Tee Ling Kiat vs. Ayala Corporation

A transfer of shares of stock is not valid against the corporation and third persons unless recorded in the books of the corporation showing the names of the parties, the date of transfer, and the number of shares transferred, pursuant to Section 63 of the Corporation Code; mere presentation of cancelled checks and photocopies of deeds of sale, without recording in the corporate books, is insufficient to prove ownership of shares or establish standing to file a third-party claim against levied corporate properties.

The case arose from a money judgment obtained by Ayala Corporation against Continental Manufacturing Corporation (CMC) and Spouses Dewey and Lily Dee in 1990. During execution of the judgment, the sheriff levied upon real properties registered under Vonnel Industrial Park, Inc. (VIP), on the basis that Dewey Dee was an incorporator thereof. Tee Ling Kiat intervened, claiming he purchased Dee's shares in VIP in December 1980, thereby asserting ownership over the levied corporate assets and seeking to nullify the levy.

• On November 29, 1990, RTC-Makati Branch 149 rendered a final judgment ordering Continental Manufacturing Corporation and Spouses Dewey and Lily Dee to pay Ayala Corporation P800,000.00 plus interest, attorney's fees, and costs.
• A Writ of Execution was issued against the Spouses Dee, commanding the sheriff to execute the judgment against their property.
• On November 21, 2006, the sheriff issued a Notice of Levy on Execution addressed to the Register of Deeds of Antipolo City, levying upon "rights, claims, shares, interest, title and participation" that the Spouses Dee may have in parcels of land covered by TCT Nos. R-24038, R-24039, and R-24040, registered in the name of Vonnel Industrial Park, Inc. (VIP).
• Dewey Dee was an incorporator of VIP, having organized the corporation prior to the 1980 loan transaction with Ayala Corporation.
• On March 26, 2007, Tee Ling Kiat filed a Third-Party Claim alleging that Dewey Dee sold all his shares in VIP to him in December 1980, evidenced by cancelled checks issued in Dewey Dee's favor, and that Dewey Dee was no longer a stockholder of VIP.
• Tee Ling Kiat attached to his claim an affidavit, cancelled checks allegedly representing payment for the shares, and a photocopy (not the original) of a Deed of Sale of Shares of Stock dated December 29, 1980.
• The Securities and Exchange Commission (SEC) had revoked VIP's Certificate of Registration on August 11, 2003, for failure to comply with reportorial requirements.
• No general information sheets or audited financial statements had been filed by VIP with the SEC, and Tee Ling Kiat's name did not appear in SEC records as a stockholder.
• The purported sale of shares from Dewey Dee to Tee Ling Kiat was never recorded in the stock and transfer books of VIP.

• The burden of proving that the sale of shares was not recorded in the corporate books lies with Ayala Corporation, not with Tee Ling Kiat, because the duty to record rests with the corporation (VIP).
• The disputable presumption that "the ordinary course of business has been followed" under Section 3(q), Rule 131 of the Rules of Court applies, meaning it must be presumed that VIP recorded the transfer in its books.
• Assuming Dewey Dee was still a stockholder, the proper subjects of levy were the actual shares of stock, not the real properties registered under VIP's name, since a corporation has a legal personality separate and distinct from its stockholders.
• Tee Ling Kiat claimed he could be considered a trustee of VIP, entitled to hold properties on its behalf, and thus had legal standing to file the third-party claim.

• Tee Ling Kiat failed to prove the existence or veracity of the claimed Deed of Sale of Shares of Stock; attaching photocopies and cancelled checks to a motion is insufficient to prove the transaction occurred.
• The alleged transfer was never recorded in the stock and transfer books of VIP as required by Section 63 of the Corporation Code, rendering the transfer invalid as against third persons.
• VIP's corporate registration had been revoked by the SEC in 2003, and by the time the third-party claim was filed in 2007, the three-year winding-up period under Section 122 of the Corporation Code had expired, leaving VIP without capacity to sue.
• Tee Ling Kiat is not a real party-in-interest because he failed to prove he is a stockholder of VIP or that he was authorized by the corporation to prosecute the claim on its behalf.

• Procedural Issues:
  • Whether the Court of Appeals committed reversible error in affirming the RTC Orders dismissing the third-party claim.
  • Whether the petition for review on certiorari under Rule 45 raises questions of law or questions of fact, given that the resolution requires a review of the probative value of evidence adduced by Tee Ling Kiat.
• Substantive Issues:
  • Whether Tee Ling Kiat sufficiently proved valid transfer of shares from Dewey Dee to himself to establish ownership and standing to file a third-party claim.
  • Whether an unrecorded transfer of shares is valid against the corporation and third persons under Section 63 of the Corporation Code.
  • Whether Tee Ling Kiat has legal personality to file a third-party claim against properties levied upon by the sheriff.

• Procedural:
  • The petition raises questions of fact, not questions of law, because it requires a review of the probative value of the evidence presented (cancelled checks and photocopied deed) to determine whether a valid sale of shares occurred.
  • Under Rule 45, the Supreme Court is precluded from reviewing questions of fact; it may only resolve questions of law arising from a certain state of facts.
  • The Court found no reversible error on the part of the Court of Appeals in affirming the dismissal of the third-party claim.
• Substantive:
  • Tee Ling Kiat failed to unmistakably establish his ownership or right of possession over the levied properties, which is a prerequisite for a third-party claimant to successfully prosecute a terceria.
  • Section 63 of the Corporation Code mandates that no transfer of shares 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, the date of transfer, and the number of shares transferred.
  • The transfer alleged by Tee Ling Kiat was never recorded in VIP's corporate books; thus, it is not valid or binding as to the corporation or as to third persons like Ayala Corporation.
  • A photocopy of a document has no probative value and is inadmissible in evidence; Tee Ling Kiat failed to explain why the original Deed of Sale could not be produced.
  • The argument that Tee Ling Kiat is a trustee of VIP is without merit as no evidence was presented to support this claim.
  • Money judgments are enforceable only against property incontrovertibly belonging to the judgment debtor; while third-party claims are available remedies, the claimant must first establish ownership, which Tee Ling Kiat failed to do.

• Recording of Share Transfers (Section 63, Corporation Code) — A transfer of shares is valid only between the parties thereto unless recorded in the corporate books; such recording is essential for the transfer to be binding on the corporation and third persons. The Court applied this to invalidate the claimed transfer for lack of entry in the stock and transfer books.
• Unmistakable Establishment of Ownership in Third-Party Claims — A third-party claimant (terceria) must unmistakably establish ownership or right of possession over levied property before courts can exercise supervisory powers over sheriff's execution; mere allegations or insufficient evidence will result in denial of the claim.
• Best Evidence Rule (Photocopies) — A photocopy of a document has no probative value and is inadmissible in evidence unless the original is shown to be unavailable and proper foundation is laid; the Court rejected the photocopied deed of sale for failing to meet these requirements.
• Corporate Personality (Separate and Distinct Existence) — A corporation has a legal personality separate and distinct from its stockholders; property registered in the corporation's name cannot be levied upon to satisfy the personal debts of a stockholder unless the corporate veil is pierced (which was not established here).

• "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."
• "A photocopy of a document has no probative value and is inadmissible in evidence."
• "Money judgments are enforceable only against property incontrovertibly belonging to the judgment debtor, and certainly, a person other than the judgment debtor who claims ownership over the levied properties is not precluded from challenging the levy through any of the remedies provided for under the Rules of Court."
• "The right of Tee Ling Kiat, as a third-party claimant, to institute a terceria is founded on his claimed title over the levied property; consequently, although courts can exercise their limited supervisory powers in determining whether the sheriff acted correctly in executing the judgment, they may only do so if the third-party claimant has unmistakably established his ownership or right of possession over the subject property."

• Villasi v. Garcia — Cited for the principle that a third-party claimant must unmistakably establish ownership over levied property before courts can exercise supervisory powers over execution proceedings.
• Power Sector Assets and Liabilities Management Corp. v. Maunlad Homes, Inc. — Cited for the rule that money judgments are enforceable only against property belonging to the judgment debtor and the requirements for third-party claims.
• Spouses Sy v. Hon. Discaya — Cited for the standard that third-party claimants must establish valid title to the levied property to successfully prosecute their claim.
• Imani v. Metropolitan Bank & Trust Company — Cited for the inadmissibility of photocopies as evidence and the requirement of the best evidence rule.
• Sps. Pascual v. Sps. Ballesteros — Cited for the distinction between questions of law (doubt as to what the law is) and questions of fact (doubt as to the truth or falsity of alleged facts).

• Section 63, Corporation Code (Batas Pambansa Blg. 68) — Governs the issuance and transfer of certificates of stock; mandates that transfers must be recorded in the corporate books to be valid against the corporation and third persons.
• Section 122, Corporation Code — Provides for the three-year winding-up period for corporations after revocation of registration; relevant to the determination that VIP lacked capacity to sue when the third-party claim was filed in 2007, its registration having been revoked in 2003.
• Rule 45, Section 1, Rules of Civil Procedure — Limits petitions for review on certiorari to questions of law only; precludes review of questions of fact involving probative value of evidence.
• Rule 131, Section 3(q), Rules of Court — Provides for the disputable presumption that the ordinary course of business has been followed; Tee Ling Kiat invoked this to argue that the burden was on Ayala Corporation to prove non-recording, which the Court rejected.