ZOILA CO LIM, PETITIONER, VS. CONTINENTAL DEVELOPMENT CORPORATION, RESPONDENT.

Continental Development Corporation versus Lim

The Case

This is the story of a corporation caught between two persons who each claim the same block of shares. Continental Development Corporation held one hundred twenty five common shares in its books under the name of Benito Gervasio Tan, yet Zoila Co Lim insisted those very shares belonged to her late mother, So Bi, and now to her as heir. Unable to tell who was right and fearing suit from either side, the corporation filed a complaint for interpleader, asking the court to make the two claimants litigate between themselves. The trial court threw the complaint out, and the corporation and Zoila Co Lim came to the Supreme Court. The case matters because it fixes, in plain terms, when a stakeholder may invoke interpleader, and it reminds us that a court cannot, at the threshold, quietly award the disputed thing to one claimant.

Procedural History

Continental Development Corporation filed a complaint for interpleader in the Court of First Instance of Manila against Benito Gervasio Tan and Zoila Co Lim. Benito Gervasio Tan moved to dismiss, arguing that since the shares stood in his name in the corporate books, he should be declared owner under the Corporation Law. Zoila Co Lim answered, admitting that the shares were recorded in Benito's name but asserting that they had been delivered to him in trust for her mother, the true owner. The trial judge dismissed the complaint for lack of cause of action, invoking the Corporation Law. Both the corporation and Zoila Co Lim moved for reconsideration, and the motions were denied. They then came to the Supreme Court, which treated the petitions as special civil actions, treated Benito's petition to dismiss as his answer, and submitted the cases for decision.

Facts

In the books of Continental Development Corporation, Benito Gervasio Tan appeared as a stockholder, initially accredited sometime in 1957 with fifty common shares, later credited with seventy five more by way of dividends, for a total of one hundred twenty five common shares with a par value of Two Hundred Fifty Pesos each. Beginning in December 1972, Benito, personally and through counsel, demanded by letters and telegrams that the corporation release the certificates to him.

The corporation did not comply, because Zoila Co Lim, through her counsel, laid claim to the very same shares. She alleged that the shares really belonged to her mother, So Bi, also known as Tawa, now deceased, and she strongly denied Benito's claim. As daughter and heir, she said, she now owned the shares, which should be delivered to her. Both claimants, through their lawyers, threatened punitive measures against the corporation should it take any step prejudicing their interests.

The corporation pleaded that it was not sufficiently informed of the rights of the claimants and could not justly determine their conflicting claims, that it had no interest of any kind in the shares, and that it was ready and willing to deliver the certificates to whomsoever the court might direct. It feared it might be liable to one claimant should it comply with the demands of the other.

Issues

• Whether or not a complaint for interpleader states a cause of action where two persons make conflicting claims over the same shares of stock held by a corporation that claims no interest in them.
• Whether or not the trial court gravely abused its discretion in dismissing the complaint for interpleader, thereby practically deciding ownership of the shares in favor of one claimant.

Applicable Provisions

Section 1 of Rule 63 of the New Rules of Court provides:

Whenever conflicting claims upon the same subject matter are or may be made against a person, who claims no interest whatever in the subject matter, or an interest which in whole or in part is not disputed by the claimants, he may bring an action against the conflicting claimants to compel them to interplead and litigate their several claims among themselves.

This is the very provision the Court uses to test whether the corporation's complaint stated a cause of action.

Ruling

On the first issue, the Court held that a cause of action for interpleader exists. The indispensable requisite is that conflicting claims upon the same subject matter are or may be made against the plaintiff in interpleader, who claims no interest whatever in the subject matter, or an interest not disputed by the claimants. Here both defendants asserted conflicting rights to the same shares, the corporation claimed no interest in them, and it stood exposed to double vexation whichever way it moved. The Court recalled the classic formulation from Alvarez versus Commonwealth:

The action of interpleader, under section 120, is a remedy whereby a person who has personal property in his possession, or an obligation to render wholly or partially, without claiming any right in both comes to court and asks that the persons who claim the said personal property or who consider themselves entitled to demand compliance with the obligation, be required to litigate among themselves, in order to determine finally who is entitled to one or the other thing. The remedy is afforded not to protect a person against a double liability but to protect him against a double vexation in respect of one liability.

The Court added that interpleader demands, as an indispensable element, that there be two or more claimants to the fund or thing in dispute through separate and different interests, that the claims be adverse, and that the parties sought to be interpleaded be in a position to make effective claims. The thing claimed must be one and the same and derived from the same source. The corporation, the Court said, was like a lessee who does not know to whom to pay rentals because of conflicting claims, or a sheriff puzzled by conflicting claims to property he has seized, both of whom have been allowed to file interpleader.

On the second issue, the Court held that the trial court gravely abused its discretion. Since there was an active conflict of interests between the two defendants over the disputed shares, dismissing the complaint practically decided ownership in favor of Benito Gervasio Tan. The two claimants should be given full opportunity to litigate their respective claims.

Doctrine

Interpleader under Section 1 of Rule 63 requires only that conflicting claims upon the same subject matter are or may be made against a person who claims no interest whatever in the subject matter, or an interest not disputed by the claimants. The remedy protects a stakeholder against double vexation in respect of one liability, not merely against double liability. The claims must be adverse, must relate to one and the same thing derived from the same source, and the claimants must be in a position to make effective claims. A court that dismisses a proper interpleader complaint, thereby effectively awarding the disputed property to one claimant, commits grave abuse of discretion.

Disposition

The Supreme Court granted the petitions, set aside the order dismissing the complaint and the order denying reconsideration, and remanded the matter so that the two claimants could litigate their claims, with costs against Benito Gervasio Tan.

Remember This

Memorize the line that interpleader protects against double vexation in respect of one liability, not double liability. Examiners use this case to test the requisites of interpleader and to ask whether a corporation holding disputed shares may compel rival claimants to litigate among themselves.