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Climaco vs. Siy Uy, 19 SCRA 858 , April 27, 1967 Case Title : LEON CLIMACO, plaintiff-appellant, vs. CARLOS SIY UY, ET AL.defendants-appellees. Case Nature : APPEAL from a decision of the Court ofFirst Instance of Zamboanga.Syllabi Class : Pleading|and practice|Money claim does not surviveSyllabi :1. Pleading, and practice ; Money claim does not survive; Motion tosubstitute heirs of deceased defendant is not allowable -

An action for the recovery of damages, that is a sum of money, does notsurvive upon the death of defendant. Said suit is not the one contemplatedin Section 1, Rule 87 of the Revised Rules of Court because the damages,which plaintiff sought to recover from the deceased defendant did not springfrom any injury caused to the plaintiffs’ person. Said suit cannot bemaintained against the heirs of the deceased defendant.2. Pleading, and practice; Effect of death of only one of the defendants . -

An action for damages can be maintained against the surviving defendant.The complaint against him should not have been dismissed upon the deathof the other defendant.

Docket Number : No. L-21118

Counsel : Climaco & Climaco, Paredes, Gan & Associates

Ponente : DIZON

Dispositive Portion :Wherefore, the order appealed from is set aside insofar as it dismissed thecase against defendant Manuel Co, and the record of this case is remandedto the lower court for further proceedings. With costs.

LEON CLIMACO, plaintiff-appellant,vs.CARLOS SIY UY, ET AL., defendants-appellees.

Appeal taken by Leon Climaco from the order of the Court of First Instance of Zamboanga datedJanuary 12, 1959 in Civil Case No. 740 entitled "Leon Climaco, plaintiff, vs. Carlos Siy Uy andManuel Co defendants," denying the admission of his amended complaint for the substitution ofa deceased party-defendant, and dismissing the action.

On August 21, 1958 Climaco filed with the lower court an action for damages against (1) CarlosSiy Uy and (2) Manuel Co his complaint alleging: that sometime in May, 1957, defendants

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maliciously charged him with the crime of estafa before the City Fiscal of Manila; that,conspiring with each other, they gave the latter a false Manila address for plaintiff in order tomislead said officer into filing, as he did file, Criminal Case No. 399622 with the Court of FirstInstance of Manila against him, without giving him an opportunity to present his side of the case;that, besides, defendants had arranged to have plaintiff arrested and taken to Manila, withoutgiving him a chance to file a bond, albeit this part of the plan failed; that to defend himself,plaintiff and his counsel had to make several trips to Manila by plane and boat, thus, incurringextraordinary expenses; that, after trial, the Court of First Instance of Manila dismissed the case;that the said prosecution hurt the business credit and reputation of plaintiff, wounded hisfeelings and caused him suffering, anguish, humiliation, and damages in the total amount ofP19,000.00.

On September 8, 1958 defendants filed a motion to dismiss the complaint on the ground that itstated no cause of action and that the Court had not acquired jurisdiction over the person ofdefendant Carlos Siy Uy who died on August 27, 1958 before summons could be served uponhim. Pending resolution of this motion, plaintiff filed a motion for leave to amend his complaint tosubstitute the heirs of Carlos Siy Uy — and eventually, the Executor of his Estate — asdefendants in the action. On October 11, 1958, the lower court issued an order granting themotion, but subsequently, defendants moved for a reconsideration of said order and, onJanuary 12, 1959, the court issued the appealed order not only setting aside its previous; orderof October 11, 1958 but also dismissing the complaint.

Thereupon the plaintiff took the present appeal.

Upon the facts alleged in the complaint, it is clear that Climaco had a cause of action against thepersons named as defendants therein. It was, however, a cause of action for the recovery ofdamages, that is, a sum of money, and the corresponding action is, unfortunately, one that doesnot survive upon the death of the defendant, in accordance with the provisions of Section 21,Rule 3 of the Rules of Court. 1äwphï1.ñët

Neither could the action as against the deceased Siy Uy be maintained under Section 1, Rule87 of the Rules of Court because this legal provision only authorizes actions against theExecutor or Administrator when they are for the recovery of real or personal property, or aninterest therein, from the estate, or to enforce a lien thereon, or when the action is to recoverdamages for an injury to person or property, real or personal. In this case the damages whichClimaco sought to recover from the deceased Siy Uy did not spring from any injury caused tohis person. Therefore, in so far as the appealed order denied Climaco's motion for leave toamend his complaint in the sense stated therein, the same is correct.

However, the deceased Siy Uy was not the only defendant. Manuel Co was also nameddefendant in the complaint. Obviously, therefore, the order appealed from is erroneous insofaras it dismissed the case against Co.

Wherefore, the order appealed from is set aside insofar as it dismissed the case againstdefendant Manuel Co and the record of this case is remanded to the lower court for furtherproceedings. With costs.

Concepcion, C.J., Reyes, J.B.L., Regala, Maka

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De Bautista vs. De Guzman, 125 SCRA 676 , November 25, 1983 Case Title : ROSITA SANTIAGO DE BAUTISTA, ET AL., plaintiffs-appellees,vs. VICTORIA DE GUZMAN, ET AL., defendants-appellants. Case Nature :APPEAL from the decision of the Court of First Instance of Rizal.Syllabi Class : Succession|Action|Damages|TortsSyllabi :1. Succession ; Action ; Damages ; Torts; Claim of money againstdeceased operator of a vehicle arising from negligence of his driver, must befiled in the intestate proceedings of decedent otherwise same is barred. Suitagainst heirs not proper remedy . - The above-quoted rule is mandatory. The requirement therein is for the

purpose of protecting the estate of the deceased. The executor oradministrator is informed of the claims against it, thus enabling him toexamine each claim and to determine whether it is a proper one which

should be allowed. Therefore, upon the dismissal of the first complaint ofherein plaintiffs-appellees in Civil Case No. 2050, they should have

presented their claims before the intestate proceedings filed in the samecourt and docketed as Special Proceedings No. 1303-P. Instead of doing so,however, the plaintiffs-appellees slept on their right. They allowed said

proceedings to terminate and the properties to be distributed to the heirs pursuant to a project of partition before instituting this separate action. Suchis not sanctioned by the above rule for it strictly requires the prompt

presentation and disposition of claims against the decedent’s estate in orderto settle the affairs of the estate as soon as possible, pay off its debts and

distribute the residue. (See Py Eng Chong v. Herrera, 70 SCRA 130). Withthe exception provided for in the above rule, the failure of herein plaintiffs-appellees to present their claims before the intestate proceedings of theestate of Rosendo de Guzman within the prescribed period constituted a barto a subsequent claim against the estate or a similar action of the sameimport.2. Succession ; Action ; Damages ; Torts; Claim against deceased personcannot be directly instituted against heirs where intestate proceedings hadbeen instituted already by heirs . - Therefore, it was an error on the part of the trial court to hold that the

plaintiffs-appellees had a cause of action against the defendants-appellantswho are the heirs of the deceased against whom the liability is sought to beenforced, much less take cognizance of the complaint. As in the firstcomplaint, said court could not have assumed jurisdiction over the secondcase for the simple reason that it was no longer acting as a probate courtwhich was the proper forum to file such complaint. The termination of theintestate proceedings and the distribution of the estate to the heirs did notalter the fact that plaintiffs- appellees’ claim was a money claim which should

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Docket Number : No. L-28298

Counsel : Jose D. Villena, Antonio Gonzales

Ponente : GUTIERREZ, JR.

Dispositive Portion :WHEREFORE, the decision of the Court of First Instance appealed from ishereby reversed and set aside and another one entered dismissing thecomplaint and the counterclaim. No costs.

ROSITA SANTIAGO DE BAUTISTA, ET AL., plaintiffs-appellees,vs.VICTORIA DE GUZMAN, ET AL., defendants-appellants.

Jose D. Villena for plaintiffs-appellees.

Antonio Gonzales for defendants-appellants.

GUTIERREZ, JR., J .:

This is an appeal from the decision of the Court of First Instance of Rizal, Pasay City branch, in CivilCase No. 3530, ordering the defendants-appellants to pay the plaintiffs-appellees damages andattorney's fees and dismissing the former's counterclaim. As no questions of facts were raised by theappellants in their brief, the Court of Appeals certified this case to us for decision.

The facts, as stated in the resolution of the appellate court, are as follows: têñ.£îhqwâ£

On May 10, 1952, Numeriano Bautista, husband and father of the plaintiffs-appellees, respectively, was a passenger of jeepney bearing Plate No. TPU-4013,owned and operated by Rosendo de Guzman, deceased husband and father ofdefendants-appellants, respectively, as one of the jeepneys used in histransportation business. Eugenio Medrano y Torres was employed by said Rosendode Guzman as the driver of said jeepney. Said driver drove and managed said

jeepney at that time along Taft Avenue, Pasay City, in a negligent and reckless

manner and, as a result, the jeepney turned turtle and, consequently, passengerNumeriano Bautista sustained physical injuries which caused his death. EugenioMedrano, the driver, was accused and convicted of homicide through recklessimprudence by the trial court in a decision promulgated on May 27, 1952 andsentenced to a penalty of imprisonment of four (4) months and one (1) day of arrestomayor and to indemnify the heirs of Numeriano Bautista, plaintiffs-appellees herein,in the sum of P3,000.00. A writ of execution was issued against said driver, EugenioMedrano for the said sum of P3,000.00 but the same was returned to the Courtunsatisfied.

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On May 12, 1952, Rosendo de Guzman died.

Because of their failure to collect the said sum of P3,000.00 from the driver, EugenioMedrano, plaintiffs-appellees filed a complaint (Civil Case No. 2050) dated October7, 1952, with the Court of First Instance of Rizal, Pasay City Branch, againstdefendants-appellants alleging, among other things besides the above-mentioned

incidents, that they demanded from Rosendo de Guzman and from the defendants-appellants the payment of the sums of P3,000.00 as subsidiary liability; P10,000.00as actual exemplary and moral damages and Pl,000.00 as attorney's fees for the suitby reason of the death of Numeriano Bautista as related above, but Rosendo deGuzman and later the herein defendants-appellants refused to pay the same.Plaintiffs-appellees therefore prayed that the defendants-appellants be ordered topay the said sums as well as the costs of suit.

Defendants-appellants through counsel filed a motion to dismiss predicated on twogrounds, namely, that the lower court had no jurisdiction over the subject matter ofthe litigation and that the complaint stated no cause of action. In support of saidmotion, they maintained that the suit was for a money claim against the supposeddebtor who was already dead and as such it should be filed in testate or intestateproceedings or, in the absence of such proceedings, after the lapse of thirty (30)days, the creditors should initiate such proceedings, that the heirs could not be heldliable therefor since there was no allegation that they assumed the alleged obligation.

The lower court sustained the motion to dismiss in an order dated May 11, 1953,stating, among other things, that: têñ.£îhqwâ£

The procedure thus opened for a money claimant against a deceasedperson, as in the instant case, is for said claimant to file proceedingsfor the opening of the judicial administration of the estate of saiddeceased person and to present his claim in said proceedings. Theclaimant may only proceed to sue the heirs of the deceased directlywhere such heirs have entered into an extra-judicial partition of suchestate and have distributed the latter among themselves, in whichcase, the heirs become liable to the claimant in proportion to theshare which they have received as inheritance. Plaintiffs' complaintdoes not state that the defendants have received any suchinheritance from their said deceased father, Rosendo de Guzman,and hence, there is no cause of action against aforesaid defendants.

This order became final.

Then on December 14, 1954, plaintiffs-appellees filed with the same trial court CivilCase No. 3530 (subject of this appeal) against the same defendants in the former

case, the complaint containing analogous allegations as those embodied in the firstcomplaint but in this second complaint they further allege that on June 12, 1952,Rosendo de Guzman died intestate and that intestate proceedings were filed in thesame court and docketed therein as Special Proceedings No. 1303-P, wherein on

April 20, 1953, a project of partition was presented in and approved by said Courtwith the five heirs receiving their shares valued at P2,294.05 each, and on May 14,1953, said intestate proceedings were closed. They also alleged that NumerianoBautista during his lifetime was the only one supporting them and his death causedthem shock, sufferings and anxiety and therefore defendants-appellants should pay

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to them, aside from the P3,000.00, an additional amount of P15,000.00 as moral,exemplary and compensatory damages, plus the sum of P2,000.00 as attorney'sfees for the prosecution of this case, besides the costs of suit.

Defendants-appellants again filed a motion to dismiss on May 5, 1955, alleging thesame grounds as those interposed in the first complaint but adding the further ground

of res judicata in view of the dismissal of the first case which became final as noappeal or any other action was taken thereon by the appellees. On August 22, 1955,the lower court denied the motion to dismiss for lack of sufficient merit.

xxx xxx xxx

Then on July 11, 1961, the parties through their respective counsel submitted apartial stipulation of facts found on pages 63 to 67 of the amended record on appealwhich stipulation of facts, was made the basis of the decision of the lower courtwhich was rendered on August 26, 1961 (should be August 14, 1961), aside from thetestimony of the widow of Numeriano Bautista, appellee Rosita Bautista, whotestified on the same incidents already recited herein and on the sufferings and

shock she and her children, all appellees in this case, suffered. From said decision,the present appeal has been interposed ...

Defendants-appellants assign the following errors:

Itêñ.£îhqwâ£

THE COURT BELOW ERRED IN NOT SUSTAINING THE MOTION TO DISMISSMOCION DE SOBRESIMIENTO) FILED BY THE DEFENDANTS-APPELLANTS ONOR ABOUT MAY, 1955, APPEARING ON PAGE 10 ET SEQ. OF THE AMENDEDRECORD ON APPEAL.

IItêñ.£îhqwâ£

THE COURT BELOW ERRED IN NOT DECLARING THAT THE CLAIM OF THEPLAINTIFFS-APPELLEES IS ALREADY BARRED FOR FAILURE ON THEIR PARTTO FILE THEIR CLAIM IN THE INTESTATE PROCEEDINGS OF THE DECEASEDROSENDO DE GUZMAN (SPECIAL PROCEEDINGS NO. 1303-P) OF THE COURTOF FIRST INSTANCE OF RIZAL.

IIItêñ.£îhqwâ£

THE COURT ERRED IN NOT SUSTAINING THE DEFENSE OF RES JUDICATAINTERPOSED BY DEFENDANTS-APPELLANTS BY VIRTUE OF THE FINALORDER RENDERED OR ISSUED BY THE COURT OF FIRST INSTANCE OFRIZAL IN CIVIL CASE NO. 2050, DATED MAY 11, 1953, COPY OF SAID ORDERIS ATTACHED AS EXHIBIT "F" AND MADE AN INTEGRAL PART OF THEPARTIAL STIPULATION OF FACTS.

IVtêñ.£îhqwâ£

THE COURT BELOW ERRED IN RENDERING A DECISION ORDERING THEHEREIN DEFENDANTS-APPELLANTS TO JOINTLY AND SEVERALLY PAY THE

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PLAINTIFFS-APPELLEES THE SUM OF THREE THOUSAND PESOS (p3,000.00),WITH INTERESTS AND COSTS.

V têñ.£îhqwâ£

HE COURT BELOW ERRED IN DISMISSING DEFENDANTS-APPELLANTS'COUNTER-CLAIM AND IN NOT RENDERING A DECISION IN ACCORDANCETHEREWITH.

The only question presented in the assigned errors is whether or not the trial court erred in givingdue course to the complaint on the grounds stated above. We sympathize with the plight of theplaintiffs-appellees but they have lost their right to recover because of negligence and a failure toobserve mandatory provisions of the law and the Rules. They overlooked the fact that they were nolonger suing Rosendo de Guzman who died shortly after the accident but his heirs.

Section 5, Rule 86 of the Rules of Court provides: têñ.£îhqwâ£

All claims for money against the decedent arising from contract, express or implied,

whether the same be due, not due, or contingent, all claims for funeral expenses andexpenses for the last sickness of the decedents, and judgment for money against thedecedent, must be filed within the time in the notice; otherwise they are barredforever; except that they may be set forth as counterclaims in any action that theexecutor or administrator may bring against the claimants ... Claims not yet due, orcontingent, may be approved at their present value.

The above-quoted rule is mandatory. The requirement therein is for the purpose of protecting theestate of the deceased. The executor or administrator is informed of the claims against it, thusenabling him to examine each claim and to determine whether it is a proper one which should beallowed. Therefore, upon the dismiss of the first complaint of herein plaintiffs-appellees in Civil CaseNo. 2050, they should have presented their claims before the intestate proceedings filed in the samecourt and docketed as Special Proceedings No. 1303-P. Instead of doing so, however. the plaintiffs-appellees slept on their right. They allowed said proceedings to terminate and the properties to bedistributed to the heirs pursuant to a project of partition before instituting this separate action. Suchdo not sanctioned by the above rule for it strictly requires the prompt presentation and disposition ofclaims against the decedent's estate in order to settle the affairs of the estate as soon as possible,pay off its debts and distribute the residue. (See Py Eng Chong v. Herrera, 70 SCRA 130). With theexception provided for in the above rule, the failure of herein plaintiffs-appellees to present theirclaims before the intestate proceedings of the estate of Rosendo de Guzman within the prescribedperiod constituted a bar to a subsequent claim against the estate or a similar action of the sameimport.

Therefore, it was an error on the part of the trial court to hold that the plaintiffs-appellees had acause of action against the defendants-appellants who are the heirs of the deceased against whom

the liability is sought to be enforced, much less take cognizance of the complaint. As in the firstcomplaint, said court could not have assumed jurisdiction over the second case for the simplereason that it was no longer acting as a probate court which was the proper forum to file suchcomplaint. The termination of the intestate proceedings and the distribution of the estate to the heirsdid not alter the fact that plaintiffs-appellees' claim was a money claim which should have beenpresented before the probate court. The liability of the late Rosendo de Guzman arose from thebreach of his obligations under the contract of carriage between him and the unfortunate passenger.The obligations are spelled out by law but the liability arose from a breach of contractual obligations.The resulting claim is a money claim.

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The only instance wherein a creditor can file an action against a distributee of the debtor's asset isunder Section 5, Rule 88 of the Rules of Court which provides: têñ.£îhqwâ£

If such contingent claim becomes absolute and is presented to the court, or to theexecutor or administrator, within two (2) years from the time limited for other creditorsto present their claims, it may be allowed by the court if not disputed by the executor

or administrator, and, if disputed, it may be proved and allowed or disallowed by thecourt as the facts may warrant. If the contingent claim is allowed, the creditor shallreceive payment to the same extent as the other creditors if the estate retained bythe executor or administrator is sufficient. But if the claim is not so presented, afterhaving become absolute, within said two (2) years, and allowed, the assets retainedin the hands of the executor or administrator, not exhausted in the payment ofclaims, shall be distributed by the order of the court to the persons entitled to thesame; but the assets so distributed may still be applied to the payment of the claimwhen established, and the creditor may maintain an action against the distributees torecover the debt, and such distributees and their estates shall be liable for the debt inproportion to the estate they have respectively received from the property of thedeceased.

Even under the above rule, the contingent claims must first have been established and allowed inthe probate court before the creditors can file an action directly, against the distributees. Such is notthe situation, however, in the case at bar. The complaint herein was filed after the intestateproceedings had terminated and the estate finally distributed to the heirs. If we are to allow thecomplaint to prosper and the trial court to take cognizance of the same, then the rules providing forthe claims against the estate in a testate or intestate proceedings within a specific period would berendered nugatory as a subsequent action for money against the distributees may be filedindependently of such proceedings. This precisely is what the rule seeks to prevent so as to avoidfurther delays in the settlement of the estate of the deceased and in the distribution of his property tothe heirs, legatees or devisees.

Furthermore, even assuming that the plaintiffs-appellees had no knowledge of the intestate

proceedings which is not established, the law presumes that they had such knowledge because thesettlement of estate is a proceeding in remark and therefore the failure to file their claims beforesuch proceedings barred them from subsequently filing the same claims outside said proceedings.

WHEREFORE, the decision of the Court of First Instance appealed from is hereby reversed and setaside and another one entered dismissing the complaint and the counterclaim. No costs.

SO ORDERED. 1äwphï1.ñët

Plana and Relova, JJ., concur.

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Torres, Jr. vs. Court of Appeals, 278 SCRA 793 , September 05, 1997 Case Title : MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS,RODOLFO L. JOCSON, JR., MELVIN S. JURISPRUDENCIA, AUGUSTUS CESARAZURA 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. Case Nature : PETITION for review on certiorari of a decisionof the Court of Appeals.Syllabi Class : Actions|Contracts|Corporation Law|Appeals|Petitions forReview|Injunctions|Temporary Restraining Orders|Pleadings andPractice|Administrative Law|Judicial Review|Settlement ofEstates|Parties|Substitution of Parties|Jurisdiction|Due Process|NegotiorumGestio|Corporate Secretary

Syllabi :1. Actions ; Appeals ; Petitions for Review ; Injunctions ; TemporaryRestraining Orders ; Pleadings and Practice; The fact alone that theCourt of Appeals issued a restraining order and a writ of preliminaryinjunction and required the parties to submit their respective memorandadoes not indicate that the petition was given due course .+ 2. Same; All corporations, big or small, must abide by the provisions of theCorporation Code, and being a simple family corporation is not anexemption .+ 3. Same ; Same; In the absence of (any) provision to the contrary, the

corporate secretary is the custodian of corporate records + 4. Contracts ; Negotiorum Gestio; The principle of negotiorum gestiocovers abandoned or neglected property or business . + 5. Same ; Same; Same; Same; Same ; The rule that when a party dies, heshould be substituted by his legal representatives is not violated where theestate was fully protected by the presence of the parties who claim intereststherein either as directors, stockholders or heirs .+ 6. Same ; Same; Same; Same; Same ; The need for substitution of heirs isbased on the right to due process accruing to every party in any

proceeding .+ 7. Same ; Same; Same; Same; Due Process; The purpose behind the ruleon substitution of parties is the protection of the right of every party to due

process + 8. Same ; Settlement of Estates ; Parties; Substitution ofParties; Jurisdiction ; When a party dies in an action that survives, and noorder is issued by the Court for the appearance of the legal representative orof the heirs of the deceased to be substituted for the deceased, and no such

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errors of fact or law that would warrant reversal or modification of theaward, judgment, final order or resolution sought to be reviewed, it maygive due course to the petition; otherwise, it shall dismiss the same. Thefindings of fact of the court or agency concerned, when supported bysubstantial evidence, shall be binding on the Court of Appeals. 11.Transmittal of record. —Within fifteen (15) days from notice that the petitionhas been given due course, the Court of Appeals may require the court oragency concerned to transmit the original or a legible certified true copy ofthe entire record of the proceeding under review. The record to betransmitted may be abridged by agreement of all parties to the proceeding.The Court of Appeals may require or permit subsequent correction of oraddition to the record.

Division : FIRST DIVISION

Docket Number : G.R. No. 120138

Counsel : Augustus Cesar E. Azura, King, Capuchino, Tan & Associates

Ponente : KAPUNAN

Dispositive Portion :WHEREFORE, premises considered, the petition for review on certiorari ishereby DENIED.

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.

KAPUNAN, J .:

In this petition for review on cer t iorar i under Rule 45 of the Revised Rules of Court,petitioners seek to annul the decision of the Court of Appeals in CA-G.R. SP. No. 31748 dated23 May 1994 and its subsequent resolution dated 10 May 1995 denying petitioners' motion forreconsideration.

The present case involves two separate but interrelated conflicts. The facts leading to thefirst controversy are as follows:

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The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority stockholder ofTormil Realty & Development Corporation while private respondents who are the children ofJudge Torres' deceased brother Antonio A. Torres, constituted the minority stockholders. Inparticular, their respective shareholdings and positions in the corporation were as follows:

Name of S tockho lder Number o f Percentage Pos i t ion(s )

Shares

Manuel A. Torres, Jr. 100,120 57.21 Dir./Pres./ChairMilagros P. Torres 33,430 19.10 Dir./TreasurerJosefina P. Torres 8,290 4.73 Dir./Ass. Cor-Sec.Ma. Cristina T. Carlos 8,290 4.73 Dir./Cor-Sec.Antonio P. Torres, Jr. 8,290 4.73 DirectorMa. Jacinta P. Torres 8,290 4.73 DirectorMa. Luisa T. Morales 7,790 4.45 DirectorDante D. Morales 500 .28 Director 1

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 for brevity) various real properties he owned and his shares of stock in othercorporations in exchange for 225,972 Tormil Realty shares. Hence, on various dates in Julyand August of 1984, ten (10) deeds of assignment were executed by the late Judge Torres:

ASSIGNMENT DATE PROPERTY ASSIGNED LOCA TION SHARES TO BEISSUED

1. July 13, 1984 TCT 81834 Quezon City 13,252TCT 144240 Quezon City

2. July 13, 1984 TCT 77008 ManilaTCT 65689 Manila 78,493TCT 109200 Manila

3. July 13, 1984 TCT 374079 Makati 8,307

4. July 24, 1984 TCT 41527 PasayTCT 41528 Pasay 9,855TCT 41529 Pasay

5. Aug. 06, 1984 El Hogar Filipino Stocks 2,000

6. Aug. 06, 1984 Manila Jockey Club Stocks 48,737

7. Aug. 07, 1984 San Miguel Corp. Stocks 50,283

8. Aug. 07, 1984 China banking Corp. Stocks 6,300

9. Aug. 20, 1984 Ayala Corp. Stocks 7,468

10. Aug. 29, 1984 Ayala Fund Stocks 1,322

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——— 225,972 2

Consequently, the aforelisted properties were duly recorded in the inventory of assets ofTormil Realty and the revenues generated by the said properties were correspondinglyentered in the corporation's books of account and financial records.

Likewise, all the assigned parcels of land were duly registered with the respective Register ofDeeds in the name of Tormil Realty, except for the ones located in Makati and Pasay City.

At the time of the assignments and exchange, however, only 225,000 Tormil Realty sharesremained unsubscribed, all of which were duly issued to and received by Judge Torres (asevidenced by stock certificates Nos. 17, 18, 19, 20, 21, 22, 23, 24 & 25). 3

Due to the insufficient number of shares of stock issued to Judge Torres and the allegedrefusal of private respondents to approve the needed increase in the corporation's authorizedcapital stock (to cover the shortage of 972 shares due to Judge Torres under the "estateplanning" scheme), on 11 September 1986, Judge Torres revoked the two (2) deeds of

assignment covering the properties in Makati and Pasay City. 4

Noting the disappearance of the Makati and Pasay City properties from the corporation'sinventory of assets and financial records private respondents, on 31 March 1987, wereconstrained to file a complaint with the Securities and Exchange Commission (SEC) docketedas SEC Case No. 3153 to compel Judge Torres to deliver to Tormil corporation the two (2)deeds of assignment covering the aforementioned Makati and Pasay City properties which hehad unilaterally revoked and to cause the registration of the corresponding titles in the nameof Tormil. Private respondents alleged that following the disappearance of the propertiesfrom the corporation's inventory of assets, they found that on October 24, 1986, JudgeTorres, together with Edgardo Pabalan and Graciano Tobias, then General Manager and legalcounsel, respectively, of Tormil, formed and organized a corporation named "Torres-PabalanRealty and Development Corporation" and that as part of Judge Torres' contribution to thenew corporation, he executed in its favor a Deed of Assignment conveying the same Makatiand Pasay City properties he had earlier transferred to Tormil.

The second controversy — involving the same parties — concerned the election of the 1987corporate board of directors.

The 1987 annual stockholders meeting and election of directors of Tormil corporation wasscheduled 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 topetitioners Tobias, Jocson, Jurisprudencia, Azura and Pabalan. These assigned shares werein the nature of "qualifying shares," for the sole purpose of meeting the legal requirement tobe able to elect them (Tobias and company) to the Board of Directors as Torres' nominees.

The assigned shares were covered by corresponding Tormil Stock Certificates Nos. 030, 029,028, 027, 026 and at the back of each certificate the following inscription is found:

The present certificate and/or the one share it represents, conformably to thepurpose and intention of the Deed of Assignment dated March 6, 1987, is notheld by me under any claim of ownership and I acknowledge that I hold the

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same merely as trustee of Judge Manuel A. Torres, Jr. and for the sole purposeof qualifying me as Director;

(Signature of Assignee) 5

The reason behind the aforestated action was to remedy the "inequitable lopsided set-upobtaining in the corporation, where, notwithstanding his controlling interest in thecorporation, the late Judge held only a single seat in the nine-member Board of Directors andwas, therefore, at the mercy of the minority, a combination of any two (2) of whom wouldsuffice to overrule the majority stockholder in the Board's decision making functions." 6

On 25 March 1987, the annual stockholders meeting was held as scheduled. What transpiredtherein was ably narrated by Attys. Benito Cataran and Bayani De los Reyes, the officialrepresentatives dispatched by the SEC to observe the proceedings (upon request of the lateJudge Torres) in their report dated 27 March 1987:

xxx xxx xxx

The undersigned arrived at 1:55 p.m. in the place of the meeting, a residentialbungalow in Urdaneta Village, Makati, Metro Manila. Upon arrival, JosefinaTorres introduced us to the stockholders namely: Milagros Torres, AntonioTorres, Jr., Ma. Luisa Morales, Ma. Cristina Carlos and Ma. Jacinta Torres.Antonio Torres, Jr. questioned our authority and personality to appear in themeeting claiming subject corporation is a family and private firm. We explainedthat our appearance there was merely in response to the request of ManuelTorres, Jr. and that SEC has jurisdiction over all registered corporations.Manuel Torres, Jr., a septuagenarian, argued that as holder of the major andcontrolling shares, he approved of our attendance in the meeting.

At about 2 :30 p .m ., a group composed of Edgardo Pabalan, Atty. GracianoTobias, Atty. Rodolfo Jocson, Jr., Atty. Melvin Jurisprudencia, and Atty.Augustus Cesar Azura arrived. A tty . Azura to ld the body that they came ascouns els of Manuel Torres , J r . and as s tockho lders having ass igned qual ify ingshares by Manu el Torres, Jr .

The stockholders' meeting started at 2 :45 p.m. with Mr. Pabalan presiding afterverbally authorized by Manuel Torres, Jr., the President and Chairman of theBoard. The secretary when asked about the quorum , said that there was m orethan a quorum . Mr. Pabalan distributed copies of the president's report and thefinancial statements. Anton io Torres , J r . reques ted t ime to s tudy the saidrepor ts and brou ght out th e ques t ion of audi t ing the f inances of thecorpor at ion which he c la imed was approved previous ly by the board . Heatedarguments ensued which also touched on family matters. Anton io Torres ,

J r . mov ed for the susp ens ion of the m eet ing but Manuel Torres , J r .voted forthe cont inuat ion of the proc eedings .

Mr. Pabalan suggested that the opinion of the SEC representatives be askedon the propriety of suspending the meeting but Antonio Torres, Jr. objectedreasoning out that we were just observers.

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When the Chairman called for the election of directors, the Secretary refusedto write down the names of nominees prompting Atty. Azura to initiate theappointment of Atty. Jocson, Jr. as Acting Secretary.

Anton io Torres , J r . nom inated the present members of the Board . At this juncture, Milagros Torres cried out and told the group of Manuel Torres, Jr. to

leave the house.

Manuel Torres, Jr., together with his lawyers-stockholders went to theresidence of Ma. Jacinta Torres in San Miguel Village, Makati, Metro Manila.The undersigned joined them since the group with Manuel Torres, Jr. the onewho requested for S.E.C. observers, represented the majority of theoutstanding capital stock and still constituted a quorum.

At the resumption of the meeting, the following were nominated and elected asdirectors for the year 1987-1988:

1. Manuel Torres, Jr.

2. Ma. Jacinta Torres

3. Edgardo Pabalan

4. Graciano Tobias

5. Rodolfo Jocson, Jr.

6. Melvin Jurisprudencia

7. Augustus Cesar Azura

8. Josefina Torres

9. Dante Morales

After the election, it was resolved that after the meeting, the new board ofdirectors shall convene for the election of officers.

xxx xxx xxx 7

Consequently, on 10 April 1987, private respondents instituted a complaint with the SEC(SEC Case No. 3161) praying in the main, that the election of petitioners to the Board ofDirectors be annulled.

Private respondents alleged that the petitioners-nominees were not legitimate stockholdersof Tormil because the assignment of shares to them violated the minority stockholders' rightof pre-emption as provided in the corporation's articles and by-laws.

Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 were consolidated for jointhearing and adjudication.

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On 6 March 1991, the Panel of Hearing Officers of the SEC rendered a decision in favor ofprivate respondents. The dispositive portion thereof states, thus:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering and directing the respondents, particularly respondent Manuel A.Torres, Jr., to turn over and deliver to TORMIL through its Corporate Secretary,Ma. Cristina T. Carlos: (a) the originals of the Deeds of Assignment dated July13 and 24, 1984 together with the owner's duplicates of Transfer Certificates ofTitle Nos. 374079 of the Registry of Deeds for Makati, and 41527, 41528 and41529 of the Registry of Deeds for Pasay City and/or to cause the formalregistration and transfer of title in and over such real properties in favor ofTORMIL with the proper government agency; (b) all corporate books ofaccount, records and papers as may be necessary for the conduct of acomprehensive audit examination, and to allow the examination and inspectionof such accounting books, papers and records by any or all of the corporatedirectors, officers and stockholders and/or their duly authorizedrepresentatives or auditors;

2. Declaring as permanent and final the writ of preliminary injunction issued bythe Hearing Panel on February 13, 1989;

3. Declaring as null and void the election and appointment of respondents tothe Board of Directors and executive positions of TORMIL held on March 25,1987, and all their acts and resolutions made for and in behalf of TORMIL byauthority of and pursuant to such invalid appointment & election held onMarch 25, 1987;

4. Ordering the respondents jointly and severally, to pay the complainants the sumof ONE HUNDRED THOUSAND PESOS (P100,000.00) as and by way of attorney'sfees. 8

Petitioners promptly appealed to the SEC en banc (docketed as SEC-AC No. 339). Thereafter,on 3 April 1991, during the pendency of said appeal, petitioner Manuel A. Torres, Jr. died.However, notice thereof was brought to the attention of the SEC not by petitioners' counselbut by private respondents in a Manifestation dated 24 April 1991. 9

On 8 June 1993, petitioners filed a Motion to Suspend Proceedings on grounds that noadministrator or legal representative of the late Judge Torres' estate has yet been appointedby the Regional Trial Court of Makati where Sp. Proc. No. M-1768 ("In Matter of the Issuanceof the Last Will and Testament of Manuel A Torres, Jr.") was pending. Two similar motions forsuspension were filed by petitioners on 28 June 1993 and 9 July 1993.

On 19 July 1993, the SEC en banc issued an Order denying petitioners' aforecited motions onthe following ground:

Before the filing of these motions, the Commission en banc had already completedall proceedings and had likewise ruled on the merits of the appealed cases. Viewedin this light, we thus feel that there is nothing left to be done except to deny thesemotions to suspend proceedings. 10

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On the same date, the SEC en banc rendered a decision, the dispositive portion of whichreads, thus:

WHEREFORE, premises considered, the appealed decision of the hearingpanel is hereby affirmed and all motions pending before us incident to thisappealed case are necessarily DISMISSED.

SO ORDERED. 11

Undaunted, on 10 August 1993, petitioners proceeded to plead its cause to the Court ofAppeals by way of a petition for review (docketed as CA-G.R. SP No. 31748).

On 23 May 1994, the Court of Appeals rendered a decision, the dispositive portion of whichstates:

WHEREFORE, the petition for review is DISMISSED and the appealed decisionis accordingly affirmed.

SO ORDERED. 12

From the said decision, petitioners filed a motion for reconsideration which was denied in aresolution issued by the Court of Appeals dated 10 May 1995. 13

Insisting on their cause, petitioners filed the present petition for review alleging that theCourt of Appeals committed the following errors in its decision:

(1)

WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A FULL LENGTHDECISION, WITHOUT THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C.

— AC NO. 339 BEING PROPERLY BROUGHT BEFORE IT FOR REVIEW ANDRE-EXAMINATION, AN OMISSION RESULTING IN A CLEAR TRANSGRESSIONOR CURTAILMENT OF THE RIGHTS OF THE HEREIN PETITIONERS TOPROCEDURAL DUE PROCESS;

(2)

WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE RESPONDENTS.E.C., WHICH IS VOID FOR HAVING BEEN RENDERED WITHOUT THEPROPER SUBSTITUTION OF THE DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.-AC NO. 339 AND CONSEQUENTLY, FOR WANT OFJURISDICTION OVER THE SAID DECEASED'S TESTATE ESTATE, AND

MOREOVER, WHEN IT SOUGHT TO JUSTIFY THE NON-SUBSTITUTION BY ITSAPPLICATION OF THE CIVIL LAW CONCEPT OF NEGOTIORUM GESTIO;

(3)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THEORIGINAL RECORD OF S.E.C. — AC NO. 339 NOT HAVING ACTUALLY BEENRE-EXAMINED, THAT S.E.C. CASE NO. 3153 INVOLVED A SITUATION WHEREPERFORMANCE WAS IMPOSSIBLE (AS CONTEMPLATED UNDER ARTICLE

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1191 OF THE CIVIL CODE) AND WAS NOT A MERE CASE OF LESION ORINADEQUACY OF CAUSE (UNDER ARTICLE 1355 OF THE CIVIL CODE) AS SOERRONEOUSLY CHARACTERIZED BY THE RESPONDENT S.E.C.; and,

(4)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THEORIGINAL RECORD OF S.E.C. — AC NO. 339 NOT HAVING ACTUALLY BEENEXAMINED, THAT THE RECORDING BY THE LATE JUDGE MANUEL A. TORRES,JR. OF THE QUESTIONED ASSIGNMENT OF QUALIFYING SHARES TO HISNOMINEES, WAS AFFIRMED IN THE STOCK AND TRANSFER BOOK BY ANACTING CORPORATE SECRETARY AND MOREOVER, THAT ACTUAL NOTICE OFSAID ASSIGNMENT WAS TIMELY MADE TO THE OTHER STOCKHOLDERS. 14

We shall resolve the issues in seriatim .

I

Petitioners insist that the failure to transmit the original records to the Court of Appealsdeprived them of procedural due process. Without the evidence and the original records ofthe proceedings before the SEC, the Court of Appeals, petitioners adamantly state, could nothave possibly made a proper appreciation and correct determination of the issues,particularly the factual issues, they had raised on appeal. Petitioners also assert that sincethe Court of Appeals allegedly gave due course to their petition, the original records shouldhave been forwarded to said court.

Petitioners anchor their argument on Secs. 8 and 11 of SC Circular 1-91 (dated 27 February1991) which provides that:

8. WHEN PETITION GIVEN DUE COURSE . — The Court of Appeals shall givedue course to the petition only when it shows pr ima facie that the court,commission, board, office or agency concerned has committed errors of factor law that would warrant reversal or modification of the order, ruling ordecision sought to be reviewed. The findings of fact of the court commission,board, office or agency concerned when supported by substantial evidenceshall be final.

xxx xxx xxx

11. TRANSMITTAL OF RECORD . — Within fifteen (15) days from notice that thepetition has been given due course, the court, commission, board, office oragency concerned shall transmit to the Court of Appeals the original or acertified copy of the entire record of the proceeding under review. The record

to be transmitted may be abridged by agreement of all parties to theproceeding. The Court of Appeals may require or permit subsequent correctionor addition to the record.

Petitioners contend that the Court of Appeals had given due course to their petition asallegedly indicated by the following acts:

a) it granted the restraining order applied for by the hereinpetitioners, and after hearing, also the writ of preliminary

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injunction sought by them; under the original SC Circular No. 1-91, a petition for review may be given due course at the onset(paragraph 8) upon a mere pr im a facie finding of errors of fact orlaw having been committed, and such pr im a facie finding is butconsistent with the grant of the extra-ordinary writ of preliminaryinjunction;

b) it required the parties to submit "simultaneous memoranda"in its resolution dated October 15, 1993 (this is in addition to thecomment required to be filed by the respondents) andfurthermore declared in the same resolution that the petition willbe decided "on the merits," instead of outrightly dismissing thesame;

c) it rendered a full length decision, wherein: (aa) it expresslydeclared the respondent S.E.C. as having erred in denying thepertinent motions to suspend proceedings; (bb) it declared thesupposed error as having become a non-issue when therespondent C.A. " proc eeded to hear (the) appeal" ; (cc) it formulatedand applied its own theory of negotiorum gestio in justifying thenon-substitution of the deceased principal party in S.E.C. — AC No.339 and moreover, its theory of di minimis non curat lex (this,without first determining the true extent of and the correct legalcharacterization of the so-called "shortage" of Tormil shares;and, (dd) it expressly affirmed the assailed decision of respondentS.E.C. 15

Petitioners' contention is unmeritorious.

There is nothing on record to show that the Court of Appeals gave due course to the petition.The fact alone that the Court of Appeals issued a restraining order and a writ of preliminary

injunction and required the parties to submit their respective memoranda does not indicatethat the petition was given due course. The office of an injunction is merely to preserve thestatus quo pending the disposition of the case. The court can require the submission ofmemoranda in support of the respective claims and positions of the parties withoutnecessarily giving due course to the petition. The matter of whether or not to give due courseto a petition lies in the discretion of the court.

It is worthy to mention that SC Circular No. 1-91 has been replaced by Revised AdministrativeCircular No. 1-95 (which took effect on 1 June 1995) wherein the procedure for appeals fromquasi-judicial agencies to the Court of Appeals was clarified thus:

10. Due course . — If upon the filing of the comment or such other pleadings ordocuments as may be required or allowed by the Court of Appeals or upon theexpiration of the period for the filing thereof, and on the bases of the petitionor the record the Court of Appeals finds pr ima facie that the court or agencyconcerned has committed errors of fact or law that would warrant reversal ormodification of the award, judgment, final order or resolution sought to bereviewed, it may give due course to the petition; otherwise, it shall dismiss thesame. The findings of fact of the court or agency concerned, when supportedby substantial evidence, shall be binding on the Court of Appeals.

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11. Transmit ta l of record . — Within fif t een (15) days fro m no tice that thepet i t ion has been given due course , the Cour t of App eals m ay require the cour tor agency con cerned to t ransmit the or ig inal or a legib le cer t i f ied t rue cop y ofthe ent i re record of the pro ceeding u nder review . The record to be transmittedmay be abridged by agreement of all parties to the proceeding. The Court ofAppeals may require or permit subsequent correction of or addition to the

record. (Emphasis ours.)

The aforecited circular now formalizes the correct practice and clearly states that in resolvingappeals from quasi judicial agencies, it is within the discretion of the Court of Appeals tohave the original records of the proceedings under review be transmitted to it. In thisconnection petitioners' claim that the Court of Appeals could not have decided the case onthe merits without the records being brought before it is patently lame. Indubitably, the Courtof Appeals decided the case on the basis of the uncontroverted facts and admissionscontained in the pleadings, that is, the petition, comment, reply, rejoinder, memoranda, etc.filed by the parties.

II

Petitioners contend that the decisions of the SEC and the Court of Appeals are null and voidfor being rendered without the necessary substitution of parties (for the deceased petitionerManuel A. Torres, Jr.) as mandated by Sec. 17, Rule 3 of the Revised Rules of Court, whichprovides as follows:

Sec. 17. Death o f par ty . — After a party dies and the claim is not therebyextinguished, the court shall order, upon proper notice, the legalrepresentative of the deceased to appear and to be substituted for thedeceased, within a period of thirty (30) days, or within such time as may begranted. If the legal representative fails to appear within said time, the courtmay order the opposing party to procure the appointment of a legalrepresentative of the deceased within a time to be specified by the court, andthe representative shall immediately appear for and on behalf of the interest ofthe deceased. The court charges involved in procuring such appointment, ifdefrayed by the opposing party, may be recovered as costs. The heirs of thedeceased may be allowed to be substituted for the deceased, without requiringthe appointment of an executor or administrator and the court may appointguardian ad litem for the minor heirs.

Petitioners insist that the SEC en banc should have granted the motions to suspend theyfiled based as they were on the ground that the Regional Trial Court of Makati, where theprobate of the late Judge Torres' will was pending, had yet to appoint an administrator orlegal representative of his estate.

We are not unaware of the principle underlying the aforequoted provision:

It has been held that when a party dies in an action that survives, and no order isissued by the Court for the appearance of the legal representative or of the heirs ofthe deceased to be substituted for the deceased, and as a matter of fact no suchsubstitution has ever been effected, the trial held by the court without such legalrepresentative or heirs, and the judgment rendered after such trial, are null andvoid because the court acquired no jurisdiction over the persons of the legal

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representative or of the heirs upon whom the trial and the judgment are notbinding. 16

As early as 8 April 1988, Judge Torres instituted Special Proceedings No. M-1768 before theRegional Trial Court of Makati for the ante-mortem probate of his holographic will which hehad executed on 31 October 1986. Testifying in the said proceedings, Judge Torres

confirmed his appointment of petitioner Edgardo D. Pabalan as the sole executor of his willand administrator of his estate. The proceedings, however, were opposed by the sameparties, herein private respondents Antonio P. Torres, Jr., Ma. Luisa T. Morales and Ma.Cristina T. Carlos, 17 who are nephew and nieces of Judge Torres, being the children of hislate brother Antonio A. Torres.

It can readily be observed therefore that the parties involved in the present controversy arevirtually the same parties fighting over the representation of the late Judge Torres' estate. Itshould be recalled that the purpose behind the rule on substitution of parties is theprotection of the right of every party to due process. It is to ensure that the deceased partywould continue to be properly represented in the suit through the duly appointed legalrepresentative of his estate. In the present case, this purpose has been substantially fulfilled(despite the lack of formal substitution) in view of the peculiar fact that both proceedingsinvolve practically the same parties. Both parties have been fiercely fighting in the probateproceedings of Judge Torres' holographic will for appointment as legal representative of hisestate. Since both parties claim interests over the estate, the rights of the estate wereexpected to be fully protected in the proceedings before the SEC en banc and the Court ofAppeals. In either case, whoever shall be appointed legal representative of Judge Torres'estate (petitioner Pabalan or private respondents) would no longer be a stranger to thepresent case, the said parties having voluntarily submitted to the jurisdiction of the SEC andthe Court of Appeals and having thoroughly participated in the proceedings.

The foregoing rationate finds support in the recent case of Vda . de Salazar v . CA , 18 whereinthe Court expounded thus:

The need for substitution of heirs is based on the right to due processaccruing to every party in any proceeding. The rationale underlying thisrequirement in case a party dies during the pendency of proceedings of anature not extinguished by such death, is that . . . the exercise of judicialpower to hear and determine a cause implicitly presupposes in the trial court,amongst other essentials, jurisdiction over the persons of the parties. That

jurisdiction was inevitably impaired upon the death of the protestee pendingthe proceedings below such that unless and until a legal representative is forhim duly named and within the jurisdiction of the trial court, no adjudication inthe cause could have been accorded any validity or binding effect upon anyparty, in representation of the deceased, without trenching upon thefundamental right to a day in court which is the very essence of theconstitutionally enshrined guarantee of due process.

We are not unaware of several cases where we have ruled that a party havingdied in an action that survives, the trial held by the court without appearanceof the deceased's legal representative or substitution of heirs and the

judgment rendered after such trial, are null and void because the courtacquired no jurisdiction over the persons of the legal representatives or of theheirs upon whom the trial and the judgment would be binding. This generalrule notwithstanding, in denying petitioner's motion for reconsideration, the

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rescission, even after he has chosen fulfillment, if the latter should becomeimpossible.

The court shall decree the rescission claimed, unless there be just causeauthorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons whohave acquired the thing, in accordance with articles 1385 and 1388 and theMortgage Law.

Petitioners' contentions cannot be sustained. We see no justifiable reason to disturb thefindings of SEC, as affirmed by the Court of Appeals:

We sustain the ruling of respondent SEC in the decision appealed from ( Rollo ,pp. 45-46) that —

. . . the shortage of 972 shares would not be valid ground forrespondent Torres to unilaterally revoke the deeds of

assignment he had executed on July 13, 1984 and July 24, 1984wherein he voluntarily assigned to TORMIL real propertiescovered by TCT No. 374079 (Makati) and TCT No. 41527, 41528and 41529 (Pasay) respectively.

A comparison of the number of shares that respondent Torresreceived from TORMIL by virtue of the "deeds of assignment"and the stock certificates issued by the latter to the formerreadily shows that TORMIL had substantially performed whatwas expected of it. In fact, the first two issuances were insatisfaction to the properties being revoked by respondentTorres. Hence, the shortage of 972 shares would never be a validground for the revocation of the deeds covering Pasay andQuezon City properties.

In Universal Food Corp . vs . CA , the Supreme Court held:

The general rule is that rescission of a contractwill not be permitted for a slight or carnal breach,but only for such substantial and fundamentalbreach as would defeat the very object of theparties in making the agreement.

The shortage of 972 shares definitely is not substantial andfundamental breach as would defeat the very object of the parties inentering into contract. Art. 1355 of the Civil Code also provides:"Except in cases specified by law, lesion or inadequacy of causeshall not invalidate a contract, unless there has been fraud, mistakeor undue influences." There being no fraud, mistake or undueinfluence exerted on respondent Torres by TORMIL and the latterhaving already issued to the former of its 225,000 unissued shares,the most logical course of action is to declare as null and void thedeed of revocation executed by respondent Torres. ( Rollo , pp. 45-46.) 21

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The aforequoted Civil Code provision does not apply in this particular situation for theobvious reason that a specific number of shares of stock (as evidenced by stock certificates)had already been issued to the late Judge Torres in exchange for his Makati and Pasay Cityproperties. The records thus disclose:

DATE OF PROPERTY LOCATION NO. OF SHARES ORDER OF

ASSIGNMENT ASSIGNED TO BE ISSUED COMPLIANCE*

1. July 13, 1984 TCT 81834 Quezon City) 13,252 3rdTCT 144240 Quezon City)

2. July 13, 1984 TCT 77008 Manila)TCT 65689 Manila) 78,493 2ndTCT 102200 Manila)

3. July 13, 1984 TCT 374079 Makati 8,307 1st

4. July 24, 1984 TCT 41527 Pasay

TCT 41528 Pasay) 9,855 4thTCT 41529 Pasay)

5. August 6, 1984 El Hogar Filipino Stocks 2,000 7th

6. August 6, 1984 Manila Jockey Club Stocks 48,737 5th

7. August 7, 1984 San Miguel Corp. Stocks 50,238 8th

8. August 7, 1984 China Banking Corp. Stocks 6,300 6th

9. August 20, 1984 Ayala Corp. Stocks 7,468.2) 9th

10. August 29, 1984 Ayala Fund Stocks 1,322.1)

————— TOTAL 225,972.3

*Order of stock certificate issuances by TORMIL to respondent Torres relative tothe Deeds of Assignment he executed sometime in July and August,1984. 22 (Emphasis ours.)

Moreover, we agree with the contention of the Solicitor General that the shortage of sharesshould not have affected the assignment of the Makati and Pasay City properties which were

executed in 13 and 24 July 1984 and the consideration for which have been duly paid orfulfilled but should have been applied logically to the last assignment of property — JudgeTorres' Ayala Fund shares — which was executed on 29 August 1984. 23

IV

Petitioners insist that the assignment of "qualifying shares" to the nominees of the lateJudge Torres (herein petitioners) does not partake of the real nature of a transfer orconveyance of shares of stock as would call for the "imposition of stringent requirements

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(with respect to the) recording of the transfer of said shares." Anyway, petitioners add, therewas substantial compliance with the above-stated requirement since said assignments wereentered by the late Judge Torres himself in the corporation's stock and transfer book on 6March 1987, prior to the 25 March 1987 annual stockholders meeting and which entries wereconfirmed on 8 March 1987 by petitioner Azura who was appointed Assistant CorporateSecretary by Judge Torres.

Petitioners further argue that:

10.10. Certainly, there is no legal or just basis for the respondent S.E.C. topenalize the late Judge Torres by invalidating the questioned entries in thestock and transfer book, simply because he initially made those entries (theywere later affirmed by an acting corporate secretary) and because the stockand transfer book was in his possession instead of the elected corporatesecretary, if the background facts herein-before narrated and the seriousanimosities that then reigned between the deceased Judge and his relativesare to be taken into account;

xxx xxx xxx

10.12. Indeed it was a practice in the corporate respondent, a familycorporation with only a measly number of stockholders, for the late judge tohave personal custody of corporate records; as president, chairman andmajority stockholder, he had the prerogative of designating an actingcorporate secretary or to himself make the needed entries, in instances wherethe regular secretary, who is a mere subordinate, is unavailable or intentionallydefaults, which was the situation that obtained immediately prior to the 1987annual stockholders meeting of Tormil, as the late Judge Torres had soindicated in the stock and transfer book in the form of the entries now inquestion;

10.13. Surely, it would have been futile nay foolish for him to have insisted underthose circumstances, for the regular secretary, who was then part of a groupranged against him, to make the entries of the assignments in favor of hisnominees; 24

Petitioners' contentions lack merit.

It is precisely the brewing family discord between Judge Torres and private respondents — his nephew and nieces that should have placed Judge Torres on his guard. He should havebeen more careful in ensuring that his actions (particularly the assignment of qualifyingshares to his nominees) comply with the requirements of the law. Petitioners cannot use theflimsy 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 thelatter belonged to the opposite faction. It is the corporate secretary's duty and obligation toregister valid transfers of stocks and if said corporate officer refuses to comply, thetransferor-stockholder may rightfully bring suit to compel performance. 25 In other words,there are remedies within the law that petitioners could have availed of, instead of taking thelaw in their own hands, as the cliche goes.

Thus, we agree with the ruling of the SEC en banc as affirmed by the Court of Appeals:

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We likewise sustain respondent SEC when it ruled, interpreting Section 74 ofthe Corporation Code, as follows ( Rollo , p. 45):

In the absence of (any) provision to the contrary, the corporatesecretary is the custodian of corporate records. Corollarily, hekeeps the stock and transfer book and makes proper and

necessary entries therein.

Contrary to the generally accepted corporate practice, the stockand transfer book of TORMIL was not kept by Ms. Maria CristinaT. Carlos, the corporate secretary but by respondent Torres, thePresident and Chairman of the Board of Directors of TORMIL. Incontravention to the above cited provision, the stock andtransfer book was not kept at the principal office of thecorporation either but at the place of respondent Torres.

These being the obtaining circumstances, any entries made inthe stock and transfer book on March 8, 1987 by respondent

Torres of an alleged transfer of nominal shares to Pabalan andCo. cannot therefore be given any valid effect. Where the entriesmade are not valid, Pabalan and Co. cannot therefore beconsidered stockholders of record of TORMIL. Because they arenot stockholders, they cannot therefore be elected as directorsof TORMIL. To rule otherwise would not only encourageviolation of clear mandate of Sec. 74 of the Corporation Codethat stock and transfer book shall be kept in the principal officeof the corporation but would likewise open the flood gates ofconfusion in the corporation as to who has the proper custodyof the stock and transfer book and who are the real stockholdersof records of a certain corporation as any holder of the stockand transfer book, though not the corporate secretary, at

pleasure would make entries therein.

The fact that respondent Torres holds 81.28% of the outstandingcapital stock of TORMIL is of no moment and is not a license forhim to arrogate unto himself a duty lodged to ( s ic ) the corporatesecretary. 26

All corporations, big or small, must abide by the provisions of the Corporation Code. Being asimple family corporation is not an exemption. Such corporations cannot have rules andpractices other than those established by law.

WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED.

SO ORDERED.