Torres v CA

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 1987 annual stockholders meeting and election of directors of Tormil Corporation was
scheduled on 25 March 1987 in compliance with the provisions of its by-laws.

Pursuant thereto, the late Judge Torres assigned from his own shares, one (l) share each to
petitioners Tobias, Jocson, Jurisprudencia, Azura and Pabalan. According to petitioners, these
assigned shares were in the nature of "qualifying shares," for the sole purpose of meeting the legal
requirement to be able to elect them (Tobias and company) to the Board of Directors as Torres'
nominees.

Contrary to the generally accepted corporate practice, the stock and transfer book of Tormil was
not kept by private respondent Maria Cristina T. Carlos, the corporate secretary, but by the late
Judge Torres, as the President and Chairman of the Board of Directors. Also, the stock and transfer
book was not kept at the principal office of the corporation either but at the place of Torres.
Furthermore, entries concerning the assignment of shares by Torres was made by Torres himself,
instead of the corporate secretary.

After a contentious election of Board of Directors conducted separately by the Torres group
(petitioners herein), private respondents instituted a complaint with the SEC praying in the main,
that the election of petitioners to the Board of Directors be annulled.

Private respondents alleged that the petitioners-nominees were not legitimate stockholders of
Tormil because the assignment of shares to them violated the minority stockholders' right of pre-
emption as provided in the corporation's articles and by-laws.
The SEC later on invalidated the nomination and election of the Board of Directors on different
bases. In its decision the SEC stated as follows:

1. That the entries made in the stock and transfer book by respondent Torres himself, which
aimed to transfer nominal shares to his fellow petitioners, cannot be given any valid effect
due to his contravention of the following requirements of Corporation Code with regard to
the stock and transfer books of corporation
a. It is the corporate secretary that shall be the custodian of corporate records
b. It shall be the corporate secretary that makes entries thereon
2. That Torres’ nominees cannot therefore be considered stockholders of record of Tormil
3. That because they are not stockholders, they cannot therefore be elected as directors of
Tormil.
The facts showed that it is the late Judge Torres who made the entries himself, instead of the
corporate secretary and that the stock and transfer book was in his possession instead of the
principal office of the corporation.
This decision by the SEC was made pursuant to Section 74 of the Corporation Code:

“In the absence of (any) provision to the contrary, the corporate secretary is the
custodian of corporate records. Corollarily, he keeps the stock and transfer book
and makes proper and necessary entries therein.”

Meanwhile, petitioners now contend that it was a practice in the corporate respondent, a family
corporation with only a measly number of stockholders, for the late judge to have personal custody
of corporate records; as president, chairman and majority stockholder, he had the prerogative of
designating an acting corporate secretary or to himself make the needed entries, in instances where
the regular secretary, who is a mere subordinate, is unavailable or intentionally defaults, which
was the situation that obtained immediately prior to the 1987 annual stockholders meeting of
Tormil (given the enmity between the Torres group of petitioners and the group of private
respondents of which the acting corporate secretary was a part).

Issue/s:

Whether or not the transfer of shares in the manner made by the late Torres as corporate president
is valid

Ruling:
No.

The decision of the SEC is sustained. The circumstances surrounding the transfer of shares made
by the late Torres do not serve as a valid excuse to circumvent the requirement made by Section
74 of the Corporation Code. Neither does Tormil being a simple family corporation qualify as an
exemption to the same. All corporations, big or small, must abide by the provisions of the
Corporation Code. Even simple family corporations cannot have rules and practices other than
those established by law.