De Erquiaga v. Court of Appeals
MODIFICATIONFacts
The Antecedents: Santiago de Erquiaga agreed to sell his 3,100 shares in Erquiaga Development Corporation to Jose L. Reynoso for P900,000, later increased to P971,371.70. Reynoso paid P410,000 and took possession of the shares and the corporation's sole asset, Hacienda San Jose. Reynoso pledged 1,500 shares as security for the balance. Reynoso failed to pay the balance, prompting Erquiaga to rescind the sale. Procedural History: Erquiaga filed a complaint for rescission. The trial court (CFI of Sorsogon) rendered a decision rescinding the sale, ordering Reynoso to return the shares and account for fruits, and Erquiaga to return P410,000 plus interest. The decision became final and executory. The CFI later issued an order holding payment of the P410,000 in abeyance pending accounting and appointing a receiver for the hacienda due to mismanagement. Reynoso died and was substituted by his heirs. The Court of Appeals dismissed Reynoso's heirs' petition for certiorari against the CFI's order. The Supreme Court denied their petition for review. The CFI later dissolved the receivership and ordered the possession of the hacienda turned over to Erquiaga upon posting a bond. The CFI issued an order authorizing Erquiaga to vote the shares and hold a special meeting, and denied the heirs' prayer to offset Erquiaga's obligation with fruits and to execute judgment for damages. The Court of Appeals modified the CFI's order, annulling the provisions regarding voting rights, corporate meetings, and refusing reimbursement of the purchase price, while ordering the Clerk of Court to execute a deed of conveyance for the shares and directing payment of P410,000 less P62,000 damages and attorney's fees, with interest to await accounting. The Petition: The heirs of Jose L. Reynoso filed a petition for review assailing the Court of Appeals' decision, primarily arguing that the payment of P410,000 plus interest should not be ordered without awaiting Reynoso's accounting, and that the Court of Appeals erroneously applied Corporation Law.
Issue(s)
Whether the Court of Appeals erred in ordering the payment of P410,000 plus interest without awaiting the accounting of fruits by the defendant. Whether the Court of Appeals erroneously applied the Corporation Law. Whether the Court of Appeals erred in ordering the entry of its judgment.
Ruling
The petition for review is granted. The payment of legal interest by Erquiaga to Reynoso on the price of P410,000 should be computed up to September 30, 1972. The net amount due to Reynoso's heirs is P348,000 (P410,000 less P62,000 for damages and attorney's fees), which should earn legal interest after September 30, 1972. However, the payment of this interest should await Reynoso's accounting of the fruits received from Hacienda San Jose. In all other respects, the decision of the Court of Appeals is affirmed.
Ratio Decidendi
On the issue of payment of P410,000 plus interest without awaiting accounting: The Court held that while rescission creates the obligation for mutual restitution under Article 1385 of the Civil Code, the payment of interest on the P410,000 should await the rendition and approval of the accounting of fruits received by Reynoso from Hacienda San Jose. It would be inequitable to require Erquiaga to pay substantial interest accumulated over two decades without Reynoso first accounting for the fruits of the hacienda, which he allegedly squandered. Therefore, the obligation to pay interest on the P410,000 should be modified to await the accounting. On the application of Corporation Law: The Court affirmed the Court of Appeals' ruling that a stockholder acquires voting rights only when shares are registered in his name in the corporate books. Until registration, the transferee cannot vote or be voted for. The Court reiterated that the purpose of registration is to enable the transferee to exercise stockholder rights and to inform the corporation of changes in ownership. Thus, the Court of Appeals did not err in annulling the trial court's order allowing Erquiaga to vote shares not yet registered in his name and authorizing corporate meetings based on such unrecorded shares. On the entry of judgment: The Court found that the entry of judgment by the Court of Appeals was precipitate and premature. The proceedings had been suspended pending settlement negotiations. Without a deadline, the Court of Appeals ordered entry of judgment, which was then timely challenged by Erquiaga. The Court held that the directive was premature and that the decision was not yet final, thus allowing the petition for review to proceed.
Main Doctrine
In rescission of contract, mutual restitution of the object and the consideration is required. The obligation to pay interest on the returned price should await the rendition and approval of the accounting of fruits received by the party who had possession of the object, to ensure equity and prevent oppression.