Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 47206 September 27, 1989

GLORIA M. DE ERQUIAGA, administratrix of the estate of the late SANTIAGO DE

ERQUIAGA & HON. FELICIANO S. GONZALES, petitioners,
vs.
HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE REYNOSO, JOSES V.
REYNOSO, JR., EERNESTO , SYLVIA REYNOSO, LOURDES REYNOSO, CECILE
REYNOSO, EDNA REYNOSO, ERLINDA REYNOSO & EMILY
REYNOSO, respondents.

Agrava, Lucero, Gineta & Roxas for petitioners.

Bausa, Ampil, Suarez, Parades & Bausa for private respondents.

GRINO-AQUINO, J.:

This is a case that began in the Court of First Instance of Sorsogon in 1970. Although
the decision dated September 30, 1972 of the trial court (pp. 79-106, Rollo) became
final and executory because none of the parties appealed, its execution has taken all of
the past seventeen (17) years with the end nowhere in sight. The delay in writing finis to
this case is attributable to several factors, not the least of which is the intransigence of
the defeated party. Now, worn down by this attrital suit, both have pleaded for a
decision to end this case.

Assailed in this petition for review are:

(a) the decision of the Court of Appeals dated May 31, 1976 in CA-G.R.
No. SP 04811, entitled "Africa Valdez Vda. de Reynoso et al. vs. Hon.
Feliciano S. Gonzales and Santiago de Erquiaga" (pp. 275-290, Rollo);

(b) its resolution dated August 3, 1976, denying the motion for
reconsideration (p. 298, Rollo);

(c) its resolution of August 24, 1977, ordering entry of judgment (p. 316,
Rollo); and
 (d) its resolution of October 4, 1977, denying the motion to set aside the
entry of judgment.

Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the
Erquiaga Development Corporation which owns the Hacienda San Jose in Irosin,
Sorsogon (p. 212, Rollo). On November 4,1968, he entered into an Agreement with
Jose L. Reynoso to sell to the latter his 3,100 shares (or 100%) of Erquiaga
Development Corporation for P900,000 payable in installments on definite dates fixed in
the contract but not later than November 30, 1968. Because Reynoso failed to pay the
second and third installments on time, the total price of the sale was later increased to
P971,371.70 payable on or before December 17, 1969. The difference of P71,371.70
represented brokers' commission and interest (CFI Decision, pp. 75, 81, 90, 99,Rollo).

As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to
Erquiaga who thereupon transferred all his shares (3,100 paid-up shares) in Erquiaga
Development Corporation to Reynoso, as well as the possession of the Hacienda San
Jose, the only asset of the corporation (p. 100, Rollo). However, as provided in
paragraph 3, subparagraph (c) of the contract to sell, Reynoso pledged 1,500 shares in
favor of Erquiaga as security for the balance of his obligation (p. 100, Rollo). Reynoso
failed to pay the balance of P561,321.70 on or before December 17, 1969, as provided
in the promissory notes he delivered to Erquiaga. So, on March 2, 1970, Erquiaga,
through counsel, formally informed Reynoso that he was rescinding the sale of his
shares in the Erquiaga Development Corporation (CFI Decision, pp. 81-100, Rollo).

As recited by the Court of Appeals in its decision under review, the following
developments occurred thereafter:

On March 30, 1970, private respondent Santiago de Erquiaga filed a

complaint for rescission with preliminary injunction against Jose L.
Reynoso and Erquiaga Development Corporation, in the Court of First
Instance of Sorsogon, Branch I (Civil Case No. 2446).** After issues have
been joined and after trial on the merits, the lower court rendered
judgment (on September 30, 1972),*** the dispositive portion of which
reads as follows:

In view of the foregoing, judgment is hereby rendered in

favor of the plaintiff and against the defendant Jose L.
Reynoso, rescinding the sale of 3,100 paid up shares of
stock of the Erquiaga Development Corporation to the
defendant, and ordering:

(a) The defendant to return and reconvey to the plaintiff the 3,100 paid up
shares of stock of the Erquiaga Development Corporation which now
stand in his name in the books of the corporation;
(b) The defendant to render a full accounting of the fruits he received by
virtue of said 3,100 paid up shares of stock of the Erquiaga Development
Corporation, as well as to return said fruits received by him to plaintiff
Santiago de Erquiaga;

(c) The plaintiff to return to the defendant the amount of P100,000.00 plus
legal interest from November 4,1968, and the amount of P310,000.00 plus
legal interest from December 17, 1968, until paid;

(d) The defendant to pay the plaintiff as actual damages the amount of
P12,000.00;

(e) The defendant to pay the plaintiff the amount of P50,000.00 as

attorney's fees; and

(f) The defendant to pay the costs of this suit and expenses of litigation.
(Annex A-Petition.)

The parties did not appeal therefrom and it became final and executory.

On March 21, 1973, the CFI of Sorsogon issued an Order, pertinent

portions of which reads:

It will be noted that both parties having decided not to

appeal, the decision has become final and executory.
Nevertheless, the Court finds merit in the contention of the
plaintiff that the payment to the defendant of the total sum of
P410,000.00 plus the interest, should be held in abeyance
pending rendition of the accounting by the defendant of the
fruits received by him on account of the 3,100 shares of the
capital stock of Erquiaga Development Corporation. The
same may be said with respect to the sums due the plaintiff
from the defendant for damages and attorney's fees. Indeed
it is reasonable to suppose, as contended by the plaintiff,
that when such accounting is made and the accounting, as
urged by plaintiff, should refer not only to the dividends due
from the shares of stock but to the products of the hacienda
which is the only asset of the Erquiaga Development
Corporation, certain sums may be found due to the plaintiff
from the defendant which may partially or entirely off set (sic)
the amount adjudged against him in the decision.

It is the sense of the court that the fruits referred to in the

decision include not only the dividends received, if any, on
the 3,100 shares of stocks but more particularly the products
received by the defendant from the hacienda. The hacienda
 and the products thereon produced constitute the physical
assets of the Erquiaga Development Corporation
represented by the shares of stock and it would be absurd to
suppose that any accounting could be made by the
defendant without necessarily taking into account the
products received which could be the only basis for
determining whether dividends are due or not on account of
the investment. The hacienda and its natural fruits as
represented by the shares of stock which the defendant
received as manager and controlling stockholder of the
Erquiaga Development Corporation can not be divorced from
the certificates of stock in order to determine whether the
defendant has correctly reported the income of the
corporation or concealed part of it for his personal
advantage. It is hardly necessary for the Court to restate an
obvious fact that on both legal and equitable grounds, the
Erquiaga Development Corporation and defendant Jose
Reynoso are one and the same persons as far as the
obligation to account for the products of the hacienda is
concerned,' (pp. 4-6, Annex 1, Answer.)

In the same Order, the CFI of Sorsogon appointed a receiver upon the
filing of a bond in the amount of P100,000.00. The reasons of the lower
court for appointing a receiver 'were that the matter of accounting of the
fruits received by defendant Reynoso as directed in the decision will take
time; that plaintiff Erquiaga has shown sufficient and justifiable ground for
the appointment of a receiver in order to preserve the Hacienda which has
obviously been mismanaged by the defendant to a point where the
amortization of the loan with the Development Bank of the Philippines has
been neglected and the arrears in payments have risen to the amount of
P503,510.70 as of October 19, 1972, and there is danger that the
Development Bank of the Philippines may institute foreclosure
proceedings to the damage and prejudice of the plaintiff.' (p. 7, Id.)

On April 26, 1973, defendant Jose L. Reynoso died and he was

substituted by his surviving spouse Africa Valdez Vda. de Reynoso and
children, as party defendants.

Defendants filed a petition for certiorari with a prayer for a writ of

preliminary injunction seeking the annulment of the aforementioned Order
of March 21, 1973. On June 28, 1973, the Court of Appeals rendered
judgment dismissing the petition with costs against the petitioners, ruling
that said Order is valid and the respondent court did not commit any grave
abuse of discretion in issuing the same (Annex 2, Id.). Petitioners brought
the case up to the Supreme Court on a petition for review on certiorari
which was denied by said tribunal in a Resolution dated February 5, 1974
(Annex 3, Id.). Petitioners' motion for reconsideration thereof was likewise
denied by the Supreme Court on March 29,1974.

Upon motion of Erquiaga, the CFI of Sorsogon issued an order, dated

February 12,1975, dissolving the receivership and ordering the delivery of
the possession of the Hacienda San Jose to Erquiaga, the filing of bond
by said Erquiaga in the amount of P410,000.00 conditioned to the
payment of whatever may be due to the substituted heirs of deceased
defendant Reynoso (petitioners herein) after the approval of the
accounting report submitted by Reynoso. Said order further directed
herein petitioners to allow counsel for Erquiaga to inspect, copy and
photograph certain documents related to the accounting report (Annex B,
Petition).

On March 3,1975, the CFI of Sorsogon approved the P410,000.00 bond

submitted by Erquiaga and the possession, management and control of
the hacienda were turned over to Erquiaga (Annex C, Petition). Petitioners
(Reynosos) filed their motion for reconsideration which the CFI of
Sorsogon denied in an Order, dated June 23, 1975 (Annex D, Id.).

In an Omnibus Motion, dated July 25,1975, filed by Erquiaga, and over the
objections interposed thereto by herein petitioners (Reynosos), the CFI of
Sorsogon issued an Order, dated October 9, 1975, the dispositive portion
of which reads:

WHEREFORE, in view of the foregoing, on the first count,

the defendants are directed (to deliver) to the plaintiff or his
counsel within five (5) days from receipt of this order the
1,600 shares of stock of the Erquiaga Development
Corporation which are in their possession. Should the
defendants refuse or delay in delivering such shares of
stock, as prayed for, the plaintiff is authorized:

(a) To call and hold a special meeting of the stockholders of the Erquiaga
Development Corporation to elect the members of the Board of Directors;

(b) In the said meeting the plaintiff is authorized to vote not only the 1,500
shares of stock in his name but also the 1,600 shares in the name and
possession of the defendants;

(c) The question as to who shall be elected members of the Board of

Directors and officers of the board is left to the discretion of the plaintiff;

(d) The members of the board and the officers who are elected are
authorized to execute any and all contracts or agreements under such
conditions as may be required by the Development Bank for the purpose
 of restructuring the loan of the Erquiaga Development Corporation with the
said bank.

On the second count, the prayer to strike out all expenses

alleged[ly] incurred by the defendants in the production of
the fruits of Hacienda San Jose and declaring the obligation
of the plaintiff under paragraph (c) of the judgment to pay the
defendant the sum of P410,000.00 with interest as fully
compensated by the fruits earned by the defendants from
the property, as well as the issuance of a writ of execution
against the defendants to pay the plaintiffs P62,000.00 under
paragraphs (e) and (d) and costs of litigation under
paragraph (f) of the judgment of September 30, 1972, is
denied.

The defendants are once more directed to comply with the

order of February 12, 1975, by answering the interrogatories
propounded by counsel for the plaintiff and allowing said
counsel or his representative to inspect, copy and
photograph the documents mentioned by the plaintiff during
reasonable hours of any working day within twenty (20) days
from receipt of this order, should the defendants persist in
their refusal or failure to comply with the order, the plaintiff
may inform the court seasonably so that the proper action
may be taken. (Annex J, Id.)

Hence, the present petition for certiorari, prohibition and mandamus

instituted by the substituted defendants, heirs of the deceased defendant
Jose L. Reynoso against the CFI of Sorsogon and (plaintiff) Santiago de
Erquiaga. (pp. 276- 281, Rollo.)

On May 31, 1976, the Court of Appeals rendered judgment holding that:

IN VIEW OF ALL THE FOREGOING, this court finds that the respondent
court had acted with grave abuse of discretion or in excess of jurisdiction
in issuing the assailed order of October 9, 1975 (Annex A, Petition) insofar
only as that part of the Order (1) giving private respondent voting rights on
the 3,100 shares of stock of the Erquiaga Development Corporation
without first divesting petitioners of their title thereto and ordering the
registration of the same in the corporation books in the name of private
respondent, pursuant to Section 10, Rule 39 of the Revised Rules of
Court; (2) authorizing corporate meetings and election of members of the
Board of Directors of said corporation and (3) refusing to order the
reimbursement of the purchase price of the 3,100 shares of stock in the
amount of P410,000.00 plus interests awarded in said final decision of
September 30, 1972 and the set-off therewith of the amount of P62,000.00
 as damages and attorney's fees in favor of herein private respondent are
concerned. Let writs of certiorari and prohibition issue against the
aforesaid acts, and the writ of preliminary injunction heretofore issued is
hereby made permanent only insofar as (1), (2) and (3) above are
concerned. As to all other matters involved in said Order of October 9,
1975, the issuance of writs prayed for in the petition are not warranted and
therefore denied.

FINALLY, to give effect to all the foregoing, with a view of putting an end
to a much protracted litigation and for the best interest of the parties, let a
writ of mandamus issue, commanding the respondent Judge to order (1)
the Clerk of Court of the CFI of Sorsogon to execute the necessary deed
of conveyance to effect the transfer of ownership of the entire 3,100
shares of stock of the Erquiaga Development Corporation to private
respondent Santiago Erquiaga in case of failure of petitioners to comply
with the Order of October 9, 1975 insofar as the delivery of the 1,600
shares of stock to private respondent is concerned, within five (5) days
from receipt hereof; and (2) upon delivery by petitioners or transfer by the
Clerk of Court of said shares of stock to private respondent, as the case
may be, to issue a writ of execution ordering private respondent to pay
petitioners the amount of P410,000.00 plus interests in accordance with
the final decision of September 30, 1972 in Civil Case No. 2448, setting-
off therewith the amount of P62,000.00 adjudged in favor of private
respondent, and against petitioners' predecessor-in-interest, Jose L.
Reynoso, in the same decision, as damages and attorney's fees. (pp. 289-
290, Rollo.)

It may be seen from the foregoing narration of facts that as of the time the Court of
Appeals rendered its decision on May 31, 1976 (now under review) only the following
have been done by the parties in compliance with the final judgment in the main case
(Civil Case No. 2446):

1. The Hacienda San Jose was returned to Erquiaga on March 3, 1975

upon approval of Erquiaga's surety bond of P410,000 in favor of Reynoso;

2. Reynoso has returned to Erquiaga only the pledged 1,500 shares of

stock of the Erquiaga Development Corporation, instead of 3,100 shares,
as ordered in paragraph (a) of the final judgment.

What the parties have not done yet are:

1. Reynoso has not returned 1,600 shares of stock to Erquiaga as ordered

in paragraph (a,) of the decision;

2. Reynoso has not rendered a full accounting of the fruits he has received
from Hacienda San Jose by virtue of the 3,100 shares of stock of the
 Erquiaga Development Corporation delivered to him under the sale, as
ordered in paragraph (b) of the decision;

3. Erquiaga has not returned the sum of P100,000 paid by Reynoso on the
sale, with legal interest from November 4, 1968 and P310,000 plus legal
interest from December 17, 1968, until paid (total: P410,000) as ordered in
paragraph (c) of the decision;

4. Reynoso has not paid the judgment of Pl2,000 as actual damages in

favor of Erquiaga, under paragraph (d) of the judgment;

5. .Reynoso has not paid the sum of P50,000 as attorney's fees to

Erquiaga under paragraph (e) of the judgment; and

6. Reynoso has not paid the costs of suit and expenses of litigation as
ordered in paragraph (f) of the final judgment.

The petitioner alleges, in her petition for review, that:

I. The decision of the Court of Appeals requiring the petitioner to pay the
private respondents the sum of P410,000 plus interest, without first
awaiting Reynoso's accounting of the fruits of the Hacienda San Jose,
violates the law of the case and Article 1385 of the Civil Code, alters the
final order dated February 12, 1975 of the trial court, and is inequitous.

II. The Court of Appeals erroneously applied the Corporation Law.

III. The Court of Appeals erred in ordering entry of its judgment.

We address first the third assignment of error for it will be futile to discuss the first and
second if, after all, the decision complained of is already final, and the entry of judgment
which the Court of Appeals directed to be made in its resolution of August 24,1977 (p.
316, Rollo) was proper. After examining the records, we find that the Court of Appeals'
decision is not yet final. The entry of judgment was improvident for the Court of Appeals,
in its resolution of December 13, 1976, suspended the proceedings before it "pending
the parties' settlement negotiations" as prayed for in their joint motion (p. 313, Rollo).
Without however giving them an ultimatum or setting a deadline for the submission of
their compromise agreement, the Court of Appeals, out of the blue, issued a resolution
on August 24, 1977 ordering the Judgment Section of that Court to enter final judgment
in the case (p. 316, Rollo).

We hold that the directive was precipitate and premature. Erquiaga received the order
on September 2, 1977 and filed on September 12, 1977 (p. 317, Rollo) a motion for
reconsideration which the Court of Appeals denied on October 4, 1977 (p. 322, Rollo).
The order of denial was received on October 14, 1977 (p. 7, Rollo). On October 28,
1977, Erquiaga filed in this Court a timely motion for extension of time to file a petition
for review, and the petition was filed within the extension granted by this Court.

We now address the petitioners' first and second assignments of error.

After deliberating on the petition for review, we find no reversible error in the Court of
Appeals' decision directing the clerk of court of the trial court to execute a deed of
conveyance to Erquiaga of the 1,600 shares of stock of the Erquiaga Development
Corporation still in Reynoso's name and/or possession, in accordance with the
procedure in Section 10, Rule 39 of the Rules of Court. Neither did it err in annulling the
trial court's order: (1) allowing Erquiaga to vote the 3,100 shares of Erquiaga
Development Corporation without having effected the transfer of those shares in his
name in the corporate books; and (2) authorizing Erquiaga to call a special meeting of
the stockholders of the Erquiaga Development Corporation and to vote the 3,100
shares, without the pre-requisite registration of the shares in his name. It is a
fundamental rule in Corporation Law (Section 35) that a stockholder acquires voting
rights only when the shares of stock to be voted are registered in his name in the
corporate books.

Until registration is accomplished, the transfer, though valid between the

parties, cannot be effective as against the corporation. Thus, the
unrecorded transferee cannot enjoy the status of a stockholder; he cannot
vote nor be voted for, and he will not be entitled to dividends. The
Corporation will be protected when it pays dividend to the registered
owner despite a previous transfer of which it had no knowledge. The
purpose of registration therefore is two-fold; to enable the transferee to
exercise all the rights of a stockholder, and to inform the corporation of
any change in share ownership so that it can ascertain the persons
entitled to the rights and subject to the liabilities of a stockholder.
(Corporation Code, Comments, Notes and Selected cases by Campos &
Lopez-Campos, p. 838,1981 Edition.)

The order of respondent Court directing Erquiaga to return the sum of P410,000 (or net
P348,000 after deducting P62,000 due from Reynoso under the decision) as the price
paid by Reynoso for the shares of stock, with legal rate of interest, and the return by
Reynoso of Erquiaga's 3,100 shares with the fruits(construed to mean not only
dividends but also fruits of the corporation's Hacienda San Jose) is in full accord with
Art. 1385 of the Civil Code which provides:

ART. 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with
its interest; consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to restore.
 Neither shall rescission take place when the things which are the object of
the contract are legally in the possession of third persons who did not act
in bad faith.

In this case, indemnity for damages may be demanded from the person
causing the loss.

The Hacienda San Jose and 1,500 shares of stock have already been returned to
Erquiaga. Therefore, upon the conveyance to him of the remaining 1,600 shares,
Erquiaga (or his heirs) should return to Reynoso the price of P410,000 which the latter
paid for those shares. Pursuant to the rescission decreed in the final judgment, there
should be simultaneous mutual restitution of the principal object of the contract to sell
(3,100 shares) and of the consideration paid (P410,000). This should not await the
mutual restitution of the fruits, namely: the legal interest earned by Reynoso's P410,000
while in the possession of Erquiaga and its counterpart: the fruits of Hacienda San Jose
which Reynoso received from the time the hacienda was delivered to him on November
4,1968 until it was placed under receivership by the court on March 3, 1975. However,
since Reynoso has not yet given an accounting of those fruits, it is only fair that
Erquiaga's obligation to deliver to Reynoso the legal interest earned by his money,
should await the rendition and approval of his accounting. To this extent, the decision of
the Court of Appeals should be modified. For it would be inequitable and oppressive to
require Erquiaga to pay the legal interest earned by Reynoso's P410,000 since 1968 or
for the past 20 years (amounting to over P400,000 by this time) without first requiring
Reynoso to account for the fruits of Erquiaga's hacienda which he allegedly squandered
while it was in his possession from November 1968 up to March 3, 1975.

WHEREFORE, the petition for review is granted. The payment of legal interest by
Erquiaga to Reynoso on the price of P410,000 paid by Reynoso for Erquiaga's 3,100
shares of stock of the Erquiaga Development Corporation should be computed as
provided in the final judgment in Civil Case No. 2446 up to September 30,1972, the date
of said judgment. Since Reynoso's judgment liability to Erquiaga for attorney's fees and
damages in the total sum of P62,000 should be set off against the price of P410,000
that Erquiaga is obligated to return to Reynoso, the balance of the judgment in favor of
Reynoso would be only P348,000 which should earn legal rate of interest after
September 30,1972, the date of the judgment. However, the payment of said interest by
Erquiaga should await Reynoso's accounting of the fruits received by him from the
Hacienda San Jose. Upon payment of P348,000 by Erquiaga to Reynoso, Erquiaga's
P410,000 surety bond shall be deemed cancelled. In all other respects, the decision of
the Court of Appeals in CA-G.R. No, 04811-SP is affirmed. No pronouncement as to
costs.

SO ORDERED.