Outline 4 Corporation Code Romero

OUTLINE 4 Corporation Code
Outline 4
BUS. ORG2 OUTLINE 4 (2016)
Prof. M.I.P. Romero
2013400036
4) Subscribed Capital Stock
Mariano Rivera, an incorporator, subscribed for 450 shares representing a value

of P45, 000. In the course of time, the company became insolvent and went into
the hands of the Phil. Trust Co., as assignee in bankruptcy, and was instituted to
recover of the stock subscription of Rivera, which admittedly has never been
paid. Rivera claims that he did not pay because not long after the incorporation,
a stockholders meeting occurred at which the capital should be reduced by 50%
and the subscribers released from the obligation to pay any unpaid balance of
their subscription in excess of 50% of the same. As a result of the resolution, the
supposed subscription of the various shareholders had been cancelled to the
extent stated and fully paid certificates were issued to each shareholders for
of his subscription. It does not appear that the formalities prescribed in section
17 of the Corporation Law (Act No. 1459), as amended, relative to the reduction
of capital stock in corporations were observed, and in particular it does not
appear that any certificate was at any time filed in the Bureau of Commerce and
Industry, showing such reduction.
5) Paid-in Capital
The Lower Court held the defendant was still liable for the unpaid balance of his
subscription.
Vlll. CAPITAL STRUCTURE OF CORPORATIONS

A. Concepts:
1) Capital vis--vis Capital Stock
2) Shares of Stock vis--vis Stock Certificate
3) Authorized Capital Stock
Issue:
6) Outstanding Capital Stock Sec. 137
1) Whether or not the reduction of capital by 50% is valid?

2) Whether or not Rivera is released from his obligation to pay the
remaining balance of his subscription?
7) Watered stock - Sec. 65
Held:
The Court held:
B. Trust Fund Doctrine - vis--vis corporate assets

- vis--vis subscribed capital stock
G.R. No. L-19761
Phil. Trust Co. v. Rivera 44 Phil. 469

January 29, 1923
Doctrine: A corporation has no power to release an original subscriber to its

capital stock from the obligation of paying for his shares, without a
valuable consideration for such release; and as against creditors a
reduction of the capital stock can take place only in the manner an under
the conditions prescribed by the statute or the charter or the articles of
incorporation.
Facts: In 1918, the Cooperativa Naval Filipina was duly incorporated with a
capital of P100, 000 divided into 1,000 shares of a par value of P100 each.
1) That the reduction is not valid. The resolution releasing the

shareholders from their obligation to pay 50 per centum of their
respective subscriptions was an attempted withdrawal of so much
capital from the fund upon which the companys creditors were entitled
ultimately to rely and, having been effected without compliance with the
statutory requirements, was wholly ineffectual.
2) That Rivera is not released from his obligation. It is established
doctrine that subscription to the capital of a corporation constitute
a find to which creditors have a right to look for satisfaction of
their claims and that the assignee in insolvency can maintain an
action upon any unpaid stock subscription in order to realize
assets for the payment of its debts. A corporation has no power to
release an original subscriber to its capital stock from the
obligation of paying for his shares, without a valuable
consideration for such release; and as against creditors a
2013400036
reduction of the capital stock can take place only in the manner an seeking confirmation of their rescission of the Pre-Subscription Agreement. After
under the conditions prescribed by the statute or the charter or the hearing, the SEC, through then Hearing Officer Rolando G. Andaya, Jr., issued
articles of incorporation
a decision on 19 May 1997 confirming the rescission sought by the Tius. On
motion of both parties, the above decision was partially reconsidered but only
insofar as the Ongs' P70 million was declared not as a premium on capital stock
Ong Yong v. Tiu G.R. 144476; 4/8/2003
but an advance (loan) by the Ongs to FLADC and that the imposition of interest
on it was correct. Both parties appealed to the SEC en banc which rendered a
G. R. No. 144478 /8 April 2003 / Trust Fund Doctrine
Facts: In 1994, the construction of the Masagana Citimall in Pasay City was decision on 11 September 1998, affirming the 19 May 1997 decision of the
threatened with stoppage and incompletion when its owner, the First Landlink Hearing Officer. The SEC en banc confirmed the rescission of the PreAsia Development Corporation (FLADC), which was owned by David S. Tiu, Cely Subscription Agreement but reverted to classifying the P70 million paid by the
Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Ongs as premium on capital and not as a loan or advance to FLADC, hence, not
Tiu (the Tius), encountered dire financial difficulties. It was heavily indebted to the entitled to Commercial Law - Corporation Law, 2005 ( 76 ) Narratives (Berne
Philippine National Bank (PNB) for P190 million. To stave off foreclosure of the Guerrero) earn interest. On appeal, the Court of Appeals (CA) rendered a
mortgage on the two lots where the mall was being built, the Tius invited Ong decision on 5 October 1999, modifying the SEC order of 11 September 1998.
Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Their motions for reconsideration having been denied, both parties filed
Ong Alonzo (the Ongs), to invest in FLADC. Under the Pre-Subscription separate petitions for review before the Supreme Court. On 1 February 2002,
Agreement they entered into, the Ongs and the Tius agreed to maintain equal the Supreme Court promulgated its Decision, affirming the assailed decision of
shareholdings in FLADC: the Ongs were to subscribe to 1,000,000 shares at a the Court of Appeals but with the modifications that the P20 million loan
par value of P100.00 each while the Tius were to subscribe to an additional extended by the Ongs to the Tius shall earn interest at 12% per annum to be
549,800 shares at P100.00 each in addition to their already existing subscription computed from the time of judicial demand which is from 23 April 1996; that the
of 450,200 shares. Furthermore, they agreed that the Tius were entitled to P70 million advanced by the Ongs to the FLADC shall earn interest at 10% per
nominate the Vice-President and the Treasurer plus 5 directors while the Ongs annum to be computed from the date of the FLADC Board Resolution which is
were entitled to nominate the President, the Secretary and 6 directors (including 19 June 1996; and that the Tius shall be credited with 49,800 shares in FLADC
the chairman) to the board of directors of FLADC. Moreover, the Ongs were for their property contribution, specifically, the 151 sq. m. parcel of land. The
given the right to manage and operate the mall. Accordingly, the Ongs paid P100 Court affirmed the fact that both the Ongs and the Tius violated their respective
million in cash for their subscription to 1,000,000 shares of stock while the Tius obligations under the Pre-Subscription Agreement. On 15 March 2002, the Tius
committed to contribute to FLADC a four-storey building and two parcels of land filed before the Court a Motion for Issuance of a Writ of Execution. Aside from
respectively valued at P20 million (for 200,000 shares), P30 million (for 300,000 their opposition to the Tius' Motion for Issuance of Writ of Execution, the Ongs
shares) and P49.8 million (for 49,800 shares) to cover their additional 549,800 filed their own "Motion for Reconsideration; Alternatively, Motion for Modification
stock subscription therein. The Ongs paid in another P70 million 3 to FLADC and (of the February 1, 2002 Decision)" on 15 March 2002. Willie Ong filed a
P20 million to the Tius over and above their P100 million investment, the total separate "Motion for Partial Reconsideration" dated 8 March 2002, pointing out
sum of which (P190 million) was used to settle the P190 million mortgage that there was no violation of the Pre-Subscription Agreement on the part of the
indebtedness of FLADC to PNB. The business harmony between the Ongs and Ongs, among others. On 29 January 2003, the Special Second Division of this
the Tius in FLADC, however, was shortlived because the Tius, on 23 February Court held oral arguments on the respective positions of the parties. On 27
1996, rescinded the Pre-Subscription Agreement. The Tius accused the Ongs of February 2003, Dr. Willie Ong and the rest of the movants Ong filed their
(1) refusing to credit to them the FLADC shares covering their real property respective memoranda. On 28 February 2003, the Tius submitted their
contributions; (2) preventing David S. Tiu and Cely Y. Tiu from assuming the memorandum
positions of and performing their duties as Vice-President and Treasurer,
respectively, and (3) refusing to give them the office spaces agreed upon. The ISSUE: WON RECISSION IS THE PROPER REMEDY
controversy finally came to a head when the case was commenced by the Tius HELD:No. first of all, a subscription contract as defined under Section 60, Title
on 27 February 1996 at the Securities and Exchange Commission (SEC), VII of the Corporation Code:
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Any contract for the acquisition of unissued stock in an existing corporation or a

corporation still to be formed shall be deemed a subscription within the meaning
of this Title, notwithstanding the fact that theparties refer to it as a purchase or
some other contract
and eventual liquidation of the corporation. Furthermore, the doctrine is

articulated in Section 41 on the power of a corporation to acquire its own shares
and in Section 122 on the prohibition against the distribution of corporate assets
and property unless the stringent requirements therefor are complied with.
A subscription contract necessarily involves the corporation as one of the

contracting parties since the subject matter of the transaction is property owned
by the corporation its shares of stock. Thus, the subscription contract
(denominated by the parties as a Pre-Subscription Agreement) whereby the
Ongs invested P100 million for 1,000,000 shares of stock was, from the
viewpoint of the law, one between the Ongs and FLADC, not between the Ongs
and the Tius. Otherwise stated, the Tius did not contract in their personal
capacities with the Ongs since they were not selling any of their own shares to
them. It was FLADC that did.
The distribution of corporate assets and property cannot be made to

depend on the whims and caprices of the stockholders, officers or directors of
the corporation, or even, for that matter, on the earnest desire of the court a
quo to prevent further squabbles and future litigations unless the indispensable
conditions and procedures for the protection of corporate creditors are followed.
Otherwise, the corporate peace laudably hoped for by the court will remain
nothing but a dream because this time, it will be the creditors turn to engage in
squabbles and litigations should the court order an unlawful distribution in
blatant disregard of the Trust Fund Doctrine.
Considering therefore that the real contracting parties to the subscription

agreement were FLADC and the Ongs alone, a civil case for rescission on the
ground of breach of contract filed by the Tius in their personal capacities will not
prosper. Assuming it had valid reasons to do so, only FLADC (and certainly not
the Tius) had the legal personality to file suit rescinding the subscription
agreement with the Ongs inasmuch as it was the real party in interest
therein. Article 1311 of the Civil Code provides that contracts take effect only
between the parties, their assigns and heirs Therefore, a party who has not taken
part in the transaction cannot sue or be sued for performance or for cancellation
thereof, unless he shows that he has a real interest affected thereby
In the instant case, the rescission of the Pre-Subscription Agreement will

effectively result in the unauthorized distribution of the capital assets and
property of the corporation, thereby violating the Trust Fund Doctrine and the
Corporation Code, since rescission of a subscription agreement is not one of the
instances when distribution of capital assets and property of the corporation is
allowed.
All this notwithstanding, granting but not conceding that the Tius possess the
legal standing to sue for rescission based on breach of contract, said action will
nevertheless still not prosper since rescission will violate the Trust Fund
Doctrine and the procedures for the valid distribution of assets and property
under the Corporation Code.
The Trust Fund Doctrine, first enunciated by this Court in the 1923 case
of Philippine Trust Co. vs. Rivera, provides that subscriptions to the capital stock
of a corporation constitute a fund to which the creditors have a right to look for
the satisfaction of their claims. This doctrine is the underlying principle in the
procedure for the distribution of capital assets, embodied in the Corporation
Code, which allows the distribution of corporate capital only in three
instances: (1) amendment of the Articles of Incorporation to reduce the
authorized capital stock, (2) purchase of redeemable shares by the corporation,
regardless of the existence of unrestricted retained earnings, and (3) dissolution
Halley v. Printwell, Inc. G.R. 157549; May 30, 2011

FACTS:
BMPI (Business Media Philippines Inc.) is a corporation under the
control of its stockholders, including Donnina Halley.
In the course of its business, BMPI commissioned PRINTWELL to print
Philippines, Inc. (a magazine published and distributed by BMPI)
PRINTWELL extended 30-day credit accommodation in favor of BMPI
and in a period of 9 mos. BMPI placed several orders amounting to
316,000.
However, only 25,000 was paid hence a balance of 291,000
PRINTWELL sued BMPI for collection of the unpaid balance and later
on impleaded BMPIs original stockholders and incorporators to recover
on their unpaid subscriptions.
It appears that BMPI has an authorized capital stock of 3M divided into
300,000shares with P10 par value.
Only 75,000 shares worth P750,000 were originally subscribed of
whichP187,500 were paid up capital.
Halley subscribed to 35,000 shares worth P350,000 but only paid

P87,500.
Halley contends that:
1. They all had already paid their subscriptions in full
2. BMPI had a separate and distinct personality
3. BOD and SH had resolved to dissolve BMPIRTC and CA
2013400036
to its capital stock from the obligation of paying for his shares, in whole or in
part, without valuable consideration, or fraudulently, to the prejudice of the
creditors.
The creditor is allowed to maintain an action upon any unpaid
subscriptions and thereby steps into the shoes of the corporation for the
satisfaction of its debt.
Defendant merely used the corporate fiction as a cloak/cover to create

C. Doctrine of Equality of Shares Sec. 6, par.5
an injustice (against PRINTWELL)
Rejected allegations of full payment in view of irregularity in the issuance Sec. 6, par.5
of ORs (Payment made on a later date was covered by an OR with a
lower serial number than payment made on an earlier date.
ISSUE:
Castillo v. Balinghasay Oct. 18, 2004 [G.R. No. 150976. October 18, 2004.]
WON a stockholder who was in active management of the business of the
corporation and still has unpaid subscriptions should be made liable for the debts
CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S. FLORES, XERXES
of the corporation by piercing the veil of corporate fiction.
NAVARRO, MARIA ANTONIA TEMPLO and MEDICAL CENTER PARAAQUE,
HELD:
INC., petitioners, vs. ANGELES BALINGHASAY, RENATO BERNABE, ALODIA
YES! Such stockholder should be made liable up to the extent of her unpaid
DEL ROSARIO, ROMEO FUNTILA, TERESITA GAYANILO, RUSTICO
subscription.
JIMENEZ, ARACELI ** JO, ESMERALDA MEDINA, CECILIA MONTALBAN,
RATIO:
VIRGILIO OBLEPIAS, CARMENCITA PARRENO, CESAR REYES, REYNALDO
It was found that at the time the obligation was incurred, BMPI was under the
SAVET, SERAPIO TACCAD, VICENTE VALDEZ, SALVACION VILLAMORA,
control of its stockholders who know fully well that the corporation was not in a
and HUMBERTO VILLAREAL, respondents.
position to pay its account (thinly capitalized).
And, that the stockholders personally benefited from the operations of the
corporation even though they never paid their subscriptions in full. The
stockholders cannot now claim the doctrine of corporate fiction otherwise (to DOCTRINE:
deny creditors to collect from SH) it would create an injustice because creditors
would be at a loss (limbo) against whom it would assert the right to collect.
One of the rights of a stockholder is the right to participate in the control and
On piercing the veil:
management of the corporation that is exercised through his vote. The right to
Although the corporation has a personality separate and distinct from its SH, vote is a right inherent in and incidental to the ownership of corporate stock,
such personality is merely a legal fiction (for the convenience and to promote the and as such is a property right. The stockholder cannot be deprived of the right
ends of justice) which may be disregarded by the courts if it is used as a cloak or to vote his stock nor may the right be essentially impaired, either by the
cover for fraud, justification of a wrong, or an alter ego for the sole benefit of the legislature or by the corporation, without his consent, through amending the
SH.
charter, or the by-laws.
As to the Trust Fund Doctrine:
The RTC and CA correctly applied the Trust Fund Doctrine. Under which Section 6 of the Corporation Code being deemed written into Article VII of the
corporate debtors might look to the unpaid subscriptions for the satisfaction of Articles of Incorporation of MCPI, it necessarily follows that unless Class "B"
unpaid corporate debts
shares of MCPI stocks are clearly categorized to be "preferred" or
Subscriptions to the capital of a corporation constitutes a trust fund for the "redeemable" shares, the holders of said Class "B" shares may not be deprived
payment of the creditors (by mere analogy) In reality, corporation is a simple of their voting rights. Note that there is nothing in the Articles of Incorporation
debtor.
nor an iota of evidence on record to show that Class "B" shares were
Moreover, the corporation has no legal capacity to release an original subscriber categorized as either "preferred" or "redeemable" shares. The only possible
conclusion is that Class "B" shares fall under neither category and thus, under
the law, are allowed to exercise voting rights.
2013400036
Only holders of Class A shares have the right to vote and the right to be elected
as directors or as corporate officers. 3 (Emphasis supplied)
The foregoing amendment was approved by the SEC on June 7, 1983. While
the amendment granted the right to vote and to be elected as directors or
FACTS: Petitioners and the respondents are stockholders of MCPI, with the corporate officers only to holders of Class "A" shares, holders of Class "B"
former holding Class "B" shares and the latter owning Class "A" shares.
stocks were granted the same rights and privileges as holders of Class "A"
stocks with respect to the payment of dividends.
MCPI is a domestic corporation with offices at Dr. A. Santos Avenue, Sucat,
Paraaque City. It was organized sometime in September 1977. At the time of its On September 9, 1992, Article VII was again amended to provide as follows:
incorporation, Act No. 1459, the old Corporation Law was still in force and effect.
Article VII of MCPI's original Articles of Incorporation, as approved by the
SEVENTH: That the authorized capital stock of the
Securities and Exchange Commission (SEC) on October 26, 1977, reads as
corporation is THIRTY TWO MILLION PESOS
follows:
(P32,000,000.00) divided as follows:
SEVENTH. That the authorized capital stock of the
corporation is TWO MILLION (P2,000,000.00) PESOS,
Philippine Currency, divided into TWO THOUSAND
(2,000) SHARES at a par value of P100 each share,
whereby the ONE THOUSAND SHARES issued to, and
subscribed by, the incorporating stockholders shall be
classified as Class A shares while the other ONE
THOUSAND unissued shares shall be considered as
Class B shares. Only holders of Class A shares can
have the right to vote and the right to be elected as
directors or as corporate officers. 2 (Emphasis supplied)
CLASS NO. OF SHARES PAR VALUE

"A" 1,000 P1,000.00
"B" 31,000 1,000.00
Except when otherwise provided by law, only holders of Class "A" shares
have the right to vote and the right to be elected as directors or as corporate
officers 4 (Stress and emphasis supplied).
The SEC approved the foregoing amendment on September 22, 1993.

On July 31, 1981, Article VII of the Articles of Incorporation of MCPI was
amended, to read thus:
On February 9, 2001, the shareholders of MCPI held their annual stockholders'
meeting and election for directors. During the course of the proceedings,
SEVENTH. That the authorized capital stock of the
respondent Rustico Jimenez, citing Article VII, as amended, and notwithstanding
corporation is FIVE MILLION (P5,000,000.00) PESOS,
MCPI's history, declared over the objections of herein petitioners, that no Class
divided as follows:
"B" shareholder was qualified to run or be voted upon as a director. In the past,
MCPI had seen holders of Class "B" shares voted for and serve as members of
the corporate board and some Class "B" share owners were in fact nominated
CLASS NO. OF SHARES PAR VALUE
for election as board members. Nonetheless, Jimenez went on to announce that
the candidates holding Class "A" shares were the winners of all seats in the
"A" 1,000 P1,000.00
corporate board. The petitioners protested, claiming that Article VII was null and
void for depriving them, as Class "B" shareholders, of their right to vote and to
"B" 4,000 P1,000.00
be voted upon, in violation of the Corporation Code (Batas Pambansa Blg. 68),
as amended.
2013400036
RTC: On March 22, 2001, after their protest was given short shrift, herein Petitioners assert that Article VII of the Articles of Incorporation of MCPI, which
petitioners filed a Complaint for Injunction, Accounting and Damages. Said denied them voting rights, is null and void for being contrary to Section 6 of the
complaint was founded on two (2) principal causes of action, namely:
Corporation Code. They point out that Section 6 prohibits the deprivation of
voting rights except as to preferred and redeemable shares only. Hence, under
the present law on corporations, all shareholders, regardless of classification,
a. Annulment of the declaration of directors of the MCPI
other than holders of preferred or redeemable shares, are entitled to vote and to
made during the February 9, 2001 Annual Stockholders'
be elected as corporate directors or officers. Since the Class "B" shareholders
Meeting, and for the conduct of an election whereat all
are not classified as holders of either preferred or redeemable shares, then it
stockholders, irrespective of the classification of the
necessarily follows that they are entitled to vote and to be voted for as directors
shares they hold, should be afforded their right to vote
or officers. CHEIcS
and be voted for; and
The respondents, in turn, maintain that the grant of exclusive voting rights to
Class "A" shares is clearly provided in the Articles of Incorporation and is in
accord with Section 5 9 of the Corporation Law (Act No. 1459), which was the
prevailing law when MCPI was incorporated in 1977. They likewise submit that
as the Articles of Incorporation of MCPI is in the nature of a contract between
Subsequently, the complaint was amended to implead MCPI as party-plaintiff for
the corporation and its shareholders and Section 6 of the Corporation Code
purposes only of the second cause of action.
could not retroactively apply to it without violating the non-impairment clause 10
of the Constitution.
RTC rendered the Partial Judgment. In finding for the respondents, the trial court
ruled that corporations had the power to classify their shares of stocks, such as
HELD: We find merit in the petition.
"voting and non-voting" shares, conformably with Section 6 7 of the Corporation
Code of the Philippines. It pointed out that Article VII of both the original and
amended Articles of Incorporation clearly provided that only Class "A" When Article VII of the Articles of Incorporation of MCPI was amended in
shareholders could vote and be voted for to the exclusion of Class "B" 1992, the phrase "except when otherwise provided by law " was inserted in
shareholders, the exception being in instances provided by law, such as those the provision governing the grant of voting powers to Class "A"
enumerated in Section 6, paragraph 6 of the Corporation Code.The RTC found shareholders. This particular amendment is relevant for it speaks of a law
merit in the respondents' theory that the Articles of Incorporation, which defines providing for exceptions to the exclusive grant of voting rights to Class
the rights and limitations of all its shareholders, is a contract between MCPI and "A" stockholders. Which law was the amendment referring to? The
its shareholders. It is thus the law between the parties and should be strictly determination of which law to apply is necessary. There are two laws being cited
enforced as to them. It brushed aside the petitioners' claim that the Class "A" and relied upon by the parties in this case. In this instance, the law in force at
shareholders were in estoppel, as the election of Class "B" shareholders to the the time of the 1992 amendment was the Corporation Code (B.P. Blg. 68), not
corporate board may be deemed as a mere act of benevolence on the part of the the Corporation Law (Act No. 1459), which had been repealed by then.
officers. Finally, the court brushed aside the "founder's shares" theory of the
petitioners for lack of factual basis.
We find and so hold that the law referred to in the amendment to Article VII
refers to the Corporation Code and no other law. At the time of the incorporation
ISSUE: Whether or not holders of Class "B" shares of the MCPI may be deprived of MCPI in 1977, the right of a corporation to classify its shares of stock was
sanctioned by Section 5 of Act No. 1459. The law repealing Act No. 1459, B.P.
of the right to vote and be voted for as directors in MCPI. (NO)
Blg. 68, retained the same grant of right of classification of stock shares to
corporations, but with a significant change. Under Section 6 of B.P. Blg. 68, the
ARGUMENTS:
requirements and restrictions on voting rights were explicitly provided for, such
that "no share may be deprived of voting rights except those classified and
b. Stockholders' derivative suit challenging the validity of
a contract entered into by the Board of Directors of MCPI
for the operation of the ultrasound unit. 5

issued as "preferred" or "redeemable" shares, unless otherwise provided in this
Code" and that "there shall always be a class or series of shares which have
complete voting rights." Section 6 of the Corporation Code being deemed
written into Article VII of the Articles of Incorporation of MCPI, it necessarily
follows that unless Class "B" shares of MCPI stocks are clearly categorized
to be "preferred" or "redeemable" shares, the holders of said Class "B"
shares may not be deprived of their voting rights. Note that there is nothing
in the Articles of Incorporation nor an iota of evidence on record to show
that Class "B" shares were categorized as either "preferred" or
"redeemable" shares. The only possible conclusion is that Class "B"
shares fall under neither category and thus, under the law, are allowed to
exercise voting rights.
One of the rights of a stockholder is the right to participate in the control and
management of the corporation that is exercised through his vote. The right to
vote is a right inherent in and incidental to the ownership of corporate stock, and
as such is a property right. The stockholder cannot be deprived of the right to
vote his stock nor may the right be essentially impaired, either by the legislature
or by the corporation, without his consent, through amending the charter, or the
by-laws.
When Article VII of the Articles of Incorporation of MCPI were amended in 1992,
the board of directors and stockholders must have been aware of Section 6 of
the Corporation Code and intended that Article VII be construed in harmony with
the Code, which was then already in force and effect. Since Section 6 of the
Corporation Code expressly prohibits the deprivation of voting rights, except as to
"preferred" and "redeemable" shares, then Article VII of the Articles of
Incorporation cannot be construed as granting exclusive voting rights to Class "A"
shareholders, to the prejudice of Class "B" shareholders, without running afoul of
the letter and spirit of the Corporation Code.
D. Classification of Shares Rationale

- Sec. 6, 7, 8, 9
a) Par value shares
b) No par value shares Sec. 62;
Delpher Trades Corp. v. IAC (1988) 157 SCRA 349
2013400036
DELPHER TRADES CORPORATION, and DELPHIN
PACHECO
vs.
INTERMEDIATE APPELLATE COURT
G.R. No. L-69259. January 26, 1988
FACTS:
Delfin Pacheco and his sister, Pelagia Pacheco, were
the owners of real estate property. The said co-owners
leased to Construction Components International Inc. the
same property and providing that during the existence or
after the term of this lease the lessor should he decide to
sell the property leased shall first offer the same to the
lessee and the letter has the priority to buy under similar
conditions. Subsequently, lessee assigned its rights and
obligations under the contract of lease in favor of Hydro
Pipes Philippines, Inc.
A deed of exchange was executed between Delfin and
Pelagia Pacheco and defendant Delpher Trades Corporation
whereby the former conveyed to the latter the leased
property for 2,500 shares of stock of defendant corporation
with a total value of P1,500,000.00. On the ground that it
was not given the first option to buy the leased property
pursuant to the proviso in the lease agreement, respondent
Hydro Pipes Philippines, Inc., filed an amended complaint
for reconveyance of the property in its favor under
conditions similar to those whereby Delpher Trades
Corporation acquired the property from Pelagia Pacheco and
7
2013400036
Delphin Pacheco.
group.
Respondents on the other hand stated that there was
In effect, the Delpher Trades Corporation is a
no transfer of ownership over the properties.
business conduit of the Pachecos. What they really did was
to invest their properties and change the nature of their
ownership from unincorporated to incorporated form by
ISSUE:
organizing Delpher Trades Corporation to take control of
Whether or not there was an effective transfer of their properties and at the same time save on inheritance
taxes.
property in this case.
RULING:
NO.
After incorporation, one becomes a stockholder of a
corporation by subscription or by purchasing stock directly
from the corporation or from individual owners thereof. In
the case at bar, in exchange for their properties, the
Pachecos acquired 2,500 original unissued no par value
shares of stocks of the Delpher Trades Corporation.
Consequently, the Pachecos became stockholders of the
corporation by subscription "The essence of the stock
subscription is an agreement to take and pay for original
unissued shares of a corporation, formed or to be formed. It
is significant that the Pachecos took no par value shares in
exchange for their properties.
It is to be stressed that by their ownership of the 2,500
no par shares of stock, the Pachecos have control of the
corporation. Their equity capital is 55% as against 45% of
the other stockholders, who also belong to the same family
The "Deed of Exchange" of property between the Pachecos

and Delpher Trades Corporation cannot be considered a contract of
sale. There was no transfer of actual ownership interests by the
Pachecos to a third party. The Pacheco family merely changed their
ownership from one form to another. The ownership remained in
the same hands. Hence, the private respondent has no basis for its
claim of a light of first refusal under the lease contract.
- issued price
- deemed fully paid and non-assessable
c) Common shares
d) Preferred shares may be voting or non-voting; other types e)
Redeemable shares
f) Founders shares
g) Treasury shares
e) Voting shares
f) Non-voting shares
E. OTHER CASES ---
2013400036
Gamboa v. Teves, et al (GR 176579; 6/28/ 2011 and 10/ 9/ 2012)

Any other construction of the term "capital" in Section 11, Article XII of the
HEIRS OF WILSON P. GAMBOA VS. FINANCE SECRETARY MARGARITO B. Constitution contravenes the letter and intent of the Constitution. Any other
TEVES G.R. No. 176579 (Resolution), October 9, 2012
meaning of the term "capital" openly invites alien domination of economic
activities reserved exclusively to Philippine nationals. Therefore, respondents'
FACTS: The issue started when petitioner Wilson P. Gamboa, a stockholder of
interpretation will ultimately result in handing over effective control of our
Philippine Long Distance Telephone Company (PLDT) questioned the indirect
national economy to foreigners in patent violation of the Constitution, making
sale of shares involving almost 12 million shares of the Philippine Long Distance
Filipinos second-class citizens in their own country.
Telephone Company (PLDT) owned by Philippine Telecommunications
Investment Corporation (PTIC) by the government of the Republic of the
Relate to SEC Memo Circ. 8, s2013 (Guidelines in Fil-Foreign ownership)
Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First
Pacific Company Limited (First Pacific).
Republic Planters Bank v. Agana ( GR 51765; Mar. 3, 1997)
With the sale, First Pacific's common shareholdings in PLDT increased from 30.7
percent to 37 percent, thereby increasing the common shareholdings of
foreigners in PLDT to about 81.47 percent. Petitioner contends that this violates
Section 11, Article XII of the 1987 Philippine Constitution which limits foreign
ownership of the capital of a public utility to not more than 40%. Then, in 2011,
the court ruled the case in favor of the petitioner, hence this new case, resolving
the motion for reconsideration for the 2011 decision filed by the respondents.
Doctrine:
On 18 September 1961, the Robes-Francisco Realty & Development

Corporation (RFRDC) secured a loan from the Republic Planters Bank in the
amount of P120,000.00. As part of the proceeds of the loan, preferred shares of
stocks were issued to RFRDC through its officers then, Adalia F. Robes and one
Carlos F. Robes. In other words, instead of giving the legal tender totaling to the
ISSUE: Whether or not the Court made an erroneous interpretation of the term
full amount of the loan, which is P120,000.00, the Bank lent such amount
capital in its 2011 decision.
partially in the form of money and partially in the form of stock certificates
HELD: No. The Constitution expressly declares as State policy the development numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per
share, or for P4,000.00 each, for a total of P8,000.00. Said stock certificates
of an economy "effectively controlled" by Filipinos. Consistent with such State
policy, the Constitution explicitly reserves the ownership and operation of public were in the name of Adalia F. Robes and Carlos F. Robes, who subsequently,
utilities to Philippine nationals, who are defined in the Foreign Investments Act of however, endorsed his shares in favor of Adalia F. Robes.
1991 as Filipino citizens, or corporations or associations at least 60 percent of
Said certificates of stock bear the following terms and conditions: "The Preferred
whose capital with voting rights belongs to Filipinos. The FIA's implementing
Stock shall have the following rights, preferences, qualifications and limitations,
rules explain that "[f]or stocks to be deemed owned and held by Philippine
citizens or Philippine nationals, mere legal title is not enough to meet the required to wit: 1. Of the right to receive a quarterly dividend of 1%, cumulative and
participating. xxx 2. That such preferred shares may be redeemed, by the
Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate
system of drawing lots, at any time after 2 years from the date of issue at the
voting rights is essential." In effect, the FIA clarifies, reiterates and confirms the
option of the Corporation." On 31 January 1979, RFRDC and Robes proceeded
interpretation that the term "capital" in Section 11, Article XII of the 1987
against the Bank and filed a complaint anchored on their alleged rights to collect
Constitution refers to shares with voting rights, as well as with full beneficial
ownership. This is precisely because the right to vote in the election of directors, dividends under the preferred shares in question and to have the bank redeem
coupled with full beneficial ownership of stocks, translates to effective control of a the same under the terms and conditions of the stock certificates. The bank filed
a Motion to Dismiss 3 private respondents' Complaint on the following grounds:
corporation. Thus, "the 60-40 ownership requirement in favor of
(1) that the trial court had no jurisdiction over the subject-matter of the action; (2)
Filipino citizens must apply separately to each class of shares, whether common, that the action was unenforceable under substantive law; and (3) that the action
preferred non-voting, preferred voting or any other class of shares." This
was barred by the statute of limitations and/or laches. The bank's Motion to
guarantees that the controlling interest in public utilities always lies in the hands Dismiss was denied by the trial court in an order dated 16 March 1979. The
of Filipino citizens.
bank then filed its Answer on 2 May 1979. Thereafter, the trial court gave the
parties 10 days from 30 July 1979 to submit their respective memoranda after

the submission of which the case would be deemed submitted for resolution. On
7 September 1979, the trial court rendered the decision in favor of RFRDC and
Robes; ordering the bank to pay RFRDC and Robes the face value of the stock
certificates as redemption price, plus 1% quarterly interest thereon until full
payment. The bank filed the petition for certiorari with the Supreme Court,
essentially on pure questions of law.
The trial court ordered the petitioner to pay private respondents the face value of
the stock certificates as redemption price, plus 1% quarterly interest. Hence
this petition.
Issue:
1) Whether the bank can be compelled to redeem the preferred shares

issued to RFRDC and Robes?; and
2) Whether RFRDC and Robes are entitled to the payment of certain rate of
interest on the stocks as a matter of right without necessity of a prior
declaration of dividend?
Held:
1) While the stock certificate does allow redemption, the option to do so
was clearly vested in the bank. The redemption therefore is clearly the
type known as "optional". Thus, except as otherwise provided in the
stock certificate, the redemption rests entirely with the corporation and
the stockholder is without right to either compel or refuse the redemption
of its stock. Furthermore, the terms and conditions set forth therein use
the word "may". It is a settled doctrine in statutory construction that the
word "may" denotes discretion, and cannot be construed as having a
mandatory effect. The redemption of said shares cannot be allowed. The
Central Bank made a finding that the Bank has been suffering from
chronic reserve deficiency, and that such finding resulted in a directive,
issued on 31 January 1973 by then Gov. G. S. Licaros of the Central
Bank, to the President and Acting Chairman of the Board of the bank
prohibiting the latter from redeeming any preferred share, on the ground
that said redemption would reduce the assets of the Bank to the
prejudice of its depositors and creditors. Redemption of preferred shares
2013400036
was prohibited for a just and valid reason. The directive issued by the
Central Bank Governor was obviously meant to preserve the status quo,
and to prevent the financial ruin of a banking institution that would have
resulted in adverse repercussions, not only to its depositors and
creditors, but also to the banking industry as a whole. The directive, in
limiting the exercise of a right granted by law to a corporate entity, may
thus be considered as an exercise of police power.
2) Both Section 16 of the Corporation Law and Section 43 of the
present Corporation Code prohibit the issuance of any stock
dividend without the approval of stockholders, representing not
less than two-thirds (2/3) of the outstanding capital stock at a
regular or special meeting duly called for the purpose. These
provisions underscore the fact that payment of dividends to a
stockholder is not a matter of right but a matter of consensus.
Furthermore, "interest bearing stocks", on which the corporation
agrees absolutely to pay interest before dividends are paid to
common stockholders, is legal only when construed as requiring
payment of interest as dividends from net earnings or surplus only.
In compelling the bank to redeem the shares and to pay the
corresponding dividends, the Trial committed grave abuse of
discretion amounting to lack or excess of jurisdiction in ignoring
both the terms and conditions specified in the stock certificate, as
well as the clear mandate of the law.
COCOFED v. RP (GR Nos. 177857-58; 178193; 180705 promulgated Sept.
17, 2009) re conversion of shares
F. STOCKS & STOCKHOLDERS
Sec. 60 -73, 137, 90
1) Consideration for shares ----Garcia v. Lim Chu Sing 59 Phil. 562 (1934)
FACTS: Lim Cuan Sy had an account with the Mercantile Bank o f C h i n a
( p l a i n t i f f b a n k ) i n t h e f o r m o f " t r u s t r e c e i p t s guaranteed by
Lim Chu Sing (respondent) as surety & with chattel mortgage
securities. Lim Cuan Sy failed to comply with his obligations. The
plaintiff bank required Lim Chu Sing, as surety, to deliver a
promissory note. The plaintiff bank, without the knowledge & consent
of the d
efendant, f o r e c l o s e d t h e c h a t t e l m o r t g a g e a n d p r i v a t e l y s o l d
t h e property covered thereby. The defendant is an owner of shares
10

of stock in the plaintiff bank. Meanwhile, plaintiff bank was subsequently
placed u n d e r l i q u i d a t i o n . T h e d e f e n d a n t f i l e d a m o t i o n f o r t h e
inclusion of the principal debtor Lim Cuan Sy as party
defendant with the CFI-Manila so that he could avail himself of the benefit of
the exhaustion of the property of said Lim Cuan Sy. The motion was
denied. The proceeds of the sale of the mortgaged chattels together
with other payments made were applied to the amount of the promissory note
in question, leaving the balance which the plaintiff now seeks to collect.
2013400036
the unpaid subscription and that, accordingly, the alleged obligation is not
enforceable.
Labor arbiter sustained the claim of petitioner for P17,060.07 on the ground that
the employer has no right to withhold payment of wages already earned under
Article 103 of the Labor Code. NLRC reversed the decision of the labor arbiter
and held that a stockholder who fails to pay his unpaid subscription on call
becomes a debtor of the corporation and that the set-off of said obligation
against the wages and others due to petitioner is not contrary to law, morals and
public policy.
ISSUE: Whether or not it is proper to COMPENSATE the respondents

indebtedness to the value of his shares of stock with the Mercantile Hence, the instant petition, which was treated as a special civil action for
Bank of China.
certiorari.
HELD: NO. A share of stock or the certificate thereof is not
indebtedness to the owner nor evidence of indebtedness and
therefore, it is not a credit. Stockholders as such are not creditors of the
corporation. The capital stock of a corporation is a trust fund to be used
more particularly for the security of the creditors of the corporation who
presumably deal with it on the credit of its capital.
Apodaca v. NLRC 172 SCRA 442
APODACA v. NLRC DOCTRINE:
ISSUES:
(1) Does NLRC have jurisdiction to resolve a claim for non-payment of stock
subscriptions to a corporation? (2) Can an obligation arising therefrom be offset
against a money claim of an employee against the employer?
HELD: Petition granted. (1) No, NLRC has no jurisdiction to determine such
intra-corporate dispute between the stockholder and the corporation as in the
matter of unpaid subscriptions. This controversy is within the exclusive
jurisdiction of the Securities and Exchange Commission.
(2) No, the unpaid subscriptions are not due and payable until a call is made by
Consideration for shares unpaid subscriptions are not due and payable until a the corporation for payment. Private respondents have not presented a
call is made by the corporation for payment, subject to Art. 113 of the Labor resolution of the board of directors of respondent corporation calling for the
Code.
payment of the unpaid subscriptions. It does not even appear that a notice of
such call has been sent to petitioner by the respondent corporation. What the
FACTS:
records show is that the respondent corporation deducted the amount due to
Petitioner Apocada was employed in respondent corporation. On August 28, petitioner from the amount receivable from him for the unpaid subscriptions. Set1985, respondent Jose M. Mirasol persuaded petitioner to subscribe to 1,500 off was without lawful basis, if not premature. But, assuming that there was a
shares of respondent corporation at P100.00 per share or a total of P150,000.00. call for payment, the answer is still in the negative. The NLRC cannot set it off
He made an initial payment of P37,500.00. On September 1, 1975, petitioner against the wages and other benefits due petitioner. Article 113 of the Labor
was appointed President and General Manager of the respondent corporation. Code allows such a deduction only in instances, to wit:
However, on January 2, 1986, he resigned. On December 19, 1986, petitioner
instituted with the NLRC a complaint against private respondents (Apocada and ART. 113. Wage Deduction. No employer, in his own behalf or in behalf of
Intrans Phils., Inc.) for the payment of his unpaid wages, his cost of living any person, shall make any deduction from the wages of his employees, except:
allowance, the balance of his gasoline and representation expenses and his (a) In cases where the worker is insured with his consent by the employer, and
bonus compensation for 1986. Petitioner and private respondents submitted their the deduction is to recompense the employer for the amount paid by him as
position papers to the labor arbiter. Private respondents admitted that there is premium on the insurance;
due to petitioner the amount of P17,060.07 but this was applied to the unpaid (b) For union dues, in cases where the right of the worker or his union to
balance of Apocadas subscription in the amount of P95,439.93. Petitioner checkoff has been recognized by the employer or authorized in writing by the
questioned the set-off alleging that there was no call or notice for the payment of
11
2013400036
individual worker concerned; and (c) In cases where the employer is authorized
by law or regulations issued by the Secretary of Labor.
RULING:
National Exchange vs Dexter 51 Phil. 601 (1928)
In the absence of restrictions in its character, a corporation, under its

general power to contract, has the power to accept subscriptions upon any
special terms not prohibited by positive law or contrary to public policy, provided
they are not such as to require the performance of acts which are beyond the
powers conferred upon the corporation by its character, and provided they do
not constitute a fraud upon other subscribers or stockholders, or upon persons
who are or may become creditors of the corporation.
This action was instituted in the Court of First Instance of Manila by the National
Exchange Co., Inc., as assignee (through the Philippine National Bank) of C. S.
Salmon & Co., for the purpose of recovering from I. B. Dexter a balance of
P15,000, the par value of one hundred fifty shares of the capital stock of C. S.
Salmon & co., with interest and costs. Upon hearing the cause the trial judge
gave judgment for the plaintiff to recover the amount claimed, with lawful interest
from January 1, 1920, and with costs. From this judgment the defendant
A provision in the Corporation states: ". . . no corporation shall issue stock or
appealed.
bonds except in exchange for actual cash paid to the corporation or for property
actually received by it at a fair valuation equal to the par value of the stock or
FACTS:
bonds so issued."
1.
It appears that on August 10, 1919, the defendant, I. B. Dexter, signed a
Now, if it is unlawful to issue stock otherwise than as stated it is self-evident that
written subscription to the corporate stock of C. S. Salmon & Co. in the following
a stipulation such as that now under consideration, in a stock subcription, is
form:
illegal, for this stipulation obligates the subscriber to pay nothing for the shares
except as dividends may accrue upon the stock. In the contingency that
I hereby subscribe for three hundred (300) shares of the capital stock of
dividends are not paid, there is no liability at all. This is a discrimination in favor
C.
S. Salmon and Company, payable from the first dividends declared on
of the particular subscriber, and hence the stipulation is unlawful.
any
and all shares of said company owned by me at the time dividends are
declared, until the full amount of this subscription has been paid.
Corpus Juris:
Nor has a corporation the power to receive a subscription upon such terms as
2.
Upon this subscription the sum of P15,000 was paid in January, 1920,
will operate as a fraud upon the other subscribers or stockholders by subjecting
from a dividend declared at about that time by the company, supplemented by
the particular subcriber to lighter burdens, or by giving him greater rights and
money supplied personally by the subscriber.
privileges, or as a fraud upon creditors of the corporation by withdrawing or
decreasing the capital.
3.
Beyond this nothing has been paid on the shares and no further dividend
has been declared by the corporation.
as a general rule, an agreement between the corporation and a particular
subscriber that the subscription is not to be payable, or is to be payable in part
4.
There is therefore a balance of P15,000 still paid upon the subscription.
only is illegal and void as it constitutes fraud to other stockholders or creditors,
whether it is for the purpose of making the stock seem greater than it is, or for
5. The trial court held, in effect, that the stipulation mentioned is invalid.
the purpose of preventing the predominance of certain stockholders, or for any
other purpose thus, the agreement cannot be enforced by the subscriber or
interpose it as a defense in an action on the subscription.
ISSUE:
whether the stipulation contained in the subscription to the effect that the
"Conditions attached to subscriptions, which, lessen the capital of the company,
subscription is payable from the first dividends declared on the shares has the
are a fraud upon the grantor of the franchise, and upon those who may become
effect of relieving the subscriber from personal liability in an action to recover the
creditors of the corporation, and upon unconditional stockholders."
value of the shares.
12
2013400036
2) Unpaid subscriptions ----Velasco vs Poizat 37 Phil. 802 (1918)
13

VELASCO, petitioner
vs.
POIZAT, respondent
G.R. No. L-11528
March 15, 1918
FACTS:
From the amended complaint filed in this cause upon
February 5, 1915, it appears that the plaintiff, as assignee in
insolvency of "The Philippine Chemical Product Company"
(Ltd.) is seeking to recover of the defendant, Jean M. Poizat,
the sum of P1,500, upon a subscription made by him to the
corporate stock of said company. It appears that the
corporation in question was originally organized by several
residents of the city of Manila, where the company had its
principal place of business, with a capital of P50,000,
divided into 500 shares. The defendant subscribed for 20
shares of the stock of the company, an paid in upon his
subscription the sum of P500, the par value of 5 shares .
The action was brought to recover the amount subscribed
upon the remaining shares.
It appears that the defendant was a stock holder in the
company from the inception of the enterprise, and for
sometime acted as its treasurer and manager. While serving
in this capacity he called in and collected all subscriptions to
the capital stock of the company, except the aforesaid 15
shares subscribed by himself and another 15 shares owned
by Jose R. Infante.
2013400036
Upon July 13, 1914, a meeting of the board of
directors of the company was held at which a majority of the
stock was presented. Upon this occasion two resolutions,
important to be here noted, were adopted. The first was a
proposal that the directors, or shareholders, of the company
should make good by new subscriptions, in proportion to
their respective holdings, 15 shares which had been
surrendered by Infante.
ISSUE:
Whether or not Poizat is liable for his unpaid
subscription.
RULING:
YES.
A stock subscription is a contract between the
corporation on one side, and the subscriber on the other,
and courts will enforce it for or against either. It is a rule,
accepted by the Supreme Court of the United States that a
subscription for shares of stock does not require an express
promise to pay the amount subscribed, as the law implies a
promise to pay on the part of the subscriber. Section 36 of
the Corporation Law clearly recognizes that a stock
subscription is subsisting liability from the time the
subscription is made, since it requires the subscriber to pay
interest quarterly from that date unless he is relieved from
14
2013400036
such liability by the by-laws of the corporation. The

subscriber is as much bound to pay the amount of the share
subscribed by him as he would be to pay any other debt, and
the right of the company to demand payment is no less
incontestable.
The provisions of the Corporation Law (Act No. 1459)
give recognition of two remedies for the enforcement of stock
subscriptions. The first and most special remedy given by the
statute consists in permitting the corporation to put up the
unpaid stock for sale and dispose of it for the account of the
delinquent subscriber. In this case the provisions of section
38 to 48, inclusive, of the Corporation Law are applicable
and must be followed.
It is generally accepted doctrine that the statutory
right to sell the subscriber's stock is merely a remedy in
addition to that which proceeds by action in court; and it
has been held that the ordinary legal remedy by action exists
even though no express mention thereof is made in the
statute.
subscribed capital stock as of July 23, 1946, the first 50 per cent payable within
60 days beginnning August 1, 1946, and the remaining 50 per cent payable
within 60 days beginning October 1, 1946. The resolution also provided, that all
unpaid subscription after the due dates of both calls would be subject to 12 per
cent interest per annum. Lastly, the resolution provided, that after the expiration
of 60 days' grace which would be on December 1, 1946, for the first call, and on
February 1, 1947, for the second call, all subscribed stocks remaining unpaid
would revert to the corporation. (See Exhibit F and Exhibit I).
Lingayen Gulf Electric vs Baltazar93 Phil. 404 (1953) G.R. No. L-4824 G.R.
No. L-6244 June 30, 1953
LINGAYEN GULF ELECTRIC POWER COMPANY, INC vs. IRINEO
BALTAZAR,
It was admitted by the defendant that he received notice from the Secretary-,
demanding. It was agreed by the parties that the call of the Board of Directors
was not published in a newspaper of general circulation as required by section
40 of the Corporation Law.
FACTS: Defendant, Irineo Baltazar appears to have subscribed for 600 shares
on account of which he had paid upon the organization of the corporation
Lingayen Gulf the sum of P15,000. After incorporation, the defendant made
further payments on account of his subscription, leaving a balance of P18,500
unpaid for, which amount, the plaintiff now claims in this action.
On September 28, 1949, the legal counsel wrote a letter to the defendant,
demanding the payment of the unpaid balance of his subscription amounting to
P18,500. The defendant ignored the said demand. Hence this action.
Upon a written reminder by the corporation, the defendant answered on

September 25, 1946, asking the corporation that he be allowed to pay his
unpaid subscription by February 1, 1947. In his answer, the defendant also
agreed that if he could not pay the balance, his unpaid subscription would be
reverted to the corporation.
The defendant wrote another letter to the members of the Board of Directors of
the plaintiff corporation, offering to withdraw completely from the corporation by
selling out to the corporation all his shares of stock in the total amount of
P23,000. Which was left unacted upon by the plaintiff.
On April 17, 1948, the Board of Directors held a meeting, and adopted
Resolution No. 17. This resolution in effect set aside the stockholders resolution
approved on June 23, 1946, on the ground that it was null and void, and
because the plaintiff corporation was not in a financial position to absorb the
unpaid balance of the subscribed capital stock.
On June 10, 1949, the stockholders held another meeting adopting resolution
No. 4, whereby it was agreed to revalue the stocks and assets of the company
so as to attract outside investors to put in money for the rehabilitation of the
company.
The defendant disclaims liability to the plaintiff corporation on the following

grounds:
On July 23, 1946, a majority of the stockholdersamong them the herein ISSUES:
defendant, held a meeting and adopted stockholders' resolution No. 17. It was
agreed upon by the stockholders present to call the balance of all unpaid 1. That the plaintiffs' action is premature because there was no valid call; and
15
2013400036
2. That granting that there was a valid call, he was released from the obligation of made and accepted, there can be no cancellation or release from the
the balance of his subscription by stockholders' resolution No. 17 and No. 4.
obligation without the consent of the corporation and all the stockholders;
. . . . (2 Thompson on Corporation, p. 186).
By way of counterclaim, the defendant also claims from the plaintiff a reasonable
compensation at the rate of P700 per month as president of the company.
He states the reason for the rule as follows:
HELD: We agree with the lower court that the law requires that notice of
any call for the payment of unpaid subscription should be made not only
personally but also by publication. This is clear from the provisions of
section 40 of the Corporation Law, Act No. 1459, as amended
SEC. 855. Right to withdraw as against subscribers. A contract of

subscription is, at least in the sense which creates as estoppel, a contract
among the several subscribers. For this reason no one of the subscribers can
withdraw from the contract without the consent of all the others, and thereby
diminish, without the universal consent, the common fund in which all have
It will be noted that section 40 is mandatory as regards publication, using the
acquired an interest. . . . (2 Thompson on Corporations, p. 194.).
word "must". As correctly stated by the trial court, the reason for the mandatory
provision is not only to assure notice to all subscribers, but also to assure As already found by the trial court, the release attempted in Resolution No. 17 of
equality and uniformity in the assessment on stockholders. (14 C.J. 639).
1946 was not valid for lack of a unanimous vote. If found that at least seven
stockholders were absent from the meeting when said resolution was approved.
We find the citation of authorities made by the plaintiff and appellant inapplicable.
In the case of Velasco vs. Poizat (37 Phil. 805), the corporation involved was As regards the compensation of President claimed by defendant and
insolvent, in which case all unpaid stock subscriptions become payable on appellant, it is clear that he is not entitled to the same. The by-laws of the
demand and are immediately recoverable in an action instituted by the assignee. company are silent as to the salary of the President. On the other hand,
other resolutions provide for per diems to be paid to the President and the
But when the corporation is a solvent concern, the rule is: It is again insisted that
directors of each meeting attended. This leads to the conclusions that the
plaintiffs cannot recover because the suit was not proceeded by a call or
President and the board of directors were expected to serve without
assessment against the defendant as a subscriber, and that until this is done no
salary, and that the per diems paid to them were sufficient compensation
right of action accrues.
for their services. Affirmed.
Going to the claim of defendant and appellant that Resolution No. 17 of 1946
Lingayen Gulf Electric v. Baltazar
released him from the obligation to pay for his unpaid subscription, the authorities
are generally agreed that in order to effect the release, there must be unanimous
Facts:
consent of the stockholders of the corporation.
Herein defendant subscribed to 600 shares in plaintiff corporation worth about
Exceptions. In particular circumstances, as where it is given pursuant to a bona PhP60,000 at PhP100 par value. After incorporation, the defendant made further
fide compromise, or to set off a debt due from the corporation, a release, payments on account of his subscription, of which PhP18,500 was left unpaid,
supported by consideration, will be effectual as against dissenting stockholders and which the plaintiff corporation claims in this action. Later on, the plaintiff
and subsequent and existing creditors. A release which might originally have corporation decided to call on the 50% of the unpaid subscriptions. This call on
the unpaid subscriptions was received by the defendant through the Secretarybeen held invalid may be sustained after a considerable lapse of time.
Treasurer. It was not published in a newspaper of general circulation as required
In the present case, the release claimed by defendant and appellant does not fall by the prevailing law at that time; defendant refused this demand of the plaintiff
under the exception above referred to, because it was not given pursuant to corporation, thus this case. Defendant contends that this case is premature, as
a bona fide compromise, or to set off a debt due from the corporation, and there the call on the unpaid subscriptions was invalidly made. Plaintiff corporation, on
was no consideration for it.
the other hand, avers that authorities on the matter are to the effect that once
demand is made on these unpaid subscriptions, it is immediately due and
Another authority:
demandable.
SEC. 850. Unanimous consent of stockholders necessary to release subscriber.
after a valid subscription to the capital stock of a corporation has been Issue:
16
2013400036
Whether or not the call on the unpaid subscriptions were validly made.
allotted to stockholders.
HELD:
No. The cited case on which the plaintiff corporation heavily relies on to justify its
contention, finds incorrect application in this case. In the case of Velasco v.
Poizat, the corporation therein was insolvent, thus the unpaid subscriptions are
payable on demand and are immediately recoverable in an action instituted by
the assignee. Plaintiff corporation in this case is not insolvent, and the prevailing
Corporation Code at the time mandatorily requires that publication, and not mere
personal demand, before it can be said that any call on the payment of unpaid
subscriptions could be validly made. The reason for the mandatory provision is
not only to assure notice to all subscribers, but also to assure equality and
uniformity
in
the
assessment
on
stockholders.
ISSUE:
ADDENDUM: Release from payment of unpaid subscribed stock must be made

by all the stockholders.
In this case, one of the defences interposed by the defendant is that there
was a resolution adopted by the stockholders releasing holders of unpaid
subscribers of stock from payment thereof; making the demand of the
plaintiff corporation for the remaining unpaid subscribed shares of stock to
be without authority. This defence is largely ineffectual. The court held that
before such a release may be made, the stockholders must agree to do so
unanimously. This was not the case, as the trial court had found that there
were at least 7 stockholders missing from the meeting where the
aforementioned resolution was adopted. The only instances where a
release from such obligation to pay are 1) a bona fide compromise, 2) a set
off of debt due from the corporation, and 3) a consideration from the
corporation. The defendant possesses none of these exceptions; thus he
cannot be said to have been released from the payment of his unpaid
subscribed shares of stock.
Settled is the rule that nothing in this act shall prevent the
directors from collecting, by action in any court of proper
jurisdiction, the amount due on any unpaid subscription, together
with accrued interest and costs and expenses incurred.
Da Silva vs Aboitiz 44 Phil. 755 (1923)

G.R. No. L-19893; March 31, 1923
FACTS:
De Silva subscribed to 650 shares and paid for 200. The
company notified him that his shares will be declared delinquent
and sold in a public auction if he does not pay the balance. De
Silva did not pay. The company advertised a notice of delinquency
sale. De Silva sought an injunction because the by-laws allegedly
provide that unpaid subscriptions will be paid from the dividends
WON De Silva is liable despite the provision in the by-laws

regarding dividends as payment for unpaid subscriptions.
HELD:
YES. Although, the by-laws provide that unpaid
subscriptions may be paid from such dividends The defendant
corporation, through its board of directors, made use of its
discretionary power, taking advantage of the first of the two
remedies: delinquency sale or specific performance.
Lumanlan vs Cura 59 Phil. 746 (1934)

GR No. L-39861
March 21, 1934
GODDARD, J.
Summary: Lumanlan had unpaid subscriptions.
Companys receiver sued him for the balance and won.
While the casewas on appeal, the company and petitioner entered into
acompromise whereby he would directly pay a creditor of the company.
In exchange, the company would forego whatever balance remained on
the unpaid subscription.
He agreed since he would be paying less than his unpaid subscription.
Afterwards, the corporation still sued him for the balance because the
company still has unpaid creditors.
His defense was the compromise agreement.
Is Lumanlan still liable despite the compromise agreement?
YES!
The Court held that the agreement cannot prejudice creditors.
The subscriptions constitute a fund to which they have a right to look to
for satisfaction of their claims.
Therefore, the corporation has a right to collect all unpaid stock
17

subscriptions and any other amounts which may be due it,
notwithstanding the compromise agreement.
FACTS: The appellant, Dizon & co., Inc., assigns twenty-three errors as having
been committed by the trial court.
4. The appellant is a corporation duly organized under the laws of the
Philippine Islands with its central office in the City of Manila.
5. The plaintiff-appellee Bonifacio Lumanlan, on July 31, 1922, subscribed
for 300 shares of stock of said corporation at a par value of P50 or a total
of P15,000.
6. Julio Valenzuela, Pedro Santos and Francisco Escoto, creditors of this

corporation, filed suit against it in the Court of First Instance of Manila,
case No. 37007, praying that a receiver be appointed, as it appeared that
the corporation at that time had no assets except credits against those
who had subscribed for shares of stock.
7. The court named Tayag as receiver for the purpose of collecting, said
subscriptions.
8. As Bonifacio Lumanlan had only paid P1,500 of the P15,000, par value
of the stock for which he subscribed, the receiver on August 30, 1930,
filed a suit against him in the Court of First Instance of Manila, civil case
No. 37492, for the collection of P15,109 --- P13,500 of which was the
amount he owed for unpaid stock and P1,609 for loans and advances by
the corporation to Lumanlan.
9. In that case Lumanlan was sentenced to pay the corporation the abovementioned sum of P15,109 with legal interest thereon from August 30,
1930, and costs.
10. Lumanlan appealed from this decision.

11. Pending this appeal, with the permission of the court, the creditors, some
of the directors and the majority of the stockholders held several
meetings in which it was agreed in substance that subscribers for the
capital stock who were in default should pay the creditors.
12. Lumanlan was designated to pay the debt of the corporation to Julio
Valenzuela, one of the petitioners in case No. 37007.
2013400036
13. At that time the corporation owed Valenzuela the sum of P8,000 plus
interest thereon at the rate of 12 per cent per annum from March 17,
1928.
14. Lumanlan agreed to assume this obligation.
15. And in turn the corporation agreed that if Lumanlan would dismiss his
appeal in case No. 37492 the corporation would collect only 50 per cent
of the amount subscribed by him for stock, provided that in case the 50
percent was insufficient to pay Valenzuela he should pay an additional
amount which should not exceed the amount of the judgment against
him in that case.
16. In view of this agreement Lumanlan withdrew his appeal and paid
Valenzuela the sum of P11,840 including interest and thereby was
subrogated in place of Valenzuela.
17. The petitioning creditors having been paid the amounts owed to them by
the corporation asked that the receiver be dismissed and the court
granted this.
18. Disregarding this agreement and notwithstanding the payment made by
Lumanlan to Valenzuela, the corporation on May 5, 1932, asked for the
execution of the sentence in case No. 37492 and by virtue of an order of
execution the provincial sheriff levied upon two parcels of land
belonging to Lumanlan described in certificate of title No. 901 of the
Province of Tarlac.
19. Lumanlan brought this case to collect from Dizon & Co., Inc., and to
prevent the sheriff from selling the two parcels of land. Pending the
result of this case the sheriff was enjoined from proceeding with the
sale.1vvphi1.ne+
20. In the promissory note given by the corporation to Valenzuela the former
obligated itself to pay Valenzuela the sum of P8,000 with interest at 12
per cent per annum and, upon failure to pay said sum and interest when
due, 25 per cent of the principal as expenses of collection and judicial
costs in case of litigation.
21. By virtue of these facts Lumanlan is entitled to a credit against the
judgment in case No. 37492 for P11,840 and an additional sum of
P2,000, which is 25 per cent on the principal debt, as he had to file this
18
22.
2013400036
suit to collect, or receive credit for the sum which he had paid Valenzuela The judgment of the trial court was modified in accordance with the above and
for and in place of the corporation, or a total of P13,840.
27. Dizon & Co., Inc., is ordered to credit Bonifacio Lumanlan with the sum
This leaves a balance due Dizon & co., Inc., of P1,269 on that judgment
of P13,840 against the judgment for P15,109, in case No. 37492 of the
with interest thereon at 6 per cent per annum from August 30, 1930.
Court of First Instance of Manila;
ISSUE: WON Lumanlan is still liable despite the compromise agreement.?

RULING: YES.
23. It appears from the record that during the trial of the case now under
consideration, the Bank of the Philippine Islands appeared in this case as
assignee in the "Involuntary Insolvency of Dizon & Co., Inc.
28. To issue to Bonifacio Lumanlan 300 shares of its capital stock upon
payment by him of the sum of P1,269 with interest thereon at 6 per cent
per annum from August 30, 1930.
29. The preliminary injunction issued in this case is hereby dissolved for the
purpose of enabling Dizon & Co., Inc., to ask for a new order of
execution in case No. 37492, Court of First Instance of Manila, for the
sum of P1,269 with interest thereon as stated above.
China Banking Corp. v. CA GR 117604 (Mar. 26, 1997)
CHINA BANK VS CA and VALLEY GOLF
24. That bank was appointed assignee in case No. 43065 of the Court of
First Instance of the City of Manila on November 28, 1932.
25. It is therefore evident that there are still other creditors of Dizon & Co.,
Inc.
Facts:
In 1974 Calapatia, a stockholder Valley Golf & Country Club, Inc. pledged his
26. This being the case that corporation has a right to collect all unpaid stock Stock Certificate to China Bank and was noted in its corporate books per
request of China Bank. Due to Calapatias failure to pay his obligation,the bank
subscriptions and any other amounts which may be due it.
filed a petition for extrajudicial foreclosure and to conduct a public auction.The
It is established doctrine that subscriptions to the capital of a corporation petitioner informed VG of the foreclosure proceedings and requested that the
pledged stock be transferred to the banks name but was rejected due to
constitute a fund to which the creditors have a right to look for
Calapatias unsettled accounts with the club. Despite the foregoing, public
satisfaction of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to realize auction was held and petitioner emerged as the highest bidder. In 1986, VG
auctioned the stock wherein VG is the new owner and informed Calapatia of the
assets for the payment of its debts. (Philippine Trust Co. vs. Rivera, 44
termination of his membership VGCCI assails the validity of the pledge
Phil., 469, 470.)
agreement executed by Calapatia in petitioners favor. It contends that the same
. . . the Corporation Law clearly recognizes that a stock subscription is a was null and void for lack of consideration because the pledge agreement was
subsisting liability from the time the subscription is made, since it
entered into on 21 August 1974 but the loan or promissory note which it secured
requires the subscriber to pay interest quarterly from that date unless he was obtained by Calapatia much later or only on 3 August 1983.
is relieved from such liability by the by-laws of the corporation. The
subscriber is as much bound to pay the amount of the share subscribed Issue:
by him as he would be to pay any other debt, and the right of the
company to demand payment is no less incontestable. (Velasco vs.
Whether the stock is non transferrable due the unpaid claim
Poizat, 37 Phil., 802, 805.)
In view of the above conclusions it is not necessary to discuss the other
questions raised by the parties in this case.
Held:
19

No. The Supreme Court held that Sec. 63 of the Corporation Code which
provides that "no shares of stock against which the corporation holds any unpaid
claim shall be transferable in the books of the corporation" cannot be utilized by
VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid
subscription, and not to any indebtedness which a subscriber or stockholder may
owe the corporation arising from any other transaction." In the case at bar, the
subscription for the share in question has been fully paid as evidenced by the
issuance of Membership Certificate No. 1219. What Calapatia owed the
corporation were merely the monthly dues. Hence, the aforequoted provision
does not apply.
3) Rights of Unpaid Shares ---- Indivisibility of Subscription
FuaCun v. Summers, et al.44 Phil. 704(1923)
Facts:
Chua Soco subscribed for five hundred shares of stock of the defendant
Banking Corporation at a par value of P100 per share, paying the sum of
P25,000, one-half of the subscription price, in cash. Chua Soco executed a
promissory note in favor of the plaintiff Fua Cun for the sum of P25,000 payable
in ninety days and drawing interest at the rate of 1 per cent per month, securing
the note with a chattel mortgage on the shares of stock subscribed for by Chua
Soco, who also endorsed the receipt above mentioned and delivered it to the
mortgage. In the meantime Chua Soco appears to have become indebted to the
China Banking Corporation in the sum of P37,731.68 for dishonored acceptances
of commercial paper and in an action brought against him to recover this amount,
Chua Soco's interest in the five hundred shares subscribed for the attached and
the receipt seized by the sheriff. The attachment was levied after the defendant
bank had received notice of the fact that the receipt had been endorsed over to
the plaintiff.
Issue:
Whether or not the petitioner is entitled to the two hundred fifty shares of
stock
Held:
The Supreme Court ruled that in the absence of special agreement
to the contrary, a subscriber for a certain number of shares of stock does
not, upon payment of one-half of the subscription price, become entitled to
the issuance of certificates for one-half the number of shares subscribed
for; the subscriber's right consists only in an equity entitling him to a
certificate for the total number of shares subscribed for by him upon
payment of the remaining portion of the subscription price.
2013400036
Baltazar v. Lingayen Gulf 14 SCRA 522(1965)
FACTS:
The Lingayen Gulf Electric Power Co., Inc., hereinafter
referred to as Corporation, was doing business in the
Philippines, with principal offices at Lingayen, Pangasinan,
and with an authorized capital stock of P300.000.00 divided
into 3,000 shares of voting stock at P100.00 par value, per
share. Plaintiffs Baltazar and Rose were among the
incorporators, having subscribed to 600 and 400 shares of
the capital stock, or a total par value of P60,000.00 and
P40.000.00, respectively. It is alleged that it has always been
the practice and procedure of the Corporation to issue
certificates of stock to its individual subscribers for unpaid
shares of stock. Of the 600 shares of capital stock
subscribed by Baltazar, he had fully paid 535 shares of
stock, and the Corporation issued to him several fully paid
up and non-assessable certificates of stock, corresponding
to the 535 shares. After having made transfers to third
persons and acquired new ones, Baltazar had to his credit,
on the filing of the complaint 341 shares fully paid and nonassessable.
The respondents Ungson, Estrada, Fernandez and
Yuson were small stockholders of the Corporation, all
holding a total number of fully paid-up shares of stock, of
not more than 100 shares, with a par value of P10,000.00
and the defendant Acena, was likewise an incorporator and
stockholder, holding 600 shares of stock, for which
certificate of stock were issued to him and as such, was the
largest individual stockholder thereof. Defendants Ungson,
20

Estrada, Fernandez and Yuzon, constituted the majority of
the holdover seven-member Board of Directors of the
Corporation, in 1955, two (2) of said defendants having been
elected as members of the Board in the annual stockholders'
meeting held in May 1954, largely on the vote of their codefendant Acena, while the other two (2) were elected mainly
on the vote of the plaintiffs and their group of stockholders.
Let the first group be called theUngson group and the second,
the Baltazar group.
ISSUE:
Whether or not a stockholder, in a stock corporation,
subscribes to a certain number of shares of stock, and he
pays only partially, for which he is issued certificates of
stock, is he entitled to vote the latter, notwithstanding the
fact that he has not paid the balance of his subscription,
which has been called for payment or declared delinquent.
RULING:
YES.
The cases at bar do not come under the aegis of the
principle enunciated in the Fua Cun v. Summers case,
because it was the practice and procedure, since the
inception of the corporation, to issue certificates of stock to
its individual subscribers for unpaid shares of stock and
gave voting power to shares of stock fully paid. And even
2013400036
though no agreement existed, the ruling in said case does
not now reflect the correct view on the matter, for better
than an agreement or practice, there is the law, which
renders the said case of Fua Cun-Summers, obsolescent.
In the cases at bar, the defendant-corporation had chosen to
apply payments by its stockholders to definite shares of the capital
stock of the corporation and had fully paid capital stock shares
certificates for said payments; its call for payment of unpaid
subscription and its declaration of delinquency for non-payment of
said call affecting only the remaining number of shares of its
capital stock for which no fully paid capital stock shares
certificates have been issued, "and only these have been legally
shorn of their voting rights by said declaration of delinquency"
(amended decision).
Nava v. Peers Mktg. Corp.76 SCRA 65(1976)
GR L-28120, 25 November 1976

FACTS:
Teofilo Po as an incorporator subscribed to eighty
shares of Peers Marketing Corporation at one hundred
pesos a share or a total par value of eight thousand pesos.
Po paid two thousand pesos or twenty-five percent of the
amount of his subscription. No certificate of stock was
issued to him or, for that matter, to any incorporator,
subscriber or stockholder.
On April 2, 1966 Po sold to Ricardo A. Nava for two
thousand pesos twenty of his eighty shares. In the deed of
21
2013400036
sale Po represented that he was "the absolute and registered

owner of twenty shares" of Peers Marketing Corporation.
Nava requested the officers of the corporation to
register the sale in the books of the corporation. The request
was denied because Po has not paid fully the amount of his
subscription. Nava was informed that Po was delinquent in
the payment of the balance due on his subscription and that
the corporation had a claim on his entire subscription of
eighty shares which included the twenty shares that had
been sold to Nava.
holder of the certificate desires to assume the legal rights of

a shareholder to enable him to vote at corporate elections
and to receive dividends, he fills up the blanks in the form
by inserting his own name as transferee. Then he delivers
the certificate to the secretary of the corporation so that the
transfer may be entered in the corporation's books. The
certificate is then surrendered and a new one issued to the
transferee.
That procedure cannot be followed in the instant case
because, as already noted, the twenty shares in question are
not covered by any certificate of stock in Po's name.
Moreover, the corporation has a claim on the said shares for
ISSUE:
the unpaid balance of Po's subscription. A stock
Whether or not Peers may be compelled by mandamus subscription is a subsisting liability from the time the
subscription is made. The subscriber is as much bound to
to register the stocks in Navas name.
pay his subscription as he would be to pay any other debt.
The right of the corporation to demand payment is no less
RULING:
incontestable.
NO.
Theres no certificate of stock issued in favor of Po.
Shares of stock may be transferred by delivery to the
transferee of the certificate properly indorsed. "Title may be
vested in the transferee by delivery of the certificate with a
written assignment or indorsement thereof" There should be
compliance with the mode of transfer prescribed by law.
The usual practice is for the stockholder to sign the
form on the back of the stock certificate. The certificate may
thereafter be transferred from one person to another. If the
In this case no stock certificate was issued to Po. Without the

stock certificate, which is the evidence of ownership of corporate stock,
the assignment of corporate shares is effective only between the parties
to the transaction.
***FuaCun doctrine prevails. Baltazar abandoned.***
4) Nature/Function of Stock Certificates ---Tan v. SEC (206 SCRA 740)
G.R. No. 95696; March 3, 1992

FACTS:
Petitioner is the incorporator of the respondent corporation.
Stock Certificate No. 2 was given to him as evidenced of his
shares. He was elected president and thereafter in order to
22

complete the membership of the five (5) directors in the Board, he
sold 50 shares out 400 shares of capital stock to his brother. Stock
Certificate No. 2 was cancelled and the corresponding Certificates
Nos. 6 and 8 were issued. Petitioner did not endorse and instead
kept the cancelled certificate. Later on, petitioner was dislodged
from the position and thereafter withdrew from the corporation.
Years later, petitioner filed a case against respondent
corporation before the Cebu SEC Extension Office, questioning for
the first time, the cancellation of his aforesaid Stock Certificates
Nos. 2 and 8. The bone of contention raised by the petitioner is that
the deprivation of his shares despite the non-endorsement or
surrender of his Stock Certificate Nos. 2 and 8, was without the
process contrary to the provision of Section 63 of the Corporation
Code.
ISSUE:
Nature and function of stock certificates.
HELD:
A certificate of stock is the paper representative or tangible
evidence of the stock itself and of the various interests therein. The
certificate is not stock in the corporation but is merely evidence of
the holder's interest and status in the corporation, his ownership of
the share represented thereby, but is not in law the equivalent of
such ownership. It expresses the contract between the corporation
and the stockholder, but is not essential to the existence of a share
in stock or the nation of the relation of shareholder to the
corporation.
A certificate of stock is not a negotiable instrument.
"Although it is sometime regarded as quasi-negotiable, in the sense
that it may be transferred by endorsement, coupled with delivery, it
is well-settled that it is non-negotiable, because the holder thereof
takes it without prejudice to such rights or defenses as the
registered owner/s or transferors creditor may have under the law,
except insofar as such rights or defenses are subject to the
limitations imposed by the principles governing estoppel."
In the case at bar, a by-law which prohibits a transfer of
stock without the consent or approval of all the stockholders or of
the President or Board of Directors is illegal as constituting undue
2013400036
limitation on the right of ownership and in restraint of trade.
While Sec. 47 (9) of the Corporation Code grants to
stock corporations the authority to determine in the bylaws the "manner of issuing certificates" of shares of stock,
however, the power to regulate is not the power to
prohibit, or to impose unreasonable restrictions of the
right of stockholders to transfer their shares. To uphold
the cancellation of a stock certification as null and void for
lack of delivery of the cancelled "mother" certificate whose
endorsement was deliberately withheld by petitioner, is to
prescribe certain restrictions on the transfer of stock in
violation of the Corporation Code as the only law governing
transfer of stocks.
5) Proof of Ownership of Shares ---Nautica Canning Corp. Yumul GR 164588 (Oct. 19, 2005)
G.R. No. 164588; October 19, 2005

FACTS:
Yumul was appointed Chief Operating Officer/General
Manager of Nautica. First Dominion Prime Holdings, Inc., Nauticas
parent company, through its Chairman Alvin Y. Dee, granted Yumul
an Option to Purchase up to 15% of the total stocks it subscribed
from Nautica. A Deed of Trust and Assignment was executed
between First Dominion Prime Holdings, Inc. and Yumul whereby
the former assigned 14,999 of its subscribed shares in Nautica to
the latter.
After Yumuls resignation from Nautica, he wrote a letter to
Dee requesting the latter to formalize his offer to buy Yumuls 15%
share in Nautica and demanding the issuance of the corresponding
certificate of shares in his name should Dee refuse to buy the
same. Dee denied the request claiming that Yumul was not a
stockholder of Nautica. Yumul requested that the Deed of Trust and
Assignment be recorded in the Stock and Transfer Book of Nautica,
and that he, as a stockholder, be allowed to inspect its books and
records. Yumuls requests were denied. Yumul filed a petition for
mandamus praying that the Deed of Trust and Assignment be
recorded in the Stock and Transfer Book of Nautica and that the
certificate of stocks corresponding thereto be issued in his name.
23

ISSUE:
WON Yumul is a stockholder. (Proof of Ownership of Shares)
HELD:
YES. Indeed, it is possible for a business to be wholly owned
by one individual. The validity of its incorporation is not affected
when such individual gives nominal ownership of only one share of
stock to each of the other four incorporators. This is not necessarily
illegal. But, this is valid only between or among the incorporators
privy to the agreement. It does bind the corporation which, at the
time the agreement is made, was non-existent. Thus, incorporators
continue to be stockholders of a corporation unless, subsequent to
the incorporation, they have validly transferred their subscriptions
to the real parties in interest.
A transfer of shares of stock not recorded in the stock and
transfer book of the corporation is non-existent as far as the
corporation is concerned. As between the corporation on one hand,
and its shareholders and third persons on the other, the corporation
looks only to its books for the purpose of determining who its
shareholders are. It is only when the transfer has been recorded in
the stock and transfer book that a corporation may rightfully regard
the transferee as one of its stockholders. From this time, the
consequent obligation on the part of the corporation to recognize
such rights as it is mandated by law to recognize arises.
Lao v. Lao GR 170585 (Oct 6, 2008)
G.R. No. 170585; October 6, 2008
2013400036
Lao acquired his shares from his father and Jose Lao from
respondent himself. Respondent denied petitioners' claim. He also
claimed that petitioners did not acquire any shares in PFSC by any
of the modes recognized by law, namely subscription, purchase, or
transfer.
Meanwhile, R.A. 8799, otherwise known as the Securities
Regulation Code, was enacted, transferring jurisdiction over all
intra-corporate disputes from the SEC to the RTC. RTC denied their
petition on the ground that they have no stock certificates in their
names.
ISSUE:
Is the mere inclusion as shareholder in the General

Information Sheet of a corporation sufficient proof that one is a
shareholder in such corporation?
HELD:
NO. The mere inclusion as shareholder of petitioners in the
General Information Sheet of PFSC is insufficient proof that they
are shareholders of the company. The information in the document
will still have to be correlated with the corporate books of PFSC.
A certificate of stock is the evidence of a holder's
interest and status in a corporation. It is a written
instrument signed by the proper officer of a corporation
stating or acknowledging that the person named in the
document is the owner of a designated number of shares of
its stock. It is prima facie evidence that the holder is a
shareholder of a corporation.
FACTS:
6) Restrictions on Transfer of Shares --Fleischer v. BoticaNolasco (1925) 47 Phil. 583
Petitioners David and Jose Lao filed a petition with the SEC
against respondent Dionisio Lao, president of Pacific Foundry Shop
G.R. No. L-23241. March 14, 1925
Corporation (PFSC). Petitioners prayed for a declaration as
stockholders and directors of PFSC, issuance of certificates of
shares in their name and to be allowed to examine the corporate FACTS:
books of PFSC.
Petitioners claimed that they are stockholders of PFSC based
On November 15, 1923, the plaintiff filed an amended
on the General Information Sheet filed with the SEC, in which they
are named as stockholders and directors of the corporation. David complaint against the Botica Nolasco, Inc., alleging that he
24
2013400036
became the owner of five shares of stock of said corporation,

by purchase from their original owner, one Manuel Gonzalez;
that the said shares were fully paid; and that the defendant
refused to register said shares in his name in the books of
the corporation in spite of repeated demands to that effect
made by him upon said corporation, which refusal caused
him damages amounting to P500. The defendant filed a
demurrer on the ground that the amended complaint did not
state facts sufficient to constitute a cause of action, and that
said amended complaint was ambiguous, unintelligible,
uncertain, which demurrer was overruled by the court.
The defendant answered the amended complaint
denying generally and specifically each and every one of the
material allegations thereof, and, as a special defense,
alleged that the defendant, pursuant to article 12 of its bylaws, had preferential right to buy from the plaintiff said
shares at the par value of P100 a share, plus P90 as
dividends corresponding to the year 1922, and that said
offer was refused by the plaintiff. The defendant prayed for a
judgment absolving it from all liability under the complaint
and directing the plaintiff to deliver to the defendant the five
shares of stock in question, and to pay damages.
RULING:
ISSUE:
The only restraint imposed by the Corporation Law upon transfer

of shares is found in section 35 of Act No. 1459, quoted above, as
follows: "No transfer, however, shall be valid, except as between the
parties, until the transfer is entered and noted upon the books of the
corporation so as to show the names of the parties to the transaction,
the date of the transfer, the number of the certificate, and the number of
shares transferred." This restriction is necessary in order that the
officers of the corporation may know who are the stockholders, which is
Whether or not article 12 of the by-laws of the

corporation is in conflict with the provisions of the
Corporation Law (Act No. 1459).
YES.
The holder of shares, as owner of personal property, is
at liberty, under said section, to dispose of them in favor of
whomsoever he pleases, without any other limitation in this
respect, than the general provisions of law.
Therefore, a stock corporation in adopting a by-law
governing transfer of shares of stock should take into
consideration the specific provisions of section 35 of Act No.
1459, and said by-law should be made to harmonize with
said provisions. It should not be inconsistent therewith.
The by-law now in question was adopted under the
power conferred upon the corporation by section 13,
paragraph 7, above quoted; but in adopting said by-law the
corporation has transcended the limits fixed by law in the
same section, and has not taken into consideration the
provisions of section 35 of Act No. 1459.
As a general rule, the by-laws of a corporation are
valid if they are reasonable and calculated to carry into
effect the objects of the corporation, and are not
contradictory to the general policy of the laws of the land
25
2013400036
failed to execute a document recognizing private

respondent's beneficial ownership over said share.
When petitioner's contract of employment was up for
renewal in 1989, he notified private respondent that he
Thomson v. CA(298 SCRA 280)
would no longer be available as Executive Vice President
MARSH THOMSON vs.
after September 30, 1989. Still, the private respondent
COURT OF APPEALS and THE AMERICAN CHAMPER OF asked the petitioner to stay on for another six (6) months.
COMMERCE OF THE PHILIPPINES, INC.
ISSUE:
G.R. No. 116631, October 28, 1998
essential in conducting elections of officers, in calling meeting of

stockholders, and for other purposes. but any restriction of the nature of
that imposed in the by-law now in question, is ultra vires, violative of the
property rights of shareholders, and in restraint of trade.
FACTS:
A. Lewis Burridge, retired as AmCham's President
while petitioner was still working with private respondent,
his superior,. Before Burridge decided to return to his home
country, he wanted to transfer his proprietary share in the
Manila Polo Club (MPC) to petitioner. However, through the
intercession of Burridge, private respondent paid for the
share but had it listed in petitioner's name. This was made
clear in an employment advice dated January 13, 1986,
wherein petitioner was informed by private respondent.
Burridge transferred said proprietary share to
petitioner, as confirmed in a letter of notification to the
Manila Polo Club. Upon his admission as a new member of
the MPC, petitioner paid the transfer fee of P40,000.00 from
his own funds; but private respondent subsequently
reimbursed this amount.
MPC issued Proprietary Membership Certificate
Number 3398 in favor of petitioner. But petitioner, however,
Whether or not private respondent the beneficial

owner of the disputed share.
RULING:
YES.
In the present case, as the Executive Vice-President of
AMCHAM, petitioner occupied a fiduciary position in the
business of AMCHAM. It released the funds to acquire a
share in the Club for the use of petitioner but obliged him to
"execute such document as necessary to acknowledge
beneficial ownership thereof by the Chamber". A trust
relationship is, therefore, manifestly indicated.
The beneficiary of a trust has beneficial interest in the
trust property, while a creditor has merely a personal claim
against the debtor. In trust, there is a fiduciary relation
between a trustee and a beneficiary, but there is no such
relation between a debtor and creditor. While a debt implies
26
2013400036
merely an obligation to pay a certain sum of money, a trust

refers to a duty to deal with a specific property for the benefit
of another. If a creditor-debtor relationship exists, but not a
fiduciary relationship between the parties, there is no
express trust. However, it is understood that when the
purported trustee of funds is entitled to use them as his or
her own (and commingle them with his or her own money), a
debtor-creditor relationship exists, not a trust.
Moreover, petitioner failed to present evidence to support his

allegation of being merely a debtor when the private respondent paid the
purchase price of the MPC share. Applicable here is the rule that a trust
arises in favor of one who pays the purchase money of property in the
name of another, because of the presumption that he who pays for a
thing intends a beneficial interest therein for himself.
Rural Bank of Salinas, Inc. v. CA (210 SCRA 510)
27

RURAL BANK OF SALINAS, INC., MANUEL SALUD,
LUZVIMINDA TRIAS and FRANCISCO TRIAS
vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION, MELANIA A. GUERRERO, LUZ ANDICO,
WILHEMINA G. ROSALES, FRANCISCO M. GUERRERO,
JR., and FRANCISCO GUERRERO , SR.
G.R. No. 96674, June 26, 1992
FACTS:
Clemente G. Guerrero, President of the Rural Bank of
Salinas, Inc., executed a Special Power of Attorney in favor of
his wife, private respondent Melania Guerrero, giving and
granting the latter full power and authority to sell or
otherwise dispose of and/or mortgage 473 shares of stock of
the Bank registered in his name (represented by the Bank's
stock certificates nos. 26, 49 and 65), to execute the proper
documents therefor, and to receive and sign receipts for the
dispositions. On February 27, 1980, and pursuant to said
Special Power of Attorney, private respondent Melania
Guerrero, as Attorney-in-Fact, executed a Deed of
Assignment for 472 shares out of the 473 shares, in favor of
private respondents Luz Andico (457 shares), Wilhelmina
Rosales (10 shares) and Francisco Guerrero, Jr. (5
shares).Almost four months later, or two (2) days before the
death of Clemente Guerrero on June 24, 1980, private
respondent Melania Guerrero, pursuant to the same Special
Power of Attorney, executed a Deed of Assignmentfor the
2013400036
remaining one (1) share of stock in favor of private
respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero
presented to petitioner Rural Bank of Salinas the two (2)
Deeds of Assignment for registration with a request for the
transfer in the Bank's stock and transfer book of the 473
shares of stock so assigned, the cancellation of stock
certificates in the name of Clemente G. Guerrero, and the
issuance of new stock certificates covering the transferred
shares of stocks in the name of the new owners thereof.
However, petitioner Bank denied the request of respondent
Melania Guerrero.
ISSUE:
Whether or not a Mandamus lie against the Rural
Bank of Salinas to register in its stock and transfer book the
transfer of 473 shares of stock to private respondents.
RULING:
YES.
Section 5 (b) of P.D. No. 902-A grants to the SEC the
original and exclusive jurisdiction to hear and decide cases
involving intracorporate controversies. An intra-corporate
controversy has been defined as one which arises between a
stockholder and the corporation. There is neither
distinction, qualification, nor any exception whatsoever. The
28
2013400036
case at bar involves shares of stock, their registration,

cancellation and issuances thereof by petitioner Rural Bank
of Salinas. It is therefore within the power of respondent SEC
to adjudicate.
A corporation, either by its board, its by-laws, or the
act of its officers, cannot create restrictions in stock
transfers, because: Restrictions in the traffic of stock must
have their source in legislative enactment, as the corporation
itself cannot create such impediment. By-laws are intended
merely for the protection of the corporation, and prescribe
regulation, not restriction; they are always subject to the
charter of the corporation. The corporation, in the absence of
such power, cannot ordinarily inquire into or pass upon the
legality of the transactions by which its stock passes from
one person to another, nor can it question the consideration
upon which a sale is based.
In his complaint filed on June 29, 1971, and amended

on November 16, 1971, Vicente B. Chuidian prayed that
defendants Enrique B. Razon, E. Razon, Inc., Geronimo
Velasco, Francisco de Borja, Jose Francisco, Alfredo B. de
Leon, Jr., Gabriel Llamas and Luis M. de Razon be ordered
to deliver certificates of stocks representing the
shareholdings of the deceased Juan T. Chuidian in the E.
Razon, Inc. with a prayer for an order to restrain the
defendants from disposing of the said shares of stock, for a
writ of preliminary attachment v. properties of defendants
having possession of shares of stock and for receivership of
the properties of defendant corporation.
In their answer filed on June 18, 1973, defendants
alleged that all the shares of stock in the name of
stockholders of record of the corporation were fully paid for
Whenever a corporation refuses to transfer and register stock by defendant, Razon; that said shares are subject to the
in cases like the present, mandamuswill lie to compel the officers of agreement between defendants and incorporators; that the
the corporation to transfer said stock in the books of the shares of stock were actually owned and remained in the
corporation.
possession of Razon. Appellees also alleged . . . that neither
the late Juan T. Chuidian nor the appellant had paid any
7) Validity of Transfers / Registration of Shares
Razon v. IACGR 74306 (March 16, 1992)
amount whatsoever for the 1,500 shares of stock in question
ENRIQUE RAZON vs.
INTERMEDIATE APPELLATE COURT and VICENTE B.
ISSUE:
CHUIDIAN, in his capacity as Administrator of the Estate
of the Deceased JUAN T. CHUIDIAN
Whether or not petitioner have right over the
ownership of the 1,500 shares of stock in E. Razon, Inc.
G .R. No. 74306 March 16, 1992
FACTS:
RULING:
29
NO.
2013400036
the name of the late Juan Chuidian was never indorsed to
the petitioner, the inevitable conclusion is that the
questioned shares of stock belong to Chuidian. The
petitioner's asseveration that he did not require an
indorsement of the certificate of stock in view of his intimate
friendship with the late Juan Chuidian can not overcome
the failure to follow the procedure required by law or the
proper conduct of business even among friends. To reiterate,
indorsement of the certificate of stock is a mandatory.
In the instant case, there is no dispute that the

questioned 1,500 shares of stock of E. Razon, Inc. are in the
name of the late Juan Chuidian in the books of the
corporation. Moreover, the records show that during his
lifetime Chuidian was ellected member of the Board of
Directors of the corporation which clearly shows that he was
a stockholder of the corporation. From the point of view of
the corporation, therefore, Chuidian was the owner of the
Torres v. CA (278 SCRA 793)
1,500 shares of stock. In such a case, the petitioner who
MANUEL A. TORRES, JR., (Deceased), GRACIANO J.
claims ownership over the questioned shares of stock must
TOBIAS, RODOLFO L. JOCSON, JR., MELVIN S.
show that the same were transferred to him by proving that
JURISPRUDENCIA, AUGUSTUS CESAR AZURA and
all the requirements for the effective transfer of shares of
EDGARDO D. PABALAN
stock in accordance with the corporation's by laws, if any,
vs.
were followedor in accordance with the provisions of law.
The petitioner failed in both instances. The petitioner
COMMISSION, TORMIL REALTY & DEVELOPMENT
did not present any by-laws which could show that the 1,500
CORPORATION, ANTONIO P. TORRES, JR., MA.
shares of stock were effectively transferred to him. In the
CRISTINA T. CARLOS, MA. LUISA T. MORALES and
absence of the corporation's by-laws or rules governing
DANTE D. MORALES.
effective transfer of shares of stock, the provisions of the
G.R. No. 120138
September 5, 1997
Corporation Law are made applicable to the instant case.
The law is clear that in order for a transfer of stock
certificate to be effective, the certificate must be FACTS:
properlyindorsed and that title to such certificate of stock is
vested in the transferee by the delivery of the duly
The late Manuel A. Torres, Jr. was the major
indorsedcertificate of stock. Since the certificate of stock stockholder of Tormil Realty & Development Corporation
covering the questioned 1,500 shares of stock registered in while private respondents who are the children of Judge
30

Torres' deceased brother Antonio A. Torres, constituted the
minority stockholders. In particular, their respective
shareholdings and positions in the corporation.
In 1984, Judge Torres, in order to make substantial
savings in taxes, adopted an "estate planning" scheme under
which he assigned to Tormil Realty & Development
Corporation (Tormil for brevity) various real properties he
owned and his shares of stock in other corporations in
exchange for 225,972 Tormil Realty shares. Hence, on
various dates in July and August of 1984, ten (10) deeds of
assignment
were
executed
by
the
late
Judge
Torres.Consequently, the aforelisted properties were duly
recorded in the inventory of assets of Tormil Realty and the
revenues generated by the said properties were
correspondingly entered in the corporation's books of
account and financial records.
Due to the insufficient number of shares of stock
issued to Judge Torres and the alleged refusal of private
respondents to approve the needed increase in the
corporation's authorized capital stock (to cover the shortage
of 972 shares due to Judge Torres under the "estate
planning" scheme), on 11 September 1986, Judge Torres
revoked the two (2) deeds of assignment covering the
properties in Makati and Pasay City.
ISSUE:
2013400036
RULING:
NO.
The shortage of 972 shares would not be valid ground
for respondent Torres to unilaterally revoke the deeds of
assignment he had executed on July 13, 1984 and July 24,
1984 wherein he voluntarily assigned to TORMIL real
properties covered by TCT No. 374079 (Makati) and TCT No.
41527, 41528 and 41529 (Pasay) respectively. A comparison
of the number of shares that respondent Torres received
from TORMIL by virtue of the "deeds of assignment" and the
stock certificates issued by the latter to the former readily
shows that TORMIL had substantially performed what was
expected of it. In fact, the first two issuances were in
satisfaction to the properties being revoked by respondent
Torres. Hence, the shortage of 972 shares would never be a
valid ground for the revocation of the deeds covering Pasay
and Quezon City properties.
Moreover, we agree with the contention of the Solicitor
General that the shortage of shares should not have affected the
assignment of the Makati and Pasay City properties which were
executed in 13 and 24 July 1984 and the consideration for which
have been duly paid or fulfilled but should have been applied
logically to the last assignment of property Judge Torres' Ayala
Fund shares which was executed on 29 August 1984.
Rural Bank of LipaGR 124535 (Sept. 28, 2001)
THE RURAL BANK OF LIPA CITY, INC., vs. HONORABLE COURT OF

Whether or not the deed of assignment executed can
APPEALS
be revoked.
[G.R. No. 124535. September 28, 2001.]
31

FACTS:
Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of
Lipa City, executed a Deed of Assignment, wherein he assigned his shares, as
well as those of eight (8) other shareholders under his control with a total of
10,467 shares, in favor of the stockholders of the Bank represented by its
directors Bernardo Bautista, Jaime Custodio and Octavio Katigbak. Sometime
thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina, executed an
Agreement wherein they acknowledged their indebtedness to the Bank in the
amount of Four Million Pesos (P4,000,000.00), and stipulated that said debt will
be paid out of the proceeds of the sale of their real property described in the
Agreement.
At a meeting of the Board of Directors of the Bank on November 15, 1993, the
Villanueva spouses assured the Board that their debt would be paid on or before
December 31 of that same year; otherwise, the Bank would be entitled to
liquidate their shareholdings, including those under their control. When the
Villanueva spouses failed to settle their obligation to the Bank on the due date,
the Board sent them a letter demanding: (1) the surrender of all the stock
certificates issued to them; and (2) the delivery of sufficient collateral to secure
the balance of their debt amounting to P3,346,898.54. The Villanuevas ignored
the bank's demands, whereupon their shares of stock were converted into
Treasury Stocks.
On January 15, 1994, the stockholders of the Bank met to elect the new directors
and set of officers for the year 1994. The Villanuevas were not notified of said
meeting. In a letter dated January 19, 1994, Atty. Amado Ignacio, counsel for the
Villanueva spouses, questioned the legality of the said stockholders' meeting and
the validity of all the proceedings therein. In reply, the new set of officers of the
Bank informed Atty. Ignacio that the Villanuevas were no longer entitled to notice
of the said meeting since they had relinquished their rights as stockholders in
favor of the Bank.
Consequently, the Villanueva spouses filed with the Securities and Exchange
Commission (SEC), a petition for annulment of the stockholders' meeting and
election of directors and officers.
The Villanuevas' main contention: they were not given due notice and they were
deprived of their right to vote despite their being holders of common stock with
corresponding voting rights;
SEC Hearing Officer granted the Omnibus Motion by issuing a temporary
restraining order preventing petitioners from holding the stockholders meeting
and electing the board of directors and officers of the Bank.
A petition for Certiorari and Annulment with Damages was filed by the Rural
Bank, its directors and officers before the SEC en banc. The SEC en
banc denied the petition for certiorari in an Order. A subsequent motion for
reconsideration was likewise denied by the SEC en banc.
2013400036
A petition for review was thus filed before the Court of Appeals. CA dismissed
the petition for review for lack of merit. Petitioners' motion for reconsideration
was likewise denied.
ISSUE: WoN there was a valid transfer of stock pursuant to the Deed of
Assignment
HELD: NO! Under Sec. 63 of Corporation Code, for a valid transfer of stocks,
there must be strict compliance with the mode of transfer prescribed by law. The
requirements are: (a) There must be delivery of the stock certificate; (b) The
certificate must be endorsed by the owner or his attorney-in-fact or other
persons legally authorized to make the transfer; and (c) To be valid against third
parties, the transfer must be recorded in the books of the corporation.
While it may be true that there was an assignment of private respondents'
shares to the petitioners, said assignment was not sufficient to effect the transfer
of shares since there was no endorsement of the certificates of stock by the
owners, their attorneys-in-fact or any other person legally authorized to make
the transfer. Moreover, petitioners admit that the assignment of shares was not
coupled with delivery, the absence of which is a fatal defect. The rule is that the
delivery of the stock certificate duly endorsed by the owner is the operative act
of transfer of shares from the lawful owner to the transferee. Title may be vested
in the transferee only by delivery of the duly indorsed certificate of stock.
It may be argued that despite non-compliance with the requisite endorsement
and delivery, the assignment was valid between the parties, meaning the private
respondents as assignors and the petitioners as assignees. While the
assignment may be valid and binding on the petitioners and private
respondents, it does not necessarily make the transfer effective. Consequently,
the petitioners, as mere assignees, cannot enjoy the status of a stockholder,
cannot vote nor be voted for, and will not be entitled to dividends, insofar as the
assigned shares are concerned. Parenthetically, the private respondents cannot,
as yet, be deprived of their rights as stockholders, until and unless the issue of
ownership and transfer of the shares in question is resolved with finality.
Rivera v. Florendo144 SCRA 647(1986)
AQUILINO RIVERA, ISAMU AKASAKO, FUJIYAMA HOTEL

& RESTAURANT, INC.
vs.
32

THE HON. ALFREDO C. FLORENDO, as Judge of the
Court of First Instance of Manila (Branch XXXVI),
LOURDES JUREIDINI and MILAGROS TSUCHIYA
G.R. No. L-57586.
October 8, 1986
FACT:
Petitioner corporation was organized and register
under Philippine laws with a capital stock of P1,000,000.00
divided into 10,000 shares of P100.00 par value each by the
herein petitioner Rivera and four (4) other incorporators.
Sometime thereafter petitioner Rivera increased his
subscription from the original 1,250 to a total of 4899
shares.
Subsequently, Isamu Akasako, a Japanese national
and co-petitioner who is allegedly the real owner of the
shares of stock in the name of petitioner Aquilino Rivera,
sold 2550 shares of the same to private respondent Milagros
Tsuchiya for a consideration of P440,000.00 with the
assurance that Milagros Tsuchiya will be made the President
and Lourdes Jureidini a director after the purchase. Aquilino
Rivera who was in Japan also assured private respondents
by overseas call that he will sign the stock certificates
because Isamu Akasako is the real owner. However, after the
sale was consummated and the consideration was paid with
a receipt of payment therefor shown, Aquilino Rivera refused
to make the indorsement unless he is also paid.
ISSUE:
2013400036
Whether or not the respondent court of first instance

have no jurisdiction over the petition for mandamus and
receivership "as well as in placing the corporate assets
under provisional receivership in the guise of a writ of
preliminary mandatory injunction.
RULING:
YES.
It has already been settled that an intracorporate
controversy would call for the jurisdiction of the Securities
and Exchange Commission. On the other hand, an intracorporate controversy has been defined as "one which arises
between a stockholder and the corporate. There is no
distinction, qualification, nor any exemption whatsoever."
This Court has also ruled that cases of private respondents
who are not shareholders of the corporation, cannot be a
"controversy arising out of intracorporate or partnership relations
between and among stockholders, members or associates; between
any or all of them and the corporation, partnership or association,
of which they are stockholders, members or associates,
respectively."
Lim Tay v. CA GR 126891 (Aug. 5, 1998)
LIM TAY vs.

COURT OF APPEALS, GO FAY AND CO. INC., SY GUIOK,
and THE ESTATE OF ALFONSO LIM
33

G.R. No. 126891, August 5, 1998
FACTS:
On January 8, 1980, Respondent-Appellee Sy Guiok
secured a loan from the petitioner in the amount of P40,000
payable within six (6) months. To secure the payment of the
aforesaid loan and interest thereon, Respondent Guiok
executed a Contract of Pledge in favor of the [p]etitioner
whereby he pledged his three hundred (300) shares of stock
in the Go Fay & Company Inc., Respondent Corporation, for
brevity's sake. Respondent Guiok obliged himself to pay
interest on said loan at the rate of 10% per annum from the
date of said contract of pledge. On the same date, Alfonso Sy
Lim secured a loan from the [p]etitioner in the amount of
P40,000 payable in six (6) months. To secure the payment of
his loan, Sy Lim executed a "Contract of Pledge" covering his
three hundred (300) shares of stock in Respondent
Corporation. Under said contract, Sy Lim obliged himself to
pay interest on his loan at the rate of 10% per annum from
the date of the execution of said contract.
However, Respondent Guiok and Sy Lim failed to pay
their respective loans and the accrued interests thereon to
the [p]etitioner. In October, 1990, the petitioner filed a
"Petition for Mandamus" against Respondent Corporation,
with the SEC entitled "Lim Tay versus Go Fay & Company.
Inc., SEC Case No. 03894".
2013400036
ISSUE:
Whether or not there is there dacion en pago.
RULING:
NO.
At the outset, it must be underscored that petitioner
did not acquire ownership of the shares by virtue of the
contracts of pledge. Article 2112 of the Civil Code states:
The creditor to whom the credit has not been satisfied in
due time, may proceed before a Notary Public to the sale of
the thing pledged. This sale shall be made at a public
auction and with notification to the debtor and the owner of
the thing pledged in a proper case, stating the amount for
which the public sale is to be held. If at the first auction the
thing is not sold, a second one with the same formalities
shall be held; and if at the second auction there is no sale
either, the creditor may appropriate the thing pledged. In
this case he shall be obliged to give an acquaintance for his
entire claim.
There is no showing that petitioner made any attempt
to foreclose or sell the shares through public or private
auction, as stipulated in the contracts of pledge and as
required by Article 2112 of the Civil Code. Therefore,
ownership of the shares could not have passed to him. The
pledgor remains the owner during the pendency of the
pledge and prior to foreclosure and sale, as explicitly
34
2013400036
provided by Article 2103 of the same Code: Unless the thing

Issue:
pledged is expropriated, the debtor continues to be the Whether or not the certificate of stocks corresponding to Gaids shares shall be
issued to Ponce.
owner thereof.
Neither did petitioner acquire the shares by virtue of a
novation of the contract of pledge. Novation is defined as "the
extinguishment of an obligation by a subsequent one which
terminates it, either by changing its object or principal conditions,
by substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor."Novation of
a contract must not be presumed. "In the absence of an express
agreement, novation takes place only when the old and the new
obligations are incompatible on every point.
Held:
No. Under Sec. 63 of the Corporation Code, no transfer of shares of stock shall
be valid, except as between the parties, until the same is recorded in the books
of the corporation so as to show 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 transfer of shares of stock not recorded in the stock and
transfer book of the corporation is non-existent as far as the corporation is
concerned. The stock and transfer book is the basis for ascertaining the persons
entitled to the rights and subject to the liabilities of a stockholder.
A mere indorsement by the supposed owners of the stock, in the absence of

express instructions from them, cannot be the basis of an action for mandamus.
Ponce v. Alsons Cement GR 139802 ( Dec. 10, 2002)
Before a transferee may ask for the issuance of stock certificates, he must first
cause the registration of the transfer and thereby enjoy the status of a
Facts:
Fausto Gaid was an incorporator of Victory Cement Corporation (which was later stockholder insofar as the corporation is concerned.
Therefore, where a transferee is not yet recognized as a stockholder, the
renamed Alsons Cement Corporation), having subscribed to and fully paid
corporation is under no specific legal duty to issue stock certificates in the
239,500 shares of said corporation. On February 8, 1968, Vicente Ponce and
transferees name.
Gaid executed a Deed of Undertaking and Indorsement whereby the latter
acknowledges that the former is the owner of said shares and he was therefore
Rural Bank of Salinas, Inc. v. CA (210 SCRA 510)
assigning/endorsing the same to Ponce. Despite repeated demands,
respondents refused without any justifiable reason to issue to Ponce the
certificates of stocks corresponding to the 239,500 shares of Gaid. Hence, Ponce
filed a complaint with the SEC for mandamus and damages against Alsons
Cement Corporation and its corporate secretary Francisco Giron, Jr.
Respondents moved to dismiss, arguing that the alleged indorsement was not
recorded in the books of the corporation, and as such, was not valid against third
persons like Alsons under Section 63 of the Corporation Code.
SEC Hearing officer dismissed the complaint. SEC En Banc reversed: A transfer
or assignment of stocks need not be registered first before the Commission can
take cognizance of the case to enforce his rights as a stockholder.
On appeal, CA dismissed: In the absence of any allegation that the transfer of
the shares between Fausto Gaid and Vicente C. Ponce was registered in the
stock and transfer book of ALSONS, Ponce failed to state a cause of action.
35

RURAL BANK OF SALINAS, INC., MANUEL SALUD,
LUZVIMINDA TRIAS and FRANCISCO TRIAS
vs.
COMMISSION, MELANIA A. GUERRERO, LUZ ANDICO,
WILHEMINA G. ROSALES, FRANCISCO M. GUERRERO,
JR., and FRANCISCO GUERRERO , SR.
G.R. No. 96674, June 26, 1992
FACTS:
Clemente G. Guerrero, President of the Rural Bank of
Salinas, Inc., executed a Special Power of Attorney in favor of
his wife, private respondent Melania Guerrero, giving and
granting the latter full power and authority to sell or
otherwise dispose of and/or mortgage 473 shares of stock of
the Bank registered in his name (represented by the Bank's
stock certificates nos. 26, 49 and 65), to execute the proper
documents therefor, and to receive and sign receipts for the
dispositions. On February 27, 1980, and pursuant to said
Special Power of Attorney, private respondent Melania
Guerrero, as Attorney-in-Fact, executed a Deed of
Assignment for 472 shares out of the 473 shares, in favor of
private respondents Luz Andico (457 shares), Wilhelmina
Rosales (10 shares) and Francisco Guerrero, Jr. (5
shares).Almost four months later, or two (2) days before the
death of Clemente Guerrero on June 24, 1980, private
respondent Melania Guerrero, pursuant to the same Special
Power of Attorney, executed a Deed of Assignmentfor the
2013400036
remaining one (1) share of stock in favor of private
respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero
presented to petitioner Rural Bank of Salinas the two (2)
Deeds of Assignment for registration with a request for the
transfer in the Bank's stock and transfer book of the 473
shares of stock so assigned, the cancellation of stock
certificates in the name of Clemente G. Guerrero, and the
issuance of new stock certificates covering the transferred
shares of stocks in the name of the new owners thereof.
However, petitioner Bank denied the request of respondent
Melania Guerrero.
ISSUE:
Whether or not a Mandamus lie against the Rural
Bank of Salinas to register in its stock and transfer book the
transfer of 473 shares of stock to private respondents.
RULING:
YES.
Section 5 (b) of P.D. No. 902-A grants to the SEC the
original and exclusive jurisdiction to hear and decide cases
involving intracorporate controversies. An intra-corporate
controversy has been defined as one which arises between a
stockholder and the corporation. There is neither
distinction, qualification, nor any exception whatsoever. The
36

case at bar involves shares of stock, their registration,
cancellation and issuances thereof by petitioner Rural Bank
of Salinas. It is therefore within the power of respondent SEC
to adjudicate.
A corporation, either by its board, its by-laws, or the
act of its officers, cannot create restrictions in stock
transfers, because: Restrictions in the traffic of stock must
have their source in legislative enactment, as the corporation
itself cannot create such impediment. By-laws are intended
merely for the protection of the corporation, and prescribe
regulation, not restriction; they are always subject to the
charter of the corporation. The corporation, in the absence of
such power, cannot ordinarily inquire into or pass upon the
legality of the transactions by which its stock passes from
one person to another, nor can it question the consideration
upon which a sale is based.
Whenever a corporation refuses to transfer and register
stock in cases like the present, mandamuswill lie to compel
the officers of the corporation to transfer said stock in the
books of the corporation.
Hager v. Bryan 19 PHIL 138 (1911)
G.R. No. 6230; January 18, 1911
2013400036
registered owner of the stock which he seeks to have transferred.
His only claim as owner is based on his averment that such were
indorsed to him on February 5 by the Bryan-Landon Company, in
whose name it is registered on the books of the Visayan Electric
Company. There was no allegation that the petitioner holds any
power of attorney from the Bryan-Landon Company authorizing
him to make demand on the secretary of the Visayan Electric
Company to make the transfer which petitioner seeks to have
made through the medium of the mandamus of this court.
ISSUE:
WON a writ of mandamus will lie under the circumstances of
the case to allow the transfer of shares as being requested by the
petitioner.
HELD:
The Supreme Court denied the writ. Petitioner did not have
the right to demand the transfer since he was not the stockholder
of record. This was proven by the fact that the said shares were
still registered under the name of Bryan-Landon Company.
Furthermore, even the latter did not demand from the company
the transfer of said shares. Neither did it give by way of a special
power of attorney to petitioner the authority to effect such a
transfer. Hence, there is no clear and legal obligation upon the
respondent that will justify the issuance of a writ to compel the
latter to perform a transfer.
As a general rule, as between the corporation on the one
hand, and its shareholders and third persons on the other, the
corporation looks only to its books for the purpose of determining
who its shareholders are, so that a mere indorsee of a stock
certificate, claiming to be the owner, will not necessarily be
recognized as such by the corporation and its officers, in the
absence of express instructions of the registered owner to make
such transfer to the indorsee, or a power of attorney authorizing
such transfer.
FACTS:
Petitioner filed an original action to secure a writ of
mandamus against the respondent, to compel him, as secretary of
the Visayan Electric Company, to transfer upon the books of the
company certain shares of stock. He based the urgency of his
action on a supposed agreement to sell the said shares to a Mr.
Levering. Furthermore, he also stated that the issuing company
Bitong v. CA 292 SCRA 503
holds no unpaid claims against the shares of stock. However, on
Ownership of Corporate Shares/ Stock Certificates: Valid Issuance
the books of the company, it turns out that petitioner is not the
37

Facts: Bitong was the treasurer and member of the BoD of Mr. & Mrs.
Corporation. She filed a complaint with the SEC to hold respondent spouses
Apostol liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of
interest and mismanagement in directing the affairs of the corporation to the
prejudice of the stockholders. She alleges that certain transactions entered into
by the corporation were not supported by any stockholders resolution.
The complaint sought to enjoin Apostol from further acting as president-director
of the corporation and from disbursing any money or funds. Apostol contends
that Bitong was merely a holder-in-trust of the JAKA shares of the corporation,
hence, not entitled to the relief she prays for. SEC Hearing Panel issued a writ
enjoining Apostol.
After hearing the evidence, SEC Hearing Panel dissolved the writ and dismissed
the complaint filed by Bitong. Bitong appealed to the SEC en banc. The latter
reversed SEC Hearing Panel decision. Apostol filed petition for review with the
CA. CA reversed SEC en banc ruling holding that Bitong was not the owner of
any share of stock in the corporation and therefore, not a real party in interest to
prosecute the complaint. Hence, this petition with the SC.
Issue: Whether or not Bitong was the real party in interest.
Held: Based on the evidence presented, it could be gleaned that Bitong was not
a bona fide stockholder of the corporation. Several corporate documents
disclose that the true party in interest was JAKA.
Although her buying of the shares were recorded in the Stock and Transfer Book
of the corporation, and as provided by Sec. 63 of the Corp Code that no transfer
shall be valid except as between the parties until the transfer is recorded in the
books of the corporation, and upon its recording the corporation is bound by it
and is estopped to deny the fact of transfer of said shares, this provision is not
conclusive even against the corporation but are prima facie evidence only. Parol
evidence may be admitted to supply the omissions in the records, explain
ambiguities, or show what transpired where no records were kept, or in some
cases where such records were contradicted. Besides, the provision envisions a
formal certificate of stock which can be issued only upon compliance with certain
requisites: (1) certificates must be signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed with the seal of
the corporation, (2) delivery of the certificate; (3) the par value, as to par value
shares, or the full subscription as to no par value shares, must be first fully paid;
(4) the original certificate must be surrendered where the person requesting the
issuance of a certificate is a transferee from a stockholder.
These considerations are founded on the basic principle that stock issued
without authority and in violation of the law is void and confers no rights
on the person to whom it is issued and subjects him to no liabilities.
Where there is an inherent lack of power in the corporation to issue the
stock, neither the corporation nor the person to whom the stock is issued
2013400036
is estopped to question its validity since an estoppel cannot operate to
create stock which under the law cannot have existence.
Abejo v. De la Cruz 149 SCRA 654 (1987)
GR No. L-63558
FACTS:
These two cases, jointly heard, are jointly herein decided. They involve the
question of who, between the RTC and the SEC, has original and exclusive
jurisdiction over the dispute between the principal stockholders of the
corporation Pocket Bell Philippines, Inc. (Pocket Bell), namely, the spouses
Abejos and the purchaser, Telectronic Systems, Inc. of their 133,000 minority
shareholdings (for P5 million) and of 63,000 shares registered in the name of
Virginia Braga and covered by 5 stock certificates endorsed in blank by her (for
P1,674,450.00), and the Bragas, erstwhile majority stockholders. With the said
purchases, Telectronics would become the majority stockholder, holding 56% of
the outstanding stock and voting power of the corporation Pocket Bell.
With the said purchases in 1982, Telectronics requested the corporate secretary
of the corporation, Norberto Braga, to register and transfer to its name, and
those of its nominees the total 196,000 Pocket Bell shares in the corporation's
transfer book, cancel the surrendered certificates of stock and issue the
corresponding new certificates of stock in its name and those of its nominees.
Norberto Braga, refused to register the aforesaid transfer of shares in the
corporate books, asserting that the Bragas claim pre-emptive rights over the
133,000 Abejo shares and that Virginia Braga never transferred her 63,000
shares to Telectronics but had lost the five stock certificates representing those
shares.
This triggered off the series of intertwined actions between the protagonists, all
centered on the question of jurisdiction over the dispute, which were to
culminate in the filing of the two cases at bar.
ISSUE: WON the corporate secretary may refuse to register the transfer of
shares in the corporate books.
HELD:
NO. As pointed out by the Abejos, Pocket Bell is not a close corporation, and no
restriction over the free transferability of the shares appears in the Articles of
Incorporation, as well as in the bylaws and the certificates of stock themselves,
38

as required by law for the enforcement of such restriction. As the SEC maintains,
"There is no requirement that a stockholder of a corporation must be a registered
one in order that the Securities and Exchange Commission may take cognizance
of a suit seeking to enforce his rights as such stockholder." This is because the
SEC by express mandate has "absolute jurisdiction, supervision and control over
all corporations" and is called upon to enforce the provisions of the Corporation
Code, among which is the stock purchasers right to secure the corresponding
certificate in his name under the provisions of Sec 65 of the code.
Lee v. Trocino, et al. GR 164648 (June 19, 2009)
8) Unauthorized Transfers ---Santamaria vs. Hongkong89 Phil. 780 (1951)
JOSEFA SANTAMARIA, assisted by her husband, FRANCISCO
SANTAMARIA, Jr. vs.
THE HONGKONG AND SHANGHAI BANKING

CORPORATION and R. W. TAPLIN.
G.R. No. L-2808
August 31, 1951
FACTS:
Mrs. Josefa T. Santamaria bought 10,000 shares of the
Batangas Minerals, Inc., through the offices of Woo, Uy-Tioco
& Naftaly, a stock brokerage firm and pay therefore the sum
of P8,041.20 as shown by receipt Exh. B. The buyer received
Stock Certificate No. 517 issued in the name of Woo, UyTioco & Naftaly and indorsed in bank by this firm.
On March 9, 1937, Mrs. Santamaria placed an order
for the purchase of 10,000 shares of the Crown Mines, Inc.
with R.J. Campos & Co., a brokerage firm, and delivered
Certificate No. 517 to the latter as security therefor with the
understanding that said certificate would be returned to her
upon payment of the 10,000 Crown Mines, Inc. shares. Exh.
2013400036
D. is the receipt of the certificate in question signed by one
Mr. Cosculluela, Manager of the R.J. Campos & Co., Inc.
According to certificate Exh. E, R. J. Campos & Co., Inc.
bought for Mrs. Josefa Santamaria 10,000 shares of the
Crown Mines, Inc. at .225 a share, or the total amount of
P2,250. Two days later, on March 11, Mrs. Santamaria went
to R.J. Campos & Co., Inc. to pay for her order of 10,000
Crown Mines shares and to get back Certificate No. 517.
Cosculluela then informed her that R.J. Campos & Co., Inc.
was no longer allowed to transact business due to a
prohibition
order
from
Securities
and
Exchange
Commission. She was also inform that her Stock certificate
was in the possession of the Hongkong and Shanghai
Banking Corporation.
ISSUE:
Whether or not the obligation of the defendant Bank
to have inquired into the ownership of the certificate when it
received it from R.J. Campos & Co., Inc. and not conclude
that the Bank was negligent for not having done so,
contrary to the claim of the plaintiff that defendant Bank
acted negligently, if not in bad faith, in accepting delivery of
said certificate from RJ. Campos & Co., Inc.
RULING:
YES.
39
2013400036
Certificate No. 517 came into the possession of the

defendant Bank because R.J. Campos & Co., Inc. had
opened an overdraft account with said Bank and to this
effect it had executed on April 16, 1946, a letter of
hypothecation by the terms of which R.J. Campos & Co., Inc.
pledged to the said Bank "all Stocks, Shares and Securities
which I/we may hereafter come into their possession on
my/our account and whether originally deposited for safe
custody only or for any other purpose whatever or which may
hereafter be deposited by me/us in lieu of or in addition to
the Stocks, Shares, and Securities now deposited or for any
other purpose whatsoever."
It should be noted that the certificate of stock in question
was issued in the name of the brokerage firm-Woo, Uy-Tioco &
Naftaly and that it was duly indorsed in blank by said firm, and that
said indorsement was guaranteed by R.J. Campos & Co., Inc., which
in turn indorsed it in blank. This certificate is what it is known as
street certificate. Upon its face, the holder was entitled to demand
its transfer into his name from the issuing corporation. The Bank
was not obligated to look beyond the certificate to ascertain the
ownership of the stock at the time it received the same from R.J.
Campos & Co., Inc., for it was given to the Bank pursuant to their
letter of hypothecation. Even if said certificate had been in the
name of the plaintiff but indorsed in blank, the Bank would still
have been justified in believing that R.J. Campos & Co., Inc. had
title thereto for the reason that it is a well-known practice that a
certificate of stock, indorsed in blank, is deemed quasi negotiable,
and as such the transferee thereof is justified in believing that it
belongs to the holder and transferor.
De los Santos vs. McGrath96 Phil. 577(1955)
40

APOLINARIO G. DE LOS SANTOS and ISABELO
ASTRAQUILLO
vs.
J. HOWARD MCGRATH ATTORNEY GENERAL OF THE
UNITED STATES, SUCCESSOR TO THE PHILIPPINE
ALIEN PROPERTY ADMINISTRATION OF THE UNITED
STATES, REPUBLIC OF THE PHILIPPINES
G.R. No. L-4818 February 28, 1955
FACTS:
This action involves the title to 1,600,000 shares of
stock of the Lepanto Consolidated Mining Co., Inc., a
corporation duly organized and existing under the laws of
the Philippines, hereinafter referred to, for the sake of
brevity, as the Lepanto. Originally, one-half of said shares of
stock were claimed by plaintiff, Apolinario de los Santos, and
the other half, by his co-plaintiff Isabelo Astraquillo. During
the pendency of this case, the latter has allegedly conveyed
and assigned his interest in and to said half claimed by him
to the former. The shares of stock in question are covered by
several stock certificates issued in favor of Vicente Madrigal,
who is registered in the books of the Lepanto as owner of
said stocks and whose indorsement in blank appears on the
back of said certificates, all of which, except certificates No.
2279 marked Exhibit 2 covering 55,000 shares, are in
plaintiffs' possession. So was said Exhibit 2, up to sometime
in 1945 or 1946 when said possession was lost under the
conditions set forth in subsequent pages.
2013400036
ISSUE:
Whether or not the plaintiffs had the owners of the
shares of stock in question.
RULING:
NO.
In the case at bar, neither madrigal nor the Mitsuis
had alienated shares of stock in question. It is not even
claimed that either had, through negligence, given
occasion for an improper or irregular disposition of the
corresponding
stock
certificates.
Plaintiffs
merely argue without any evidence whatsoever thereon
that Kitajimamight have, or must have, assigned the
certificates on or before December 1942, although, as above
stated, this is, not only, improbable, under the conditions,
then obtaining, but, also., impossible, considering that,
in April 1943, Kitajima delivered the instruments to Miwa,
who kept them in its possession until 1945. At any rate,
such assignment by Miwa granting for the sake of
argument the accuracy of the surmise of plaintiffs herein
was unauthorized by the mitsuis, who, in the light of the
precedents cited above, are not chargeable with negligence.
In other words, assuming that Kitajima had been guilty of
embezzlement, by negotiating the stock certificates in
question for his personal benefit, as claimed by the
41

plaintiffs, the title of his assignees and successors in interest
would still be subject to the rights of the registered owner,
namely, Madrigal, and consequently, of the party for whose
benefit and account the latter held the corresponding shares
of stock, that is to say, the Mitsuis.
In conclusion, when the Property Custodian issued the
Vesting Order complained of, the shares of stock in question
belonged to the Mitsuis, admittedly an enemy corporation, so that
Vesting Order is in conformity with law and should be upheld.
Wherefore, the decision appealed from is hereby reversed, and the
complaint, accordingly, dismissed, with costs against the plaintiffsappellees. It is so ordered.
Guy v. Guy GR 189486 (Sept. 5, 2012)
9) Collateral Transfers --Uson v. Diosomito (61 Phil. 535; 1935)
Uson vs. Diosomito

G.R. No. L-42135; June 17, 1935
FACTS:
Toribia Uson filed a civil action for debt against Vicente
Diosomito. Upon institution of said action, an attachment was duly
issued and respondents property was levied upon, including 75
shares of the North Electric Co., which stood in his name on the
books of the company when the attachment was levied. The sheriff
sold said shares at a public auction with Uson being the highest
bidder. Jollye claims to be the owner of said certificate of stock
issued to him by the North Electric Co.
There is no dispute that Diosomito was the original owner of
said shares, which he sold to Barcelon. However, Barcelon did not
present these certificates to the corporation for registration until 19
months after the delivery thereof by Barcelon, and 9 months after
the attachment and levy on said shares. The transfer to Jollye was
made 5 months after the issuance of a certificate of stock in
2013400036
Barcelon's name.
ISSUE:
Is a bona fide transfer of the shares of corp., not registered
or noted on the books of the corp., valid as against a subsequent
lawful attachment of said shares, regardless of whether the
attaching creditor had actual notice of said transfer or not?
HELD:
NO, it is not valid. The transfer of the 75 shares in the North
Electric Co., Inc made by the defendant Diosomito as to the
defendant Barcelon was not valid as to the plaintiff. Toribia Uson,
on 18 Jan. 1932, the date on which she obtained her attachment
lien on said shares of stock will still stood in the name of Diosomito
on the books of the corp. Sec. 35 provides that No transfer,
however, is valid, except as between the parties, until the transfer
is entered and noted upon the books of the corporation so as to
show the names of the parties to the transaction, the date of the
transfer, the number of the certificate, and the number of shares
transferred.
All transfers of shares not so entered are invalid as to
attaching or execution creditors of the assignors, as well as to the
corporation and to subsequent purchasers in good faith, and
indeed, as to all persons interested, except the parties to such
transfers.
Chua Guan vs. SamahangMagsasaka62 Phil. 473 (1935)
62 PHIL 473
1935
Butte, J. (ponente)
FACTS:
On June 18, 1931, Gonzalo H. Co Toco, the owner of 5,894 shares of the capital
stock of Samahang Magsasaka Inc. represented by 9 certificates having a par
value of P5 per share, mortgaged said shares to Chua Chiu to guarantee the
payment of a debt of P20,000 due on or before 19 June 1932. The said
certificates of stock were delivered with the mortgage to the mortgagee, Chua
Chiu. The said mortgage was duly registered in the office of the register of
deeds of Manila on 23 June 1931, and in the office of the said corporation on 30
September 1931. On 28 November 1931, Chua Chiu assigned all his right and
42
2013400036
interest in said mortgage to Chua Guan.
third persons. Furthermore, any share still standing in the name of the
debtor on the books of the corporation will be liable to seizure by
However, Co Toco defaulted in the payment of said debt at maturity and Chua attachment or levy on execution at the instance of other creditors. Thus,
Guan foreclosed said mortgage and delivered the certificates of stock and copies the game here is to have the highest or most preferred priority over any
of the mortgage and assignment to the sheriff of the City of Manila in order to sell pledged or mortgaged shares.
the said shares at public auction. The sheriff auctioned said shares on 22
December 1932, and the plaintiff having been the highest bidder for the sum of
Chemphil Export & Import v. CA (Dec. 12, 1995)
P14,390, the sheriff executed in his favor a certificate of sale of said shares. The Chemphil Export & Import vs. CA
plaintiff tendered the certificates of stock standing in the name of Co Toco to the G.R. Nos. 112438-39; December 12, 1995
proper officers of the corporation for cancellation and demanded that they issue
new certificates in the name of Chua Guan. The officers (the individual FACTS:
defendants) refused and still refuse to issue said new shares in the name of
This case involved a consortium of banks which obtained a
Chua Guan.
writ of preliminary attachment in a civil case ("consortium case")
over shares of stock belonging to Mr. Antonio Garcia in the
An action for writ of mandamus was filed with the CFI Nueva Ecija, praying that
Chemical Industries of the Philippines ("Chemphil"). The
the defendants transfer the said 5,894 shares of stock to the plaintiff by
attachment, which was served on the secretary to the President of
cancelling the old certificates and issuing new ones in their stead.
The parties entered into a stipulation in which the defendants admitted all of the
allegations of the complaint while the plaintiff admitted all of the special defenses
in the answer of the defendants, and on this stipulation they submitted the case
for decision. As special defense, the defendants refused to cancel said
certificates (Co Tocos) and to issue new ones in the name of Chua Guan
because prior to the date of the latters demand (4 February 1933), 9
attachments had been issued, served and noted on the books of the corporation
against Co Tocos shares. Chua Guan objected to having these attachments
noted on the new certificates which he demanded.
The Supreme Court affirmed the judgment appealed from, holding that the
attaching creditors are entitled to priority over the defectively registered mortgage
of the appellant.
ISSUE: Whether or not the said mortgage takes priority over the already noted
writs of attachment.
Chemphil, was not registered in the stock and transfer book of

Chemphil. A few years thereafter, Mr. Garcia sold the same shares
of stock to the Ferro Chemicals, Inc. ("FCI"). FCI subsequently
assigned the shares to the Chemphil Export and Import
Corporation ("CEIC"). The shares were registered and recorded in
the corporate books of Chemphil in CEICs name and the
corresponding stock certificates were issued to it.
The consortium case was appealed to the CA. While the
appeal was pending, Mr. Garcia and the bank consortium amicably
settled the case. The CA rendered a judgment by compromise.
Unfortunately, Mr. Garcia failed to comply with the compromise
agreement. The consortium of banks caused to be sold on
execution the shares of stock (earlier attached by them), which
were the same shares subsequently sold by Mr. Garcia to CEIC. A
certificate of sale covering the shares was issued in the name of
the bank consortium.
ISSUE:
HELD:
Who has priority to the shares of stock an attaching
The Supreme Court ruled that the attaching creditors are entitled to priority
over the defectively registered mortgage of the appellant. The court argues creditor or the subsequent buyer?
that the registration in the register of deeds must be done both at the place
where the owner is domiciled and at the place where the principal office of HELD:
the corporation is located. The purpose of this is to give sufficient
The Supreme Court ruled that the attachment lien acquired
constructive of any claim or encumbrance over the recorded shares to
43

by the bank consortium is valid and effective even as against the
buyer (FCI) and its assignee (CEIC), notwithstanding the fact that
said attachment lien was not registered in the corporate books of
Chemphil. "Both the Revised Rules of Court and the Corporation
Code", according to the Court, "do not require annotation in the
corporations stock and transfer book for the attachment of shares
of stock to be valid and binding on the corporation and third party."
Consequently, when FCI purchased the shares of stock from
Mr. Garcia, it purchased them subject to the attachment lien of the
bank consortium. In this regard, the High Court explained that a
preliminary attachment is a security for the satisfaction of whatever
judgment may be obtained by the attaching creditor in a court
action, which continues until the judgment debt is fully satisfied.
COMPARISON of the abovementioned three cases:
Among the three cases mentioned, settled is the rule that
the attaching creditor enjoys priority to the shares of stock as
against a subsequent lawful buyer.
lX. PRE-EMPTIVE RIGHT Sec. 39 and 102
Purpose; when given; waiver

Distinguish from Right of FirstRefusal.
Distinguish from pre-emptive rt in a close corp
Makati Sports Club, Inc. v. ChengGR 178523 (June 16, 2010)
MAKATI SPORTS CLUB, INC., petitioner, vs. CECILE H. CHENG, MC
FOODS, INC., and RAMON SABARRE, respondents.
[G.R. No. 178523. June 16, 2010.]
Pre-emptive Right
FACTS:
On October 20, 1994, plaintiff Makati Sports Club, Inc.s Board of Directors
adopted a resolution authorizing the sale of 19 unissued shares at a floor price of
P400,000 and P450,000 per share for Class A and B, respectively.
Defendant Cecile Cheng was a Treasurer and Director of Makati Sports Club in
1985.
On July 7, 1995, Joseph L. Hodreal expressed his interest to buy a share, for
this purpose he sent the letter in which he requested that his name be included in
the waiting list.
2013400036
Sometime in November 1995, McFoods expressed interest in acquiring a
share of Makati Sports Club, and one was acquired with the payment to the
plaintiff by McFoods of P1,800,000 through Urban Bank. On December 15,
1995, the Deed of Absolute Sale was executed by the plaintiff and McFoods;
Stock Certificate No. A 2243 was issued to McFoods on January 5, 1996.
On December 27, 1995, McFoods sent a letter to the plaintiff giving
advice of its offer to resell the share.
It appears that while the sale between the plaintiff and McFoods was still
under negotiations, there were negotiations between McFoods and
Hodreal for the purchase by the latter of a share of the plaintiff.
On November 24, 1995, Hodreal paid McFoods P1,400,000. Another payment
of P1,400,000 was made by Hodreal to McFoods on December 27, 1995, to
complete the purchase price of P2,800,000.
On February 7, 1996, plaintiff was advised of the sale by McFoods to Hodreal
of the share evidenced by Certificate No. 2243 for P2.8 Million. Upon request, a
new certificate was issued.
In 1997, an investigation was conducted and the committee held that there
is prima facie evidence to show that defendant Cheng profited from the
transaction because of her knowledge.
xxx xxx xxx
Plaintiff's evidence of fraud are [a] letter of Hodreal dated July 7, 1995
where he expressed interest in buying one (1) share from the plaintiff with the
request that he be included in the waiting list of buyers; [b] declaration of Lolita
Hodreal in her Affidavit that in October 1995, she talked to Cheng who assured
her that there was one (1) available share at the price of P2,800,000. The
purchase to be validated by paying 50% immediately and the balance after thirty
(30) days; [c] Marian Punzalan, Head, Membership Section of the plaintiff
declared that she informed Cheng of the intention of Hodreal to purchase one
(1) share and she gave to Cheng the contact telephone number of Hodreal; and
[d] the authorization from Sabarre to claim the stock certificate.
MSCI asserts that Mc Foods never intended to become a legitimate holder of
its purchased Class "A" share but did so only for the purpose of realizing a profit
in the amount of P1,000,000.00 at the expense of the former. MSCI further
claims that Cheng confabulated with Mc Foods by providing it with an insider's
information as to the status of the shares of stock of MSCI and even, allegedly
with unusual interest, facilitated the transfer of ownership of the subject share of
stock from Mc Foods to Hodreal, instead of an original, unissued share of stock.
It is also MSCI's stance that Mc Foods violated Section 30 (e) of MSCI's
Amended By-Laws on its pre-emptive rights, which provides
44

SEC. 30.. . . .
(e)Sale of Shares of Stockholder. Where the registered owner of share of stock
desires to sell his share of stock, he shall first offer the same in writing to the
Club at fair market value and the club shall have thirty (30) days from receipt of
written offer within which to purchase such share, and only if the club has excess
revenues over expenses (unrestricted retained earning) and with the approval of
two-thirds (2/3) vote of the Board of Directors. If the Club fails to purchase the
share, the stockholder may dispose of the same to other persons who are
qualified to own and hold shares in the club. If the share is not purchased at the
price quoted by the stockholder and he reduces said price, then the Club shall
have the same pre-emptive right subject to the same conditions for the same
period of thirty (30) days. Any transfer of share, except by hereditary succession,
made in violation of these conditions shall be null and void and shall not be
recorded in the books of the Club.
The share of stock so acquired shall be offered and sold by the Club to those in
the Waiting List in the order that their names appear in such list, or in the
absence of a Waiting List, to any applicant.
Thus, petitioner sought judgment that would order respondents to pay the sum
of P1,000,000.00, representing the amount allegedly defrauded, together with
interest and damages.
The RTC rendered its decision dismissing the complaint, including all
counterclaims.
Aggrieved, Makati Sports Club, Inc. (MSCI) appealed to the CA. The CA
promulgated its assailed Decision, affirming the decision of the RTC.
Hence, this petition.
ISSUE: W/N Mc Foods violated Section 30 (e) of MSCI's Amended By-Laws on
its pre-emptive rights
HELD: The court held that Mc Foods did not violate Section 30 (e) of MSCIs
Amended By-Laws on its pre-emptive rights.
Undeniably, on December 27, 1995, when Mc Foods offered for sale one Class
"A" share of stock to MSCI for the price of P2,800,000.00 for the latter to exercise
its pre-emptive right as required by Section 30 (e) of MSCI's Amended By-Laws,
it legally had the right to do so since it was already an owner of a Class "A" share
by virtue of its payment on November 28, 1995, and the Deed of Absolute Share
dated December 15, 1995, notwithstanding the fact that the stock certificate was
issued only on January 5, 1996.
A certificate of stock is the paper representative or tangible evidence of the
stock itself and of the various interests therein. The certificate is not a stock in the
corporation but is merely evidence of the holder's interest and status in the
2013400036
corporation, his ownership of the share represented thereby. It is not in law the
equivalent of such ownership. It expresses the contract between the corporation
and the stockholder, but is not essential to the existence of a share of stock or
the nature of the relation of shareholder to the corporation.
Therefore, Mc Foods properly complied with the requirement of Section
30 (e) of the Amended By-Laws on MSCI's pre-emptive rights. Without
doubt, MSCI failed to repurchase Mc Foods' Class "A" share within the
thirty (30) day pre-emptive period as provided by the Amended By-Laws.
It was only on January 29, 1996, or 32 days after December 28, 1995, when
MSCI received Mc Foods' letter of offer to sell the share, that Mc Foods and
Hodreal executed the Deed of Absolute Sale over the said share of stock. While
Hodreal had the right to demand the immediate execution of the Deed of
Absolute Sale after his full payment of Mc Foods' Class "A" share, he did not do
so. Perhaps, he wanted to wait for Mc Foods to first comply with the pre-emptive
requirement as set forth in the Amended By-Laws.
Neither can MSCI argue that Mc Foods was not yet a registered owner of the
share of stock when the latter offered it for resale, in order to void the transfer
from Mc Foods to Hodreal. The corporation's obligation to register is ministerial
upon the buyer's acquisition of ownership of the share of stock. The corporation,
either by its board, its by-laws, or the act of its officers, cannot create restrictions
in stock transfers.
Moreover, MSCI's ardent position that Cheng was in cahoots with Mc
Foods in depriving it of selling an original, unissued Class "A" share of
stock for P2,800,000.00 is not supported by the evidence on record. The
mere fact that she performed acts upon authority of Mc
Foods, i.e., receiving the payments of Hodreal in her office and claiming
the stock certificate on behalf of Mc Foods, do not by themselves,
individually or taken together, show badges of fraud, since Mc Foods did
acts well within its rights and there is no proof that Cheng personally
profited from the assailed transaction. Even the statement of MSCI that
Cheng doctored the books to give a semblance of regularity to the
transfers involving the share of stock covered by Certificate A 2243
remains merely a plain statement not buttressed by convincing proof.
X. APPRAISAL RIGHT Secs. 81- 86; relate to Sec. 42 and 105
Marcus v. RH Macy 74 N.E. 2D 228 (1947)
Facts: Hazel Marcus is the owner of 50 common shares of stocks in R.H, Macy
Co., Inc., which are stocks with voting rights. On September 28, 1945, the
corporation gave a formal notice to its stockholders, including Marcus, that in its
45
2013400036
upcoming annual meeting, there will be a vote on a proposal to vest voting rights
to holders of preferred stocks. A day before the annual meeting, Marcus sent by
registered mail to the corporation its written notice of objection to the proposal
and demanded to exercise her appraisal right. In the meeting, Marcus voted
against the proposal, however, the proposal was approved.
Marcus, thereafter, instituted a proceeding to determine the value of her stocks
and be paid therefor. However, her application for the appointment of appraisers
was denied on the ground that the vesting of voting rights to shares of stock
previously without such right does not divest nor limit her right as a common
stockholder, citing the Kenny case, and in considering that she only owns 50
shares out of 1.6 million shares of common stock. The Appellate Division
affirmed the said decision.
P2,298,760.00.
Turner v. Lorenzo Shipping GR 157479 Nov. 24, 2010 (G.R. No. 157479
November 24, 2010)
In its letter to the petitioners dated January 2, 2001,[4] the respondent refused
the petitioners demand, explaining that pursuant to the Corporation Code, the
dissenting stockholders exercising their appraisal rights could be paid only when
the corporation had unrestricted retained earnings to cover the fair value of the
shares, but that it had no retained earnings at the time of the petitioners
demand, as borne out by its Financial Statements for Fiscal Year 1999 showing
a deficit of P72,973,114.00 as of December 31, 1999.
The respondent found the fair value of the shares demanded by the petitioners
unacceptable. It insisted that the market value on the date before the action to
remove the pre-emptive right was taken should be the value, or P0.41/share (or
a total of P414,100.00), considering that its shares were listed in the Philippine
Stock Exchange, and that the payment could be made only if the respondent
had unrestricted retained earnings in its books to cover the value of the shares,
which was not the case.
The disagreement on the valuation of the shares led the parties to constitute an
appraisal committee pursuant to Section 82 of the Corporation Code, each of
them nominating a representative, who together then nominated the third
Issue: Whether or not Marcus may exercise her right of appraisal.
member who would be chairman of the appraisal committee. Thus, the appraisal
committee came to be made up of Reynaldo Yatco, the petitioners nominee;
Held: Marcus may exercise her right of appraisal. The Kenny case is inapplicable Atty. Antonio Acyatan, the respondents nominee; and Leo Anoche of the Asian
in this case as in that case, voting rights were given to newly issued stocks while Appraisal Company, Inc., the third member/chairman.
in this case, voting rights were given to existing stocks and previously without
voting rights. Vesting voting rights to the preferred shares, in the case of R.H. On October 27, 2000, the appraisal committee reported its valuation of
Macy, resulted to the increase in aggregate number of shares with voting rights P2.54/share, for an aggregate value of P2,565,400.00 for the petitioners.
which in effect diminished the potential worth of the common shares as a factor in
the management of the corporation's affairs. As to Marcus owning only 50 Subsequently, the petitioners demanded payment based on the valuation of the
shares, the law does not provide for a minimum percentage or value of stock appraisal committee, plus 2%/month penalty from the date of their original
which must be owned by a non-consenting stockholder to qualify to invoke her demand for payment, as well as the reimbursement of the amounts advanced as
appraisal right.
professional fees to the appraisers.
PHILIP TURNER AND ELNORA TURNER VS LORENZO SHIPPING

CORPORATION
Facts:
The petitioners held 1,010,000 shares of stock of the respondent, a domestic
corporation engaged primarily in cargo shipping activities. In June 1999, the
respondent decided to amend its articles of incorporation to remove the
stockholders pre-emptive rights to newly issued shares of stock. Feeling that the
corporate move would be prejudicial to their interest as stockholders, the
petitioners voted against the amendment and demanded payment of their shares
at the rate of P2.276/share based on the book value of the shares, or a total of
Upon the respondents refusal to pay, the petitioners sued the respondent for
collection and damages in the RTC in Makati City on January 22, 2001. The
case, docketed as Civil Case No. 01-086, was initially assigned to Branch 132.
On June 26, 2002, the petitioners filed their motion for partial summary
judgment.
The respondent opposed the motion for partial summary judgment, stating that
the determination of the unrestricted retained earnings should be made at the
end of the fiscal year of the respondent, and that the petitioners did not have a
46
2013400036
cause of action against the respondent.
among the stockholders without first paying corporate debts. Thus, any
disposition of corporate funds and assets to the prejudice of creditors is
During the pendency of the motion for partial summary judgment, however, the null and void
Presiding Judge of Branch 133 transmitted the records to the Clerk of Court for
re-raffling to any of the RTCs special commercial courts in Makati City due to the
case being an intra-corporate dispute. Hence, Civil Case No. 01-086 was reraffled to Branch 142.
On November 12, 2002, the respondent filed a motion for reconsideration.
Subsequently, on November 28, 2002, the RTC issued a writ of execution.
Aggrieved, the respondent commenced a special civil action for certiorari in the
CA to challenge the two aforecited orders of Judge Tipon. On the respondents
petition for certiorari, however, the Court of Appeals (CA) corrected the RTC and
dismissed the petitioners suit on the ground that their cause of action for
collection had not yet accrued due to the lack of unrestricted retained earnings in
the books of the respondent. Thus, the petitioners are now before the Court to
challenge the CAs decision.
Issue: WON Petitioners should have given the chance to exercise their
Appraisal Right.
Held:
Clearly, the right of appraisal may be exercised when there is a
fundamental change in the charter or articles of incorporation substantially
prejudicing the rights of the stockholders. It does not vest unless
objectionable corporate action is taken. It serves the purpose of enabling
the dissenting stockholder to have his interests purchased and to retire
from the corporation. No payment shall be made to any dissenting
stockholder unless the corporation has unrestricted retained earnings in its
books to cover the payment. In case the corporation has no available
unrestricted retained earnings in its books, Section 83 of the Corporation
Code provides that if the dissenting stockholder is not paid the value of his
shares within 30 days after the award, his voting and dividend rights shall
immediately be restored. The trust fund doctrine backstops the
requirement of unrestricted retained earnings to fund the payment of the
shares of stocks of the withdrawing stockholders. Under the doctrine, the
capital stock, property, and other assets of a corporation are regarded as
equity in trust for the payment of corporate creditors, who are preferred in
the distribution of corporate assets. The creditors of a corporation have the
right to assume that the board of directors will not use the assets of the
corporation to purchase its own stock for as long as the corporation has
outstanding debts and liabilities. There can be no distribution of assets
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4) Subscribed Capital Stock

Mariano Rivera, an incorporator, subscribed for 450 shares representing a value

Vlll. CAPITAL STRUCTURE OF CORPORATIONS

1) Whether or not the reduction of capital by 50% is valid?

7) Watered stock - Sec. 65

B. Trust Fund Doctrine - vis--vis corporate assets

G.R. No. L-19761

Phil. Trust Co. v. Rivera 44 Phil. 469

Doctrine: A corporation has no power to release an original subscriber to its

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