G.R. No. 154069, June 06, 2016
INTERPORT RESOURCES CORPORATION, Petitioner, v. SECURITIES SPECIALIST, INC., AND R.C. LEE SECURITIES INC., Respondents.
D E C I S I O N
This appeal assails the decision promulgated on February 11, 2002,1 whereby the Court of Appeals (CA), in C.A.-G.R. SP No. 66600, affirmed the decision the Securities and Exchange Commission (SEC) rendered in SEC AC No. 501-5022 ordering Interport Resources Corporation (Interport) to deliver 25% of the shares of stocks under Subscription Agreements Nos. 1805 and 1808-1811, or the value thereof, and to pay to respondent Securities Specialist, Inc. (SSI), jointly and severally with R.C. Lee Securities, Inc. (R.C. Lee), exemplary damages and litigation expenses.
WHEREFORE, judgment is hereby rendered ordering respondent Interport to deliver the five (5) million shares covered by Oceanic Oil and Mineral Resources, Inc. subscription agreement TNos. 1805, 1808-1811 to petitioner SSI; and if the same not be possible to deliver the value thereof, at the market price as of the date of this judgment; and ordering both respondents, jointly and severally, to indemnify the complainant in the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) by way of temperate or moderate damages, to indemnify complainant in the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) by way of exemplary damages; to pay for complainant's litigation expenses, including attorney's fees, reasonably in the sum of THREE HUNDRED THOUSAND pesos (P300,000.00) and to pay the costs of suit.19chanroblesvirtuallawlibraryBoth Interport and R.C. Lee appealed to the SEC En Banc, which ultimately ruled as follows:ChanRoblesVirtualawlibrary
After a careful review of the records of this case, we find basis in partially reversing the decision dated October 25, 1994.Interport appealed to the CA,21 which on February 11, 2002 affirmed the SEC's decision,22viz.:ChanRoblesVirtualawlibrary
It is undisputed from the facts presented and evidence adduced that the subject matter of this case pertains to the subscription agreements for which complainant paid only twenty five percent and the remaining balance of seventy five percent paid for by respondent RCL. Accordingly, to order the return of the five million shares or the payment of the entire value thereof to the complainant, without requiring the latter to pay the balance of seventy five percent will be inequitable. Accordingly, the pertinent portion of the decision is hereby revised to reflect this.
As regards the portion awarding temperate damages, the same may not be awarded. All evidence presented by Securities Specialist, Inc. pertaining to its "lost opportunity" seeking for damages for its supposed failure to sell Interport's shares, when the market was allegedly good, is merely speculative. Moreover, even if the alleged pecuniary loss of SSI would be considered, the same is again purely speculative and deserves scant consideration by the Commission. Hence, temperate damages may not be justly awarded along with the other damages prayed for.
WHEREFORE, premises considered, judgment is hereby rendered, ordering respondent Interport to deliver the corresponding shares previously covered by Oceanic Oil Mineral Resources Inc. subscription agreements Nos. 1805-1811 to petitioner SSI, to the extent only of 25% thereof, as duly paid by petitioner SSI; and if the same will not be possible, to deliver the value thereof at the market price as of the date of this judgment and ordering both respondents jointly and severally, to indemnify the complainant in the sum of five hundred thousand pesos (P500,000.00) by way of exemplary damages, to pay for complainant's litigation expenses, including attorney's fees, reasonably in the sum of three hundred thousand pesos (P300,000.00) and to pay the costs of the suit.20chanroblesvirtuallawlibrary
WHEREFORE, premises considered the Petition is hereby DENIED DUE COURSE and ordered DISMISSED and the challenged decision of the Securities and Exchange Commission AFFIRMED, with costs to Petitioner.On June 25, 2002, the CA denied Interport's motion for reconsideration.23chanrobleslaw
The issues are: (a) whether or not Interport was liable to deliver to SSI the Oceanic shares of stock, or the value thereof, under Subscriptions Agreement No. 1805, and Nos. 1808 to 1811 to SSI; and (b) whether or not SSI was entitled to exemplary damages and attorney's fees.
THE COURT OF APPEALS ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN THE APPRECIATION OF THE FACTS IN HOLDING PETITIONER LIABLE TO DELIVER THE 25% OF THE SUBJECT 5 MILLION SHARES OR IF THE SAME NOT BE POSSIBLE TO DELIVER THE VALUE THEREOF DESPITE THE EVIDENCE TO THE CONTRARY.
THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER IS LIABLE FOR EXEMPLARY DAMAGES IN THE AMOUNT OF P500 000.00 WITHOUT LEGAL BASIS, WHICH IS NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT.
THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER IS LIABLE FOR ATTORNEY'S FEES IN THE AMOUNT OF P300.000.00 AND COSTS THERE BEING NO FACTUAL AND LEGAL BASIS, WHICH IS NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT.24chanroblesvirtuallawlibrary
x x x [T]he Oceanic subscriptions agreements were duly delivered to the Complainant SSI supported by stock assignments of respondent R.C. Lee (Exhibits "B" to "B-4" of the petitioner) and by official receipts of Oceanic showing that twenty five percent of the subscription had been paid (Exhibits "C" to "C-4"). To this date, respondent R.C. Lee does not deny having subscribed and delivered such stock assignments to the Oceanic subscription agreements. Therefore, having negotiated them by allowing to be in street certificates, respondent R.C. Lee, as a broker, cannot now legally and morally claim any further interests over such subscriptions or the shares of stock they represent.The SEC correctly categorized the assignment of the subscription agreements as a form of novation by substitution of a new debtor and which required the consent of or notice to the creditor. We agree. Under the Civil Code, obligations may be modified by: (1) changing their object or principal conditions; or (2) substituting the person of the debtor; or (3) subrogating a third person in the rights of the creditor.26 Novation, which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor.27 In this case, the change of debtor took place when R.C. Lee assigned the Oceanic shares under Subscription Agreement Nos. 1805, and 1808 to 1811 to SSI so that the latter became obliged to settle the 75% unpaid balance on the subscription.
x x x x
Both respondents seek to be absolved of liability for their machinations by invoking both the rule on novation of the debtor without the creditor's consent; as well as the Corporation Code rule of nonregistration of transfers in the corporation's stock and transfer book. Neither will avail in the case at bar. Art. 1293 of the New Civil Code states:
chanRoblesvirtualLawlibrary"Art. 1293. Novation which consists in substituting a new debtor in the place of the original one may be made even without the knowledge or against the will of the latter but not without the consent of the creditor" x x x.
More importantly, the allusion by the respondents likening the subscription contracts to the situation of debtor-creditor finds no basis in law. Indeed, as held by the Supreme Court, shareholders are not creditors of the corporation with respect to the shareholdings (Garcia vs. Lim Chu Sing, 59 Phil. 562).
The Memorandum of R.C. Lee, likewise cites the Opinion of the SEC dated November 12, 1976, which states "that since an assignment will involve a substitution of debtor or novation of contract, as such the consent of the creditor must be obtained" has the same effect. The opinion, however, merely restated the general rule already embodied in the Codal provision quoted above; it does not preclude previously authorized transfers. According to Tolentino -"When the original contract authorizes the debtor to transfer his obligations to a third person, the novation by substitution of debtor is effected when the creditor is notified that such transfer has been made" (IV Tolentino 392, 1991 ed, Emphasis supplied)But even following the argument of the respondents, when complainant SSI tendered the balance of the unpaid subscription on the subject five (5) million shares on the basis of the existing subscription agreements covering the same, respondents Interport was bound to accept payment even as the same were being tendered in the name of the registered subscriber, respondent R.C. Lee and once the payment is fully accepted in the name of respondent R.C. Lee, respondent Interport was then bound to recognize the stock assignment also tendered duly executed by respondent R.C. Lee in favor of complainant SSI.25cralawred (bold Emphasis supplied.)
x x x Novation may:Clearly, the effect of the assignment of the subscription agreements to SSI was to extinguish the obligation of R.C. Lee to Oceanic, now Interport, to settle the unpaid balance on the subscription. As a result of the assignment, Interport was no longer obliged to accept any payment from R.C. Lee because the latter had ceased to be privy to Subscription Agreements Nos. 1805, and 1808 to 1811 for having been extinguished insofar as it was concerned. On the other hand, Interport was legally bound to accept SSI's tender of payment for the 75% balance on the subscription price because SSI had become the new debtor under Subscription Agreements Nos. 1805, and 1808 to 1811. As such, the issuance of the stock certificates in the name of R.C. Lee had no legal basis in the absence of a contractual agreement between R.C. Lee and Interport.
chanRoblesvirtualLawlibrary[E]ither be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superseded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconcilable, the subsequent obligation would also extinguish the first.
An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation, (2) an agreement of all parties concerned to a new contract, (3) the extinguishment of the old obligation, and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay; in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.29chanroblesvirtuallawlibrary
[A] transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is concerned. As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are. It is only when the transfer has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee as one of its stockholders. From this time, the consequent obligation on the part of the corporation to recognize such rights as it is mandated by law to recognize arises.30chanroblesvirtuallawlibraryThis statutory rule cannot be strictly applied herein, however, because Interport had unduly refused to recognize the assignment of the shares between R.C. Lee and SSI. Accordingly, we adopt with approval the SEC's following conclusion that -
x x x To say that the ten years since the assignment had been made are a sufficient lapse of time in order for respondent SSI to be considered to have abandoned its rights under the subscription agreements, is to ignore the rule -"The right to have the transfer registered exists from the time of the transfers and it is to the transferee's benefit that the right be exercised early. However, since the law does not prescribed (sic) any period within which the registration should be effected the action to be enforced the right does not accrue until here has been a demand and a refusal to record the transfer." (11 Campus 310, 1990 ed., citing Won v. Wack Wack Golf, 104 Phil. 466, Emphasis supplied).Petitioner SSI was denied recognition of its subscription agreement on March 15, 1989; the complaint against the respondents was filed before the SEC on October 6 of that same year. This is the period of time that is to be taken into account, not the period between 1979 and 1989. The Commission thus finds that petitioner acted with sufficient dispatch in seeking to enforce its rights under the subscription agreements, and sought the intervention of this Commission within a reasonable period.
In the affidavit of respondent R.C. Lee's president, Ramon C. Lee, dated February 22, 1989, there are several averments that need to be examined, in the light of respondent R.C. Lee's claim of having acted in good faith.
The first is the statement made in paragraph 3 thereof:ChanRoblesVirtualawlibrary"That R.C. Lee Securities, Inc. has delivered to Interport its subscription Agreements for Twenty Five Million (25,000,000) shares of Oceanic for conversion into Interport shares however, as of date, only twenty million (20,000,000) shares have been duly covered by Interport Subscription Agreements and the Five million (5,000,000) shares still remains without Subscription Agreements".No explanation is given for the failure of respondent Interport to convert the five (5) million shares. As can be seen from the letter of Interport to counsel of R.C. Lee, dated January 27, 1989, already mentioned above, these five (5) million shares purportedly belonging to respondent R.C. Lee do not seem to be covered by any properly identified subscription agreements. Yet respondent Interport issued the shares without respondent R.C. Lee having anything to show for the same. On the other hand, respondent Interport refused to recognize complainant SSI's claim to five (5) millions (sic) shares inspite of the fact that its claim was fully supported by duly issued subscription agreements, stock assignment and receipts of payment of the initial subscription. x x x31chanrobleslaw
Subscription Agreements Nos. 1805, and 1808 to 1811 were now binding between Interport and SSI only, and only such parties were expected to comply with the terms thereof. Hence, the CA did not err in relying on the findings of the SEC, which was in a better position to pass judgment on whether or not Interport was liable to deliver to SSI the Oceanic shares under Subscription Agreements Nos. 1805, and 1808 to 1811.
** Acting Chairperson per Special Order No, 2355 dated June 2, 2016.
1Rollo, pp. 37-48; penned by Associate Justice Jose L, Sabio, Jr. (retired/deceased), with Associate Justice Oswaldo D. Agcaoili (retired) and Associate Justice Sergio L. Pestaño (retired/deceased) concurring.
2 Id. at 78-80.
3 Id. at 12.
4 Id. at 38
5 Id. at 38.
6 Id. at 64.
7 Id. at 12-13.
8 Id. at 13
9 Id. at 38.
10 Id. at 56.
11 Id. at 56-57.
12 Id. at 57.
14 Id. at 57-58.
15 Id. at 15.
17 Id. at 40.
18 Id. at 54-77.
19 Id. at 77.
20 Id. at 79-80.
21 Id. at 37.
22 Supra note 1.
23Rollo, pp. 50-51
24 Id. at 19.
25cralawred Id. at 64-72.
26 Article 1291, Civil Code.
27 Article 1293, Civil Code.
28 See Arco Pulp and Paper Co.. Inc. v. Lim, G.R. No. 206806, June 25, 2014, 727 SCRA 275, 287.
29Foundation Specialists, Inc. v. Betonval Ready Concrete. Inc., G.R. No. 170674 August 24, 2009, 596 SCRA 697, 707.
30Ponce v. Alsons Cement Corporation, G.R. No. 139802, December 10, 2002, 393 SCRA 602, 612.
31Rollo, pp. 67-69.
32Queensland-Tokyo Commodities. Inc. v. George, G.R. No. 172727, September 8, 2010, 610 SCRA 304, 317-318.
33Delos Santos v. Papa, G.R. No. 154427, May 8, 2009, 587 SCRA 385, 396-397.
34 See Crystal v. Bank of the Philippine Islands, G.R. No. 172428, November 28, 2008, 572 SCRA 697, 706-707.
35 Bad faith is defined in jurisprudence as a state of mind affirmatively operating with furtive design or with some motive of self interest or ill will or for ulterior purpose; see Balbuena v. Sabay, G.R. No. 154720, September 4, 2009, 598 SCRA 215, 227.
36 See Espino v. Bulut, G.R. No. 183811, May 30, 2011, 649 SCRA 453, 461-462.