ENRIQUE RAZON, PETITIONER, VS. INTERMEDIATE APPELLATE COURT AND VICENTE B. CHUIDIAN, IN HIS CAPACITY AS ADMINISTRATOR OF THE ESTATE OF THE DECEASED JUAN T. CHUIDIAN, RESPONDENTS.

The main issue in these consolidated petitions centers on the
ownership of 1,500 shares of stock in E. Razon, Inc. covered by Stock
Certificate No. 003 issued on April 23, 1966 and registered under the name of
Juan T. Chuidian in the books of the corporation. The then Court of First Instance of Manila, now Regional Trial
Court of Manila, declared that Enrique Razon, the petitioner in G.R. No. 74306
is the owner of the said shares
of stock. The then Intermediate
Appellate Court, now Court of Appeals, however, reversed the trial court’s
decision and ruled that Juan T. Chuidian, the deceased father of petitioner
Vicente B. Chuidian in G.R. No. 74315 is the owner of the shares of stock. Both parties filed separate motions for
reconsideration. Enrique Razon wanted
the appellate court’s decision reversed and the trial court’s decision affirmed
while Vicente Chuidian asked that all cash and stock dividends and all the
pre-emptive rights accruing to the 1,500 shares of stock be ordered delivered
to him. The appellate court denied both
motions. Hence, these petitions.

The relevant antecedent facts are as follows:

“In his complaint filed on June 29, 1971, and amended on
November 16, 1971, Vicente B. Chuidian prayed that defendants Enrique B. Razon,
E. Razon, Inc., Geronimo Velasco, Francisco de Borja, Jose Francisco, Alfredo
B. de Leon, Jr., Gabriel Llamas and Luis M. de Razon be ordered to deliver
certificates of stocks representing the shareholdings of the deceased Juan T.
Chuidian in the E. Razon, Inc. with a prayer for an order to restrain the
defendants from disposing of the said shares of stock, for a writ of
preliminary attachment v. properties of defendants having possession of shares
of stock and for receivership of the properties of defendant corporation x x x.

xxx                            xxx                               xxx

In their answer filed on June 18, 1973, defendants alleged that all
the shares of stock in the name of stockholders of record of the corporation
were fully paid for by defendant, Razon; that said shares are subject to the
agreement between defendants and incorporators; that the shares of stock were
actually owned and remained in the possession of Razon. Appellees also alleged xxx that neither the
late Juan T. Chuidian nor the appellant had paid any amount whatsoever for the
1,500 shares of stock in question x x x.

xxx                            xxx                               xxx

The evidence of the plaintiff shows that he is the administrator of
the intestate estate of Juan Telesforo Chuidian in Special Proceedings No.
71054, Court of First Instance of Manila.

Sometime in 1962, Enrique Razon organized the E. Razon, Inc. for
the purpose of bidding for the arrastre services in South Harbor, Manila. The incorporators consisted of Enrique
Razon, Enrique Valles, Luisa M. de Razon, Jose Tuason, Jr., Victor Lim, Jose F.
Castro and Salvador Perez de Tagle.

On April 23, 1966, stock certificate No. 003 for 1,500 shares of
stock of defendant corporation was issued in the name of Juan T. Chuidian.

On the basis of the 1,500 shares of stock, the late Juan T.
Chuidian and after him, the plaintiff-appellant, were elected as directors of
E. Razon, Inc. Both of them actually
served and were paid compensation as directors of E. Razon, Inc.

“From the time the certificate of stock was issued on April
1966 up to April 1971, Enrique Razon had not questioned the ownership by Juan
T. Chuidian of the shares of stock in question and had not brought any action
to have the certificate of stock over the said shares cancelled.

The certificate of stock was in the possession of defendant Razon
who refused to deliver said shares to the plaintiff, until the same was
surrendered by defendant Razon and deposited in a safety box in Philippine Bank
of Commerce.

Defendants allege that after organizing the E. Razon, Inc., Enrique
Razon distributed shares of stock previously placed in the names of the
withdrawing nominal incorporators to some friends including Juan T. Chuidian.

Stock Certificate No. 003 covering 1,500 shares of stock upon
instruction of the late Chuidian on April 23, 1966 was personally delivered by
Chuidian on July 1, 1966 to the Corporate Secretary of Attorney Silverio B. de
Leon who was himself an associate of the Chuidian Law Office (Exhs. C &
11). Since then, Enrique Razon was in
possession of said stock certificate even during the lifetime of the late
Chuidian, from the time the late Chuidian delivered the said stock certificate
to defendant Razon until the time (sic) of defendant Razon. By agreement of the parties (sic) delivered
it for deposit with the bank under the joint custody of the parties as
confirmed by the trial court in its order of August 7, 1971.

Thus, the 1,500 shares of stock under Stock Certificate No. 003
were delivered by the late Chuidian to Enrique because it was the latter who
paid for all the subscription on the shares of stock in the defendant
corporation and the understanding was that he (defendant Razon) was the owner
of the said shares of stock and was to have possession thereof until such time
as he was paid therefor by the other nominal incorporators/stockholders (TSN.,
pp. 4, 8, 10, 24-25, 25-26, 28-31, 31-32, 60, 66-68, July 22, 1980, Exhs.
“C”, “11”, “13” “14”).” (Rollo – 74306,
pp. 66-68)

In G.R. No. 74306, petitioner Enrique Razon assails the appellate
court’s decision on its alleged mis-application of the dead man’s statute rule
under Section 20(a) Rule 130 of the Rules of Court. According to him, the “dead man’s statute” rule is not
applicable to the instant case. Moreover, the private respondent, as plaintiff in the case did not
object to his oral testimony regarding the oral agreement between him and the
deceased Juan T. Chuidian that the ownership of the shares of stock was
actually vested in the petitioner unless the deceased opted to pay the same;
and that the petitioner was subjected to a rigid cross examination regarding
such testimony.

Section 20(a) Rule 130 of the Rules of Court (Section 23 of the
Revised Rules on Evidence) states:

“SEC. 20. Disqualification by reason interest or relationship – The following
persons cannot testify as to matters in which they are interested
directly or indirectly, as herein enumerated.

(a) Parties or assignors of parties to a case,
or persons in whose behalf a case is prosecuted, against an executor
administrator or other representative of a deceased person, or against a
person of unsound mind, upon a
claim or demand against the estate
of such deceased
person or against such person of unsound mind, cannot testify as to any
matter of fact accruing before the death of such deceased person or before such
person became of unsound mind.” (Underlining supplied)

xxx                            xxx                               xxx

The purpose of the rule has been explained by this Court in this
wise:

“The reason for the rule is that if persons having a
claim against the estate of the deceased or his properties were allowed to
testify as to the supposed statements made by him (deceased person), many would
be tempted to falsely impute statements to deceased persons as the latter can
no longer deny or refute them, thus unjustly subjecting their properties or
rights to false or unscrupulous claims or demands. The purpose of the law is to ‘guard against the temptation to
give false testimony in regard to the transaction in question on the part of
the surviving party.’ (Tongco v. Vianzon, 50 Phil. 698; Go Chi Gun, et al. v.
Co Cho, et al., 622 [1955])

The rule, however, delimits the prohibition it contemplates in
that it is applicable to a case against the administrator or its
representative of an estate upon a claim against the estate of the
deceased person. (See Tongco v.
Vianzon, 50 Phil. 698 [1927])

In the instant case, the testimony excluded by the appellate
court is that of the defendant (petitioner herein) to the effect that the late
Juan Chuidian, (the father of private respondent Vicente Chuidian, the
administrator of the estate of Juan Chuidian) and the defendant agreed in the lifetime
of Juan Chuidian that the 1,500 shares of stock in E. Razon, Inc. are actually
owned by the defendant unless the deceased Juan Chuidian opted to pay the same
which never happened. The case was
filed by the administrator of the estate of the late Juan Chuidian to
recover shares of stock in E. Razon, Inc. allegedly owned by the late Juan T.
Chuidian.

It is clear, therefore, that the testimony of the petitioner is
not within the prohibition of the rule. The case was not filed against the administrator of the estate, nor
was it filed upon claims against
the estate.

Furthermore, the records show that the private respondent never
objected to the testimony of the petitioner as regards the true nature of his
transaction with the late elder Chuidian. The petitioner’s testimony was subject to cross-examination by the
private respondent’s counsel. Hence,
granting that the petitioner’s testimony is within the prohibition of Section
20(a) Rule 130 of the Rules of Court, the private respondent is deemed to have
waived the rule. We ruled in the case of Cruz v.
Court of Appeals (192 SCRA 209 [1990]):

“It is also settled that the court cannot disregard evidence
which would ordinarily be incompetent under the rules but has been rendered
admissible by the failure of a party to object thereto. Thus:

“’xxx The acceptance of an incompetent witness to testify in a
civil suit, as well as the allowance of improper questions that may be put to
him while on the stand is a matter resting in the discretion of the litigant. He may assert his right by timely objection
or he may waive it, expressly or by silence. In any case the option rests with him. Once admitted, the testimony
is in the case for what it is
worth and the judge has no power
to disregard it for the sole reason that it could have
been excluded, if it had been objected to, nor to strike it out on its motion (Emphasis supplied). (Marella v. Reyes, 12 Phil. 1.)”

The issue as to whether or not the petitioner’s testimony is
admissible having been settled, we now proceed to discuss the fundamental issue
on the ownership of the 1,500 shares of stock in E. Razon, Inc.

E. Razon, Inc. was organized in 1962 by petitioner Enrique Razon
for the purpose of participating in the bidding for the arrastre services in
South Harbor, Manila. The incorporators
were Enrique Razon, Enrique Valles, Luisa M. de Razon, Jose Tuazon, Jr., Victor
L. Lim, Jose F. Castro and Salvador
Perez de Tagle. The business, however,
did not start operations until 1966. According
to the petitioner, some of the incorporators withdrew from the said
corporation. The petitioner then
distributed the stocks previously placed in the names of the withdrawing
nominal incorporators to some friends, among them the late Juan T. Chuidian to
whom he gave 1,500 shares of stock. The
shares of stock were registered in the name of Chuidian only as nominal
stockholder and with the agreement that the said shares of stock were owned and
held by the petitioner but Chuidian was given the option to buy the same. In view of this arrangement, Chuidian in
1966 delivered to the petitioner the stock certificate covering the 1,500
shares of stock of E. Razon, Inc. Since
then, the petitioner had in his possession the certificate of stock until the
time, he delivered it for deposit with the Philippine Bank of Commerce under
the parties’ joint custody pursuant to their agreement as embodied in the trial
court’s order.

The petitioner maintains that his aforesaid oral testimony as
regards the true nature of his agreement with the late Juan Chuidian on the
1,500 shares of stock of E. Razon, Inc. is sufficient to prove his ownership
over the said 1,500 shares of stock.

The petitioner’s contention is not correct.

In the case of Embassy Farms, Inc. v.
Court of Appeals (188 SCRA 492 [1990]) we ruled:

“xxx For an effective transfer of shares of stock the mode and
manner of transfer as prescribed by law must be followed (Navea v. Peers
Marketing Corp., 74 SCRA 65). As
provided under Section 3 of Batas Pambansa Bilang, 68 otherwise known as the
Corporation Code of the Philippines, shares of stock may be transferred by
delivery to the transferee of the certificate properly indorsed. Title may be vested in the transferee by the
delivery of the duly indorsed certificate of stock (18 C. J. S. 928, cited in
Rivera v. Florendo, 144 SCRA 643). However, no transfer shall be valid, except as between the parties until
the transfer is properly recorded in the books of the corporation” (Sec.
63, Corporation Code of the Philippines; Section 35 of the Corporation Law)

In the instant case, there is no dispute that the questioned
1,500 shares of stock of E. Razon, Inc. are in the name of the late Juan
Chuidian in the books of the corporation. Moreover, the records show that during his lifetime Chuidian was elected
member of the Board of Directors of the corporation which clearly shows that he
was a stockholder of the corporation. (See Section 30, Corporation Code) From the point of view of the
corporation, therefore, Chuidian was the owner of the 1,500 shares of
stock. In such a case, the petitioner
who claims ownership over the questioned shares of stock must show that the
same were transferred to him by proving that all the requirements for the
effective transfer of shares of stock in accordance with the corporation’s by
laws, if any, were followed (See Nava v. Peers Marketing Corporation, 74 SCRA
65 [1976]) or in accordance with the provisions of law.

The petitioner failed in both instances. The petitioner did not present any by-laws
which could show that the 1,500 shares of stock were effectively transferred to
him. In the absence of the
corporation’s by laws or rules governing effective transfer of shares of stock,
the provisions of the Corporation Law are made applicable to the instant case.

The law is clear that in order for a transfer of stock
certificate to be effective, the certificate must be properly indorsed
and that title to such certificate of stock is vested in the transferee by
the delivery of the duly indorsed certificate of stock. (Section 35, Corporation Code) Since the
certificate of stock covering the questioned 1,500 shares of stock registered
in the name of the late Juan Chuidian was never indorsed to the petitioner, the
inevitable conclusion is that the questioned shares of stock belong to
Chuidian. The petitioner’s asseveration
that he did not require an indorsement of the certificate of stock in view of
his intimate friendship with the late Juan Chuidian can not overcome the
failure to follow the procedure required by law or the proper conduct of
business even among friends. To
reiterate, indorsement of the certificate of stock is a mandatory requirement
of law for an effective transfer of a certificate of stock.

Moreover, the preponderance of evidence supports the appellate
court’s factual findings that the shares of stock were given to Juan T.
Chuidian for value. Juan T. Chuidian
was the legal counsel who handled the legal affairs of the corporation. We give credence to the testimony of the
private respondent that the shares of stock were given to Juan T. Chuidian in
payment of his legal services to the corporation. Petitioner Razon failed to overcome this testimony.

In G.R. No. 74315, petitioner Vicente B. Chuidian insists that
the appellate court’s decision declaring his deceased father Juan T. Chuidian
as owner of the 1,500 shares of stock of E. Razon, Inc. should have included
all cash and stock dividends and all the pre-emptive rights accruing to the
said 1,500 shares of stock.

The petition is impressed with merit.

The cash and stock dividends and all the pre­-emptive rights are
all incidents of stock ownership.

The rights of stockholders are generally enumerated as follows:

x x x                          x x x                             x
x x

“x x x [F]irst, to have a certificate
or other evidence of his status as stockholder issued to him; second, to vote
at meetings of the corporation; third, to receive his proportionate share of
the profits of the corporation; and lastly, to participate proportionately in
the distribution of the corporate assets upon the dissolution or winding
up. (Purdy’s Beach on Private
Corporations, sec. 554)” (Pascual v. Del Saz Orozco, 19 Phil. 82, 87)

WHEREFORE, judgment is rendered as follows:

a) In G.R. No. 74306, the
petition is DISMISSED. The questioned
decision and resolution of the then Intermediate Appellate Court, now the Court
of Appeals, are AFFIRMED. Costs against
the petitioner.

b) In G.R. No. 74315, the
petition is GRANTED. The questioned
Resolution insofar as it denied the petitioner’s motion to clarify the
dispositive portion of the decision of the then Intermediate Appellate Court,
now Court of Appeals is REVERSED and SET ASIDE. The decision of the appellate court is MODIFIED in that all cash
and stock dividends as well as all pre-emptive rights that have accrued and
attached to the 1,500 shares in E. Razon, Inc., since 1966 are declared to
belong to the estate of Juan T. Chuidian.

SO ORDERED.

Bidin, Davide,
Jr., and Romero, JJ., concur.

Feliciano, J., on leave.