G.R. No.

152578 November 23, 2005

REPUBLIC OF THE PHILIPPINES, Represented by the Presidential Commission on Good

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G.R. No. 154487

EDUARDO M. COJUANGCO, JR., Petitioner,

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G.R. No. 154518

ESTATE OF HANS M. MENZI (Through its Executor, Manuel G. Montecillo), and HANS M. MENZI
HOLDINGS AND MANAGEMENT, INC. (HMHMI), Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, (represented by the PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT), Respondents.

Facts: After the EDSA Revolution, President Corazon C. Aquino issued Executive Order (EO) No. 1,
creating the Presidential Commission on Good Government (PCGG) tasked with, among others, the
recovery of all ill-gotten wealth accumulated by former President Ferdinand Marcos, his immediate
family, relatives, subordinates and close associates.

Following a lead that Marcos had substantial holdings in Bulletin Publishing Corporation (Bulletin), the
PCGG issued a Writ of Sequestration dated April 22, 1986, sequestering the shares of Marcos, Emilio
T. Yap (Yap), Eduardo M. Cojuangco, Jr. (Cojuangco), and their nominees and agents in Bulletin.

This was followed by another Writ of Sequestration issued on February 12, 1987, this time
sequestering the shares of stock, assets, properties, records and documents of Hans Menzi Holdings
and Management, Inc. (HMHMI).

The Republic instituted before the Sandiganbayan on July 29, 1987, a complaint for reconveyance,
reversion, accounting, restitution and damages entitled "Republic of the Philippines v. Emilio T. Yap
et.al. averring that Yap knowingly and willingly acted as the dummy, nominee or agent of the Marcos
spouses in appropriating shares of stock in domestic corporations such as the Bulletin, and for the
purpose of preventing disclosure and recovery of illegally obtained assets. It also averred that Cesar
Zalamea (Zalamea) acted, together with Cojuangco, as dummies, nominees and/or agents of the
Marcos spouses in acquiring substantial shares in Bulletin in order to prevent disclosure and recovery
of illegally obtained assets, and that Zalamea established, together with third persons, HMHMI which
acquired Bulletin.
The complaint was amended to include Estate of Hans M. Menzi (Estate of Menzi), through its
executor, Atty. Manuel G. Montecillo (Atty. Montecillo), as one of the defendants.

One of the issues presented for resolution as stated in the Sandiganbayan’s Pre-Trial Order dated
November 11, 1991 was whether or not the sale of 154,470 shares of stock of Bulletin Publishing Co.,
Inc., subject of this case by the late Hans M. Menzi to the U.S. Automotive Co. Inc. is valid and legal.

SANDIGANBYAN RULING:

The Sandiganbayan rendered a Decision declaring that the following Bulletin shares are the ill-gotten
wealth of the defendant Marcos spouses:

A. The 46,626 Bulletin shares in the name of defendant Eduardo M. Cojuangco, Jr., subject of
the Resolution of the Supreme Court dated April 15, 1988 in G.R. No. 79126.
B. The 198,052.5 Bulletin shares in the names of Jose Y. Campos, Eduardo M. Cojuangco, Jr.
Cesar C. Zalamea which they transferred to HM Holdings and Management, Inc. on August
17, 1983, and which the latter sold to Bulletin Publishing Corporation on February 21, 1986.
The proceeds from this sale are frozen pursuant to PCGG’s Writ of Sequestration dated
February 12, 1987, and this writ is the subject of the Decision of the Supreme Court dated
January 31, 2002 in G.R. No. 135789.

Sandiganbayan ordered the defendant Estate of Hans M. Menzi through its Executor, Manuel G.
Montecillo, to surrender for cancellation the original eight Bulletin certificates of stock in its possession.

Sandiganbayan also declared that the following Bulletin shares are not the ill-gotten wealth of the
defendant Marcos spouses:

a. The 154,472 Bulletin shares sold by the late Hans M. Menzi to U.S. Automotive Co., Inc., the
sale thereof being valid and legal;
b. The 2,617 Bulletin shares in the name of defendant Emilio T. Yap which he owns in his own
right; and
c. The 1 Bulletin share in the name of the Estate of Hans M. Menzi which it owns in its own right.

In the present consolidated petitions, the foregoing Sandiganbayan Decision is assailed on different
grounds:

The Republic, in G.R. No. 152758, assails the afore-quoted Decision insofar as it declared as not ill-
gotten wealth of the Marcos spouses the 154,472 shares (154 block) sold by Menzi to U.S. Automotive
Co., Inc. (US Automotive) and dismissed the Republic’s claim for damages.

In G.R. No. 154487, Cojuangco questions paragraphs 1 and 2 of the Sandiganbayan Decision.

In G.R. No. 154518, on the other hand, the Estate of Menzi imputes grave error and misinterpretation
of facts and evidence against the Sandiganbayan in declaring that the 46,626 Bulletin shares in the
name of Cojuangco, and the 198,052.5 shares (198 block) in the names of Jose Campos (Campos),
Cojuangco and Zalamea are ill-gotten wealth of the Marcoses.

One of the three blocks of Bulletin shares of stock subject of these consolidated petitions is the 154,472
shares (154 block) sold by the late Menzi and/or Atty. Montecillo to US Automotive
In 1957, Menzi purchased the entire interest in Bulletin from its founder and owner, Mr. Carson Taylor.
In 1961, Yap, owner of US Automotive, purchased Bulletin shares from Menzi and became one of the
corporation’s major stockholders. In 1968, a stock option was executed by and between Menzi and
Menzi and Co. on the one hand, and Yap and US Automotive on the other, whereby the parties gave
the each other preferential right to buy the other’s Bulletin shares. This was approved by the
stockholders, BODs and SEC.

Several years later, on June 5, 1984, Atty. Amorsolo V. Mendoza (Atty. Mendoza), Vice President of
US Automotive, executed a promissory note with his personal guarantee in favor of Menzi, promising
to pay the latter the sum of P21,304,921.16 with interest at 18% per annum as consideration for
Menzi’s sale of his 154 block on or before December 31, 1984.

After Menzi’s death, a petition for the probate of his last will and testament was filed by the named
executor, Atty. Montecillo. tty. Montecillo filed a motion praying for the confirmation of the sale to US
Automotive of Menzi’s 154 block. The probate court confirmed the sale in its Order. Thereafter, Atty.
Montecillo received from US Automotive two (2) checks for full payment of the agreed purchase price
and interest for the sale of the 154 block. Atty. Montecillo signed a company voucher acknowledging
receipt of the payment for the shares, indicating on the dorsal portion thereof the certificate numbers
of the 12 stock certificates covering the 154 block, the number of shares covered by each certificate
and the date of issuance thereof.

Upon these facts, the Sandiganbayan ruled that the sale of the 154 block to US Automotive is valid
and legal. According to the Sandiganbayan, the sale was made pursuant to the stock option executed
in 1968 between the parties to the sale. Negotiations took place and were concluded before Menzi’s
death, and full payment was made only after the probate court had judicially confirmed the sale.

Petitioner’s Contention:

This was assailed by the Republic arguing that the sale between Menzi and U.S. Automotive was a
sham because the parties failed to comply with the basic requirement of a deed of sale in the transfer
of the subject shares.

The Republic also contends that Menzi and Yap were both dummies of the late President Marcos,
used by the latter in order to conceal his interest in Bulletin. Hence, the 154 block should also have
been declared ill-gotten wealth and forfeited in favor the Government.

The foregoing allegedly warrants the award of damages in favor of the Republic which the
Sandiganbayan erroneously failed to do.

The Republic, therefore, prays that the Sandiganbayan Decision, insofar as it declares the sale of the
154 block to be valid and legal, be reconsidered and judgment accordingly rendered declaring the 154
block as ill-gotten wealth, forfeiting the same or the proceeds thereof in favor of the Republic, and
awarding actual, temperate and nominal damages in the Court’s discretion, moral damages.

Respondents Contention:

The Estate of Menzi and HMHMI filed a Memorandum averring that the Republic failed to adduce
evidence of any kind that the 154 block was ill-gotten wealth of the Marcoses. They claim that the
requirements for a valid transfer of stocks have all been met, namely:

1. there must be delivery of the stock certificate;

The parties to the sale allegedly confirm the indorsement and delivery of the Bulletin shares of stock
representing the 154 block. The requirement that the transfer be recorded in the books of the
corporation was also met because US Automotive exercised its rights as shareholder.

It is also allegedly immaterial whether it was Menzi or Atty. Montecillo who indorsed the stock
certificates. If it was Menzi, then his indorsement was an act of ownership; if it was Montecillo, then
the indorsement was pursuant to the duly executed General Power of Attorney filed with the SEC and,
subsequently, on the basis of his authority as Special Administrator and Executor of Menzi’s estate.

The absence of a deed of sale evidencing the sale is allegedly not irregular because the law itself does
not require any deed for the validity of the transfer of shares of stock, it being sufficient that such
transfer be effected by delivery of the stock certificates duly indorsed. At any rate, a duly notarized
Receipt covering the sale was executed.

Issue: Whether there is a valid transfer of shares of stock between Menzi and U.S. Automotive.

Ruling: Yes, the sale of the 154 block to US Automotive was valid and legal.

Sec. 63 of the Corporation Code provides the requisites for a valid transfer of shares:

Sec. 63. Certificate of stock and transfer of shares.—The capital stock of stock corporations shall be
divided into shares for which certificates signed by the president or vice-president, countersigned by
the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in
accordance with the by-laws. Shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-
in-fact or other person legally authorized to make the transfer. No transfer, however, shall be
valid, except as between the parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the transaction, the date of the transfer, the
number of the certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation. [Emphasis supplied]

The Corporation Code acknowledges that the delivery of a duly indorsed stock certificate is sufficient
to transfer ownership of shares of stock in stock corporations. Such mode of transfer is valid between
the parties. In order to bind third persons, however, the transfer must be recorded in the books of the
corporation.

Clearly then, the absence of a deed of assignment is not a fatal flaw which renders the transfer invalid
as the Republic posits. In fact, as has been held in Rural Bank of Lipa City, Inc. v. Court of Appeals, the
execution of a deed of sale does not necessarily make the transfer effective.

In that case, petitioners argued that by virtue of the deed of assignment, private respondents had
relinquished to them all their rights as stockholders of the bank. This Court, however, ruled that the
delivery of the stock certificate duly indorsed by the owner is the operative act that transfers the shares.
The absence of delivery is a fatal defect which is not cured by mere execution of a deed of assignment.
Consequently, petitioners, as mere assignees, cannot enjoy the status of a stockholder, cannot vote
nor be voted for, and will not be entitled to dividends, insofar as the assigned shares are concerned.

There appears to be no dispute in this case that the stock certificates covering the 154 block were
duly indorsed and delivered to the buyer, US Automotive. The parties to the sale, in fact, do not
question the validity and legality of the transfer.

The objection raised by the Republic actually concerns the authority of Atty. Montecillo, the executor
of Menzi’s estate, to indorse the said certificates. However, Atty. Montecillo’s authority to negotiate the
transfer and execute the necessary documents for the sale of the 154 block is found in the General
Power of Attorney executed by Menzi on May 23, 1984, which specifically authorizes Atty. Montecillo
"[T]o sell, assign, transfer, convey and set over upon such consideration and under such terms and
conditions as he may deem proper, any and all stocks or shares of stock, now standing or which may
thereafter stand in my name on the books of any and all company or corporation, and for that purpose
to make, sign and execute all necessary instruments, contracts, documents or acts of assignment or
transfer."15

Atty. Montecillo’s authority to accept payment of the purchase price for the 154 block sold to US
Automotive after Menzi’s death springs from the latter’s Last Will and Testament and the Order of the
probate court confirming the sale and authorizing Atty. Montecillo to accept payment therefor. Hence,
before and after Menzi’s death, Atty. Montecillo was vested with ample authority to effect the sale of
the 154 block to US Automotive.

That the 154 block was not included in the inventory is plausibly explained by the fact that at the time
the inventory of the assets of Menzi’s estate was taken, the sale of the 154 block had already been
consummated. Besides, the non-inclusion of the proceeds of the sale in the inventory does not affect
the validity and legality of the sale itself.

At any rate, the Sandiganbayan’s factual findings that the 154 block was sold to US Automotive while
Menzi was still alive, and that Atty. Montecillo merely accepted payment by virtue of the authority
conferred upon him by Menzi himself are conclusive upon this Court, supported, as they are, by the
evidence on record.16 As held by the Sandiganbayan:

The sale was made pursuant to the Stock Option executed in 1968 between the parties to the
sale, considering the restrictions contained in Bulletin’s Articles of Incorporation as amended
in 1968 limiting the transferability of its shares. Negotiations for the sale took place and were
concluded before the death of Menzi. After his death, full payment of the entire consideration
of the sale, principal and interest, was made only after judicial confirmation thereof in the
Probate Case. The transaction was duly supported by the corresponding receipt, voucher,
cancelled checks, cancelled promissory note, and BIR certification of payment of the
corresponding taxes due thereon.