G.R. No. 120138 September 5, 1997
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.

FACTS

The case involves two interrelated disputes concerning Tormil Realty & Development Corporation. The first dispute arose from an “estate planning” scheme by the late majority stockholder, Judge Manuel A. Torres, Jr. In 1984, he assigned various real properties and corporate shares to Tormil in exchange for 225,972 of its shares. However, only 225,000 shares were available and issued. Due to the minority stockholders’ (his nephews and nieces) refusal to increase the authorized capital stock to cover the 972-share shortage, Judge Torres unilaterally revoked the assignments for the Makati and Pasay properties. The minority stockholders filed an SEC complaint to compel him to deliver these properties to the corporation.
The second dispute concerned the 1987 annual stockholders’ meeting. To gain board control despite his majority ownership, Judge Torres assigned single “qualifying shares” to petitioners Tobias, et al., with annotations stating the shares were held in trust for him solely for director qualification. A heated meeting ensued where two separate elections were held. Judge Torres’s group, using the stock and transfer book they had taken, elected their slate. The minority group, using the corporate secretary’s list, elected a different slate. Both groups submitted their results to the SEC.

ISSUE

The primary issue is whether the Court of Appeals correctly upheld the SEC’s decisions which: (1) ordered the estate of Judge Torres to deliver the revoked Makati and Pasay properties to Tormil; and (2) declared the election held by the minority stockholders as valid, annulling the election conducted by Judge Torres’s group.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. On the first issue, the Court ruled that the estate planning scheme constituted a valid contract of assignment. Judge Torres received and accepted 225,000 shares, and the corporation recorded the properties and enjoyed their income. His subsequent revocation of the assignments covering the Makati and Pasay properties was unjustified and in breach of contract. The minority’s refusal to increase the capital stock did not warrant rescission, as the shortage of 972 shares was de minimis and did not constitute a substantial breach.
On the second issue, the Court upheld the validity of the election conducted by the minority stockholders. The “qualifying shares” assigned to petitioners were invalid for the purpose of voting. The annotations on the stock certificates explicitly stated the shares were held in trust for Judge Torres and for qualification purposes only, meaning the beneficial and voting ownership remained with him. Therefore, petitioners were not stockholders of record entitled to vote. Consequently, Judge Torres’s group, which based its quorum and election on these invalid votes, held an invalid meeting. The minority stockholders, constituting a valid quorum without counting the invalidly held shares, properly conducted the election. The Court further emphasized that Judge Torres’s act of taking the stock and transfer book was a violation of the Corporation Code, which mandates its custody with the corporate secretary.