DELPHER TRADES CORPORATION vs. IAC G.R. No.

L-69259 January 26,

1988
Facts: Delfin Pacheco and sister Pelagia were the owners of a parcel of land in Polo
(now Valenzuela). On April 3, 1974, they leased to Construction Components
International Inc. the property and providing for a right of first refusal should it decide
to buy the said property.
Construction Components International, Inc. assigned its rights and obligations under
the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed
conformity and consent of Delfin and Pelagia. In 1976, a deed of exchange was
executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades
Corporation whereby the Pachecos conveyed to the latter the leased property together
with another parcel of land also located in Malinta Estate, Valenzuela for 2,500 shares
of stock of defendant corporation with a total value of P1.5M.
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 lot. Trivia lang: Delpher
Trades Corp is owned by the Pacheco Family, managed by the sons and daughters of
Delfin and Pelagia. Their primary defense is that there is no transfer of ownership
because the Pachecos remained in control of the original co-owners. The transfer of
ownership, if anything, was merely in form but not in substance.
Issue: WON the Deed of Exchange of the properties executed by the Pachecos and
the Delpher Trades Corporation on the other was meant to be a contract of sale which,
in effect, prejudiced the Hydro Phils right of first refusal over the leased property
included in the deed of exchange? NO
Held: 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 group. In effect, the Delpher Trades
Corporation is a 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 organizing Delpher Trades Corporation to take control of their
properties and at the same time save on inheritance taxes.
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

Gamboa v. Teves, GR No. 176579, June 28, 2011

652 SCRA 690
definition of the term capital to satisfy the nationality requirement under Sec. 11,
Art. XII
FACTS: PLDT was granted a franchise to engage in the telecommunications
business in 1928 through Act. No. 3436. During Martial Law 26 percent of the
outstanding common shares were sold by General Telephone and Electronics
Corporation (GTE) (an American company) to Philippine Telecommunications
Investment Corporation (PTIC), who in turn assigned 111,415 shares of stock of
PTIC (46 percent of outstanding capital stock) to Prime Holdings Inc. (PHI). These
shares of PTIC were later sequestered by PCGG and adjudged by the court to belong
to the Republic.
54 percent of PTIC shares were sold to Hong Kong-based firm First Pacific, and the
remaining 46 percent was sold through public bidding by the Inter-Agency
Privatization Council, and eventually ended up being bought by First Pacific
subsidiary Metro Pacific Asset Holdings Inc. (MPAH) after the corporation exercised
its right of first refusal. The transaction was an indirect sale of 12 million shares or
6.3 percent of the outstanding common shares of PLDT, making First Pacifics
common shareholdings of PLDT to 37 percent and the total common shareholdings of
foreigners in PLDT to 81.47 percent. Japanese NTT DoCoMo owns 51.56 percent of
the other foreign shareholdings/equity.
Petitioner Gamboa, alleged that the sale of 111,415 shares to MPAH violates Sec. 11
of Art. XII of the Constitution, which limits foreign ownership of the capital of a
public utility to not more than 40 percent.
ISSUE:
(1) Whether petitioners choice of remedy was proper?
(2) Whether the term capital under Sec. 11, Article XII of the Constitution refers
only to the total common shares or to the total outstanding stock of PLDT (public
utility)?
HELD:
(1) NO. However, since the threshold and purely legal issue on the definition of the
term capital in Section 11, Article XII of the Constitution has far-reaching
implications to the national economy, the Court treats the petition for declaratory
relief as one for mandamus. It is well settled that this Court may treat a petition for
declaratory relief as one for mandamus if the issue involved has far-reaching
implications.
(2) The term capital in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in the present case
only to common shares, and not to the total outstanding capital stock comprising both
common and non-voting preferred shares. The SC directed the SEC to apply this
definition in determining what was the extent of allowable foreign ownership in
PLDT, and in case of violation, impose the appropriate penalty under the law.

Consistent with the constitutional mandate that the State shall develop a self-reliant
and independent national economy effectively controlled by Filipinos, the term
"capital" means the outstanding capital stock entitled to vote (voting stock), coupled
with beneficial ownership, both of which results to "effective control."
"Mere legal title is insufficient to meet the 60 percent Filipino owned capital
required in the Constitution for certain industries. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the voting rights,
is required." In this case, such twin requirements must apply uniformly and across the
board to all classes of shares comprising the capital. Thus, "the 60-40 ownership
requirement in favor of Filipino citizens must apply separately to each class of shares,
whether common, preferred non-voting, preferred voting or any other class of shares."
This guarantees that the controlling interest in public utilities always lies in the
hands of Filipino citizens.
A broader definition would unjustifiably disregards who owns the all-important
voting stock, which necessarily equates to control of the public utility would be
contrary to Sec. 11, Art. XII, a self-executing provision of the Constitution.
A similar definition is found in Section 10, Article XII of the Constitution, the
Foreign Investments Act of 1991 and its IRR, Regulation of Award of Government
Contracts or R.A. No. 5183, Philippine Inventors Incentives Act or R.A. No. 3850,
Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977, Philippine
Overseas Shipping Development Act or R.A. No. 7471, Domestic Shipping
Development Act of 2004 or R.A. No. 9295, Philippine Technology Transfer Act of
2009 or R.A. No. 10055, and Ship Mortgage Decree or P.D. No. 1521.
VELASCO (Separate Dissenting Opinion)
The present petition partakes of a collateral attack on PLDTs franchise as a public
utility with petitioner pleading as ground PLDTs alleged breach of the 40% limit on
foreign equity. Such is not allowed. As discussed in PLDT v. National
Telecommunications Commission, a franchise is a property right that can only be
questioned in a direct proceeding.
(1) The intent of the framers of the Constitution was not to limit the application of the
word capital to voting or common shares alone. Constitutional Commission records
show that by using the word capital, the framers of the Constitution adopted the
definition or interpretation that includes all types of shares, whether voting or nonvoting.
(2) Cassus Omissus Pro Omisso Habendus Esta person, object or thing omitted
must have been omitted intentionally. In this case, the intention of the framers of the
Constitution is very clear to omit the phrases voting stock and controlling
interest.
(3) The FIA should also be read in harmony with the Constitution. Since the
Constitution only provides for a single requirement for the operation of a public utility
under Sec. 11, i.e., 60% capital must be Filipino-owned, a mere statute cannot add
another requirement. Otherwise, such statute may be considered unconstitutional.

Accordingly, the phrase entitled to vote should not be interpreted to be limited to

common shares alone or those shares entitled to vote in the election of members of the
Board of Directors.
(4) Further, the FIA did not say entitled to vote in the management affairs of the
corporation or entitled to vote in the election of the members of the Board of
Directors. Verily, where the law does not distinguish, neither should We. Hence, the
proper interpretation of the phrase entitled to vote under the FIA should be that it
applies to all shares, whether classified as voting or non-voting shares.
(5) Additionally, control is another inherent right of ownership. The circumstances
enumerated in Sec. 6 of the Corporation Code clearly evince this. It gives voting
rights to the stocks deemed as non-voting as to fundamental and major corporate
changes. Thus, the issue should not only dwell on the daily management affairs of the
corporation but also on the equally important fundamental changes that may need to
be voted on.
(6) The SEC rules, opinions and jurisprudence use the control test, which requires
that the nationality of a corporation is determined by the total outstanding capital
stock irrespective of the number of shares, and capital denotes the total shares
subscribed and paid irrespective of their nomenclature.
(7) Lastly, the last sentence of Sec. 11, Art. XII limits the participation of the foreign
investors in the governing body to their proportionate share in the capital of the
corporation.
ABAD (Dissenting Opinion)
(1) Authority to define and interpret the meaning of capital in Sec. 11, Art. XII
belongs to Congress as part of its policy making powers, as the power to authorize
and control a public utility is a prerogative of Congress. Sec. 11, Art. XII is no selfexecuting and requires Congressional action to clarify its meaning. FIA is restricted
to certain areas of investment and should not be construed to clarify the meaning of
capital under the constitutional provision as they are rules which apply to future
investors.
(2) Capital refers to the entirety of the corporations outstanding voting stock as,
first, the 40 percent limit (if held only to preferred shareholders) would render
meaningless the fourth sentence which limits foreign participation in the governing
body of public utilities, and, second, amicus curiae Dr. Villegas, Chairman of the
Committee of National Economy, said that the term capital did not distinguish
among the classes of shares. In both economic and business terms, capital always
meant the entire shares of stock. Further, Philippine policy on foreign ownership
already discourages foreign investments and to impose additional restrictions would
aggravate economic growth.
(3) Sec. 11, Article XII already provides 3 limitations on foreign participation in
public utilities and the Court need not add more by restricting the definition of capital

Republic Planters Bank vs. Agana

[GR 51765, 3 March 1997]
Facts: 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 full amount of the
loan, which is P120,000.00, the Bank lent such amount partially in the form of money
and partially in the form of stock certificates 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 were in the name of Adalia F. Robes and Carlos F.
Robes, who subsequently, however, endorsed his shares in favor of Adalia F. Robes.
Said certificates of stock bear the following terms and conditions: "The Preferred
Stock shall have the following rights, preferences, qualifications and limitations, 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 system of
drawing lots, at any time after 2 years from the date of issue at the option of the
Corporation." On 31 January 1979, RFRDC and Robes proceeded against the Bank
and filed a complaint anchored on their alleged rights to collect dividends under the
preferred shares in question and to have the bank redeem 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: (1) that the trial court had no
jurisdiction over the subject-matter of the action; (2) that the action was
unenforceable under substantive law; and (3) that the action was barred by the statute
of limitations and/or laches. The bank's Motion to Dismiss was denied by the trial
court in an order dated 16 March 1979. The 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.
Issue:
Whether the bank can be compelled to redeem the preferred shares issued to
RFRDC and Robes.
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 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.

Garcia vs. Lim Chu Sing

G.R. No. L-39427; February 24, 1934
FACTS:
Lim Cuan Sy had an account with the Mercantile Bank of China (plaintiff
bank) in the form of "trust receipts" 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
defendant, foreclosed the chattel mortgage and privately sold the property covered
thereby. The defendant is an owner of shares of stock in the plaintiff bank.
Meanwhile, plaintiff bank was subsequently placed under liquidation. The
defendant filed a motion for the 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.
ISSUE:
WON it is proper to COMPENSATE the respondents indebtedness to the
value of his shares of stock with the Mercantile Bank of China.
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 vs. NLRC

G.R. No. 80039; April 18, 1989
FACTS:
Petitioner was employed in respondent corporation. He was persuaded by
respondent Mirasol to subscribe to 1,500 shares which he paid partially. Petitioner
was appointed President and General Manager of the respondent corporation but later
on he resigned. Petitioner instituted with the NLRC a complaint against private
respondents for the payment of his unpaid wages, his cost of living allowance, the
balance of his gasoline and representation expenses and his bonus compensation.
Private respondents admitted that there is due to petitioner but this was applied to the
unpaid balance of his subscription. Petitioner questioned the set-off alleging that there
was no call or notice for the payment of the unpaid subscription and that, accordingly,
the alleged obligation is not enforceable.
ISSUE;
(1) Whether or not NLRC has jurisdiction to resolve a claim for non-payment
of stock subscriptions to a corporation.
(2) If so, whether or not an obligation arising therefrom be offset against a
money claim of an employee against the employer.
HELD:
(1) 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 (now RTC).
(2) No. The unpaid subscriptions are not due and payable until a call is made
by the corporation for payment. Private respondents have not presented a resolution of
the board of directors of respondent corporation calling for the 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. As there was no notice or call for the
payment of unpaid subscriptions, the same is not yet due and payable.
Even if there was a call for payment, an obligation arising from non-payment of
stock subscriptions to a corporation cannot be offset against a money claim of an
employee against the employer.
National Exchange vs. Dexter
G.R. No. L-27872; February 25, 1928
FACTS:
Dexter subscribed to 300 shares. The subscription contract provided that the
shares will be paid solely from the dividends. Company became insolvent. Assignee
in insolvency sued Dexter for the balance. Dexter's defense was that under the
contract, payment would come from the dividends. Without dividends, he cannot be
obligated to pay.

ISSUE:

WON the stipulation contained in the subscription to the effect that the
subscription is payable from the first dividends declared on the shares has the effect
of relieving the subscriber from personal liability in an action to recover the value of
the shares.
HELD:
The Court held that the subscription contract was void since it works a fraud
on creditors who rely on the theoretical capital of the company (subscribed shares).
Under the contract, this theoretical value will never be realized since if there are no
dividends, stockholders will not be compelled to pay the balance of their
subscriptions.

UNPAID SUBSCRIPTIONS
Velasco vs. Poizat
G.R. No. L-11528; March 15, 1918
FACTS:
Poizat subscribed to 20 shares but only paid for 5. Board made a call for
payment through a resolution. Poizat refused to pay. Corporation became insolvent.
Assignee in insolvency sued Poizat whose defense was that the call was invalid for
lack of publication.
ISSUE:
WON Poizat is liable to the unpaid subscription.
HELD:
YES. 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 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 Board call became immaterial when insolvency supervenes, all unpaid
subscriptions become at once due and enforceable.

Lingayen Gulf Electric vs. Baltazar

G.R. No. L-4824; June 30, 1953
FACTS:
Companys president subscribed to shares and paid partially. The Board made
a call for payment through a resolution. However, the president refused to pay,
prompting the corporation to sue. The defense was that the call was invalid for lack of
publication.
ISSUE:
WON the petitioner company is liable for unpaid subscription despite the lack
of publication.
HELD:
NO. Notice of any call for the payment of unpaid subscription should be made
not only personally but also by publication once a week, for four consecutive weeks
in some newspapers.
In a solvent corporation, there must be a published call for the payment of
unpaid subscriptions before payment could be demanded. The ruling in Poizat does
not apply since the company here is solvent. No cancellation or release from
obligation can be valid without the consent of the stockholder.

De Silva vs. Aboitiz

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 allotted to
stockholders.
ISSUE:
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.
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.

Lumanlan vs. Cura

G.R. No. L-39861; March 21, 1934
FACTS:
Lumanlan had unpaid subscriptions. Companys receiver sued him for the
balance and won. While the case was on appeal, the company and petitioner entered
into a compromise 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.
ISSUE:
WON Lumanlan is still liable despite the compromise agreement.
HELD:
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
subscriptions and any other amounts which may be due it, notwithstanding the
compromise agreement.

China Banking Corp. vs. CA (supra)

G.R. No. 117604; March 26, 1997
ISSUE:
Unpaid Claim with regards to unpaid subscription.
HELD:
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
NOTE: The three cases thereunder are correlated, read and comprehend thoroughly.

Fua Cun vs. Summers

G.R. No. L-19441; March 27, 1923
FACTS:
Chua Soco bought 500 shares of China Banking Corp. at par value of P100.00,
paying the sum of P25,000.00, 50% of the subscription price. Chua mortgaged the
said shares in favor of plaintiff Fua Cun to secure a promissory note for the sum of
P25,000.00. In the meantime, Chua Soco's interest in the 500 shares were attached
and levied upon to satisfy his debt with China Banking Corp. Fua Cun brought an
action to have himself declared to hold priority over the claim of China Bank, to have
the receipt for the shares delivered to him, and to be awarded damages for wrongful
attachment, on the ground that he was owner of 250 shares by virtue of Chua Soco's
payment of half of the subscription price.
ISSUE:
WON petitioner is entitled to issuance of stock certificate.
HELD:
NO. A subscriber does not become the owner of a particular number of shares
corresponding to the amount he already paid but merely holds a right of equity in the
total number of shares subscribed. Complete ownership over the total number of
shares subscribed will only vest with the stockholder upon payment of the whole
subscription price.
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 of the number of
shares subscribed for; the subscriber's right consists only in 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.

Baltazar vs. Lingayen Gulf

G.R. No. L-16236; June 30, 1965
FACTS:
Baltazar, et al. subscribed to a certain number of shares of Lingayen Gulf
Electric Power. They had made only partial payment of the subscription but the
corporation issued them certificates corresponding to shares covered by the partial
payments. Corporation wanted to deny voting rights to all subscribed shares until total
subscription is paid.
ISSUE:
WON petitioner is entitled to issuance of stock certificate.
HELD:
YES. The Court held that shares of stock covered by fully paid capital stock
shares certificates are entitled to vote. Where the corporation has issued certificate of
stock of a definite number corresponding to the initial payment made on the
subscription, said shares may validly be voted at all meetings and only the remaining
number of shares in the unpaid subscription will be affected by the call and
subsequent declaration of delinquency in case of non-payment of the subscription
balance.
Corporation may choose to apply payments to subscription either as: (a) full
payment for corresponding number of stock the par value of which is covered by such
payment; or (b) as payment pro-rata to each subscribed share. The corporation chose
the first option, and, having done so, it cannot unilaterally nullify the certificates
issued.

Nava vs. Peers Marketing Corp.

G.R. No. L-28120; November 25, 1976
FACTS:
Teofilo Co subscribed to 80 shares of Peers Marketing Corp. at P100.00 a
share for a total of P8,000.00. He, however, paid only P2,000.00 corresponding to 20
shares or 25% of total subscription. Nava bought 20 shares from Co and sought its
transfer in the books of the corporation. The corporation refused to transfer said
shares in its books.
ISSUE:
WON the shares may be transferred in the books of the corporation and may
stock certificate be issued.
HELD:
NO. It was held that the transfer is effective only between Co and Nava and
does not affect the corporation. The Fua Cun ruling applies. Lingayen Gulf does not
apply because, unlike in Lingayen Gulf, no certificate of stock was issued to Co.
No shares of stock against which the corporation holds an unpaid claim are
transferable in the books of the corporation. Mandamus will not lie to compel
corporate officers to record the transfer of shares in its books where no shares of
stocks were issued for the unpaid subscription. The issuance of the certificate of
stock, its indorsement and delivery to the transferee, and the surrender thereof to the
corporation are requisites for the recording of the transfer in the corporate books.
CAMPOS NOTES: The Nava case reinforced the ruling in the Fua Cun case,
making it clear that the decision in Lingayen Gulf case should be applicable only to
the special circumstances appearing there.
Section 64 of the Code clearly supports the Fua Cun case and its prohibitory
language seems to rule out an agreement contrary to its provisions. The rule applies
to par and no par stocks leaving no room for the application of the Lingayen
Gulf case.

NATURE & FUNCTION OF STOCK CERTIFICATES

Tan vs. SEC
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 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 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 by-laws 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.

PROOF OF OWNERSHIP OF SHARES

Nautica Canning Corp. vs. Yumul
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.
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 vs. Lao

G.R. No. 170585; October 6, 2008
FACTS:
Petitioners David and Jose Lao filed a petition with the SEC against
respondent Dionisio Lao, president of Pacific Foundry Shop 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 books
of PFSC.
Petitioners claimed that they are stockholders of PFSC based on the General
Information Sheet filed with the SEC, in which they are named as stockholders and
directors of the corporation. David 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.

RESTRICTIONS ON TRANSFER OF SHARES

Fleischer vs. Botica Nolasco (supra)
G.R. No. L-23241; March 14, 1925
ISSUE:
Is a by-law restricting a transfer of shares valid?
HELD:
As a general rule, the by-laws of a corporation are valid if they are reasonable
and calculated to carry into effect the objective of the corporation and are not
contradictory to the general policy of the laws of the land. Under a statute authorizing
by-laws for the transfer of stock, a corporation can do no more than prescribe a
general mode of transfer on the corporation books and cannot justify an restriction
upon the right of sale.
Moreover, 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 limitation on the right of ownership and in restraint of trade.
The only restraint imposed by the Corporation Law upon transfer of shares is
found in Section 35 of Act No. 1459 (now Section 63): "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 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.

Thomson vs. CA (supra)

G.R. No. 116631; October 28, 1998
ISSUE:
Restrictions on Transfer of Shares.
HELD:
The Manila Polo Club does not necessarily prohibit the transfer of proprietary
shares by its members. The Club only restricts membership to deserving applicants in
accordance with its rules, when the amended Articles of Incorporation states that: "No
transfer shall be valid except between the parties, and shall be registered in the
Membership Book unless made in accordance with these Articles and the By-Laws".
Thus, as between parties herein, there is no question that a transfer is feasible.
Moreover, authority granted to a corporation to regulate the transfer of its stock does
not empower it to restrict the right of a stockholder to transfer his shares, but merely
authorizes the adoption of regulations as to the formalities and procedure to be
followed in effecting transfer.

Rural Bank of Salinas Inc. vs. CA

G.R. No. 96674; June 26, 1992
FACTS:
Clemente Guerrero, President of the petitioner-bank, executed a SPA 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 his 473 shares of
stock of the Bank registered in his name. First deed of assignment was made on the
472 out of 473 shares, in favor of private respondents Luz Andico, Wilhelmina
Rosales and Francisco Guerrero, Jr. Months later, second deed of assignment was
executed for the remaining one share of stock in favor of private respondent Francisco
Guerrero, Sr.
Subsequently, private respondent Melania Guerrero presented to petitionerbank the two Deeds of Assignment for registration with a request for the transfer in
the Bank's stock and transfer book of the shares of stock so assigned, the cancellation
of stock certificates 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.
Private respondent filed a mandamus against petitioner-bank in the SEC. The
latter alleged in their answer that upon the death of Clemente Guerrero, his shares of
stock became the property of his estate, and his property and that of his widow should
first be settled and liquidated in accordance with law before any distribution can be
effected so that petitioners may not be a party to any scheme to evade payment of
estate or inheritance tax and in order to avoid liability to any third persons or
creditors. SEC granted the writ of mandamus. SEC en banc and CA likewise affirmed
the decision of SEC.
ISSUES:
(1) WON SEC has jurisdiction.
(2) Restrictions on Transfer of Shares.
HELD:
(1) 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 intra-corporate
controversies. An intra-corporate controversy has been defined as one which arises
between a stockholder and the corporation. There is no distinction, qualification, nor
any exception whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The 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.
(2) Respondent SEC correctly ruled in favor of the registering of the shares of
stock in question in private respondent's names. Such ruling finds support under
Section 63 of the Corporation Code. The only limitation imposed by Section 63 of the
Corporation Code is when the corporation holds any unpaid claim against the shares
intended to be transferred, which is absent here.
A corporation, either by its board, its by-laws, or the act of its officers, cannot
create restrictions in stock transfers. 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.
The right of a transferee/assignee to have stocks transferred to his name is an inherent
right flowing from his ownership of the stocks.

VALIDITY OF TRANSFERS/ REGISTRATION OF SHARES

Razon vs. IAC
G.R. No. 74306; March 16, 1992
FACTS:
Petitions centers on the ownership of 1,500 shares of stock in E. Razon, Inc.
covered by Stock Certificate No. 003 issued and registered under the name of Juan T.
Chuidian in the books of the corporation. The then Court of First Instance of Manila,
now Regional Trial Court of Manila, declared that Enrique Razon, the petitioner is the
owner of the said shares of stock. The then Intermediate Appellate Court, now Court
of Appeals, however, reversed the trial court's decision and ruled that Juan T.
Chuidian, the deceased father of petitioner Vicente B. Chuidian is the owner of the
shares of stock. Both parties filed separate motions for reconsideration. Enrique
Razon wanted the appellate court's decision reversed and the trial court's decision
affirmed while Vicente Chuidian asked that all cash and stock dividends and all the
pre-emptive rights accruing to the 1,500 shares of stock be ordered delivered to him.
The appellate court denied both motions. Hence, these petitions.
ISSUE:
When there is an effective transfer of shares of stock?
HELD:
The law is clear that in order for a transfer of stock certificate to be effective,
the certificate must be properly indorsed and that title to such certificate of stock is
vested in the transferee by the delivery of the duly indorsed certificate of stock.
(Section 35, Corporation Code)
Since the certificate of stock covering the questioned 1,500 shares of stock
registered in 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 requirement of law for an effective transfer of a certificate of stock.

Torres vs. CA
G.R. No. 120138; September 5, 1997
FACTS:
The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority
stockholder of Tormil Realty & Development Corporation while private respondents
who are the children of Judge Torres, deceased brother Antonio A. Torres, constituted
the minority stockholders.
The 1987 annual stockholders meeting and election of directors of Tormil
corporation was scheduled in compliance with the provisions of its by-laws. Judge
Torres assigned from his own shares, one (1) share each to petitioners Tobias, Jocson,
Jurisprudencia, Azura and Pabalan. These assigned shares were in the nature of
qualifying shares, for the sole purpose of meeting the legal requirement to be able to
elect them (Tobias and company) to the Board of Directors as Torres nominees.
The annual stockholders meeting was held as scheduled. Two representatives
of the SEC were present in the meeting. Antonio Torres Jr. questioned the presence of
the SEC representatives holding that the subject meeting is for the family corporation
and private firm. The SEC representatives explained that it was merely in response to
the request of Manuel Torres, Jr. and that SEC has jurisdiction over all registered
corporations. The meeting resulted into chaos which in effect ousted Manuel Torres
and his group but nevertheless were able to elect the officers.
Consequently, private respondents instituted a complaint with the SEC
praying in the main, that the election of petitioners to the Board of Directors be
annulled. Private respondents alleged that the petitioners-nominees were not
legitimate stockholders of Tormil because the assignment of shares to them violated
the minority stockholders right of pre-emption as provided in the corporations
articles and by-laws.
ISSUE:
WON the assignment of shares made by Judge Torres is valid despite being
only the signatory to the certificates issued.
HELD:
NO. It is the corporate secretarys duty and obligation to register valid
transfers of stocks and if said corporate officer refuses to comply, the transferorstockholder may rightfully bring suit to compel performance. In the absence of any
provision to the contrary, the corporate secretary is the custodian of corporate records.
Corollarily, he keeps the stock and transfer book and makes proper and necessary
entries therein.
In the case at bar, the stock and transfer book of TORMIL was not kept by
Ms. Maria Cristina T. Carlos, the corporate secretary but by respondent Torres, the
President and Chairman of the Board of Directors of TORMIL. In contravention to
the above cited provision, the stock and transfer book was not kept at the principal
office of the corporation either but at the place of respondent Torres.
These being the obtaining circumstances, any entries made in the stock and
transfer book on March 8, 1987 by respondent Torres of an alleged transfer of
nominal shares to Pabalan and Co. cannot therefore be given any valid effect. Where
the entries made are not valid, Pabalan and Co. cannot therefore be considered
stockholders of record of TORMIL. Because they are not stockholders, they cannot
therefore be elected as directors of TORMIL.

Rivera vs. Florendo

G.R. No. L-57586; October 8, 1986
FACTS:
Isamu Akasako, a Japanese national who was allegedly the real owner of the
shares of stock in the name of one Aquilino Rivera, a registered stockholder of
Fujuyama Hotel and Restaurant, Inc., sold 2,550 shares of the same to Milagros
Tsuchiya along with the assurance that Tsuchiya would be made President of the
corporation after the purchase. Rivera assured her that he would sign the stock
certificates because Akasako was the real owner. However, after the sale was
consummated and the consideration paid, Rivera refused to make the indorsement
unless he is also paid.
Tsuchiya, et al. attempted several times to have the shares registered but were
refused compliance by the corp. They filed a special action for mandamus and
damages.
ISSUES:
WON Rivera had the right to refuse the indorsement of the shares of stock in
question.
WON the Corporation had the right to refuse the registration of the
respondents shares.
HELD:
The Supreme Court denied the writ of preliminary mandatory injunction and
remanded the case to the lower court for a trial on the merits. As found in Sec. 63 of
the Corporation Code, shares of stock may be transferred by delivery of the certificate
after indorsement by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. By this provision it is evident that Riveras
indorsement must be obtained before any transfer of the questioned shares is
effected.
On the matter of jurisdiction, the SEC does not have jurisdiction of the case
since the dispute is not an intra-corporate controversy. What it simply involves is a
conflict on the ownership of a group of shares between the registered owner and an
outside party. Hence, because of this conflict in ownership rights, a mandatory
injunction can not lie.

Lim Tay vs. CA

G.R. No. 126891; August 5, 1998
FACTS:
Sy Guiok and Sy Lim secured a loan from Lim Tay. This was secured by a
contract of pledge whereby the former pledged their 300 shares of stock each in Go
Fay & Company to the latter. However, they failed to pay their respective loans.
Hence, Lim Tay filed a petition for mandamus against Go Fay & Company with the
SEC praying that an order be issued directing the corporate secretary of the said
corporation to register the stock transfers and issue new certificates in favor of Lim
Tay.
Go Fay & Company filed its answer contending that SEC had no jurisdiction
to entertain the complaint on the ground that since Lim Tay was not a stockholder of
the company, no intra corporate controversy took place; and furthermore, that the
default of payment of Sy Guiok and Sy Lim did not automatically vest in Lim Tay the
ownership
of
the
pledged
shares.
SEC dismissed the complaint. On appeal to the CA, it affirmed SECs decision.
ISSUE:
WON Lim Tay is the owner of the shares previously subjected to pledge, for
him to cause the registration of said shares in his own name.
HELD:
Lim Tay's ownership over the shares was not yet perfected when the
Complaint was filed. The contract of pledge certainly does not make him the owner of
the shares pledged. When shares of stocks are pledged by means of endorsement in
blank and delivery of the covering certificates to secure a mortgage loan, the pledgee
does not become the owner of the shares simply by the failure of the registered
stockholder to pay his loan. Consequently, without proper foreclosure, the lender
cannot demand that the shares be registered in his name. A contract of pledge of
shares does not make the pledgee the owners of the shares pledged.

Ponce vs. Alsons Cement

G.R. No. 139802; December 10, 2002
FACTS:
Vicente C. Ponce and Fausto Gaid, incorporator of Victory Cement
Corporation (VCC), executed a Deed of Undertaking and Indorsement
whereby Gaid acknowledges that Ponce is the owner of the shares and he was
therefore assigning/endorsing it to Ponce. VCC was renamed Floro Cement
Corporation (FCC) and then to Alsons Cement Corporation (ACC). Up to the present,
no certificates of stock corresponding to the 239,500 subscribed and fully paid shares
of Gaid were issued in the name of Fausto G. Gaid and/or the plaintiff. Despite
repeated demands, the ACC refused to issue the certificates of stocks.
Ponce, filed a complaint with the SEC for mandamus and damages against
Alsons Cement Corporation and its corporate secretary Francisco M. Giron, Jr. ACC
and Giron moved to dismiss. SEC Hearing Officer Enrique L. Flores, Jr. granted the
motion to dismiss. Ponce appealed the Order of dismissal. The Commission En Banc
reversed the appealed Order and directed the Hearing Officer to proceed with the
case. In ruling that a transfer or assignment of stocks need not be registered first
before it can take cognizance of the case to enforce Ponce's rights as a stockholder,
the Commission En Banc cited the Supreme Court's ruling in Abejo vs. De la Cruz.
ACC and Giron appealed the decision of the SEC En Banc to CA. The latter ruled that
mandamus should be dismissed for failure to state a cause of action.
ISSUE:
WON the certificate of stocks of Gaid can be transferred to Ponce.
HELD:
NO. Pursuant to Section 63 of the Corporation Code, 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 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. 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. Hence, without such recording, the transferee may not be
regarded by the corporation as one among its stockholders and the corporation may
legally refuse the issuance of stock certificates in the name of the transferee even
when there has been compliance with the requirements of Section 64 of the
Corporation Code. The stock and transfer book is the basis for ascertaining the
persons entitled to the rights and subject to the liabilities of a stockholder. Where a
transferee is not yet recognized as a stockholder, the corporation is under no specific
legal duty to issue stock certificates in the transferee's name.
Even if a certificate is indorsed and delivered to a third person it does not
automatically entitle such person to register such certificate in his name, or compel
the corporation to register the certificate in his name even. An indorsed and delivered
certificate does not create a clear right with respect to the possession of such
certificate by the third person, as the same mode (indorsement and delivery) applies to
sale, pledge and mortgage. This is where the registered owner must come in; he must
inform the corporation whether the disposition was a pledge, or mortgage or sale,

which would determine whether or not the third person is entitled registration. Since
almost all dealings comprise of the same mode, the owner must apprise the
corporation with the necessary information and instructions.

Rural Bank of Salinas Inc. vs. CA (supra)

G.R. No. 96674; June 26, 1992
ISSUE:
WON the corporate secretary is compelled to register the said transfer of
shares.
HELD:
YES. Based on those circumstances, there was a clear duty on the part of the
corporate secretary to register the 473 shares in favor of the new owners, since the
person who sought the transfer of shares had express instructions from and specific
authority given by the registered stockholder to cause the disposition of stocks
registered in his name.
The right of a transferee/assignee to have stocks transferred to his name is an
inherent right flowing from his ownership of the stocks. Thus, whenever a
corporation refuses to transfer and register stock, mandamus will lie to compel the
officers of the corporation to transfer said stock in the books of the corporation. This
is because the corporation's obligation to register is ministerial. (Note, however, that
in such cases, the person requesting the registration must be the prima facie owner of
the shares. Cf. Lim Tay v. CA, 293 SCRA 634)

Hager vs. Bryan

G.R. No. 6230; January 18, 1911
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 holds no unpaid claims against
the shares of stock. However, on the books of the company, it turns out that petitioner
is not the 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.

Bitong vs. CA
G.R. No. 123553; July 13, 1998
FACTS:
Bitong was the treasurer and member of the BOD of Mr. & Mrs. Publishing
Co. 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 presidentdirector 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 which
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.
ISSUE:
WON Bitong is the real party-in-interest.
HELD:
NO. 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.
Section 63 of the Corporation Code envisions a formal certificate of stock
which can be issued only upon compliance with certain requisites. First, the
certificate must be signed by the president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the corporation. A mere
typewritten statement advising a stockholder of the extent of his ownership is a
corporation without qualification and/or authentication cannot be considered as a
formal certificate of stock. Second, delivery of the certificate is an essential element
of its issuance. Hence, there is no issuance of a stock certificate where it is never
detached from the stock books although blanks therein are properly filled up if the
person whose name is inserted therein has no control over the books of the company.
Third, the par value, as to par value shares, or the full subscription as to no par value
shares, must first be fully paid. Fourth, the original certificate must be surrendered
where the person requesting the issuance of a certificate is a transferee from a
stockholder.
Stock issued without authority and in violation of 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 is estopped to question its
validity since an estoppel cannot operate to create stock which under the law cannot
have existence.

Abejo vs. De la Cruz

G.R. No. L-63558; May 19, 1987
FACTS:
Case involves a dispute between the principal stockholders of the corporation
Pocket Bell Philippines, Inc. (Pocket Bell) namely spouses Abejos and the purchaser,
Telectronic Systems, Inc. (Telectronics) of their minority shareholdings and of shares
registered in the name of spouses Bragas. With the said purchases, Telectronics
would become the majority stockholder, holding 56% of the outstanding stock and
voting power of the corporation Pocket Bell.
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. The latter refused to register the aforesaid transfer of shares
in the corporate books, asserting that the Bragas claim pre-emptive rights over the
Abejo shares and that Virginia Braga never transferred her 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. The Bragas assert that the regular civil court has original
and exclusive jurisdiction as against the SEC, while the Abejos and Telectronics, as
new majority shareholders, claim the contrary. Respondent Judge de la Cruz issued an
order rescinding the order which dismissed the complaint of the Bragas in the RTC,
thus holding that the RTC and not the SEC had jurisdiction. Respondent judge also
revived the TRO previously issued restraining Telectronics' agents or representatives
from enforcing their resolution constituting themselves as the new set of officers of
Pocket Bell and from assuming control of the corporation and discharging their
functions. The Abejos filed a MR, which motion was duly opposed by the Bragas,
which was denied by respondent Judge.
ISSUE:
(1) Who has jurisdiction?
(2) WON the corporate secretary may refuse to register the transfer of shares
in the corporate books.
HELD:
(1) The Court ruled that the SEC has original and exclusive jurisdiction and
that the SEC correctly ruled in dismissing the Bragas' petition questioning its
jurisdiction, that "the issue is not the ownership of shares but rather the nonperformance by the Corporate Secretary of the ministerial duty of recording transfers
of shares of stock of the Corporation of which he is secretary."
The dispute at bar, as held by the SEC, is an intra-corporate dispute that has
arisen between and among the principal stockholders of the corporation Pocket Bell
due to the refusal of the corporate secretary, backed up by his parents as erstwhile
majority shareholders, to perform his "ministerial duty" to record the transfers of the
corporation's controlling (56%) shares of stock, covered by duly endorsed certificates
of stock, in favor of Telectronics as the purchaser thereof.
(2) 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, 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 purchaser's right to secure the corresponding certificate in his name under the
provisions of Section 63 of the Code.

UNAUTHORIZED TRANSFERS
Santamaria vs. Hongkong and Shanghai Bank
G.R. No. L-2808; August 31, 1951
FACTS:
Santamaria secured her order for a number of shares with RJ Campos & Co.
with her stock certificate representing her shares with Batangas Minerals. The said
certificate was originally issued in the name of her broker and endorsed in blank by
the latter. As Campos failed to make good on the order, Santamaria demanded the
return of the certificate. However, she was informed that Hongkong Bank had
acquired possession of it inasmuch as it was covered by the pledge made by Campos
with the bank. Thereafter, she instituted an action against Hongkong Bank for the
recovery of the certificate. Trial court decided in her favor. The bank appealed.
ISSUES:
(1) WON Santamaria was chargeable with negligence which gave rise to the
case.
(2) WON the Bank was obligated to inquire into the ownership of the
certificate.
HELD:
(1) The facts of the case justify the conclusion that she was negligent. She
delivered the certificate, which was endorsed in blank, to Campos without having
taken any precaution. She did not ask the Batangas Minerals to cancel it and instead,
issue another in her name. In failing to do so, she clothed Campos with apparent title
to the shares represented by the certificate. By her misplaced confidence in Campos,
she made possible the wrong done. She was therefore estopped from asserting title
thereto for it is well-settled that where one of the innocent parties must suffer by
reason of a wrongful or unauthorized act, the loss must fall on the one who first
trusted the wrongdoer.
(2) The subject certificate is what is known as a street certificate. Upon its
face, the holder is entitled to demand its transfer into his name from the issuing
corporation. The bank is not obligated to look beyond the certificate to ascertain the
ownership of the stock. A certificate of stock, endorsed in blank, is deemed quasinegotiable, and as such, the transferee thereof is justified in believing that it belongs
to the transferor.

De los Santos vs. McGrath

G.R. No. L-4818; February 28, 1955
FACTS:
De los Santos filed a claim with the Alien Property Custodian for a number of
shares of the Lepanto Corporation. He contended that said shares were bought from
one Campos and Hess, both of them dead. The Philippine Alien Property
Administrator rejected the claim. He instituted the present action to establish title to
the aforementioned shares of stock.
The US Attorney General, the successor of the Alien Property Administrator,
opposed the action on the ground that the said shares of stock were bought by one
Madrigal, in trust for the true owner, Matsui, and then delivered to the latter indorsed
in blank.
ISSUE:
Had de los Santos in fact purchased the shares of stock?
HELD:
De los Santos sole evidence that he purchased the said shares was his own
unverified testimony. The alleged vendors of the shares of stock, who could have
verified the allegation, were already dead. Further, the receipt that might have proven
the sale was said to have been lost in a fire. On the other hand, it was shown that the
shares of stock were registered in the records of Lepanto in the name of Madrigal, the
trustee of Matsui; that Matsui was subsequently given possession of the
corresponding stock certificates, though endorsed in blank; and, that Matsui had
neither sold, conveyed nor alienated these to anybody.
It is the rule that if the owner of the certificate has endorsed it in blank, and is
stolen, no title is acquired by an innocent purchaser of value. This is so because even
though a stock certificate is regarded as quasi-negotiable, in the sense that it may be
transferred by endorsement, coupled with delivery, the holder thereof takes it without
prejudice to such rights or defenses as the registered owner or credit may have under
the law, except in so far as such rights or defenses are subject to the limitations
imposed by the principles governing estoppel.
COMPARISON of Santamaria case and De los Santos case:
In Santamaria case, a certificate of stock, indorsed in blank, is deemed quasinegotiable, and as such the transferee thereof is justified in believing that it belongs to
the holder and transferor.
In De los Santos case, although a stock certificate is sometimes regarded as
quasi-negotiable, in the sense that it may be transferred by endorsement, coupled with
delivery it is well settled that the instrument is non-negotiable, because the holder
thereof takes it without prejudice to such rights or defense as the registered owner or
credit may have under the law, except in so far as such rights or defenses are subject
tot eh limitations imposed by the principles governing estoppel.

COLLATERAL TRANSFERS
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 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. Samahang Magsasaka

G.R. No. L-42091; November 2, 1935
FACTS:
A certain Co Toco was the owner of 5,894 shares of Samahang Magsasaka,
Inc. which he mortgaged to Chua Chiu to guarantee the payment of debt. The
corresponding certificates were delivered to Chua Chiu and were duly registered in
the office of the register of deeds of Manila and in the office of the said corporation.
About five months after, Chua Chui assigned all his rights and interest in said
mortgage to the plaintiff, Chua Gan which was also duly recorded. Co Toco
defaulted. The plaintiff foreclosed on the mortgage. In the public auction he won as
the highest bidder. However, upon presenting the certificates to the corporation for
registration, the officers refused because they and the plaintiff could not agree on the
noting of nine other attachments that had been issued, served and noted on the books
of the corporation against the shares of Co Toco.
ISSUE:
WON the said mortgage takes priority over the already noted writs of
attachment.
HELD:
The Supreme Court ruled that the attaching creditors are entitled to priority
over the defectively registered mortgage of the appellant. The court argues 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 the corporation is located.
The purpose of this is to give sufficient constructive of any claim or encumbrance
over the recorded shares to 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
attachment or levy on execution at the instance of other creditors. Thus, the game
here is to have the highest or most preferred priority over any pledged or mortgaged
shares.
NOTE: The provision of the Chattel Mortgage Law (Act No. 1508) providing for
delivery of mortgaged property to the mortgagee as a mode of constituting a chattel
mortgage is no longer valid in view of the Civil Code provision defining such as a
pledge.

Chemphil Export & Import vs. CA

G.R. Nos. 112438-39; December 12, 1995
FACTS:
This case involved a consortium of banks which obtained a writ of preliminary
attachment in a civil case ("consortium case") over shares of stock belonging to Mr.
Antonio Garcia in the Chemical Industries of the Philippines ("Chemphil"). The
attachment, which was served on the secretary to the President of 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:
Who has priority to the shares of stock an attaching creditor or the
subsequent buyer?
HELD:
The Supreme Court ruled that the attachment lien acquired 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.