Makati Sports Club

7/27/2019 Makati Sports Club

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Makati Sports Club, Inc.9 v. Cheng (2010) (treasurer accused fraud in selling shares)

Doctrines:

A certificate of stock is the paper representative or tangible evidence of the stock itself andof the various interests therein. The certificate is not a stock in the corporation but is merelyevidence of the holders interest and status in the corporation, his ownership of the share

represented thereby. It is not in law the equivalent of such ownership. It expresses the contract

between the corporation and the stockholder, but is not essential to the existence of a share ofstock or the nature of the relation of shareholder to the corporation.

Facts:

On October of 1994, Makati Sports Club, Inc. (MSCI) Board of Directors adopted a

resolution authorizing the sale of 19 unissued shares at a floor price of P400,000 and P450,000

per share for Class A and Class B shares, respectively. Michelle Cheng was a treasurer anddirector of MSCI. In June of 1995, Joseph Hodreal (Hodreal) with wife Lolita expressed in a letter

his interest to buy a share and requested therein that he be included in the waiting list. InNovember of 1995, Mc Foods expressed interest in buying a share of MSCI, and one was acquired

with the payment by Mc Foods of P 1,800,000 through Urban Bank. On December 15, 1995, the

Deed of Absolute Sale was executed by MSCI. On December 27, 1995, Mc Foods sent a letter to

MSCI giving advice of its offer to resell the share. Mc Foods Stock Certificate No. A 2243 wasissued to Mc Foods on January 5, 1996.

It appears that while the sale between the MSCI and Mc Foods was still under negotiations,

there were negotiations between Mc Foods and Hodreal for the purchase by the latter of a

share of the MSCI. On November 24, 1995, Hodreal paid Mc Foods P1,400,000. Anotherpayment of P1,400,000 was made by Hodreal to Mc Foods on December 27, 1995, to complete

the purchase price of P2,800,000. On February 7, 1996, MSCI was advised of the sale by Mc

Foods to Hodreal of the share evidenced by Certificate No. 2243 for P2.8 Million. Upon request, anew certificate was issued. In 1997, an investigation was conducted and the committee held

that there is prima facie evidence to show that defendant Cheng profited from the

transaction because of her knowledge.

Evidence of fraud presented by MSCI, among others, are[a] letter of Hodreal where he

expressed interest in buying one share from MSCI with the request that he be included in thewaiting list of buyers; [b] declaration of Lolita Hodreal in her Affidavit that in October 1995, she

talked to Cheng who assured her that there was one available Class A share at the price of

P2,800,000. The purchase to be validated by paying 50% immediately and the balance after thirtydays; [c] Head of the Membership Section of MSCI, Punzalan, declared that she informed Cheng

of the intention of Hodreal to purchase one share and that Cheng asked if there was a quoted priceand for Hodreals telephone number, which the Punzalan gave to Cheng; and [d] Cheng claimed

Certificate A-2243 on behalf of Mc Foods, per letter of authority dated January 26, 1996, executed

by Mc Foods through its President Ramon Sabarre in favor of Cheng.MSCI asserts that Mc Foods never intended to become a legitimate holder of its purchased Class

A share but did so only for the purpose of realizing a profit in the amount of P1,000,000 at the

expense of the former. MSCI furtherclaims that Cheng confabulated [this means talked] with

Mc Foods by providing it with an insiders information as to the status of the shares of stock ofMSCI and even, allegedly with unusual interest, facilitated the transfer of ownership of the subjectshare of stock from Mc Foods to Hodreal, instead of an original, unissued share of stock.

Issues:

1. W/N Cheng, MC Foods, and Ramon Sabarre should pay the sum of P 1,000,000

representing the amount allegedly defrauded, together with interest and damages, to MSCI.Held/Ratio:

1. NO. MSCI, having the burden on proof, failed to prove with clear and convincingevidence the existence of fraud. The mere fact that she performed acts upon authority of McFoods, i.e., receiving the payments of Hodreal in her office and claiming the stock certificate on

behalf of Mc Foods, do not by themselves, individually or taken together, show badges of fraud,

since Mc Foods did acts well within its rights and there is no proof that Cheng personally profited

from the assailed transaction.First, as a procedural infirmity, the issue is a question of facts, as it is a question on the probative


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value of the evidence presented. Section 1 of Rule 45 provides that a petition for review on

certiorari shall raise only questions of law. Furthermore, it does not fall under the exemptionsunder Rule 45.Second, although established by Punzalans affidavit that she informed Cheng about Hodrealsdesire to purchase a Class A share and that Cheng asked for Hodreals contact number, it is not

clear when Punzalan relayed the information to Cheng or if Cheng indeed initiated contact with

Hodreal to peddle Mc Foods purchased share. [Yun lang talaga sabi ng case.]Third, charged with ascertaining the compliance of all the requirements for the purchase of

MSCIs shares of stock under Section 29 of MSCIs amended by-laws, the Membership

Committee failed to question the alleged irregularities attending Mc Foods purchase of one ClassA share at P1,800,000. If there was really any irregularity in the transaction, this inaction of the

Management Committee belies MSCIs cry of foul play on Mc Foods purchase of the subjectshare of stock.Fourth, considering that Mc Foods tendered its payment of P1,800,000 to MSCI on November 28,

1995, even assuming arguendothat it was driven solely by the intent to speculate on the price

of the share of stock, it had all the right to negotiate and transact, at least on the anticipated

and expected ownership of the share, with Hodreal. In other words, there is nothing wrong

with the fact that the first installment paid by Hodreal preceded the payment of Mc Foods

for the same share of stock to MSCI because eventually Mc Foods became the owner of aClass A share covered by Certificate A 2243.Fifth, MSCIs stance that Mc Foods violated Section 30(e) of MSCIs Amended By-Laws on its

pre-emptive rights, which provides that ...the club shall have thirty days from receipt of written

offer to purchase such share if the club has unrestricted revenue and with approval of 2/3 vote ofthe Board... , is untenable. When Mc Foods offered for sale one Class A share of stock to

MSCI for the price of P 2,800,000 for the latter to exercise its pre- emptive right, MSCI failed torepurchase Mc Foods Class A share within the thirtyday pre-emptive period. Therefore Mc

Foods complied with the requirement. Neither can MSCI argue that Mc Foods was not yet a

registered owner of the share of stock when the latter offered it for resale, in order to void

the transfer from Mc Foods to Hodreal. The corporations obligation to register is

ministerial upon the buyers acquisition of ownership of the share of stock. The corporation,

either by its board, its by-laws, or the act of its officers, cannot create restrictions in stocktransfers. [See doctrine.]

MSCIs petition is denied.

Neugene v. CA (1999)Doctrine:

To constitute a valid transfer, a stock certificate must be delivered and its delivery must becoupled with an intention of constituting the person to whom the stock is delivered the transferred

(sic) thereof. Furthermore, in order that there is a valid transfer, the person to whom the stockcertificates are endrosed (sic) must be a bona fide transferee and for value.

Facts:

NEUGENE had authorized capital stock of P3 MILLION (eventually became P7 MILLION),P600K of which is subscribed and P150K of those subscribed were paid up. On October 24, 1987,

the private respondents, Charles O. Sy, Arsenio Yang, Jr. and Lok Chun Suen, constituting 2/3 ofthe total shares, sent notice to the directors of NEUGENE for a board meeting to be held on

November 30, 1987. They also sent notice for a special stockholders meeting on the same day,

November 30, 1987, to consider the dissolution of NEUGENE in which they voted inAFFIRMATIVE. Upon private respondentss Petition for Dissolution, SEC issued a Certificate ofDissolution but was reversed by the SEC Panel of Hearing Officers. This was again reversed bythe CA, upholding the validity of NEUGENEs dissolution, thus the petition.

Issue:

1. W/N the private respondents lacked the requisite number of shares of stock when theyvoted for the resolution dissolving NEUGENE.

Held/Ratio:

1. NO. In the case at bar, Nicanor Martin and Leoncio Tan (petitioners) were not bona fide

transferees for value and in good faith. Petitioner Johnson Lee alleged that petitioners Sy, Lok andYang, Jr. indorsed and delivered their stock certificates to Nicanor Martin and Leoncio Tan.


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However, Johnson Lee testified that he acquired his shares of stock from Johnny Uy, who in turn

sold them to Nicanor Martin and Leoncio Tan. Evidence shows that no consideration was paid

by Leoncio Tan and Nicanor Martin when they allegedly acquired the stock certificates from

the Uy Family. In fact the CA found that the certificates of stock of the private respondents werestolen and therefore not validly transferred, and the transfers of stock relied upon by petitioners

were fraudulently recorded in the Stock and Transfer Book of NEUGENE under the column

Certificates Cancelled. Johnson Lee failed to produce any document evidencing the transactionor a receipt showing his payment for the stocks. Therefore, it is clear that they were not bona fide

transferees for value and in good faith. Consequently, petitioners cannot be considered

stockholders for the purpose of determining the 2/3 votes of the outstanding capital stock

required to dissolve NEUGENE, in accordance with Sec. 118 of the Corporate Code.

To constitute a valid transfer, a stock certificate must be delivered and its delivery must be

coupled with an intention of constituting the person to whom the stock is delivered the

transferred (sic) thereof. Furthermore, in order that there is a valid transfer, the person to

whom the stock certificates are endrosed (sic) must be a bona fide transferee and for value.

Garcia v. Jomouad (2000)lent POC, attachment, transfer not recorded on booksDoctrine:

A bona fide transfer of shares, not registered in the corporate books, is not valid as againsta subsequent lawful attachment of said shares, regardless of whether the attaching creditor had

actual notice of said transfer or not. All transfers not so entered on the books of the

corporation are absolutely void; not because they are without notice or fraudulent in law or

fact, but because they are made so void by statute.Facts:

Petitioner Nemesio Garcia filed with the RTC of Cebu an action for injunction with prayer for

preliminary injunction against respondents spouses Jose and Sally Atinon and Nicolas Jomouad,ex-officio sheriff of Cebu. Said action stemmed from an earlier case for collection of money filed

by the spouses Atinon against Jaime Dico. In that case (collection case), the trial court renderedjudgment ordering Dico to pay the spouses Atinon the sum of P900,000 plus interests. After said

judgment became final and executory, respondent sheriff Jomouad proceeded with its execution.

In the course thereof, the Propriety Ownership Certificate (POC) No. 0688 in the CebuCountry Club, which was in Dicos name, was levied on and scheduled for public auction.

Claiming ownership over the subject certificate, Garcia filed the aforesaid action for injunction

with prayer for preliminary injunction to enjoin respondents from proceeding with the auction.Garcia avers that Dico, the judgment debtor of the spouses Atinon, was employed as manager of

his (petitioners) Young Auto Supply. To assist him in entertaining clients, Garcia lent his POC,then bearing the number 1459, in the Cebu Country Club to Dico so the latter could enjoy the

signing of privileges of its members. The Club issued POC No. 0668 in the name of Dico.

Thereafter, Dico resigned as manager. Upon demand of Garcia, Dico returned the POC. The

latter then executed a Deed of Transfer covering the subject certificate in favor of Garcia.

The Club was furnished with a copy of said deed but the transfer was not recorded in the

books of the club because Garcia failed to present proof of payment of the requisite capital

gains tax.The lower court dismissed the complaint for lack of merit. On appeal, the CA affirmed. Hence,this petition for review on certiorari.

Issue:

1. W/N a bona fide transfer of the shares of a corporation, not registered or noted in the booksof the corporation, is valid as against a subsequent lawful attachment of said shares, regardless ofwhether the attaching creditor had actual notice of said transfer or not.Held/Ratio:

1. NO. In the present case, the Court held that the transfer of the subject certificate madeby Dico to Garcia was not valid as to the spouses Atinon, the judgment creditors, as the samestill stood in the name of Dico, the judgment debtor, at the time of the levy on execution. In a

similar case (Uson v. Diosomito), the Court ruled that, All transfers of shares not so entered are

invalid as to attaching or execution creditors of the assignors, as well as to the corporation and to

subsequent purchasers in good faith, and, indeed, as to all persons interested, except the parties tosuch transfers. All transfers not so entered on the books of the corporation are absolutely


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void; not because they are without notice or fraudulent in law or fact, but because they are

made so void by statute.Section 63 of the Corporation Code expressly states that No transfer, however, shall be valid,except as between the parties, until the transfer is recorded in the books of the corporationshowing the names of the parties to the transaction, the date of the transfer, the number of the

certificate or certificates andthe number of shares transferred. As correctly ruled by the CA, the

entry in the minutes of the meeting of the Clubs board of directors noting the resignation of Dicoas proprietary member thereof does not constitute compliance with Section 63. Said provision of

law strictly required the recording of the transfer in the books of the corporation and not

elsewhere, to be valid against third parties.

Documents

Makati Sports Club