The Manufacturers' Bank & Trust Company granted Plastic Era Manufacturing Co., Inc. (hereinafter referred to for brevity as Plastic Era) a discounting line of P20,000.00. To secure the payment of any loan which said bank may extend to Plastic Era, the latter posted a surety bond for P 20,000.00 issued by the Domestic Insurance Company of the Philippines (hereinafter referred to as Domestic Insurance).
On September 9, 1959, Plastic Era, Bhagwandas B. Gidwani and Kishu Gidwani executed an indemnity agreement whereby they bound themselves, jointly and severally, to indemnify Domestic Insurance against all damages, losses and expenses which the latter may incur as a consequence of having issued said surety bond.
On September 10, 1959, Plastic Era signed and executed a promissory note in favor of the Manufacturers Bank & Trust Company, wherein the former promised to pay the latter the sum of P20,000.00, with interest thereon at the rate of 10% per annum payable 120 days from said date.
DOMESTIC INSURANCE required PLASTIC ERA to give additional security and so on September 23, 1959, Sati B. Gidwani, wife of Bhagwandas Gidwani, pledged to DOMESTIC INSURANCE her shares of stock in three corporations, among which were 12,000 shares of the Marinduque Iron Mines, Inc. (which corporate name has subsequently been changed to Marinduque Mining & Industrial Corporation). This pledge agreement was to secure the fulfillment by PLASTIC ERA of its undertaking to indemnify DOMESTIC INSURANCE from any and all damages, losses and expenses which the latter may sustain as a consequence of its having executed a surety bond in favor of the Manufacturers Bank & Trust Company.
On September 26, 1959, the Marinduque Mining & Industrial Corporation (hereinafter referred to as MARINDUQUE) was notified of the pledge of the shares of Sati Gidwani and a 'stop transfer' notice was entered in its books. Since then, an stock dividends declared and cash dividends paid corresponding to the pledged shares were delivered to DOMESTIC INSURANCE.
PLASTIC ERA failed to pay the promissory note it executed in favor of the Manufacturers Bank & Trust Company, and as a result thereof. the latter in turn files a claim against the bond issued by DOMESTIC INSURANCE, which on October 27,1960, paid the sum of P20,000.00 to said bank.
On January 26, 1961, DOMESTIC INSURANCE filed an action in the Court of First Instance of Manila, which was docketed therein as Civil Case No. 46142, against PLASTIC ERA, Kishu Gidwani and Bhagwandas Gidwani, for the recovery of the sum of P 20,000.00 which DOMESTIC INSURANCE paid to the Manufacturers Bank & Trust Company, plus interest and attorney's fees.
On November 9, 1961, the Court of First Instance of Manila rendered judgment in Civil Case No. 46142, based on a compromise agreement, wherein the defendants therein were sentenced to pay to DOMESTIC INSURANCE the sum of P20,000.00, with interest thereon at the rate of 12% per annum from October 27, 1960, plus Pl,100.00 as attorney's fees, without costs. The decision, however, provided that any amount payable to the plaintiff in excess of P 20,000.00, including interest and attorney's fees would not be due until one year from the finality of the judgment.
Pursuant to a writ of execution issued in said Civil Case No. 46142, the Sheriff garnished the liquidating dividends of Bhagwandas Gidwani in the Old Manila Club amounting to P3,950.00. One Gustav Real claiming to be the assignee of said dividends, filed a suit in the City Court of Manila against the sheriff and DOMESTIC INSURANCE for the recovery thereof. The City Court of Manila rendered judgment for Gustav Real but DOMESTIC INSURANCE and the Sheriff appealed from the decision and the appealed case is still pending before another branch of this court.
On October 1, 1968, DOMESTIC INSURANCE requested Notary Public Antonio Manzano to sell at public auction the shares pledged to it by Sati Gidwani for the satisfaction of the sum of P44,656.55. After the corresponding notice had been given, on October 31, 1968, all the pledged shares were sold at public auction for the sum of P19,322.30 to DOMESTIC INSURANCE, which was the highest bidder.
On November 7, 1968, DOMESTIC INSURANCE surrendered to MARINDUQUE the certificate of stock of the pledged shares and requested that they be cancelled and new certificates of stock issued in its name. In due time, MARINDUQUE complied, but it only issued 232 and 46/100 shares in the name of DOMESTIC INSURANCE, which was based on the adjusted new par value of P15.00 per share, instead of the original par value of P0.10 per share.
On November 5,1968, the transfer agents of MARINDUQUE on the same occasion received two letters signed by the spouses Bhagwandas B. Gidwani and Sati B. Gidwani. In the first letter, the spouses stated that they have assigned all their rights to 34,846 shares belonging to them in favor of Samuel Sharuff and request that the corresponding notation be made thereof in the stock and transfer book of the corporation, with the promise, however, that 'in due time ... the stock certificate duly accomplished and endorsed in favor of Mr. Samuel Sharuff would be forwarded to MARINDUQUE.
In the second letter, the Gidwani spouses stated that they were not yet able to recover the corresponding stock certificates which they assigned to Samuel Sharuff and so they requested that they be and cancelled, and thereafter new ones be issued in lieu thereof in favor of Samuel Sharuff.
At first, the stock transfer clerk refund to acknowledge receipt of the letters for the reason that the corresponding stock tea had not been enclosed them- with. Later, she had a telephone conversation with a party who introduced himself as Samuel Sharuff. After talking for a time, the party claiming 110 be Samuel Sharuff was able to prevail upon the stock transfer clerk to receive the two letters and to prepare a reply thereto along the line suggested by the former. The stock transfer-clerk typed the letter, after which she signed it in behalf of the transfer agents of MARINDUQUE. In the third paragraph of the letter, it was stated that a 'atop transfer' notation would be made in the records of the corporation that the stock certificates in the name of either the Gidwani spouses would be cancelled only if the instruction accompanying them was to issue new shares in the name of Samuel Sharuff.
On December 5, 1968, counsel for Sharuff wrote the transfer agents of MARINDUQUE to cancel the stock certificates issued in the name of DOMESTIC INSURANCE and to issue in lieu thereof new ones in the name of his client.
The transfer agents of MARINDUQUE declined to recall the shares issued in the name of the plaintiff with the explanation that the stop order' notation made at the instance of Samuel Sharuff had no basis because the shares in question were pledged to DOMESTIC INSURANCE and the pledge had been foreclosed, with the pledgee acquiring them at the auction sale.
As a result of this denial the Gidwani spouses joined by Samuel Sharuff sued DOMESTIC INSURANCE and MARINDUQUE, and in their complaint, the plaintiffs prayed that the pledge of the shares of Sati Gidwani be declared to have been extinguished; that the sale of the pledged shares to DOMESTIC INSURANCE was null all void, and that MARINDUQUE be to issue new shares in favor of Samuel Sharuff and to the defendants to pay attorney's few in the sum of P10,000.00.
The plaintiffs contend that the filing by DOMESTIC INSURANCE of an action based on the counter-guaranty, and obtaining therein a judgment in its favor with a partial satisfaction thereof, released the Hen of the plaintiff on the shares pledged to it by Sati Gidwani The defendants, more particularly, DOMESTIC INSURANCE, however, maintain the contrary view. (Decision pp. 1-7)
