Case Summary (G.R. No. 202079)
Petitioner
FEGDI and FELI.
Respondent
Vertex Sales and Trading, Inc.
Key Dates
• August 1997 – FEGDI sells one Class “C” share to RS Asuncion Construction Corp. (RSACC) on installment.
• February 11, 1999 – RSACC transfers the share to Vertex; Vertex advised FEGDI of the sale.
• July 28, 2000 – Vertex demands issuance of a stock certificate.
• March 17, 2001 – Final demand for certificate.
• January 7, 2002 – Vertex files Complaint for Rescission with Damages.
• January 23, 2002 – Stock certificate issued; Vertex refuses acceptance.
• March 1, 2007 – RTC Pasig dismisses complaint.
• February 22, 2012 – Court of Appeals reverses and orders rescission.
• May 31, 2012 – CA denies reconsideration.
• June 10, 2013 – Supreme Court resolves the petition.
Applicable Law
• 1987 Philippine Constitution
• Civil Code, Article 1191 – Grounds for rescission of obligations.
• Corporation Code, Section 63 – Requirement of physical delivery of endorsed stock certificates for valid transfer of shares.
Facts
FEGDI received Forest Hills shares for construction financing. It sold one share to RSACC, which later sold it to Vertex. Although Vertex paid in full, FEGDI delayed issuing the endorsed certificate for over three years. Vertex enjoyed shareholder privileges but lacked formal title. After repeated demands, Vertex sued for rescission and damages.
RTC Decision
The Regional Trial Court held that delay in issuing the share certificate was a mere slight breach. It dismissed Vertex’s complaint, finding the sale consummated despite collateral delay in certificate issuance.
CA Decision
The Court of Appeals reversed. Citing Section 63 of the Corporation Code, it ruled that delivery of the endorsed certificate is essential to transfer ownership. The prolonged delay constituted a substantial breach justifying rescission. The CA ordered FEGDI and FELI to refund Vertex’s payment.
Petitioners’ Arguments
FEGDI argued that Vertex’s recognition and enjoyment of shareholder rights precluded any substantial breach from delay. FELI asserted no privity of contract with Vertex and claimed it was inadvertently named. Both challenged the CA’s finding of a substantial breach.
Issue
Whether the delayed issuance of a stock certificate constitutes a substantial breach warranting rescission of the contract of sale.
Su
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Facts
- Fil-Estate Golf and Development, Inc. (FEGDI) is a stock corporation engaged in golf course development; Fil-Estate Land, Inc. (FELI) is a stock corporation engaged in real estate development.
- FEGDI developed the Forest Hills Golf and Country Club and received several shares of its capital stock in consideration for financing and construction efforts.
- In August 1997, FEGDI sold on installment one Class “Ca” Common Share of Forest Hills to RS Asuncion Construction Corporation (RSACC) for ₱1,100,000.00.
- Before full payment by RSACC, on February 11, 1999, RSACC sold the same share to Vertex Sales and Trading, Inc. (Vertex) and notified FEGDI.
- FEGDI instructed Forest Hills to recognize Vertex as a shareholder; Vertex thereafter enjoyed membership privileges despite the share remaining registered in FEGDI’s name.
- On July 28, 2000, Vertex formally demanded issuance of the stock certificate; FELI (invoked by mistake) requested payment of transfer fees.
- Although Vertex paid the fees, no certificate was issued; a final demand followed on March 17, 2001.
- On January 7, 2002, Vertex filed a Complaint for Rescission with Damages and Attachment against FEGDI, FELI, and Forest Hills, seeking rescission under Article 1191 of the Civil Code and refund of ₱1,100,000.00 plus interest.
- On January 23, 2002, during the pendency of the suit, a certificate of stock was issued in Vertex’s name but was rejected by Vertex.
Ruling of the Regional Trial Court
- Dismissed Vertex’s complaint for insufficiency of evidence.
- Held that delay in issuing the stock certificate was a slight, casual breach not warranting rescission.
- Found that the sale