and declared the 19 August 1993 sale of PDI shares to Edgardo Espiritu void as tainted with fraud. The En Banc treated Mr. & Ms. as the true owner of the disputed PDI shares and declared subsequent transferees trustees for the company’s benefit.

Court of Appeals Decision and Consolidation of Petitions

Consolidation and appellate review: factual and standing determination

Respondents and Espiritu filed separate petitions in the Court of Appeals, which were consolidated. On 31 August 1995 the Court of Appeals reversed the SEC En Banc, holding that petitioner was not the owner of any Mr. & Ms. shares during the period in question and therefore was not the real party-in-interest with legal capacity to prosecute the derivative complaint. The Court of Appeals ruled the SEC had acted in excess of jurisdiction when it issued reliefs based on Bitong’s asserted standing and declared relevant SEC orders null and void for want of jurisdiction.

Key Legal Issues Addressed by the Supreme Court

Central legal questions: ownership, standing to bring derivative suit, and evidentiary effect of corporate records

The Supreme Court analyzed (a) whether Bitong was a bona fide stockholder in her own right at the time of the transactions complained of and thus had standing to bring a derivative action; (b) the evidentiary value of stock certificates and entries in the corporation’s stock and transfer book under Section 63 of the Corporation Code; and (c) the significance of pleading admissions, qualifications in answers, and trial admissions (including board meeting admissions referencing Enrile as principals).

Section 63 and the Requirements for Valid Transfer of Shares

Formal requisites: signature, countersignature, seal, delivery, payment and recording

The Court reiterated the mandatory elements for valid issuance and transfer of share certificates under Section 63: certificates must be signed by the president or vice-president and countersigned by the secretary or assistant secretary and sealed; delivery of the certificate is essential to issuance; par value or full subscription must be paid; original certificate must be surrendered when the transferee is not an original holder; and transfers are valid between parties only when recorded in the corporation’s books (and recording is necessary to affect third parties). Certificates and stockbooks are prima facie evidence but not conclusive; their entries can be rebutted by more persuasive evidence, and irregularly issued stock is void and confers no rights.

Application of Law to the Record — Evidence Rebutting Petitioner’s Ownership Claim

Inconsistencies, admissions, and documentary record undermining Bitong’s claimed ownership prior to 1989

The Court considered multiple items discrediting Bitong’s asserted status as a stockholder before March 1989: (a) petitioner’s own admissions that certificate signing by President Eugenia Apostol actually occurred in 1989 (not 1983) and that the certificate was signed only on 17 March 1989; (b) documentary evidence that JAKA executed a deed of sale transferring its 1,000 shares to respondent Apostol on 10 May 1983 and that Apostol executed a declaration of trust acknowledging holding those shares for JAKA; (c) testimony and records indicating that the stock and transfer book and certificate book were missing, altered or in petitioner’s possession at material times and that changes had been made to those books without corporate notice; (d) payment of dividends to JAKA in December 1986, demonstrating JAKA’s retention of beneficial ownership; and (e) repeated board meeting admissions by petitioner acknowledging the Enriles as her principals. The Court stressed that endorsements and transfers require actual delivery and proper endorsement by the registered owner (the trustee), and there was no satisfactory proof that these occurred in a manner that vested beneficial ownership in Bitong before the acts complained of.

Admissions in Pleadings and Their Effect on Standing

Qualified admissions and affirmative defenses negate conclusive judicial admission

The Court analyzed the pleadings and found that respondents’ stated admissions were qualified and expressly limited by affirmative defenses asserting that the beneficial owner was JAKA. Where admissions are qualified by phrases like “insofar as” and are expanded by affirmative defenses, they are not definitive judicial admissions that foreclose later rebuttal. The Court also observed that a party may overcome an apparent judicial admission by showing inadvertence or mistake and that the probative weight of alleged admissions must be evaluated in context of the entire record, including parol and extrinsic evidence.

Derivative Suit Doctrine and Standing Requirements

Equity-based remedy requires bona fide stock ownership at time of complained acts

The Court reiterated the established rule that a stockholder may bring a derivative suit when directors commit breach of trust and intracorporate remedies are futile, but such equitable relief presupposes bona fide ownership of stock in the

Case Syllabus (G.R. No. 59956)

Case Citation and Procedural Posture

Supreme Court decision reported at 354 Phil. 516, First Division, G.R. No. 123553, July 13, 1998.
The underlying action was a derivative suit commenced as SEC Case No. 03604 on 5 July 1989 by petitioner Nora A. Bitong before the Securities and Exchange Commission (SEC), by petition for injunction, accounting and damages with prayer for appointment of a management committee and for preliminary injunctive relief and temporary restraining order.
SEC Hearing Panel (Hearing Officers Josefina L. Pasay-Paz, Antonio M. Esteves and Manuel P. Perea) issued a writ of preliminary injunction on 6 December 1990, with limited reliefs, and after trial dismissed the derivative suit on 3 August 1993 and dissolved the writ.
Following the SEC Hearing Panel decision, the SEC En Banc (Associate Commissioners Rodolfo L. Samarista, Merle O. Manuel, Fe Eloisa C. Gloria and Perfecto R. Yasay, Jr.; Chairman Rosario N. Lopez did not participate) reversed on 24 January 1994 with extensive remedial orders against respondents.
Private respondents filed petitions for review in the Court of Appeals (CA-G.R. No. SP 33291) and respondent Edgardo B. Espiritu filed a petition (CA-G.R. No. SP 33873); the petitions were consolidated on 8 December 1994.
The Court of Appeals rendered decision on 31 August 1995 reversing the SEC En Banc, holding petitioner not the real party-in-interest and dismissing her complaint; motion for reconsideration denied on 18 January 1996.
The Supreme Court was asked to review the CA decision; the petition was denied and the CA judgment affirmed by the Supreme Court on July 13, 1998. Costs were awarded against petitioner. Justice Panganiban did not participate.

Parties and Corporate Background

Petitioner: Nora A. Bitong, who alleged she was Treasurer and Member of the Board of Directors of Mr. & Ms. Publishing Co., Inc. (Mr. & Ms.) from incorporation until 11 April 1989 and the registered owner of 1,000 (later 997) shares out of total outstanding shares (petitioner’s pleadings stated 1,000 out of 4,088).
Private respondents: spouses Eugenia D. Apostol (President and Chairperson of the Board) and Jose A. Apostol; Mr. & Ms. Publishing Co., Inc.; Letty J. Magsanoc; Adoracion G. Nuyda.
Other relevant actors: JAKA Investments Corporation (JAKA) and Senator Juan Ponce Enrile; Ex Libris Publishing Co., Inc. (incorporated 9 March 1976); Luis Villafuerte and Ramon L. Siy as investors; Edgardo B. Espiritu (purchaser of JAED Management Corporation’s PDI shares on 19 August 1993).
Corporate genesis and restructuring: Ex Libris was organized to publish a weekly magazine; due to financial difficulties Ex Libris was restructured into Mr. & Ms. (incorporated 29 October 1976) with original stockholders including JAKA, Luis Villafuerte, Ramon Siy, the Apostols and Ex Libris. The respondents asserted the corporation thereafter functioned as a close corporation or partnership among original investors.

Petitioner’s Core Allegations and Reliefs Sought

Substantive allegations: respondents Eugenia and Jose Apostol committed fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in directing Mr. & Ms., to the damage of the corporation and its stockholders, including petitioner.
Specific facts alleged by petitioner:
- Except for sale of the name Philippine Inquirer to Philippine Daily Inquirer (PDI), other transactions and agreements between Mr. & Ms. and PDI were unsupported by bonds or stockholders’ resolutions.
- On instructions of Eugenia D. Apostol, Mr. & Ms. made multiple cash advances to PDI amounting to P3.276 million; some borrowings bore no interest.
- Advances were booked as advances to an affiliate without any board or stockholders’ resolution, contract or other documents legally authorizing creation/support of such affiliate.
- Respondents Eugenia and Jose Apostol were stockholders, directors and officers in both Mr. & Ms. and PDI.
- On 2 May 1986 respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda subscribed to PDI shares at P50,000.00 each; subscriptions were paid by Mr. & Ms., treated as receivables, and payments were never received from respondents.
Reliefs sought by petitioner (enumerated in pleading):
- (a) Enjoin Eugenia and Jose Apostol from further acting as president-director and director and from disbursing funds except for ordinary salaries and expenses, and from disposing of Mr. & Ms. shares;
- (b) Enjoin Apostol spouses, Magsanoc and Nuyda from disposing PDI shares registered in their names;
- (c) Compel Eugenia and Jose Apostol to account for and reconvey profits and benefits obtained by them from alleged improper/fraudulent acts;
- (d) Compel Magsanoc and Nuyda to account for and reconvey to Mr. & Ms. all PDI shares paid from Mr. & Ms. cash advances and all accessions/fruits thereof;
- (e) Hold Eugenia and Jose Apostol liable for damages to Mr. & Ms. and its stockholders;
- (f) Appoint a management committee for Mr. & Ms. during the pendency of suit;
- (g) Direct the management committee to enforce Mr. & Ms.’ rights against PDI and third parties.

Respondents’ Denials, Explanatory Narrative and Affirmative Defenses

Historical and operational narrative: respondents recounted Ex Libris’ incorporation (9 March 1976), Ex Libris’ financial difficulties, the restructuring into Mr. & Ms. and the continuance of original investors; agreement to operate informally as a close corporation whereby Eugenia Apostol would manage, and share transfers to third parties would be limited without first offering to other stockholders.
Alleged shareholder consent: respondents asserted respondents, including petitioner as JAKA’s representative, were informed of Eugenia Apostol’s management, that other stockholders either expressly or impliedly consented and offered no objections, and the business prospered with financial growth from 1976 to 1988 per Punongbayan and Araullo’s statement of assets, equity and net sales.
Specific defenses and allegations:
- Petitioner was merely a holder-in-trust of JAKA shares and continued to represent JAKA on the board; petitioner cooperated initially and became estranged mid-1986 due to political differences.
- All PDI shares owned by the Apostols were acquired through private funds; the P750,000 loan by PDI from Mr. & Ms. was fully paid with 20% interest per annum.
- PDI (not Mr. & Ms.) loaned P250,000 each to Magsanoc and Nuyda.
- Petitioner is not the true party-in-interest; JAKA remains the true stockholder of Mr. & Ms. and thus petitioner lacked the personality to initiate and prosecute a derivative suit.
Affirmative allegation in the Amended Answer: “The petitioner being herself a minor stockholder and holder-in-trust of JAKA shares, represented and continues to represent JAKA in the Board” but also asserted that petitioner was not the true party-in-interest (JAKA was), and prayed for dismissal on that ground.

Evidence and Documentary Disputes Concerning Stock Ownership and Transfers

Petitioner’s proof claims:
- Petitioner testified she became registered and beneficial owner of 997 shares of Mr. & Ms. out of 4,088 total after acquiring from JAKA through a deed of sale dated 25 July 1983 and recorded in the Stock and Transfer Book under Certificate of Shares of Stock No. 008.
- Petitioner asserted Senator Enrile decided JAKA should divest holdings, resulting in sale to petitioner.
Respondents’ documentary rebuttal and chronology:
- Private respondents pointed out Certificate of Stock No. 008 was actually signed by respondent Eugenia D. Apostol only on 17 March 1989, not on 25 July 1983; changes to the Stock and Transfer Book were not registered with the SEC and some records were missing.
- Records show on 10 May 1983 JAKA executed a deed of sale transferring 1,000 shares to respondent Eugenia D. Apostol; Apostol on the same day executed a Declaration of Trust stating she held those shares and dividends in trust for JAKA and would assign them upon written request of the principal.
- The certificate covering JAKA shares (Cert. No. 001) was cancelled and replaced by Certificate No. 007 in favor of respondent Apostol on 10 May 1983; thus an alleged endorsement by Enrile could not effe