NORA A. BITONG, PETITIONER, VS. COURT OF APPEALS (FIFTH  DIVISION), EUGENIA D. APOSTOL, JOSE A. APOSTOL, MR. & MS. PUBLISHING CO., LETTY J. MAGSANOC, AND ADORACION G. NUYDA, RES…

Bitong versus Apostol

The Case

This is a derivative suit. Nora Bitong sued the Apostol spouses and their co-respondents before the Securities and Exchange Commission, in the name and for the benefit of Mr. and Ms. Publishing Company, Incorporated, alleging fraud, disloyalty, conflict of interest, and mismanagement in the direction of the corporation. The case matters for two reasons. First, it fixes who may bring a derivative suit: only a stockholder of record, a real party in interest. Second, it teaches how judicial admissions in pleadings are read, and why an interlocutory order does not bind a party who never appealed it.

Procedural History

The case began as a derivative suit before the Securities and Exchange Commission. The Hearing Panel first issued a writ of preliminary injunction in the petitioner's favor and rejected the claim that she was not the real party in interest, though it denied her prayer for a management committee. After trial on the merits, the Hearing Panel dismissed the derivative suit and dissolved the writ. Bitong appealed to the Securities and Exchange Commission En Banc, which reversed the Hearing Panel and ruled in her favor, ordering the respondents to account and return funds and shares, and voiding a later sale of shares. The respondents then went up to the Court of Appeals on a petition for review, while Edgardo Espiritu filed a separate petition for certiorari and prohibition; the two were consolidated. The Court of Appeals reversed the Commission En Banc and held that Bitong was not the owner of any share and therefore not the real party in interest, that her complaint stated no cause of action, and that the Commission's orders were void. Her motion for reconsideration was denied. The case reached the Supreme Court by petition for review.

Facts

Mr. and Ms. Publishing Company was organized in 1976 to publish a magazine, with Jaka Investments Corporation, the Apostols, Luis Villafuerte, Ramon Siy, and Ex Libris Publishing Company as the original stockholders. The corporation was run much like a close corporation, with important matters settled through informal consultations, and Eugenia Apostol managing its affairs. Bitong sat on the board and served as treasurer from incorporation until April 1989. She claimed to be the registered owner of one thousand shares out of four thousand eighty-eight outstanding shares, having acquired them from Jaka by a deed of sale in July 1983, recorded in the Stock and Transfer Book.

In her derivative suit, Bitong alleged that from 1983 to 1987 the corporation made cash advances to the Philippine Daily Inquirer amounting to three million two hundred seventy-six thousand pesos, some without interest, without any board or stockholders' resolution, and that the corporation paid for the Philippine Daily Inquirer stock subscriptions of Eugenia Apostol, Leticia Magsanoc, and Adoracion Nuyda at fifty thousand pesos each, which were never repaid.

The respondents answered that the corporation had prospered under Eugenia Apostol's management, that the advances were properly made and repaid with interest, and that Bitong was not a true stockholder but merely a holder in trust of Jaka shares, so she had no personality to sue. The Hearing Panel dismissed the suit, finding no serious mismanagement. The Commission En Banc reversed, but the Court of Appeals reversed the Commission and held that Bitong was not the real party in interest.

Issues

• Whether or not the respondents made a judicial admission, in their answer, that the petitioner was a stockholder entitled to bring a derivative suit.
• Whether or not the respondents were estopped from questioning the petitioner's personality because they did not appeal the interlocutory order and the decision of the Hearing Panel.
• Whether or not the petitioner was the real party in interest, as a stockholder of record, entitled to prosecute the derivative suit.

Applicable Provisions

Section 63 of the Corporation Code provides:

Section 63. Certificate of stock and transfer of shares. The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer however shall be valid except as between the parties until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.

This provision governs whether the petitioner's claimed shares were validly transferred to her, and thus whether she was a stockholder of record who could sue in the corporation's name.

Ruling

On the first issue, the Court held that there was no judicial admission. The respondents' admissions were qualified by phrases such as "insofar as they are limited, qualified and or expanded by" the affirmative defenses, and by "the truth being as stated in the Affirmative Allegations Defenses of this Answer." Such statements are not definite and certain enough to be judicial admissions. Every alleged admission is taken as an entirety, together with the qualifications that limit or destroy its effect, and evidence may be presented to show that an admission was made through palpable mistake.

On the second issue, the Court held that the respondents were not estopped. The order of December 1990 was a mere interlocutory order, deciding only an incident of the case, and was not appealable. The decision of August 1993 was favorable to the respondents, so they had no reason to appeal it. It was the petitioner's turn, as the aggrieved party, to appeal.

On the third issue, the Court held that the petitioner was not the real party in interest. Section 63 envisions a formal certificate of stock, signed and sealed as required, and a transfer recorded in the books of the corporation. The Court found that the petitioner failed to establish genuine ownership of the shares, and that the evidence showed the real party was Jaka and or Senator Enrile. As she was not a stockholder, she could not bring a derivative suit in the corporation's behalf.

Doctrine

A derivative suit may be brought only by a stockholder of record, a real party in interest, in the name and for the benefit of the corporation. A party claiming stock ownership must show a formal certificate of stock and a transfer recorded in the stock and transfer book under Section 63 of the Corporation Code. Admissions in pleadings are judicial admissions only when definite and certain; when qualified by affirmative defenses, they are not conclusive, and the whole pleading is read as an integrated unit. An interlocutory order is not appealable and does not estop a party who awaits the final judgment.

Disposition

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals, holding that the petitioner was not the real party in interest and could not maintain the derivative suit.

Remember This

Memorize this line: a derivative suit belongs only to a stockholder of record, and a qualified admission in an answer is no admission at all. Examiners use this case to test the real party in interest rule and the treatment of judicial admissions.