Marvel Building Corporation vs. David

A person may be proved to be the true owner of all shares of a corporation through circumstantial evidence, notwithstanding the appearance of other subscribers in the articles of incorporation, where the totality of circumstances conclusively establishes that the other stockholders are mere dummies. The Court applied the standard of proof required by Section 89, Rule 123 of the Rules of Court and Section 42 of the Provisional Law for the Application of the Penal Code, which require proof beyond reasonable doubt in civil cases involving allegations of fraud or criminal conduct.

The Marvel Building Corporation was incorporated on February 12, 1947, with a capital stock of P2,000,000, of which P1,025,000 was subscribed and paid for by eleven incorporators, including Maria B. Castro, who subscribed P250,000 and was elected President. The corporation purchased the Wise Building and the Aguinaldo Building for P1,800,000, financing the balance through loans from the Insular Life Assurance Co., Ltd. and the Philippine Guaranty Co., Inc. The Secretary of Finance, upon consideration of a special committee's report, recommended the collection of P3,593,950.78 as war profits taxes against Maria B. Castro, and the President instructed the Collector to take steps to collect the same.

The Marvel Building Corporation was incorporated on February 12, 1947, with a capital stock of P2,000,000, of which P1,025,000 was subscribed and paid for by eleven incorporators: Maria B. Castro (P250,000), Amado A. Yatco (P100,000), Santiago Tan (P100,000), Jose T. Lopez (P90,000), Benita Lamagna (P90,000), C.S. Gonzales (P80,000), Maria Cristobal (P70,000), Segundo Esguerra, Sr. (P75,000), Ramon Sangalang (P70,000), Maximo Cristobal (P55,000), and Antonio Cristobal (P45,000). Maria B. Castro was elected President and Maximo Cristobal, Secretary-Treasurer. The Wise Building was purchased on September 4, 1946, in the name of Dolores Trinidad, wife of Amado A. Yatco, and the Aguinaldo Building on January 17, 1947, in the name of Segundo Esguerra, Sr. Both buildings were purchased for P1,800,000, with the balance financed through loans from the Insular Life Assurance Co., Ltd. and the Philippine Guaranty Co., Inc.

Of the incorporators, Maximo Cristobal and Antonio Cristobal were half-brothers of Maria B. Castro, Maria Cristobal was a half-sister, and Segundo Esguerra, Sr. was a brother-in-law. The income tax records of the other incorporators showed that they did not have incomes sufficient to pay for their subscriptions. Maximo Cristobal did not file income tax returns before 1946 except for 1939 and 1940, in which years he was exempt. Antonio Cristobal, Segundo Esguerra, Sr., and Jose T. Lopez did not file income tax returns for years prior to 1946. Maria Cristobal filed returns from 1929 to 1942 but was exempt. Benita Lamagna did not file returns prior to 1945 except for 1942, which was exempt. Ramon Sangalang did not file returns up to 1945 except for 1936 to 1940. Amado Yatco did not file returns prior to 1945 except for certain years, all exempt. Their incomes in 1946 and 1947 ranged from P1,559 to P23,960, far below their subscriptions of P70,000 to P100,000.

In October 1945, Maria B. Castro, Nicasio Yatco, Maxima Cristobal de Esguerra, Maria Cristobal Lopez, and Maximo Cristobal organized the Maria B. Castro, Inc. with capital stock of P100,000, of which Maria B. Castro subscribed P99,600 and all others P100 each. This was increased in 1950 to P500,000, with Castro subscribing P76,000 and the others P1,000 each. It did not appear that the stockholders or board of directors of the Marvel Building Corporation ever held a business meeting, as no books or minutes of meetings were ever presented. The by-laws, if any, were not presented, and no report of the corporation's affairs was made. From the book of accounts, advances to the corporation of P125,000 were made by Maria B. Castro in 1947, P102,916.05 in 1948, and P160,910.96 in 1949.

The Collector of Internal Revenue presented evidence that towards the end of 1948 and the beginning of 1949, internal revenue examiners Felipe Aquino and Antonio Mariano, while examining the corporation's books and papers furnished by Secretary Maximo Cristobal, discovered an envelope containing eleven stock certificates bound together by an Acco fastener. All certificates except that in the name of Maria B. Castro were endorsed in blank by the subscribers. Photostatic copies were taken (Exhibits 4 to 13), and copy-cat copies were made in July 1950 (Exhibits 40-49). Julio Llamado, bookkeeper of the corporation from 1947 to May 1948, testified that he prepared the original certificates, that they were given to him by Maria B. Castro for comparison with the articles of incorporation, and that he also prepared a second set of certificates (Exhibits 30-38). The plaintiffs offered a half-hearted denial of the existence of the endorsed certificates and attacked the credibility of the defendant's witnesses, imputing enmity against Castro to the Llamados and doubtful conduct to Aquino and Mariano. The plaintiffs also presented expert evidence suggesting the endorsements could have been superimposed, but the Court found the opinion was merely a possibility and noted circumstances proving the signatures were genuine, including the clear crossing of signatures over printed lines and the fact that Maria B. Castro admitted having signed 25 stock certificates when only eleven were issued.

The trial court held that the evidence, mostly circumstantial, failed to show that Maria B. Castro was the true owner of all the stock certificates because the evidence was susceptible of two interpretations, and an interpretation may not be made which would deprive one of property without due process of law. The Collector of Internal Revenue appealed.

• Ownership of Shares: The plaintiffs alleged that the three properties (lands and buildings) belong to the Marvel Building Corporation and not to Maria B. Castro, and sought to enjoin the Collector from selling them at public auction.
• Insufficiency of Evidence: The plaintiffs argued that the evidence presented by the defendant was mostly circumstantial and susceptible of two interpretations, and that an interpretation may not be made which would deprive one of property without due process of law.
• Credibility of Witnesses: The plaintiffs vigorously attacked the credibility of the defendant's witnesses, imputing enmity against Maria B. Castro to the Llamados and doubtful conduct to Aquino and Mariano for not divulging the existence of the certificates to their immediate chiefs.
• Superimposition of Signatures: The plaintiffs attempted to show by expert evidence that the endorsements could have been superimposed, i.e., that signatures made on other papers were pasted and thereafter the documents photographed.

• Sole Ownership: The defendant claimed that Maria B. Castro is the true and sole owner of all the subscribed stock of the Marvel Building Corporation, including those appearing to have been subscribed and paid for by the other members, and consequently she is also the true and exclusive owner of the properties seized.
• Endorsed Certificates: The defendant presented evidence of stock certificates endorsed in blank by the other subscribers and found in the possession of the Secretary-Treasurer, which were discovered by internal revenue examiners Aquino and Mariano and brought to Under-Secretary of Finance Crispin Llamado.
• Lack of Income: The defendant proved through income tax returns that the other stockholders did not have incomes sufficient to pay for their subscriptions, establishing a prima facie case that Maria B. Castro had furnished all the money that the corporation had.
• Corroborating Circumstances: The defendant pointed to the absence of corporate meetings, the lack of receipts for subscription payments, the failure of the other subscribers to testify, and the advances made by Castro to the corporation without arrangement or accounting.

• Sole Ownership of Shares: Whether Maria B. Castro is the true and sole owner of all the shares of stock of the Marvel Building Corporation, with the other stockholders being mere dummies.
• Sufficiency of Circumstantial Evidence: Whether the circumstantial evidence presented by the defendant Collector of Internal Revenue conclusively proves Castro's sole ownership of the shares, notwithstanding the trial court's finding that the evidence was susceptible of two interpretations.

• Sole Ownership of Shares: Yes. Maria B. Castro is the sole and exclusive owner of all the shares of stock of the Marvel Building Corporation, and the other stockholders are her dummies. The facts and circumstances proved conclusively and beyond reasonable doubt that Castro owned all the shares.
• Sufficiency of Circumstantial Evidence: Yes. The circumstantial evidence was not only convincing but conclusive, warranting reversal of the trial court's judgment. The evidence offered by the plaintiffs was testimonial and direct, easy of fabrication, while that offered by the defendant was documentary and circumstantial, difficult of fabrication and in most cases found in the possession of the plaintiffs.

• Sole Ownership of Shares: The Court found that the most important evidence was the endorsed blank stock certificates discovered by internal revenue agents in the possession of the Secretary-Treasurer. The Court rejected the plaintiffs' claim that the endorsements were superimposed, noting that the printed endorsement line was clear where signatures crossed it, and that Maria B. Castro admitted having signed 25 stock certificates when only eleven were issued, corroborating the testimony that two sets of certificates had been prepared. The genuineness of the signatures was not disputed, and the plaintiffs offered no explanation for how the defendant could have secured these genuine signatures. The Court also found significant that the other stockholders did not have incomes sufficient to pay for their subscriptions, as proved by their income tax returns. The Court noted that the plaintiffs' witnesses gave general assertions without concrete details, which the Court found to be "positive identifications of untruthfulness." The failure of the other subscribers to testify was deemed of utmost significance, as they could have easily disproved the charge that they were dummies by showing their receipts and testifying on their payments. The Court applied the rule that the non-production of evidence that would naturally have been produced by an honest claimant permits the inference that its tenor is unfavorable to the party's cause, and that a party's silence to adverse testimony is equivalent to an admission of its truth.
• Sufficiency of Circumstantial Evidence: The Court enumerated the facts of patent and potent significance: the existence of endorsed certificates discovered in the possession of the Secretary-Treasurer; the fact that twenty-five certificates were signed by the president for no justifiable reason; the fact that two sets of certificates were issued; the undisputed fact that Maria B. Castro had made enormous profits and had a motive to hide them to evade taxes; the fact that the other subscribers had no incomes of sufficient magnitude to justify their big subscriptions; the fact that the subscriptions were not receipted for and deposited by the treasurer in the name of the corporation but were kept by Castro herself; the fact that the stockholders or directors never appeared to have met to discuss the business; the fact that Castro advanced big sums of money to the corporation without any previous arrangement or accounting; and the fact that the books of accounts were kept as if they belonged to Castro alone. The Court concluded that each and every one of these facts is inconsistent with the claim that the stockholders other than Castro own their shares in their own right, and all of them point to no other conclusion than that Castro was the sole and exclusive owner and the others were her dummies. The Court applied the standard of proof beyond reasonable doubt under Section 89, Rule 123 of the Rules of Court and Section 42 of the Provisional Law for the Application of the Penal Code.

• Dummy Stockholders Doctrine — Where the totality of circumstantial evidence conclusively establishes that persons appearing as stockholders in a corporation are mere dummies of another person who supplied all the funds, the latter is the true and sole owner of the shares. The Court applied this doctrine in finding that Maria B. Castro was the sole owner of all shares of the Marvel Building Corporation, the other incorporators being her relatives who lacked the income to pay for their subscriptions and who failed to testify to refute the charge.
• Circumstantial Evidence Rule — Circumstantial evidence may be conclusive where the facts and circumstances proved are inconsistent with any other conclusion than the one sought to be established. The Court held that the circumstantial evidence presented by the defendant was not only convincing but conclusive, warranting reversal of the trial court's judgment.
• Non-Production of Evidence Rule — The non-production of evidence that would naturally have been produced by an honest and fearless claimant permits the inference that its tenor is unfavorable to the party's cause, and a party's silence to adverse testimony is equivalent to an admission of its truth. The Court applied this rule to the failure of the other subscribers to testify and present receipts of their alleged subscription payments.
• Expert Witness Rule — Expert witnesses can always be obtained for both sides of an issue, and if parties are capable of paying fees, expert opinion should be received with caution. The Court applied this rule in rejecting the plaintiffs' expert evidence on alleged superimposition of signatures, noting that the opinion was merely a possibility.

• "Our consideration of the evidence submitted on both sides leads us to a conclusion exactly opposite that arrived at by the trial court. In general the evidence offered by the plaintiffs is testimonial and direct evidence, easy of fabrication; that offered by defendant, documentary and circumstantial, not only difficult of fabrication but in most cases found in the possession of plaintiffs. There is very little room for choice as between the two. The circumstantial evidence is not only convincing; it is conclusive." — This passage articulates the Court's core reasoning for reversing the trial court, establishing the superiority of documentary and circumstantial evidence over testimonial evidence in this context.
• "Each and every one of the facts all set forth above, in the same manner, is inconsistent with the claim that the stockholders, other than Maria B. Castro, own their shares in their own right. On the other hand, each and every one of them, and all of them, can point to no other conclusion than that Maria B. Castro was the sole and exclusive owner of the shares and that they were only her dummies." — This passage states the Court's conclusion from the totality of circumstantial evidence, forming the ratio decidendi of the case.
• "The non-production of evidence that would naturally have been produced by an honest and therefore fearless claimant permits the inference that its tenor is unfavorable to the party's cause (II Wigmore, Sec. 285, p.162). A party's silence to adverse testimony is equivalent to an admission of its truth (Ibid, Sec. 289, p. 175)." — This passage applies the evidentiary rule on non-production of evidence and silence to the failure of the other subscribers to testify, a key element of the Court's reasoning.

• II Wigmore, Sec. 563(2), p. 646 — Cited for the proposition that expert witnesses can always be obtained for both sides of an issue and that expert opinion should be received with caution when parties are capable of paying fees.
• II Wigmore, Sec. 285, p. 162 — Cited for the rule that the non-production of evidence that would naturally have been produced by an honest claimant permits the inference that its tenor is unfavorable to the party's cause.
• II Wigmore, Sec. 289, p. 175 — Cited for the rule that a party's silence to adverse testimony is equivalent to an admission of its truth.

• Section 89, Rule 123 of the Rules of Court — Applied as the standard of proof required in this case, which the Court found to be satisfied by the conclusive circumstantial evidence proving that Maria B. Castro was the sole and exclusive owner of all shares of the corporation.
• Section 42 of the Provisional Law for the Application of the Penal Code — Applied together with Section 89, Rule 123 as the standard of proof beyond reasonable doubt in this civil case involving allegations of fraud.

Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Jugo, and Bautista Angelo, JJ., concurred.