FACTS:

This case involves two separate conflicts. The first controversy revolves around the late Judge Manuel Torres, who was the majority stockholder of Tormil Realty & Development Corporation (Tormil), while the private respondents were the minority stockholders. Judge Torres executed ten deeds of assignment transferring real properties and shares of stock to Tormil in exchange for shares of Tormil Realty. However, he unilaterally revoked two of the deeds of assignment, leading to the private respondents filing a complaint with the Securities and Exchange Commission (SEC) to compel Judge Torres to deliver the revoked deeds and register the corresponding titles in the name of Tormil.

The second controversy involves the election of the 1987 corporate board of directors. Judge Torres assigned qualifying shares to certain individuals in order for them to be elected as directors. These assigned shares were held as trustees for Judge Torres and for the purpose of qualifying as directors.

During the annual stockholders meeting of Tormil, there was a dispute regarding the presence of SEC representatives, but it was confirmed that Judge Torres approved their attendance. At the meeting, arguments arose regarding the auditing of the corporation's finances and the suspension of the meeting, which was overruled. A dispute also arose over the nomination of directors, prompting a break in the meeting. After the meeting resumed, the petitioners-nominees were elected as directors for the year. Private respondents filed a complaint with the SEC seeking the annulment of the election, alleging that the assignment of shares to the petitioners violated the minority stockholders' right of pre-emption. The SEC rendered a decision in favor of the private respondents, declaring the election of directors null and void.

The SEC's decision was appealed to the SEC en banc, but one of the petitioners, Judge Torres, died during the pendency of the appeal. The SEC en banc denied the petitioners' motions to suspend proceedings and affirmed the earlier decision. The petitioners then filed a petition for review with the Court of Appeals, which dismissed the petition and affirmed the SEC's decision. The petitioners filed a motion for reconsideration, but it was denied. Dissatisfied, the petitioners filed a petition for review before the Supreme Court, raising various errors allegedly committed by the Court of Appeals in its decision.

The petitioners argue that the Court of Appeals granted a restraining order and writ of preliminary injunction to their petition, which is consistent with the finding of errors of fact or law. The Court of Appeals also required the parties to submit simultaneous memoranda in addition to the required comments.

ISSUES:

1. Whether or not the Court of Appeals gave due course to the petition filed by the petitioners.

2. Whether or not the decisions of the SEC and the Court of Appeals are null and void for failure to substitute parties.

3. Whether or not the failure to formally substitute the deceased petitioner affects the validity of the trial and judgment rendered.

4. Whether or not the voluntary appearance and participation of the heirs in the case negates the need for formal substitution.

5. Whether there was a violation of petitioner's right to due process.

6. Whether the principle of negotiorum gestio applies in this case.

7. Whether the revocation of the assignment of properties is justified under Article 1191 of the Civil Code.

8. Whether the shortage of shares should have affected the assignment of certain properties, or if it should have been applied to the last assignment.

9. Whether the assignment of "qualifying shares" to the nominees of Judge Torres is considered a transfer or conveyance of shares of stock, warranting the recording requirements.

10. Whether the entries made by Judge Torres in the corporation's stock and transfer book, which were later affirmed by an acting corporate secretary, should be deemed valid despite not complying with the requirements of the law.

11. Whether the failure to comply with the requirements of the law and the brewing family discord between Judge Torres and the petitioners should affect the validity of the assignments.

12. Whether the stock and transfer book should be kept in the principal office of the corporation.

13. Whether the respondent, who holds the majority of the outstanding capital stock, can arrogate unto himself the duty of the corporate secretary.

RULING:

1. The Court of Appeals did not give due course to the petition. Issuing a restraining order, a writ of preliminary injunction, and requiring the submission of memoranda does not indicate that the petition was given due course. Giving due course to a petition lies within the discretion of the court.

2. The decisions of the SEC and the Court of Appeals are not null and void for failure to substitute parties. The Court of Appeals decided the case on the basis of the uncontroverted facts and admissions contained in the pleadings filed by the parties. Such decisions are valid and binding.

3. The failure to formally substitute the deceased petitioner does not affect the validity of the trial and judgment rendered. The purpose behind the rule on substitution of parties is the protection of the right of every party to due process. In this case, both parties have been fiercely fighting in the probate proceedings of the deceased petitioner's holographic will for appointment as the legal representative of his estate. Both parties have voluntarily submitted to the jurisdiction of the court and participated in the proceedings. Therefore, the rights of the deceased petitioner's estate were sufficiently protected, despite the lack of formal substitution.

4. The voluntary appearance and participation of the heirs in the case negate the need for formal substitution. In cases where the heirs themselves voluntarily appear, participate, and present evidence in defense of the deceased defendant, formal substitution of heirs is not necessary. The court acquires jurisdiction over the persons of the heirs through their voluntary appearance and participation in the case.

5. The Supreme Court held that there was no violation of petitioner's right to due process. The general rule that formal substitution of heirs must be effectuated for them to be bound by a subsequent judgment is established to protect the right to due process of those who are affected by the decision. However, in this case, the estate of the deceased judge was fully protected by the presence of the parties who claimed interest in the estate. Moreover, the petitioner filed motions to suspend proceedings more than two years after the death of the judge, and it was the private respondents who informed the Securities and Exchange Commission (SEC) of the judge's death. Therefore, the SEC en banc did not need to suspend the proceedings to await the appointment of a legal representative.

6. The Supreme Court ruled that the principle of negotiorum gestio does not apply in this case. The principle of negotiorum gestio covers abandoned or neglected property or business, which is not applicable to the situation at hand.

7. The Supreme Court held that the revocation of the assignment of properties was not justified under Article 1191 of the Civil Code. The shortage of 972 shares was not a substantial and fundamental breach that would defeat the object of the parties in entering into the contract. Additionally, the Civil Code provision on lesion or inadequacy of cause does not apply because a specific number of shares of stock had already been issued in exchange for the properties. Thus, the deed of revocation executed by the deceased judge was declared null and void.

8. The shortage of shares should have logically been applied to the last assignment executed by Judge Torres.

9. The assignment of "qualifying shares" to the nominees of Judge Torres is considered a transfer or conveyance of shares, and thus must comply with the recording requirements.

10. The entries made by Judge Torres in the corporation's stock and transfer book, which were later affirmed by an acting corporate secretary, are not valid because they were not made by the duly appointed corporate secretary and were not kept at the principal office of the corporation.

11. The failure to comply with the requirements of the law and the brewing family discord between Judge Torres and the petitioners affect the validity of the assignments.

12. The stock and transfer book should be kept in the principal office of the corporation.

13. The fact that the respondent holds the majority of the outstanding capital stock does not give him the authority to assume the duty of the corporate secretary.

PRINCIPLES:

• The issuance of a restraining order and a writ of preliminary injunction and requiring the submission of memoranda does not necessarily mean that the petition was given due course. (Secs. 8 and 11, SC Circular 1-91)

• The office of an injunction is to preserve the status quo pending the disposition of the case. (Secs. 8 and 11, SC Circular 1-91)

• Whether or not to give due course to a petition lies within the discretion of the court. (Secs. 8 and 11, SC Circular 1-91)

• In resolving appeals from quasi-judicial agencies, the Court of Appeals may decide based on the uncontroverted facts and admissions contained in the pleadings filed by the parties. (Revised Administrative Circular No. 1-95)

• The court may require the submission of memoranda in support of the respective claims and positions of the parties without necessarily giving due course to the petition. (Revised Administrative Circular No. 1-95)

• The rule on substitution of parties aims to protect the right of every party to due process.

• The exercise of judicial power presupposes jurisdiction over the persons of the parties.

• In cases where the heirs voluntarily appear, participate, and present evidence in defense of the deceased defendant, formal substitution of heirs is not necessary.

• The formal substitution of heirs is a general rule established to protect the right to due process of those affected by a subsequent judgment.

• The principle of negotiorum gestio applies to abandoned or neglected property or business.

• Rescission of a contract is not permitted for a slight or carnal breach, but only for a substantial and fundamental breach that defeats the object of the parties in making the agreement.

• Lesion or inadequacy of cause will not invalidate a contract unless there was fraud, mistake, or undue influence.

• The shortage of shares should be logically applied to the last assignment made.

• Assignments of shares, even "qualifying shares," are considered transfers and must comply with recording requirements.

• The corporate secretary is the custodian of corporate records, including the stock and transfer book, and must make proper and necessary entries therein.

• Failure to comply with the requirements of the law and brewing family discord may affect the validity of assignments.

• The stock and transfer book should be kept in the principal office of the corporation, as required by the Corporation Code.

• All corporations, regardless of size, must comply with the provisions of the Corporation Code.

• The duty of the corporate secretary cannot be assumed by anyone other than the appointed corporate secretary, even if they hold the majority of the outstanding capital stock.