G.R. No. 178306 December 18, 2008.
FRANCISCO R. NUNGA, JR. and VICTOR D. NUNGA, petitioners, vs. FRANCISCO N. NUNGA III, respondent.

FACTS

On January 30, 1996, during the Annual Stockholders’ Meeting of the Rural Bank of Apalit, Inc. (RBA), stockholder Jesus Gonzalez expressed his intention to sell his shares. Petitioner Victor D. Nunga, informed his father, petitioner Francisco R. Nunga, Jr., who was abroad. After negotiations, Gonzalez agreed to sell his shares to Francisco Jr. On February 19, 1996, Gonzalez executed a Contract to Sell in favor of Francisco Jr. for P200,000.00, with an initial payment of P50,000.00 received by Gonzalez. Victor was given several stock certificates, and Gonzalez issued a letter to the RBA Corporate Secretary to release the remaining certificates to Victor. However, on February 27, 1996, Gonzalez executed a Deed of Assignment of the same shares in favor of respondent Francisco N. Nunga III for P300,000.00, which was paid in full. Gonzalez then demanded Victor surrender the stock certificates to Francisco III. On February 28, 1996, Francisco Jr. returned and, with Victor, paid Gonzalez the balance of P150,000.00. Gonzalez accepted the payment, endorsed the stock certificates to Francisco Jr., and executed a Deed of Absolute Sale in his favor. Meanwhile, Francisco III delivered the Deed of Assignment to the RBA Corporate Secretary. Both parties demanded the registration of the transfer of the shares in their favor with RBA, leading to conflicting claims and the filing of separate cases before the Securities and Exchange Commission (SEC). The cases were eventually transferred to the Regional Trial Court (RTC) due to the passage of the Securities Regulation Code. The RTC ruled in favor of petitioners, ordering the registration of the transfer to Francisco Jr. The Court of Appeals reversed the RTC, declaring the sale to Francisco III valid and ordering the transfer of shares in his favor.

ISSUE

The primary issue is who between Francisco R. Nunga, Jr. and Francisco N. Nunga III has a better right to the ownership and registration of the disputed RBA shares of stock originally owned by Jesus Gonzalez.

RULING

The Supreme Court reversed the Court of Appeals and reinstated the RTC decision with modifications. The Court ruled that the Contract to Sell between Gonzalez and Francisco Jr. dated February 19, 1996, was a valid contract. The subsequent Deed of Assignment in favor of Francisco III dated February 27, 1996, constituted a breach of the prior contract. When Gonzalez accepted the full payment from Francisco Jr. on February 28, 1996, and executed the Deed of Absolute Sale, this consummated the sale and cured any defect from the prior breach. The Court held that Francisco Jr. was a purchaser in good faith and for value, and his prior contract gave him a superior right over the shares. The Court ordered the registration of the transfer of the shares in favor of Francisco R. Nunga, Jr. upon submission of proof of his eligibility to own bank shares under Philippine law. The award of attorney’s fees and litigation expenses was deleted for lack of basis, and the award of exemplary damages was also deleted as the grant of moral and temperate damages was disallowed.