Lee (President of Philinterlife and FLAG) v. RTC, Enderes [Feb 23, 2004]

Facts:

·         Dr. Juvencio P. Ortañez incorporated the Philippine International Life Insurance Company, Inc. on 1956. At the time of the company’s incorporation, Dr. Ortañez owned ninety percent (90%) of the subscribed capital stock.

·         On July 21, 1980, Dr. Ortañez died. He left behind a wife (Juliana Salgado Ortañez), three legitimate children (Rafael, Jose and Antonio Ortañez) and five illegitimate children by Ligaya Novicio (herein private respondent Ma. Divina Ortañez-Enderes and her siblings Jose, Romeo, Enrico Manuel and Cesar, all surnamed Ortañez).  <3 Peaches <3

·         Special administrators Rafael and Jose Ortañez submitted an inventory of the estate of their father which included 2,029 shares of stock in Philippine International Life Insurance Company, representing 50.725% of the company’s outstanding capital stock.

·         Juliana (wife) and Jose (legit child) sold 1,014 and 1,011 shares respectively to FLAG.  

·         The legal family entered into an extrajudicial settlement of the estate of Dr. Juvencio Ortañez, partitioning the estate among themselves. This was the basis of the number of shares separately sold by them.

·         The lower court declared the shares of stock as null and void. CA affirmed.

·         Meanwhile, the FLAG-controlled board of directors, increased the authorized capital stock of Philinterlife, diluting in the process the 50.725% controlling interest Dr. Juvencio Ortañez, in the insurance company. Enderes filed an action at the SEC. The SEC hearing officer dismissed the case acknowledging the jurisdiction of the civil courts.

·         Jose Lee and Alma Aggabao as president and secretary of Philinterlife ignored the orders nullifying the sales of the shares of stock.  <3 Peaches <3

Issue:

·         WON the sale of the shares of stock of Philinterlife is void. (YES)

Ruling:

·         YES. Our jurisprudence is clear that

o    (1) any disposition of estate property by an administrator or prospective heir pending final adjudication requires court approval and

o    (2) any unauthorized disposition of estate property can be annulled by the probate court, there being no need for a separate action to annul the unauthorized disposition.

·         An heir can sell his right, interest, or participation in the property under administration under NCC 533 which provides that possession of hereditary property is deemed transmitted to the heir without interruption from the moment of death of the decedent. However, an heir can only alienate such portion of the estate that may be allotted to him in the division of the estate by the probate or intestate court after final adjudication, that is, after all debtors shall have been paid or the devisees or legatees shall have been given their shares. This means that an heir may only sell his ideal or undivided share in the estate, not any specific property therein.  <3 Peaches <3

·         It goes without saying that the increase in Philinterlife’s authorized capital stock, approved on the vote of petitioners’ non-existent shareholdings and obviously calculated to make it difficult for Dr. Ortañez’s estate to reassume its controlling interest in Philinterlife, was likewise void ab initio.